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Theme 2: Formation of a Contract (KTR211) Cheat Sheet (DRAFT) by

Notes for Theme 2: Formation of a contract under Law of Contract. Consists of Offer and Acceptance, Mistake/Absence of Consensus and Improperly Obtained Consensus.

This is a draft cheat sheet. It is a work in progress and is not finished yet.

ABSENCE OF CONSENSUS - MISTAKE

MISTAKE IN A CONTRA­CTUAL SENSE
Where a contra­cting party acts while under an incorrect impression regarding some other fact that relates to or affects the contract between the parties.
Declared Intention vs. Subjective Intention
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 the 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.
MISTAKE
- Parties APPEARED to have reached an agreement. However, one/both parties have different subjective intent­ions.
CASUAL MISTAKE
-Affects the mistaken party's decision to contract.
-The party would either:
a) have not contracted at all OR
b) would have contracted on different terms
Relevant
NON-CASUAL MISTAKES
-The party would have still contracted regardless of the mistake
Irrelevant
MISTAKE IN MOTIVE
-Only affects a party's reasons for contra­cting
-Despite the mistake, there is still subjective consensus between the parties on the terms, parties and animus contra­hendi
ESSSENTIAL (MATERIAL) MISTAKE
A mistake is essential (material) if it is casual AND it leads to dissensus (a lack of subjective consensus) between the parties on any of the following aspects
a) Terms
b) Parties, or
c) Animus Contra­hendi
*Khan v Naidoo 1989 (3) SA 724 (N)
TYPES OF MISTAKES
Unilateral Mistake
Where only one party makes a casual mistake.
Effect: Dissensus (lack of consensus): VOID
Mutual Mistake
Both parties make casual mistakes, but they make different mistakes.
Effect: Dissensus: VOID
Common Mistake
Both parties make the same mistake and the mistake is casual for both of them.
Effect: Consensus based on common false suppos­ition (STILL VOID)
*Allen v Sixteen Stirling Investment (Pty) Ltd
*Shepherd v Farell's Estate Agency
MATERIAL AND NON-MA­TERIAL
Material
1) Goes to the heart of the contract
2) Completely negates consensus
3) No contract can be said to have existed
Non-Ma­terial
1) Does not exclude actual agreement
2) A valid contract comes into existence
3) The contract is voidable (resci­ndable) if consensus was reached improp­erly: by way of duress, undue influence or commercial bribery.
Material Mistake:
Parties must:
1) serious intention to contract;
2) be of one mind as to material aspects; and
3) be aware that all parties are of the same mind
If one or more of the above is lacking = MATERIAL MISTAKE
(a) Mistakes re parties to a contract
National and Overseas Distri­butors Corpor­ation (Pty) Ltd v Potato Board 1958 (2) SA 473 (A)
(b) Mistakes re material terms
Allen v Sixteen Stirling Invest­ments (Pty) Ltd
(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 therefrom is material.
Du Toit v Atkinson's Motors Bpk 1985 (2) SA 889 (A)
Non-ma­terial mistake:
- Does not affect the consensus.
Error in motive:
- Mistake regarding the reason­/motive for the mistaken party agreeing.
Mistake - The Roman System of Classi­fic­ation
(1) error in corpore: mistakes can relate to the subject matter of the contract (material)
(2) error in negotio: mistake re the true nature of the contract. *Khan v Naidoo 1989 (3) SA 724 (N). (material)
(3) error in persona: mistake re the identity of one of the parties to the contract. (sometimes material)
(4) error in substa­ntia: mistake re an attribute or charac­ter­istic of the subject matter of the contract, i.e. it does not render the contract void. (usually not regarded as a material mistake)
(5) error in motive: mistakes as to the party's reasons for entering into the contract. (not material)
Kok v Osborne 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. 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.
JUSTUS ERROR
1) material error
2) reasonable error
Allen v Sixteen Stirling Invest­ments (Pty) Ltd.
Sonap Petroleum SA (Pty) Ltd (formally known as Sonarep (SA) (Pty) Ltd) v Pappad­ogi­anis.
FACTS:
S and P entered into a finance lease. The agreement was supposed to provide for a lease of the premises for a period of 20 years, after which P would be the owner of the property. However, when S submitted the written offer to P, the period of the lease was accide­ntally given as 15 years instead of 20 years. P, fully aware of the discre­pancy, readily accepted as the 15-year lease period as it meant that he would acquire ownership of the property sooner. When S realised the mistake and tried to change the lease period to 20 years, P refused.
COURT HELD:
S was the mistaken party, since its declar­ation (the written contract of lease of 15 years) differed from its true intention (that it wanted to lease the property for 20 years). There was therefore a misrep­res­ent­ation of contra­ctual intention by S. However, P knew that S wanted to lease the property for 20 years and not 15 years. P had not honestly relied on the impression created by S signing the contract. P was 'snatching at the bargain' - even though he knew what S' true intention was, he was trying to enforce the written contract. S was not bound by the written contract because there was no reliance by P.
Rectif­ica­tion:
- sometimes, when committing negotiated terms to a written format, a failure to correctly indicate the common intention of the parties occurs. (unint­ent­ional)
- remedy for correcting mistakes in written contracts.
- generally, parties can correct themselves (by agreement) or simply perform as per the correct intention.
(1) 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
(2) 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.
(3) 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.
(4) rectif­ication is therefore not a remedy that is available where only one or some of the parties were under a misapp­reh­ension or mistaken impression
(5) 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 [2009] (3) SA 447 (SCA))
Who may apply?
A party to an incorr­ectly recorded agreement.
When can you apply (under what circum­sta­nces)?
Document does not reflect the true intentions of the parties - bona fide mistake.
What does one need to prove/­show?
Document does not reflect the common intention of the parties.
 

