The South African law of contract is rooted in Roman-Dutch law principles but continually shaped by the values enshrined in the Constitution of the Republic of South Africa (“the Constitution”). The Constitution guarantees the right to freely contract, which is a cornerstone of a modern economy. South African law recognises both verbal and written agreements, however, for a contract to be considered legally binding and enforceable, the following key requirements ought to be met:
- Consensus: Consensus ad idem (a meeting of the minds) is the foundational element of any contract. It requires that the parties that wish to enter into an agreement must genuinely agree and understand the essential terms of the agreement. The test for consensus is a stringent one and the Supreme Court of Appeal (SCA) has once more emphasised its stringency in Cooper N O and Another v Curro Heights Properties (Pty) Ltd (1300/2021) [2023] ZASCA 66. The SCA stressed that for consensus to exist, the parties must have a clear and common intention regarding the material terms. The court scrutinised the correspondence and conduct of the parties leading up to the agreement and found that there was no true meeting of the minds on a critical aspect of the deal. This case serves as a critical reminder that subjective understanding is not enough; the outward manifestations of intent must demonstrate a clear and unambiguous agreement on all essential matters.
- Capacity: The law requires that parties to a contract must have the legal capacity to act. This means the parties need to be the bearer of rights (including juristic persons) and be of sound mind or of legal age. Any contract entered into with a minor or a person that is not of sound mind is void. In Vallaro v Road Accident Fund 2021 (4) SA 302 (GJ), the claimant had suffered a head injury as a result of a motor vehicle collision which then resulted in compromised mental faculties and the neuropsychologist described the server head injury similar “to a patient with moderate to serve dementia”. The Court found that the Contingency Fee Agreement signed by the claimant was invalid as the claimant was not of sound mind and could not have participated in the juristic act due to the impairment of his mental faculties. This judgment highlights the protective function of this requirement and underscores that contractual validity is dependent on the parties’ cognitive ability at the precise moment of agreement.
- Legality: The contents of the agreement must not be illegal or in violation of any statute or common law. Any contract that is against public policy will render the contract invalid. In Barkhuizen v Napier 2007 (5) SA 323 (CC), 2007 (7) BCLR 691 (CC), the dispute centred on a time-limitation clause in an insurance contract that required legal proceedings to be instituted within 90 days – with the insured party having missed this deadline. The Court emphasised that the principle of pacta sunt servanda (agreements must be honoured) is not absolute, and cannot apply to immoral agreements which violate public policy.
- Possibility: The terms of the agreement must be capable of performance. This means that the obligations undertaken in the contract must be physically and legally possible to perform at the time the contract is concluded. If performance is objectively impossible from the outset (initial impossibility), the contract is void. A related concept is supervening impossibility, where an event occurring after the contract’s formation, through no fault of either party, renders performance impossible. In Maher v Avianto (Pty) Ltd (A2023/097547) [2024] ZAGPJHC 1163, the Court was faced with dealing with the common law doctrine of supervening impossibility in the context of the COVID-19 lockdown regulations. The case involved a lease agreement for a wedding venue that could not be used due to government-imposed lockdowns that prohibited large gatherings. The Court reaffirmed that where a contract has become impossible to perform after it had been entered into, the general rule is that the position is the same as if it had been impossible from the beginning, and therefore, the contract and resultant obligations are extinguished. As such, nobody can be obliged to do the impossible.
- Certainty: The terms of the contract must be definite and not vague. The parties must clearly understand their rights, obligations, and the terms of the contract. In the case of Shell SA (Pty) Ltd v Corbitt and Another 1986 (4) SA 523 (C), the Court confirmed that a contract cannot be valid if an essential term, such as price, is left open to an unspecified or ambiguous future determination. Issues of prices need to be defined clearly in agreements to avoid ambiguity, and will include stipulating price fluctuations depending on the industry. The judgment also acknowledged that in certain commercial contexts, especially where price fluctuations are common, the parties can agree on a definite formula or mechanism for determining the price. The key is that the method for ascertaining the term must be objective and certain, leaving no room for unilateral discretion or further negotiation.
- Formalities: Generally, a contract will be valid if all the above listed requirements are met. As a general rule, no formalities are required for a contract to be valid; consensus alone is sufficient – this is why verbal agreements can be binding. However, certain types of contracts require specific formalities to be met in addition to the aforementioned list. Non-compliance with these formalities renders the agreement void. For example, Section 2(1) of the Alienation of Land Act 61 of 1981 provides that all agreements under this Act must be in writing, therefore, oral agreements will not be valid. Similarly, Section 87 of the Deeds Registries Act 47 of 1937 provides that Antenatal Contract (ANC) must be registered with the Deeds Registry Office, by implication, an ANC must be in writing, signed and notarised by a practising notary.
Understanding the requirements for a valid contract is crucial for anyone engaging in legal transactions. The aforementioned cases and laws illustrate how the principles of consensus, capacity, legality, possibility, certainty, and formalities, are applied in real-world disputes, highlighting the risks of unclear or improper agreements. Given these complexities, seeking professional legal assistance for drafting and reviewing contracts is not just prudent—it is essential for ensuring that your agreements are binding, enforceable, and aligned with your intentions.
Let us assist you with drafting and reviewing your contracts. Contact us today.
Author: Phindulo Munyai | Associate Attorney
References:
- The Constitution of the Republic of South Africa
- Cooper N O and Another v Curro Heights Properties (Pty) Ltd (1300/2021) [2023] ZASCA 66
- Vallaro v Road Accident Fund 2021 (4) SA 302 (GJ)
- Barkhuizen v Napier 2007 (5) SA 323 (CC), 2007 (7) BCLR 691 (CC)
- Maher v Avianto (Pty) Ltd (A2023/097547) [2024] ZAGPJHC 1163
- Shell SA (Pty) Ltd v Corbitt and Another 1986 (4) SA 523 (C)
- Alienation of Land Act 61 of 1981
- Deeds Registries Act 47 of 1937
