Week 6: SU 3 part 2

Outline of study unit:

Formalities
Contract for sale of land
Formalities for contract of sale of land
Influence of the Consumer Protection Act o formalities
Consequences of non-compliance with formalities

Formalities

Contractual formalities are there to serve as a guide to parties against any unforeseen circumstances
that may lead to litigation. The general rule of common law is that no formalities are required for a
valid or enforceable contract of sale, however, certain statutory formalities are required for the valid
contract of purchase and sale of immovable property. The parties themselves may also (where no
statutory formalities are required) agree to certain formalities for their contract. Their intention has to
be examined carefully, as two possible reasons for such agreement could exist:
- That the contract will only be valid after the formalities are compiled with; or
- That the formalities will only serve as proof of an existing contract between the
parties in which case a valid contract already exists before the formalities are
complied with
Where formalities are required by statute, the parties cannot, as a general rule, change, exclude or
abandon these formalities through mutual agreement.

Contract of Sale of Land

Important concepts:
- Alienate: means to sell, exchange or donate irrespective of the fact that it is subject to a
suspensive or resolutive condition
- Land: includes any unit; any right claim transfer of land; any undivided share in land
- Deed of alienation: is described as a document or documents in terms of which land is
alienated, and has a wider meaning of “contract”

The aim of the formalities for contract of sale of land:

1. To prevent disputes regarding the contents of a contract;
2. To prevent any uncertainties regarding the contents of the contract;
3. To prevent malpractices

The Alienation of Land Act 68 of 1981 requires that the sale of immovable property be reduced to
writing and signed by both parties or their agents

Formalities for a contract of sale of land are:

1. Contracts must be written
2. Contract must be signed
Formalities for a contract of sale of land

Section 2(1) of the Alienation of Land Act 68 of 1981 which commended on 19 October 1982,
requires the following formalities with regard to contracts for the purchase and sale of land
(a) Contract must be written:
The deed of alienation must contain all the essentialia as well as any other term expressly
raised or implied in the negotiations and regarded as material by the parties
A material term is one that the parties regard as important enough to insert in the contract

(i) Object sold must be clearly defined:

- The written contract must clearly identify the object that is sold
- If it cannot be identified, the contract will be null and void
- This is a factual question and will be determined by the facts and
circumstances of each case
- The test is whether the thing can be identified as determined or determinable
with reference to the written contract only, without any verbal evidence being
led
(ii) Purchase price must be clearly defined:
- The deed of alienation must clearly state the purchase price, as well as the
method and time of payment
- Where the price is payable in instalments, the deed of alienation must clearly
state the amount of the periodic payments, the periods between payments and
the time when payments must be made.
- Where these are absent or not stated clearly, the contract will be null and void
- All material terms in the contract must be in writing
- There is no valid contract where a material term was left open for further
negotiations in order to be finally agreed on in future.
(iii) Parties must be clearly described:
- The parties to the contract must be clearly described in the deed of alienation.
- This means that both the seller and the buyer must be identified in terms of
the contract
- The contract must also state that there is both a seller and a buyer
- If other persons are involved in the contract, their capacities must be clearly
described in the contract.
(iv) Alteration of written contracts:
- Where any substantial stipulation in a deed of alienation is altered, the
alteration must comply with any statutory formalities applicable to that
contract.
- If these formalities are not complied with, the deed of alienation will be null
and void
- If informal alterations were allowed, the aim of the legislator would be
frustrated.

