Contract Archives - Knoetze Law Inc.

BFFs no More: The Verbal Agreement That Cost R1 Million

April 2025 | Contract

“My word is my bond.” (Once the motto of 16th-century merchants, adopted by ’90s hip-hop artists, and now tossed around by duelling politicians)

Many people are unaware that there are just a few types of agreement that are valid only if recorded in writing and signed – most notably contracts for the sale, exchange, or donation of land or of any “interest in land”, ante-nuptial contracts (ANCs), and deeds of suretyship.

Outside of those exceptions, all verbal agreements are as valid and enforceable as written ones. Your word really is your bond! So be careful what you agree to verbally – and stick to written agreements whenever there’s a lot at stake. A recent High Court judgment provides a great practical example of those principles at work.

When friends fall out

It’s 2009, and the MD of a long-established Cape Town freight operation is doing business with another business owner. Their relationship develops from a strictly business one into a personal, “best friend” one.

By 2012, they have agreed verbally that the friend will move to Johannesburg to establish a branch of the freight company there as a new director.

Believing that he will now be given a 5% share in the company and be appointed as a director, the friend pays the company R1m to cover the new branch’s start-up funding. But when he asks for his shares, the MD refuses, denying there was ever any agreement to give him equity and telling him that the R1m was just an “at-risk investment”.

The refusal to give him shares, says the friend, is a repudiation (renunciation) of the oral agreement, and he demands that the company now repay his R1m.

The company, through its MD, refuses – “I’ll see you in court,” he says. In the latest (2025) round of litigation, the Court, without a written agreement before it, has to analyse a litany of contradictory evidence to try and work out what exactly had been verbally agreed by the two ex-friends.

Offer someone a carrot and you’ll have to give it to them

The Court was unimpressed with the MD’s version that his friend’s R1m payment was an “at-risk investment” rather than the agreed purchase price of a 5% shareholding. A major factor in that decision was clearly the director’s 2013 email to his friend which included this: “…I have committed to sell you equity…”, reinforced by his evidence that he only changed his mind about parting with shares in 2014.

The nail in the MD’s coffin was no doubt his admission that that he had held out the prospect of his friend becoming an equity partner as “a carrot”. His friend accepted that offer, their oral agreement became binding, and the company must repay the friend his R1m plus interest and costs.

Offer someone a carrot, and our law will hold you to deliver it!

“The bluntest pencil is better than the sharpest memory”

While it seems justice has been done, both the falling out and the court case could have been avoided altogether.

Had the MD and his friend thought the whole thing through properly back in 2012 and asked a lawyer to draw up a proper written agreement for them, it’s highly unlikely that they would, in 2025, still be fighting their way through the courts. Who knows, they might never have come to blows at all and could still be BFFs!

Don’t rely on a “handshake” agreement, even with the best of friends. When the stakes are high, let us help you put it in writing – clearly, enforceably, and with a minimum of fuss.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.

Gift or Loan? A Cautionary Tale for the Season of Giving

November 2024 | Contract

“The bluntest pencil is better than the sharpest mind” (Unknown)

The Festive Season is traditionally a time for giving, and it seems a pity to have to mention the hard realities of the law right now. But, as a recent High Court dispute confirms, things can go horribly wrong if the people involved have different notions on whether what’s being given is a gift, or a loan.

“Here’s R400k Ma” – But was it a loan, or a gift?

The setting for this dispute is a small caravan park, with 13 caravan sites, nine flatlets and two chalets, in the resort town of Illovo Beach on KZN’s beautiful South Coast.

The two parties are:

A prospective mother-in-law, part owner of the park, who lives in one of the flatlets.
Her daughter’s fiancé. He and the daughter were living together in the daughter’s separate flatlet at the time.

The fiancé was badly injured in a motorcycle accident, which saw him hospitalized for two weeks and incapacitated for another several months. He was paid R1.8m by the Road Accident Fund.

He used part of his R1.8m to pay his future mother-in-law (he called her “Ma”) three amounts totalling R400,100. And that’s where the dispute arose, with the Ma and son-in-law disagreeing on the nature of the payments:

The fiancé claimed that it was a verbally-agreed loan for a long-term investment, repayable on demand.
His prospective mother-in-law claimed that it was a verbally-agreed donation.

She duly refused to repay the money to the fiancé when he demanded it, and he sued her in the regional magistrate’s court. The onus, it was decided, was on her to prove her version that it was a gift rather than a loan.

