Entering into an agreement which is enforceable in law is not a casual exercise. Parties to a legal agreement should always tread with caution as there are significant consequences that arise from entering into any legally binding agreement. Ever so often, parties to a contract are not fully versed with the fundamentals of an essential contract and the essential terms that are paramount to that specific agreement, resulting in a litigious process. Each legal agreement is bespoke and specific to the area of law that is being dealt with. For example, a business (commercial) contract would have vastly different terms to a residential lease agreement. However, all contracts have a fundamental basis that all parties looking to enter into one should be aware of.

 

What is a contract?

A contract is an agreement between two or more parties to which they intend to be legally bound (animus contrahendi). This agreement gives rise to an obligation-performance relationship whereby the parties to the agreement are legally bound to perform the agreed obligations that arise from the contract. The agreements and the obligations thereof are enforceable in law. For a contract to be valid, it needs to satisfy the following requirements:

Consensus (consensus ad litem): the meeting of the minds of the parties to the agreement (i.e. the parties must be on the same understanding on all the terms of the agreement). 

Capacity: the parties to the agreement must have the capacity to enter into the contract (they must have legal capacity in terms of age – be 18 years or older or if minors, there must be the presence of parents or legal guardians. There must also be mental capacity).

Formalities: the contract must comply with the standard formalities required by law (for example, the contract must spell out the terms to be agreed on, it must be dated and signed by all parties to the contract, etc.). 

Legality and lawfulness: the terms of the contract and obligations thereof must be legal and lawful in terms of the laws of the State.

Possibility and certainty: the obligations that are created by the agreement must be ascertainable, determinable and must be capable of being performed. 

 

Written vs Verbal Contracts

Verbal contacts 

Verbal contracts are binding and enforceable under South African law. However, they are often difficult to prove and enforce during a legal dispute. This is because there is no clear record or ascertainable details of the terms agreed to in the contract. For this reason, a written and concise agreement is always advisable as this meets the criteria for the best evidence rule.

Written contracts

There are three categories of written contracts. The first is where the written contract is merely to record an already concluded verbal agreement for proof of agreement (recordal). The written contract in this instance does not affect the enforceability of the verbal contract. It is not a precondition for the enforceability of the agreement. The second category is where the parties agree that the agreement is only enforceable once it has been recorded in writing, and all the formalities of a valid contract have been met. The third category is where legislation prescribes that a certain kind of contract must be reduced to writing and the formalities of a valid contract must be met (for example, according to section 2 of the Alienation of Land Act 68 of 1981, it is a legal requirement that an agreement of sale of immovable property must be in writing). 

What determines a legal and enforceable written contract?

A standard written contract would be one that is reduced to paper, physically signed and dated by the parties to the contract and their witnesses (if required). However, in this age of technology and the virtual world that the Covid-19 pandemic has thrust the world into, electronic communications law has become more prevalent. In the case of Kgopana v Matlala [2019] ZASCA 174, the Supreme Court of Appeal (SCA) overruled a decision by the high court where the issue before the court was whether a WhatsApp message constituted an offer which upon acceptance could give rise to an enforceable contract. The SCA ruled that in this case, the WhatsApp message did not amount to a valid contract because the appellant had no intention to contract. This decision, however, does not mean that a contract can never be concluded through WhatsApp or other electronic means (e-mail, SMS, internet, etc.). 

The Electronic Communications and Transactions Act 25 of 2002 (ECTA) provides for electronic transactions which include the conclusion of contracts electronically. Section 22 of the ECTA provides: 

‘(1) An agreement is not without legal force and effect merely because it was concluded partly or in whole by means of data messages.

(2) An agreement concluded between parties by means of data messages is concluded at the time when and place where the acceptance of the offer was received by the offeror.’

The contract still has to satisfy the requirements of a valid contract. Hence the SCA upheld the appeal in Kgopana because the elements of intention and consensus were not duly satisfied. Subsection 13(1) of the ECTA provides that electronic signatures are valid in law only if the area of law governing that contract did not specify the type of signature that is required. Subsection 13(2) provides that where an electronic signature is used, it is legally enforceable. 

