Chapter 2 - OFFER AND ACCEPTANCE PDF

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CHAPTER 2 OFFER AND ACCEPTANCE 2) INTRODUCTION OFFER Proposal to contract ACCEPTANCE Assent to the proposal amino contrahendi Unequivocal unqualified mirror image Complete nothing more to of offer negotiate person whom offer addressed Clear certain Conscious response In prescribed form (if any) 2) O...

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CHAPTER 2 – OFFER AND ACCEPTANCE 2.1) INTRODUCTION



OFFER Proposal to contract



ACCEPTANCE Assent to the proposal



Firm-made amino contrahendi



Unequivocal unqualified mirror image



Complete



–

nothing

more

of offer

to

negotiate



By person whom offer addressed

Clear & certain



Conscious response



In prescribed form (if any)

2.2) OFFER 

An offer = proposal to contract

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It’s a declaration of intention by one party (the offeror) to another (offer) indicating the performance that he/ she is prepared to make and on the terms that he/ she will make it.

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An offer is usually addressed to a specific person, but can also be addressed to a group of people or general public.

2.2.1) LEGAL EFFECT OF AN OFFER  Contract = bilateral juristic act founded on agreement  Offer = unilateral declaration of will by one party therefore an offer cannot in itself give rise to legal binding obligations  It however, does have the effect of placing the offeree in a position where by the unilateral act of acceptance, he/ she can call the contract into being.  Until such acceptance, the offeror may withdraw the offer, unless he/ she is bound by a separate agreement not to do so.

2.2.2) REQUIREMENT OF A VALID OFFER  An expression of intention will be regarded as sufficient for the purposes of a legally binding offer only when it meets certain requirements.

2.2.2.1)

FIRM

 The offer must be a firm one, made amino contrahendi ie with the intention that is acceptance will call into being a binding contract. 1

2.2.2.2)

COMPLETE

 The offer must contain all the material terms of the proposed agreement – there cannot be further matters that still have to be negotiated before the overall agreement can take place.  General rule: “nothing is agreed until everything is agreed.”

2.2.2.3)

CLEAR & CERTAIN

 The offer must be sufficiently certain; it should be enough for the addressee to merely answer yes.  If it is so vague that it fails to provide a reasonably clear indication of what the offeror has in mind, no acceptance of the offer can create a binding obligation, because it will be impossible to determine the content of that obligation.  Vagueness should not be confused with ambiguity, if a provision in a contract is capable of two or more reasonable interpretations, the court will have to regard to extrinsic evidence and the rules of interpretation of contracts to determine the meaning of the provision.  Courts = reluctant to strike down agreements that were intended to have legal effect as they take into account the fact that people are not expert drafters and rely on each other’s good faith and commercial expediency to make such agreements work.  Mouton v Hanekom – perform when financial position allows – is not too vague.

2.2.2.4)

CONSUMER PROTECTION ACT

 The CPA requires: o

Offer must be in a plain and understandable language.

o

Offer must disclose whether goods are reconditioned or gray market goods.

o

S 31 prohibits negative option marketing.

2.2.3) OFFERS TO THE PUBLIC  One cannot contract with the general public, but one can address an offer to the public at large.

2.2.3.1) ADVERTISEMENTS  General rule: advertisement constitutes an invitation to do business rather than an offer – Crawley v Rex  Whether a particular statement constitutes an offer depends on what the intention behind the statement was, or on the impression reasonably created by it in the mind of the person to whom it was directed.

2.2.3.2) REWARDS 2

 Bloom v American Swiss Watch Co – the advertising of a reward is construed as an offer to the public.  The first person who consciously responds to the advertisement and performs the required act will have accepted to the offer and become contractually entitled to the reward.

2.2.3.3) TENDERS 

Tenders are not offers but are invitations to potential tenderers to make offers that will be considered after the closing date for the particular tender.

2.2.3.4) AUCTIONS  SIMPLE AUCTIONS: o

The bidder makes an offer that the auctioneer considers and either accepts or rejects.

o

A sale by auction is considered to be complete when the hammer falls - until this has occurred, bid may be retracted.

