Law of Contracts – Part 19
Enforcing Your Contract: Homework – What To Do Before You Go Ahead. By Adv Louis Nel.
In Part 1 (Aug 2014), I categorised risk into five categories, namely; 1. PEOPLE, 2. MONEY, 3. LAW, 4. SERVICE and 5. ECOLOGY. In this series, I deal with the risk profile of each, i.e. broadly speaking the areas of risk that any business is exposed to can been allocated under these five categories.
Part 2, (Sep 2014) covered the category of ‘People’ under four sub-categories: Staff (discussed in Part 1); Third party service providers (‘TPSP’); and Business Associates.
Part 3 (Oct 2014), continued with ‘PEOPLE’ as Customers.
Part 4 (Nov 2014), started the discussion on the 2nd category, namely ‘MONEY’ in terms of CASH and CHEQUES.
Part 5 (Dec 2014), looked at CREDIT and CREDIT CARDS.
Part 6 (Jan 2015), looked at LAW and CONTRACTS, with an introduction and Requisite #1: Offer & Acceptance.
Part 7 (Feb 2015), continued with Requisite #1 covering telephone enquiries, e-mails, websites and advertising.
Part 8 (March 2015), covered Requisites #2: Legally Binding Obligation, and #3: Consensus in contracts.
Part 9 (April 2015), covered Requisite #4: Performance Must Be Possible.
Part 10 (May 2015), covered Requisites #5 & 6: Performance Must Be Permissible, and Capacity of the Contracting Parties.
Part 11 (June 2015), continued with Requisites #6: Capacity of the Contracting Parties.
Part 12 (July 2015), covered Requisite #7” Negotiating a Contract.
Part 13 (Aug 2015), covered Requisite #8 Drafting a Contract.
Part 14 (Oct 2015), covered Requisite #9 Contract Management.
Part 15 (Nov 2015), covered Requisite #10 Enforcing Your Contract – Part 1.
Part 16 (Dec 2015), Requisite #10 Enforcing a Contract (continued-1)
Part 17 (Jan 2016), Requisite #10 Enforcing a Contract (continued-2)
Part 18 (May 2016), Requisite #10 Enforcing a Contract (continued-3)
Part 19 – HAVE THE REQUISITES BEEN MET (continued-4)
Leading on from Part 18 in this series, the sixth question is whether the parties to the contract have the capacity to contract – in other words are they of age and/or they duly authorized?
Something that is often glossed over is whether or not the person(s) you are dealing with has the capacity to contract or has been duly authorized by the party or parties he or she purports to represent. What we are alluding to are such matters as the age of the party, transactions on behalf companies or group bookings.
As the law stands at the moment, the age at which any individual can enter into a binding contract is 18. Any agreement with a party under that age will NOT constitute a binding and legally enforceable contract unless such a party is emancipated (see below) or the parent or guardian has signed the agreement on behalf of the minor child. ‘OK’, you may be thinking, ‘This kind of thing simply does not happen’. Let me tell you, you may as well bet your bottom dollar because it does. I recently had the case of a youth booking with a Johannesburg based travel agent and travelling all over Europe. When the youth returned the travel agent approached her for payment of the balance of the trip, but no payment was forthcoming. Many telephone calls later they approached the parents who (No doubt after speaking with a friend in the legal fraternity) declined to pay, insisting that they knew nothing about it and that the travel agent’s sole right of recourse was against the child, which was of course based on a contract that was null and void!
A more prevalent situation, which has criminal sanctions, is the employment of an under age (18) person. Again such a contract will not be enforceable. There is the issue of emancipation which means that a person under the age of 18 may be deemed to have reached maturity due to certain business dealings or via a court order, but it would be better not to attempt ‘going down that road’ – it is simply too complex.
It is therefore imperative when you enter into ANY contract with ANY individual that you obtain a copy of their identity document. It is not only good risk management and will be crucial in the (hopefully unlikely) event that you have to trace the individual because the debt becomes bad but also good business practice. It will provide you with irrefutable proof of the person’s age and if under 18, you will have to obtain the signature of a parent or legal guardian of the person. Do NOT enter into any transaction without doing that, e.g. make reservations with airlines, hotels etc. as you will have NO right of recourse and will have to put your hand into your OWN pocket!!
