THE LAW OF CONTRACTS
In Part 1 (page 36 – August 2014), I categorised risk into five categories, namely; 1. PEOPLE, 2. MONEY, 3. LAW, 4. SERVICE and 5. ECOLOGY. I will be dealing 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. In Part 2, (page 22 – September 2014), I covered the category of ‘People’ under four sub-categories: Staff (discussed in Part 1); Third party service providers (‘TPSP’); and Business Associates. Part 3 (page 24 – October 2014), continued with ‘PEOPLE’ as Customers. Part 4 (page 27 – November 2014), started the discussion on the 2nd category, namely ‘MONEY’ in terms of CASH and CHEQUES. Part 5 (page 23 – December 2014), looked at CREDIT and CREDIT CARDS.
In this issue we look at the third category, namely the LAW in terms of CONTRACTS.
Contract constitute the very foundation of business, including the premises you work from (Purchase or lease), the people you work with (employment, partnership, shareholders) and the people to whom you sell your products or services and from whom you buy materials (stock, ingredients, stationery).
It is thus very important to not only to understand what comprises a contract, but how to negotiate, draft (content), manage and enforce (either as plaintiff or defendant) a contract. I will deal with each of these elements.
What comprises a contract? The one myth I must dispel immediately is that a contract must be in writing – there are many contracts that never go beyond a verbal arrangement and is not reduced to writing BUT is nevertheless as enforceable as if it were. The challenge of course is to prove the content in the case of a dispute – I am sure many of you have been in the ‘he said; she said’ scenario – this can turn out to be a very costly mistake so ensure in ALL cases that your verbal arrangement is reduced to writing AND signed by BOTH parties!
A contract can be defined as follows: “An agreement entered into with the intention of establishing a legally binding obligation(s)”.
Rather short and sweet but properly analyzed, a contract consists of the following COMPONENTS:
• Offer and acceptance;
• A legally binding obligation;
• Consensus ad idem;
• Performance must be possible;
• Performance must be permissible;
• The parties must have the capacity to contract;
• Formalities (if any) have to be complied with;
• Obligations must be certain or ascertainable.
REQUISITE #1: OFFER & ACCEPTANCE
This means that one party (“A”) offers something (i.e. either a product or a service) to another party (“B”) and “B” accepts the offer. Obviously there can be conditions attached to the offer. What is important however is that “A” must clearly be making an offer and “B’s” communication must be an unequivocal acceptance of the offer. If the acceptance is conditional or qualified, the response from “B” is not an acceptance, which concludes the contract. At best it may well constitute a counter-offer, which “A” in turn may accept or reject.
Let’s take the example of a customer collecting a brochure from a travel outlet. The brochure contains all the glossy pictures, an application form and a list of terms and conditions, (which is referred to in the application form and the brochure). The customer completes the application form and the terms and conditions, but deletes one and amends another two of the terms and conditions. Does the actions of the customer constitute acceptance of the offer by the travel agent as contained in the brochure? No: What the customer has done is to make a counter offer, which counter offer the travel agent/tour operator is at liberty to accept or reject. In the event of the latter, no legally binding contract has come into being and no rights or obligations would emanate from the communications.
Conversely the ‘booking cycle’ or ‘contractual relationship’ (critical transactional path – ‘CTP’) is mostly initiated the potential customer making an enquiry via one of various mediums: a telephone call from a new or existing client, an e-mail, via your website or a new client popping into your offices. It could be simple e.g. a flight to a local destination or complex e.g. a flight to an overseas destination with multiple stop-overs, etc. Your response to the enquiry will constitute your OFFER to the enquiry. Once accepted, that ACCEPTANCE constitutes the ‘final episode’ in the sequence and you now (should) have a legally binding contract.
At this point it must be quite evident what the MOST IMPORTANT IMPLICATION of the above is: if you say the wrong thing or omit certain facts and the customer accepts, the customer will be getting something you did not really (want to) offer him or her! ‘Yes’, you can attempt to contest that on the basis of e.g. a lack of consensus (More about that in later articles), but would it not be better to have systems (e.g. a properly structured booking procedure) in place that assist you in saying the right thing and/or handle the enquiry the right way and/or ‘builds in’ safeguards’ (e.g. starting with an estimate and incorporating your standard terms and conditions)?
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’, January 2015.