Lessons in small print

25 February 2005 - Natal Mercury
Lyse Comins

Protectively worded clauses and conditions in contracts can leave consumers with very little or no legal recourse.

Just some time spent reading, and some negotiation on doubtful aspects, could reduce some disputes. By doing so you can ensure verbal assurances are clearly translated into black and white. Any wrong perceptions you may have can be rectified before signing. There is no harm in negotiating around clauses that you do not wish to accept.
However many consumers do not take the time to read the small print. They are later surprised when unfavourable clauses are invoked.

Disputes surrounding contractual agreements are a recurring theme in the office of the Ombudsman for Banking Services (OBS), which has, overall, ruled in favour of consumers in recent years.

However, when it comes to cases where consumers have accepted clearly laid-down conditions by signing contracts, he is less likely to rule in their favour. This is because contract law guides his decisions in such cases.

The general rule in contract law is that a person signing a contract is presumed to know what it contains, and is bound by it. The signature serves as an acknowledgement that the person signing has read through the terms and conditions of the contract and has agreed to abide by them.

While there are exceptions to the rule, it will not usually help a customer to later rely on the argument that the obligations of a contract were onerous or unfair.

"Anyone proposing to enter into a contract would be well advised to request a copy of it to study ahead of time," advised Melville. "Resist the 'sign here, here and here' approach if it is at all possible, especially when making a major financial commitment. Under no circumstances should they sign incomplete documents. Causing a delay is better that repenting at leisure."

Banks are obliged by the Code of Banking Practice to use simple language and to explain any legal terms.

The following case studies released by the OBS, where he ruled in favour of the banks, illustrates just how easy it is for consumers to be disadvantaged by not reading a contract's terms and conditions.

Investment Contracts

A bank customer invested R50 000 on the advice of a broker. The customer alleged that the broker had promised a 15% return on the investment. He trusted the bank and the broker and did not request confirmation in writing. Some years later the investment had lost 25% of its value. The investment contract did not refer to any guarantees and the broker denied giving the complainant any guarantee of returns. The bank was not found to be liable for the loss.
Lesson: Read and understand the terms and conditions of the contract you are entering into. By going through the terms and conditions of the contract at the end of the investment term may prove to be too late. One has the right to safeguard income by seeking more information and clarity before signing any documents.

Surety Contracts

A customer signed as surety for her son's personal loan of R26 000 under the impressions that it was only for the personal loan. After the son settled the loan the bank then held the complainant (the mother) liable for her son's overdrawn cheque account of R5 537,53. The agreement clearly stated that it was for any of her son's debts, whether now or in the future, limited to an amount if R26 000. She was held liable.
Lesson: When intending to sign surety for a specific debt or amount, ensure this is specified in the contract, as the agreement will have unlimited application if it is not.

Credit Cards

The bank held the member of a close corporation (CC) liable for R5 000 outstanding on the CC's credit card. The member denied being responsible as the card was in the CC's name. The application form, which referred to the terms and conditions of usage of the card for the card, was signed by the complainant. The terms confirmed that he accepted joint and several liability as co-principal debtor for all purchases and withdrawals made with the card. When the business became dormant, the bank elected to recover the balance from the member. The application and the terms and conditions clearly indicated that a member could be held personally liable. The bank customer's claim was repudiated. However, the bank took a portion of the loss because of its failure to proceed against the CC while it was still operational.
Lesson: One who signs as surety for a business's debts should ensure that he is released from his obligation by the bank upon the sale of the business. The sales agreement should require that the buyer makes the necessary arrangements with the bank prior to transfer of ownership taking place.

I frequently receive complaints touching on clauses and conditions in cell phone contracts.

Priscilla Brussouw signed a contract for with Cell C for a cell phone for her son. Brussouw says a sales woman had recommended the network's threshold limit service, which would enable her to set a limit on her son's phone account, whereafter the service would be barred, except to free emergency numbers.

She opted for a maximum monthly limit of R200.

However, several months after signing the contract she noticed accounts for approximately R400 and R500 were levied for December and January. This was after she had complained about a high account in December.

Cell C was quick to point her to a clause which stated the subscriber agreed there might be a delay between service usage and charge calculations.

"The monthly limit option does not guarantee the subscriber will not exceed the limit and shall remain liable for all amounts incurred above the monthly limit,: the clause said.

"Perhaps one should investigate the different cell companies before signing on the dotted line," Brussouw complained.

The response from Cell C's spokesman, happy Zondi: "Delays between the transmissions of call data records from our network to our billing system do, regrettably, impact on our threshold service from time to time. we have recently experienced a higher percentage of delays than in the past, which has adversely affected our airtime threshold limits."

For this reason, we have taken a decision not to further recommend this service until we are satisfied it complies with our stringent service provision standards."

As a sign of goodwill, Cell C agreed to pay Brussouw 50% of the exceeded call limit. It was recommended she migrate to a ControlChat contract at no additional cost as an alternative means of curtailing expenditure.