 SUBJECT TO CONDITIONS: o

WITH RESERVE – means a reserve price is set: the item is sold to the highest bona fide bidder, provided that the offer is not lower than the reserve price. The auctioneer is inviting purchasers to make the offer,

o

WITHOUT RESERVE – article will be knocked down to the highest bidder. The auctioneer is considered to be making an offer to sell to the highest bidder by calling for bids.

 EFFECT OF AUCTION CONDITIONS: o

If an auctioneer advertisers conditions of the auction, he/ she can change his/ her mind anytime before a deal is made

o

Construction of an auction held subject to specific conditions – when an auctioneer announces auctions subject to certain conditions, he/ she is informing potential bidders the basis on which auction will be held.

o

Auctioneer can revoke offer before it has been accepted.

o

By bidding, any bidder will be making it known that he/ she accepts the conditions of the auction and a contract is formed (1st contract) and is binding on both parties.

o

If the auctioneer offers to sell without reserve, he is now bound to accept the highest bid (2 nd contract) and the bidder must make payments i.t.o the auction conditions.

o

S 45 (4) of CPA - a notice must be given in advance that a sale by auction is subject to reserve price or right to bid by/ o.b.o owner or auctioneer.

3

o

If the notice that the owner or the auctioneer has right to bid has not been given, he/ she amy not bid or employ any other person to bid at the auction.

o

If the section is contravened, consumer may approach crt to declare transaction fraudulent.

o

S 51 (1)(a)(iii) – any transaction that subjects a consumer to fraudulent conduct is void.

2.2.4) TERMINATION OF OFFER 2.2.4.1) REJECTION  An offer falls away if it is expressly or tacitly rejected by the offeree.  Counter offer by offeree is an eg of implied rejection.  Qualified acceptance is also construed as counter offer.

2.2.4.2) DEATH OF EITHER PARTY  Death terminates offer  Since an offer creates no legal obligations – neither debt that can pass to the deceased offeror’s estate, nor any contractual right that can pass to the deceased offeree’s estate.  However, if the offeror has promised not to withdraw the offer (contract of option which is binding on the estate of the offeror) then the offer doesn’t terminate upon the death of a party.

2.2.4.3) EFFLUXION OF PRESCRIBED / REASONABLE TIME  Where offer has prescribed time limit for acceptance, if lapses automatically if it’s not accepted within the prescribed period.  Where no time limit is prescribed, offer will lapse after a reasonable time which is dependent on facts of particular case.  NB time limit for acceptance doesn’t necessarily imply that the offeror may not revoke the offer within that period.

2.2.4.4) REVOCATION  The offer may be withdrawn any time prior to accept (except with option).  Revocation = expression of intention it takes effect only when communicated to the offeree; thus if the offeree communicates acceptance of the offer to the offeror before learning of the revocation, contract is concluded. 4

2.2.4.5) LEGAL CAPACITY TO ACT LOST  Either one of contracting parties – offer is terminated.

2.2.4.6) ACCEPTANCE OF OFFER  Once offer is accepted by offeree – contact comes into being and offer = terminated.

2.3) ACCEPTANCE 

This is a clear and unambiguous declaration of intention by the offeree, unequivocally assenting to all the terms of the proposal embodied in the offer.

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This may be done expressly or may be tacitly indicated.

2.3.1) REQUIREMENTS FOR VALID ACCEPTANCE 1. Unqualified – must assent to every element of the whole offer and nothing more or less is required. 2. Accepted by the person to whom the offer was made. 3. Conscious of the offer – a person cannot accept an offer he/ she is unaware of. 4. Prescribed form – as dominus, the offeror is able to prescribe the form in which the acceptance must take, if no form prescribed then any form will suffice.

2.3.2) WHEN & WHERE THE OFFER TAKES EFFECT  When parties contract in each other’s presence (inter prarsentes), there’s no time lag between declaration an ascertainment of acceptance therefore there is no problem in determining when and where the contract is concluded.  When contracts are concluded at a distance (inter absentes), the time lag raises the question of when the acceptance takes effect.  This is of importance in order to determine jurisdiction and time frames.  THEORIES: 1. DECLARATION THEORY 

States – contract comes into being when and where the offeree expresses acceptance i.e. when he/ she writes or signs the letter of acceptance.

