Mistake/absence of consensus

Question 1

What are the two bases for a contract, and what role does mistake play?

Answer 1

There are two bases for a contract. The primary basis is consensus. The secondary basis is reasonable reliance. The reliance theory is often applied as a corrective mechanism in cases of disagreement or dissensus i.e. where consensus is not present. Dissensus often arises due to a mistake in the contracting process - a mistake being some or other fact that relates to and affects the contract between the parties. Such a mistake can either destroy the contract, or make it voidable. If the parties are not ad idem, then if the contract cannot stand on the secondary basis of reliance, it will be void ab initio.

Question 2

Define a unilateral, mutual and common mistake

Answer 2

A unilateral mistake occurs where only one party is mistaken, while the other party is aware of their mistake.

Mutual mistake refers to the instance where both parties are mistaken about each other’s intention and are at cross-purposes - neither is aware of the other’s mistake.

A common mistake is one that is shared by the parties and differs fundamentally from unilateral or mutual mistake, because it does not lead to dissensus - however, it results in the contract being void.

Question 3

What does the relevance of the mistake have to do with consensus?

Answer 3

A mistake does not negate consensus if it did not materially affect the mistaken party’s decision to enter into a contract.

Question 4

What is the difference between a material and a non-material mistake?

Answer 4

A material mistake is an error that vitiates or negates actual consensus between the parties. It must relate to or exclude an element of consensus between the parties. The contract will be void for mistake unless it can be upheld on the secondary basis of reliance.

Conversely, a non-material mistake does not exclude actual agreement between the parties because it does not relate to an element of consensus. The contract will be valid, but may be voidable for misrepresentation if the mistake was induced by the other party’s misrepresentation.

Question 5

When will there be a material mistake?

Answer 5

A material mistake is one that vitiates consensus. For consensus to be reached, there must be:

1) serious intention to contract
2) agreement as to the material aspects of the contract
3) consciousness of agreement

Question 6

Give three examples of errors that are usually classified as a material mistake

Answer 6

1) error in corpore
2) error in negotio
3) error in persona

Question 7

Elaborate more on 1) error in corpore

Answer 7

This is a material mistake concerning the subject matter of the contract, or the object of the performance. For example, where parties have different properties in mind.

Question 8

Elaborate more on 2) error in negotio

Answer 8

This is a material mistake relating to the true nature of the contract concerned. For example, signing a contract of sale instead of a contract of lease.

Question 9

Elaborate more on 3) error in persona

Answer 9

This is usually a material mistake regarding the identity of the other party to the contract. For example, selling property to X instead of Y. This is only material if the identity of the other party is of vital importance to the mistaken party.

Question 10

Will an error in substantia be considered a material mistake?

Answer 10

No. This is a non-material mistake. It is a mistake regarding an attribute or characteristic of the subject matter of the contract. For example, if the farm you bought actually did not include as much forestry as you thought it did, or the car does not travel as fast.

Question 11

Provide a case summary of Trollip v Jordaan

Answer 11

Appellant purchased a farm, and the contract stated that no representations had been made. However, the agent had pointed out the incorrect boundaries of the farm.

Did this constitute a material mistake making the contract void?

The contract of sale was not void as a result of an innocent misrepresentation, because the non-misrepresentation clause applied and precluded reliance on the misrepresentation. Furthermore, the actual mistake was only in respect of the characteristics of the property, and not the actual identity of the property.

Question 12

Provide a case summary of Van Reenen Steel v Smith

Answer 12

A business was being sold. It was understood that it was a viable business. No representations were made.

A party cannot vitiate a contract based upon a mistaken motive relating to an existing fact, even if the motive is common, unless the contract is made dependent upon the motive, or if the requirements for a misrepresentation are present.

Question 13

What is a limitation of the will theory?

Answer 13

On a strict application of the will theory, every material mistake prevents the existence of a contract. However, bad faith operators may use the will theory for fraud and perjury, by entering into a contract knowing full well that they do have consensus mentally. Therefore, the will theory is not applied without qualification.

Question 14

What is the reliance-based corrective?

