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The hazards of a “Draft Agreement”

A contract (a legally binding agreement) comes into existence through offer and acceptance by the parties. It is thus important not to do something (or say something), particularly in a commercial context, which could be regarded as constituting an “offer”, since the party to whom that communication was addressed can then bring a contract
into existence by a simple act of acceptance.

The case of Roberts and Another v Martin 2005 (4) SA 163 (C) concerned a dispute in this regard which arose between R, a 17-year old who aspired to be a professional tennis player, and M, a businessman.

These days, anyone wishing to make a career as a professional sportsperson needs substantial financial backing. Unless you have the good fortune to be born into an affluent family, you will need a "sponsor" who will bear at least a substantial portion of the costs of your sporting equipment, coaching, medical treatment, travel and subsistence expenses.

M had instructed his attorneys to draw up a written agreement

In this case, M had instructed his attorneys to prepare a written agreement in terms of which he would provide R with accommodation, the services of a professional tennis coach and other benefits. The document was presented to R, who signed it. Although he continued to provide the backing provided for in the document, M did not sign it. Some seven months later, M's attorneys wrote to R, saying that M had“elected not to pursue the sponsorship agreement” and did not consider himself bound by it.

R took the matter to court, claiming that, even though M had not signed the agreement, he was nonetheless bound by it.

The legal principles in this kind of situation are clear. Generally speaking (there are a few exceptions) a contract does not have to be in writing in order to be valid and binding. If it is in writing, it does not have to be signed. If an offer is made to enter into a contract, any unequivocal act of acceptance will bring a mutually binding contract into existence.

In the present case, M argued that he had provided sponsorship to R “out of the goodness of his heart” and had not contractually bound himself in any way. R argued that the act of presenting a written document to her constituted an "offer", and that by signing the document she was accepting the offer and thereby bringing a binding legal contract into existence.

The court found in favour of R. By presenting a written agreement to R, M was offering to enter into a contract with her on the terms set out in the document. By signing the agreement, R had unequivocally accepted that offer. Consequently, M was now bound by that agreement and R was entitled to require M to fulfil all the obligations set out in the agreement.

The moral of the story

What lesson is to be learned from this judgment? Firstly, it illustrates the danger of drawing up a written "draft" agreement and giving it to the other prospective party to scrutinise, unless the document contains provisions which prevent a repetition of what occurred in the judgment discussed above.

What is needed in this regard is a clause in the draft written agreement along the following lines: “There shall be no binding agreement unless and until a written agreement is signed by all the parties” or all the draft agreements should be clearly marked 'Draft for discussion purposes only’.

In the light of the judgment, it may be advisable to go even further and to include in the draft agreement something along the following lines: "This document does not constitute an offer and shall be of no legal force or effect unless and until it is signed by both parties. Unless and until it is so signed, the parties shall be at liberty to withdraw from further negotiation and decline to enter into any agreement”.

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