She lost the case, largely it seems because she gave contradictory explanations for why the fiancé had given her such a gift. At first, she said it was as a token of appreciation for her not charging him to live in her daughter’s flatlet, for settling some of his medical expenses, and for the care she’d taken of him during his recuperation. But later, she said it was for payment of her legal fees arising out of a dispute with her ex-husband, and a gift, not to her, but to her daughter.

The magistrate accordingly held that she had received not a gift but a loan and ordered her to repay it. Her attempt to appeal to the High Court failed on the basis that she had filed her appeal late without giving good reasons for the delay. Critically, the Court described her prospects for success as “poor” given the above facts.

While this particular case has been decided, the main point is that the whole sorry saga of dispute and litigation could have been very easily avoided…

Gift or loan? Avoid all doubt

There’s nothing like a misunderstanding over money to drive a wedge between friends and/or family. That’s why you should avoid all possibility of confusion and dispute with a written, signed agreement. Clearly state how much is involved, and whether it’s a gift or a loan – and if it’s a loan, specify the arrangements for repayment.

Of course, the more money involved, the more detailed and formal your agreement needs to be. It goes without saying that we are here to assist if you need any advice or help.

Contracting with Trusts – Is a Majority Resolution Valid?

May 2024 | Contract, Property, Trusts

“Externally, trustees cannot disagree. In the external sphere the Trust functions by virtue of its resolutions, which have to be supported by the full complement of the Trust body.” (Extract from judgment below)

A recent Supreme Court of Appeal (SCA) judgment provides yet another reminder to tread carefully when contracting with trusts. Your agreements with a trust will be invalid and unenforceable if the trustees acting for the trust weren’t properly authorised to bind the trust.

But must trustee resolutions always be taken unanimously by all of the appointed trustees to be valid, or will a majority decision ever suffice? The SCA addressed that question in the context of a trust seeking to escape from a suretyship which had not been unanimously agreed to and signed by all three trustees acting jointly –

When a majority trustee decision isn’t enough

A creditor sued a property trust for payment under a suretyship given to it by the trust. The trust countered that the suretyship was invalid because the resolution authorising trustees to sign the suretyship was not authorised and signed by all three trustees, but only by two of them.
Indeed, only two of the trustees had attended the trustee meeting at which the suretyship was discussed. The third trustee had not been at the meeting and did not sign either the resolution authorising the suretyship to be signed or the actual suretyship.
The meeting itself was in order, in that the trust deed provided for two trustees to constitute a quorum for meetings. But the deed also provided that a unanimous decision was required for the trust “to conduct business on behalf of and for the benefit of the Trust, and to employ trust property in such business”.
In any event, as the Court put it: “…trustees must act jointly in taking decisions and resolutions for the benefit of the Trust and beneficiaries thereof, unless a specific majority clause provides otherwise” and “Even when the trust deed provides for a majority decision, the resolutions must be signed by all the trustees. (Emphasis added)
As it was neatly put in an earlier High Court decision: “A majority of trustees in office may form a quorum internally at a trust meeting, but can still not externally bind a trust by acting together … It is not the majority vote, but rather the resolution by the entire complement which binds a trust estate. A trust operates on resolutions and not votes.” (Emphasis added)
As only two of the three trustees had acted for the trust in this case, the Court held both the resolution and the suretyship to be invalid and unenforceable.

So, what does that mean for you in practice when contracting with a trust?

Internal trust matters: Internal matters (such as using trust income for the benefit of beneficiaries or administering trust assets) “may be debated and put to a vote, thereafter the voice of the majority will prevail.”

External trust matters: As an outsider however your dealings with the trust will relate to external trust matters (transactions relating to trust property with the outside world such as buying and selling property, signing suretyships and the like) and here unanimity is essential for the trust to be bound. Even when the trust deed allows majority decisions, all the trustees must still participate in the decision-making and all of them must sign a resolution to make it valid externally. Make sure therefore that all trustees signing for the trust have the power to do so per the trust deed and by a valid, unanimous resolution.

Can Your 👍Thumbs-Up Emoji or E-Signature Seal a Deal?

July 2023 | Contract

“…data messages or electronic signatures are now recognised in our law as equivalent to a proper basis upon which a written contract can be concluded. Thus, a valid written contract can be concluded electronically.” (Extract from the South African judgment below)

ECTA (the Electronic Communications and Transactions Act) means that you can in many cases create legally binding agreements purely electronically – via email, WhatsApp, social media and the like.

