Commercial Law
Topic 3:
Agreement
Prof Marius van Staden
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Requirements for a Valid Contract
1. Contractual capacity
2. Agreement
3. Legality
4. Possibility of performance
5. Formalities
6. Certainty
Commercial Law
Introduction to Agreement
• An agreement between two parties which creates rights, duties and
obligations in law
• Key Components:
• Both parties must agree on something and be clear about what they are
agreeing on
• Both parties must seriously intend to be legally bound by the terms of the
contract
• Traditional contract principles now apply to electronic commerce and
digital transactions
Commercial Law
Theories of Contract Formation
• Three main approaches:
• Wills Theory: Person should be bound by contract as they have chosen to
be bound (subjective approach)
• Declaration Theory: How people act, not what they think, determines
binding nature (objective approach)
• Reliance Theory: Combination of above - basis found in one party
reasonably relying on agreement due to other party's behaviour
• South African Position: Adopts wills theory's subjective approach as point
of departure, but reliance theory used as secondary basis where no
subjective agreement exists
Commercial Law
Three Aspects of Valid Agreement
• Essential Elements:
• Making an offer
• Accepting an offer
• Concluding a contract
• Key Principle: Contract only comes into existence once all requirements are
satisfied. Until then, parties can change their minds and not enter into the
contract.
Commercial Law
Requirements for Valid Offer
• Complete - must contain all terms the offeror wants in the contract
• Clear - offeree must understand exactly what contract the offeror wants
• Made with intention of creating a contract
• Made in prescribed form, if any
• Communicated to the offeree
• Current - must not have lapsed, been rejected, or been revoked
Commercial Law
Offer vs Advertisement
• General Rule: Advertisements are invitations to do business, not offers
• Key Case - Crawley v Rex (1909):
• Principle: Display of goods in shop window does not amount to offer to sell
• Facts: Shopkeeper advertised tobacco, customer claimed offer when
refused sale
• Finding: Advertisement was invitation to public to do business - customer
makes offer, shopkeeper decides whether to accept
• Exception: Reward advertisements can constitute offers (Carlill v Carbolic
Smoke Ball Co.)
Commercial Law
Self-Service and Reward Cases
Pharmaceutical Society v Boots Cash Chemist (1953):
• Principle: Self-service system is invitation to buy - customer makes offer when
tendering payment
• Facts: Pharmacy sale of controlled drugs without pharmacist supervision
• Finding: Customer made offer only when payment tendered to cashier under
pharmacist supervision
Carlill v Carbolic Smoke Ball Co. (1893):
• Principle: Advertisements can constitute offers depending on nature, wording
and circumstances
• Facts: Company advertised reward for contracting influenza after using product
• Finding: Extract showing deposit with bank indicated genuine offer to public
Commercial Law
Consumer Protection Act and Pricing
Key Provisions:
• Section 23(6): Supplier cannot require consumer to pay higher price than
displayed price
• Section 30(2): If supplier states limitation on availability at specified price,
must provide product within stated limitations
Commercial Law
Current Offers and Revocation
Three ways offer can end:
1. Lapsed Offer:
• Usually stays open for specified period
• If no time limit, remains valid for reasonable period
• Offer also lapses if offeror or offeree dies, loses contractual capacity, or performance
becomes impossible
2. Rejected Offer:
• Counteroffer rejects original offer and creates new offer
• Parties swap roles in negotiation process
3. Revoked Offer:
• Can be revoked anytime before acceptance
• Withdrawal must be clearly communicated to offeree
• Odendaal v Norbert (1973): Revocation only effective if communicated before acceptance
Commercial Law
Requirements for Valid Acceptance
1. Made by the intended offeree
2. Offeree must have intention to contract when accepting
3. Acceptance must be clear and unambiguous
4. Acceptance must match the terms of the offer
5. Made within the prescribed time
6. Made in prescribed form and place
7. Acceptance must be completed
Commercial Law
Key Acceptance Cases
Bird v Summerville and Others (1961):
• Principle: Only party that offeror intended to accept the offer may do so
• Facts: Estate agent told Bird that Summerville would purchase property, but
when offer sent, both Summerville and another party signed
• Finding: Offeror not bound as only intended Summerville to accept
Bloom v American Swiss Watch Company (1915):
• Principle: Offeror cannot accept offer if they do not know about it before
accepting
• Facts: Bloom gave information to police before reading newspaper reward
notice
• Finding: No contract as Bloom did not know about offer when providing
information
Commercial Law
Concluding Contracts
Information Theory (General Rule):
• Contract concluded when and where offeror informed/becomes aware of
acceptance
• Applied when parties contract in each other's presence
Special Rules for Distance Communication:
• Postal contracts: Expedition theory - contract formed when acceptance posted