How many travel agents and tour operators have not been ‘stung’ when making ‘group bookings’ (By this I mean one person coming into your office purporting to represent a group of people and then making extensive holiday arrangements with you on their behalf)? Recently I had a situation of a coastal travel agency who had made extensive bookings (flights, car hire & accommodation) for overseas travel for an inland based group of people. They had been making bookings for this group over a period of years and always dealt with one of the customer as being the group’s (assumed) ‘duly authorized representative’. Ten days before this group was about to depart, one member of the party decided she not longer wanted to go! She conveyed this to the ‘team leader’ who in turn conveyed it to the travel agent. The latter in turn pointed out that the ‘team leader’ had signed the travel agent’s terms and conditions (‘STC’) and that these contained a cancellation provision which (penalties) the travel agent intended enforcing. Well, the customer found a clever lawyer (Please note that is not an oxymoron!) who pointed out that his client had never had sight of or signed the STC!! Oh dear! Of course he was right and some fancy footwork later we managed to negotiate a settlement but guess who lost out (by & large)? The travel agent of course!
So what is the answer?
• Make sure that the ‘team leader’ is ‘duly authorized’ i.e. can present you with a document (e.g. a power of attorney) authorizing him or her to contract on behalf of the group.
• It is crucial that the power of attorney be worded as widely as possible e.g. allowing the ‘team leader’ to accept the STC, making choices about hotels, etc.
• Ensure that all your documents (especially when you are faxing) contain either the complete STC or a legally adequate reference thereto (Yours and the third party service provider’s)
• Ensure compliance with the CPA such as full disclosure, etc. (sections 41, 48, 49 & 51)
Bookings with separate legal entities such as companies, close corporations and trusts are another ‘can of worms’. Two issues are pertinent here: On the one hand the aspect of authority to bind the entity and secondly when you have an existing corporate customer who has accepted your STC due to e.g. a travel management agreement or credit application (which thus means the STC will apply to all subsequent bookings), but where individual employees (including directors) of the entity then approach the travel agent to make personal travel arrangements – RED FLAG!!
Let’s deal with the first issue: no dealings with a party purporting to represent ‘the entity’ will be legally binding and enforceable against the entity unless the party is duly authorized to do so. If not your sole right of recourse will be against the individual and that can be messy! By the same token regarding the second issue, do NOT assume the STC accepted by the entity will be enforceable against the individuals booking for their personal travel! A couple of years ago I had a situation where directors of a ‘blue chip’ client approached the in-house travel agency to make bookings for hotels in Cardiff for the (then) Rugby World Cup. The travel agent assumed their STC and that of the hotel applied and happily made the reservations.
When they wanted to cancel at ‘the 11th hour’, the travel agent tried to rely on the cancellation provisions in the STC and hotel booking form – NO LUCK! Now, if you ever had to negotiate a ‘messy’ settlement, this was one! Why? Not only because none of the STC were applicable but mainly because the travel agent was ‘caught between a rock and a hard place’: lose the ‘blue chip’ client or settle!! Capisce? The CPA also addressed this aspect i.e. the consumer who is the so-called end-user and linked to this the (Completely incorrect) perception that the CPA does (never) apply to juristic persons (such as the above) if the turn-over or asset value is in excess of R2m!
So what is the answer?
• Make sure the individual who purports to represent the entity is ‘duly authorized’.
• The resolution must be adequately worded (see above re groups)
• If it turns out that the individual actually wants to make a personal booking, ensure that he or she signs and accepts the STC (Yours and the third party service provider’s) in his/her personal capacity!
• Do NOT try to rely on ‘ostensible authority’ i.e. due to the person’s position in the entity e.g. general manager you assumed he or she had authority – it is ‘tricky’ and expensive to prove.
Disclaimer: This article is intended to provide a brief overview of legal matters pertaining to the travel and tourism industry and is not intended as legal advice. © Adv Louis Nel, ‘Louis The Lawyer’, June 2016.