General principles of contracts; (part 2) consensus (offer and acceptance)

Let's look at the word "agreement" in the definition (mentioned in the article in part 1 of the series). The most important element on the word "agreement" is a concept called "consensus". Every agreement comes down to consensus. (The correct legal term is "consensus ad idem"). Consensus is, in effect, the understanding between the parties, or the "meeting of their minds". This meeting of the minds can be broken down into an offer made by one party and an acceptance made by the other party to that offer. We call the party making the offer "the offeror", and the party to whom the offer is being made "the offeree".

The law has created certain rules that must be in effect for proper consensus to take place.

i) the offer and acceptance must be complete, clear and certain

If an offer is unclear or incomplete, (or the acceptance to that offer is not), then there can be no meeting of the minds and therefore no contract.

Let's say you are sitting in a pub having a drink with your mate Jimmy, who is a sound engineer. You say to him: "Listen, Jimmy, our usual sound engineer can't make our gig on Friday night. Would you like to come and mix us for R1,500? You won't have to bring anything - all the gear will be there, it's three sets at The Doors, starting at 7 and ending at midnight." Does this sound like an offer that is complete, clear and certain?

The answer is yes. Even though some detail may have been left out (e.g. does the mix include monitors, does Jimmy have to get his own transport there, and a few other items), the things that the law would regard as the main fundamental items of the contract have been covered in the offer (these being the main service hired, the price, and the date/place

- in fact sometimes even these last two might not have to be stated, where that can be presumed).

So it looks like we have an offer that is complete, clear and certain. If you had said something like "Jimmy, I'm not sure yet, but we might need you to mix for us on Friday, and we're not certain what we can pay you yet, because we don't know what we're getting paid..." would this be a complete, clear and certain offer? Definitely not - it is unclear and uncertain, therefore a positive response to it could not constitute a valid contract.

In the same way, an unclear response to a clear offer is not a valid acceptance and there is therefore no contract. Let's say that you make the clear offer to Jimmy as above, and his reply is "Well, I'll try to make a plan, but I might have a gig with another band on Friday. Not sure what time they're playing, but, I'll try to make it yours afterwards..." This is not a clear, complete and certain acceptance, is it? Therefore, even though the offer was clear and certain, there is no contract. No valid acceptance has taken place by the offeree, therefore no contract exists and no-one can sue anyone based on this. But if Jimmy had just said a simple "yes" or "I accept", that would have been enough - because the minds of the offeror and offeree would have met on the main terms of the contract.

ii) the offer and acceptance can be express (written or verbal) Or tacit (by conduct)

When you are sitting in the pub and say words to Jimmy that invite him to mix your gig on Friday night, you are making an express offer that is verbal (expressed in spoken words). When Jimmy speaks words showing his intention to accept the offer, he has then made an express acceptance that is verbal. No problem - a contract now exists and there are legal consequences.

But we need to examine in a bit more detail exactly how this verbal contract has come into existence. You would be forgiven for thinking that the contract comes about at the moment when Jimmy says "yes". In fact, this technically not correct - the contract actually comes into existence when you hear Jimmy say yes. Remember, we are dealing with the meeting of the minds here, and the parties' minds have not met until the offeror learns of the offeree's acceptance.

This is how an express verbal contract comes into existence: offeror speaks his offer; offeree hears it and accepts (usually also verbally); offeror hears and understands offeree's acceptance. At that point we have a legally binding contract.

Of course, the parties might choose to reduce their contract to writing, for the sake of clarity and proof, even though they are not required by law. In these cases, the document is not the contract itself - it is evidence of the contract. There are, of course, as always in law, some exceptions to this. As a general rule, contracts in South African law do not have to be reduced to writing to be binding. But there are some contracts that the law has decided should be in writing to be valid. Included in these exceptions are sales of immovable property, suretyship (signing guarantee on someone else's debt) and, very importantly for the musician, transfer of copyright.

When you sign something, our law presumes that you have read and understood it, small print or not, and it is very hard to rebut that presumption in our courts. There is a term in our law that would serve you well to learn: "caveat subscriptor". It means "let the signer beware."

Finally, certain contracts can be entered into by conduct or behaviour (Lawyers call these "tacit" contracts). No words of offer or acceptance are spoken, but there is still an offer and acceptance - it's just that they are carried out by conduct. In fact, these are the most common contracts and millions of them happen everyday - mainly in retail stores.

When you go into a CD store, pick the latest Led Zeppelin compilation album, plonk it down on the cashier's desk, pay for it and walk out, a contract has taken place. Even though you never say "I offer to purchase this CD for the marked price", and even though the cashier never says "I agree to sell you this CD for that price", the conduct of the parties comprises a valid offer and acceptance as far as the law is concerned; therefore, a contract, and all the legal consequences of a contract, come about.

iii) the offer and acceptance must be made with the intention of creating binding legal relations

As far as the law is concerned, both parties must have the intention to enter into a valid contract by doing what they say or saying what they'll do when making the offer or acceptance. If the intention by either of the parties appears to have been something else, then there is no offer or acceptance, and therefore no contract.

