By Sarah-lynn Tennant and Vuyokazi Mbele
There are no formalities in terms of the common law for entering into any contract. However, where the parties agree to such formalities, or if the law prescribes these, the agreement needs to be in writing and signed (eg the Alienation of Land Act 68 of 1981 requires that the sale of immovable property be reduced to writing and signed by both parties or their agents).
An agreement reduced to writing and signed by the parties has been affected by the introduction of the Consumer Protection Act 68 of 2008 (CPA), which has as its main objective the protection of consumers while establishing duties for suppliers in respect of a consumer agreement.
In general, the CPA applies when goods or services are promoted (advertised) or supplied in the ordinary course of business and for consideration. It does not, however, apply in certain instances, for example if a consumer is a juristic person with an asset value or annual turnover in excess of R 2 million at the time of the transaction or if the transaction pertains to services under an employment contract.
Below is a discussion of how the CPA has affected five common law principles relating to consumer agreements that have been reduced to writing and signed by the parties.
Principle 1: Caveat subscriptor
In terms of the common law principle caveat subscriptor, when an agreement is reduced to writing and signed by the parties, they are bound to its terms as signature signifies assent thereto. This places the burden on the consumer to protect himself by understanding the terms of the agreement before signing it, as he will be bound to their ordinary meaning.
The CPA has, however, shifted the burden of ‘understanding’ the agreement from the consumer to the supplier. Section 22 of the Act requires the supplier to ensure a consumer agreement is in ‘plain and understandable language’ and s 50 states that an agreement reduced to writing must contain a breakdown of the consumer’s financial obligations (where a signature may not be required unless the parties agree to this or law prescribes otherwise).
These sections place the burden on the supplier to ensure that the consumer understands the terms of the agreement, including his financial obligations. Should the consumer (eg the buyer) sign the agreement, he shall still be bound to it through the caveat subscriptor principle. Accordingly, the common law principle of caveat subscriptor remains in existence, although the CPA has shifted the burden in respect of understanding from consumer to supplier.
Principle 2: Freedom to contract
The common law incorporates the cornerstone principle of freedom to contract, which provides that parties are free to decide on the terms of their agreement with the only exception that an agreement must be lawful or legally possible (which entails that it must not be contrary to the common law and the agreement must be legally executable).
The CPA, however, contains provisions that restrict the parties’ freedom to contract. In particular, the following provisions may not be adapted or ignored when entering into a written consumer agreement:
Principle 3: Passing of the risk rule
In terms of the common law ‘passing of the risk rule’, a consumer (or buyer) per a sale agreement (a form of consumer agreement) shall be liable for the accidental loss of goods as soon as the agreement becomes perfecta (when the essentialia of the agreement are met and the agreement is not subject to conditions or such conditions have been fulfilled). Delivery of the goods is not a requirement for this rule to take effect as this is a consequence flowing from a valid sale agreement (the seller remains liable for negligent or intentional loss to goods).
Thus, the buyer will be liable if he does not take delivery of the goods but the goods are accidentally damaged at the time the agreement of sale became perfecta.
Section 19(2)(c) of the CPA has adapted this rule by providing that the supplier (or seller) is liable for the loss of goods (be it accidental, intentional or negligent loss) prior to the delivery of goods as the supplier (or seller) must keep the goods in his ‘care and risk’ until delivery.
Principle 4: Parol evidence rule
This common law rule prevents a party to a written agreement from presenting extrinsic evidence (ie, other than the terms of the agreement) that contradicts or adds to the written terms of the agreement. This rule provides that since the parties have reduced their agreement to writing, extrinsic evidence shall not be considered when interpreting the agreement as the parties, when concluding their agreement, decided to omit such information.
Section 48 of the CPA inter alia provides that a supplier may not enter into an agreement to supply goods or services on terms that are unfair, unjust or unreasonable. Section 48(2) lists generally when a term or agreement is unfair, unjust or unreasonable, while reg 44(3) specifies such instances. The test in this instance is subjective and, with regard to the latter, the supplier may prove otherwise in view of the ‘particular circumstances of the case’.
Section 48 is accordingly in conflict with the parol evidence rule as the CPA provides that the National Consumer Tribunal (NCT) or relevant court hearing a CPA matter may look beyond a written agreement to establish if its terms are fair, just or reasonable. In deciding this, the relevant court or NCT will take surrounding circumstances into account, such as (as listed in s 52(2) of the CPA) –
The CPA has accordingly adapted the common law parol evidence rule.
Principle 5: The voetstoots clause
Previously, in terms of the common law an agreement of sale could have incorporated the voetstoots clause. Accordingly, the supplier (or seller) would not be held liable for any defects to the goods, unless these were wilfully concealed. This clause deemed a warranty against latent defects as non-operative (the warranty ensured that the supplier (or seller) remained liable for goods sold where a latent defect arose).
The CPA provides certain warranties for goods and services and accordingly, in our opinion, the voetstoots clause may no longer be relied on:
– perform and complete on time, or the supplier must give timeous notice of a possible unavoidable delay to the consumer;
– perform in a manner and quality as generally expected;
– supply goods free from defects and of good quality as generally expected; and
– return to the consumer in the same condition (at least) all goods used in carrying out the performance.
Where such warranties are not met, the supplier must remedy the situation or refund a reasonable portion of the purchase price (depending on the extent of the defect or failure) to the consumer.
– that are suitable for the purpose intended unless the consumer has been informed that the goods were offered in a specific condition, and who has agreed (expressly or through conduct) to this condition. Where the consumer has specifically informed the supplier of the purpose of the use of the goods, the consumer can expect that the goods delivered are reasonably suited for that purpose (s 55(3) of the CPA) or the consumer can return the goods to the supplier in terms of s 20(2)(d) of the Act;
– of good quality, in good working order and free of defects unless the consumer has been informed that the goods were offered in a specific condition, and he agreed (expressly or through conduct) to this condition;
– that can be used for a reasonable period of time (taking into account surrounding circumstances, eg ‘wear and tear’); and
– that comply with the Standards Act 29 of 1993 and other applicable law.
To determine whether such warranties have been complied with, all relevant circumstances must be considered, for example the marketing, packaging and display of goods; the trade description; instructions given; and time when the goods were produced and supplied (s 55(4) of the CPA).
In considering all the relevant circumstances, a failure or defect in the goods will remain as such regardless of whether they are latent or patent and goods cannot have failed or have a defect merely because a better product is now on the market (s 55(5) of the CPA).
A failure to comply with s 55(3) of the CPA will result in s 20(2)(d) – the return of goods – applying and not s 56 of the CPA, whereas a failure to comply with the rest of s 55 of the CPA will result in s 56 of the CPA applying, in terms of which the consumer has six months from the date of delivery to return the goods to the supplier at the supplier’s risk and expense. The supplier must fix the good(s) within three months, replace them or repay the consumer the price paid.
Conclusion
In summary, the extent of the adaptations or amendments by the CPA to the above five common law principles are:
Sarah-lynn Tennant LLM Dip Corporate Law (UJ) is a senior legal researcher and Vuyokazi Mbele LLB (UFH) is a legal researcher at LegalWise in Johannesburg.
This article was first published in De Rebus in 2013 (Jan/Feb) DR 36.