Transcript Law of Contract - Learning

Unit 5
Contracts Inter Absentes
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Explain in detail with the aid of relevant case
law, what the so-called “information theory”
with regard to determining where and when a
contract comes into existence entails.
Shortly explain how Van der Merwe et al deal
with certain departures from the information
theory in South African law.
Explain what is meant by the “dispatch” or
“expedition” theory. Critically evaluate the
appropriateness of this theory in South
African law.
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Shortly discuss the declaration theory for
determining the time and place when and
where a contract comes into existence.
Discuss the acceptance theory for
determining consensus with specific
reference to Christie’s contribution to this
topic as well as Section 23 of the Electronic
Communications and Transactions Act 25 of
2002.
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Reid v Jeffreys Bay Property Holdings.
Driftwood Properties v McLean.
Cape Explosive Works Ltd v South African Oil
and Fat Industries.
Craib v Crisp.
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South African law accepts that a contract is
created when and where consensus is
reached.
USUALLY: Place where and moment when
person who has made offer learns that his
offer has been accepted by offeree.
This is known as the “information theory”.
Rests on the principle that the primary basis
of contractual liability is the actual agreement
between the parties to a transaction.
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In contemporary business world, one
depends on offers and acceptances via email, post, fax and others.
Along with information theory, 3 other
theories exist for the determining of the
place and time where a contract comes into
existence.
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Requires knowledge of offeror that his offer
has been accepted by offeree.
Such knowledge may be conveyed by the
following:
Reading a letter, fax, e-mail or sms of
acceptance (of which offeree is the author),
Listening to a message left by the offeree on
an answering machine, or a voice message on
a mobile phone accepting relevant offer.
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FACTS:
A was domiciled in Cape Town.
He wanted to sell his property situated in
Human’s Dorp, near Jeffrey’s Bay in the
Eastern Cape.
B was interested in purchasing the property,
and engaged in negotiations with an agent of
A in Pinetown, Natal.
B was domiciled in Durban.
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B subsequently signed the written agreement
of sale in Durban, and it was given to A’s
agent to deliver to A in Cape Town.
A director of A’s company subsequently
signed the agreement on behalf of A in Cape
Town.
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Legal Questions:
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Who is the offeror and who is the offeree?
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Where did the contract come into existence?
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Answer to first question:
A offered his property for sale, and B
accepted the offer:
A is the offeror and B is the offeree.
B, however, signed the agreement of sale
first. B in fact made A an offer on A’s
property, which A accepted by proxy.
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From this point of view, B was the offeror and
A the offeree for the purchase of A’s
property.
An agreement of sale, however commences
as an offer to purchase, and only becomes a
contract when acceted.
Thus: Offer was made by A, accepted by B in
Durban, and knowledge of such acceptance
was received by a in Cape Town.
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Where did contract come into existence?
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Cape Town.
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Ratio decidendi:
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Information theory: Contract comes into
existence at the time when and place where
offeror learns that his offer has been
accepted.
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Facts:
Respondent was offeror of property.
V on behalf of a trust, was offeree.
V had to accept the offer on/before 17 May
1969.
Offeror had already signed “offer to
purchase” on 30 April 1969.
V signed the offer on 17 May 1969.
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At the time of the offeree’s acceptance of the
offer, the offeror had received no knowledge
of acceptance thereof.
Letter of acceptance was posted on 18 May
1969, and only reached the offeror on 27
June 1969.
Offeror thus learned of acceptance of his
offer on 27 June 1969.
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Legal question:
When did the acceptance constitute a valid
contract?
Decision:
17 May 1969, the date on which the offer was
effectively accepted.
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Ratio decidendi:
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The court quotes Hugo Grotius by stating:
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I may make an offer in two ways. I can either
make an offer and say that the contract will be
established by your mere acceptance, or I can
make the offer and say that the contract will be
completed when I come to hear of your
acceptance. And if there is a doubt upon the
matter, we must always presume that the second
was the case…
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1. Postal contracts: SA Law follows
dispatch/expedition theory.
