Contract and Imposed terms - Miscellaneous Index

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					                 Caveat Subscriptor - How careful are we expected to be?

                                                                                        T Woker

                                                                   University of Natal (Durban)



Introduction

       In two recent decisions, namely Home Fires Transvaal CC v Van Wyk 2002 (2) SA

375 (WLD) and Africa Solar (Pty) Ltd v Divwatt (Pty) Ltd 2002 (4) SA 681 (SCA) the

Courts were faced with the novel situation where contracts were concluded via telefacsimile

and only the front pages of the contracts were transmitted. Certain terms were contained on

the reverse side of the documents but since the other contracting parties never received this

side they were unaware of these details. Later, disputes arose and attempts were made by the

relevant parties to rely on these undisclosed terms. The question which the Courts had to

decide was whether these terms formed part of their agreements. The situation was

complicated by the fact that in each instance the front page had been signed and contained a

reference to terms on the reverse side. The interesting feature of these decisions is that

although the facts and the results were similar, the Courts reached their respective

conclusions differently.

       The basic principle considered by the Courts was caveat subscriptor and the problem

of people signing contracts without considering all the terms which may be applicable. This

is not uncommon, but in previous decisions the terms were at least a part of the written

contracts; signatories had simply not read them. With respect to these cases, signatories did

not read the terms because they were never received.




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Caveat Subscriptor

       It is a basic principle of our law that a person who signs a written agreement is taken

to be bound by the ordinary meaning and effect of the words which appear above her

signature (see for example Burger v Central South African Railways 1903 TS 571 at 578).

The general rule is that if a party signs a document she cannot later argue that she did not

read it or that it does not reflect her true intention. The leading case is George v Fairmead

1958 (2) SA 465 (A) where Fagan CJ stated that if someone choses not to read what is

contained in the contract she is „taking the risk of being bound by it‟ and she „cannot then be

heard to say that [her] ignorance of what was in it was a justus error‟ (at 472 H-473A) .

       Signing a document without reading it does not in every instance mean that the

signatory will be bound by it. There are instances where one‟s signature can be avoided. This

is because the caveat subscriptor principle is premised on the reliance theory (see for example

Shepherd v Farrell’s Estate Agency 1921 TPD 62; Spindrifter (Pty) Ltd v Lester Donovan

(Pty) Ltd 1986 (1) 303 (AD) and Sonap Petroleum (SA) (Pty) Ltd v Pappadogianis 1992 (3)

SA 234 (AD)). This theory postulates that in circumstances where there has been no true

agreement between parties, a party will be bound by a contract if she has created the

reasonable impression that she intended to be bound. To use the now famous dictum of

Blackburn J in Smith v Hughes (1871) LR QB 587 at 607:



       „If whatever a man‟s real intention may be, he so conducts himself that a reasonable

       man would believe that he was assenting to the terms proposed by the other party, and

       that other party upon that belief enters into the contract with him, the man thus

       conducting himself would be equally bound as if he had intended to agree to the other

       party‟s terms.‟




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The important point to note is that the person who relies on a signature must have a

reasonable belief that the signatory intends to be bound by the terms of the agreement. This

belief will not be reasonable if she is aware that a mistake has been made (see for example

Sonap Petroleum (SA) (Pty) Ltd v Pappadogianis (supra)); or where she ought reasonably to

have known that the terms do not reflect the signatory‟s true intention (see for example Horty

Investments (Pty) Ltd v Interior Acoustics (Pty) Ltd 1984 (3) SA 537 (W)) or where she was

in some way responsible for the fact that the signatory was not aware of the contents of the

contract as was vividly demonstrated in Home Fires Transvaal CC v Van Wyk and Africa

Solar (Pty) Ltd v Divwatt (Pty) Ltd.



Home Fires Transvaal CC v Van Wyk

       This case involved an appeal from a decision of a single judge, Willis J, in the

Witwatersrand Local Division. The respondents, Mr and Mrs Van Wyk, wanted to acquire a

free-standing furnace for their home. The appellant, Home Fires Transvaal CC (Home Fires)

was a dealer in such furnaces. The first respondent, Mr Van Wyk, contacted the appellant

telephonically and spoke to one of its representatives. He was given some information which

he discussed with his wife. The following day he again spoke to the Home Fires‟

representative. He informed her that he wanted a furnace installed. The representative told

him that he would be required to sign an order form and arrangements were made for this to

be faxed to him. A document in the name of Home Fires, signed by one of its representatives

and headed „Bestelling/Order‟ was faxed to the Van Wyks. Importantly only the front page

of the document was transmitted. This provided for recording information regarding the

order. At the foot of the page the following statement appeared:




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        „This order can only be cancelled on payment of 15% of the total amount: see reverse

        side for further conditions‟



Mr Van Wyk completed the document, signed it and sent it back to Home Fires. He was

aware of the statement at the bottom of the page but he believed that it dealt with cancellation

only and did not think that it was necessary to call for the reverse side of the document.

