Article courtesy of Law Dot News | Contracts – Verbal Agreements

The Verbal Agreement That Cost R1 Million

“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.

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Article courtesy of Law Dot News | Employment & Labour Law – Fixed Term Contracts

Fixed Term Contracts: A Guide for Employers and Employees

It’s vital for both employers and employees to understand the practical and legal differences between permanent and fixed term employment arrangements.

What is a fixed term contract?

A fixed term contract is a temporary employment arrangement with a specified start date and an agreed end date. This could be a fixed end date or a reference to a specified task or project reaching completion, or to a specified event. Importantly, you must be able to prove that your employee agreed to the end date.

A standard contract of employment, by contrast, is for an unlimited period and ends only when your employee resigns, or reaches retirement age, or is lawfully dismissed or retrenched by you.

Any employer tempted to misuse a fixed term contract in order to dodge the many legal protections given to a full-time employee should think twice – our courts do not look kindly on attempts to prejudice employees by disguising the true nature of an employment relationship.

The basic requirements

The contract (and any renewal contracts) must be in writing and must state the reasons justifying the stated fixed term.

The protections

The Labour Relations Act (LRA) provides a range of protections to fixed term employees. Let’s address them under two main headings.

Firstly, the “reasonable expectation of renewal” protection that applies to everyone

Simply put, you could face an unfair dismissal claim (with all that that entails) if you give the employee reason to believe that the contract will be renewed or converted to full-time employment.

That’s because – and this applies to all fixed term contracts in that none of the exclusions listed below apply here – the LRA says the termination of a fixed term contract is seen as a “dismissal” if:

• The employee “reasonably expected” you to either renew the fixed term contract on the same or similar terms, or to convert the contract into indefinite employment (again, on the same or similar terms), and you didn’t do so. 

Anything could land you in hot water here, with particular risk areas being things like continual renewal of fixed term contracts without justification, verbal or implied reassurances of renewal, a workplace culture of renewing contracts etc. To be on the safe side, consider giving your employee specific written notice of non-renewal in good time. Every scenario will be different here, so in some instances you may be advised that multiple contract renewals are justified, in others that they aren’t – specific legal advice is essential, and the bottom line is that professionally drawn contracts and clear communication are critical.

Secondly, other protections that apply only to certain employees

These additional protections do not apply in any of these exceptions:

• The employee earns more than the earnings threshold set by the Basic Conditions of Employment Act (currently R261,748.45 per year or R21,812.37 per month).
• You employ less than 10 employees.
• You employ less than 50 employees in a business that is less than two years old (and that hasn’t been formed by dividing or dissolving an existing business).
• The fixed term contract is permitted “by any statute, sectoral determination or collective agreement.”

The three-month limit, and the need for justification 

You can only use a fixed term contract (or successive contracts) for over three months if:

1. The work involved is of limited or definite duration, or
2. You are able to prove a justifiable reason for fixing the contract’s term, with the LRA specifically mentioning situations such as:
   • Covering another employee’s absence (on maternity leave perhaps)
   • Addressing a temporary increase in work not expected to last over 12 months
   • Providing work experience to students and new graduates
   • Specific projects of limited or defined duration
   • Seasonal work
   • Positions funded externally for a limited period
   • An employee who has reached retirement age

   This is not an exhaustive list so you may well have other justifiable reasons, such as perhaps needing to establish the viability of a new venture, a new branch, or a new position before committing to long-term employment.

Watch out here! If you employ someone on a fixed term contract for more than three months without complying with the above, the contract is automatically deemed to be a full employment contract of unlimited duration.

Other things to watch

• Equal treatment after three months: Even if you have justification for exceeding the three-month limit, you must then treat the employee no less favourably than a permanent employee in the same position, unless again you have justification for different treatment.
• Right to apply for vacancies: Fixed term employees must have the same access to apply for vacancies as permanent employees.
• Retrenchment pay if a project exceeds 24 months: Any project-specific fixed term employee who is employed for over 24 months must, when the contract ends, be paid a week’s remuneration for every completed year of the contract or offered other employment (with you or another employer) on the same or similar terms.

A properly drawn employment agreement that both protects your interests and complies with the law is essential – and we’re standing by to help you.

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.

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Article courtesy of Law Dot News | Contracts | Property | Trusts

Contracting with Trusts – Is a Majority Decision Valid?

“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.

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.

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Article courtesy of Law Dot News | Contracts – Verbal Agreements

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

“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 –

 

1. 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.
2. 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.
3. 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.
4. 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.

 

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