PPT Slides Unit 15 (Law of Contract) Part 3. Formalities Parties, Conditi.pdf

INTRODUCTION TO LAW: UNIT 15 – LAW OF CONTRACT (PART 3)COMMERCIAL LAW TB: Chapter 7 & 8 CHAPTER 7: FORMALITIES FORMALITIES  Introduction  The nal requirement for a valid contract is formalities.  Generally, no formalities are required to for the formation of a valid contract.  Two excepti...

INTRODUCTION TO LAW: UNIT 15 – LAW OF CONTRACT (PART 3)COMMERCIAL LAW TB: Chapter 7 & 8 CHAPTER 7: FORMALITIES FORMALITIES  Introduction  The nal requirement for a valid contract is formalities.  Generally, no formalities are required to for the formation of a valid contract.  Two exceptions: 1. Ce ain types of contracts, the law may require that the pa ies express their intentions in a prescribed, formal way. E.g., contract reduced to writing & signed. 2. The pa ies may themselves agree that the contract will be binding on them only when ce ain formalities have been obse ed. E.g., It is only binding on when both pa ies have signed the contract. FORMALITIES 1. Formalities prescribed by legislation:  Usually require that the contract be in writing and be signed by one or more of the pa ies. The following are examples of formalities prescribed by law: a. The alienation of land: the sale, exchange or donation of land shall have no force or e ect unless it is contained in a deed of alienation signed by the pa ies or their agents acting on their written authorisation. b. The National Credit Act: a credit provider must deliver a copy of the document that records the credit agreement between the pa ies to the consumer. c. Antenuptial contracts: An oral antenuptial contract is valid between the spouses = they will be bound by the contract. However, it must be notorised to have e ect against third pa ies. d. Contracts of suretyship: no contract of suretyship is valid (and binding on the surety) unless its terms are embodied in a document and signed by or on behalf of the surety. However, the creditor need not sign the document. e. The written permission of a spouse is also needed for various contracts concluded by a spouse married in community of prope y (see previous lecture). FORMALITIES 2. Formalities required by the pa ies:  The pa ies often agree that the agreement should be reduced to writing and signed. In doing so, they may have either of two di erent purposes in minds: 1) That writing shall be a formal requirement for the validity of the contract; OR 2) That the writing merely se es as proof of their oral agreement.  In the rst instance, no contract is concluded before it is reduced in writing, and their oral consensus is not a valid contract. In the second instance, the contract comes into e ect immediately and binds the pa ies.  One must determine whether the pa ies had the rst and second purpose in mind. If their intention as to the writing cannot be established, then a presumption exists that they had the second purpose in mind.  If the pa ies in the rst instance, merely agreed to put the agreement in writing, the written document will bind them, even if it is not signed. They may, however, agree that the oral contract be reduced in writing and be signed before it is binding. FORMALITIES  Variation of the contract  Pa ies may prescribe ce ain formalities for any variation (change) of their contract.  The pa ies may wish to later amend their written contract and the question that arises is whether this can be done orally. Two instances are distinguished: 1) Where the law required the formalities: any variation must meet the formal requirements. For example, a written contract for the sale of land may never be amended orally. 2) Where the pa ies have agreed to formalities: The general rule is that the contract may be varied orally unless they have also agreed that all variations should be in writing (A non-variation clause).  For example: “No variation of this agreement shall be of any force or e ect unless reduced in writing and signed by the by both pa ies to this agreement.” FORMALITIES  The Parole evidence rule  The rule entails the following: a. If a contract is reduced in writing, the written document is the exclusive memorial (inscription) of the contract between the pa ies. b. Generally, no evidence, oral or otherwise, may be advanced to alter the written document, or to add to or subtract anything from it. c. The purpose of written document contracts is to prevent unce ainty and evidence contradicting the written document will frustrate this purpose.  The e ect of this rule is that the pa ies are bound/limited to the four corners of the contract.  However, the strict application of this rule will lead to injustices and could unfairly prejudice the pa ies. Therefore, ce ain exceptions to the rule exists. Once such exception is referred to as recti cation. FORMALITIES  Recti cation  Recti cation is a remedy that is used for the purpose of preventing the unfair application of the parole evidence rule and means the correction of a written document. (not be to confused with rati cation)  E.g., a written contract incorrectly re ects the preceding oral agreement or the true intention of the pa ies due to an oversight or a mistake, the pa ies can claim the correction or recti cation of the written document in order to re ect their agreement correctly. CHAPTER 8: PARTIES, CONDITIONS, TERMS AND INTERPRETATION PARTIES TO THE CONTRACT  General  Generally, a contract is concluded between pa ies who reach consensus, i.e., the contracting pa ies (o eree and the o eror).  However, frequently, there is more than one o eror and/or o eree, in which case the relationship among the pa ies di er. A third pa y can also play an impo ant role in the conclusion of a contract (e.g., agency = where the contract is for the bene t of a third pa y.)  