1. Error and contractual theory

(a) Cotton ex Peerless

Sometime in the 1860s two ships sailed from Bombay to Liverpool. Both were called Peerless. The one had left Bombay in October, the other in December. Meanwhile, back in England, 125 bales of cotton "to arrive ex Peerless from Bombay" had been sold.

We do not know what the (real) reason for the purchaser's reaction was. Possibly the price had fallen below the level of 17^A pence per pound (which was the contract price) during the time between the arrival of the two ships. The court, in any event, gave judgment in his favour.¹ Again, we do not know the reasons, since none have been reported. Shortly after counsel for the defendant had risen, the court abruptly stopped him in his argument and announced its judgment. What had he said that so impressed the court? "That being so, there was no consensus ad idem, and therefore no binding contract."

Quite understandably, under these circumstances, the decision in Raffles p. Wichelhaus was taken to lend support to a subjective approach to the formation of contract. What matters is that the minds of the parties are ad idem; if that is not the case, there can be no contract. But there have also been different interpretations. Oliver Wendell Holmes, for instance, tried to "objectify" Raffles v, 'Wichelhaus and wrote:

"It is commonly said that such a contract is void, because of mutual mistake as to the subject-matter, and because therefore the parties did not consent to the same thing. But this way of putting it seems to me misleading. The law has nothing to do with the actual state of the parties' minds. In contract, as elsewhere, it must go by externals, and judge parties by their conduct....

These words remind us of what has been mentioned very briefly in the previous chapter.³ A contract, in modern analysis, is made up of two

¹ Raffles v. Wichelhaus (1864) 2 H & C 906. On the rule developed on the basis of this decision cf, in particular, William F. Young, "Equivocation in the Making of Agreements", (1964) 64 Columbia LR 619 sqq.; for a critical evaluation, see also Grant Gilmore, The Death of Contract (1974), pp. 35 sqq.

■ The Common Law. p. 309. "Even for Holmes this was an extraordinary tour de force", comments Gilmore (p. 41).

³ Supra, pp. 567 sqq.

583 declarations of will, and each of these, as the term suggests, of two elements: verba and voluntas. As a rule, will and declaration will coincide. According to Holmes, this was the case in Raffles v. Wichelhaus: the vendor meant December Peerless, and though he only said Peerless, his declaration must also be interpreted as referring to the December Peerless. The purchaser, on the other hand, intended to buy his cotton from the October Peerless, and his declaration, too, has to be seen in the light of this intention. Thus, whether we emphasize will or declaration, the result is the same: in either case there is no correspondence, and hence a contract has not been concluded.

(b) Discrepancy between inten tion and declaration

Things begin to look quite different, though, if one of the parties has declared one thing but meant another. Suppose there had been but one Peerless, and Raffles (or Wichelhaus) had referred to it by mistake, meaning quite a different ship, with quite a different name, which he thought to be the Peerless. It is obvious that both declarations correspond. If this were the deciding factor, both parties would be bound, and the purchaser would have to accept the cotton from Bombay ex Peerless.

(c) Private autonomy and protection of expectations engendered

If freedom of contract and private autonomy were our guiding principles (and they are indeed entrenched, for instance, in the German constitution^[3042]), then everybody should be able to determine his legal relationships with other people according to his own free will. This will must, of course, be free of vices and thus, for instance, the contracting party must not be labouring under a mistake. A declaration affected by mistake—in terms of "classical" contract theory—is not likely to lead to a result that is substantially fair. Or, put differently (namely in the words of the Louisiana Civil Code): The basis of contract is consensus; and "consent being the concurrence of intention in two or more persons, with regard to a matter understood by all, reciprocally communicated, and resulting in each party from a free and deliberate exercise of the will, it follows that there is no consent,... where it has been procured by—Error; Fraud; Violence; Threats".^{[3043] [3044] [3045] On the other hand, it has to be taken into account that freedom (and the exercise thereof) entails responsibility. The individual is free to determine whether he wants to enter into a contract or not. But once he decides to do so and communicates his intention to others, he engenders expectations, which the law has to protect too. This is the reason for the binding nature of a contract, from which, as we have seen,[3046] the parties cannot be allowed (and are indeed not allowed) to withdraw at will.}

(d) Will theory and declaration theory

It is obvious that we are here again^[3048] dealing with a situation where neither of these two fundamentally irreconcilable approaches can sensibly be taken to any extreme. While it may be equitable to stress the individual will and to take into account any kind of mistake, certainty of law will be most detrimentally affected. Sole emphasis on the external manifestation of that intention, in turn, will be conducive to certainty of law, but is bound to lead to harsh and inequitable results. Every developed legal system will therefore have to find some balance between the two positions. If it proceeds from what is usually dubbed the "will theory", it must make some concession to the protection of the other party's reliance, and can therefore not give effect to every type of error. In the same way, the so-called "declaration theory" can serve only as a starting point and must be modified so as to accommodate the reasonable interests of the author of the declaration.

