LACO LU3

• Formalities


  Requirements for the valid formation of a contract
• Exceptions where formalities are required


  • Law may require formalities such as writing, notarial execution and registration
  • Parties may agree to certain formalities, usually writing
• Writing helps to facilitate proof of a contract
• Formalities prescribed by law

  • Contracts in writing and signed by the parties
  • Notarially executed and registered (if to be effective against 3rd parties)
  • All material terms in writing, not just essentialia
  • Naturalia need not be in writing
  • Terms need not be in one document
  • Any variation needs to be in writing
• If formalities not complied with, contract is void. Enrichment action possible.
• Prescribed formalities required for validity

  • Points 2, 3, 5 and 6 of "This Chapter in Essence" TB 178-179
• Formalities stipulated by the parties

  Parties to oral agreement may agree to have contract reduced to writing to facilitate proof of its terms or make it not binding till in written form
• In absence of evidence, presumption is that parties intended proof
• In absence of contrary evidence, electronic contract complies with the formality of writing
• Variation of contract: Shifren principle

  1. Parties may insert 'non-variation' clause into contract

  2. Non-variation clause NOT against public policy, and no oral variation of contract effective if the clause entrenched both itself and the rest of the contract against variation

  3. Purpose of clause is to prevent disputes and problems of proof

  4. Clause did not deprive parties of freedom to contract, since they could still vary the contract if they did it in writing

  5. Courts have enlisted waiver, estoppel, and a pactum de non petendo and good faith to circumvent Shifren

  6. Brisley v. Drotstey principle directly challenged, SCA unanimously reaffirmed the Shifren principle
• Cancellation and non-cancellation clauses

  1. Court accepted that a non-cancellation clause is also valid

  2. Such clause restrictively interpreted and applies only to consensual contracts

  3. Will NOT prevent cancellation due to breach of contract by one party

  4. In order to be effective, a non-cancellation clause must be coupled with a non-variation clause
• Shifren-principle may result in unconscionable conduct
• A non-variation clause will not be enforced when such enforcement is against public policy or where the defence of estoppel can be raised
• Non-waiver clause


  1. Lawyers quick to notice that a waiver may be a way to escape the Shifren – straightjacket

  2. Hence non-waiver clauses now also included in written contracts
• Sanctity of contract


  Pacta sunt servanda (contracts must be kept)
• Public policy


  Considerations of public interest, morals, and legislation when determining enforceability of contracts
• Since 1994, public policy is mostly constitutional
• Illegal contracts


  Either void or valid but unenforceable (e.g. some wagers)
• Illegal contracts that are void

  • Contract may be illegal due to moral or constitutional values, or unfair manner of enforcement
• Public interest


  Society's view of morality (contra bonos mores)
• Sasfin v. Beukes [AD]: 'Contracts contrary to law or morality, or contra social and economic expedience, will on grounds of public policy not be enforced'
• Public interests


  • Voluntary concluded contracts should be given effect to
  • Simple justice between parties should be given effect to
  • Parties should ideally have equal bargaining power
  • Administration of justice not defeated
  • Safety of state
  • Public service to function properly
  • Exercise by persons of their legal rights should be given effect to
• Public policy has no fixed meaning
• Guidelines courts follow


  • Sparingly strike down contracts; only in clearest of cases
  • Contract illegal if 'tendency' is illegal, not that specific contract
  • Careful not to 'impose courts' own sense of proprietary and fairness
  • Past cases to provide guidelines
• In Barkhuizen v. Napier 2007 [CC], the constitutional court doubted that contractual term may be directly tested against the 1996 constitution
• Pre-1994, sanctity of contract given preference. In Barkhuizen this approach appears to have been retained
• Self-autonomy


  Very essence of freedom and dignity. Limit is where freedom of contract diminishes self-respect/dignity, then public interest trumps sanctity of contract
• Party who relies on illegality to plead it, and onus to prove it. But court will also take notice of illegality on its own
• Impossibility of performance


  Prevents creation of obligations
• Conclusion, performance and object of contract must be lawful

  • Sometimes merely the conclusion of a contract is unlawful and contract thus void
  • The performance must be legal (e.g. murder)
  • Purpose or object must be legal (BOTH parties must have illegal same purpose/object)
• Impossibility of performance


  • Object of sale destroyed at time of conclusion of contract
  • Object does not exist
• Common mistake as to circumstances surrounding conclusion of contract

  Contract may be void
• Examples of illegal contracts that are void

  • Contracts against good morals
  • Contracts that explicitly contravene a statute
  • Contracts that operate in fraudem legis (e.g. NCA and CPA)
• Possibility requirement relates to the performance and not to achieving some underlying purpose
• Sometimes the conclusion of a contract is prohibited, but legislator fails to state expressly whether contract is in fact void if it contravenes the prohibition
• Factors courts consider to determine if prohibited contract is void

  • Object of statute?
  • Criminal sanction imposed?
  • Does enactment merely protect state revenue? If yes, contract valid
  • Provision protects individuals → not void or public interest? → void
  • Consequences of particular interpretation? Would nullity cause greater inconvenience?
• Examples of statutory illegality

  • National Gambling Act (2004) - some informal bets are prohibited, contravention is a crime, indications are that the legislature intended unlawful gambling contracts to be void
• Objective and subjective impossibility

  • Objective impossibility is when nobody can perform
  • Subjective impossibility is when a party doesn't have enough money to pay
• Unfair contracts


  • Individual interests of parties also important when determining whether contract or clause is against public policy
  • Interests of both parties taken into consideration
  • In Barkhuizen, court said "notions of [fairness etc.] cannot be separated from public policy"
  • Role of 'good faith' is important, but courts yet have to say exactly what it is
  • Commentators suggest a close relationship between what is in good faith between parties and what is fair and reasonable in a specific case
• Factual and practical impossibility


  • Performance may be factually impossible, although not completely impossible (example of plastic ducks)