Legal Articles

Contracts are part of our everyday interaction with each other, on so many levels e.g social, commercial, religious etc. At the mention of the word “contract” the first thing that clicks in many people’s minds is a long document with terms and conditions, in small fine print, full of legal jargon. Indeed, the majority of what can be accepted as contracts and used as such are in written format.

However, sometimes people shake hands to confirm an agreement of something. Now, that is not less of a contract as well despite not being reduced to writing. In fact, South African law recognizes verbal contracts as equally binding like written contracts, as long as their existence can be proven. It is usually the difficulty in proving the existence, terms and conditions of a verbal contract when a dispute arises, that makes it advisable for parties to reduce their agreements into writing for record purposes.

Upon the conclusion of a contract, sometimes parties require to either amend, remove or add some terms in their existing contract. This may be due to some developments which occurred after the conclusion of the contract, or that either of the parties was not aware of a certain fact at the time of entering into the contract.

Variation of a contract is guided by, the contract itself. Most modern contracts contain what is known as the “non-variation clause” which prescribes the procedure where parties require to vary their agreement. In most cases this clause provides that no amendment, addition or removal of a clause will be binding and effective unless reduced to writing and ratified by the parties. Such an amended document will usually be affixed to the main contract as an addendum and marked as such. The effect of this is that where a party relies on a verbal amendment of the contract, the Respondent will easily rely on the “non-variation clause” to the effect that the allegation of the claimant falls short as it is not binding. Further, it is usually difficult to prove a verbal fact that is being denied by the opposing party unless some evidence is produced in support.

The Courts recognize the freedom to contract and where the parties agreed in their contract that a variation will only be effective if reduced to writing, then the Court will enforce those formalities that the parties agreed at the time of entering into the agreement.

In the case of Xtraprops 66 (Pty) Ltd v Phiopater Supplies (Pty) Ltd (20228/14) [2014] ZAWCHC 177 (25 November 2014) the Court upheld that where parties had agreed on self-imposed formalities to vary their contract, then such are binding upon them. In this matter the Applicant had cancelled a lease agreement and asked the Respondent to vacate the premises it had been leasing in Camps Bay. The Respondent had fell into rental arrears. In defence, the Respondent argued the existence of a verbal agreement between it and the representatives of the Applicant whereby it was agreed that due to the dire financial circumstances of the Respondent, the Applicant would accept a percentage of the daily revenue of the Respondent which was operating a restaurant on the premises. The Applicant argued that the lease agreement prescribed that any variation should be in writing for it to be binding. The Respondent argued that this agreement was not a variation but an agreement to substitute performance (reduced rentals).

The Court rejected the defence of the Respondent and found in the favour of the Applicant in that the alleged verbal agreement was in fact a variation and not merely a substitution of performance. The Court also held that the Shifren principle applied which entrenches that when parties bind themselves with self-imposed formalities in a contract, they are bound by such formalities and such must be given effect to. This principle was developed in the case of SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren 1964 (4) SA 760 (A). Under the circumstances public policy did not warrant any departure from such. In some cases however such as Steyn v Karee Kloof Melkery (Pty) Ltd (unreported case no. 2009/45448) the Court noted that when public policy demands, the Shifren principle may be disregarded. In Nyandeni Local Municipality v Hlazo 2010 (4) SA 261 (ECM), the Court asserted that an employee had attempted to rely on the principle to delay his dismissal for fraudulent financial benefit.

Despite the foregoing, it still remains an entrenched principle in our law that where parties bind themselves to self-imposed formalities, such must be given effect to.

It then follows that where a contract does not have a “non-variation clause” a party may indeed rely on a verbal amendment but the difficulty lies in proving such especially when the other party is disputing that fact.

We strongly advise that parties be guided by the provisions in their contracts when they seek to amend or vary their agreements in order to be binding and effective.

We assist with a wide array of contracts from Commercial Contracts, Lease Agreements as well as Offers to Purchase amongst others. Our Litigation Department is manned by lawyers who have extensive experience in Contract Law. Our approach is comprehensive and professional.  

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