Think before you sign: 5 Things to consider before signing a contract
The simple definition of a contract is where an offer by one party is accepted by the other party. These parties are the contracting parties. There will be no agreement between the parties if there is a counteroffer to an offer. However, if a counteroffer is accepted, there is an agreement or consensus between the parties. What are the requirements of a valid contract? There must be a consensus between the contracting parties; The parties must have a legal capacity to enter into a contract; All the formalities must have been met, whether it is contained in the contract itself or by law. For example, the sale of immovable property has to be in writing. However, verbal contracts are valid contracts; Performance as per the agreement has to be possible as well as lawful; There must be certainty in respect of what the parties agree to. As with all contracts, there are certain things that need careful consideration when entering into a contract. Performance: Performance is what each party is responsible for in terms of the agreement. With an agreement of sale, the parties agree that one person will make payment in a specific amount in return for a specific item. Before entering into a contract, it is important to consider whether you will be able to perform in terms of the agreement. Will you be able to pay the purchase price? Will you be able to deliver the thing? Will you be able to provide the service as agreed? When payment is done in instalments, due consideration should be given to the instalment amounts and if the party who is liable for said instalment amounts is able to afford it for the period agreed upon. Interest on repayment plans is another factor that needs careful consideration. Although parties may agree to any amount of interest, it would be wise to agree to a reasonable interest. A credit agreement is a common form of an agreement entered into by parties. Examples of these are credit cards, vehicle finance agreements or mortgage bonds. It is important to establish whether a party offering a credit facility is a registered credit provider in terms of the National Credit Act (NCA). Non-variation: Notwithstanding that verbal contracts are valid contracts, it is wise to have a contract reduced in writing in order to avoid uncertainty. Even written contracts can be uncertain at times. If you have your contract in writing, make sure that it contains a non-variation clause to ensure that all changes to the contract shall only be valid if in writing and signed by both parties. It is important to note that variations of a contract may take place by means of email correspondence. Dispute resolution: Make sure that in the event of a dispute the parties should follow a procedure in order to resolve the dispute. For example, parties can agree to give each other written notice in order to rectify a default within a short period of time after which the aggrieved party can institute legal action against the other party. The parties can agree to proceedings they find more effective In terms of time, costs, and resolution. It is common that parties agree that the magistrates’ court has jurisdiction to preside over a dispute arising from their contract. Domicilium: Domicilium citandi et executandi is the nominated address for accepting notices and processes for purposes of court proceedings. It is important to note that the court may accept that a party has received proper notice of proceedings if there is proof of delivery to the nominated address despite the fact that you may be unaware of said delivery. Do not sign contracts that you do not know or understand the content of. This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
Demystifying “non-refundable deposits”, “rouwkoop” and “penalty clauses” in sale of property agreements
Non-refundable or forfeiture clause Sellers are sometimes sold on the idea of including a non-refundable deposit clause in the Contract of Sale. More often than not, sellers are under the impression that they will be entitled to all of the non-refundable deposit or monies already paid to the conveyancer on account of the purchase price if the purchaser breaches a Deed of Sale and such breach results in the cancellation thereof. The seller will, however, then find out that after cancellation of the contract due to breach, that not all amounts may be retained as liquidated damages or as a non-refundable deposit. In terms of our case law, Matthews v Pretorius (1984) (3) (SA547W) and the Conventional Penalties Act 15 of 1962 (“the Act”), any penalty or liquidated damages contained in a contractual obligation shall be subject to the provisions of the Act which affords the Court the discretion to, on hearing a claim for a penalty or a non-refundable deposit, find that it might be out of proportion to the prejudice suffered by the creditor and the Court may reduce the penalty to such extent as it may consider equitable under the circumstances, taking in due consideration the interests of all concerned. This means that any forfeiture stipulation resulting from the cancellation of an agreement, including non-refundable deposits, as well as the retention of certain monies already paid by a purchaser as liquidated damages, will be subject to the measurement as described in the Conventional Penalties Act. Estate agents should be very careful not to create an expectation with the seller that he or she will be entitled to all of the non-refundable deposit or monies already paid to the conveyancer on account of the purchase price if a purchaser breaches a Deed of Sale of immovable property and such breach results in the cancellation thereof. The role of conveyancers is important to understand as well. It is not expected from conveyancers to act as a Judge and Jury when dealing with monies in their trust account when a dispute arises about who should be the rightful recipient of such monies once the Deed of Sale is cancelled. Unless and until such time as an agreement has been reached between the parties or a competent Court has made an order, it cannot be expected of conveyancers to pay the monies to either party. Breach of contract The relationship between a purchaser and seller is governed by the Contract of Sale. The breach of contract occurs generally when a party to a contract without lawful excuse fails to honour his or her obligations under the contract. When a contract is cancelled in terms of the breach clause of the said contract, the aggrieved party would normally have the right to claim damages from the guilty party. When claiming damages, the aggrieved party must note that the Conventional Penalties Act will also be applicable to the amount of damages that may be claimed. In the instance of the seller, the seller’s damages will often only be liquidated once the property is resold and the seller’s claim will only be for the deficit between the amount of resale and the original contract sum of the cancelled agreement. Rouwkoop A rouwkoop clause in its pure form comes from our common law. It is derived from the Dutch words meaning “regret and purchase”. Such a clause entitles a party to a contract to pay a sum of money in order to be allowed to withdraw from the contract. It essentially sets a purchase price for freedom from the contract payable by the purchaser. If the purchaser then withdraws from the contract and pays the agreed rouwkoop amount, he will be acting in accordance with the terms of the agreement and his withdrawal will not constitute a breach of contract. (It is not regarded as a penalty.) This is clearly very distinguishable from a penalty clause which would come into operation only where there was a breach of contract. Unfortunately, many sale agreements confuse the position in law whereby the forfeiture clause is merged with a rouwkoop clause, which provides that if the purchaser breaches the agreement and the seller cancels the agreement as a result thereof, the purchaser will forfeit his or her deposit as rouwkoop. In a decision of Royal Anthem Investments 129 (Pty) Ltd v Yuen Fan Lau and Shun Cheng Liang (941/2012) (2014) (ZASCA 19) (26 March 2014), the Court had to interpret a rouwkoop clause in a Deed of Sale which read as follows: “Will have the right to cancel the agreement and to keep other amounts payable as rouwkoop, or by means of any pending decision by a Court of the real damages suffered”. The Court in this instance found that the deposit was not an amount as envisaged by the rouwkoop clause in the true intention of the rouwkoop clause history. A penalty clause will only come into operation when there was a breach of the contract. Conclusion From the said case law and the provisions of the Act above, it is clear that: Non-refundable deposits are a myth and together with forfeiture clauses, subject to scrutiny by the Courts. Unless the parties to the agreement can come to an agreement regarding the penalty, the Court must be sought to quantify the amount payable as a penalty. A rouwkoop clause in a Deed of Sale must be clearly distinguished from the penalty clauses above as it is not subject to the provisions of the Conventional Penalties Act. So, be sure to demystify the myth before you enter into one of the most important transactions of your life. Consult with an attorney. This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and