Mistake

Intro:

Contracts based on 2 main theories:

1. Will theory= requires actual, subjective agreement between parties

2. Reliance theory= applies when there's no agreement- but 1 party reasonably believes
there is because of other's conduct

Meaning of mistake in law:

 Mistake= party under wrong belief about key fact affecting contract
 2 types of mistakes:
1. Destroy actual consent- making contract void
2. Don’t affect consent- but may make contract voidable and can be rescinded

When mistakes occur:

 Both parties know there's disagreement= can fix it or walk away

 1 or both parties unaware of disagreement because of misunderstanding intentions

Classification:

Unilateral, mutual, and common mistake:

 Unilateral mistake:
o Only 1 party mistaken
o Other party aware of mistake

 Mutual mistake:
o Both parties misunderstand each other
o They are at cross-purposes

 Common mistake:
o Both parties make same mistake based on shared but false assumption
o Consensus
o Based on incorrect shared belief
o Contract void

Relevant and irrelevant mistake:

 Relevant mistake:
o Affects mistaken party’s decision to contract
 o Can negate consensus

 Irrelevant mistake:
o Doesn’t influence party’s decision
o Consensus remains

Material and non-material mistake:

 Material mistake:

o Destroys consensus

o Prevents valid contract under will theory

o May still lead to liability under reliance theory

 Elements of material mistake:

o No serious intention to contract

o Disagreement on key aspects

o Lack of awareness of agreement

 Non-material mistake:
o Doesn’t affect consensus
o Contract still valid
o Usually relates to motive or reason for contracting
o Party may still have remedies if mistake was induced by misrepresentation-
even if valid contract exists

Classification of material and non-material mistake:

 Object of contract (Error in corpore)

o Mistake about actual subject matter of contract
o E.g. buyer thinks he’s buying property A due to misleading ad- but seller
intended to sell property B (Maresky v Morkel).
o Mistake material and voided consent

 Nature of contract (Error in negotio)

o Mistake about legal nature of agreement itself
 o E.g. illiterate woman signs surety agreement thinking it's property transfer
(Khan v Naidoo).
o Can overlap with error in corpore

 Identity of contracting party (Error in persona)

o Mistake about who one is contracting with
o E.g. seller believes he’s selling to 2 people- but contract is only with 1 (Kok v
Osborne).
o Material only if identity was crucial to contract
o Mistake about identity (material) vs mistake about name/attributes (non-
material)

 Attributes of object (Error in substantia/qualitate)

o Mistake about characteristic or quality of subject matter
o Traditionally not considered material
o E.g. buyer misled about amount of afforested land on farm (Trollip v Jordaan).
o Both parties had same thing in mind- so no material error
o Spenmac v Tatrim= buyer misled into thinking unit had veto right which it no
longer did- material mistake even though it related to attribute

 Focus on whether mistake affects content of obligation (material) or just motive for
contracting (non-material)

Mistake of law vs mistake of fact:

 Uncertainty on how to treat mistake of law in contracts

 Traditional rule:
o From outside contract law
o Only mistake of fact allows recovery via condictio indebiti
o Mistake of law doesn’t qualify

 Conflicting case law:

o Kimberley Share Exchange Co v Hampson= mistake of law doesn't provide
legal defence in contract cases
o Older cases= suggest waiving right based on mistaken legal belief may not be
valid if party was unaware of right

 Modern Approach= mistake of law related to motive doesn't affect consensus-

contract remains valid
Limitations of will theory:

 No clear agreement= no contract can exist

 Party could escape liability by claiming there was no true agreement

 Any serious mistake prevents contract from being formed

 Strict application could lead to unfair outcomes:

o Party could plan mistake and later claim no agreement to avoid being bound

o Someone pretends to agree while secretly not intending to- leading to no real
agreement

 Denying contracts where dissensus isn't obvious could:

o Cause financial loss to someone relying on contract

o Undermine reliability of contractual agreements

 SA law doesn’t apply will theory strictly and unqualifiedly

Reliance-based correctives:

 Courts have switched between subjective and objective approaches to contract

liability over time

 Will theory limited by:

o Doctrine of estoppel

o Doctrine of quasi-mutual assent- direct reliance theory

 Declaration theory corrected by:

o Iustus error doctrine

o Indirect form of reliance theory

 Common ground between subjective and objective approaches= reliance

  Primary basis= subjective- real agreement

 Secondary basis= reliance- protecting reasonable reliance

Subjective approach:

 Smith v Hughes:

o 2 parties aren’t truly in agreement= no contract unless 1 party's behaviour

reasonably leads other to believe they agreed

o Someone behaves as if they agree= can be bound even if they didn't intend to
agree

 SA law adopted principle to correct situations with no real agreement

 Quasi-mutual assent= creates real contract

 Estoppel= only pretends there is contract

 Both doctrines protect reasonable expectations

 Both qualify strict will theory

 Applying either doctrine leads to same result

Doctrine of estoppel

 From English law

 Basic rule:

o 1 party makes misrepresentation

o Other party reasonably relies on it and suffers prejudice

o Misrepresenter prevented from denying false impression in court

 Effect= court treats false impression as if it were true between 2 parties

 Fawdon v Lelyveld:

o Horse lease disguised as sale

o Leaseholders used false receipt to claim ownership and sold horse

 o Court upheld fake ownership against real owner due to estoppel

 Limitations of Estoppel:

o Must prove reasonable belief, misrepresentation and prejudice

o Proving fault unclear and unsettled in law

o Estoppel only creates fictional contract

o Rights under fictional contract can’t be transferred to third parties

o Can be used in cases of dissensus- rare because quasi-mutual assent creates

real contract

Doctrine of quasi-mutual assent- direct reliance theory:

 Nature:

o Leads to actual contract

o Based on reasonable belief induced by other party that consensus existed

 Reqs:

o 1 party reasonably believes due to other party’s conduct that a contract was
agreed

o Reliance must be reasonable under circumstances

 Pieters & Co v Salomon:

o Plaintiffs mistakenly thought they owed £345 but it was £490

o Court held plaintiffs liable for full amount

o Acted in way reasonably leading defendant to believe they agreed to pay it

 Hodgson Bros v South African Railways:

o Defendant caused plaintiffs to reasonably believe sale for £500 was agreed

o Court held defendant bound by induced belief

  Ridon v Van der Spuy and Partners:

o Attorneys' firm gave written undertaking to pay

o Plaintiff relied reasonably on it

o Court upheld firm’s liability despite internal instructions

Elements:

 Inducement= contract denier must induce belief that agreement exists

 Reasonableness= contract asserter’s reliance must be reasonable.

 Reasonable person would suspect mistake= reliance won't be reasonable unless

clarified

 Burden of proof:

o Contract asserter must prove= existence of agreement + reasonable reliance

on consensus

o Contract denier must rebut by showing no reasonable belief in agreement

was possible

 Special notes:

o Signing document creates impression of agreement- binding signer

o Document contains unusual terms= proposer must point them out

o Reliance on silent acceptance may not be reasonable

Objective approach:

 Grounds contractual liability purely on external/objective declarations of will

 Inner will or actual intention of parties irrelevant

 Courts look at outward conduct to determine agreement

 Contract can be imposed even if neither party intended it- as long as declarations
appear to agree objectively

 Role of iustus error doctrine:

 o Qualifies/softens strict objective approach

o Protects party from being bound by genuine, reasonable mistake regarding

consensus

o Prevents unfair imposition of unintended contracts based purely on external

appearances

South African Railways & Harbours v National Bank:

 Courts focus on external actions- not internal thoughts

 Actions show apparent agreement= law assumes contract exists- unless fraud

 Reason= practical need to infer intention from outward conduct

National & Overseas Distributors v Potato Board:

 Facts:

o Respondent mistakenly accepted wrong tender due to admin error

o Letter of acceptance sent to wrong party

o Respondent tried to argue no contract existed due to mistake

 Court’s ruling:

o Court upheld that contract existed based on outward acceptance

o Mistake was irrelevant= no reasonable basis for it was pleaded

o Respondent bound by actions of its manager

 Impact:

o Case criticized for strict application of declaration theory

o Objective approach upheld by SCA.

Iustus error doctrine:

 Origin and purpose:

 o Originated from text dealing with restitutio in integrum based on reasonable
error
o Courts adapted it to mistakes in contracts
o corrective to prevent unfair binding due to mistakes

 Principles:

o Someone appears to agree to contract but made material and reasonable

mistake= may not be bound

o Contract asserter= must show objective agreement

o Contract denier= must prove mistake was material and reasonable

o Proven= contract void ab initio

o Not proven= contract binding

 Misrepresentation by te contract asserter:

o Positive misrepresentation= makes mistake reasonable

o Negative misrepresentation- failure to correct known misunderstanding= can

also make mistake reasonable

o Duty to speak arises when= party knows other is mistaken or prior conduct
created false impression

o Silence= misrepresentation if there is legal duty to correct misunderstanding

 No fault or negligence by contract denier:

o denier acted reasonably and without negligence= mistake may be excusable
o conduct reasonably led other party to believe in agreement= liability may still
arise
o Fault weighs against excusability but isn’t decisive- context matters

