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Verbal Agreements – Not Much Good, But Lots of Bad and Ugly

Written by Nicole Ross Attorneys on . Posted in Contract.

“The Good, The Bad, and The Ugly” (Spaghetti Western, 1966)

A common myth – one that can get you into a whole lot of trouble if you aren’t alive to it – is that verbal contracts are not legally enforceable in South Africa.

The opposite is true. With very few exceptions, our law will hold you to all your agreements, whether oral or written.

What verbal agreements aren’t binding?

Not many. Only a few types of agreement must be in writing to be fully valid, the most common being contracts for the sale, exchange, or donation of land or of any “interest in land”, ante-nuptial contracts (ANCs); and deeds of suretyship.

So, watch what you say!

Firstly, although our laws of contract are complex, with many exceptions and “ifs and buts”, at the most basic level the only requirements for a binding contract are an “offer” and an “acceptance” of that offer.

So, watch what you say! Make an offer to someone else, or accept another person’s offer, and that little voice at the back of your mind telling you “Don’t worry, you aren’t actually tying yourself into anything here” is very likely to be (a) totally wrong and (b) getting you into a whole lot of trouble.

The danger – a little bit of Good, but mostly Bad and Ugly

Of course, verbal agreements do have their benefits – they’re quick, easy, and cost-free. We enter into little give-and-take deals with others in our daily lives without a second thought and with not a drop of ink in sight. And that’s absolutely fine for the little things.

But contracting orally is a terrible idea when the stakes are high –

  1. Our not-so-sharp memories: As the old proverb warns us: “The bluntest pencil is better than the sharpest memory”. It’s a human trait for us to “hear what we want to hear”. And to remember what we want to remember. You and the other person could well, in all innocence, come away from exactly the same discussion with totally different ideas and memories of what you actually agreed to.Next thing you know you’re both in court, swearing to the truth of your own versions and leaving it to a judicial officer to try and decide whose recollection is the more accurate. That decision could go either way.Record what you agree to, for all to see.
  2. The fraud risk: Worse, if your opponent isn’t above stretching the truth a little (or a lot!) you have the same problem but magnified. Make it difficult for a dishonest party to wriggle out of an agreement – or to misrepresent its terms – by recording it in black and white.
  3. Proof: Which brings us to the question of proof. With an oral agreement it is your word against theirs. At best, you may be lucky enough to have a witness available to support your version, but such a witness may or may not have a good memory and high credibility. That can never match up to the evidential weight of a “signed, sealed and delivered” contract.
  4. Certainty and Dispute: Let’s bring that all together under the heading of “certainty”. Although written contracts aren’t perfect – our courts are regularly faced with disputes over them – there’s a lot less room for misinterpretation, uncertainty, and dispute when you can stand up in court waving a signed piece of paper rather than saying “As I recall it…”
An end note on electronic contracts

This is a whole other topic on its own, but bear in mind that since the arrival on the scene of the ECT (Electronic Communications and Transactions) Act you can often contract electronically via email, WhatsApp, and the like. There’s both a warning there (“be careful what you agree to electronically!”) and an opportunity (“paper, pen and ink not always needed!”). Take professional advice in any doubt.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Exemption Clauses in Contracts – Fine Print Can Void Them

Written by Nicole Ross Attorneys on . Posted in Contract.

“… he did not think that he was binding himself ‘to all sorts of fine print that I can’t even read’.” (Extract from judgment below, describing evidence given by the customer during the trial)

For suppliers of goods or services, incorporating a strong, clearly worded exemption clause (a clause excluding or restricting your liability to the customer) into your contracts is an essential part of risk management. Just be aware of the restrictions that our laws place on them.

