Contract Law PDF - KTR211 Theme 2 (Part 1)

CONTRACT LAW MR LK THUTSE Date: Week 26 February to 01 March Valid, void and voidable contracts Valid contracts: ❑ Agreements between parties that complies with the prescribed validity requirements. ❑It creates legally enforceable rights and duties for both parties. Void contracts: ❑Agreements that...

CONTRACT LAW MR LK THUTSE Date: Week 26 February to 01 March Valid, void and voidable contracts Valid contracts: ❑ Agreements between parties that complies with the prescribed validity requirements. ❑It creates legally enforceable rights and duties for both parties. Void contracts: ❑Agreements that do not comply with the validity requirements. ❑Contracts are non-existent and therefore not legally enforceable. Voidable contracts: ❑Voidable contracts contain a legal flaw to the disadvantage of one party, but the contract remains in effect until that party seeks to declare it void. ❑Voidable contracts may arise through misrepresentation, some instances of mistake, non-disclosure, duress, or undue influence. ❑The aggrieved/wronged party may choose to uphold the contract or set it aside. Consensus Consensus: The minds of the parties must meet (or at least appear to meet) on all material aspects of their agreement. ❑Contract comes into being if contracting parties have the intention to be bound to each other AND if they intentionally reach agreement on all the terms of their agreement. ❑Agreement or Unanimity between contracting parties is called Consensus. ❑Parties must have the same understanding regarding all the terms of the contract, if there is any uncertainty or vagueness: consensus not reached. ❑Establishing consensus: Analytical tool of offer and acceptance, which helps us determine when and where a contract was concluded. Offer and Acceptance: General ❑ ❑ Generally consensus is reached via negotiations between parties. Negotiations are declaration of intention to contract by the parties. Express declaration of intention: Intention to contract derived from words(written or verbal). Implied declaration of intention: Intention to contract derived from actions or behavior. Silence can also signify agreement but only in exceptional circumstances. ❖See McWilliams v First Consolidated Holdings (Pty) Ltd 1982 (2) SA 1(A)—silence can signify an agreement where previous dealings between the parties make it reasonable to interpret a failure to respond as an acceptance of an offer. Offer and Acceptance: The Offer What is an offer? ❑ A proposal to contract. ❑ It is a declaration by the offeror of his intention to conclude (become a party to) a contract. ❑ All the terms on which offeror is prepared to contract are set out in the offer. ❑ Offer can be made: Specific person, group of people or to the general public (e.g. Rewards). What is the legal effect of an offer? ❑ Offer is a unilateral declaration, so it does not create any binding obligations. ❑ However, should the offer be accepted – the terms stipulated in the offer become binding. ❑ Offer may be withdrawn, unless it is subject to an option. Offer and Acceptance: The Offer: Requirements for a valid offer 1. The offer must be firm. 2. The offer must be complete. 3. The offer must be clear and certain. Offer and Acceptance: The Offer: Requirements for a valid offer 1.The offer must be firm: ❑ The offer must be made with the serious intention to create legally binding obligations. Offer and Acceptance: The Offer: Requirements for a valid offer 2.The offer must be complete: ❑ The offer must contain all the material terms of the proposed contract. ❑ There cannot be further matters still to be negotiated – “nothing is agreed until everything is agreed”. Offer and Acceptance: The Offer: Requirements for a valid offer 3.The offer must be clear and certain: ❑ If offer is vague – it fails to provide a reasonable clear indication of what the offeror has in mind –no acceptance can create a binding obligation ❑ Agreement = void for vagueness ▪ However note: If terms capable of reasonable interpretation – court can and will have regard to intrinsic evidence and rules of interpretation to determine meaning/ intention. If intention to be bound can be shown – courts reluctant to render invalid. Offer and Acceptance: The Offer: Requirements for a valid offer The Consumer Protection Act 68 of 2008: ❑ Creates further requirements for a valid offer. 