Chapter 3- Mistake/Absence Of Consensus

Question 0

How do courts categorize mistakes?

Answer 0

They usually categorize mistakes as being either:

1) Unilateral mistake-
Occurs where only one party is mistaken, while other party is aware of the mistake.

2) Mutual mistake-
Refers to situation where both parties are mistaken about each other’s intention and are at cross-purposes.

3) Common mistake-
Differs fundamentally from unilateral or mutual mistake in that it doesn’t lead to dissensus but nonetheless results in a contract being void on the basis of an incorrect underlying supposition.

Question 1

What does a mistake in contract refer to?

Answer 1

It refers to a situation where a contracting party acts while under an incorrect impression regarding some or other fact that relates to and affects the contract between the parties.

Question 2

What is an irrelevant mistake?

Answer 2

It is a mistake that doesn’t negate consensus, as it didn’t affect the mistaken party’s decision to enter into contract.

Question 3

When will a mistake cause dissensus between the parties? (When will a mistake be relevant)

Answer 3

A mistake must influence a party’s decision to conclude a contract in order to be relevant to the question of possible dissensus?

Question 4

What is a crucial distinction that must be made in regards to a mistake?

Answer 4

A crucial distinction in the classification of mistake is between:

1) Material mistake; and
2) Non-material mistake.

Question 5

What is a material mistake?

Answer 5

It is an error that vitiates (negates) actual consensus between the parties and, to this end, a material mistake must relate to or exclude an element of consensus.

Question 6

What is a non-material mistake?

Answer 6

It is a mistake that doesn’t exclude actual agreement between the parties because it doesn’t relate to an element of consensus.

Question 7

What must the parties do in order to reach consensus ad idem? (Elements relating to consensus ad idem)

Answer 7

The parties must:

• Have a serious intention to contract;
• Be in agreement as to the material aspects of the contract; and
• Be conscious of their agreement.

Question 8

What happens if the parties aren’t in agreement about one or more of the elements of consensus ad idem?

Answer 8

If the parties aren’t in agreement about one or more of these elements, there is a material mistake.

Question 9

What is the traditional classification of material and non-material mistakes?

Answer 9

Historically, mistakes have been categorized according to type, and the materiality of a mistake has been determined on the basis of the type of mistake in question.

There are four traditional classifications:

1) Error in corpore-
Mistake concerning the subject matter (object of performance) of the contract and is regarded as material.

2) Error in negotio-
Mistake regarding the nature of the contract concerned and is regarded as material.

3) Error in persona-
Mistake regarding the identity of the other party to the contract, which the courts only regard as material if the identity of a party is of vital importance to the mistaken party.

4) Error in substantia-
Mistake regarding an attribute or characteristic of the subject matter of the contract (the object of performance) and is generally not regarded as material.

5) Mistake regarding the motive for entering into a contract isn’t regarded as material.

6) Error iuris-
Is a mistake of law and isn’t regarded as material if it relates to motive.

Question 10

What problem may arise where a person denies contractual liability?

Answer 10

A denial of contractual liability in all instances where the parties aren’t in agreement could result in undue hardship for a party who has incurred expense in reasonable reliance on the existence of a contract, and furthermore, would greatly affect the reliability of contractual commitments.

Question 11

What is reservatio mentalis?

Answer 11

This is where a person deliberately creates the impression that he/she is agreeing to a contract, while tacitly registering the mental reservation that he or she doesn’t really intend to be bound.

Question 12

How do courts solve the problem in circumstances where strict application of the will theory would have extremely unfair results?

Answer 12

The courts have alternated between qualifying the subjective and objective bases of contract in order to solve this problem.

• The subjective approach, as encapsulated within the will theory, has been qualified by the doctrine of estoppel and its close relative, the doctrine of quasi-mutual assent (direct reliance theory).
• The declaration theory represents the objective approach as corrected by the iustus error doctrine, which is usually regarded as an indirect application of the reliance theory.

Question 13

How has the will theory been limited in regards to cases of estoppel?

Answer 13

In the case of estoppel, a party (estoppel raiser) who relies reasonably on a misrepresentation made by the other party (estoppel denier) and acts thereon to his own detriment may hold the estoppel denier to his misrepresentation- that is, the estoppel raiser can prevent the estoppel denier from relying on the true state of affairs. A successful plea of estoppel has the effect that the misrepresented facts are upheld as if they were correct. In other words, a fictional contract between the parties will be recognised.

Question 14

What does the reliance theory entail?

Answer 14

The reliance theory requires a reasonable belief- on the part of one party (the contract asserter) induced by the other party- that the latter had assented to the contract in question. This theory is similar to estoppel but has the advantage of giving rise to an actual contract.

Question 15

What does the declaration theory entail?

Answer 15

The declaration theory grounds contractual liability purely on concurring, objective declarations of will. The inner will or actual intention of a party is irrelevant.

Question 16

What does the iustus error approach entail?

Answer 16

Where there is an ostensible (apparent) agreement between the parties, the contract denier bears the onus of proving that his mistake is both material and reasonable in order to be absolved from liability in terms of the apparent contract.

Question 17

With regards to the iustus error approach, what does the contract denier need to prove in order for the contract to be void?

Answer 17

Once the contract asserter has shown that there is an ostensible agreement (consent from an objective viewpoint), or rather, that there is a ‘common intention expressed’, the contract denier bears the onus of proving that his mistake is both:
- Material; and
- Reasonable
In order to be absolved from liability in terms of the apparent contract. If the contract denier succeeds, the contract is void ab initio, but if he fails, he will be contractually bound on the terms originally proved by the contract asserter.

Question 18

When will a material mistake be regarded as reasonable, with regards to the iustus error doctrine?

Answer 18

A material mistake will be regarded as reasonable in the following circumstances:

1) A mistake is reasonable if it is caused by a positive misrepresentation on the part of the contract asserter.
2) A misrepresentation by omission will only give rise to a reasonable mistake where a party has remained silent, where in law he ought to have spoken out to remove the other party’s misunderstanding.
3) There is some authority to the effect that a mistake is excusable if the contract denier isn’t to blame for the mistake- in that he behaved as a reasonable person in the circumstances would’ve done- and that he acted without negligence.
4) An error is reasonable where the contract denier didn’t cause a reasonable belief in the contract asserter that the contract denier had assented to the agreement in question.

Question 19

How have the courts reconciled the subjective and objective approaches?

Answer 19

They have reconciled the approaches by regarding the iustus error approach as an indirect application of the reliance theory. In effect then, the reliance theory is the common denominator between the will and declaration theories. It moderates the strict application of each theory respectively either directly (the doctrine of quasi-mutual assent in the case of the will theory), or indirectly (the iustus doctrine in the case of the declaration theory).

Question 20

How does a common mistake differ from a unilateral or mutual mistake?

Answer 20

It differs in that it doesn’t lead to dissensus but, nonetheless, results in a contract being void. Both parties to a contract make the same mistake, with the important proviso that the mistake doesn’t relate to the intention of with party. In fact, the parties are in complete agreement, but both are mistaken about some underlying, fundamental fact relating to the past or present. For a common error to have an effect on a contract, it must qualify as a term of the contract, either expressly or by implication (tacitly).