BUSL6222 LU3
BUSL6222 LU3
Chapter 5 – Reaching agreement
5.1 What makes a legal agreement?
A contract = agreement between two parties, which creates rights, duties and obligations in
the law
1. Both parties must agree on something, they must be clear about what they are
agreeing on
2. Both parties must seriously intend to be legally bound by the terms of the contract
There are three main theories explaining why the law holds people to their agreements:
1. Wills Theory – What you think matters most
o People should be bound because they chose to be bound.
o This is a subjective approach - it looks at what the parties were actually
thinking.
o Example: If I wanted to contract with Andries but accidentally dealt with Xolani
instead, there’s no valid contract with Xolani - because I never intended to
contract with him.
2. Declaration Theory – What you do matters most
o People are bound because of their outward actions, not their inner thoughts.
o This is an objective approach — it focuses on appearances and behaviour.
o Example: In the same situation, if I acted in a way that looked like I was
making a contract with Xolani, the law would see it as a valid contract —
regardless of my hidden intention.
3. Reliance Theory – A mix of both
o A contract exists if one party reasonably relies on the other party’s behaviour
as showing agreement.
o Example: If Xolani reasonably believed from my words or actions that we had
an agreement, the contract is valid — even if I didn’t truly intend it.
SA law, starts with wills theory – there must be actual subjective agreement between the
parties. If there’s no true agreement, the reliance theory can still make the contract binding -
if one party reasonably relied on the other’s conduct as showing agreement.
Forming a valid contract generally involves three steps:
1. Making an offer – One party proposes the terms.
2. Accepting the offer – The other party agrees to those terms.
3. Concluding the contract – Both the offer and acceptance must meet certain legal
requirements.
Once the contract is concluded, both parties are legally bound and must perform their duties
under it. Before that point, either party can change their mind.
1
,BUSL6222 LU3
5.1.1 Making an offer
Person who makes the offer = offeror
Person who receives the offer = offeree
Declaration / statement of the offer contains all the terms on which the offeror is prepared to
contract.
5.1.2 Accepting an offer
Acceptance is the offeree’s declaration of their intention to enter a contract with the offeror,
with the terms of the contract being those given in the offer.
5.1.3 Concluding an offer
When two parties make a contract, it’s important to know exactly when and where it
becomes legally binding. This matters because it determines:
When the obligations start.
Which laws/jurisdiction might apply.
the general rile is that a contract is created when and where the offeror is informed that the
offeree accepts the offer – known as the information theory.
If parties are face-to-face:
o Place: Where they are standing together.
o Time: The moment the offeror hears the acceptance.
o Example: You say “I accept” while standing in front of the person — the
contract is made right then and there.
If parties are not face-to-face:
o It’s harder to pinpoint the moment and place because communication takes
time (e.g., by post, email, or courier).
o Special rules apply for delayed communication — these will be discussed
separately in more detail.
2
, BUSL6222 LU3
5.2 Requirements for a valid offer
Has to meet all of the 6:
1. Offer must be complete
- Must contain all terms of the contract
2. Offer must be clear
- Should state what type of contract it is, aim of contract, amount of money
involved, time of performance (when parties will do what they are agreeing to)
3. Offer must be made w the intention of creating a contract
- An offer is only valid if the offeror intends to be legally bound if accepted -
Jokes or unserious statements are not valid offers.
- Advertisements & Displays are usually not offers, they are invitations to do
business, when you respond, you make the offer and the advertiser can
accept or reject
- Exception: If the ad clearly intends to be binding (e.g., reward offers), it’s
treated as an offer.
- Consumer Protection Act (CPA) – advertisements cant charge more than the
displayed price, if an ad limits qty, supplier must honour within that limit
- Reward adverts are binding offers - fulfil the conditions and the advertiser
must pay.
- Auctions without reserve: Offer to sell to highest bidder; bid = acceptance.
- Auctions with reserve: Invitation to do business; bids are offers, auctioneer
may accept/reject.
4. Offer must be made in the prescribed form, if any
- Verbally, in writing, electronically
5. Offer must be communicated to the offeree
6. Offer must be current and must not have lapsed or been rejected or revoked
- Lapsed = time has passed, offer is not valid anymore
- Rejected = refusal to accept the offer
- Counteroffer = the first offer has been rejected, a new offer has been put
forward
- Revoked = revoke it the offer, withdrawal must be clearly communicated
3
BUSL6222 LU3
Chapter 5 – Reaching agreement
5.1 What makes a legal agreement?
A contract = agreement between two parties, which creates rights, duties and obligations in
the law
1. Both parties must agree on something, they must be clear about what they are
agreeing on
2. Both parties must seriously intend to be legally bound by the terms of the contract
There are three main theories explaining why the law holds people to their agreements:
1. Wills Theory – What you think matters most
o People should be bound because they chose to be bound.
o This is a subjective approach - it looks at what the parties were actually
thinking.
o Example: If I wanted to contract with Andries but accidentally dealt with Xolani
instead, there’s no valid contract with Xolani - because I never intended to
contract with him.
2. Declaration Theory – What you do matters most
o People are bound because of their outward actions, not their inner thoughts.
o This is an objective approach — it focuses on appearances and behaviour.
o Example: In the same situation, if I acted in a way that looked like I was
making a contract with Xolani, the law would see it as a valid contract —
regardless of my hidden intention.
3. Reliance Theory – A mix of both
o A contract exists if one party reasonably relies on the other party’s behaviour
as showing agreement.
o Example: If Xolani reasonably believed from my words or actions that we had
an agreement, the contract is valid — even if I didn’t truly intend it.
SA law, starts with wills theory – there must be actual subjective agreement between the
parties. If there’s no true agreement, the reliance theory can still make the contract binding -
if one party reasonably relied on the other’s conduct as showing agreement.
Forming a valid contract generally involves three steps:
1. Making an offer – One party proposes the terms.
2. Accepting the offer – The other party agrees to those terms.
3. Concluding the contract – Both the offer and acceptance must meet certain legal
requirements.
Once the contract is concluded, both parties are legally bound and must perform their duties
under it. Before that point, either party can change their mind.
1
,BUSL6222 LU3
5.1.1 Making an offer
Person who makes the offer = offeror
Person who receives the offer = offeree
Declaration / statement of the offer contains all the terms on which the offeror is prepared to
contract.
5.1.2 Accepting an offer
Acceptance is the offeree’s declaration of their intention to enter a contract with the offeror,
with the terms of the contract being those given in the offer.
5.1.3 Concluding an offer
When two parties make a contract, it’s important to know exactly when and where it
becomes legally binding. This matters because it determines:
When the obligations start.
Which laws/jurisdiction might apply.
the general rile is that a contract is created when and where the offeror is informed that the
offeree accepts the offer – known as the information theory.
If parties are face-to-face:
o Place: Where they are standing together.
o Time: The moment the offeror hears the acceptance.
o Example: You say “I accept” while standing in front of the person — the
contract is made right then and there.
If parties are not face-to-face:
o It’s harder to pinpoint the moment and place because communication takes
time (e.g., by post, email, or courier).
o Special rules apply for delayed communication — these will be discussed
separately in more detail.
2
, BUSL6222 LU3
5.2 Requirements for a valid offer
Has to meet all of the 6:
1. Offer must be complete
- Must contain all terms of the contract
2. Offer must be clear
- Should state what type of contract it is, aim of contract, amount of money
involved, time of performance (when parties will do what they are agreeing to)
3. Offer must be made w the intention of creating a contract
- An offer is only valid if the offeror intends to be legally bound if accepted -
Jokes or unserious statements are not valid offers.
- Advertisements & Displays are usually not offers, they are invitations to do
business, when you respond, you make the offer and the advertiser can
accept or reject
- Exception: If the ad clearly intends to be binding (e.g., reward offers), it’s
treated as an offer.
- Consumer Protection Act (CPA) – advertisements cant charge more than the
displayed price, if an ad limits qty, supplier must honour within that limit
- Reward adverts are binding offers - fulfil the conditions and the advertiser
must pay.
- Auctions without reserve: Offer to sell to highest bidder; bid = acceptance.
- Auctions with reserve: Invitation to do business; bids are offers, auctioneer
may accept/reject.
4. Offer must be made in the prescribed form, if any
- Verbally, in writing, electronically
5. Offer must be communicated to the offeree
6. Offer must be current and must not have lapsed or been rejected or revoked
- Lapsed = time has passed, offer is not valid anymore
- Rejected = refusal to accept the offer
- Counteroffer = the first offer has been rejected, a new offer has been put
forward
- Revoked = revoke it the offer, withdrawal must be clearly communicated
3