4. The offer must be in plain and understandable language: S22 Right to information in plain and understandable language (1) The producer of a notice, document or visual representation that is required, in terms of this Act or any other law, to be produced, provided or displayed to a consumer must produce, provide or display that notice, document or visual representation— (a) in the form prescribed in terms of this Act or any other legislation, if any, for that notice, document or visual representation; or (b) in plain language, if no form has been prescribed for that notice, document or visual representation. (2) For the purposes of this Act, a notice, document or visual representation is in plain language if it is reasonable to conclude that an ordinary consumer of the class of persons for whom the notice, document or visual representation is intended, with average literacy skills and minimal experience as a consumer of the relevant goods or services, could be expected to understand the content, significance and import of the notice, document or visual representation without undue effort, having regard to— (a) the context, comprehensiveness and consistency of the notice, document or visual representation; (b) the organisation, form and style of the notice, document or visual representation; (c) the vocabulary, usage and sentence structure of the notice, document or visual representation; and (d) the use of any illustrations, examples, headings or other aids to reading and understanding Offer and Acceptance: The Offer: Requirements for a valid offer 5. Offer must disclose whether goods are reconditioned or grey- market goods: S 25 of the CPA, if a person offers to supply any goods that have been reconditioned, remade or rebuilt and bear the trademark of the original producer or supplier must indicate this clearly. 6. Negative option marketing is prohibited: S 31 of the CPA, Supplier cannot promote any goods or services on the basis that the goods & services are to be supplied UNLESS the consumer declines the offer. 7. Cooling off period: Applies to direct marketing only. S 32(1) of the CPA. Marketing must have occurred at a place other than their usual place of business. Onus on offeror to notify offeree of S 16 –offeree entitled to rescind any contract concluded, by notice, in writing within 5 days of the date on which the agreement was concluded or the goods delivered (whichever is later). 8. Catalogue marketing: Agreement to supply goods & services, not in person (telephone/postal order), where consumer did not have an opportunity to inspect good/service before conclusion of contract, Disclosure of certain info: Suppliers name, license or registration number, physical address, refund policy etc. Offer and Acceptance: Offers to the public ❑ GR: One may make an offer to the public at large and then conclude a contract with specific members of the public who respond to the offer. ❑ Advertisements, auctions, rewards. Offer and Acceptance: Offers to the public: (a) Advertisements ❑ GR: An advertisement constitutes merely an invitation to do business rather than an offer. Crawley v Rex ❑ NB: ▪ Whether a particular statement constitutes an offer depends on what the intention behind the statement was OR the impression reasonably created by it in the mind of the person to whom it was directed. ▪ CPA: S 30(1) prohibits bait marketing – supplier cannot advertise goods & services as being available at a specified price in manner which would mislead or deceive. If the supplier places a limit on the availability of goods, it must make those goods or services to the extent of the expressed limit. Offer and Acceptance: Offers to the public: (a) Advertisements (Continued) Crawley v Rex 1909 TS 1105 A shopkeeper advertised on a placard outside his shop a particular brand of tobacco at a cheap price to attract the public. A customer who refused to leave the premises when the shopkeeper declined to sell more of the tobacco to him on a second occasion was charged with trespassing. In his defence, the customer claimed he was entitled to be in the shop as he was accepting the shopkeeper’s offer. The court held that no contract had arisen because the advertisement did not constitute a binding offer that the customer could accept, but was merely an announcement of the shopkeeper’s intention to sell at the advertised price. In arriving at this conclusion, Smith J made the following observation: `“The mere fact that a tradesman advertises the price at which he sells goods does not appear to me to be an offer to any member of the public to enter into the shop and purchase goods, nor do I think that a contract is constituted when any member of the public comes in and tenders the price mentioned in the advertisement. It would lead to extraordinary results if that were the correct view of the case. Because then, supposing a shopkeeper were sold out of a particular class of goods, thousands of members of the public might crowd into the shop and demand to be served, and each one would have a right of action against the proprietor for `not performing his contract”. Offer and Acceptance: Offers to the public: (a) Advertisements (Continued) Who makes an offer in supermarkets? ❑The courts in SA have not as yet decided who makes an offer in the case where goods are displayed in supermarkets and prices appear on goods or the shelf where the goods are stacked. ❑It has been suggested that, unless there are indications to the contrary, our courts follow the English case of Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd: o The customer makes an offer to purchase by presenting the articles which she wishes to purchase for payment. o Therefore, the shopkeeper makes an invitation to do business and the customer makes an offer to purchase Offer and Acceptance: Offers to the public: (b) Call for tenders ❑ An invitation to the public to submit a tender for work to be done is not an offer that is open to acceptance by the highest bidder. ❑ Call for tenders are an invitation to the public to make offers. Offer and Acceptance: Offers to the public: (c) Promise of reward Bloom v American Swiss Watch Co 1915 AD 100 ❑ The defendants advertised a reward for any person who gave information to the police regarding to a jewellery robbery that took place on their premises. ❑ The court held that the offer had not been accepted by the first person who supplied information to the police because he had at the time been unaware of the offer. Bloom gave the information BEFORE he became aware of the notice. ❑ He therefore, did not furnish the information in response to the notice and could not therefore, be said to have accepted ASW’s offer to pay a reward. ❑ Thus, no contract came into being between Bloom and ASW and therefore, no basis on which he could claim the reward. ❑ Note: Parties who agree must be aware of their agreement. Offer and Acceptance: Offers to the public: (d) Auctions Who makes the offer? The auctioneer or the bidder? To answer this, it is imperative to distinguish between a simple auction and an auction subject to conditions (with or without reserve). ❑Simple auction: Bidder makes an offer to the auctioneer, S 45(3) CPA: Affirms this, sale by auction is considered to be complete when the hammer falls (or upon any other customary action), until this is done, a bid may be retracted. ❑Auctions attached to conditions: With reserve: Reserve price is set, the thing is sold to the highest bidder, provided the offer (bid) is higher than the reserve price. Bidder makes the offer, S 45(5) & S 45(4) of the CPA. Without reserve: Article will be knocked down to the highest bidder. In this instance, the auctioneer is considered to be making an offer to the sell to the highest bidder. Offer and Acceptance: Termination of an offer (a) Rejection: ❑Rejection can be express or implied. ❑ If offeree makes a counter offer = Implied rejection. Counter offer = qualified acceptance (i.e. acceptance with conditions). (b) Death: ❑ Either offeror or offeree. ❑ Generally offer not legally binding – NB: if offeror promised not to withdraw offer (option) then it is binding on the deceased estate. Offer and Acceptance: Termination of an offer (Continued) (c) Passage of prescribed or reasonable time: ❑ Offer not open indefinitely. ❑ If time prescribed without acceptance – offer lapses on expiration of time stipulated. ❑ If no time indicated for acceptance – offer terminates after reasonable period. (d) Revocation of offer: ❑ Offer may be withdrawn at any time before acceptance, except if it is subject to an option. ❑ Takes effect only once communicated to the offeree. If offeree accept before becoming aware of a revocation = valid binding contract. (e) Loss of legal capacity to act: ❑ Offeror/Offeree. (f) Acceptance of offer: ❑ Once offer is accepted, a contract comes into being and the offer is terminated. Offer and Acceptance: The Acceptance What is an acceptance? ❑ A clear and unambiguous declaration of intention by the offeree unequivocally assenting to all the terms of the offer. ❑ Intention to accept must be express (e.g. “I accept”/ signature) or tacitly indicated (e.g. a nod). ❑ Consensus reached. Offer and Acceptance: The Acceptance: Requirements for a valid acceptance 1. The acceptance must be unqualified. 2. The acceptance must be made by the person whom the offer was made to. 3. The acceptance must be a conscious response to the offer. 4. The acceptance must be in the form prescribed by the offeror. Offer and Acceptance: The Acceptance: Requirements for a valid acceptance 1.The acceptance must be unqualified: ❑ Complete and unequivocal assent to every element of the offer. ❑ If acceptance is conditional/contains new terms/leaves out original terms= no clear acceptance and no consensus has been reached, Therefore a valid contract has not been concluded. Offer and Acceptance: The Acceptance: Requirements for a valid acceptance 2. The acceptance must be made by the person to whom the offer was made: ❑ Specific person, class of persons… ❑ Cession: Possible under option? If yes, the personal right to accept may be ceded to the cessionary. ❑ Bird v Summerville and Another 1961 3 SA 194 (AD): where a prospective seller makes an offer to a specific person, without intending to make an offer which could be accepted by anyone at all, and the offer is accepted by such person and another as joint purchasers, there is no concluded contract of sale. The appellant, who wished to sell his property, was informed by an estate