Answer 14

The point of intersection between the subjective approach (encapsulated within the will theory and qualified by the doctrine of quasi-mutual assent) and the objective approach (encapsulated in the declaration theory and qualified by the iustus error doctrine) is reliance.

Question 15

What is the doctrine of estoppel?

Answer 15

Where A has a reasonable belief in a misrepresentation made by B and relies thereon to their detriment, A may hold B to the misrepresentation, in preventing B from relying on the true state of affairs.

Question 16

What is the doctrine of quasi-mutual assent?

Answer 16

This is a basis for an actual contract. It requires a reasonable belief on the part of the contract asserter (A) induced by the contract denier (B) that the latter had agreed to the contract in question. The elements for this doctrine may be divided into three parts:

1) the contract denier (B) must have induced the reliance or belief of the contract asserter (A) that the parties had reached consensus
2) the contract asserter (A) must have relied on this representation
3) A’s reliance must be reasonable in the circumstances

Question 17

Provide a case summary of Constantia v Compusource

Answer 17

Compusource had a claim for damages against CQP. However, they needed security for a costs order should they lose their case. So, they took out an insurance product called a PDL policy. For a hefty premium, Constantia Insurers would insure Compusource against any adverse costs order that was awarded against them. Compusource would only have to pay the premium if they won the case. If they lost the case, they would not have to pay the premium and the costs order would be covered by the insurer. All of this was explained to Compusource by a broker - Fagan. Surety was then granted by the bank to Compusource, and proceeding began. However, CQP amended its plea and included a new defence. As a result, both Compusource’s and Constantia Insurers’ lawyers found that there was a lower than 50% chance that Compusource would win their case against CQP. Hence, Constantia Insurance cancelled the insurance contract and sought payment of the premium, pursuant to a clause in the contract which allowed them to do so.

Was the signatory aware of these terms concerning cancellation [iustus error], or was there reasonable reliance by Constantia Insurance [quasi-mutual assent]?

Compusource was not aware of the existence of the cancellation clause, and therefore there had been no consensus.

1) Compusource (B) did misrepresent their intention by signing the document
2) This misled Constantia Insurance (A) into the belief that consensus had been reached
3) The question was whether A’s reliance was reasonable in the circumstances

The court held that despite Compusource being a business which is contract-savvy, the agent (Fagan) knew that Compusource would not be able to pay the premium if they lost the case. Hence, they could never have agreed to such a contract. Therefore, it was found that there had been no reasonable reliance. The contract was therefore void due to dissensus and the premium could not be recovered.

Question 18

What is a limitation on the declaration theory?

Answer 18

Strict application of this theory means that no subjective mistake can be taken into account. However, in terms of the iustus error doctrine, an objective contract may be rendered void for a material and reasonable mistake.

Question 19

What was held in Potato Board?

Answer 19

Tender called for the erection of a steel shed. Tender application accepted by way of letter. Later said to be incorrectly sent as a result of administrative error.

Had a contract arisen and been breached? Did one party make a iustus error? Was there a mistake (identity)?

The contract still stands, because from the outside world, it appears as if a contract has indeed been created through objective inference.

Question 20

Provide a case summary of George v Fairmead

Answer 20

Clothes and personal items were stolen from a hotel room. Appellant had signed a form limiting the hotel’s liability.

Does a signature constitute assent to the terms of the contract? [caveat subscriptor]

Yes. When a man is asked to put his signature to a document he cannot fail to realise that he is called upon to signify, by doing so, his assent to whatever words appear above his signature. In cases such as these, the party who seeks relief must convince the Court that he was misled as to the purport of the words to which he was thus signifying his assent. That must, in each case, be a question of fact, to be decided on all the evidence led in that particular case.

Question 21

What does the iustus error doctrine seek to do?

Answer 21

This functions as a corrective measure in the case of dissensus and provides that a party will not be held bound to an agreement if that party apparently (but mistakenly) gave their consent and if their mistake is material and reasonable.

Once the contract asserter (A) has shown that there is an objective agreement, the denier (B) bears the onus of proving that their mistake was both material and reasonable, in order escape liability in terms of the apparent contract.