(if offeror authorised postal acceptance)
• Telephonic contracts: Information theory applies - formed where offeror hears
acceptance
• Electronic contracts: Reception theory under ECTA - formed where acceptance
received by offeror
Commercial Law
Options and Rights of First Refusal
Option Contract:
• Offeror agrees to keep offer open for specific period
• Creates irrevocable offer for specified time
• If accepted, main contract is concluded
Right of First Refusal:
• Contract where person agrees that if they decide to enter particular contract,
they will make offer to other person first
• That person must then decide whether to accept or reject
• Also called "right of pre-emption"
Commercial Law
Electronic Commerce Overview
Nature of E-commerce:
• Business conducted using internet and World Wide Web
• Transactions in cyberspace = electronic commerce
• Includes digitised products and services (e-books, music, streaming, social
networks)
Key Challenge: Adapting traditional contract law principles to electronic
environment
Legal Framework:
• Electronic Communications and Transactions Act 25 of 2002 (ECTA)
• Protection of Personal Information Act of 2013 (POPIA)
• Consumer Protection Act 68 of 2008 (CPA)
Commercial Law
Validity of Electronic Contracts
ECTA Sections 11(1) and 22(1):
• Contract will not be without legal force merely because it is in form of data
message
• Electronic contracts have same validity as physical contracts
• Must still meet all common law requirements for valid contract
Example: Thabo advertises car online for R100,000, Suzie emails acceptance
• Advertisement not valid offer (invitation to do business)
• Suzie making offer that Thabo can accept or reject
• No agreement reached on contract terms
Commercial Law
Validity of Electronic Contracts
ECTA Sections 11(1) and 22(1):
• Contract will not be without legal force merely because it is in form of data
message
• Electronic contracts have same validity as physical contracts
• Must still meet all common law requirements for valid contract
Example: Thabo advertises car online for R100,000, Suzie emails acceptance
• Advertisement not valid offer (invitation to do business)
• Suzie making offer that Thabo can accept or reject
• No agreement reached on contract terms
Commercial Law
Electronic Formalities - Writing
ECTA Section 12: Writing requirement met when in form of data message and
"accessible in manner usable for future reference"
Mafika v SA Broadcasting Corporation Ltd (2010):
• Principle: Employee's resignation via SMS constitutes written notice
• Facts: Employee sent SMS to CEO stating "quit with immediate effect", later
wanted to withdraw resignation
• Finding: SMS is data message under ECTA and meets writing requirement
Implication: Electronic writing (WhatsApp, SMS, emails, webpage terms) satisfies
writing requirements if retrievable
Commercial Law
Electronic Formalities - Writing
ECTA Section 12: Writing requirement met when in form of data message and
"accessible in manner usable for future reference"
Mafika v SA Broadcasting Corporation Ltd (2010):
• Principle: Employee's resignation via SMS constitutes written notice
• Facts: Employee sent SMS to CEO stating "quit with immediate effect", later
wanted to withdraw resignation
• Finding: SMS is data message under ECTA and meets writing requirement
Implication: Electronic writing (WhatsApp, SMS, emails, webpage terms) satisfies
writing requirements if retrievable
Commercial Law
Electronic Formalities - Signature
Two Situations:
Statutory Formality (legislation requires signature):
• Only advanced electronic signature valid
• Technologically advanced with accrediting authority
• Strong security mechanisms, difficult to replicate
Party-Chosen Formality:
• Simple electronic signature sufficient
• Any data attached to/incorporated in other data intended as signature
• Spring Forest Trading v Wilberry (2015): Typed names at bottom of emails met
signature requirements under parties' agreement
Commercial Law
Excluded Electronic Transactions
ECTA Sections 12 and 13 do not apply to:
• Agreements for sale of immovable property
• Long-term lease agreements (more than 20 years)
• Wills
• Bills of exchange
Consequence: These transactions cannot be concluded electronically and are only
valid in physical form with handwritten signature
Exception: Parties can specifically agree that agreement cannot take electronic
form
Commercial Law
Excluded Electronic Transactions
ECTA Sections 12 and 13 do not apply to:
• Agreements for sale of immovable property
• Long-term lease agreements (more than 20 years)
• Wills
• Bills of exchange
Consequence: These transactions cannot be concluded electronically and are only
valid in physical form with handwritten signature
Exception: Parties can specifically agree that agreement cannot take electronic
form
Commercial Law
Conclusion of Electronic Contracts
Reception Theory (ECTA Section 22(2)):
• Contract formed when and where offeror receives valid acceptance
• Different from postal contracts (expedition theory)
ECTA Section 23(b): Acceptance deemed received when:
• Completed data message enters offeror's information system and is readable
• Does not matter if offeror actually reads acceptance
Jafta v Ezemvelo KZN Wildlife (2009):
• Principle: E-contract concluded when electronic acceptance received by offeror