        The furnace was duly installed. Unfortunately, there was a problem with the

installation. This led to a fire and the Van Wyk‟s home was badly damaged. When they

called on Home Fires to compensate them, they were referred to the reverse side of the

document which contained the standard terms. One of these terms was an exclusion clause

which had the effect of freeing it from liability in the event of defective performance.

        The trial Court and the Full Bench on appeal found that because the reverse side was

not transmitted to the Van Wyks, the terms and conditions contained therein did not form part

of the contract (at 382 A-B). In argument much was made of the fact that Mr Van Wyk

admitted that he was aware that there should have been terms on the back of the document

and that he had failed to call for them. It was argued that there was a duty on him to call for

the full contract.

        There is no doubt that if someone is aware that there is writing in a document and

chooses not to read it she may be bound by the writing even where the other party is aware

that she has chosen not to read the document. In discussing this, the Full Bench referred to

RH Christie The Law of Contract in South Africa 4 ed (2001) 200 where he said :



        „On the basis of quasi-mutual assent the cases in which it is clear (sometimes even to

        the other party) that the signatory has not read the document before signing are easily




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understood. “I haven‟t read the document but I‟m signing it because I‟m prepared to be

bound by it without reading it” is an attitude whether expressed or implied, that entitles the

other party to regard the document as binding‟ (see also Dlovo v Brian Porter Motors Ltd t/a

Port Motors Newlands 1994 (2) SA 518 (C) 524D-H and Aetiology Today CC t/a Somerset

Schools v Van Aswegen 1992 (1) SA 807 (W) 810 G-H).



However, neither the trial Court nor the Full Bench was prepared to extend this to cover the

situation where the terms were never transmitted. The Full Bench (Farber AJ, Goldstein J

and Boruchowitz J), in confirming the decision of the trial Court, stated that „by omitting to

send the reverse side of the order to the respondents, the appellant must be held not to have

intended to conclude the contract on the basis of the terms and conditions therein set forth‟ (at

382A-B). The Full Bench held further that the words appended at the foot of the „order‟

which referred to conditions on the reverse side were meaningless and had to be considered

as pro non scripto (at 382B).

       The matter was therefore decided in accordance with the basic principles of contract.

Home Fires had faxed a written document to the Van Wyks. The Van Wyks contracted on

the basis of what was sent to them. As the reverse side of the offer was not sent the terms

contained therein, including an exclusion clause, did not form part of the contract (at 382D).

The result, it is submitted, is fundamentally sound and accords with one‟s sense of justice.



Africa Solar (Pty) Ltd v Divwatt (Pty) Ltd

       The facts of this case are similar to those found in the Home Fires decision. The

appellant, Africa Solar (Pty) Ltd was the manufacturer of certain panels that are used to

convert solar energy into electricity. The respondent, Divwatt (Pty) Ltd wanted to purchase




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these to use them to operate water pumps for its customers in areas where conventional

electricity was not available or too expensive.

       The agreement between the parties arose in the following circumstances. During

1993, a meeting between representatives of the two parties took place. At this meeting it was

agreed that Africa Solar would provide five panels free of charge to Divwatt so that it could

test them. Shortly before delivery of these free panels, one Ms Gerber from Africa Solar

contacted Divwatt‟s financial director, Mr Pichulik, asking him to supply certain information

regarding Divwatt because it was a new company and Africa Solar wanted to check it out

before supplying it with the expensive panels. She faxed a form for him to complete.

Pichulik received a one page form which was headed „Application for Credit Facilities‟.

Initially he did not complete the form because he was not applying for credit but after being

requested again for the information he completed it, signed it and returned it to Gerber.

Thereafter the free panels were supplied and tested and found to be acceptable. Divwatt did

not make an application for credit and no further terms on which the panels were to be

supplied was discussed.