There is of course both risk and opportunity here. On the one hand, the old hassles of printing everything out and signing reams and reams of paperwork have become unnecessary, even undesirable, for many transactions (but not all – take advice in doubt). Remember to keep proof of everything.

But be careful what you e-agree to!

On the other hand, beware the risks! We tend to focus more on what we’re agreeing to when it involves reading and signing printed documents, and when everything is electronic it’s a lot easier to gloss over details, and to underestimate the importance of subject matter. Particularly, perhaps, in a social media environment, where things often evolve at pace and with an air of informality.

Let’s start our discussion off with a recent High Court confirmation of the binding nature of electronic signatures.

An e-signature binds a debtor to a R1.5m deal

A bank sued a debtor who, it said, had electronically signed a credit agreement to buy a R1.5m BMW X5 motor vehicle and then defaulted on instalment payments.
Sued for damages and for return of the vehicle, the debtor countered by denying that he had entered into a valid electronic contract. He said his brother-in-law/employer had purchased the car in his name and had signed the agreement electronically.
The bank, however, produced evidence (including recorded telephone conversations between the debtor and its call centre) to support its claim that the electronic signature was indeed the debtor’s.
Commenting that “…data messages or electronic signatures are now recognised in our law as equivalent to a proper basis upon which a written contract can be concluded. Thus, a valid written contract can be concluded electronically”, the Court held that the debtor had indeed concluded the contract, and that the bank was entitled to cancel it, demand return of the car, and claim damages.

Can a “Thumbs-Up” 👍 emoji bind you to a contract?

A Canadian Court recently made international news after holding that a👍thumbs-up emoji constituted approval of a contract (a sale of flax), thus creating a valid contract.

The buyer in that matter had texted to the (proposed) seller an image of a purchase contract, along with the message: “Please confirm flax contract”, and the seller had responded with a 👍thumbs-up emoji. When sued for failing to deliver per the contract, the seller claimed never to have accepted the contract – all the emoji meant, he said, was that he would think about it. However, on the particular facts of this matter, the Court concluded that the emoji had indeed signified the seller’s acceptance of the contract. The seller must now pay the buyer Can$82,200.21 (almost R1.2m at date of writing) in damages for breach of contract.

But would the result have been the same in a South African court? It seems logical that it would, provided of course that in the particular context of the matter the emoji clearly meant “I accept” and not perhaps “got it, will come back to you with an answer” or something similar.

Verbal Agreements – Not Much Good, But Lots of Bad and Ugly

June 2022 | Contract

“The Good, The Bad, and The Ugly” (Spaghetti Western, 1966)

A common myth – one that can get you into a whole lot of trouble if you aren’t alive to it – is that verbal contracts are not legally enforceable in South Africa.

The opposite is true. With very few exceptions, our law will hold you to all your agreements, whether oral or written.

What verbal agreements aren’t binding?

Not many. Only a few types of agreement must be in writing to be fully valid, the most common being contracts for the sale, exchange, or donation of land or of any “interest in land”, ante-nuptial contracts (ANCs); and deeds of suretyship.

So, watch what you say!

Firstly, although our laws of contract are complex, with many exceptions and “ifs and buts”, at the most basic level the only requirements for a binding contract are an “offer” and an “acceptance” of that offer.

So, watch what you say! Make an offer to someone else, or accept another person’s offer, and that little voice at the back of your mind telling you “Don’t worry, you aren’t actually tying yourself into anything here” is very likely to be (a) totally wrong and (b) getting you into a whole lot of trouble.

The danger – a little bit of Good, but mostly Bad and Ugly

Of course, verbal agreements do have their benefits – they’re quick, easy, and cost-free. We enter into little give-and-take deals with others in our daily lives without a second thought and with not a drop of ink in sight. And that’s absolutely fine for the little things.

