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By Karabo Orekeng
A whole agreement clause provides that if a written document was intended to record a memorial of the contract, no evidence may be given of any earlier agreement made between the parties which is inconsistent with the terms of the written contract.
Rule 18(4) of the Uniform Rules of Court sets out fundamental principles when it comes to drafting particulars of claim. If a case is not properly pleaded the plaintiff risks being met with an exception, which is a legal objection in terms of rule 23. For an exception to be upheld in court the lack of particularity must be so serious as to amount to a failure to disclose a cause of action or, alternatively, to render the pleading vague and embarrassing.
Rule 18(6) sets out the requirements for the averments that need to be contained in a breach of contract claim. In terms of this rule if you plead in relation to a contract, you must –
The question then is, can a plaintiff plead that their cause of action/claim is based on a partly written and partly oral agreement if said agreement offends the parol evidence rule contained in the whole agreement clause? Secondly, if the oral agreement offends the written agreement what remedy would a plaintiff or defendant have to still adduce evidence based on the oral agreement?
The parol evidence rule (the rule) applies ‘when the parties have reduced their agreement to writing, the writing is the sole memorial of the agreement and no evidence is admissible to contradict, alter, add to or vary its terms’ (M Wallis ‘Endumeni and the parol evidence rule: Do they coexist?’ (2023) 26 PER 6 – 7). Where there is an agreement between the parties, which is made up of a partly written agreement or partly by a prior oral agreement, the rule applies to the written portion of the agreement thereby precluding evidence that would contradict the terms of the written agreement (Wallis (op cit) at 7).
With this in mind it is an important consideration to determine to what extent the rule applies. The rule serves a ‘twofold purpose’ which is described by Corbett JA in the case of Johnston v Leal 1980 (3) SA 927 (A) as ‘the “integration” rule and the “interpretation” rule’ (Wallis (op cit) at 7). ‘Where the parties reduce their agreement to writing …, the integration rule excludes extrinsic evidence contradicting, altering, adding to or varying the written agreement. The “interpretation” rule concerns the admissibility of extrinsic evidence to interpret the contract’ (Wallis (op cit) at 7 – 8).
In essence, in application of the rule, ‘the extrinsic evidence is measured against the language of the contract and excluded if it is inconsistent with it’ (Wallis (op cit) at 14). For example, where a written agreement provides for payment to be made at a certain date or rate proof of an alleged oral agreement to pay the amount at a different rate or different date would be excluded by the parol evidence rule unless rectification is sought.
In the recent case of M&J Da Costa Brothers (Pty) Ltd and Another v Karan (GJ) (unreported case no 2021/58699, 13-1-2023) (Bezuidenhout AJ), there were two issues for determination:
On 29 August 2018, the parties had concluded a written sale of businesses agreement (the agreement) where the plaintiff sold its businesses to the defendant (para 1).
A summary of the terms of the written agreement were the following:
‘The aggregate purchase consideration payable on the transfer date by the defendant to the plaintiffs for the businesses, excluding the Manjoh Ranch’s other assets and the M&J Da Costa Brothers’ other assets, would be an amount of R227 714 203.00.
“Other assets” of both the Manjoh and the M&J Da Costa Brothers’ businesses are defined as the raw materials, seeds, standing crops, fertilisers, pesticides …, packaging materials, feeds, fuel, silage and other finished goods on the properties as at the effective date and including all other assets not otherwise included in the sale assets.
The purchase price payable for the Manjoh Ranch’s other assets and the M&J Da Costa Brothers’ other assets would be an amount equal to the aggregate of the costs reflected on annexure “W” … .
If no item of cost was specified on annexure “W”, then no amount would be payable by the defendant in respect thereof … .
The agreement would contain the entire agreement between the parties relating to the subject matter and none of them would be bound by any undertakings, representations, warranties, promises or the like not recorded in the written agreement or in such other agreements.
No alteration, variation, novation or cancellation by agreement of, addition or amendment to, or deletion from the agreement would be of any force or effect, unless in writing and signed by or on behalf of the parties thereto’ (my italics) (para 5).
The plaintiffs’ case was that during October 2018 the parties, in addition to the written agreement concluded an oral agreement providing for the interim period which ran from the signature date to the effective date, however, the interim period was already provided for in the written agreement. The other issue was, the express, alternatively tacit, alternatively implied terms of the oral agreement were that it would be in respect of: ‘the purchase of raw material, seed, fertiliser, pesticides, herbicides, chemicals, fuel and packaging material not identified or recorded in annexure “W” and which was not on or worked into the properties of the plaintiffs’ (my italics) (para 7).
The written agreement provided that during the interim period (which ran from 29 August 2018 (being the signature date) up to the effective date (being 10 June 2019)), the plaintiff would retain control and management of the businesses and conduct the businesses as they did in the past. In effect, the defendant would not have control and management of the business and sale of assets during the interim period. However, in reality this did not occur, the defendant took over effective control and management of the businesses on 30 August 2018, which was a day after the agreement was concluded, this led to the plaintiffs no longer having any control over their businesses and had to purchase other products on the instructions of the defendant after the defendant took possession. Given the changed circumstances, the parties concluded an oral agreement to provide for the change in circumstances, this created a premise for the plaintiffs to argue that the oral agreement goes beyond the ambit of the non-variation clause contained in the written agreement.
The first plaintiff instituted one claim against the defendant for various costs and expenses incurred during the period September/October 2018 to the effective date and the second plaintiff instituted three claims against the defendant for/during the same period. The defendant excepted to the plaintiff’s particulars of claim due to the plaintiffs’ reliance on an oral agreement because the oral agreement deals with an aspect already dealt with in the written agreement and contradicts the express terms of the written agreement in that.
The court found that the particulars of claim lacked the necessary averments to sustain a cause of action and that the non-variation clause applies. In reaching this decision the court stated that the plaintiffs’ case and the evidence produced would be contrary to the written agreement, with the intention of varying the agreement.
Commercial agreements normally contain a whole agreement clause, the effect thereof being that the written agreement contains the entire agreement between the parties concerned. This clause ensures that both parties are clear on the terms agreed upon and most importantly to prevent parties from claiming that prior statements made during contractual negotiations constitute additional terms of the agreement. Although standard in commercial agreements, this case demonstrates the important role this clause plays when contracts go amiss. In this case the parol evidence rule precluded evidence based on an oral agreement which dealt with matters that were already dealt with in the written agreement. The written agreement in this case dealt with the interim period and provided that ‘if no item of cost was specified on annexure “W”, then no amount would be payable by the defendant in respect thereof’ the subsequent oral agreement also dealt with the interim period and expenses incurred which were not specified on annexure ‘W’, therefore, the oral agreement regarding these two aspects would have contradicted and varied the written agreement thereby making the evidence inadmissible.
As stated by the court, the one way in which evidence which is contrary to the terms of the written agreement could be led is if a claim for rectification of the written agreement is brought. Rectification is a common law right that provides an equitable remedy to correct the failure of a written agreement to reflect the true agreement between the parties to a contract (para 48). To this end, contracting parties are better off ensuring that every matter or aspect they wish the agreement to deal with be agreed upon and recorded in writing to avoid any future contractual disputes that may result in costly litigation. In the event of a change in circumstances that has the potential to affect the operation of the written agreement occurs, parties should, if they wish to vary the terms of the written agreement to accommodate the change, act in accordance with what the non-variation clause provides.
Karabo Orekeng BA Law BA (Hons) (Economics) LLB (Rhodes) is a candidate legal practitioner at DMS Attorneys in Johannesburg.
This article was first published in De Rebus in 2024 (Sept) DR 24.
