A contract is an agreement between two or more parties who intend to create legally binding obligations. For a contract to exist, there must be mutual agreement (a meeting of minds) and a clear intention to establish obligations.
The agreement must cover three key aspects: that obligations are being created, who the obligations apply to, and what those obligations involve (the required performance). An agreement can be made through words or actions. If made through words, it is called an express or verbal contract.
In South Africa, verbal contracts are legally binding if they meet the basic contract requirements: offer and acceptance, intention to create legal obligations, and consideration. However, because verbal contracts can be difficult to prove, enforcing them may be challenging.
Challenges with Oral Agreements
- Proof of terms – the main challenge is proving the existence and terms of the contract. Unlike written contracts, verbal contracts have no physical documents making it difficult to prove in a dispute.
- Uncertainty and ambiguity – oral agreements can lead to misunderstandings and misinterpretations regarding the terms which thus will lead to disputes and legal challenges
- Statutory requirements – certain contracts are required by the law to be in writing.
Enforcing an Oral Agreement
To do this a party must prove the existence of the contract and its specific terms. This will likely involve witness testimony, supporting evidence of the agreement's implementation and demonstrating that the agreement meets all legal requirements of a contract.
Types of Contracts That Need to be in Writing as Prescribed by Statute:
1. Alienation of Land Act, 68 of 1981 ("ALA")
In terms of Section 2(1) of the ALA, no alienation of land shall be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority (subject to the provisions of section 28).
This section confirms that any agreement for the sale of an immovable property must be recorded in writing. Therefore, a verbal agreement for the sale of the immovable property will not be valid and enforceable.
2. General Law Amendment Act, 50 of 1956 ("GLAA")
Section 6 of the GLAA states that no contract of suretyship entered into shall be valid, unless the terms thereof are embodied in a written document signed by or on behalf of the surety.
This means that a suretyship (an agreement whereby a person bind themselves as a debtor to the creditor of another person) must be in writing to be legally valid.
3. Wills Act, 7 of 1953
A further example of a contract that needs to be in writing in contained in section 2(1)(a) of the Wills Act, which states that no will executed on or after the first day of January, 1954, shall be valid unless:
- The will is signed at the end thereof by the testator or by some other person in his presence and by his direction; and
- Such signature is made or acknowledged by the testator in the presence of two or more competent witnesses present at the same time; and
- Such witnesses attest and sign the will in the presence of the testator and of each other.
- If the will consists of more than one page; each page other than the page on which it ends, is also signed by the testator or by such other person anywhere on the page.
This means that a will must be in writing and properly witnessed to be valid.
The Validity of Verbal Agreements:
The following cases have discussed the validity of verbal agreements in South Africa.
1. Imbuko Wines
In Imbuko Wines Ltd v Reference Audio CC (405/2021) [2022] ZASCA 110, the Supreme Court of Appeal (SCA) confirmed that rights under a verbal contract can be ceded verbally. It emphasised that cession requires agreement between the cedent and cessionary but does not need the debtor's consent. The cessionary must prove the cession based on the parties' intentions. While notice to the debtor is not required for validity, it protects the cessionary from the debtor mistakenly paying the cedent.
The SCA recommended written contracts for clarity and enforcement, though practical exceptions, such as book debt cessions, may apply.
2. African National Congress v Ezulweni Investments
The case of African National Congress v Ezulweni Investments (Pty) Ltd [2023] ZASCA 159 reaffirms the principle that an oral contract is legally enforceable if it is proven that an agreement was reached with the requisite authority.
In this matter, Ezulweni Investments claimed to have entered into an oral agreement with the ANC for the supply of election banners, which the ANC later denied, arguing that no valid contract existed without a formal purchase order and approval from the Treasurer General. The SCA dismissed the ANC's arguments, finding that the conduct of its officials — repeated engagements, approvals, and lack of any objection to the work done — demonstrated that a binding contract had indeed been concluded. The SCA applied the Plascon-Evans rule to reject the ANC's version as a fictitious dispute of fact and upheld the High Court's ruling that the agreement was valid and enforceable. Furthermore, the SCA emphasised that authority to contract can be inferred from conduct and internal communications, such as the letter designating an official to handle election-related finances.
The case underscores that an oral agreement, supported by clear evidence of consensus and performance, can be enforced, even in the absence of a written contract, provided that the necessary authority to contract is established.
In South Africa, oral agreements are legally binding but pose substantial challenges regarding proof and enforceability. Written contracts are typically favoured for their greater security and clarity. Caution is advised when entering into oral agreements, ensuring the terms are well-defined and, where feasible, supported by written confirmation.
Some contracts, however, have to be in writing to be legally enforceable. These are contracts of sale, exchange or donation of land, ante-nuptial contracts and deeds of suretyship.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