       Divwatt ordered panels to the value of R600 000 some of which were installed. After

a period of time, Divwatt started receiving complaints about the performance of the pumps

and it was established that the panels were not meeting the quoted specifications. Divwatt

withheld payment of the balance due to Africa Solar because of the ongoing dispute that

developed between the parties. Africa Solar sued Divwatt for the outstanding amount.

       One of the issues to be decided by the Court was whether Divwatt was precluded

from withholding payment by reason of Africa Solar‟s standard terms prohibiting this. The

problem was that on the single page signed by Pichulik there was a paragraph which read:

       „All purchases will be made in terms of and subject to the conditions of trade of




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       Helios Power (Pty) Ltd (Africa Solar‟s name at the time), as printed on the reverse

       hereof, which by signing this, I acknowledge having read, understood and accepted. I

       also warrant that I am authorised to sign this application



As Pichulik had not received the reverse side of the document he was unaware of these

standard terms. He was still unaware of these when he ordered the panels. When Divwatt

withheld payment, a representative from Africa Solar contacted Pichulik and informed him

that payment could not be withheld because the terms of the sale agreement precluded this.

       The trial Court found that Pichulik had made a material and reasonable error which

was induced by Gerber who had only sent him part of the document and who had informed

him that the information was required for checking purposes only. Hence it was found that

the terms on the reverse side of the document did not bind Divwatt.

       Africa Solar appealed to the Full Bench where the majority dismissed the appeal.

This Court (Van der Walt J and Roos J) said:



       „(W)here a document specifically states “conditions on the reverse hereof” you have

       the opportunity to read the conditions. If you choose not to read them or if the

       conditions appear above in the document, in the contract, you are able to read them,

       then you are bound. That is logical. But if the document specifically states as

       annexure A does “as printed on the reverse hereof” and there is no printing on the

       reverse, no matter how lame the excuse of the secretary as to why he signed or why he

       did not read the clause the factual position is there is no printing to which he has

       subscribed. And lacking such printing, he may be criticised for not inquiring after the

       printing, but he cannot be held to be bound by something which he has not seen, and




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        that is the simple issue as far as I am concerned‟ (at 695D-F).



The approach of the Full Bench, it is submitted, is in line with the approach in the Home

Fires decision. Both assert the proposition that if the terms are not transmitted they are not

part of the contract and this is so even if there is a reference to them in that part of the

document which is transmitted. This then suggests that there is no duty to seek out those

terms. Rather it is the obligation of the person who seeks to impose them to at least ensure

that they come to the other party‟s attention. If that other party thereafter signs without

reading them she will be bound on the basis of quasi mutual consent.

        The Supreme Court of Appeal upheld the decision of the Full Bench but took a

different approach. Its approach is similar to that of the trial Court. The Supreme Court of

Appeal, like the trial Court, focussed on Pichulik‟s state of mind when he completed the

form. It accepted that Pichulik believed that the form was for information purposes only and

that he was not on his guard when he signed it. At that stage he was not committing himself

to a future contractual relationship with Africa Solar (at 697 F-G). Gerber too knew that she

only required the form for information purposes. Although her superiors were unaware of the

circumstances in which the document was completed, her knowledge was imputed to her

principal because it was acquired during the course and scope of her employment (at 697H).

        The Court reiterated the principle that the onus is on the person seeking to rely on a

contract to prove its terms. Here proof of those terms includes proof that the parties had the

requisite intention to contract (at 698 B-C). The Court went on to state that the production of

the signed document was a telling indication that Divwatt had the intention to be bound.

However, the Court found that this was counterbalanced by Pichulik‟s evidence that the

document had been sent to him for a limited purpose only. Although the majority referred to




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the fact that only one page had been transmitted, the decision rested on the finding that

Pichulik had misunderstood the purpose for which this document was going to be used or

could be used. He completed the document for information purposes only. He was not

applying for credit. Gerber was responsible for this misunderstanding. She was aware of the

specific limited purpose for which the document was transmitted. Therefore at that stage of

the negotiations there was no animus contrahendi.

         In a dissenting judgement, Streicher JA reasoned that as the document was clear and

unambiguous Pichulik should have called for the reverse side. He did not accept Pichulik‟s

version that he misunderstood the reason why the document was required. Consequently he

is of the view that the Full Bench erred in holding that a person „cannot be held to be bound

be something which he has not seen‟ and that if „a person is prepared to contract subject to

standard conditions which he has not seen, there is nothing preventing him from doing so‟(at

706A).



