Signing twice on the dotted line (Caveat subscriptor, quasi-mutual assent and credit applications incorporating suretyships)

A copy of Brett Bentley’s article appearing in the October 2005 SA Attorneys Journal De Rebus:

Brink v Humphries & Jewell (Pty) Ltd 2005 (2) SA 419 (SCA)
The caveat subscriptor doctrine has come under increasing pressure in recent years in favour of purportedly public policy criteria. This doctrine can be traced back in our law to the case of Burger v Central South African Railways 1903 TS 571 in which Innes CJ held that ‘[i]t is a sound principle of law that a man, when he signs a contract, is taken to be bound by the ordinary meaning and effect of the words which appear over his signature’.

Exceptions to this doctrine have been found in justifiable circumstances and the defence of iustus error in particular under the case in consideration.

In George v Fairmead (Pty) Ltd 1958 (2) SA 465 (A) at 471A–D the application of iustus error was explained as follows:
‘When can an error be said to be justus for the purpose of entitling a man to repudiate his apparent assent to a contractual term? As I read the decisions, our Courts, in applying the test, have taken into account the fact that there is another party involved and have considered his position. They have, in effect, said: Has the first party – the one who is trying to resile – been to blame in the sense that by his conduct he has led the other party, as a reasonable man, to believe that he was binding himself? … If his mistake is due to a misrepresentation, whether innocent or fraudulent, by the other party, then, of course, it is the second party who is to blame and the first party is not bound.’

Coupled to this one must take cognisance of the doctrine of quasi-mutual assent which underlies the doctrine of caveat subscriptor. In Smith v Hughes (1871) LR 6 QB 597 at 607 the doctrine was defined as follows:
‘If, whatever a man’s real intention may be, he conducts himself in such a way 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.’

In the recent Supreme Court of Appeal case of Brink v Humphries & Jewell (Pty) Ltd 2005 (2) SA 419 (SCA) the defence raised by the surety was one of mistake – iustus error. The surety argued that he was unaware that the credit application which he signed incorporated a suretyship. This defence was successfully upheld by the court.
The facts of the case were briefly that Brink, a director of Guzto Log Homes (Pty) Ltd, had signed a credit application form of Humphries & Jewell (Pty) Ltd which had been completed by Brink’s project manager. He disputed having read the application form, (the document). Furthermore he contended that he did not know that the credit application incorporated a suretyship clause.

The majority decision of the court, reflected in the judgment of Cloete JA – while tipping its hats at the doctrine of caveat subscriptor, paying lip service to the judgment of Sonap Petroleum (SA) (Pty) Ltd formerly known as SONAREP (SA) (Pty) Ltd v Pappadogianis 1992 (3) SA 234 (A) and ignoring National & Overseas Distributors Corporation (Pty) Ltd v Potato Board 1958 (2) SA 473 (A) – proceeded to give a judgment which has effectively eroded the doctrine of caveat subscriptor.

The majority court decision held that
• Brink had acted under a misapprehension that the document was solely a credit application;
• Humphries and Jewell had misrepresented the document as solely a credit application and that the misrepresentation resulted in Brink making a fundamental mistake; and
• that a reasonable businessman would not assume that a credit application would incorporate a deed of suretyship.
From these conclusions the court held that the suretyship was void ab initio.
I submit that the court, in Brink, has gone against the basic rule laid down in Fairmead – where Fagan CJ stated that if someone chooses not to read what is contained in the contract they are ‘taking the risk of being bound by it’ and ‘cannot then be heard to say that [her] ignorance of what was in it was a justus error’ [at 472 H–473A] in circumstances where this is not justifiable.
The decision of the minority judgment of Navsa JA in the Brink case is legally, logically and commercially more sound.

Navsa JA points to the criteria laid down in Sonap:
• Was there a misrepresentation as to one of the party’s intentions?
• Who made that representation?
•Was the last party misled thereby? This is a two-fold test – first, was the party actually misled and, secondly, would a reasonable man have been misled?
Having looked at the facts of the matter Navsa JA comes to the conclusion that the document was not the ‘trap’ or misrepresentation that Cloete JA had held it was for the following reasons:
• The suretyship clause was in capital letters and just above the place where Brink had signed.
• Brink’s testimony indicated that he knew that banks and financial institutions required security in the form of suretyships from companies and close corporations, despite his evidence that he did not expect a suretyship in a credit application.
• The evidence of Humphries and Jewell indicated that the document had been used in their business for over 15 years and that no one had as yet been deceived by it.

Therefore Navsa JA concluded that no misrepresentation had been made by Humphries and Jewell. On the question whether Brink had been misled by the document, Navsa JA concluded that, based on the evidence stated above, he had not been misled.