But contracting orally is a terrible idea when the stakes are high –

Our not-so-sharp memories: As the old proverb warns us: “The bluntest pencil is better than the sharpest memory”. It’s a human trait for us to “hear what we want to hear”. And to remember what we want to remember. You and the other person could well, in all innocence, come away from exactly the same discussion with totally different ideas and memories of what you actually agreed to.Next thing you know you’re both in court, swearing to the truth of your own versions and leaving it to a judicial officer to try and decide whose recollection is the more accurate. That decision could go either way.Record what you agree to, for all to see.
The fraud risk: Worse, if your opponent isn’t above stretching the truth a little (or a lot!) you have the same problem but magnified. Make it difficult for a dishonest party to wriggle out of an agreement – or to misrepresent its terms – by recording it in black and white.
Proof: Which brings us to the question of proof. With an oral agreement it is your word against theirs. At best, you may be lucky enough to have a witness available to support your version, but such a witness may or may not have a good memory and high credibility. That can never match up to the evidential weight of a “signed, sealed and delivered” contract.
Certainty and Dispute: Let’s bring that all together under the heading of “certainty”. Although written contracts aren’t perfect – our courts are regularly faced with disputes over them – there’s a lot less room for misinterpretation, uncertainty, and dispute when you can stand up in court waving a signed piece of paper rather than saying “As I recall it…”

An end note on electronic contracts

This is a whole other topic on its own, but bear in mind that since the arrival on the scene of the ECT (Electronic Communications and Transactions) Act you can often contract electronically via email, WhatsApp, and the like. There’s both a warning there (“be careful what you agree to electronically!”) and an opportunity (“paper, pen and ink not always needed!”). Take professional advice in any doubt.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Exemption Clauses in Contracts – Fine Print Can Void Them

October 2021 | Contract

“… he did not think that he was binding himself ‘to all sorts of fine print that I can’t even read’.” (Extract from judgment below, describing evidence given by the customer during the trial)

For suppliers of goods or services, incorporating a strong, clearly worded exemption clause (a clause excluding or restricting your liability to the customer) into your contracts is an essential part of risk management. Just be aware of the restrictions that our laws place on them.

As a recent Supreme Court of Appeal (SCA) judgment shows, your first hurdle in enforcing a disputed exemption clause could be to convince a court that the consumer did in fact contract on the basis of that condition –

“In fine print” and “not conspicuously legible” – so not part of the contract

A shipping company agreed to transport from America to South Africa an overhauled aircraft engine.
It failed to make delivery to its customer after the engine was destroyed in transit in the U.S. The shipment had not been insured, and the shippers told the customer that according to their terms and conditions for ocean freight shipments, they were only liable to pay US $500 (about R6,000 at the time) per shipment.
The customer was having none of that and sued the shipper in the High Court for the engine’s full replacement value of R386,140-30. The shipper relied on a series of wide-ranging clauses, incorporated in its standard trading conditions, which limited its liability.
The High Court ordered the shipper to pay up on the basis of consumer protections contained in the Consumer Protection Act (CPA) which make it compulsory to word exemption clauses “in plain language” and to draw them “to the attention of the consumer … in a conspicuous manner…”.
The shipper appealed to the SCA, which, in dismissing the appeal, held that it was not necessary to consider the CPA question because the customer hadn’t contracted on the basis of the standard trading conditions in the first place. The customer regarded his contract as formed by an initial exchange of emails, and only afterwards was he asked to sign a credit application in order to open an account. As he did not require credit, he regarded all that as merely a matter of formality to capture his details and allocate him an account number.
The shipper, held the Court, did not explain to the customer that the credit application contained provisions that excluded or limited the shipper’s liability for loss or damage. “Furthermore, the standard trading conditions and the relevant clauses which [the shipper] seeks to rely on appear in fine print, and are not conspicuously legible. They appear on the second and third pages of the credit application, which can only be read with extreme difficulty and concentrated effort. Importantly the credit application was sent without the conditions being attached and were described by [the shipper] as needing to be completed so that ‘we can start the process’.” (Emphasis supplied).
The shipper must pay up in full, plus interest and (no doubt substantial) costs.

As a supplier, if you want your exemption clause to be accepted in court …

In addition to a general inclination by our courts to consider the principles of ubuntu, fairness, good faith and public policy when interpreting contracts, bear in mind the CPA’s requirements (summarised above) and the need to incorporate your exemption clause clearly and unambiguously into your contract before it is concluded.

As a consumer, read the fine print!

“Education is when you read the fine print. Experience is what you get if you don’t.” (Pete Seeger)

Although, as is clear from the above, you might be able to circumvent an exemption clause, our law will generally hold you to all the terms and conditions of your agreements. The safest course therefore will always be to heed the old legal principle “caveat subscriptor” (“let the signer beware”), so read the fine print, and in any doubt take professional advice before you sign anything!

« Older Entries