THE ESSENTIAL ELEMENTS IN THE FORMATION

OF A CONTRACT:

2. ABSENCE OF CONSENSUS

LECTURE 7
5 March
 1. Introduction

Progress 2. Requirements for a valid contract

2.1 Contractual Capacity
Map 2.2 Consensus – agreement
(a) Offer & Acceptance
(b) Absence of consensus
(c) Improperly obtained consensus

2.3 Legality – must be lawful

(a) General principles
(b) Impact of Constitution
(c) Specific topics

2.4 Possibility of performance at conclusion

2.5 Certainty - definite / determinable content
2.6 Formalities - if required (alienation of land)
3. Parties to contracts
 Recap – contract theories

• will theory
– actual consensus

– entirely subjective

• declaration theory
– only outward appearance

– what say and do

– entirely objective

• reliance theory
– hybrid - semi objective or subjective-objective
– “reasonable reliance”
 Modern South African law – dual basis
Hutchinson p 20

• point of departure

– subjective approach (what did party actually think?)

• if conclusion - actual consensus - cadit questio = contract

• if conclusion - no actual “meeting of minds” (consensus) - next step

– did party by word or conduct

• lead other party to reasonable belief that there was consensus ?

– not wholly subjective – tempered by objective considerations

– objective because actual intention of party not looked at

• court looks at what a reasonable person in position of party a would

have concluded
 Signed document example
Burger v Central SAR 1903 TS 571

• when a party signs a contract - taken to be bound by the ordinary

meaning and effect of the words which appear over his signature

• no grounds shown in this case on which contract may be repudiated :-

– fraud and misrepresentation not been alleged - nothing was said

which misled

– the language of the document was one which was understood

– no pressure of any kind was exercised

– chose not to read what was signed

Slip Knot Investments 777 (Pty) Ltd v Du Toit 2011 (4) SA 72 SCA

• but where one party knows other party is mistaken?

• a contracting party generally does not have to inform the other

party of the terms of the proposed agreement

• he must do so where there are terms that could not reasonably

have been expected in the contract

• in this case alleged :

– suretyship 'hidden' in a bundle of documents signed by respondent

– the respondent entitled to assume that he was not personally bound

 Slip Knot Investments (continued)

• SCA held

– cursory glance at the documents would have alerted the respondent to suretyship.

– conceded by respondent nothing

– misleading in the bundle

– a suretyship among the documents was not unexpected

– Slip Knot was entitled to rely on the respondent's signature - Slip Knot made no

misrepresentation

– no suggestion that Slip Knot knew or ought, as a reasonable person, to have

known of the respondent’s mistake

 also back to :
Sonap Petroleum (SA) (Pty) Ltd v Pappadogianis 1992 (3) SA 234 (A)

• the decisive question 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
– firstly, was there a misrepresentation as to one party's intention?

– secondly, who made that representation?

– thirdly, was the other party misled thereby?

• the last question postulates two possibilities
– was he actually misled?

– would a reasonable man have been misled?

 Sonap Petroleum (continued)
• the appellant represented to the respondent that its intention was to reduce the
period of the lease
• one then has to determine whether the misrepresentation had any effect
– was the respondent misled thereby when offer made to renew?

• if the appellant realised (as a reasonable man)

– that there was a real possibility of a mistake in the respondent’s offer
– appellant had a duty to enquire whether the expressed offer was the intended
offer
– only thereafter could he accept

• the snapping up of a bargain in the knowledge of such a possibility would not be

bona fide
• whether there is a duty to speak will obviously depend on the facts of each case
 Sonap Petroleum (continued)

• Sonap, Slip Knot, takes reliance theory a step further :-

– not only reliance (objective-subjective) assessment

– a further angle :

• if offeree knows (or reasonably suspects) offeror is mistaken

• there is a duty to

– enquire as to true intention and

– to point out misconception

• if not done
– not bona fide to accept offer

– contract may not be valid

 So what is the case where there is a genuine material mistake
regarding some or other fact that relates to and affects a proposed
contract between the parties?
• i.e., at stage of point of conclusion one or both parties is/are mistaken about a material fact
and actually unaware of the mistake

• Example : Khan v Naidoo 1989 (3) SA 724 (N) (summary of facts in case very disjointed)

– A presents B, his semi-illiterate mother, with a document for signature

– A tells B document relates to the transfer to her of a property that belonged to her late
husband

– B can signs in the honest belief of what she had been told

– BUT document in fact a guarantee granted to C for a debt owed by A to C

– evidence showed if know was surety would not have stopped her from signing

– various defences to enforcement of surety raised by B’s counsel – all abandoned save one :

• did not know signing surety

 Khan - commentary

• obviously, the reasonable reliance theory is not of much use here

– it would be reasonable for C to accept (subjectively) that, because B had signed the document

she had agreed to guarantee A’s debt

• in other cases, reliance theory serves as corrective measure (e.g., Steyn v LCA

Motors)

• in the Khan case, reliance theory fails - signature objectively viewed shows offer and

acceptance = contract / no misrepresentation by C

• hence, important to know when mistake (and concurrent duty to point out -

Sonap)
– where mistake sufficient to destroy actual consent = contract void

– where not, will not destroy contract = voidable

• mistake may also be irrelevant = contract valid

 Khan (continued)

• BUT be careful :-
– in Khan court held that B is bound -
• because facts of case show
– even if B had know of the A’s misrepresentation
– B would have signed guarantee anyway

→ signed document cases show mistake may influence

– decision to contract
– validity of contract
 What is “mistake” in contract law?

• generally mistake is a misconception about something

• mistake in contract law :-

– a party has an incorrect impression regarding some or other fact

that relates to and affects the contract between the parties
• if the parties are aware of the mistake, they can correct it or not
enter into an agreement
• but one or both may be unaware of mistake
– as in Khan case – both B and C unaware
– will impact on consensus and validity of contract
 Classification of types of mistake

• unilateral
– one party mistaken of other party’s intention

– remains quiet (does not alert other party – Sonap)

– no consensus

• mutual
– each party mistaken about other’s intention

– no consensus
• mistake can be irrelevant

– does not affect consensus

– would have entered into in any event if knew about it

• as in Khan v Naidoo

• mistake can be relevant

– if known, would not have entered into contract

– affects consensus
• a mistake can be material or non-material

– material if it relates to or exclude an element of consensus, namely :-

• the intention to contract

• material aspects of contract

– parties

– terms

– awareness of contract

– if material

• destroys consensus
 Examples of material mistake

• Bird v Summerville 1961 (3) SA 194 (A)

– A offers to sell property to purchaser B

– BUT B and C sign contract as joint purchasers

– no consensus on material term – no contract

• Allen v Sixteen Sterling Investments (Pty) Ltd 1974 (4) SA 164 (D)

– party believes buying a property pointed out to him by agent

– contract signed was for another property (that A did not want to buy)

– no consensus on material term – no contract

a non-material mistake :

• does not relate to an element of consensus

• does not destroy consensus

• contract is valid
 Example of non-material mistake
Diedericks v Minister of Lands 1964 (1) SA 49 (N)

• a mistake which is merely incidental to the contract in the sense that it relates only
to the reasoning or motivation of the party seeking to escape the consequences
of the terms on which he agreed does not vitiate or preclude mutual assent

• the mistake in this case was “a blunder” which could, with the exercise of
moderate care, have been avoided

• the defendant's error was not due to any misrepresentation by plaintiff who
neither knew of the error nor was concerned with defendant's motives or reasons
or beliefs in making the offer

• in such circumstances the mistake cannot successfully be set up as a defence by

the erring party when sued upon the contract