COMMERCIAL LAW 1
LAWS1000
CHAPTERS 5, 6 & 7 SUMMARIES
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original textbook for the material on which these summaries are based. All information taken directly from:
Pillay, K. and Du Plessis, R. (2023) Commercial law: Fresh perspectives. 4th edn. Cape Town, South Africa, Western Cape: Maskew Miller Learning. .
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,CHAPTER 5: Reaching Agreement
What makes a Legal Agreement
• Contract is a deliberate legally binding agreement between two or more competent
- There must be a consensus on terms of contract
- Both parties must seriously intend to be legally bound by terms of contract
• Several approaches to rationale for holding individuals bound by contracts:
- Wills Theory
- Declaration Theory
- Reliance Theory
• Wills Theory
- Suggests a person should be bound by contract as they have chooses to be bound
- Subjective approach and law considers what contracting parties were thinking when entered into contract
• Declaration Theory
- Suggests that how people act, not what they think, is reason they are held bound by contracts
- If they objectively behave as if there is a contract, law regards contract as having come into legal existence
• Reliance Theory
- Combination of above two theories
- Proposes that basis of a contract is found in one party reasonably relying on agreement between parties, because
of behaviour of other party
• SA law has adopted Wills Theory’s subjective approach to contract law as its point of departure thus there must be
subjective agreement between parties for there to be a valid agreement
• Where there is no subjective agreement, Reliance Theory is used thus there can still be a valid contract as long as one
of parties reasonably relied on other party’s conduct as showing agreement
• Communication between peoples who want to enter into contract has two identifiable parts:
- An offer
- An acceptance
• One party has to make a valid offer and other party has to accept offer in a valid way
• Both offer and acceptance must meet various requirements in order to be considered valid
• Therefore contract only comes into existence once all requirements are satisfied
• Once contract is concluded, both parties are legally bound by contract and must perform in terms of contract
• Important to determine exactly when a contract is concluded thus three aspects involved for forming a valid agreement:
1. Making an offer
2. Accepting an offer
3. Concluding a contract
• Making an offer
- First step in making an agreement
- Person who makes offer is called an offeror
- Person who receives offer is called offeree
- Declaration/statement of offer contains all terms on which offeror is prepared to contract
- Therefore can define an offer as way in which an offeror declares to offeree their intention to enter into contract
and specifies terms of contract
• Accepting an offer
- Acceptance is offeree’s declaration of their intention to enter into a contract with offeror, with terms of contract
being those given in offer
- Offeree’s acceptance of offer is what makes interaction become a contract
,• Concluding a contract
- Important to know when and where contract is concluded as this indicates when and where it became legally
binding on parties to contract
- General rule is that contract is created when and where offeror is informed that offeree accepts offer, which is
known as the information theory
- Special rules have evolved to refine this in various circumstances
Requirements for a Valid Offer
• For offer to be valid it must meet six requirements:
1. Offer must be complete
2. Offer must be clear
3. Offer must be made with intention of creating a contract
4. Offer must be made in prescribed form, if any
5. Offer must be communicated to offeree
6. Offer must be current and must not have lapsed or been rejected or revoked
• Completeness
- Offer must be complete
- Must contain all terms that offeror wants to have in contract thus offeror must explain fully what they want in
contract, so that if offeree agrees to these provisions, contract will be created
• Clarity
- Offer must be clear
- Offer must be made in such a way that offeree can understand exactly what contract offeror wants
- Offer should clarify:
~ Type of contract
~ Aim of contract
~ Amount of money involved
~ Time of performance
• Contract intention
- Offer must be made with intention of creating a contract
- Offeror must intend to be bound by offer, so that if offeree accepts, there will be a contract
- Law has developed specific guidelines to decide whether a statement was intended as an offer
- Advertisements
~ Common law states that as a general rule, advertising and the display of goods is NOT an offer as person
placing advertisement does not intend it to be an offer
~ It is merely an invitation to do business
~ It is a way of indicating that advertiser wants to sell their products and they are asking people to make offers
~ Advertiser will then decide whether to accept of reject these offers
~ Term ‘advertisement’ includes price tag or marking on an item in a shop as well as price mentioned in a printed
brochure or media display
~ In exceptional cases, if it is clear from type of advertisement and surrounding circumstances that
advertisement is intended to be an offer, the law will regard it as an offer eg. Advertisement offering a reward
~ Consumer Protection Act 68 of 2009 (CPA) applies to certain contracts between suppliers and consumers only
where supplier sells goods/services ‘in the ordinary course of business’ and Section 23(6) deals with prices
displayed for a product and states that a supplier must not require a consumer to pay a price higher than the
displayed price
, - Rewards
~ If advertisement offers a reward, advertiser’s intention is that they will pay a reward to anybody who meets
conditions of reward
~ Law regards advertisement for a reward as an offer to public
~ If an individual fulfils requirements for reward, offeror is contractually liable to pay reward
- Auctions
~ Auction is a public sale of goods or property whereby interested people compete against one another by trying
to outbid for items on sale
~ Auctioneer calls out price for which they are prepared to sell item and audience indicates whether they are
willing to pay that price
~ Two types of auctions:
- Without reserve
- With reserve
~ Auctions without reserve have no minimum price set for an item thus item sold to highest bidder who, by
bidding, accepts offer places by auctioneer therefore creating a contract
~ In auctions with reserve, auctioneer reserves right not to sell item to highest bidder thus auctioneer is merely
inviting people to do business and when individuals bid they are making offers which auctioneer can accept or
reject
• In prescribed form
- Offer does not usually need to be in any particular form
- Can take place verbally, in writing or electronically
- In some cases law prescribes specific formalities for specific contract types thus offer must comply with these
• Communication
- Offer must be communicated to offeree, because they cannot accept an offer they are not aware of
- Can take place in any manner, even by way of a third party
• Current
- Offer must be current
- Offer must NOT have:
~ Lapsed
~ Been rejected
~ Been revoked
- If offer has lapsed, been rejected, or been revoked, then is has come to an end meaning it is no longer in
existence and may no longer be accepted
- Lapsed offer
~ Usually, offers remain open for specific time periods thus when this has passed the offer lapses/expires
~ No longer valid and offeror may not accept it
~ If offer does not have a set time limit is is considered valid for a reasonable period of time
~ Offer also lapses if either offeror or offeree dies, no longer has contractual capacity, or if performance becomes
impossible
- Rejected offer
~ Refusing to accept an offer means it has been declined or rejected
~ Making a counteroffer rejects initial offer and introduces a new offer whereby parties swap roles (original
offeror becomes offeree and original offeree becomes offeror)
~ This can continue indefinitely but it is important to identify which party was offeror and which was offeree at
time of contract conclusion