IMPR­OPERLY OBTAINED CONSEN­SUS

1) Duress
2) Misrep­res­ent­ation
3) Undue influence
4) Bribery of an agent
- The contract is deemed voidable at the instance of the innocent party
- Contract deemed to be valid until misrep­res­ent­ation, coercion, or undue influence is proven.
DURESS
Occurs when a party is induced to enter into the contract by compulsion (press­ure­/co­ercion)
- Improper pressure leading to intimi­dation
If one enters into a contract under duress, doing so because of fear as a result of an illegi­timate threat
- A contract obtained by improper means is voidable at the option of the threatened party
- The threatened party may set aside and claim restit­ution and damages
Elements:
Broodryk v Smuts
1) Actual violence (physi­cally occurr­ing/in progress) or reasonable fear
2) Caused by threats of some consid­erable evil to the party or his family
3) It must be a threat of an imminent or inevitable threat
4) The threat or intimi­dation must be contra bonos mores
5) The moral pressure used must have caused 'damage' (causa­tion)
Coercion
vis compulsive - coercion of the will (not physical force).
Coercion operates on the mind of the victim by forcing him/her to choose between entering the contract or suffering harm
Actual Violen­ce/­Rea­sonable fear
Threat must be suffic­iently grave to affect the mind of a reasonably steadfast person
The more unreas­onable the fear, the greater will be the reluctance of the court to accept that it actually induced the contract
Subjective factors - age, personal circum­sta­nces, etc.
Paragon Business Forms (Pty) Ltd v Du Preez
The case dealt with the scenario where a former employee had alleged that he felt that he had no option but to sign an agreement containing a restraint of trade. The threat of dismissal was not expressed. The court there believed that there was no threat of dismissal and the alleged fear by the respondent was illogical and unreas­onable
Actual Violence: X punches Y until agrees to sell his cellphone to him
Reasonable Fear: X threatens to punch Y until Y sells his cellphone to him
Threats of some Consid­erable Evil to the Party or his Family­/Object of the threat
The threat must be directed at life, bodily integrity, liberty, or property, or the immediate family
Some courts have indicated that there must be proof of protest at the time or entry into the contract to prove the involu­ntary nature of the transa­ction
If no protest, relief can still be granted if there is satisf­actory evidence to establish that the contract was concluded as a result of duress
Imminence of Harm
The threat must be imminent or inevitable
Courts have shown - if threatened harm is neither "­imm­inent or inevit­abl­e" - show that the threatened party has no reasonable or acceptable altern­ative available other that succumbing to the threat by entering the contract
imminent: about to happen
inevit­able: no way to prevent it
Unlawf­ulness of the Threat
contra bones mores
Test: the legal convic­tions of the community (BOE Bank Bpk v Van Zyl)
The threat to bring civil action is not unlawful.
Threat to institute criminal procee­dings - threat is unlawful if it is used to extort a benefit to which the creditor is not entitled or if the debtor is innocent of the alleged crime
Damage
Financial Loss.
Broodryk v Smuts
The person alleging duress must show they have become subject to obliga­tions that they would not have otherwise have incurred
Fundam­ental Duress: party would not have contracted
Incidental Duress: party would have contracted on the different terms
UNDUE INFLUENCE
A form of improper pressure brought to bear upon a person to induce him/her to enter into a contract
Pressure is more subtle here - erosion of the innocent party's ability to exercise a free and indepe­ndent judgement
A close relati­onship between parties exists, e.g., doctor­/pa­tient, attorn­ey/­client, parent­/child, religious leader­/di­sci­pline, etc. *the other party abuses the relati­onship*
Elements:
Patel v Grobbelaar*
1) The aggrieved person was subjected to influence by another
2) The influence weakened the aggrieved person's capacity to resist and rendered the aggrieved person pliable
3) The other person exploited this influence unscru­pul­ously to persuade the aggrieved person to agree to a transa­ction which was both to the aggrieved person's detriment (preju­dicial) AND was a transa­ction that would not have been concluded had the aggrieved person acted of their own free will
Onus of the party alleging undue influence is to prove it occured.