Offer and acceptance

Question 1

What is the primary basis for a contract?

Answer 1

A contract is formed when the parties reach agreement on all the material terms of the contract. The primary basis for a contract is consensus, not offer and acceptance.

Question 2

What is an offer?

Answer 2

An offer is a proposal to contract, or the declaration of intention of the offeror to the offeree.

Question 3

What is the legal effect of an offer?

Answer 3

An offer is unilateral, and therefore it cannot give rise to binding obligations. However, a unilateral act of acceptance by the offeree may bring the contract into existence.

Question 4

What are the requirements for a valid offer?

Answer 4

1) firm
2) complete
3) clear and certain

Question 5

Elaborate more on 1) firm

Answer 5

The offer must be firm (i.e. not timid), with the intention that its acceptance will call into being a binding contract.

Question 6

Elaborate more on 2) complete

Answer 6

The offer must contain all the material terms of the proposed agreement. Consensus must be reached on issues A, B and C - not just one of them. However, if ABC is agreed upon, then further issues D and E may be added on in a superseding contract.

Question 7

Elaborate more on 3) clear and certain

Answer 7

The offer must be sufficiently certain (i.e. not vague), so that the offeree simply has to say yes to create the contract. If uncertain, an agreement can be regarded as void for vagueness.

Question 8

What was held in NBS Boland Bank?

Answer 8

A party may unilaterally change the interest payable if it acts reasonably and in good faith. Hence, a contract which allows such a unilateral act is not void for vagueness.

Question 9

What was held in Roazar v The Falls Supermarket?

Answer 9

As a general rule, an agreement that the parties will negotiate to conclude another agreement is not enforceable because of the absolute discretion vested in the parties to agree or disagree.

Question 10

What does the CPA say regarding offers?

Answer 10

1) plain and understandable language
2) disclose whether they are reconditioned or grey-market goods
3) negative option marketing is prohibited
4) right to a cooling-off period
5) catalogue marketing is regulated

Question 11

What are advertisements?

Answer 11

Merely an invitation to do business, rather than an offer. Hence, traders put “while stocks lost” after all of their advertisements.

Question 12

What are promises of rewards?

Answer 12

This is an offer to the public, that may be accepted by consciously responding to the advertisement.

Question 13

What is a call for tender?

Answer 13

Invitations to submit offers are not construed as acceptance of the initial offer. Rather, it is an indication that one party is looking to consider various options from other parties.

Question 14

What is an auction?

Answer 14

The bidder makes and offer that the auctioneer consider and then either accepts or rejects. Auctions subject to conditions i.e. with reserve have a set price. Hence, the auctioneer is considered to be inviting purchasers to make offers. Without reserve means that the auctioneer will be making an offer to sell to the highest bidder by calling for bids.

Question 15

How can an offer be terminated?

Answer 15

1) rejection
2) death of either party
3) effluxion of the prescribed/reasonable time
4) revocation of the offer
5) loss of legal capacity to act
6) acceptance

Question 16

What is acceptance?

Answer 16

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

Question 17

What are the requirements for a valid acceptance?

Answer 17

1) unqualified
2) by the person to whom the offer was made
3) conscious response
4) in the form prescribed by the offeror

Question 18

Elaborate on 1) unqualified

Answer 18

The whole offer and nothing more or less must be accepted. A qualified offer constitutes a counter-offer.

Question 19

What is the declaration theory?

Answer 19

The offeree must express acceptance, when they write or sign the letter of acceptance.

Question 20

What is the expedition theory?

Answer 20

The offeree must post their letter of acceptance. Only applies when:

• the offer is made by post or telegram
• the postal services are operating normally
• the offeror has not indicated a contrary intention
• the contract is a commercial one

Question 21

What is the reception theory?

Answer 21

The letter of agreement must reach the address of the offeror.

Question 22

What is the information theory?

Answer 22

The offeror learns or is informed of the acceptance i.e. reads the letter of acceptance. The offeror must learn of the acceptance of the offer before actual consensus can be said to have been attained. The offeror can waiver the requirement of notification in certain instances.

Question 23

What was held in A to Z Bazaars?

Answer 23

A posted acceptance creates a binding contract, and it cannot be superseded by a telegram sent later. However, the court held that the principle in Capex does not apply, and that the words ‘deliver or cause to be delivered’ cannot be read to include ‘post or cause to be posted.’ The words must be given their ordinary dictionary meaning of ‘to hand over, transfer, commit to another’s possession or keeping.’ Therefore, the contract between the appellant and the respondent was not concluded on the posting of acceptance. The telegram was received before the letter of acceptance and thus the acceptance was revoked.

Question 24

When can negotiations be broken off?

Answer 24

Parties are free to break off negotiations at any stage. However, negotiations may create the expectation of a contract and have incurred expenses. Hence, each party is expected to negotiate in good faith and to honour the legitimate expectations and interests of the other. It might be difficult to claim damages for expenditure incurred under a calculated business risk.

Question 25

What are pacta de contrahendo?

Answer 25

These are contracts about contracting, and they involve ancillary binding agreements on top of the initial central binding agreement.

