Contract law exam revision
Questions and case law
Questions on absence of consensus
The issue in the given case is obviously if there was a valid contract
between party C, the CEO of a private company and Bank J. this issue
speaks to the element of consensus between the parties. Consensus lad
idem is when the two are subjectively in agreement with the terms of the
contract. In this case there is party C who is the CEO of a private company
who is arguing that it was a mistake and unreasonable reliance as he
believes there was no meeting of the minds between him and Bank J. on
the other hand Bank J believes there was consensus between the two of
them. Thus creating conflict between the two as they are both not in
agreement.
Principles of Law
Bank J is relying on the contract and C is stating there is no contract and it
was all a mistake. In advising C , the reliance theory will be used to solve
his issue. The reliance theory was formulated in the case of Smith v
Hughes. This theory aims to deal with issue of whether there is a contract
between the two parties. The issue being focused on with the reliance
theory is consensus vs dissensus. Bank J would be the first person to bring
forth their claim because they are the party claiming that there is a
contract. Bank J must state that there is contract between the them and
Party C and this should be done by demonstrating that a Prima Facie
agreement exist. This something that looks like an agreement in the face
of it. Bank J should therefore bring forth a signed document which Is
evidence to court that there is an agreement between the two. In this
given case Bank J would be showing the documents that C signed and
bound himself as surety and co- principal debtor for any due payments.
Once Bank J has stated her side of the bargain, the onus shifts to Party C.
Party C has to prove unreasonable reliance. This enquiry has two part, the
first one being factual and the other one being legal. Bank J has
objectively shown evidence of what looks like what could be a contract
which is the written document they both signed. Party C will use the
subjective theory. In which he will wish to demonstrate a material
confusion factually on the facts between them. From the given facts the
bank did not explain the contract that Party C was getting involved in. the
bank did not explain that this was going to be a suretyship, in the mind of
Party C he just thought the bank would be offering him money on credit
terms. This can be linked to the case of Allen v Stirling Investmenets
where the plaintiff believed in his mind he was purchasing one house but
the deed of sale referred to another which he did not intend to buy.
Parties were not ad idem regarding the consequences they intended to
create. Therefore there was a mistake in terms of contract, specifically
that of contractual performance in the sense that Party C was not
informed of the type of contract he was getting into which was a
suretyship. This can also be seen in the case of Slip Knot, Mr Dutoit
alleged he did not even know he had signed a suretyship, he stated that
he did not have a clue that there was suretyship arrangements in the
bundle of documents {75 pages he had signed}, so he was simply not
aware that he could have been involved in such a contract. Thus, leading
to the extreme confusion. Linking back to the case of Party C v Bank J
what turns to happen is that the parties do know they signed a document
but there is serious confusion about a key term of the contract. From the
facts the document was under the heading “terms and conditions of a
loan”. Terms and conditions of a loan are different from a surety contract.
In addition this contract involved only two people. A surety normally
compromises of three parties being the creditor (for example the bank),
the principal debtor in this case being party c and the surety. One of the
most requirements for surety agreement is that it must be the clear
intention to the parties to enter into a suretyship and the agreement must
clearly identify the parties, the nature and amount of the principal debt as
well as the extent and period for which the surety can be held liable. This
was never highlighted in this contract. Evidence of material factual
confusion might suggest a mistake.
However, it is not so easy to state that there was a mistake because Party
C is still bound by the rule of caveat subscriptor, Party C is the CEO of a
private company and seems educated and as a CEO he is familiar with the
signing of documents, thus when he signed this document he was
supposed to ask before signing. He had to be aware of the implications
this document had. The caveat subscriptor rule states that “let the
signatory beware”. In the case of burger v central sa railways, the judge
stated that, “a person, when he signs a contract, is taken to be bound to
the ordinary meaning of the words above his signature.” In the given facts
above they can be ruled as to facts In Slip Knot v Du Toit where the SCA
applied the Burgers case and all the cases subsequent to it and he applied
the reliance theory and said, this man was not uneducated and poor, he
knew what he was doing , he understood commerce and has degrees. In
this case he signed a one page accessory suretyship contract. The terms
were very vivid and signature was there of both parties and there is no
other reasonable interpretation of his signature and the bank could rely on
it as valid suretyship agreement. He was bound to pay back 7,5 million
Rand. Similar to the facts of Party C who happens to be a CEO of a private
company he is educated and very aware of what he was getting himself
involved with and he signed, he was just careless enough not to read but
that still makes him bound therefore he is liable of paying back the bank R
100 000 and the bank J can rely on the contract as valid.
IMPROPERLY OBTAINED CONSNESUS
Layout – Identify the Issue
Define the principle of Misrepresentation – this is a form of
misstatement, whereas a misstatement is simply an assertion that
does not accord with the time facts.
It’s a false statement of past or present fact, not law or opinion,
made by one party to another before or at the time by a contract
concerning some matter or circumstance relating to it.
Can take the form of an express statement or can be implied by
conduct.
Elements of Misrepresentation: if its fraud element, mention the
(Novick Case)
1.representation of fact or serious opinion – Louren – the court to
cross check, in this case the farmer was told by someone that their
son has extra xray eyes to see water 100’s of meters under the
ground.
In this case the court said this should not be considered a
representation of fact or serious opinion (under element one). But
the courts said even if we were to assume that it was a
representation of fact.
The court stipulated, this is not a statement a statement that should
materially induce someone who is reasonable into entering into an
agreement. Even if you were to define it under ELEMENT 1.
2. Made by Words - * Scheepers case - a statement was made
about the size of property that was for sale.
There was a representation that the farm amounted to 977 unit size
but when it was actually surveyed it was actually for less and was
766 morgan.
Clearly a misrepresentation of the fact was significant.
Harvey Case: statement was made that there was nearly 6000 citrus
trees on a farm’
When in fact, they were less than 5000 ( A full statement of fact).
Trotman Case ( Representation by words) – Trotman told Edwick
that the property to be sold was of a certain size and also the seller
walked the boundaries of the property he alleged was for sell
(representation by conduct) of the size of the property to confirm
the words that had been said about its size.
In fact 2/7th of the property belonged to the municipality it was
destined to be used for the building of a public road.
Representation by words and reinforcing conduct which of course is
problematic.
Material Inducement: Scheepers & Lourens case law.
Material inducement- when the aggrieved party will have no remedy
for fraudulent misrepresentation, wont be able to prove it unless he
shows a causal link between making a misrepresentation and
inducing the other person or getting them to decide to get into the
other contract. There must be a causal link between the making of
the statement and decision by the other party, OK I want to enter
into this contract.
6th element – made by the other party to the contract.
Now if Misrepresentation is proved as a cause of action : WHAT IS
THE REMEDY?
Restitution / Rescission or CLAIM FOR DAMAGES – FOR damages, if
the representee suffered loss as a result of having been induced to
enter into the contract by the misrepresentation, they may have a
claim for damages in the following : where misrep was fraudulent
Where the misrepresentation was not fraudulent, but the
representor is unable to show that they had reasonable grounds to
believe the facts stated were true
Where the misrepresentation was not fraudulent, but the court
decides in its discetion to award damages in lieu of recission.
