Contract Law - Certainty Requirement

12 Questions

What is the primary requirement for creating contractual obligations?

Certainty of the contract terms

What happens when a contractual term is void due to vague language?

The court attempts to interpret the language to preserve the validity of the contract

What type of contracts can be tricky and require clear terms in the initial agreement?

All of the above

What is the role of the courts in contractual disputes?

To interpret the intent of the parties and preserve the validity of the contract

What happens to contracts of indefinite duration?

They are valid as long as the terms are clear

What is the goal of the court's interpretation in cases of uncertainty?

To preserve the validity of the contract and the actual or presumed intent of the parties

What is the purpose of using mechanisms like escalation clauses and formulas in contracts?

To establish certainty in the contract

What happens if an obligation in a contract does not meet the certainty requirement and is severable?

Only the uncertain obligation is invalid, the rest of the contract is valid

What is the characteristic of an objective external standard of determination in contracts?

It is not based on personal biases

What is the consequence of a contract that does not meet the certainty requirement and cannot be severed?

The entire contract is void

What is the purpose of the courts in interpreting the intent of contracts?

To determine the reasonable notice required

What happens when a party exercises discretion in a contract, but in a subjective manner?

The entire contract is void due to uncertainty

Study Notes

Certainty in Contract Law

Certainty is a requirement for the creation of contractual obligations, meaning the contents (terms) of the contract must be certain or capable of being rendered certain.
The court's role is not to create obligations or terms of the contract, but to interpret the intent of the parties and/or read in tacit terms to preserve the validity of the contract.

Uncertainty in Contractual Terms

A contractual term can be void for uncertainty due to vague language.
Courts will attempt to interpret language in a manner that leads to validity and the actual or presumed intent of the parties.

Pacta de Contrahendo

"Agreements to agree" (option contracts and preference contracts) can be tricky and may lead to uncertainty.
It is advisable to have sufficient content on the terms of the agreement to be entered into in future, clearly outlined in the initial agreement.

Contracts of Indefinite Duration

Contracts of indefinite duration do not stipulate the specific duration, but are not automatically void for uncertainty.
Courts will interpret the intent of the parties, considering factors such as reasonable notice required, reasonable period, or endure forever (e.g., lease contracts).

Mechanisms to Establish Certainty

Parties can use mechanisms to establish certainty in the contract, such as:
- Escalation clauses
- Formulas
- Discretion exercised by a party in an objectively reasonable manner
- Expert third parties
These mechanisms must be an objective external standard of determination and cannot be entirely subjective.

Consequences of Uncertainty

An obligation that does not meet the certainty requirement is invalid if it is severable (i.e., only the uncertain obligation is invalid, and the rest of the contractual obligations is valid and enforceable).
If severance is not possible, then the entire contract will be void due to uncertainty.

Case Law

Plaaskem (Pty) Limited v Nippon Africa Chemicals (Pty) Limited (JOL 32251 (SCA))
Shepherd Real Estate Investments (Pty) Ltd v Roux Le Roux Motors CC (1318/2018) ZASCA 178 (2 December 2019)
NBS Boland Bank v One Berg River Drive and Others, Deeb and Another v ABSA Bank Ltd; Friedman v Standard Bank of South Africa Ltd (291/98, 428/98, 85/99) ZASCA 60; 4 All SA 183 (A)