Mere puffery

"Mere puffery" is a legal term meaning a statement that is not intended to create binding legal relations. Advertising blurb falls into this category. However, we need to be a little careful here. If the word "offer" is used, or if the advertisement otherwise shows that the advertiser does in fact intend his statement to be taken so seriously so that it might create binding legal relations, then his statement might constitute a valid offer, the acceptance of which could create a contract. Many "price cut special offers" fall into this category. (Remember, however, that the law of contract and the principles of false advertising are two different things, dealt with under different areas of the law).

Quotations

Let's say you're running a sound hire company. The manager of a local band 'phones you and says he is interested in you providing the sound for his band's gig that Friday night. You draw up a quote of R5,000 and communicate this to him (verbally, by fax, e-mail, whatever). You don't hear anything else, and Friday comes and goes. On Monday, you receive a summons for breach of contract because you didn't appear at the gig, and the band had to cancel, losing lots of money. Well, you might be forgiven for thinking that there is a breach of contract here - after all, there was an initial call, responded to with a quote, so there was a binding contract, right? Wrong. There is in fact no contract in this case because the initial enquiry was not an offer.

It was something else called an "invitation to do business." An invitation to do business is not intended to create binding legal relations - i.e. it is not intended to be an offer, therefore a positive response to is not an acceptance, but an offer. In this example, therefore, the quote comprised the offer, and no acceptance to the offer was made, on the facts. Therefore there was no contract and you are not in breach. For a contract to have come into existence, the quote would have to be accepted. Thus, if the manager had contacted you somehow to accept the quote, then there would have been a contract and a breach.

Goods on a retail shelf

There are other "invitations to do business" which are also not offers, again because of lack intention. Let's take the example of the presence of retail goods on a shelf: you go into a retail music store one day and start looking around at the latest CD releases. There's a wall of CD's called "Latest Releases" and one of them catches your eye - it's the new AC/DC album that you've been waiting all year. You look at it and see that it's marked R1.85 (not R185.00); you immediately grab it, take it to the cashier's counter and smack a Rand coin and 85 cents on the counter. The cashier says to you: "sorry, sir, this is a mistake - the correct price is R185.00." You insist on paying R1.85 and she refuses. What's the legal position? Can you sue them and force them to let you have the CD at R1.85? We need to understand the underlying legal principles to get to the bottom of this.

The answer is that the presence of the CD on the shelf is not an offer. It is an invitation to do business - this must be correct, otherwise it would be a breach of contract every time you picked up a CD, looked at it and put it back on the shelf. So, when you pick up the CD and take it to the cashier, you are making a positive response to the store's invitation to do business, i.e. you are making an offer. This offer can be accepted or rejected by the offeree, the store. In this case, the cashier refused to ring the CD up at R1.85 and therefore rejected the offer. You can rant and rave as much as you like - regrettably you cannot force the store to give the CD at R1.85, despite their pricing mistake, and there is no breach of contract.

iv) an offer may be made to particular person or group of persons

This rule relates to the identity of the offeree. Let's start at the beginning.

If Cole offers his guitar to Clyde for R15,000 and Cindy, who happens to be walking past at the time says "I accept." Is there a contract between Cole and Cindy? The answer is no - not unless it can be proven that Cole intended to include Cindy as an offeree. But let's say that Cole is not particularly fussy about whom he sells the guitar to, he is desperate for the money, he walks into the local pub, where Clyde and Cindy both happen to be sitting, and Cole announces to the room that he will sell his guitar (to the first comer - implied) for R15,000.

In that case, when Cindy (or anyone else in the room) accepts, there is a binding contract, because the offer was made to a group of people - anyone in the room, and that included Cindy. Groups of offerees can be quite specifically defined, like "all students studying at Academy of Sound Engineering" (e.g. Marshall Music have made an offer of discount to exactly that group - students from other institutions to whom that offer has not been made, cannot accept, and therefore cannot claim breach of contract if the discount is not honoured).

One interesting example under this heading is that old chestnut, the offer of reward. Let's say I lose my guitar (stolen from my car while I was packing up after a gig), and I put up posters offering a R5,000 reward for information leading to the recovery of my guitar. Two days later someone who happens to have seen the thief in action, gives me the thief's identity and I get my guitar back. Do I have to pay him R5,000? The answer is yes. We have a valid and binding contract because I, as offeror, made an offer to the whole world (almost) which was impliedly accepted by the person who gave me the information. If I refuse to pay, he can sue me for breach of contract.

But what if the thief himself, finding that he can't get much for my guitar, takes me up on my offer and gives me the information? Can he insist on being paid R5,000? the answer, according to decided case-law in South Africa, is no, because the group of offerees to whom I made the offer, by intention, was the whole world except the thief. He cannot then sue for breach of contract if I refuse to pay him the R5,000.

and in next week's instalment of the series, we continue discussing the remaining requirements to forming consensus.