A person may also transfer rights and/or obligations of a contract to another. Consequence = the latter becomes the creditor, or debtor of the other contracting pa y (e.g., cession or delegation) PARTIES TO THE CONTRACT  Agency  Contracts not concluded by the principal pa ies, but through their representatives/agents. (Pa icularly when the principal is a juristic person. However, this applies to natural persons as well)  A person concludes a contract on behalf of another on the strength of authority given by that person. See example on pg. 114: P (the principal) authorises A (the agent) to buy a car for P from a third pa y (T).  if A informs T that he contracts on behalf of P, the contract is concluded between P and T. No contract exists between A and T as there is no intention to conclude a contract with one another. A is therefore not a pa y to the contract with T.  If the agent represents to the third pa y that he is acting on behalf of P whilst having no authority, the third pa y may hold the agent personably liable.  It may be that the agent informs the third pa y that he has authority, while having no authority or perhaps exceeds his authority. Firstly, the principal will not be bound. However, the principal may con rm the act retrospectively and be bound by the agreement by means of rati cation. PARTIES TO THE CONTRACT  Contracts for the bene t of a third pa y (stipulatio alteri)  A contract aimed at conferring bene ts on a person/s who are not pa ies to the contract. E.g., Pensions agreements, life insurance policies and inter vivo trust.  This is a unique contract, as a question that arises is how can a person who is not a pa y to the contract acquire a right to a bene t stipulated in his/her favour? Although there is still debate regarding the position, SA cou s have shown a willingness to enforce contracts in favour of third pa ies.  In sho , the contract for the bene t of a third pa y (stipulatio alteri) is an agreement between pa ies that one of them must deliver a bene t to a third pa y who is not a direct pa y to their agreement. (See example on pg. 115) PARTIES TO THE CONTRACT  Di erences between agency and a contract for the bene t of a third pa y 1. The stipulans (the person who want to want to give the bene t), in contrast with the agent, has no authority from the principal (or the third pa y). 2. After conclusion of contract, no immediate contract exists between the promissor (the person who has contracted to deliver the bene t to the third pa y) and the third pa y. However, in agency, a contract immediately exists between the principal and the third pa y. 3. A requirement of agency is that the principal must exist at the time of the contract, since the principal must provide the necessa authority. This is not required in the stipulatio alteri. The third pa y need not be in existence at the time of the juristic act between the stipulans and the promissor. 4. The stipulans does not conclude the agreement in the name of the third pa y, whereas the agent concludes in the name of the principal. The stipulans acts in their own name but for the bene t of a third pa y. PARTIES TO THE CONTRACT  Transfer of rights and duties to a third pa y  Cession:  Rights are transferred by means of a transfer agreement known as cession. Cession entails a substitution of the creditors: the rights that the creditor has against the debtor is transferred to a third pa y who becomes the creditor in his/her place. (See the illustration on pg. 116 in the textbook)  The following occurs between the pa ies: regarding the set of facts, C (the cessiona ) may enforce the right against X (the third pa y or debtor), as he obtains B’s (cedent) rights. Consensus is only needed between B and C to e ect transfer of the right. This is the only requirement for a valid cession. (The debtor’s permission is NOT required for a valid cession between B and C. However, it is in the interest of the cessiona (C) to notify X of the cession because if X bona de pe orms to the cedent (B), he would have pe ormed his obligation and C will have no claim against him) PARTIES TO THE CONTRACT  Transfer of rights and duties to a third pa y  Delegation:  Duties may be transferred to a third pa y through a process called delegation. This entails a substitution of debtors and requires the consent of all pa ies concerned: the creditor, the original debtor and the third pa y as the new debtor.  It makes no di erence to the debtor whether it is A or B who has a right against him (in the case of a cession). Regarding delegation, it is impo ant to the creditor whom of A or B owes him a duty. Therefore, the creditors permission is required whenever there is a transfer of a duty. This is a tripa ite agreement in which all three pa ies must reach an agreement before the duty is delegated.  Novation:  Where a pa y wishes to withdraw and be substituted by a third pa y, this can be done through novation = meaning the original agreement is terminated and replaced by a new one with di erent pa ies; OR  Transferring all rights and duties under the contract to the third pa y = by a combination of the cession and delegation. (also referred to as assignment, and is achieved by means of a tripa ite agreement between all pa ies concerned) CONDITIONS AND RELATED CONCEPTS  Types of conditions  Described as a term, which quali es a contractual obligation in a manner as to make its operation and consequences dependent on whether an unce ain future event will happen/not happen. The question is whether an unce ain event will occur, and not when it will occur.  In this instance, there is already a contract between the pa ies containing an agreement to pe orm, but the duty to pe orm is dependent on the occurrence of a pa icular future event. In this regard, a distinction is made between suspensive and resolutive conditions. 