As a recent Supreme Court of Appeal (SCA) judgment shows, your first hurdle in enforcing a disputed exemption clause could be to convince a court that the consumer did in fact contract on the basis of that condition –

“In fine print” and “not conspicuously legible” – so not part of the contract
  • A shipping company agreed to transport from America to South Africa an overhauled aircraft engine.
  • It failed to make delivery to its customer after the engine was destroyed in transit in the U.S. The shipment had not been insured, and the shippers told the customer that according to their terms and conditions for ocean freight shipments, they were only liable to pay US $500 (about R6,000 at the time) per shipment.
  • The customer was having none of that and sued the shipper in the High Court for the engine’s full replacement value of R386,140-30. The shipper relied on a series of wide-ranging clauses, incorporated in its standard trading conditions, which limited its liability.
  • The High Court ordered the shipper to pay up on the basis of consumer protections contained in the Consumer Protection Act (CPA) which make it compulsory to word exemption clauses “in plain language” and to draw them “to the attention of the consumer … in a conspicuous manner…”.
  • The shipper appealed to the SCA, which, in dismissing the appeal, held that it was not necessary to consider the CPA question because the customer hadn’t contracted on the basis of the standard trading conditions in the first place. The customer regarded his contract as formed by an initial exchange of emails, and only afterwards was he asked to sign a credit application in order to open an account. As he did not require credit, he regarded all that as merely a matter of formality to capture his details and allocate him an account number.
  • The shipper, held the Court, did not explain to the customer that the credit application contained provisions that excluded or limited the shipper’s liability for loss or damage. “Furthermore, the standard trading conditions and the relevant clauses which [the shipper] seeks to rely on appear in fine print, and are not conspicuously legible. They appear on the second and third pages of the credit application, which can only be read with extreme difficulty and concentrated effort. Importantly the credit application was sent without the conditions being attached and were described by [the shipper] as needing to be completed so that ‘we can start the process’.” (Emphasis supplied).
  • The shipper must pay up in full, plus interest and (no doubt substantial) costs.
As a supplier, if you want your exemption clause to be accepted in court …

In addition to a general inclination by our courts to consider the principles of ubuntu, fairness, good faith and public policy when interpreting contracts, bear in mind the CPA’s requirements (summarised above) and the need to incorporate your exemption clause clearly and unambiguously into your contract before it is concluded.

As a consumer, read the fine print!

“Education is when you read the fine print. Experience is what you get if you don’t.” (Pete Seeger)

Although, as is clear from the above, you might be able to circumvent an exemption clause, our law will generally hold you to all the terms and conditions of your agreements. The safest course therefore will always be to heed the old legal principle “caveat subscriptor” (“let the signer beware”), so read the fine print, and in any doubt take professional advice before you sign anything!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Friends and Lovers: Before You Lend Out Your Car…

Written by Nicole Ross Attorneys on . Posted in Contract, Family Law, General Interest.

“Neither a borrower nor a lender be” (Shakespeare)

This is a case of a “love relationship” gone wrong but the principles of vehicle ownership apply to any situation in which you lend a motor vehicle to anyone else.

A widely-held misconception is that if you are the registered owner of a car, it is yours and you are the owner. Not so, as a recent High Court judgment aptly illustrates –

The registered owner unable to reclaim “her” car 
  • In what must at the time have seemed like a straightforward agreement between two people “in a love relationship”, a woman agreed to lend her lover a vehicle which she bought from a finance company under a loan agreement.
  • They had agreed verbally that he could use the vehicle for his personal use and would repay her for loan instalments, insurance, licencing, servicing, traffic fines and the like.
  • When the relationship soured, the woman asked the Court for an order returning the vehicle to her as owner. 
  • Although there was no dispute that she was indeed registered as owner of the vehicle, the Court dismissed her application on the basis that, whilst possession of a vehicle’s registration papers is prima facie (“at first view”) proof of ownership, it is never conclusive proof of ownership. Nor is any change of ownership required to be registered for transfer to take place. So in this case the registration papers did not prove ownership, the actual owner being the finance company.
  • This is different to the position with land, where registration of ownership in the Deeds Office proves ownership and is necessary for transfer of ownership. That no doubt is the origin of the myth that being registered as the owner of a car proves that you are the owner – an incorrect and dangerous assumption.
  • The woman was accordingly not the owner of the vehicle, rather the finance house was the owner in terms of the lease agreement which provided that it retained ownership until all amounts due under the agreement had been paid in full.
  • End result – the ex-lover keeps the car, for now at least.
Lessons for lending out cars…
  • Should you decide to lend out your car, make sure to do it under a written agreement – the parties in this case were lucky that they could agree on the terms of their verbal agreement as our law reports are replete with bitter and expensive litigation over what everyone said and who agreed to what verbally.
  • Include a term spelling out clearly your rights to recover possession of the vehicle. The woman in this case would have been in a far stronger position if the parties had agreed that, even if the man held up his end of the bargain to pay for all the loan instalments and other expenses, the woman still retained the right to reclaim the vehicle if their relationship ended (she still wouldn’t have sued as owner, just to enforce the agreement). 
  • For life partners and cohabiting couples this is yet another reminder that there is no such thing as a “common law marriage” in our law. There are no automatic marital or other rights attaching to your relationship and applicable when the relationship ends, so entering into a full cohabitation agreement is the only way to safeguard both your and your partner’s financial and personal rights.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Electronic Signatures in Property and Other Transactions

