Aside from various types of legal documents where signature of the parties is required by law (such as an agreement to dispose of a real right in land as contemplated in the Alienation of Land Act, 1981) there is a misconception in commerce that an ordinary agreement that is documented in writing must always be signed by the contracting parties in order for it to create binding obligations between them.
It is perhaps a healthy misconception, because proving that contracting parties have reached consensus in an oral agreement, or a written agreement that has not been signed, can be a tricky endeavour.
Even where the existence of an oral agreement can be proved, it will inevitably fail to regulate various important matters (such as duration, termination, dispute resolution etc) with sufficient clarity. It should be noted from the outset, therefore, that the production of a signed written document is without a doubt the most efficient evidence of the existence, and the precise terms, of an agreement.
However, as powerful an indicator as it may be, signature of an agreement is but one of several indicators which may serve to evidence the existence of an agreement between contracting parties. It is these alternative indicators that become relevant to contracting parties when, in the hectic realities of commerce, legal administration (signature of documents) takes a back seat in the name of implementing transactions within deadlines.
One of the indicators which may serve to prove the existence of an agreement and which has fallen under the scrutiny of our courts, is that of the conduct of the contracting parties. In Cell C (Pty) Ltd v Zulu 2008 (1) SA 451 (SCA), Cell C entered into an agreement with Zulu, in terms of which Cell C was to supply Zulu with a community service container equipped with telephones and other equipment. Cell C would also provide a cell phone signal to the container to enable Zulu to run a telecommunication service.
Cell C provided Zulu with Cell C’s standard contract, which was subsequently signed by Zulu but was not returned to Cell C. Prior to signature by Zulu, Zulu had paid certain amounts to Cell C and then following signature by Zulu (but not Cell C) Cell C delivered a container with telephones and equipment to Zulu.
Shortly thereafter Zulu moved the container to a different premises. Cell C deemed this to be a breach of the agreement and deactivated the signal to Zulu’s container, thereby effectively terminating the contract.
The court found that through their respective performances (payment by Zulu and delivery by Cell C), the parties had entered into an ‘interim’ agreement, which would only be superseded by the written agreement upon signature thereof by both of the parties. Cell C was accordingly not entitled to immediately terminate the agreement, as it had not given reasonable notice of termination to Zulu, which is the period of notice required in respect of contracts whereby notice periods in respect of termination are not catered for.
The court’s findings in this case as to the provisions of the agreement between the parties are not impervious to criticism and it is submitted with respect that the provisions of the written agreement signed by Zulu, should have been given effect to, even though it had not be signed by Cell C. In this regard, one must consider the essential function of a signature to a contract within the context of the particular facts of a matter.
The core function of a signature, surely, is to indicate that the party whose signature is applied to a document, has read, understood and agreed to the terms of the document that he or she has signed. Accordingly, its function is of great importance in holding a contracting party to a contract in which it has had little or no participation in the preparation of the document.
But can it be said to be of equally as great importance in respect of a contracting party who has been solely responsible for the preparation of the document? Some might argue that the signature of the document by such party serves little to no purpose, perhaps other than one of formal completeness. It could be argued, therefore, that the court took a more correct approach in Roberts v Martin 2005 (4) SA 163 (C), where it held that an unsigned agreement which had been drafted by the Respondent’s attorneys constituted an offer by the Respondent which the Applicant had accepted by signing the agreement.
Applying these principles to the facts of the Zulu case, one might argue that because Zulu had signed the contract provided to him by Cell C, then the parties had reached consensus even in spite of Cell C not having signed the contract, because it is nonsensical to consider that Cell C should not be bound to a contract for which it was solely responsible for drafting and in fact comprised of Cell C’s ‘standard’ terms and conditions on which it always contracted in the types of matters in question. In the circumstances, one could argue that Cell C ought to have been entitled to enforce the terms of the written contract duly signed by Zulu.
Where proof of the existence of an unsigned agreement cannot be inferred from the conduct of the contracting parties, for example, through performance of their respective contractual obligations, it might nonetheless be evidenced by their communication prior to such performance. It is clear that an agreement has come into effect, for example, where a draft agreement is sent by contracting party A to contracting party B by email and there is an unequivocal response by contracting party B to the effect that the agreement has been reviewed and that it is accepted and agreed to without further comment.
However, it is important to note that if contracting party B’s response to contracting party A were to amount to a counter offer, in other words, it attempts to amend contracting party A’s agreement rather than accept it in its current state, then in such circumstances our courts have determined that in doing so, contracting party B rejects contracting party A’s offer to contract and through its counter proposal makes a new offer which is open for acceptance or rejection by contracting party A.
Hence, although this article has confirmed that the signature of an agreement by all the contracting parties thereto is not critical to its validity, it has also attempted to allude to the difficulties which a contracting party may likely face in attempting not only to prove the existence of an oral or unsigned agreement, but even where such an agreement can be proved, what the precise terms of that agreement are.
It should be emphasised therefore that a signed written agreement is invariably the preferable means of entering into an agreement, as in ordinary circumstances it will eliminate any dispute regarding whether or not an agreement has come into effect and what the precise terms of the agreement are. In all other cases, the existence and terms of an unsigned agreement, whether oral or written, are to be inferred from a variety of indicators.