08 March 2019
320
It is a requirement in the South African Law of Contract
that, for a contract to come into existence, an offer to contract must be made
by one party to the agreement (“the offeror”), which must then be accepted by
the other party to the agreement (“the offeree”). It is pivotal to determine
when and where such a contract is concluded, as this will give an indication as
to which country’s system of law will govern the contract (assuming that all
other elements for a valid contract have been satisfied).
The offeree may
communicate his decision to accept the offer to contract by posting a letter to
the offeror, or by sending the offeror an email. The method of communication utilised
by the offeree will affect the place where and moment when the contract comes
into existence; and, ultimately, which system of law is applicable to the
contract.
The general rule is that
a contract comes into being when and where consensus between the parties has
been reached. This is typically the place where and moment when the offeror
learns that the offeree has accepted the offer. However, there are exceptions
to this general rule, which are discussed below.
1. Postal contracts
The court in Cape Explosive Works v South African Oil and
Fat Industries Ltd 1921 CPD 244 explained that, when an offeree posts an
acceptance letter to the offeror, the contract comes into being once the letter
accepting the offer is posted to the offeror. In other words, the offeree need
not follow up and ensure that the offeror has received his acceptance for the
contract to be binding and enforceable.
2. Section 22 and 23 of the Electronic Communications and Transactions Act 25 of 2002 (“ECTA”)
Section 22 of the ECTA provides that “[a]n agreement concluded between parties by means of [electronic communications] is concluded at the time when and place where the acceptance of the offer was received by the offeror”. Further, section 23 reads as follows: “[electronic communications] used in the conclusion […] of an agreement must be regarded as having been sent by the [offeree] when it enters an information system outside the control of the [offeree] or […] when it is capable of being retrieved by the [offeror]”.
Therefore, unlike with a postal
contract, the contract only becomes binding and enforceable when the offeree
has sent off his electronic communication of acceptance of the offer to
contract and the offeror has received
or is able to retrieve such communication. In other words, the ECTA holds that
a contract will come into existence where an email appears in the offeror’s
inbox, but it has not been read; or, where the offeree leaves a message on the
offeror’s answering machine, but the offeror has not listened to it yet.
For example, if X, who
lives in South Africa, sends an email to Y, who lives in America, informing him
that he accepts his offer to contract, the contract will come into existence at
the moment that the email has been sent to the offeror and once it is received or capable of being retrieved by the
offeror. For that reason, as the email will be received or be capable of being
retrieved in America, the system of law applicable in this situation would be American
Law (assuming that all other elements for a valid contract have been satisfied).
3. Agreement by the parties
As South African Contract Law emphasises the freedom of contract, parties to a contract are entitled to agree to terms stipulating when and where a contract comes into existence.
In sum, the system of law
applicable to the contract will depend on whether the parties have agreed on a
moment when and place where the contract should come into being. If no such
agreement is reached, the applicable system will depend on the means chosen by
the offeree to communicate his acceptance of the offer to the offeror.
It is, therefore, advised
that parties to a contract agree on a moment when and a place where the
contract should come into existence in order to avoid confusion as to which
system of law will be applicable to the contract.