Written by Nicole Ross Attorneys on . Posted in Contract, Property, Wills and Estate Planning.

“To sign a document means to authenticate that which stands for or is intended to represent the name of the person who is to authenticate” (quoted in the case below)

We all know that verbal agreements, although fully binding for most types of transaction, are a recipe for uncertainty and dispute. It’s not just a question of trust – even if no one is deliberately dishonest about what was agreed, innocent misunderstandings are common. We have a natural tendency to hear what we want to hear and to remember what we want to remember, and a properly-drawn written agreement avoids that.

So even when a written and signed document isn’t required it is always wise to insist on one. Note that the parties themselves can require a document to be in writing and signed. Or it could be required by law – the most common examples of the latter are property sale agreements, wills, suretyship agreements, ante-nuptial contracts, and credit agreements (there are other less common examples – take professional advice in doubt).

But that’s not always easy to achieve, and the COVID-19 lockdown in particular has highlighted the challenges of getting everyone together for an old-fashioned original “paper and ink” signing session. Even when social distancing is no longer required and ceases to be the norm in society, the convenience and benefits of being able to sign documents remotely (whether you and the other party/ies are in different houses, cities, countries or even different continents) are obvious.

Firstly, when is a digital agreement “in writing”; and can property sales and wills be electronic?

Fortunately our law, in the form of the ECTA (Electronic Communications and Transactions Act) recognises the general validity of digital documents. A “document or information” is “in writing” if it is –

  • “In the form of a data message; and
  • Accessible in a manner usable for subsequent reference.” 

As a result, perfectly valid and enforceable agreements are now often entered into online, by email, WhatsApp and the like. 

Note that there are some specific exceptions where a physical (“wet ink on paper”) as opposed to an electronic format is still required – most commonly property sale agreements, “long” (10 or more years) leases and wills (there are others – take advice in doubt).

Secondly, is “signature” always required?

Formal “signature” isn’t always essential as the ECTA provides that if the parties to an electronic transaction don’t specifically require an electronic signature, “an expression of intent or other statement is not without legal force and effect merely on the grounds that –

  • It is in the form of a data message; or
  • It is not evidenced by an electronic signature but is evidenced by other means from which such person’s intent or other statement can be inferred.”
Thirdly, how can you sign a document electronically?

Where “signature” is required, the ECTA recognises the concept of “electronic signatures” (defined as “data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature”. They are valid except in cases where either a law (like the laws relating to property sales etc mentioned above) or the parties themselves require actual physical signatures.

An electronic signature can take many forms. Where it is required by the parties but they haven’t agreed on a particular type of electronic signature to be used, it is valid if –

  • “A method is used to identify the person and to indicate the person’s approval of the information communicated; and 
  • Having regard to all the relevant circumstances at the time the method was used, the method was as reliable as was appropriate for the purposes for which the information was communicated.”

That definition will often be wide enough to include names on email messages, scanned images of physical signatures and the like. But remember the parties can specify what formats are and aren’t allowed, plus our courts may well look at all the circumstances of a case and decide for example that an actual manuscript signature is required even when transmitted electronically (see for example the “R804k” judgment discussed below).

“Advanced” electronic signatures

This is a concept of authentication designed to make an electronic signature more reliable and it is used when a law requires signature for specified documents or transactions but doesn’t require another particular type of signature.  

For example the Deeds Registries Act requires documents like the Power of Attorney to Transfer Property to be signed, and that can be done either physically or electronically – but if electronically the electronic signature must be an advanced one. The Credit Agreements Act provides other good examples. 