 No reasonable reliance by contract asserter:

o Asserter’s reliance on apparent agreement unreasonable or absent= mistake

is iustus

o Recent law emphasizes reliance theory- whether reasonable reliance

occurred
Reconciliation of subjective and objective approaches:

Sonap Petroleum (SA) (Pty) Ltd (formerly known as Sonarep (SA) (Pty) Ltd) v
Pappadogianis:

 Facts:

o 20-year lease mistakenly reduced to 15 years in addendum by appellant’s

attorney

o Respondent signed without objecting

o Respondent later claimed he thought appellant intended change

 Lower court decision:

o Found for respondent

o Held appellant's mistake wasn’t iustus (justifiable) because it was their own
fault

 Appeal:

o Classified mistake as unilateral- only 1 party mistaken

o Confirmed general contract law focuses on external expressions- not internal

intentions

o In cases of dissensus reliance theory used to determine if contract exists

 Reliance theory and iustus error:

o Iustus error= adaptation of reliance theory

o Threefold test:

1. Was there misrepresentation of intention?

2. Who made misrepresentation?

3. Was other party misled actually and reasonably?

o 1 party suspects mistake= must inquire before accepting

 Court’s finding:
 o Respondent knew or should have known of appellant’s mistake

o Respondent had duty to inquire- failed to do so

o No valid consent

o Addendum was declared void= lease remained 20 years

 Impact of decision:

o Sonap reliance test became key principle for dealing with mistakes and
dissensus

o Reliance theory is now main approach

o Fault isn’t required to apply reliance test

Slip Knot Investments 777 (Pty) Ltd v Du Toit:

 Facts:

o Respondent signed suretyship document included in trust docs

o Claimed he signed under mistake caused by third party and didn’t intend to
be personally liable

 Court's reasoning :

o Party misleads another to believe they are bound= can’t escape liability

o No misrepresentation by appellant

o Mistake caused by third party

 Application of reliance theory:

o Did mistaken party lead other party reasonably to believe he intended to be

bound?

o Respondent by signing led appellant to reasonably believe he accepted terms

o Bound by contract despite third party’s fraud

o As a trustee respondent should’ve been aware of his duties and nature of

docs
  Key principle established:

o Material mistake excusable only if mistaken party didn’t induce other party’s
reasonable belief in agreement

o Misrepresentation usually triggers reliance or excuse

o Third party causes mistake= causally irrelevant- no defence based on direct or

indirect reliance

Common mistake:

 Definition:

o Both parties make same mistake about present or past fact

o No dissensus

o Both parties intend to contract and agree completely

 Effect:

o Contract void if common mistake relates to fundamental fact

o Both parties wrongly assumed same crucial fact to be true

 Dickinson Motors v Oberholzer:

o Both parties mistakenly believed they were contracting over same car.

o Assumption wrong= contract void

o Plaintiff could reclaim the payment

 Implied term theory:

o Parties implicitly agreed that contract would exist only if assumed fact was
true

o Fact untrue= no binding contract

 Important condition:
 o Mistaken assumption must have been elevated to term of contract

o Mistake only error in motive and not term= contract valid

 Court’s view:

o Mistake must be vital to transaction

o Meaning neither party would have contracted if they had known truth

Rectification:

 Definition:

o Fixes written doc that doesn’t accurately reflect parties' common intention

o No actual dissensus

o Mistake is in doc- not in agreement

 When it happens:

o Parties may correct mistake themselves

o Parties can't agree= 1 party can ask court to rectify doc

 Legal basis:

o Based on subjective approach

o True intention of parties matters

 When rectification is allowed:

o Where doc doesn’t reflect common intention

o Even if mistake is caused by fraud by 1 party

o Proof of prior agreement enough

 Examples:

o Mouton v Hanekom= rectification allowed even though full agreement wasn’t

originally written down
 o Milner Street Properties v Eckstein Properties= rectification allowed to adjust
contract for VAT exemption after statutory amendment parties didn’t know
about

 Court's allow rectification to avoid harsh, unintended consequences from recording

errors

 Limits:

o Writing required for contract to exist and doc doesn’t comply with
formalities= rectification not allowed

o Doc appears to meet formalities= rectification can be granted