FORMALITIES (1)_832b919f902953f1cebcaeb8dd103546.pdf

Law of contract UKZN. Notes on Formalities in week 7 of the course material.

1. Formalities
CHAPTER6

2. ACTIVITY!
You have all been given a mini-chocolate but it may not be the one that you want.
Imagine that you find a friend that you would like to swap chocolates with. In
order to give effect to that exchange though, your friend wants to conclude a
contract detailing the swap.
Consider how you would go about this based on the following questions:
1.What format would this contract take? Would it be in writing or could it be
concluded in any other way?
2.Would the contract need to be registered with any sort of official body or
signed off by any particular person?
3.Are there any requirements in law as to what format the contract should take?

3. FORMALITIES
•Generalrule:Mostcontractshavenoformalitiesthereforetheydonothavetocomplywitha
particularformorformat,providedthatallotherrequirementsarevalidlymet.
•Exception:Formalitiesmayberequiredforavalidcontractwherethelawdemandsit(objective)or
wherethepartiesthemselveshaveincludedcertainformalities(subjective)
•Irrespectiveofwhethertheformalitiesarerequiredbylaworbytheparties,theymustbecompliedwith.
•Failuretocomplywithformalitieswillrenderthecontractvoid.
•Otherlegalconsequencesmayalsofollow.

4. TYPES OF FORMALITIES
•3 common types of formalities for contracts:
•The contract must be written down;
•The contract must be registered at the Deeds Office; or
•The contract must be signed in the presence of a notary public
The contract must be written down
•Requires that all terms of the contract be written down in a document AND that all contracting parties must sign
that document.
•Common practice with important contracts, where the law wants to be certain of the terms and not depend
simply on a verbal contract
•Reducing a contract to writing is good practice irrespective of whether the law asks for it or not

5. TYPES OF FORMALITIES
The contract must be registered at the Deeds Office
•Deeds Office = an office of the state where certain important public documents are lodged
•Conveyancers and notaries public are the attorneys who specialise in preparing and lodging these documents at
the Deeds Office
•Conveyancer = involved with the transfer of immovable property
•Notary public = deals with the other documents that are lodged at the Deeds Office
•The process of lodging the documents is known as registration.
•Documents that may affect the rights of the general public must be lodged at the Deeds Office so as to fulfil the
right that all persons have the right to access registered documents.
•E.g. the sale and transfer of immovable property; antenuptial contracts

6. TYPES OF FORMALITIES
The contract must be signed in front of a notary public
•Certain documents, such as antenuptial contracts,
must be signed in front of a notary public.
•This is known as notarial execution.

7. WHEN FORMALITIES ARE REQUIRED:
Formalities required by law
Prescribed formalities required for validity
•This is when legislation requires that a particular type of contract comply with certain formalities.
•The law requires certain types of contracts to be in writing and to be signed by the parties in order for the
contract to be valid. Agreements are invalid if such formalities are not adhered to.
•Legislation will set out what the contract in question is; what the formalities are and what the consequences
may be if these formalities are not complied with
•The following types of contracts will now be looked at:
•Alienation of land
•Suretyship
•Donation

8. WHEN FORMALITIES ARE REQUIRED:
Formalities required by law
Formalities required by law
•Contracts for the alienation of land
•Formalities itoSection 2(1) of the Alienation of Land Act, 1981
•Contract must be in writing
•Contract must be signed by the contracting parties (i.e. the
seller and buyer)
•Consequences of not complying = contract will be void
•Effect of this requirement = you cannot sell immovable property
via a verbal agreement.

9. WHEN FORMALITIES ARE REQUIRED:
Formalities required by law
Formalities required by law
•Contracts of suretyship
•Contract of suretyship = a contract itowhich a third party (the surety) guarantees that if a debtor fails to honour an
obligation to a creditor, the surety will be liable to the creditor
•Due to these contracts placing a heavy burden on the surety, these contracts have the following formalities:
•Contract must be in writing
•Contract must be signed by the surety
•Consequences of failure to comply = contract will be void.
•Section 6 of the General Law Amendment Act provides that no contract of suretyship entered into after 22 June 1956 is
valid unless its terms are embodied in a document signed by or on behalf of the surety.
•The creditor need not sign the contract.

