Unit 5Contracts Inter Absentes

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.

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.

Reid v Jeffreys Bay Property Holdings. Driftwood Properties v McLean. Cape Explosive Works Ltd v South

African Oil and Fat Industries. Craib v Crisp.

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.

In contemporary business world, one depends on offers and acceptances via e-mail, 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.

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.

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.

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.

Legal Questions:

Who is the offeror and who is the offeree?

Where did the contract come into existence?

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.

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.

Where did contract come into existence?

Cape Town.

Ratio decidendi:

Information theory: Contract comes into existence at the time when and place where offeror learns that his offer has been accepted.

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.

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.

Legal question:

When did the acceptance constitute a valid contract?

Decision:

17 May 1969, the date on which the offer was effectively accepted.

Ratio decidendi:

The court quotes Hugo Grotius by stating:

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…

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.

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.

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.

The Court held the following:

…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…

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?

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.

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.

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.

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.

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.

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.

Problem: Offeror will not necessarily be aware of acceptance of his offer at the time of declaration of acceptance by offeree.

Consensus ad idem?

Used in South African law with regard to internet transactions.

Sections 22 and 23 of the Electronic Communications and Transactions Act 25 of 2002.

How does this occur?

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.