(v) Termination and reinstatement of written contracts:

 - The cancellation or reinstatement of a deed of alienation does not have to
comply with the statutory formalities required for the conclusion or alteration
thereof
- Termination or reinstatement can be affected verbally

(b) Signature of parties

- Both parties must sign the deed of alienation
- If the parties do not act personally, their representatives must act on their written
authority
- A party to a contract does not have to sign his/her name in full
- Any mark or initial that identifies the party is sufficient. However, extrinsic evidence
is admissible to determine the identity of the author of the signature
- Where the contract of purchase of the purchase and sale has 2 documents, each
document must be signed by both parties to the agreement effectively form a deed of
alienation

Agents
- An agent can act on behalf of either a seller or a buyer (as a principal) only where a sale of
land is concluded, if the agent has the written authority to act on behalf of his/her principal.
- The written authority must already exist at the time of conclusion of the contract and the agent
must have knowledge thereof.
- An agent cannot act on behalf of a trust still to be formed.
- Such a deed of alienation will be null and void, because one cannot act as an agent on behalf
of a principal who does not exist at the time of the representative act.
- A company, being a legal entity, cannot itself sign any agreement and cannot provide its
functionaries with written authority to sign on its behalf.
- In terms of section 66(1) of the Companies Act, the business and affairs of a company must
be managed by or under the direction of its board, which has the authority to exercise all of
the powers and perform any of the functions of the company except to the extent that the Act
or the company’s Memorandum of Incorporation (MOI) provides otherwise.
- The contracting powers of directors and managers may be declared in the MOI

Influence of the Consumer Protection Act on formalities

The Consumer Protection Act does not require agreements in general to be in writing. If the
agreement is in writing it needs to be signed by a consumer [section 50(1) and (2)]. If the agreement is
in writing, such written agreement should be in plain and understandable language [section 22].

Consequences of non-compliance with formalities

The following are the legal consequences where the formalities are not compiled with the Alienation
of Land Act:
1. The contract is null and void. No legal obligation exists between the parties
2. If one of the parties delivered the whole part of his/her performance, he/she cannot claim
counter-performance from the other party
3. Any party who delivered such performance is entitled to reclaim his/her performance from
another party
 4. The buyer who has made performance in terms of the invalid contract is entitled to claim the
following from the seller interest at the prescribed interest rate and reasonable compensation
5. The seller who allowed the buyer to possess the land is entitled to claim the following from
the buyer:
a. Reasonable compensation for the buyer’s occupation, use and enjoyment of the land
b. Compensation for any intentional or negligent damages caused to the land by the
actions of the buyer or someone whose actions he/she is responsible.
6. Where both parties delivered complete performances in terms of a contract which is actually
null and void because of the fact that the formalities were not complied with, the contract is
deemed to have been valid and binding from the time of conclusion thereof.

Right to revoke offer or terminate deed of alienation:

- Interms of section 29A of the Alienation of Land Act 68 of 1981 a buyer may within five days
after signature, unconditionally terminate a deed of alienation by a written and signed notice,
provided that the purchase price does not exceed R250 000, the buyer is a natural person and
the land is used for residential purposes.
- Where a deed of alienation is terminated, every person who received any amount from the
buyer, must refund the full amount of such payment within 10 days after the said notice was
delivered to the seller.
- Where a deed of alienation is terminated every person who received any amount from the
buyer, must refund the full amount of such payment within ten days after the said notice was
delivered to the seller.
- Where the Consumer Protection Act is applicable, a consumer may return goods to a supplier
and cancel the agreement within five business days if the goods were delivered as a result of
direct marketing [Section 16].
- The supplier must then return any payment received from the consumer within 15 business
days.
- Goods are returned in this instance at the consumer’s risk and expense [section 20(4)(a)].
- It is also a requirement in this instance that a contract has to contain a provision informing a
consumer of his/her right to rescind (cool-off) from the contract [section 32].
- Cooling off right means that a consumer may cancel an agreement entered into with a supplier
that resulted from direct marketing, without a penalty fee within 5 business days.
- Direct marketing means to approach a consumer, either in person, by mail or electronic
communication for the direct or indirect purpose of promoting or offering to supply any goods
and services in the ordinary course of business or requesting a person to make a donation of
any kind for any reason.

How to answer problem-type questions

1. You must first and foremost identify the problem and identify the applicable principle in the
question.
2. Provide the theory of the principle/or rule that regulates that particular problem.
3. Most importantly, apply the theory of the principle to the problem or the set of facts
(scenario) and show that you are applying the theory of the principle to the scenario.
4. Lastly, based on the application of the theory of the principle conclude.