Even when not specifically required, a big advantage of advanced electronic signatures is that they are presumed to be valid. That means anyone attacking one would have to prove its invalidity and not the other way round.

Security and fraud; with an R804k example

Cyber criminals are as always waiting to pounce so all the normal warnings in regard to electronic communication apply here, with the added need to ensure that electronic documents cannot be altered after completion/signature. 

A recent example of “forged electronic signatures” is an online fraud that went horribly wrong for a firm of financial advisers who were sued for R804,000 when their client’s Gmail account was hacked by fraudsters – 

  • Using the investor’s authentic email credentials, the fraudsters sent three emails to the financial advisers instructing them to transfer a total of R804,000 to the fraudster’s accounts. Two of the emails ended with the words: ‘Regards, Nick’ while the third ended with ‘Thanks, Nick’.
  • The financial advisers made the transfers and the investor sued them on the grounds that they had paid out contrary to the written mandate he had given them which stipulated that ‘All instructions must be sent by fax to [011 *** ****} or by email to [***@***.co.za] with client’s signature.’
  • The financial advisors argued that they had complied with the mandate in that the email endings “Regards, Nick” and “Thanks, Nick” were valid electronic signatures in terms of ECTA.
  • The SCA (Supreme Court of Appeal) however upheld the High Court’s ruling that the financial advisors were liable. They had not complied with the mandate which “requires a ‘signature’ which in every day and commercial context serves an authentication and verification purpose … The word ‘electronic’ is conspicuously absent from the mandate …  The court below cannot be faulted for concluding that what was required was a signature in the ordinary course, namely in manuscript form, even if transmitted electronically, for purposes of authentication and verification.”

Play it safe – have your lawyer draw and manage your agreements for you to minimise this sort of risk, and ask also about using an external service provider for secure, authenticated and verifiable electronic document signing and storage. If you do come to blows with the other party down the line, the integrity and evidential value of your electronic documents and signatures could be make-or-break.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Leases, Contracts and COVID-19: What is Force Majeure?

Written by Nicole Ross Attorneys on . Posted in Contract, Litigation, Property.

The COVID-19 crisis has changed everything. Our personal lives have been upended and our businesses hit hard. 

And with many businesses operating out of leased premises, a great many landlords and tenants are asking themselves what happens if the crisis leaves a tenant unable to pay the agreed rental. 

What follows is of necessity a general guide only – professional advice specific to your case is essential here.

Tenants – your risk

As always “With Great Change comes Great Opportunity”, but if you aren’t able to very quickly find and exploit a viable new opportunity you may well struggle to pay your rental. 

Don’t just stop paying rental! Failing to pay rental on time means breaching your lease, and if you do that you face cancellation, legal action for recovery of outstanding rental, damages claims for breach (substantial if your lease has a long time to run and your landlord struggles to re-let) and calling up of your personal suretyships (exposing you to loss of all your personal assets, house etc). 

Bottom line – take professional advice before you just stop paying!

Landlords – your balancing act

As a landlord you have a very delicate balancing act – on the one hand you won’t want to lose even half-reasonable tenants at a time when finding new ones is going to be problematic. One wonders for example how many small businesses will now either fail entirely or be forced to cut costs. And how many others, having had an enforced period of “working from home”, will now be reconsidering the whole concept of leasing separate office space at all. 

On the other hand of course you need to cover your ongoing costs, which probably means enforcing payment of rent. That in turn means understanding your legal position – for example does your tenant now have an excuse to cancel the lease without penalty? If so, you lose a tenant without recompense. But if your tenant is still bound by the lease, you are free (if you wish – long-term support of your tenant may still be your best option) to demand full payment, then to reduce your losses by cancelling, evicting, executing against the tenant’s assets and calling up personal suretyships. 

What about “force majeure” or “impossibility of performance”? 

“Force majeure” (a French legal term meaning “superior force”) is an event, either due to “natural causes” (earthquakes, cyclones and so on) or to “human agency” (war, riots, legislation and the like) that makes it impossible to comply with the lease. 

We really are sailing into uncharted waters here with worldwide debate over whether or not this pandemic is indeed a case of force majeure. There is bound to be a great deal of litigation before we can be certain whether or not the crisis (particularly the declaration of a national state of disaster and the lockdown period) will be accepted by our courts as a “force majeure” event. If it is, many tenants will argue that their failure to pay rental is not a breach of lease but rather a lease-destroying “supervening impossibility of performance”. 

