Case Summary: Erasmus v Wiechmann (I 1084/2011) [2013] NAHCMD 214 (24 July 2013)

 

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This law of contract case analysed and determined the enforceability of a pactum contrahendo, or agreement to agree. The case summary attempts to follow the basic FIRAC rubric and includes as much pertinent information as possible. It is, however, not a substitute for self-study. We're only trying to help. Good luck! 😉✌ (Tip: Use the sidebar to browse other case summaries on this subject)

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Facts

- The plaintiff and the first defendant (hereinafter the defendant) both sought to run the business of the second defendant;

- In terms of 'Exh A' ('the agreement' which formed the basis of the plaintiff's claim), the plaintiff claimed certain amounts from the defendant pursuant to the latter's alleged failure to transfer the plaintiff's membership interest in the second defendant or, alternatively, payment out of the same's financial turnover for certain years;

- The defendant claimed that the plaintiff's claim was based on an agreement to agree, which was void or unenforceable; alternatively, should Exh A be found to be valid and enforceable, it should be held that the plaintiff had breached it and was not entitled to any relief based upon it;

- Exh A required the parties to discuss, determine and agree on the cash flow required to run the business of the second defendant after a 6-year period. They then would each have to make a 50% contribution to this amount. It is common cause that this discussion never took place;

- The parties would then each contribute 50% of all the purchases of the business of the second defendant after the end of the 2004 financial year, upon which the plaintiff would pay the first defendant 50% of his contribution after the expiration of the 6 year-period;

- The defendant applied for an order granting absolution from the instance.

Issue

Does Exh A constitute a contract?

Rules

• Rule 18(6) of the Rules of Court: it was stated that no contract existed in terms of this rule. 

• Gordon Lloyd Page & Associates v Rivera and Another 2001 (1) SA 88 (SCA):  (W)hen absolution from the instance is sought at the close of plaintiff’s case, the test to be applied is not whether the evidence led by plaintiff establishes what would finally be required to be established, but whether there is evidence upon which a Court, applying its mind reasonably to such evidence, could or might (not should, nor ought to) find for the plaintiff;

• R H Christie, The Law of Contract in South Africa, 5ed (2006): p 37: An agreement cannot acquire contractual force if it is incapable of standing on its own;

• Southernport Development (Pty) Ltd v Transnet Ltd 2005 (2) SA 202 (A)): See analysis.

Analysis

The court stated the second and third last facts explained above were substantial or material aspects. The cash flow required to operate the business of the second defendant after the expiration of the 6-year period would have to be discussed, negotiated and agreed upon by the plaintiff and the first defendant. Their initial contributions (clause 3 of Exh A), and then their subsequent contributions and the plaintiff’s payment to the defendant (clauses 4 and 5) all hinged on each other; they “enable the respective rights and duties of the parties to be ascertained and enforced in law” (at para [13]). 

The court distinguished this from the situation where parties have entered into a contract and have expressly or impliedly agreed to additional terms at the commencement or implementation of their contract. “In that event, if the further terms are not agreed the agreed contract stands. In the instant case, Exh ‘A’ cannot acquire contractual force because it is incapable of standing on its own. (R H Christie, The Law of Contract in South Africa, 5ed (2006): p 37) In a business sense, the second defendant cannot operate without the realization and inputs of clauses 3, 4 and 5”.

These clauses were so material and dependent upon each other because the parties could not agree on any other matters without first agreeing on the cash flow needed to run the second defendant and then after the purchases following the 2004 financial year had been dealt with on a 50/50 basis, etc.

In his consideration of this matter, Parker AJ looked at Southernport Development (Pty) Ltd v Transnet Ltd 2005 (2) SA 202 (A) and stated that Exh A, as it stood, could not be said to be conclusive and could not not acquire contractual force because it is incapable of standing of its own. 

Finally, on the matter of absolution, the court followed the rule in Gordon, as stated above. A plaintiff has to make out a prima facie case. Since the plaintiff’s entire claim was based on Exh A, which is non-existent, he failed to make out a prima facie case.

Holding

It was held that an agreement to enter into an agreement on essential or material matters at some future date is not an enforceable contract known to our law; the only exception is an agreement to break a deadlock in negotiations through, for example, arbitration and where the decision of the arbitrator would be final and binding on the parties;

It was further held that since there was no agreement on such essential or material matters, as the cash flow needed to run the second defendant and the additional purchases that would be done after the 2004 financial year, there was no contract within the meaning of rule 18(6) of the rules of court;

It was held, therefore, that Exh A does not constitute a contract and is not enforceable.🍎

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