2. Acceptance theory is prescribed by statute
with regard to internet transactions: Section
22 of Electronic Communication and
Transactions Act 25/2002, read with
Electronic Communication Act of 2005.
3. Parties themselves determine when and
where contract comes into existence.
4. Case of A-Z Bazaars v Minister of
Agriculture.
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Facts of particular case will prove decisive.
Departures from information theory may be
warranted by:
Geographical separation of parties;
Form/commercial nature of envisaged
contract;
Existence of execution clause;
Declaration that contract will e concluded
upon signature.
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Cape Explosive Works v South African Oil and Fat
Industries Ltd:
Court agreed that from a theoretical perspective,
the information theory accorded with the modern
notion of contract based on the agreement of the
parties.
In abovementioned case, the dispatch/expedition
theory was adopted under the influence of
English law,
as the most satisfactory pragmatic way of
determining the time and place of conclusion of
a postal contract.
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The Court held the following:
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…where in the ordinary course the Post Office
is used as the channel of communication, and
a written offer is made, the offer becomes a
contract on the posting of the letter of
acceptance…
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Reason for adoption of this theory with postal
contracts: “the acceptor (offeree) would certainly
be at a loss to know when his notification
reached the offeror…
Offeree will be favoured by this theory.
Risk: offeror assumes that offer has been
rejected, whilst in fact it only go lost in the post.
English law: the party who had initiated the
negotiations through post, should carry the risk
of loss.
Postal service: reliable enough?
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In terms of the dispatch theory, acceptance of
an offer can validly occur in one of the
following manners:
Submittance of letter into post box;
Speaking of an acceptance into answering
machine of offeror’s telephone;
Sending of acceptance with a messenger;
Sending of acceptance via telegram.
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Respondent wanted to sell her property in
Sedgefield, Natal.
She mandated an estate agent to find a
purchaser for the said property.
The purchaser (applicant) signed an “offer to
purchase”.
The last page of the “offer to purchase” made
provision for the signature of the seller as
acceptor of the offer to purchase.
There was no acceptance of the offer to purchase
by means of any writing on this last page.
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Estate agent had telephoned respondent (seller)
and informed her of the existence of the written
offer and its terms.
The seller subsequently accepted the offer by
way of telegram.
Respondent wanted to withdraw from contract on
following basis:
i. sending of telegram did not constitute proper
acceptance of an offer to purchase;
ii. Communication of acceptance addressed to
seller’s own agent could not be considered an
acceptance of the purchaser’s offer.
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Decision:
i. Telegram did indeed constitute proper
acceptance of an offer. ( Christie agrees with
this decision, De Wet & Yeats differ).
ii. Binding contract of sale came into being.
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Ratio decidendi:
Under the circumstances in which the
respondent was asked by the estate agent to
transmit the telegram, and in the light of the
clear wording of the telegram, coupled with
the undeniable fact that its contents were
conveyed to the applicant long before the
respondent purported to withdraw from this
contract, a binding contract of sale came into
being.
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Contract comes into existence at them moment
when and place where the offeree
expresses/declares his acceptance of the offer.
How does this occur?
Verbal expression.
Writing down an acceptance of an offer.
Dictating acceptance of an offer.
Entering an acceptance into a computer
programme, such as Microsoft Word.
Expressing acceptance of an offer through sign
language.
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Problem: Offeror will not necessarily be aware
of acceptance of his offer at the time of
declaration of acceptance by offeree.
Consensus ad idem?
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Used in South African law with regard to
internet transactions.
Sections 22 and 23 of the Electronic
Communications and Transactions Act 25 of
2002.
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How does this occur?
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See section 23: When acceptance enters
information system outside control of message
originator.
When message is capable of being retrieved by
addressee (offeror).
Letter of acceptance is placed on offeror’s desk.
Offeror takes letter of acceptance from his
mailbox, but hasn’t opened it yet.
Message of acceptance is recorded on answering
machine, but he/she hasn’t listened to it yet.