Comment

         Although the Supreme Court of Appeal did not disagree with the approaches adopted

by the lower courts in the two decisions, the majority did not deal with an important issue.

The question which remains moot is whether there is a duty on a party who is signing a

contract which contains a reference to standard terms which for some reason she has not had

sight of, to call for those standard terms before she signs the contract. In each of these

decisions there was a reference in the documents which were signed to standard terms and

whether by design or ineptitude, these were simply not transmitted. The mistake is an easy

one to make given the nature of a fax machine. The trial Court in Home Fires and the Full

Bench in Africa Solar took a straight forward approach - the terms were not there, therefore




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they were not part of the contract. The trial Court in Home Fires had this to say:



       „(W)here one party invites the other to enter into a contract and cannot be bothered to

       submit to that other party the „keersay‟, I cannot believe that any reasonable person

       would expect that the party so signing the document which was sent to him intended

       to be bound by other documents not sent to him and of which he had no particular

       knowledge. It seems to me to be fundamentally offensive to policy and well-settled

       law to have expected in these circumstances (my italics) the plaintiff to have called

       for the reverse side of the conditions and to have satisfied himself as to their content

       before signing the document‟ (at 380 F-G).



       The Supreme Court of Appeal approached the matter in a more traditional manner. It

appears from the majority judgement that had Pichulik being applying for credit and was

aware that the document was going to be used as the basis to regulate their future relationship

he may well have been bound by those terms even though he did not receive them. This

judgement then is in line with earlier decisions where the courts have held that a person

cannot be held bound to terms if she was misled by the other contracting party as to the

nature or effect of the terms. (See for example Dlovo v Brian Porter Motors Ltd t/a Port

Motors Newlands (supra); Spendrifter Donovan (Pty) Ltd v Lester Donovan (Pty) Ltd (supra)

and Fourie No v Hansen 2001 (2) SA (WLD) 823.) The dissenting judgement in the Africa

Solar decision arose because Streicher JA did not accept the facts and held that Pichulik, as

an experienced businessperson, had not been misled. There was a similar dissenting

judgment by Southwood J in the Full Bench decision. It seems that had the facts been

different (ie Pichulik was applying for credit) the majority would have been in agreement




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with Streicher JA who is of the opinion that the Full Bench approach is incorrect (at 706J -

707A).

         This is not a simple issue as there may be circumstances where the signatory is well

aware that the other party usually does business on certain terms and that she has made a

mistake by not sending the whole document. For example the fax could read: „This

document contains three pages. If you do not receive all three pages please contact the

sender‟. The person who deliberately refrains from calling for the missing pages because she

suspects that certain exemption clauses may be found in the rest of the document could be

accused of „snatching the bargain‟. The trial Court in Home Fires referred to „these

circumstances‟ (at 380G), an indication that the specific circumstances of each case must be

considered.

         Nevertheless, it is trite that the person relying on a contract must prove its terms. It is

argued that it follows from this that there is no duty on a contracting party to assume that the

other party intends to contract out of her common law responsibilities. It is submitted that if

terms go beyond what the common law requires then the duty lies on the person wishing to

impose those terms to bring them to the attention of the other party. Christie points out that

people habitually sign contracts without reading them because they assume they do not

contain unexpected terms (op cit 203). The law holds that where a contract contains

unexpected terms the unsuspecting signatory cannot be said to have conducted herself in such

a manner that a reasonable person would believe that she is agreeing to those terms (Christie

op cit 203; approved in Dlovo v Brian Porter Motors Ltd supra 525 A-D and applied in

Fourie v Hansen supra 832C-F) . Applying this to the situation where a party omits to make

the terms available for inspection by, for example, omitting to transmit the reverse side of a

document, she knows that the other party has not read them and therefore she cannot argue




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that she has a reasonable belief that the signatory is agreeing to those terms. (See Farber AJ

Home Fires Transvaal CC v Van Wyk (supra) at 383D).

        In addition, a single statement such as „this agreement is subject to standard terms and

conditions‟ should be regarded as meaningless unless the terms have, as a minimum

requirement, been made available for inspection. If this is not done then the courts ought to

be entitled to assume, until convinced otherwise, that the terms are not part of the contract.

To expect a person who seeks to impose terms to at least bring them to the other party‟s

attention is not asking too much. All it requires is a little diligence.




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Description: Contract and Imposed terms - Miscellaneous Index