In modern South African case law both approaches have been vying for recognition.^[3049] On the one hand, it has been held that error excludes consensus and thus prevents the formation of a contract.^[3050] But not every kind of error has this effect. It must relate to one of the essential elements of the contract. Furthermore, the will theory is tempered by the doctrine of assent by estoppel¹¹ or, as many now prefer to say, of quasi-mutual assent:¹² a person who has deliberately or negligently¹³ made a declaration which did not correctly reflect his true intention may be estopped from proving the truth and will thus be forced to proceed as if the misrepresentation had been true.¹⁴ On the other hand, there are those who agree with Wessels CJ that "[t]he law does not concern itself with the working of the minds of the parties to a contract, but with the external manifestation of their minds".¹⁵ This is an endorsement of the declaration theory, but it, in turn, is modified by the doctrine of iustus error: if a party to a contract has been labouring under a reasonable mistake, he may repudiate the contract (with the effect of in integrum restitutio).

¹ The classic text in this regard isj.C. de Wet, Estoppel by Representation in die Suid-Afrikaatue Reg (1939).

^E Cf. R.H. Christie, "The Doctrine of Quasi-Mutual Assent", 1976 Actafuridica 149 sqq.

^B But it is doubtful whether fault is always required: cf. the discussion by Tebbutt J, in Sonday v. Surrey Estate Modern Meat Market (Pty.) Ltd. 1983 (21 SA 521 (Cl: he himself answers the question in the negative. Another problem, which has not yet been authoritatively settled, is whether the party relying on estoppel must have acted to his prejudice (on which see e.g. Peri-Urban Areas Health Board v. Breet 1958 (3) SA 783 (T), which answers this question, too, essentially in the negative).

^B The most recent authoritative statements by the Appellate Division are Saambou- Nasionale Bouvereniging v. Friedman 1979 (31 SA 978 (Al: Mondorp Eiendomsagentskap (Edms.) Bpk. v. Kemp en be Beer 1979 (41 SA 74 (Al and Spes Bona Bank Ltd. V Portals Water Treatment South Africa (Pty.) Ltd. 1983 (1) SA 978 (A). Historically, this modification of the "will theory" dates back to che famous leading English case of Smith v. Hughes (1871} LR 6 QB 597, which contains the following dictum by Blackburn J (at p. 607) : "If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms." The dogmatic basis for this reception is unclear.

^B "Even, therefore, if from a philosophical standpoint the minds of the parties do not meet, yet, if by their acts their minds seem to have met, the law will, where fraud is not alleged, look to their acts and assume that their minds did meet and that they contracted in accordance with what the parties purport to accept as a record of their agreement. This is the only practical way in which courts of law can determine the terms of a contract": South African Railways & Harbours v. National Bank of South Africa Ltd. 1924 AD 704 at 716 sq. Cf. further e.g. Cotlen v. Rietfontein Engineering Works 1948 (1) SA 413 (A) at 431. For a nearly identical formulation of this proposition, see Holmes, The Common Law. p. 309 ("The law has nothing to do with the actual state of the parties' minds. In contract, as elsewhere, it must go by externals, and judge parties by their conduct"). induced by the wrongful misrepresentation of the other party. Others stress that the mistake must not have induced in that other party a reasonable belief that consensus has in fact been reached.^[3051] Closely related as they are, in actual practice all these approaches usually arrive at the same result as would have been achieved if the will theory and the doctrine of quasi-mutual assent had been applied.^{[3052] [3053] [3054]} Thus, South African law provides a good example of how two different theoretical perspectives are able to converge so as to lead to essentially the same solutions. Abstract theorizing in terms of will and declaration theory does not normally affect the direction of the law in action.

2.