Law of Contracts – Part 15

In Part 1 (August 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.
In Part 2, (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 (October 2014), continued with ‘PEOPLE’ as Customers.
Part 4 (November 2014), started the discussion on the 2nd category, namely ‘MONEY’ in terms of CASH and CHEQUES.
Part 5 (December 2014), looked at CREDIT and CREDIT CARDS.
Part 6 (January 2015), looked at LAW and CONTRACTS, with an introduction and Requisite #1: Offer & Acceptance.
Part 7 (February 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.


Homework – What To Do Before You Go Ahead

Words loosely used and sometimes with dire financial consequences are: ‘I’ll see you in court’ and ‘(Don’t talk to me) talk to my lawyer’. This is all good and well, but have you done your homework?

This article and the next four inserts will assist and guide you by providing steps to take before you ‘shoot your mouth off’ and even before you brief your own lawyers, if AT ALL!

‘Yes’ it is imperative that you yourself know where you stand in the Russian Roulette of litigation – as I’ve often said: it is very good business and risk management strategy to know and understand your own risk and to address it yourself first and this is especially important with litigation – the minute you brief your attorneys the clock starts ticking and if you look at fees of around R3 000 an hour, that means R50 per minute so do your homework as per my guidelines/checklist and you can save yourself mega bucks e.g. you may find that there is no need to brief your lawyer at all as (1) You may have a very weak case and/or (2) It may be completely feasible to pursue an amicable settlement (either as an alternative to or before litigating)!
This ‘homework’ comprises 6 steps and we will deal with them in this and subsequent issues: (1) How enforceable is your contract? (2) Have the requisites been met? (3) What are the options available? (4) Preparation (5) Implementation and (6) Mitigating your damages.

1. How Enforceable Is Your Contract?

This question must be addressed from two perspectives namely, commercial and legal.

The commercial question is simply the following: go thru the contract or if available, the executive summary (See previous articles re latter) and prepare a checklist of each party’s expectations and deliverables, then work thru it and see whether these have been met. Discussions with managers and site visits may be required but the important aspect is that you need to know whether you can go into the dispute without fearing a ‘counter-attack’ from the other party based on poor or non-performance. The exercise thus requires a degree of introspection and objectivity – don’t go ‘shooting from the hip’ only to find out that ‘your own house is not in order’: it can be very costly so rather slow down, do your homework and if there are shortcomings, find out for yourself.

The legal question, over and above issues such as locus standi, jurisdiction etc means to have to go back to the basics and that is: have requisites for a binding contract been met?

2. Have The Requisites Been Met?

The first question is has there been a clear and definitive offer and acceptance? As we now know for example a qualified acceptance is not acceptance, it is a counter-offer which in itself must be accepted. This example is often found with lease agreements for premises where the letting agent will provide the potential lessee with an offer to rent/lease document which is often not duly completed or contains a suspensive condition such as ‘This offer is subject to the lessor’s standard lease agreement being entered into’ – the latter should be vetted before the rental offer is signed.

The second question is whether the ‘contract’ the parties have entered into constitutes a legally binding obligation. It may well be that the agreement is contra bonos mores i.e. against the norms and morals of society and thus not enforceable. Creditors are often frustrated by the legal system and sometimes a debt is very hard to collect if a debtor simply digs in his/her heels and refuses to pay. As a consequence a creditor may engage the services of a debt collector – if the latter operates within the parameters of the law and provides a legally recognized service, then it will be all good and well and the contract enforceable. However from time to time businesses engage the services of ‘rogue debt collectors’ and pay a huge upfront deposit – the latter is based on the outcome but this outcome the debt collector attempts to achieve by illegal means such as blackmail, extortion and sometimes with not so subtle threats of physical violence. If the debt is then not collected, the business will fail in its endeavour to recover the deposit as the contract per se is not enforceable – this is because society does not concede creditors taking the law into their own hands.

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’, November 2015.

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