What Does the Law Say?
When there is no proof of a written contract, 'invoices' are
sometimes tendered by parties as conclusive proof that an agreement has been reached between them. Can it be successfully argued that the mere submission of an invoice by one party to another implies that a valid contract has
been entered into? This happened in a case between Spes Bona Bank Ltd and Portals Water Treatment South Africa (Pty) Ltd, in 1983.
What does the law say?
A contractor contracted with the employer for the manufacture and supply of certain mining equipment. The employer entered into a further contract with the bank, the details of which were that the bank
would forward the purchase price to the contractor and lease the equipment to the employer for a three year period. Over this period the employer would repay the purchase price plus finance charges. The
employer communicated this arrangement with the bank to the contractor and asked the contractor to provide him with an invoice in order to facilitate his finance agreement with the bank. The contractor
forwarded to the employer two invoices in this regard. The first invoice was forwarded to the bank and reflected the price of much of the equipment. The second invoice was post dated and represented the
balance of the purchase price. The bank then, on the strength of these invoices, paid out the first invoice in full to the contractor and thereafter concluded the lease agreement with the employer.
The contractor completed the manufacture of the equipment but the employer failed to take delivery of it. The employer then defaulted on the payments to the bank under the lease agreement and was liquidated. The bank then demanded from the contractor the delivery of the equipment to the bank, the reason being that the bank did not receive payment for the balance of the purchase price on the due date as indicated on the second invoice.
The trial court dismissed the bank's claim for the recovery of the equipment with costs. The bank, discontent with their decision, approached the Appeal Court. The Appeal Court had to consider two issues with regard to this matter:
a) did the bank and the contractor enter into an agreement in terms of which the bank purchased the equipment from the contractor, and if not;
b) is the contractor precluded (estopped) from denying the existence of such an agreement?
In supporting its case the bank alleged that a tacit agreement had been entered into as a result of negotiations between the contractor and the employer and that the invoices submitted by the contractor were evidence of such an agreement. The bank further expanded its allegations by stating that it had no knowledge of the negotiations between the contractor and the employer however, in their opinion, the contractor had made an offer to the bank by presenting them with an invoice addressed to the bank for the manufacture and supply of the equipment, to which the bank tacitly accepted. The bank further stated that the negotiation which led to the delivery of the said invoices to them resulted in a tacit agreement between the bank and the contractor, in that the bank, on receipt of delivery of the invoices, which were then paid by the bank, created a tacit agreement between themselves and the contractor.
Judge of Appeal, J A Bothe had this to say:
" ...On the face of it, i.e. having regard to its form and its contents and disregarding the circumstances under which it may have been issued and delivered, the invoice is not an offer to sell. That, I consider, is a proposition so plainly obvious that it requires as little elaboration as does the statement that chalk is not cheese ...
...For the purposes of my judgement it is sufficient to find, as I do, that the invoice by itself clearly did not constitute an offer to sell...
...Nor was it intended by the respondent through Pape, to be an offer. Pape's (respondent's) evidence in this regard was explicit. He had been told by Smith of Transterra (employer) that the latter was obtaining financial assistance from the appellant (bank) to provide for the payment of the price of the equipment, but he had had no previous experience of the manner in which financial institutions such as the appellant conducted their financing activities and he simply assumed that the appellant would advance the funds required by Transterra (employer) by means of making a loan to it. When Smith of Transterra (employer) asked him to issue and deliver the invoice in question, he knew that it was to be used in connection with procuring funds from the appellant, but he did not regard the invoice as being an offer to sell the equipment to the appellant and he had no intention on behalf of the respondent to enter into any contract with the appellant at all...
...In view of the fact that the invoice, according to its terms, as I have pointed out, was plainly not an offer to sell, one would have expected the appellant in its evidence to lay a foundation in fact for a finding that it was entitled to conclude, or that a reasonable man would have believed, that the invoice was an offer to sell. But the evidence tendered on behalf of the appellant falls woefully short of laying any such foundation...
...On his own evidence, therefore, he had no reason to believe that Pape (respondent) knew that the appellant would regard his invoice as an offer to sell. Counsel for the appellant sought to argue that the invoice was to be construed as an offer to sell by virtue of a trade custom coinciding with Smith's (employer's) views as to the effect of the appellant’s way of doing business. Here is no room, however, for an argument based on an alleged trade custom: it was not pleaded and there is no evidence on record to support it...
...In the final analysis, therefore, he had no reason to believe that Pape (respondent) knew that the appellant would regard his invoice as an offer to sell. Counsel for the appellant sought to argue that the invoice was to be construed as an offer to sell by virtue of a trade custom coinciding with Smith's (employer's) views as to the effect of the appellant's way of doing business. There is no room, however, for an argument based on an alleged trade custom: it was not pleaded and there is no evidence on record to support it...
...The appeal is dismissed with costs, including the costs of two counsel... "
In summary, the law states that in principle all that is required for entry into a contract is an acceptance of an offer. But such offer must be clear and unambiguous and must be intended as an offer by the offerer. It is clear in the case above that no such offer existed.
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Source: Tiefenthaler Construction Law Consultants
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