The principal of caveat emptor- red lights to look out for in contracts!

The principal of caveat emptor

The principal of caveat emptor

Caveat emptor is a principal inherited from the Roman Dutch law which in broad terms means that any person contracting with another party should read the documents that they sign and ensure that they understand the contents thereof. It is deemed that when a person signs an agreement that he or she knows and understands the content of the agreement as it stands and considers themselves bound by the contents thereof.

I have recently encountered several agreements with contractual terms that are one sided to the extent that the one contractual party is prejudiced severely. An example of this is a commercial lease agreement that does not allow for cancellation on fair terms and demands payment of the full outstanding term regardless of circumstances wherein another tenant is placed in the property; and even a contract which provided that if the contract was cancelled by either party that one party could not claim monies outstanding to it.

In most circumstances the clauses are not worded in a way that one cannot understand the meaning and upon a simple read-through it is quite clear that the contact benefits one party far more than the other.

When signing an agreement, you are not bound by what is written, you may query and amend anything as long as consensus is eventually reached by the parties. Having regard to this, here are some red lights to look out for in an agreement that you intend on signing:

  1. The cancellation of the agreement is either impossible or unfair:

If an agreement binds you to a term and states that the contract may not be cancelled before that term lapses, unless the balance of the contract is paid in advance, and specifically, when you do not get value should the agreement be cancelled, the agreement terms should be re-negotiated. If a product is delivered, by example a car, and the contract is cancelled, there will be a clause compelling the buyer to pay the remainder of the contract value, and this is not an unfair term. However, if it is a rental agreement whereby the party is bound by 5 years’ lease and the agreement is cancelled in year one, it is not fair to claim the remaining four years of the contract, since a new tenant can be found long before expiration of the term.  In this instance, it would be reasonable to enforce a cancellation penalty in order to limit the service provider’s losses.

  1. Non-performance by the service provider is not a cause for cancellation, claim for refund or excuse for non-payment:

Should a contract provide that the provider of the goods or services is not liable should the product not be delivered, or a faulty product be delivered; and that payment remains due, this term should be re-negotiated, or the agreement reconsidered

Any exclusion of negligence should be approached with caution, especially when you have regard to the service being requested.

  1. Results of cancellation is severe and prejudicial to one party only:

Should the agreement determine that the result of cancellation is severe and prejudicial to one party only, this agreement should be avoided or re-negotiated. This would include instances where you are not paid for work done or services rendered even when it is already due, should the agreement be cancelled.

  1. Voetstoots clauses:

This clause indemnifies the seller of a product from any claim should the product be faulty. If a product is sold “voetstoots” it means that you take it as it stands, whether it is suitable for the intended purposes or not.

  1. Any clause that attempts to exclude any legislation that may be applicable to it:

As an example, should a provider specify that the Consumer Protection Act is not applicable, red lights should immediately light up. This clause is not enforceable in law, and you will therefore most likely be successful should you proceed to refer the matter to Court, however- it does indicate the intention of the other contracting party.

  1. Unreasonably long term of agreement

A commercial lease agreement is usually 5 years, a residential lease usually 1 year. If you wish to rent property and the owner requires a commitment which is unreasonably long, this should be re-negotiated. Even in instances where the term is the industry norm, you are entitled to request re-negotiation in this regard.

  1. Any action by the supplier that is done without consent or input from the consumer:

An example here is advertising that is placed without your final approval and the charges being due. Look out for clauses that determines that you have been deemed to accept should you not revert to the contrary once communication has been sent to you in any way or form.

There are many more examples of clauses that could cause potential harm to the consumer should it be signed without further thought and it is therefore imperative to read each and every clause written in the agreement and should ensure that he or she knows and understands the contents of the entire agreement. It is understandable that your average person does not understand most of the content of any such agreement and it is always a good idea to have it perused and advice given by an attorney.

Please feel free to contact our offices should you have any contract related enquiries.

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