#19847 - Is A Signature Really Agreement - Contract Law

Is a signature really an agreement?

In practice most contracts are made in writing. Few are individually negotiated. Standardisation reduces the cost and difficulty in mass transactions. Forms, therefore, is an inevitable fact of modern contracting (Prausnitz). The prevalence of them shows their importance, especially in online transactions (Slawson). The problem with forms is that there is no negotiation – it’s a take it or leave it. Thus, is an ‘agreement’ to abide by the terms really an agreement? Or is it an imposition of will on consumers? Kessler thinks the latter.

Is a signature, or clicking ‘I agree’, sufficient to assent to a mass of unread, and potentially unreadable for many, standard terms?

The orthodox position is espoused by Scrutton LJ in L’Estrange¹, where he said if a doc containing contractual terms is signed, the party signing it is bound, and it is ‘wholly immaterial’ whether he’s read the document or not. There is no need for ‘reasonable notice’ of the terms – that requirement is exacting. Although there is caselaw saying the more unusual or onerous the term, the greater the degree of notice required – Interfoto v Stiletto. Signature is thus highly relevant.

The debate is whether you can treat a signature of a potentially unread, or ununderstood, document as binding. Some say the unread document is not contractual at all. Others say law needs to pragmatically accommodate commercial reality. Rather than ban standard form contracting wholesale, it might be better to target protection toward those parties where it’s needed most.

In L’Estrange, a café owner signed for the purchase of a cigarette vending machine. The small print at the end said any terms not stated within the contract expressly are excluded. This meant when the vending machine didn’t work, the CA decided the owner’s action failed. Liability on the company’s part was excluded by the small print which the owner was deemed to have accepted by signature, despite having clearly not read it. Denning, the barrister for the vending machine company, later said in George Mitchell v Finney Lock Seeds the decision was wrong, and a ‘bleak winter’ for contract law. Spencer rightly criticises this for being harsh. The owner did not subjectively agree to the exclusion clause, and Spencer also argues there was no objective agreement – it is impossible to say a reasonable person, in the café owner’s shoes, have understood they were agreeing to a sweeping liability exclusion clause. Ashington Piggeries v Christopher Hill says the test is impersonal – what a reasonable person in the promisee’s shoes would have understood by what the promisor said and did, but even so Hartog v Colin & Shields makes clear there are exceptions, such as there being no agreement where the promise knew, or should have reasonably known, the promisor was not actually assenting. Spencer argues this exception should govern L’Estrange: ‘Who in their right mind would sign a doc headed “I promise to pay for your goods even if they are useless”?’.

We have a conflict here between two theories of objectivity. Rose v Pim suggests we use the ‘reasonable fly on the wall’ approach – a detached observer. They would conclude C has signed an agreement to the liability exclusion clause. Spencer says this is silly: it contradicts the general settled theory of contract law. The current proper objective test is found here (search for Hartog v Colin & Shields). Chapman agrees with Spencer broadly. L’Estrange promotes a form over substance approach to agreement. Chapman hoped the introduction of rules negating agreement to unfair terms under some circumstances would encourage judges to overrule L’Estrange but this hasn’t happened -that case is still the primary starting point for deciding if there’s been an agreement.

Chapman observes it’s hard to know what one party knew about what the other party thinks they’re agreeing to at times. he thinks we should apply the normal requirement of ‘reasonable notice’ to singed docs. If we can ensure informed consent exists to the contract, there would be no clash between contract theory and standard-form practice. Information gives moral consent to the agreement. It would also mean the law would have to step in less to protect consumers. But Morgan argues the cost of reading and understanding lengthy contractual terms is costly, and gives a low benefit. Disclosure of terms amounting to ‘reasonable notice’ is fine in theory, but few consumers will read the disclosure in practice. As most contracts are standard-form this makes a sort of sense – if it’s non-negotiable, why read the contract? Ben-Shahar and Schneider note the disclosure of particular terms is unlikely to work for the same reason. Some therefore conclude we should ban standard forms directly, or render them unenforceable.

There has been some questioning of the signature rule in other jurisdictions. The Ontario CA in Tilden Rent-A-Car v Clendenning said the objective principle only protects reasonable reliance on what the other party appears to be assenting to. Applied to hurried, informal consumer transactions, it would be unreasonable to say a signature represented any real assent to any unusual and onerous terms in the doc. So, the Canadian court concluded, reasonable notice had to be given. Dissenying, Lacourciere JA approved the signature rule, and said unfair consumer contracts would be better regulated by statute. The dissenting approach has a lot of support. The Canadian courts approved it in Deidel v Telus Communications, and the High Court of Australia reaffirmed L’Estrange...