So where do you stand? There are two main scenarios to consider –

  1. What does the lease say? The onus of proving a force majeure is on the tenant trying to escape from the lease, and the first thing for both parties to check is what the lease says.

    Many leases have a clause that deals with a tenant’s inability to occupy premises as a result of damage to or destruction of the premises which won’t apply here, but some leases do have specific force majeure clauses. If yours has such a clause you are bound by whatever it says so check whether a pandemic or government order to cease business might fall under the clause, and if so what results and remedies are specified.

  2. What must the tenant prove if there is nothing in the lease? If there is no force majeure clause in your lease, our common law applies. Your problem here is that there are a lot of grey areas involved and every case will be different, so what follows is just a general and non-exhaustive guide.  

    A tenant would have to prove not only that the impossibility caused a loss of beneficial occupation (entitling the tenant perhaps to a rebate of rental for the lockdown period, or perhaps frustrating the lease altogether) but in all probability also that it is –

  • “Unforeseeable with reasonable foresight”. In this regard we may well hear arguments along the lines of “the emergence of the coronavirus and its impacts were neither unexpected nor improbable”. Could such an argument prevail? Only time will tell.   
  • “Unavoidable with reasonable care”. 
  • An absolute as opposed to a probable impossibility. “The mere likelihood that performance will prove impossible is not sufficient to destroy the contract.” 
  • An absolute not a relative impossibility. “If I promise to do something which, in general, can be done, but which I cannot do, I am liable on the contract”.   
  • Not the fault of either party. “A party who has caused the impossibility cannot take advantage of it and so will be liable on the contract.”   
  • The “contrary common intention of the parties” could override the defence of impossibility. Consider any representations made by either party to the other that may be relevant.

Moreover our courts have held that “In each case it is necessary to ‘look to the nature of the contract, the relation of the parties, the circumstances of the case, and the nature of the impossibility invoked by the defendant, to see whether the general rule ought, in the particular circumstances of the case, to be applied’.”

That’s all fertile ground for expensive and draining litigation, at a time when neither of you is likely to have an appetite for either. 

Which brings us to…

A practical template for negotiation

Take this advice from Roman lawyer and statesman Cicero over two millennia ago: “Agree, for the law is costly”. 

So if you are a tenant, rather than just stopping rental payments and then having to fight it out through the legal system, ask your landlord to agree to a win-win compromise that will limit both short-term and long-term damage to your respective businesses.

Draw up a checklist including matters such as –

  • Do you or your landlord have any sort of insurance cover for this sort of disaster?
  • If you want to cancel the lease entirely, consider whether, if the protections of the Consumer Protection Act are available to you (see below*) it might pay you to give your 20 business days’ notice and pay the “reasonable cancellation penalty” the landlord is entitled to demand. (*You need to take advice on this – leases between “juristic persons” such as companies and trusts in particular are excluded from this particular protection).
  • Alternatively consider what you can offer the landlord to accept your cancellation without a fight. 
  • If you want to continue in the premises, make sure that your failure to pay on time is specifically recorded as not being a breach of the lease.
  • Decide whether you will ask for a full rental holiday, or a rental reduction. For how long? The better a tenant you have been, the more incentivized your landlord is going to be to help you stay in place. Offering an extension of the lease – if it ties in with your long-term planning – could help a lot with that.
  • If you run into a brick wall there, think of proposing that the arrears not be written off but rather just be deferred until your business is back up on its feet. Specify when payment of arrears will be made, what if any interest will be charged and so on.
  • If the tenant is a corporate entity and you signed a personal suretyship for it, don’t forget to specifically cover that aspect in your agreement. 
  • Remember to include in your agreement what happens to any deposit the landlord may be holding from you.
  • If you agree on a new or amended lease, think of including a professionally-drawn force majeure clause (or check an existing clause for possible update). 
Beyond leases – force majeure and contracts generally

Although this article specifically addresses landlords and tenants, the general principles of “force majeure” and “impossibility of performance” apply to all contracts and might in some cases entitle you to delay or avoid contractual obligations beyond lease agreements. Take professional advice specific to your circumstances!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews