A person can find himself legally bound to a contract to which he did not in fact agree
If a person behaves in such a way as to lead another person to reasonably believe that the two of them have entered into a legally binding agreement, the law will regard the agreement as legally binding, even if the first-mentioned person had not, in fact, intended to bind himself to the agreement.
Can you find yourself locked into a contract to which you never, in fact, agreed?
In a few instances, notably contracts for the sale of immovable property (land and buildings), South African law requires the contract to be in writing and signed by the parties. An agreement for the sale of immovable property that is not recorded in this formal manner has no legal force.
As a general rule, however, contracts (legally enforceable agreements) need not be in writing, and oral agreements are just as binding as written agreements.
In some circumstances, our courts have held that a contract was entered into without any words being spoken at all, where the circumstances were such that it was clear that the parties had reached an agreement which they intended to be legally binding.
An illustration of this is an auction, where a person, by mutely gesturing to the auctioneer, signifies that he is making a bid, that is to say, is making an offer to purchase the item on sale.
The doctrine of quasi-mutual assent
In some circumstances, the law will hold a person to a contract to which he had not in fact agreed at all.
This will be so in circumstances where the so-called doctrine of "quasi-mutual assent" applies.
An illustration of this principle appears from the 2008 decision of our Supreme Court of Appeal in the case of Pillay v Shaik.
In this case, property developers had established a sectional title development on the Natal North coast, and offered the units for sale through an estate agent.
Each sectional title unit was to be registered in the name of a separate close corporation. A person who wished to purchase a particular unit would do so by purchasing, not the immovable property itself, but the members' interest in the close corporation that owned that unit.
Since what was being purchased was not immovable property, but a members' interest in a close corporation, the law did not require the contract to be in writing. However, the standard form agreement, prepared by the property developers, was a written document which made provision for both the purchaser and the seller to sign.
A certain Pillay wished to acquire unit 402, and signed an offer to purchase a members' interest in the close corporation that owned that unit.
She handed the signed offer to the seller's estate agent, and paid a deposit to the seller's attorneys. Correspondence then ensued between Pillay and those estate agents.
A year later, the seller informed Pillay that her offer to purchase had not been accepted and that her deposit would be refunded.
Pillay instituted legal proceedings claiming that a binding agreement of sale had been entered into. The sellers argued that they had not counter-signed the offer to purchase, and it therefore had never been accepted, and was therefore not legally binding.
The Durban High Court held that the letters sent by the seller's estate agents to the purchaser, Pillay, had led the latter to believe that the seller had indeed counter-signed the offer to purchase and that the offer had therefore been accepted. Since those estate agents had been authorised to represent the seller, the seller was bound by their actions.
On appeal, the Supreme Court of Appeal upheld the decision of the Durban High Court.
Both the Durban High Court and the Supreme Court of Appeal based their decisions on the so-called "doctrine of quasi-mutual assent", which was first articulated in the case of Smith v Hughes, decided in England in 1871, where the judge said that
- "If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into a contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms."
In the present case, the court held that the letters, sent to Pillay by the estate agents acting for the seller, had reasonably led Pillay to believe that her offer to purchase had been accepted by the seller.
As a result, the court held that the seller was legally bound to the contract, just as if the seller had in fact counter-signed the offer to purchase, thereby signifying acceptance.