2. EXPEDITION THEORY  Contract comes into being when and where the offeree posts the letter of acceptance. 5

3. RECEPTION THEORY 

Agreement comes into being when acceptance reaches the address of the offeror.

4. INFORMATION THEORY 

Agreement is concluded when and where the offeror learns or is informed of the acceptance in other words when the offeror reads the acceptance letter.

2.3.2.1) INFORMATION THEORY AS THE GENERAL RULE IN OUR LAW  The information theory holds that the basis for contractual liability is actual and conscious agreement between parties.  The offeror must therefore learn of the acceptance of the offer before actual consensus is said to have been attained.  The offeror as dominus may dispense with the need for acceptance to be communicated to him/ her or can indicate earlier when acceptance will be effective to conclude the contract.  Such waiver can be express or implied.

2.3.2.3) THE SCOPE OF THE EXCEPTION  The expedition theory is applied for postal contracts rather than the information theory.  This is on the basis of the legal fiction that by making an offer through the post, the offeror is deemed to not only have authorised acceptance by post but also to have waived the requirement of notification of acceptance (Cape Explosive Works Ltd v South African Oil and Fat Industries).  This departure was based on the f.f: o

Commercial convenience

o

The need to protect the offeror who would otherwise be at a loss to know when the contract was concluded.

o

General reliability of the post – a properly addressed letter will reach its distinction.

 The expedition theory only applies when: o

The offer is made by post or telegram

o

The postal services are operating normally

o

The offeror has not indicated a contrary intention either tacitly/ expressly

o

The contract is a commercial one

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 The expedition theory doesn’t apply to contracts concluded by telephone/ fax – in the instance where communication is almost instantaneous the parties are regarded to be for all intents and purposes in each other’s presence and the G.R will apply i.e. information theory.  Contracts concluded by means of email/ governed by the Electronic Communication and Transactions Act.  i.t.o if this Act – agreement concluded between parties by means of data messages is concluded at the time when and place where the acceptance of the offer is received by the offeror – reception theory therefore applies.  Data msg is regarded as having been received by the offeror at his/ her place of usual business or residence when the complete data msg enters an information system designated for that purpose by the offeror and is capable of being processed by him/ her.  The expedition theory doesn’t apply when the offer was made inter praesentes, even if the parties reside at a distance from one another and a reply by post is envisaged (Smeiman v Volkersz).

2.3.2.4) CRITICISM OF EXPEDITON THEORY  Although it’s time that an offeror can waive the requirement of notification of acceptance, it is a fallacy to assume that he/ she does so by merely using the postal system to communicate.  The posting offer may infer reponse by post but this in itself is not sufficient grounds for inference of a waiver.  The justification of commercial convenience is unconvincing.  Why is it more commercially convenient to make the offeror bear the consequence of the acceptance letter going astray. 

Adoption of the expedition theory implies that a posted acceptance may not be revoked or neutralised by faster means of communication.

2.4) BREAKING OFF NEGOTIATIONS 

Parties involved in negotiating a contract a generally free to terminate their negotiations whenever they wish.

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Duty to continue negotiations or damages can be awarded where on party reasonably created expectations that a contract will come into being and the other party waivered expenses as a result.

2.5) PACTA DE CONTRAHENDO 

These are ancillary agreements concerning the main agreement.

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They are “contracts about contracting”

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There are two types: 7

1. Option – agreement restricting an offerors right to revoke the offer. 2. Prefernce - agreement where one person binds him/ herself to give preference to another person should he/ she decide to conclude some other agreement (right of first refusal).

