It is almost considered a foregone conclusion: a written contract must be signed by the parties for it to be valid. But is this conclusion always accurate? This article looks into whether a written agreement must set out both parties’ signed acceptance of it before it can be enforced against either of them.
Consider this scenario: you are appointed as the contractor for the project advertised by a municipality. You submit regular payment applications as you work and you are paid the amounts certified. When the time comes for your eighth payment certificate to be paid, the municipality flatly refuses to pay. You raise a dispute and refer the matter to arbitration. The municipality then refuses to participate in the arbitration, claiming that there is no arbitration agreement between the parties – because there is no signed contract between them. It relies on a clause which states: “The parties shall sign the original contract documents and shall furnish signed copies thereof to one another, and upon furnishing the respective copies and upon the signing of the contract by both parties, the physical signing of the contract constitutes a valid acceptance.” The municipality argues that the parties did not physically sign a copy of the contract and because the clause was not followed to the letter, the contract is formally defective and unenforceable.
Is the municipality correct?
The given set of facts is not unheard of. Modern technology has paved a way for business transactions to be entered into without the parties thereto ever having to physically meet. This, however, raises contractual issues as the enforceability of agreements can be subject to prescribed formalities imposed by the contracting parties.
Our courts have dealt with numerous disputes on the validity of agreements and considering whether the agreement had been validly entered into in accordance with the prescribed formalities. One example is the Bosch Munitech (Pty) Ltd v Govan Mbeki Municipality matter, where the high court considered whether the applicant had complied with all the prescribed formalities, whether the acceptance had taken place by considering the prescribed form of notification of acceptance and whether the contract was entered and signed in line with the terms of the tender specification when accepting the tender offer. The tender documents and clause pertaining to the formalities set out that the respondent in that matter had to sign the acceptance and return a copy thereof to the applicant before the end of the period of validity stated in the tender data, in order to effect valid acceptance of the offer.
Notably, the contract included the following:
“Notwithstanding anything contained herein, this agreement comes into effect on the date when the tenderer receives one fully completed original copy of this document, including the schedule of deviations (if any). Unless the tenderer (now contractor), within five (5) working days of the date of such receipt, notifies the employer in writing of any reason why he cannot accept the contents of this agreement, this agreement shall constitute a binding contract between the parties.”
Furthermore, a clause in the standard conditions of tender imposed obligations on the employer in relation to its acceptance of any tender, requiring the employer to:
- “Accept the tender offer only if the tenderer complies with the legal requirements, if any, stated in the tender data”; and to
- “Notify the successful tenderer of the employer’s acceptance of his tender offer by completing and returning one copy of the form of offer and acceptance before the expiry of the validity period stated in the tender data, or agreed additional period. Provided that the form of offer and acceptance does not contain any qualifying statements, it will constitute the formation of a contract between the employer and the successful tenderer as described in the form of offer and acceptance.”
It followed that the failure to adhere to the procedure of duly signing and notifying before the end of the period of validity rendered the acceptances invalid.
The court found that where a contract stipulates the formalities to be followed for acceptance, then that contract will be concluded only upon that specific mode of acceptance being followed. Failure to comply with the specified procedures and formalities by either party renders the contract null and void. In the matter before it, the court held that the non-compliance with the stipulated provisions for acceptance resulted in no contractual obligations having arisen – with the corresponding effect that the parties could not rely on any contractual remedies.
South African law provides also clear authority on the scope and principles of contract law and states what constitutes valid acceptance. Unless an agreement states that its existence is subject to the rules pertaining to acceptance set out within it, the general rule is that acceptance takes place on the notification of acceptance, i.e. when Party A tells Party B that it accepts the contract. Importantly, there are several unavoidable requirements for valid acceptance; it must be:
- By the person to whom the offer was made; and
- In the prescribed manner, by law or by the requirements of the contract.
Some contracts may specify that a physical signature is not necessary to begin with. The JBCC Principal Building Agreement, Edition 4.1 states, in clause 3.5, that “formal signatures are not required to render this agreement binding.” The same clause appeared in Edition 5.0 of the Agreement. However, it appears that the drafters of the JBCC suite of contracts chose to follow a safer route, excluding, from Edition 6.1 onwards, that clause 3.5 with the effect that formal signatures are now required.
It is vital to ensure that the acceptance of a contract is solid and clearly in line with the requirements specified by law or by the contract itself. As is seen above, it is not uncommon for the courts to refuse to enforce contacts entered into defectively. The parties to any contract must always be mindful of safeguarding themselves by knowing the terms of their agreements and, when in any doubt, consulting experienced attorneys for assistance.
By Ryan du Preez | Director