Spenmac (Pty) Ltd (Formerly Bobcart (Pty) Ltd) v Tatrim CC

Spenmac (the appellant/seller) sold a sectional title unit in a multi-storey building (Park Towers) to Tatrim CC (the respondent/purchaser) for R10.5 million in October 2010. The purchaser was represented by Mr Thompson and the seller by Mr Spendley. Prior to the sale, Thompson expressed concerns about the potential sub-division of unit 2 in the sectional title scheme. Spendley represented both orally and in writing (through a brochure) that the scheme comprised only two units, and that the owner of unit 1 would have a right of veto under Rule 27 of the Scheme Rules over any future sub-division of unit 2. In fact, Spendley had in October 2007 granted approval for the sub-division of unit 2 into 110 units, and the sub-division had been registered on 2 July 2010. Spendley had forgotten about this approval and was unaware of the actual sub-division when concluding the sale. After signing the sale agreement, Thompson learned from the conveyancing attorney that unit 2 had already been sub-divided into 110 units, thereby rendering the right of veto nugatory. The purchaser sought to avoid the contract. The sale agreement contained a voetstoots clause and an exemption clause stating that the purchaser had not been induced by any representations and waived any rights arising from such representations.

• Whether the seller's innocent misrepresentation regarding the composition of the sectional title scheme and the right of veto induced a fundamental mistake vitiating consensus
• