University of the North v Franks & Others – (2002) 23 ILJ 1252 (LAC)
- Introduction
Two of the fundamental elements of the South African Law of Contract is offer and acceptance. In other words, for a legally binding contract to come into existence, there must be a valid offer and there must be a valid acceptance of such an offer.
It often happens that when a party makes an offer (the offeror) to another party (the offeree), the offeror will insert a time by when the offer is to be accepted. If the offer is not accepted within the specified period of time, the offer will lapse and be of no further legal force and effect. On the other hand, it might also happen that such an offer does not contain a time period by when the offer is to be accepted. For present purposes, the former type of offer will be referred to as a ‘time sensitive offer’ and the latter will be referred to as an ‘open offer’.
The question that needs to be answered is: can an offeror lawfully revoke a time sensitive offer and / or an open offer before the offeree has accepted same? We explore this question in the below case.
- University of the North v Franks & Others – (2002) 23 ILJ 1252 (LAC)
[2] In this matter, the appellant was the University of the North and the respondents were all employees of the appellant. [3] In June 2000, the appellant conducted an investigation and surveys with regard to a possible voluntary staff retrenchment programme as part of its budget restructuring.
[4] On 5 August 2000, the appellant mandated its executive committee ‘to handle the matter of voluntary retrenchments‘ as part of its restructuring process. To this end, management recommended that the restructuring process be started off by offering staff voluntary retrenchment and to encourage staff over 55 years of age to leave and to offer them retirement as well. [7] On 15 August 2000, the appellant’s acting vice-chancellor issued a memorandum to the appellant’s employees headed ‘Voluntary retrenchment‘. It stated, inter alia, that ‘The council of the university has approved that voluntary retrenchment be offered to all permanent members of staff. This offer is made with effect from 15 August 2000 and shall expire on 15 September 2000. In addition, council has approved that staff over the age of 55 may elect to retire as well as accept the retrenchment package’ (emphasis added).
[8] On 22 August 2000, a further memorandum on the same subject was issued by the appellant’s acting vice-chancellor to all of its employees. The relevant portions recorded that ‘This is a follow-up to my memo of 15 August on voluntary retrenchment. This offer is the first phase in the process of restructuring the university and entails offering retrenchment on a voluntary basis to permanent members of staff. As an incentive to staff over the age of 55, they are allowed to retire (and hence get university retirement benefits such as medical aid etc) as well as acceptor retrenchment packages. It must be clearly understood that this (severance package and university retirement benefits) is a once off offer to the over 55s and may not be available in the subsequent phases of this restructuring process.‘
[9] At its extraordinary meeting of 31 August 2000 the appellant’s Executive Committee resolved to revisit the whole issue of retrenchment. The appellant then issued a communiqué in terms of which it informed “The University Community” that the two circulars mentioned above were withdrawn and rescinded forthwith. [10] By this time, approximately 141 of the appellant’s employees had accepted the offer. The second respondent contended that the offer, stated to be open till 15 September, could not be revoked on 5 September and that his acceptance thereof on 7 September was valid, entitling him to claim the benefits contained in the offer.
The validity of the offer
Two ancillary issues that arose in this case were whether the offer was valid and whether the person making the offer (i.e., appellant’s acting vice-chancellor) was duly authorised to do so. It is not necessary to delve into the intricacies of these issues for present purposes, but in short [39] … the Court held that the respondents and the other employees were well within their rights to accept that the offer made by the appellant’s acting vice-chancellor had been duly authorized. The Court concluded these issues by holding that [41] … the offer was properly authorized and was a valid offer.
Could the offer be withdrawn before 15 September?
Keeping within the confines of ‘offer and acceptance’, there are a number of decisions which suggest that where an offer is a ‘time sensitive offer’ the offeree must accept the ‘additional offer’ to keep the main offer open for acceptance for a specified period of time, and if the ‘additional offer’ is not accepted, then the offeror may withdraw his offer at any time before acceptance. By way of example, [48] Coetzee J, in the Anglo Carpets[1] matter, held that ‘It is trite that an offer can at any time before acceptance be revoked and that the mere statement that it is irrevocable or not revokable for a certain period is ineffective.’
In the present case, this led the Court to identify three primary legal issues that needed to be decided, namely:
i. Can an implied (or for that matter an express) undertaking to keep an offer open for a specified period of time be accepted by the offeree or can, in certain circumstances the undertaking in its context, contain a waiver of the normal requirement of acceptance of the offeree?
ii. If acceptance is a prerequisite, must it be communicated to the offeror?
iii. Can the offer be unilaterally revoked at any time before acceptance?
This article will focus on point iii. In the present case the [44] … offer … stated that it was made with effect from 15 August 2000 ‘and shall expire on 15 September‘. There was no (separate) ‘agreement’ between offeror and offeree that the offer will be kept open, at least no express agreement. There is merely a statement by the offeror as to the duration of the offer (i.e. that the offer was to stand for a period of one month).
The Court identified that [46] … one must decide if (i) the statement that the offer ‘shall expire on 15 September 2000‘ amounts to an offer to keep the offer open for the given period; or (ii) merely determines the reasonable time within which the offer is to be accepted, without any implied undertaking not to exercise the offeror’s normal right of withdrawal before acceptance.
In exploring and answering this question, the Court referred to a number of earlier decisions, most notably the Reich[2], Phillips[3], Musa[4] and Building Material[5] decisions, as well as to a number of learned authors.
When referring to Beinart[6], the Court noted that the learned author favoured the view that where an offeror has undertaken to keep the offer open, he is bound, as the offeree can be assumed to accept the offer by implication ‘and it is important that he should be saved from the risks attendant on relying on the undertaking and possibly incurring trouble and expense or arranging his business in reliance on the undertaking. Any other rule would be undesirable and contrary to business practice…. It is submitted that there is adequate authority in Roman and Roman-Dutch Law, and in Romanistic jurisprudence generally to support a rule that where a person makes an offer, undertaking to keep it open or not revoke it for a period or until the happening of a certain event a valid option is constituted unless the offeree in fact rejects the option. Equity favours this rule as far as the offeree is concerned, and the offeror really suffers no prejudice. The concept of bilaterality of contract should not be driven too far in cases where acceptance would merely be an empty form and a foregone conclusion.‘ The learned author pointed out that the codes of Germany, Switzerland and Austria go further and hold the offeror bound to keep open any serious offer as a legally binding unilateral declaration of will for a certain period, express or implied.
When referring to [53] Prof R H Christie[7], the Court noted that the learned author cautioned that a distinction must be drawn between an option and an irrevocable offer and that this is perhaps ‘one of those situations where the view of the courts may be accepted and welcomed without too close an inquiry into its theoretical foundation’. When referring Prof J G Lotz[8], the Court noted that the learned author could see no objection in principle to an offeror unilaterally creating irrevocability of an offer.
The Court concluded by holding that [55] … the approach of Professors Beinart[9], Christie[10] and Lotz[11] and the judgments in the cases of Reich[12], Phillips[13], Musa[14] and Building Material[15], are to be preferred.
- Conclusion
Therefore, the Court held that where an offer is (either expressly or tacitly) stated to be irrevocable for a given period, and such an offer is communicated as being such to the offeree, it becomes irrevocable upon receipt, for that given period, unless the offeree rejects the irrevocability. The Court held that to require a mental acceptance would be meaningless in practice as that cannot be evidenced, and that such a requirement would merely pander to theory. The Court reasoned that to require notification of acceptance of the irrevocability would set a standard which in normal business practice will not be followed and will be regarded as rather foolish.
In the present case the Court accordingly held that [56] … the offer to the appellant’s employees could not be revoked before its expiration date, and the acceptance of the offer by the second respondent after 5 September 2000 and before 15 September 2000, was therefore valid.
Therefore, when parties are negotiating contracts, it is of paramount importance that the offeror is fully aware of the legal implications associated with the offer that is being made, and to this end, the wording that is used when making such an offer. If the intention of the offeror is to be bound to the offer for a certain amount of time, then the offeror should make a ‘time sensitive offer’. On the other hand, if the offeror does not want to be bound by the offer, and thereby ensure that it can be revoked before the offeree accepts it, the offer should be an ‘open offer’.
[1] Anglo Carpets (Pty) Ltd v Snyman 1978 (3) SA 582 (T) at 585G
[2] Reich v Stone 1949 SR 178 (HC)
[3] Phillips v Aida Real Estate (Pty) Ltd 1975 (3) SA 198 (A)
[4] Musa v Fischat NO & others 1980 (2) SA 167 (SE)
[5] Building Material Manufacturers Ltd v Marais NO 1990 (1) SA 243 (O)
[6] ‘Offers Stipulating a Period for Acceptance’ 1964 Acta Juridica 200 at 202
[7] The Law of Contract in SA (2 ed) at 56
[8] ‘Is Kontrakbreuk Moontlik by ‘n Opsiekontrak?’ 1988 THRHR 237 at 238
[9] Supra 5
[10] Supra 6
[11] Supra 7
[12] Supra 1
[13] Supra 2
[14] Supra 3
[15] Supra 4