2.5.1) OPTIONS  An agreement to keep an offer open for a certain period of time.  The offer becomes irrevocable for that period  An option comprises of: an offer to enter into the main agreement (main offer) and  An agreement to keep the main offer for a certain period of time.  The main offer is the subject matter of the option.  Being a contract in its own right, the option must satisfy the requirements of a contract.  KNOW: Examples on pg 63.  Call option: option to buy  Put option: an option to sell

2.5.1.3) DECLARATION OF IRREVOCABILITY  Declaration of irrevocability should be treated merely as an offer of an option that requires acceptance if it is to have binding legal effect.  Acceptance = express/ tacit.  Legal fiction – silence is a tacit acceptance of an offer of irrevocability.

2.5.1.4) LEGAL EFFECT OF AN OPTION  By granting the option, the grantor incurs a dual negative obligation: 1. Not to/ attempt to withdraw the offer. 2. To do nothing to prevent the contract from coming into existence by acceptance of the offer by the offeree.  The grantee has the right to insist that the offer be kept open for the specified period and that the right to acquire the property should not be prejudiced.

2.5.1.5) DURATION OF THE OPTION  Option agreement will specify the time within which the option must be exercised.  Failure to exercise it within the specified period = termination of the option.  An option that fails to specify time may be void for vagueness or to be kept open for a reasonable time. 8

 In principle - death of either party will not put to an end to the option, unless the contract stipulates otherwise either expressly or tacitly.  Where an option is personal to grantee so it cannot be transferred – terminates upon death of grantee.

2.5.1.6) TRANSFERABILITY OF AN OPTION  General rule: unless otherwise stated, personal rights may be freely transferred by cession.

2.5.1.7) FORMALITIES: OPTIONS TO BUY OR SELL LAND  In Hirschowitz v Moolman held – a pactum de contrahendo is required to comply with the same requisits for validity including requirements to form applicable to the main agreement.

2.5.1.8) REMEDIES FOR BREACH OF OPTION  Provided the breach is a material one, the innocent party has an election either to cancel or to uphold the contract.  Cancels agreement: o

If the innocent party elects to cancel the contract, the contract is terminated and the innocent party is entitled to restitution of any performance that he/ she might have already made under the contract.

 Upholds agreement: o

If innocent party chooses to uphold agreement, he/ she is entitled to an order of specific performance i.e. a count order compelling the breaching party to honour his/ her contractual obligations.

o

In either event, innocent party is entitled to damages if financial loss resulted from breach.

o

These damages are measured according to the innocent parties’ positive interest i.e. placing the innocent party in the financial position he/ she would have been had the breach occurred.

o

Positive interest not only compensates for reliance losses (expenditure incurred in preparing to perform under the contract, now wasted as a result of the breach), but also for expectation losses (the net profit that the innocent party would have made had the contract been properly performed.

o

KNOW: Examples on pg 68 & 69 9

Cancels

Restitution Reliance losses

Breach of contract

PLUS DAMAGES Expectation losses Upholds

Specific performance

2.5.2) PREFERENCE CONTRACTS  An ancillary agreement whereby one person (grantor) binds him/ herself to give preference to another person (grantee), should he/ she decide to conclude another agreement (main agreement).  If it’s a sale contract – preference is known as a pre-emption contract.  If the main agreement is not a sale then the preference is known as one of first refusal.

2.5.2.1) RIGHT OF PRE-EMPTION  = the right to be given preference in the event of a sale of property  The grantor of the pre-emptive right is not obliged to sell the property; the grantee merely acquires the preferential right to buy if and when the grantor decides to sell.  What form the preference will take depends on the intentions of the parties.  It might requires the grantor A to make an offer to B, grantee OR  Require A to notify B that she has decided to sell so that B can address an offer to A.  The former is more common and in the absence of contrary indications be assumed to be the common intention of both parties.

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OPTION Main offer exists

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PRE-EMPTION AGREEMENT No main offer

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Grantor never obliged to sell if option is

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Grantor never obliged to sell

exercised

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Power in hands of grantor

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Power in the hands of grantee

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Terms of main contract not yet determined

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Terms of main contract set out in offer

2.5.2.3) OBLIGATIONS OF GRANTOR/ EFFECT OF PRE-EMPTION  Obligations created will depend in the first instance on the terms of the contract. 10

 If parties are unclear then the default rules of common law are used.  Pre-emption constitutes a restra...