1. Suspensive conditions:  Pa ies agree that the pe ormance of obligations under the contract will not be enforceable until it is known whether the condition, which must relate to an unce ain future event, has been ful lled or has failed.See pg. 121: (S sells his house to B for R2 000 000. The contract in put into writing and signed by both pa ies. The contract also has the following provision: “This sale is subject to B obtaining a loan for 80% of the purchase price (R1 600 000) within 60 days from the signing of the contract from X Bank. This provision is a suspensive condition as B’s duty to pe orm is suspended and made dependent on the occurrence of the future unce ain event.) CONDITIONS AND RELATED CONCEPTS  Types of conditions 2. Resolutive conditions:  The pa ies agree that obligations under the contract should operate in full (immediately) but will end if an unce ain future event does or does not happen. For example, if a student is granted funding for her entire degree, but this is dependent on her passing her examinations eve year.  The funding body must pe orm in terms of the obligation, and if it fails to do so, the student may enforce pe ormance. If the student fails an examination, however, funding will be discontinued. This is di erent from a suspensive condition, when the duty to pe orm arises only once the condition is ful lled. CONDITIONS AND RELATED CONCEPTS  Time clauses  A time clause postpones or xes the date for pe ormance.  A time clause di ers from a condition in that the duty to pe orm is suspended (suspensive) or terminated (resolutive) until or at the occurrence of a ce ain future event, even though it may be unce ain when it will happen. NB = Only two future events are ce ain, the passing of time and death. Anything else is unce ain and therefore relates to a condition and not a time clause. 1. Suspensive time clauses:  Pa ies agree that the duty to pe orm is postponed until a determined/ determinable future date, even though it may be unce ain when this date will be, it is ce ain that the time for pe ormance will arrive. E.g., X and B agrees that C will pay a ce ain amount to B 90 days after C’s death. 2. Resolutive time clause:  Pa ies agree that the operation will be terminated upon the arrival of a ce ain future time, when the date arrives, the contract terminates. E.g., X rents B’s land until B’s death. CONDITIONS AND RELATED CONCEPTS  Assumptions (suppositions)  An assumption di ers from a time clause and condition in that it relates to an event which has already occurred/to a situation or fact which was already in existence at the time of contracting.  E.g., a copy of a third edition of a textbook is o ered for sale. A student, who needs a copy, is interested in purchasing the book, but only wants to buy it if it’s the latest edition. If neither the student or the seller knows whether it is the latest edition, they may contract on the basis that it is indeed the newest edition.  If there is a later edition, the supposition is false, and the contract will be void. If it is the latest edition, the contact will be valid. A supposition must be shared by both pa ies in order to form the basis for the contract. CONDITIONS AND RELATED CONCEPTS  Pa icular terms  Warranties:  Is an unde aking that a ce ain state of a airs exists or does not exist (for, example, the extent of the quality of something sold).  In the case of a warranty, it is the intention of the pa ies that the unde aking will form pa of their contractual rights/obligations. The truth of the unde aking is guaranteed is such a way that non-compliance will amount to a breach of contract.  Penalty clause:  A provision in a contract in terms of which a person who commits a breach of contract must pay the other an amount, or pe orm something else, or fo eit something. This is done as a penalty for his breach.  Acceleration clause:  S sells a motor vehicle to P on instalments. P pays the price by means of 36 monthly instalments. If P fails to pay an instalment, S can only legally sue P for that amount. He may not claim all other (future) instalments as they are not yet due. To improve the position of S, a clause may be inse ed to the e ect that: “If P fails to pay any of the instalments punctually, S shall be entitled to claim the whole balance of the purchase price immediately.” CONDITIONS AND RELATED CONCEPTS  Pa icular terms  Cancellation clause:  if a pa y commits a breach, it does not follow that the creditor may immediately cancel the contract. E.g., only where the breach is a material/ a severe one.  However, a cancellation clause inse ed into the agreement (lex commissoria) can be included in the contract. In this regard, it authorises the creditor to cancel the contract irrespective of whether the breach is of a serious nature.  Exemption clauses:  Terms that exempt a pa y from liability that would otherwise be imposed upon them. E.g., a hotel might exclude liability for loss or theft or its guests’ prope y. Exemption clauses are valid and enforceable except where, for example, they purpo to exclude liability for fraud or for inju caused intentionally.  Often referred to as an indemnity clause or limitation/liability clause. These clauses are also typically found on notices in shopping malls and parking areas or signed before pa ies pa ake in dangerous activities like bungee jumping. INTERPRETATION OF CONTRACTS  There are several rules which are used to interpret contracts. Some of these include: 1. Cou s must determine the intention of the pa ies at the conclusion of the contract. 2. In the rst instance, giving words used in the contract their ordina grammatical meaning. 3. The contract must be read as a whole. A paragraph, sentence or word should not be interpreted in isolation. 4. Only if the intention is not determinable, may regard be had to the preceding negotiations between the pa ies to establish what led to the contract. 5. If the intention of the pa ies is still unclear, the contract will be interpreted against the person who drafted it, in other words, the construction most favourable to the other pa y will be applied. 6. If the cou has applied all interpretative rules and is still unable to attach any meaning to the words, they will be regarded as pro non scripto = words or sentence will simply be regarded as not having been written and will fall away.