In National & Overseas Distributors Corporation (Pty) Ltd v Potato Board 1958 (2) SA 473 (A) at 479F–H it was held that:
‘Our law allows a party to set up his own mistake in certain circumstances in order to escape liability under a contract into which he has entered. But where the other party has not made any misrepresentation and has not appreciated at the time of acceptance that his offer was being accepted under a misapprehension, the scope for a defence of unilateral mistake is very narrow, if it exists at all. At least the mistake (error) would have to be reasonable (iustus) and it would have to be pleaded. In the present case a plea makes no mention of mistake and there is no basis in the evidence for a contention that the mistake was reasonable’.

Importantly, Navsa JA held that the reasonable man would not have been misled in the circumstances. This, I submit, is one of the weakest elements of the majority judgment, namely that a reasonable businessman would not assume that a credit application would incorporate a suretyship. While perhaps those representing Humphries and Jewell erred in not leading more evidence on this issue, Cloete JA’s opening sentence in his judgment confirms the fact that the majority came to the wrong conclusion on this issue:
‘A number of reported cases have dealt with problems which arise when a credit application form had embodied a personal suretyship by the individual who signed the form on behalf of the applicant.’

The fact that there are a number of reported cases (and a multitude of unreported ones) confirms the fact that this is a very common commercial practice. Then to come to the conclusion that a reasonable businessman would not expect the possibility that a credit application includes a suretyship is illogical. Commercial credit applications differ from credit facilities of banks and other financial institutions, and the reasonable businessman knows that the vast majority of these forms incorporate personal suretyships for the signatories.
The lack of legal logic and consistency in the majority decision is magnified when one compares the judgment in this case to another fairly recent Supreme Court of Appeal judgment on the doctrine of quasi-mutual assent.

The case of Durban’s Water Wonderland (Pty) Ltd v Botha and Another 1999 (1) SA 982 (SCA) is the latest Supreme Court of Appeal authority in a long line of famous ‘ticket’ cases, which also revolve around the doctrine of quasi-mutual assent. In this case a member of the public who was injured on an amusement park ride was held to have contracted out of holding the amusement park liable by reason of a 800mm by 600mm sign placed on the window of the ticket office at the amusement park, which excluded the amusement park’s liability in the event of a member of the public being injured. The court held, at 992 D, that it was ‘satisfied that the steps taken by the appellant to bring the disclaimer to the attention of the patrons were reasonable…’ and that on the basis of quasi-mutual assent the disclaimer was part of the contract between the parties.
So in Brink we have an experienced businessman and company director who is handed a written copy of all the terms and conditions and signs his acceptance of the terms and conditions of the credit application, one centimetre away from the term in dispute and is held not to be bound by the term.

On the other had we have the Durban’s Water Wonderland case where a member of the public who does not sign acceptance of the amusement park’s terms and conditions but merely pays for entry to the amusement park at a point where the amusement park’s terms and conditions are displayed on a window, and such person is to be bound to those terms and conditions.

Clearly the approach of the courts is inconsistent in these two cases, and the judgment in Brink is incorrect and has unnecessarily and dangerously widened the ambit of iustus error.

While the majority of the court wanted to protect credit applicants against unscrupulous credit grantors, the message the judgment has sent out in Brink is that you should not read any contracts that you sign, since there may be term(s) that you do not like and which a court may hold that you should not have reasonably expected to have been included in the contract and therefore are to be excluded from the agreement. The case is a major blow against contractual certainty and promotes irresponsible behaviour.

Be that as it may, legal practitioners must take cognisance of the Brink judgment and ensure that their clients’ credit applications incorporating suretyships comply with the requirements pointed to by Cloete JA, lest they fall foul of a court bound by the Brink judgment.

Cloete JA held that he saw the following as necessary to draw the signatory’s attention to the fact that the credit application incorporated a suretyship:
• A prominent heading which proclaims that it is a credit application form and personal suretyship.
• The signatory is required to sign the form twice, once in each capacity as a representative of the debtor and as surety. Alternatively a signature can be a ‘double signature’ (Glen Comeragh (Pty) Ltd v Colibri (Pty) Ltd and Another 1979 (3) SA 210 (T) at 214F – in fine) but a clear indication that the signatory is signing in two capacities or, even better, a provision for two signatures with appropriate wording indicating that one is as surety, should eliminate the difficulties which do arise in a case such as the present.
• Any place in the form which identifies the capacity in which the signatory is signing should identify both capacities.
For example in Brink the form read:
‘I, the undersigned ………… in my capacity as …………. of the debtor’;
and the place for signature which follows those clauses has the qualification:
‘For the debtor’.
This should have read:
‘For the debtor and in my capacity as surety.’
Cloete attached considerable importance to this latter aspect, stating the attention of the signatory would inevitably be drawn to these parts of the form as they had blanks requiring completion.
• The clause containing the suretyship should be made conspicuous from the rest of the agreement, Cloete JA suggested using red ink.