The Vital Role of Consensus When Mistakes Arise.

Introduction

If you sell your car under the impression that it is a 2019 model when it is in fact a 2009 model can it be considered a mistake and what type of mistake can it be classified as? When concluding a contract a lot of mistake can happen in between, however existence of the consensus ad idem can save rectify each and every one of those mistakes. In South Africa the requirements for a valid contract are:

Capacity: parties must be able to enter into a contract,( e.g be of age/ full mental capacity to contract.)

Formalities: a contract must meet specific requirements, (e.g must be in writing and signed by both parties)

Legality: agreement must be lawful.

Possibility: each party must be able to perform their duties

Certainty: parties must be certain that the agreement can and will be enforced.

All these aspects are just as important when concluding a contract, however consensus is the most important. “Meeting of the minds” is what makes the contract valid. In the case of Khan v Naidoo (1989 (3) SA 724 (N) an unlettered party attempted to escape debts under a deed of suretyship and later claiming that they did not understand what they were signing. The appellant was ruled against by the court on the grounds of inducement. The court reasoned that this type of mistake does not influence the party’s decision to contract. The court ruled that this type of mistake does not hinder the party’s consent and that they would have signed the contract regardless.

Consensus exist when party A makes an offer (with clear terms) to party B and party B agree to that offer and its terms. If either party is under the impression that the contract includes any other terms that are not mentioned by the other party then consensus does not exist. Mistakes cannot entirely be avoided as they can happen to anyone, however there are remedies available to affected parties and they are worth looking into. This article will be discussing each and every type of mistakes that is recognized by common law.

What can be considered a mistake?

In commercial law/ Law of contract, a mistake can be classified in different ways. Legally, mistakes are categorized based on the party that made the mistake and the type of mistake done. All of those are important to understand so it is easier to identify when the contract can be void, voidable or valid.

Material Mistake:

Defined as the type of mistake that effect the root of the agreement. Material mistake deeply hinders the consensus and it simply states that parties are not contracting on the same terms.

Examples of material mistakes:

. Error in corpore: mistake based on the theme of the contract.

. Error in negotio: mistake regarding the nature of the contract.

. Error in persona: mistakes based on the identities of the parties that are contracting.

Non-Material Mistake:

Defined as the type of mistake that does not effect the purpose of the contract in any shape or form.

Examples of non- Material mistake:

. Error in subsantia: mistake focusing on the key aspects of the contract.

. Error in motive: mistake on the reason why parties are entering into a contract.

. Error iuris: mistake as to the law relating to some aspects of the transaction.

1. Unilateral mistake:

 Takes place when only one party is mistaken and the other part is weary of their mistake. (e.g party A is mistaken about party B’s intention, party B is aware that party A is mistaken but choose to remain silent, then it leads to a dissensus). In the case of Sonap Petroleum (SA) (Pty) Ltd v Pappadogani 1992 (3) SA 234 (A), the court upheld that if a party’s intention is different from the actual intention then it is defined as a unilateral mistake.

Unilateral mistake may only be rendered void when these requirements are met(Exceptions– Justus error):

• Material Mistake: the mistake must relate to what the contract is regarding and it led to error in negotio or error in corpore.
• Reasonable mistake: the mistake must be understandable and could easily happen to the next person. The court will invalidate your reasoning if your mistake is entirely your fault.
• The other party is not at fault: if you made the other party believe that you agreed to the contractual terms, you cannot claim lustus error.

Practical example:

You send a quote for 6 mining trucks, R100 000 per truck= R600 000 but you meant R1 000 000 per truck. If the clients accept the quote and is aware of the typo you are eligible to argue iustus error.

2. Mutual mistake:

When both parties are not aware of each other’s mistake. In the case of Allen v Sixteen Stirling investments (Pty) Ltd 1974 (4) SA 164 (D) In the case of Allen v Sixteen Stirling investments (Pty) Ltd 1974 (4) SA 164 (D), the court ruled a contract of sale void ab initio after a seller’s agent showed an incorrect property which led to the buyer making an error in corpore and it resulted in a dissensus.

Materiality: the core element of the contract must be hindered for the contract to be classified as void.

The reliance theory: the subjective intent and the objective appearances gets balance in South African courts.

3. Common mistake:

occurs when both parties make the same mistake. (g parties sign a contract to buy a sedan unaware that it was stolen the previous night. In the case of Van Reenen Steel (pty) Ltd v Smith NO 2002 (4) SA 264 (SCA), the South African court of appeal established that mistake made by both parties does not make the contract void. Van Reenen attempted to escape the contract after he purchased shares and a business from Smith and other respondents. Both parties were under the impression that the business was stable and it could have a lot of investments returns. They later discovered that the business’s finances were under impeccable distress and its failure was inevitable.

This article has established what a mistake is and how courts categorizes each and every single one of them. What remedies can parties take in order to solve these mistakes?

Remedies

1. Rescession: unraveling of a contract. It takes place when a mistake is taken out of proportion. Courts does this so that they can put parties back to their pre- contractual position.
2. Rectification: correcting the written contract when it does not reflect true intentions of parties.
3. Reformation: is only used when one party is mistaken and the other party is aware and fails to correct it.
4. Damages: if one party suffers a loss due to a mistake, they made be awarded damages.

Even though some mistakes cannot entirely be avoided, its vital that parties/ businesses attempt by all means to protect themselves. These are some of the steps that businesses can take:

1. Have everything in writing:

Verbal agreements are still considered valid, however they are difficult to prove.

2. Specify every material term:

Instead of just saying the brand of the car that you are selling specify on exactly what type of car it is, e.g Mercedes C63 2019 model in color red.

3. Make use of key clauses:

Signing an entire agreement clause prevents parties from claiming that you said something that is not included in the contract.

4. Act as soon as possible:

Notify the other party as soon as you spot a mistake and its very important that you do it in writing. Ratification will be seen in case of any delay.

5. Have lawyers review your contracts before signing:

A review made by a lawyer can prevent unnecessary expensive litigations.

Conclusion

To sum up this article, material mistake is the only type of mistake that courts can set aside because it interferes with consensus. The existence of consensus simply means that the contract is enforceable and remedies are available to an affected party. Absence of the consensus means that the contract never came into existence and parties are welcome to walk away if they feel like it. While the law uses doctrines such as iustus error to promote fairness, caveat subscriptor is used just as much to promote commercial certainty, and that is why its vital that parties act immediately after discovering a mistake.

Reference(S):

Cases:

Khan v Naidoo (1989 (3) SA 724 (N)

Sonap petroleum (SA) (Pty) Ltd v Pappadagani 1992 (3) SA 234 (A)

Allen v Sixteen stirling investments (Pty) Ltd 1974 (4) SA 164 (D)

Van Reenen Steel (Pty) Ltd v Smith No 2002 (4) SA 264 (SCA)

Book:

The law of contract in South Africa (3r edition) Dale Hutchson