10. WHEN FORMALITIES ARE REQUIRED:
Formalities required by law
Formalities required by law
•Donations
•Section 5 of the General Law Amendment Act provides that ,’no donation entered into after 22 June
1956 will be valid unless its terms are embodied in a written document which is signed by the donor or
by a person acting on the donor’s written authority granted in the presence of two witnesses.

11. WHEN FORMALITIES ARE REQUIRED:
Formalities required by law
Prescribed formalities required for the enforcement against third parties
•Certain formalities are not requirements for the validity of the agreements. However, a party will not be
able to rely on the contract or be able to enforce it against third parties, unless certain formalities have
been observed
•These formalities are aimed to bring the contract to the notice of third parties.
•The following types of contracts will now be looked at:
•Antenuptial Contracts
•Long Leases of Land

12. WHEN FORMALITIES ARE REQUIRED:
Formalities required by law
Formalities required by law
•Antenuptial contracts
•An antenuptial contract = a contract entered into by a couple before they marry.
•Details their rights of ownership of items and money while they are married and in the event that the
marriage ends
•Used so as to give effect to marriages out of community of property
•Formalities for such contracts itoSection 87 of the Deeds Registry Act, 1937
•The contract must be notariallyexecuted before the parties marry
•The contract must be registered within 3 months of the date of execution

13. WHEN FORMALITIES ARE REQUIRED:
Formalities required by law
Formalities required by law
•Long Leases of Land
•Section 1 of the Formalities in Respect to Leases of Land Act 18 of 1969 provides that an oral lease of
land is valid, but that a long-term lease of land only has effect against a creditor, or successor under
onerous title of the lessor, for a period of longer than ten yearsafter having been entered into if it has
been registered against the title deed of the leased land.
•Third parties will also be bound if they knew of the long lease because of the operation of the doctrine
of notice. This doctrine allows a lessee’s claim to use and enjoy the leased property to trump the real
right (ownership) of the lessor’s successor-in-title.

14. WHEN FORMALITIES ARE REQUIRED:
Electronic Contracts
Electronic contracts
•According to the Electronic Communication and
Transaction Act 25 of 2002, an accessible data message
can generally constitute or be equal to that of a written
contract.
•This is acceptable for surety contracts but is unacceptable ito
contracts for the alienation of land
•The Act also allows for electronic signatures to replace
written signatures in certain circumstances.
•This allowance is however not recognised for many contract.

15. WHEN FORMALITIES ARE REQUIRED:
Electronic Contracts
•Electronic Communications and Transactions Act 25 of 2002
•Section 12 of the Electronic Communications and Transactions Act provides that a requirement in law that a document
or information must be in writing is met if the document or information is in the form of a data message and is
accessible.
•This provision does not apply to alienations of land and agreements for the long term of leases of immovable property
in excess of twenty years .
•Section 12 does however apply to suretyships and to executory donations of anything, excluding donations of land.
•Self reading: Electronic signatures

16. WHEN FORMALITIES ARE REQUIRED:
Formalities stipulated by the parties
Formalities agreed to by the contracting parties
•Contracting parties can agree to any formality they
want, provided it is legal
•Failure to comply with a formality agreed upon by the
parties = contract will be void
•If the parties do not stipulate any formalities = the
general rule applies

17. WHEN FORMALITIES ARE REQUIRED:
Formalities stipulated by the parties
Formalities agreed to by the contracting parties
Parties much impose formalities for the creation, variation or cancellation on the contract
Examples of such formalities include:
◦Parties may agree that an oral agreement is only valid once reduced to writing and signed
◦Parties may insert a ‘non-variation clause’, which provides that ‘No variation of this agreement shall be of
any force or effect unless reduced to writing and signed by the parties’.
◦Parties may agree that the cancellation of the contract shall only be valid if in writing

18. WHEN FORMALITIES ARE REQUIRED:
Formalities stipulated by the parties
Creation of a contract
•The parties to an oral agreement will often agree that their agreement should be reduced to
writing, and be signed. In doing so, they may have either of the two different purposes in mind: -
a.The parties wish to have a written record of their agreement (to serve as proof of the terms) =
contract would be binding even if it was never reduced to writing; or
b.The parties intend that the oral agreement will not be binding upon them until it is reduced to
writing and signed by them = the oral agreement lacks contractual force and will become valid
only when there is compliance with the requirements stipulated by the parties.

