The Law of Contract PDF

THE LAW OF CONTRACT MR LK THUTSE Date: Week 04 to 08 March 2024. Absence of consensus: Mistake Mistake in a contractual sense: Where a contracting party acts while under an incorrect impression regarding some or other fact that relates to or affects the contract between the parties. All contracts ar...

THE LAW OF CONTRACT MR LK THUTSE Date: Week 04 to 08 March 2024. Absence of consensus: Mistake Mistake in a contractual sense: Where a contracting party acts while under an incorrect impression regarding some or other fact that relates to or affects the contract between the parties. All contracts are based on consensus between the parties to it. Often, the parties think that they are in agreement and have reached consensus, but in fact are mistaken. If the contract is concluded and it later turns out that it was based on a mistaken belief that a certain state of affairs existed when in fact it did not, the aggrieved party may want to opt out of the contract, or claim relief from the other party. Absence of consensus: Mistake Classification: Unilateral mistake Where only one party is mistaken—other party aware of mistake Dissensus (lack of (remains silent) consensus) Mutual mistake Both parties are mistake about each other’s intention (neither is Dissensus (lack of aware of each other’s mistake) consensus) Common mistake The mistake is shared by all parties to the contract Irrelevant mistake If mistaken party would have entered into the contract despite a Dissensus however mistake-- mistake regarded as irrelevant. not void Mistake must be shown to have influenced a party’s decision to conclude a contract. Consensus base on common false supposition (still void) Absence of consensus: Mistake Sonap Petroleum (SA) (Pty) Ltd (formerly known as Sonarep (SA) (Pty) Ltd) v Pappadogianis 1992 (3) SA 234 (A) at 239J –240A The South African Appellate Division set out the approach to unilateral mistake as follows – ‘... the decisive question in a case like the present is this: did the party whose actual intention did not conform to the common intention expressed, lead the other party, as a reasonable man, to believe that his declared intention represented his actual intention?... To answer this question, a three-fold enquiry is usually necessary, namely, firstly was there a misrepresentation as to one party’s intention; secondly, who made that representation; and thirdly, was the other party misled thereby?... The last question postulates two possibilities: was he actually misled and would a reasonable man have been misled?’ Absence of consensus: Mistake Allen v Sixteen Stirling Investment (Pty) Ltd 1974 (4) SA 164 (DCLD): Plaintiff brought an action seeking an order declaring a written agreement of sale of an immovable property null and void, averring that he entered into the agreement in the bona fide belief that he was buying an immovable property pointed out to him by the defendant’s agents, whereas in fact the property pointed out was not the property described in the sale agreement. The court found that the plaintiff’s mistake was iustus. (A fair or reasonable mistake). Absence of consensus: Mistake Shepherd v Farell’s Estate Agency 1921 TPD 62 An estate agency advertised that it handled the sale of businesses and that their motto was “no sale no charge”. Shepherd instructed them to sell his business, and signed a mandate without reading it. In terms thereof, he bound himself to pay a commission to the agency if a sale took place, whether or not it was a result of their efforts. The Court found that he was not bound by this provision. He mistakenly thought that the contract was substantially in terms of the advertisement and this mistake was caused by the advertisement itself and the agency’s failure to draw attention to the conflict between the advertisement and the contract. NB….it is not sufficient for the respondent to argue that the applicant should have ascertained the true position of the property from the brochure and on the aerial map handed to him immediately prior to the auction. Had Shepherd read the document which he signed, he would have realised that, notwithstanding the estate agency’s motto as contained in the advertisement, he could still be held liable for commission on a sale of the property which did not result from the agency’s efforts. Irrespective of this, Shepherd was entitled to rely on the mistake induced by the advertisement. Absence of consensus: Mistake Khan v Naidoo 1989 (3) SA 724 (N) …The mistake must, therefore, be one which touches the agreement in a material or fundamental respect, for example, in relation to its subjectmatter… For negation of consensus Absence of consensus: Mistake Material mistake Goes to the heart of the contract Completely consensus. negates No contract can be said to have existed. Non-material mistake Does not exclude actual agreement. A valid contract existence. comes into the contract is voidable (rescindable) if consensus was reached in an improper manner by way of misrepresentation, duress, undue influence or commercial bribery. Absence of consensus: Mistake Material mistake: Parties must: seriously intention to contract; be of one mind as to material aspects; and be aware that all parties are of the same mind. If one or more of the above is lacking= material mistake. Absence of consensus: Mistake Examples of material aspects (a) mistakes re parties to the contract See: National and Overseas Distributors Corporation (Pty) Ltd v Potato Board 1958(2) SA 473 A) Absence of