It must also be noted that the parties to the electronic transaction or contract must agree that electronic signatures will be used and the type of electronic signatures that will be used for that specific transaction or contractual agreement. Subsection 13(5) of the ECTA provides that if electronic signatures are not required, an ascertainable and express intention to contract will suffice and will be legally enforceable as long as it is electronic. Evidence of the party’s intention can be determined through other means. The types of electronic signatures that suffice and are legally enforceable according to the ECTA are:

• a typed name at the end of an e-mail suffices as an electronic signature;
• a scanned image of your handwritten signature embedded into a Word document; and
• a digital signature.

In the case of Spring Forest Trading 599 CC v Wilberry (Pty) Ltd t/a Ecowash and another [2014] ZASCA 178, 2015 (2) SA 118 (SCA) the court confirmed that the requirement of a contract being cancelled in writing could also be fulfilled through data messages. E-mails are regarded as data messages. Furthermore, the court confirmed that in terms of section 13 of the ECTA, the typing of names at the end of an e-mail meets the requirement of an electronic signature. The purpose of a signature is to identify the person and to evince the person’s approval of the message communicated. It is reliable and appropriate for the purpose it was communicating, taking into account the circumstances. To this end, a typed name at the end of an e-mail satisfies the requirement of an electronic signature.

 

Breach of contract

A breach of contract arises where either party to the contract fails to comply with any of the terms of the contract. Such breach may result in a cancellation of the contract. Furthermore, the aggrieved party is entitled to sue for breach of contract. An event such as the Covid-19 pandemic has shown that it is possible for parties to a contract to breach contractual terms, in that they fail to perform the obligations that have arisen from the contract due to the constraints caused by the pandemic. However, in circumstances where the failure to perform or comply with the terms of the agreement is due to an unforeseen event, the party failing to comply with the terms of the agreement can raise the following defences:

Force majeure 

Parties to a commercial agreement should include a force majeure clause as part of the terms to their agreement. This clause provides for unforeseen events that parties to agreements have no control of, such as civil riot, war, government action, strikes, inclement weather and other acts of God, that prevents them from performing their obligations as per their agreement. 

Should an event of this kind occur, the parties to the agreement may be excused from performing certain obligations that are directly affected by the occurrence of a force majeure event for as long as the event persists. The clause must be explicit and must fully define what a force majeure event is. The party raising this defence bears the onus of proving that the event, such as the Covid-19 pandemic, for example, meets the criteria of the definition included in provisions of this clause in the agreement. The party will have to show that they could not perform their obligations because of their ability to do so was directly affected by the event. This defence may only be raised if this clause is clearly stated in the agreement.

In the case of Glencore Grain Africa (Pty) Ltd v Du Plessis NO & others [2007] JOL 21043 (O) the court laid out the requirements to be fulfilled in order for a defence of force majeure to succeed. The court held that the impossibility must be objectively impossible; it must be absolute rather than probable or relative; it must be unavoidable by a reasonable person; it must not be the fault of either party; it does not have to be foreseeable or avoidable by a reasonable person. It is also worth mentioning that this clause does not always automatically absolve a party from performing its obligations and that based on the merits of each case, a dispute may have to be resolved by a court of law.

Supervening impossibility

Suppose the agreement does not include a force majeure clause. In that case, a party may rely on the common law doctrine of supervening impossibility, as a defence to non-performance of a contractual obligation. This doctrine provides that if the performance of an obligation by a party to an agreement becomes impossible, that party is excused from performing that obligation for as long as the impossibility lasts. The court, in the case of Kooij and others v Middleground Trading 251 CC and another [2020] ZASA 45, confirmed that a party is discharged from liability that arises from a contractual agreement if he/she was prevented from executing the required performance of the contractual obligations due to a vis major (an ‘act of God’). 

Conclusion

Whether it is a lease agreement, a commercial agreement, or any other legally binding agreement, all parties intending to enter into any legally binding agreements, especially without prior legal consultation, must be able to understand the basic requirements of a contract. It is imperative that each party to a contract must be able to protect themselves when dealing with any type of agreement. Parties must take caution that making any type of agreement through e-mail or even WhatsApp and typing one’s name at the end of such communication can be legally binding, and failure to comply with the terms of such agreement may result in a legal dispute. Furthermore, parties entering to any legally binding agreement must ensure that they include clauses such as the force majeure clause within the terms of the agreement to safeguard their interests in case of an event such as a pandemic that could prevent compliance to an agreement.

 

Author: Samukelisiwe Mbuthuma (LLB, LLM – UKZN)

Follow me on instagram: @snmbuthuma and @sister_in_law_