Question 22

What are the factors that will influence whether the mistake was reasonable?

Answer 22

To prove that the mistake was reasonable:

1. A material mistake will usually be reasonable if caused by a misrepresentation on the part of the contract asserter (A).
2. If the contract denier (B) is not to blame for their mistake, the mistake is excusable.
3. If the contract denier (B) did not cause a reasonable belief in the contract asserter (A) that the denier had assented to the agreement, then the error is iustus.

Question 23

Provide a case summary of Du Toit v Atkinson’s Motors

Answer 23

Advertisement described a motor vehicle on sale as a 1979 model. The parties concluded a verbal agreement for the purchase of the vehicle which was based on the advert. Thereafter the seller purported to reduce the oral agreement to writing and placed that instrument in front of the purchaser to sign. The purchaser signed the written agreement without reading it, thus missing the fact that the document did not mention the year of manufacture of the vehicle. The model was actually a 1976 model. Furthermore, clause 6 was a ‘no warranty’ clause.

1) Was the existence of clause 6 a material mistake?
2) Had the year of manufacture of the vehicle been misrepresented by A?

If the advertisement was aimed at creating an impression on a material term and the purchaser was unaware of a term excluding reliance on such an impression and the seller is silent in respect of such a provision, the seller may be held liable on account of such misrepresentation. Hence, B signing the contract was a iustus error. The seller was liable and the contract is void.

Question 24

Provide a case summary of Brink v Humphries & Jewell

Answer 24

Business done regularly with a supplier. Cash transaction, but switched to a credit agreement. Form signed by Brink in his capacity as Director of the company, to the following terms:

1) warrant of authority
2) agree to all terms on the reverse
3) agree to be held liability as co-surety for the indebtedness of the company

Was Brink bound by this contract, or was it void for material mistake (nature) and iustus error?

A personal suretyship hidden in a credit application form, which the appellant unwittingly signed, was a trap for the unwary and the appellant was justifiably misled by it. This was a material mistake. Furthermore, there was a misrepresentation by A making Brink’s error reasonable and thus excusable (iustus).

Question 25

Does it matter whether one uses direct or indirect reliance?

Answer 25

The decision in Sonap shows that the direct and indirect application of the reliance theory are mirror images of one another, and either may be applied to the same set of facts in order to reach the same outcome.

Question 26

Provide a case summary of Sonap

Answer 26

Parties entered into a 20-year lease. Did not send the certificate. Then sent a certificate mistakenly amending the lease to 15 years. This was signed because the respondent stood to gain from a shorter lease.

Was the mistake iustus, or was it due to the appellant’s own fault? (intention)

To determine whether there was reasonable reliance:

1) was there a misrepresentation?
2) who made the misrepresentation?
3) was the other party misled thereby - actually, and reasonably?

There was a mistake, made by the lawyers of Sonap, which misled the other party (Pappadogianis) into thinking that the lease had been reduced to 15 years. However, they knew that this was a mistake on Sonap’s part, and they had a duty to speak up. Therefore, they could not claim reasonable reliance on Sonap’s mistake. The contract was therefore void.

Question 27

What does common mistake do?

Answer 27

This does not lead to dissensus. However, it nonetheless results in a contract being void.

Question 28

Provide a case summary of Dickinson Motors v Oberholzer

Answer 28

Oberholzer had paid money which his son owed on a car he had bought from Dickinson Motors. Hence, Dickinson released the car to Oberholzer - both thought that it was the car concerned. However, the true owner of the car appeared and successfully claimed the car.

Could Oberholzer recover the money that he had paid to Dickinson Motors?

Yes. The money was paid under a common mistake in regard to a matter which was vital to the transaction and, had either of them been aware, the transaction would not have gone through.

Question 29

When will rectification be permitted?

Answer 29

Error in the contract in writing is typically resolved outside of court. However, if agreement cannot be reached, the other party may apply to court for rectification or correction of the written document. The document in question must not reflect the common intention of the parties. The party must prove what the actual intention was. However, where writing is a constitutive requirement for the very existence of a contract, courts do not permit rectification.