consensus: Mistake Examples of material aspects (b) Mistake re material terms (See Allen v Sixteen Investments Stirling Investments (Pty) Ltd.). Absence of consensus: Mistake Examples of material aspects (c) Lack of understanding of legal consequences of a contractual provision—usually unaware: Where a party is mistaken as to the contents of the obligations that the parties wish to create, any mistake arising there from is material. See: Du Toit v Atkinson’s Motors Bpk 1985 (2) SA 889 (A) Absence of consensus: Mistake Non-material mistake: Does not affect consensus. If parties are ad idem re material terms – contract come in being. Error in motive: Mistake re reason/motive for the mistaken party entering into an agreement. Absence of consensus: Mistake error in corpore error in negotio error in persona error in substantia Classification of material/non material mistakes Mistakes can relate to the subject matter of the contract. Mistake re the true nature of the contract see Khan v Naidoo 1989 (3) SA 724 (N) Mistake re the identity of one of the parties to the contract Mistake re an attribute or characteristic of the subject matter of the contract- i.e. it does not render the contract void. error in motive Mistake as to the party’s reasons for entering into the contract. *error iuris Mistake as to the law relating to some aspect of the transaction. Material Material Sometimes material Usually not regarded as a material mistake Not material Material only if it relates to terms of agreement, rather than motive Absence of consensus: Mistake Kok v Obsorne & Another 1993 (4) SA 788 (SE) The seller accepted an offer ostensibly made by two buyers jointly. However, the offer was actually from only one buyer. It was clear that the defendant in that instance would not have accepted the offer had he known the true position (error in persona). However… in Venter and Others v Credit Guarantee Insurance Corporation of Africa Ltd. and Another 1996 (3) SA 966 (SCA)— error in persona is material only if the identity of a party is of vital importance to the mistaken party. Absence of consensus: Mistake The question is was there a mistake? In answering this question -- employ the set of questions usually employed in considering a mistake. These were clearly set out by Davis AJ (as he then was) in Prins v Absa Bank Ltd 1998 (3) SA 904 (C) as follows: (a) Is there consensus? (b) If not, is there dissensus caused by a mistake? (c) Is the other party aware of the mistake? (d) Who induced the mistake and was it done by commission or omission which was either fraudulent, negligent or even innocent?” Absence of consensus: Mistake The question is was there as mistake? (Continued) need to show firstly that at the time of the conclusion of the contract he/she acted under some misapprehension or misunderstanding as to the terms, import or effect of the contract. A legally recognizable mistake in the law of contract was explained as follows in Dole South Africa (Pty) Ltd v Pieter Beukes (Pty) Ltd 2007 (4) SA 577 (C) at 587: “A party to a contract who has concluded same whilst labouring under a bona fide and reasonable mistake as to its contents will not be bound by the provisions thereof. In particular, where the contracting party has been led to believe by the other party that the contract contains certain provisions, which in fact it does not, the party relying upon the misrepresentations, will not be bound by the agreement.” Absence of consensus: Mistake Rectification: Remedy for correcting mistakes in written contracts. Sometimes when committing negotiated terms to a written format—a failure to correctly indicate the common intention of the parties occurs. ( unintentional) Generally parties can correct themselves (by agreement) or simply perform as per the correct intention. In the event of a dispute –a party may apply to court for rectification or correction of the written document – allows for the correct actual common intention of the parties to be reflected Where a person applies to court to “rectify” a contract that he has entered into, he is asserting that the written contract, as it stands, does not accurately reflect the true intention of the parties, and he is asking the court to order that the contract be rephrased so as to accurately reflect the true mutual agreement of the parties at the time they entered into their agreement. Absence of consensus: Mistake Rectification: (Continued) Remedy available only where all the parties to the contract were in fact of one mind, but the written contract failed to accurately express their consensus. Rectification is therefore not a remedy that is available where only one or some of the parties were under a misapprehension or mistaken impression. Rectification does not create a new contract, nor does it amend an existing contract; it merely serves to correct the written memorial of the agreement so as to accurately express the true intention of the parties. (Boundary Financing Ltd v Protea Property Holdings (Pty) Ltd (3) SA 447 (SCA)). Absence of consensus: Mistake Rectification (Continued): Who may apply? A party to an incorrectly recorded agreement. Ask for the document to be corrected to conform with the true intention of the parties. When can you apply (under what circumstances)? Document does not reflect true intentions of parties—bona fide mistake. What does one need to prove/show? document does not reflect the common intention of the parties, establish what the true intention was, how does the document need to be amended,