Question 26

What is an option?

Answer 26

An agreement restricting an offeror’s right to revoke the offer. This keeps an offer open for a certain period of time, making that offer irrevocable. An option to buy is commonly called a call option, and an option to sell is known as a put option. This option might be transferrable to third parties.

Question 27

What does an option comprise of?

Answer 27

Comprises:

• an offer to enter into the main agreement
• an agreement to keep the main offer open for a certain time

Question 28

What is the legal effect of an option?

Answer 28

Creates binding obligations not to withdraw the offer, and to do nothing to prevent the coming into existence of a contract that is capable of being performed (e.g. selling to a third party).

Question 29

How long does an option last for?

Answer 29

Failure to exercise an option within the time period prescribed results in termination of the option, along with an election not to exercise the option.

Question 30

Can an option be transferred?

Answer 30

An option may be ceded, unless it has been made personal to the grantee. This rests on whether the identity of the option holder is of any importance to the grantor.

Question 31

What form does the option have to take?

Answer 31

The ancillary contract is an entirely separate contract, and so it ought not to have to be in the form of the main contract. However, it has been held (obiter) that in general, the form of both the main and the ancillary contract have to be the same [Hirschowitz]. This was overturned in Mokone v Tassos.

Question 32

What happens in the event of a breach?

Answer 32

The party faces an election: to either cancel the contract, or to enforce it.

Question 33

Elaborate more on cancellation

Answer 33

Cancel: restitution of any performances made + damages
(reliance & expectation losses)

If B cancels the option, they are entitled to restitution of the sum paid for the option (if any). They are not entitled to expectation losses (unless they would have exercised the option). If not, B cannot claim compensation, because they never sought to exercise the option anyway [Sommer v Wilding]. They may claim if they planned on ceding that option for a price. If so, B can claim expenditure in reliance on the option as well as loss of potential profit too.

Question 34

Elaborate more on enforcement

Answer 34

Enforce: specific performance + damages
(reliance & expectation losses)

If B enforces the contract, they can get an interdict prohibiting A from transferring the land to C. Once they have exercised the option, it becomes a binding contract. If there are two competing personal rights, B’s will trump C’s (prior tempore principle [Wahloo Sand]) and C will have a claim for breach of contract against A. If there was a real right that C had acquired in good faith, B would have a claim against A for damages [Boyd v Nel]. If bad faith, B could use the doctrine of notice to compel C to transfer the land to B.

Question 35

What is a preference contract?

Answer 35

An agreement whereby one person binds oneself to give preference to another person should they decide to conclude some other specified type of agreement. Examples include a right of first refusal or a right of pre-emption.

Question 36

What is a right of pre-emption?

Answer 36

A right to be given preference in the event of a sale of property. The grantor of the pre-emptive right is under no obligation to sell the property, there is merely the existence of a preferential right. A may be obliged to present an offer to B.

Question 37

What is the difference between an offer and a right of pre-emption?

Answer 37

An offer already contains a firm main offer. However, with a pre-emption agreement, there is as yet no firm offer ‘on the table’. The terms of the future offer are yet to be spelled out.

Question 38

What obligations are imposed on the grantor?

Answer 38

Imposes a negative (don’t sell without offering)/positive (you must offer before you sell) obligation on the grantor.

Question 39

What is the trigger event?

Answer 39

The positive obligation is conditional upon the occurrence of a trigger event. This is a matter of interpretation, but it has been held that nothing short of a valid offer to a third party should suffice as the trigger event [Hirschowitz]. This is to allow people to test out the market. However, if the pre-emption agreement includes a price (conditional option), then A cannot go out and test the market. Therefore, anything less than an offer will be considered to be a trigger event.

Question 40

Can the grantor free themself of their obligation?

Answer 40

The grantor cannot free themself of the obligation under the pre-emption agreement by making an unreasonable offer to the grantee. Hence, they must be willing to sell on more or less the same favourable terms to any buyer.

Question 41

How long does this right last for?

Answer 41

Used to be two months now it is a reasonable period, so as to give the grantee reasonable opportunity to consider the offer.

Question 42

What is the confusion surrounding enforcement of a pre-emption agreement?

Answer 42

Unsure as to whether specific performance may be sought. In the negative sense, B could interdict A from selling to C. However, can there be specific performance of the positive obligation to make an offer to B? There is reluctance to state so. The matter thus remains open.

Question 43

What is the Oryx mechanism?

Answer 43

Established to help B in the situation where A sells to C. In this instance, B can address a unilateral declaration of intent to A, and will step into the shoes of C and in effect create a new contract of sale between A and B on terms identical to those in the agreement between A and C. This stands alongside the A-C agreement, but because of the first in time principle, B will acquire the property - perhaps through the doctrine of notice as well.

Some questions remain:

1) can B use this mechanism when A has offered to sell to C, or must A have actually sold to C?
2) can the mechanism be used even when the sale must by law comply with certain formalities?
3) can B recover the property from C even if C was ignorant of B’s pre-emptive right at the time of the sale but acquired knowledge of it prior to transfer into their name.