agent that the first respondent was interested in buying. The appellant signed a written offer to sell naming the first respondent as sole purchaser. However, the first & second respondents both signed as buyers. At the time of making the offer, the appellant had been unaware of the existence of the second respondent. The court found that although the appellant would not have been prejudiced by both parties buying the property, the appellant was not bound to a contract of sale to both the respondents, because he never intended that his offer could be accepted by both of them. Offer and Acceptance: The Acceptance: Requirements for a valid acceptance 3. Acceptance must be a conscious response to the offer: ❑ Cannot accept an offer if you are unaware of it. ❑ Bloom v The American Swiss Watch Company 1915 AD 100 Respondent offered a reward to anyone who provided information leading to the arrest of thieves who had stolen jewellery from the company. Applicant (Bloom) furnished such information while ignorant of the offer of reward. The court held that he could not recover the reward because until he knew of the offer he could not accept it and ‘until he accepted it there could not be no contract, for a contract requires that there should be consensus of two minds, and if the one did not know what the other was proposing, the two minds never came together. Offer and Acceptance: The Acceptance: Requirements for a valid acceptance 4. The acceptance must be in the form prescribed by the offeror: ❑ ❑ ❑ Offeror is entitled to prescribe any method of acceptance as she sees fit. If the offeror does so, no other form of acceptance will suffice. Offeror may, however, authorise a particular method of acceptance without thereby intending to prescribe it as the only acceptable method (for example, ‘Please let me know by return post whether these terms are acceptable to you’). Offer and Acceptance: The Acceptance: When and where does acceptance takes effect? Theories of acceptance Explanation 1. Declaration Contract comes into being at the place where and the time when, theory the offeree expresses acceptance. i.e. Where the offeree has declared his acceptance (e.g. where the acceptance was written/ signed). 2. Expedition theory Contract comes into being at the place where and the time when the letter of acceptance was posted. 3. Reception theory The contract comes into being at the place where and the time when the letter of acceptance was received. Offer and Acceptance: The Acceptance: When and where does acceptance takes effect? (Continued) Theories of acceptance Explanation 4. Information/ communication theory Contract comes into being at the place where and the time when the acceptance was read. i.e. When the acceptance has come to the notice of the offeror. General rule for South Africa. Offeror must learn of the acceptance of the offer before actual consensus. GR: Contract comes into being ONLY when the acceptance is communicated to the mind of the offeror. Exceptions: (i) Offeror stipulates a different method (Express/Implied), postal contracts, electronic contracts. Offer and Acceptance: The Acceptance: When and where does acceptance takes effect? (Continued) Post/telegram Telephone/fax/ Expedition theory Information/ communication theory e-mail and SMS or other Reception theory means of electronic communication If an offer permits or requires acceptance to be by posted letter or telegram, then a contract is concluded when and where a valid acceptance is posted or telegraphed. That a contract comes into effect at the time when and place where the offeror learns of the acceptance. An agreement concluded between parties by means of data messages is concluded when and the place where the acceptance of the offer was received by the offeror. ▪ Electronic Communications and Transactions Act 25 of 2002 ▪ Data message is regarded as having being received by the offeror at his or her usual place of business/residence when the complete data message enters an information system designated or used for that purpose by the offeror and is capable of being retrieved and processed ▪ S23 (b)-(c), NB: See also s 22(2). Reception theory Offer and Acceptance: The Acceptance: When and where does acceptance takes effect? (Continued) Cape Explosive Works Ltd v SA Oil & Fat Industries Ltd (1); Cape Explosive Works Ltd v Lever Brothers (SA) Ltd (2) 1921 CPD 244 ❑ For contracts concluded by post, South African courts apply the expedition theory as an exception to the information theory. ❑ The expedition theory holds that a contract concluded by post is formed when and where the offeree posts the letter of acceptance. ❑ Exceptions: Theory applies only when the following circumstances are present: (a) Offer is made by post, (b) postal services are operating normally, (c) Offeror has not indicated a contrary intention (Expressly/tacitly), and (d) the contract is a commercial one. ❑ Criticism on the expedition theory: Read through.