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Lecture III. Formation of a contract: Offer & Acceptance.

Introduction. A contract is a type of agreement whereby parties involved should intend to establish a mutual obligation and express this concurrence of intention (concursus animorum) in an outwardly form by means of declarations of will. Our law traditionally regards a contract as consisting of an offer and acceptance. The purpose of this lecture is to analyse and comprehend all legal principles relating to the nature, legal effect and valid requirements for an offer and acceptance. Understanding the principles relating to offer and acceptance is very important as this would assist in ascertaining the place and time of contract. In addition, this could serve as a proof of the existence of a contract.

According to our Roman-Dutch Law, a contract is concluded at the time and place at which the offeror learns of the valid acceptance of his offer. This is the so-called information theory. This theory is however not always applied and in some circumstances, it can be departed from. Other theories relating to the place and time of contract are: the expedition theory; the acceptance theory; and the reception theory. For a thorough reading on this, see Cape Explosives Works cases. The Offer. An offer is a proposal to contract. It is a declaration of intention by one party (the offeror) to another (the offeree), indicating the performance that she is prepared to make, and the terms on which she will perform it. An offer is generally addressed to one person, but it may also be addressed to a group of people, or even to a specific group of people, e.g. an offer of a reward through advertisement.

What is the legal effect of an offer?

An offer, being a unilateral juristic act, cannot create any legal binding obligation. It only creates a hope (spes). It places the offeree in position whereby she can call the contract into existence through her unilateral act of acceptance. Until such acceptance, the offeror may withdraw the offer unless she is bound by another contract not to do so. This is the concept of revocation. An agreement not to withdraw an offer for a given period of time is known as an option (see below).

What are the requirements of a valid offer?

i.

The offer must be firm (made animo contrahendi); see Efrokein v. Simon, 1921 CPD 367.

ii.

The offer must be complete; see Lambous (Edms) Bpk v BMW (Suid Afrika) (Edms) Bpk, 1997 (4) SA 141 (SCA); Belmore v. Minister of Fiance, 1948 (2) SA 852 (SR)

iii.

The offer must be clear and certain. This is an additional requirement that contractual obligations must be certain,

viz. certainty. A contract may be rendered void for vagueness. See Kantor v Kantor, 1962 (3) SA 207 (T).

Offers to the public

Although one cannot contract with the general public, one can address an offer to the public at large, or to a segment of the public, and then conclude a contract with specific members of the public who responded to the offer. See the famous English case of Carlill v Carbolic Smoke Ball Co, [1893] 1 QB 256. Compare this case with the South African case of Steyn v LSA Motors Ltd, supra.

Advertisements (in newspapers, catalogues, trade circulars, or by displaying the goods in a shops windows)

The general rule in our law is that an advertisement constitutes merely an invitation to do business rather than an offer. See the locus classicus case of Crawley v Rex, 1909 TS 1105. However, this case should not be regarded as an absolute rule. Each case

should be considered upon its peculiar circumstances and facts. Thus, whether a particular statement constitutes an offer, this would depend on the intention behind such a statement, or on the reasonable impression or belief created by it in the mind of the person to whom it was directed. See above, apparent consensus or quasi-mutual assent, or estoppel by

representation.

Who makes the offer in supermarkets?

Our courts have not as yet made a judicial pronouncement on this issue. However, the English law gives us an answer to this conundrum. See the case of Pharmaceutical Society of Great Britain v Boot Cash Chemists (Southern) Ltd, [1953] 1 QB 401 (CA), [1953] 1 All ER 482.

Promises of reward

See Bloom v American Swiss Watch Co, 1915 AD 100. Compare with the ratio decidendi in Carlill case, supra

Calls for tenders & Auctions An invitation to the public to submit a tender for work to be done is not an offer. At most, this is an invitation to potential tenderers to make offers that will be considered after the closing date for the particular tender. See: G & L Builders CC v McCarthy Contractors (Pty) Ltd, 1988 (2) SA 243 (SE); also: NOD case, supra. In regard to Auction, the question is: who makes an offer? Is it the auctioneer or the bidder? In order to determine this, it is important to distinguish a simple auction from an auction subject to conditions (e.g. with or without reserve). When dealing with a simple auction, the most acceptable construction is that the bidder makes an offer that the auctioneer considers and then either accepts or rejects. It is important to note that a sale by auction is considered to be complete when the hammer falls. Until this has taken place, a bid may be retracted. See e.g. section 45 (3) of the Consumer Protection Act of SA, No. 68 of 2008. (This act does not have any force of law within our jurisdiction). Auction with reserve means that a reserve price is set, i.e. the thing is sold to the highest bona fide bidder provided that the offer is not lower than

the reserve price. In this instance, the auctioneer is inviting purchasers to make offers, just like in cases of simple auctions. In regard to auctions without reserve, the thing will be sold to the highest bona fide bidder. Thus, the auctioneer is considered to be making an offer to sell to the highest bidder by calling for bids. N.B. In all auctions subject to conditions, there are two types of contract, namely: the first contract which binds parties in relation to the specified conditions; and the second contract which is the main contract of sale.

Termination of an offer

i.

Rejection of the offer; (a counter-offer or a qualification of the offer is regarded as a rejection of the original offer)

ii. iii. iv.

Death of either party; Effluxion of the prescribed time, or reasonable time; Revocation of the offer; see The Fern Mining Company v Tobias, (1890) 3 SAR 134.

v.

Upon acceptance by the offeree.

The Acceptance. An acceptance is a clear and unambiguous declaration of intention by the offeree, unequivocally assenting to all terms of the proposal as contained in the offer. The offerees acceptance may be express or tacit (e.g. nodding of the head when the offer is made in the presence of the offeree). However, silence cannot always and ordinarily be treated as acceptance. Offerors are not permitted to force contracts onto the offerees. This practice is known as negative option marketing.

Requirements of a valid acceptance

i.

The acceptance must be unqualified; i.e. there can only be a valid acceptance where the whole offer and nothing more or less is accepted. This is the so-called mirror image rule. A qualified acceptance constitutes a counter-

offer which can be accepted or rejected by the original offeror. See Boerne v Harris, 1949 (1) (SA) 793 (A). ii. The acceptance must be by the person to whom the offer was made; see the concept of freedom of contract; also the case of Bird v Summerville, 1961 (3) SA 194 (A). iii. The acceptance must be a conscious response to the offer; i.e. a person cannot accept an offer if she is unaware of it. See Bloom case, supra; animus contrahendi iv. The acceptance must be in the form prescribed by the offeror (if any). See Laws v Rutherford 1924 AD 261.

TIME & PLACE OF ACCEPTANCE.

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