13/06/2025
PERFECT DEMONSTRATION WHY DRAFTING CONTRACT IS ESSENTIAL
Drafted contracts are essential in business and commercial dealings for several reasons, particularly in South Africa where legal precedent and statutory requirements shape the enforceability of agreements.
Understand the below reasons why it is important to have drafted contracts:
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1. Legal Certainty and Enforceability
Having a written contract ensures that all parties are clear on their rights and obligations. This reduces ambiguity and provides a legal basis for enforcement. In court cases emphasised the importance of written agreements in establishing the terms of engagement and avoiding disputes over verbal promises. A well-drafted contract can be presented in court as evidence, making it easier to resolve conflicts and enforce terms.
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2. Risk Management and Dispute Resolution
Contracts help manage risks by outlining procedures for dispute resolution, breach consequences, and indemnities. In Makate v Vodacom (Pty) Ltd 2016 (4) SA 121 (CC) the Constitutional Court ruled in favour of the claimant based on the existence of a contractual terms, even though it was not formally documented. This case highlighted the importance of clarity in agreements and the potential risks of informal arrangements. Drafted contracts reduce the likelihood of litigation and provide mechanisms for resolving issues efficiently.
Here is the summary of the case:
The applicant, Mr Kenneth Nkosana Makate, was employed by the respondent, Vodacom (Pty) Limited (Vodacom), as a trainee accountant. In November 2000 he conceived the Please Call Me idea which he intended to sell to a willing buyer. After seeking advice from within Vodacom, he approached Mr Geissler, who at the time was Vodacom’s Director and Head of Product Development. They reached an oral agreement that Vodacom would experiment with the idea and, if it proved commercially viable, Mr Makate would be paid a share of proceeds from the product subject to terms to be negotiated between him and Mr Geissler. Vodacom implemented the idea in March 2001. After Mr Makate’s demands on Vodacom to honour the oral agreement were unsuccessful, he instituted a claim against Vodacom in July 2008 in the then South Gauteng High Court (High Court).
The High Court found that Mr Makate had proved that he had entered into an agreement with Mr Geissler. However, it dismissed the claim on the basis that Mr Makate did not plead the ostensible authority (the seeming or apparent authority) of Mr Geissler to contract on behalf of Vodacom, and further had failed to demonstrate that Mr Geissler had such authority. Additionally, it found that Mr Makate’s claim against Vodacom had prescribed. The Supreme Court of Appeal dismissed Mr Makate’s application for leave to appeal for lack of reasonable prospects of success.
In the majority judgment, written by Jafta J (Mogoeng CJ, Moseneke DCJ, Khampepe J, Matojane AJ, Nkabinde J and Zondo J concurring), this Court upheld the High Court’s finding that Mr Makate had entered into an agreement with Mr Geissler. The Court identified two main issues for determination: whether ostensible authority had been properly pleaded and established by Mr Makate; and whether his claim had prescribed. This majority judgment held that the High Court adopted an incorrect approach to the pleadings. By holding that ostensible authority had not been pleaded, the High Court had conflated ostensible authority with estoppel. On application of the elements of ostensible authority to the facts, the majority judgment found that ostensible authority had been established. Given Mr Geissler’s position at Vodacom; the organisational structure within which he exercised his power; and his role in the process which had to be followed before a new product could be introduced at Vodacom, the judgment held that Mr Geissler had ostensible authority to bind Vodacom.
Would you imagine if Mr Geissler denied entering into verbal agreement with Mr. Makate. It would be extremely difficult to prove the case for Mr. Makate. This case should be used as a lesson that written contracts are important in the commercial dealings.
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3. Regulatory Compliance and Business Integrity
Contracts also ensure compliance with statutory requirements, such as those under the Companies Act and the Consumer Protection Act. In Everfresh Market Virginia (Pty) Ltd v Shoprite Checkers (Pty) Ltd (CCT 105/10) [2011] ZACC 30, the Constitutional Court emphasized the role of good faith in contractual dealings and the importance of honouring renewal clauses. Contracts are important to safeguard against lack of business integrity and protect parties from arbitrary decisions, especially in salas of electronics and motor vehicles where latent defects are common.
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Types of Contracts in Business
Businesses can enter into various types of contracts, including:
• Sale of Goods Agreements
• Service Level Agreements (SLAs)
• Lease Agreements
• Employment Contracts
• Non-Disclosure Agreements (NDAs)
• Partnership or Joint Venture Agreements
• Loan and Credit Agreements
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