19. WHEN FORMALITIES ARE REQUIRED:
Formalities stipulated by the parties
Creation of a contract
•The question of whether the parties intended for the contract to only come into affect once reduced to
writing is a question of fact and the burden of proof rests with the party seeking to rely on that fact.
•Courts will assume that the parties did not intend for the written contract to serve as proof.
◦See Goldblatt v Fremantle 1920 AD 123.

20. Goldblatt v Fremantle 1920 AD 123
•F undertook (orally) to supply G with the lucerne at intervals. The parties agreed that F would reduce
their oral agreement to writing and that G would confirm it in writing.
•F set out the terms of their agreement in a letter and asked G to confirm the terms in writing. When G
failed to dos so, F stopped supplying G with Lucerne.
•G claimed contractual damages from F.
•The court held that no contract existed because the parties intended that their agreement to be
concluded in writing. Which also involved signing by both parties.

21. WHEN FORMALITIES ARE REQUIRED:
Formalities stipulated by the parties
Variation of the contract: Non-variation clauses and Shifrenprinciple
•The parties may also prescribe certain formalities for any variation of their contract. Such as ‘ no variation of
this agreement shall be of any force or effect unless reduced to writing and signed by the parties to this contract’
•Can the parties have the freedom to amend their contract orally, in this way?
•In SA SentraleKo-operatieweGraanmaatskappyBpkv Shrifren1964 (4) SA 760 (A) The court held that a non-variation clause was not
public policy and that oral variation of the contract was effective if the clause entrenched both itself and all the other termsof the contract
against variation.
•In practice the application of the Shifrenprinciple can produce results that appear to be unjust

22. WHEN FORMALITIES ARE REQUIRED:
Formalities stipulated by the parties
Variation of the contract: Non-variation clauses and Shifrenprinciple
The question of the enforceability of non-variation clauses was raised in SA SentraleKo-operatieweGraanmaatskappy
Bpkv Shifren.
The court held that despite there being questions on the impact of such a clause on the freedom to contract, the
clauses were allowed as they sought to create certainty and affected both parties equally.
This is known as the ShifrenPrinciple.
There have been various attempts to limit the ShifrenPrinciple
◦Restrictive interpretation
◦Public Policy
◦Estoppel
In response restrictive interpretations of these clauses, most contracts now also include a non-waiver clause.

23. WHEN FORMALITIES ARE REQUIRED:
Formalities stipulated by the parties
Cancellation of the contract
•The general rule is that parties are free to cancel their contracts at any time by mere agreement.
•Party can however prescribe formalities for the creation and variation of their contracts, it seems logical that they should also be permitted to
do so for cancellation of the contract. See Impala Distributors v Taunus Chemicals Manufacturing Co (Pty) Ltd 1975 (3) SA 273 (T)
•As with the non-variation clause, it has become standard practice to insert in a written contract a non-cancellation clause, prescribing certain
formalities for the cancellation of a contract.
•Prescribes the procedure for mutual cancellation of the contract.
•Does not prevent unilateral cancellation for breach of contract.

24. Impala Distributors v Taunus Chemicals Manufacturing Co (Pty) Ltd 1975 (3) SA 273 (T)
Cancellation of the contract
•Thenon-cancellationclausestated,‘Thisagreementmaybeterminatedbymutualconsentinwritingoftheparties.’
•Thecontractalsocontainedanon-variationclause.
•Thecourtheldthatbutforthenon-variationclause,thepartieswouldhavebeenfreetovarythenon-cancellationclauseinformally
bydroppingtherequirementofwriting
•Thenon-variationclausehadtheeffectofentrenchingbothitselfandthenon-cancellationclauseagainstoralvariation.Inorderto
beeffective,therefore,anon-cancellationclausemustbecoupledwithanon-variationclause.
•Thestandardwordingtodayis‘Novariationorconsensualcancellationofthiscontractshallbeofanyforceoreffectunlessreduced
towritingandsignedbytheparties’
•Inobiter,thethecourtheldthatanon-variationclauseonitsownwouldpreventanoralcancellationofthecontract;butthisisopen
todoubt.