• Facts: Email malfunction meant employer didn't receive acceptance, hired
another candidate
• Finding: Valid contract existed when SMS acceptance received, employer in
breach
Commercial Law
Imposed Terms in Electronic Contracts
Methods of Imposing Standard Terms:
• Shrink-wrap agreements: Terms disclosed after purchase completion
• Click-wrap agreements: Must click icon to signal acceptance before transaction
• Browse-wrap agreements: Continued use of website indicates acceptance
• Incorporation by reference: Reference to terms in separate document
• Email disclaimers: Terms at bottom of emails
Key Principle: Same rules apply as physical world - party bound if aware of terms
before contract conclusion or supplier took reasonable steps to bring terms to
attention
Commercial Law
Imposed Terms in Electronic Contracts
Methods of Imposing Standard Terms:
• Shrink-wrap agreements: Terms disclosed after purchase completion
• Click-wrap agreements: Must click icon to signal acceptance before transaction
• Browse-wrap agreements: Continued use of website indicates acceptance
• Incorporation by reference: Reference to terms in separate document
• Email disclaimers: Terms at bottom of emails
Key Principle: Same rules apply as physical world - party bound if aware of terms
before contract conclusion or supplier took reasonable steps to bring terms to
attention
Commercial Law
Click-wrap and Browse-wrap Distinctions
Click-wrap Agreements:
• Party required to click icon signalling acceptance
• Generally binding even if terms not read
• Shows awareness and willingness to be bound
Browse-wrap Agreements:
• Terms displayed on website, continued use indicates acceptance
• Binding depends on whether reasonable person would expect to find terms
• Must be sufficiently conspicuous and legible
• Not binding if terms hidden or in very small print
Incorporation by Reference: Reference must be conspicuous enough for
reasonable person to notice
Commercial Law
Automated Transactions
Transaction where one or both parties use software programme without human
intervention
ECTA Provisions:
• Section 20: Automated system regarded as "electronic agent" of party
• Parties bound to contracts made by automated systems
Two Situations for Mistakes:
• Human interacts with other party's automated system
• Party uses automated system as their electronic agent
Protection: Section 20 allows relief if electronic agent didn't provide opportunity to
prevent/correct error and certain conditions met
Commercial Law
Consumer Protection in ECTA
• Duty to disclose information: Full supplier details, contact information, proper
description, payment methods, terms including return/exchange policies
• Opportunity to review, correct and withdraw before finalisation
• Secure payment systems: Must use sufficiently secure systems
• Executing the order: Must carry out within 30 days
• Right of withdrawal: Seven-day cooling-off period for consumers
• Retention of rights: Consumer rights apply regardless of where contract
concluded
Commercial Law
Spam and Direct Marketing
POPIA Provisions:
• Direct marketing to existing customers: Allowed if details provided in context of
previous sale, but consumer can opt out anytime
• Direct marketing to non-customers: Not allowed unless consumer consented in
advance ("opt-in system")
Example: Receiving direct marketing email from supplier never dealt with before
violates POPIA unless you consented to receiving such emails
CPA: Also limits direct marketing, both Acts must be read together for full
consumer protection
Commercial Law
Summary of Key Cases
Traditional Contract Cases:
• Crawley v Rex (1909): Advertisements as invitations to do business
• Pharmaceutical Society v Boots (1953): Self-service as invitation to buy
• Carlill v Carbolic Smoke Ball Co. (1893): Reward advertisements as genuine offers
• Odendaal v Norbert (1973): Revocation must be communicated before
acceptance
• Bird v Summerville (1961): Only intended offeree can accept
• Bloom v American Swiss (1915): Must know of offer before accepting
Commercial Law
Summary of Key Cases
Electronic Contract Cases:
• Mafika v SA Broadcasting (2010): SMS constitutes written notice
• Spring Forest Trading v Wilberry (2015): Email signatures satisfy formality
requirements
• Jafta v Ezemvelo (2009): Electronic acceptance creates binding contract when
received
Commercial Law
Practical Applications
Traditional Contracting:
• Understand difference between offers and invitations
• Ensure clear, complete offers with proper communication
• Be aware of acceptance requirements and timing
• Know when contracts are concluded
Commercial Law
Practical Applications
Electronic Contracting:
• Electronic contracts have same validity as paper contracts
• Understand different formality requirements for electronic signatures
• Be aware of consumer protection rights in e-commerce
• Consider jurisdiction and automated transaction issues
• Comply with anti-spam legislation
Modern Challenge: Seamlessly applying centuries-old contract principles to rapidly
evolving digital environment
Commercial Law
Thank you!
Do you have any questions?
Room 64; Oliver Schreiner School of Law
Consultation times: Wednesdays 12:00-14:00
Course Administrator:
Ms Lerato Phiri
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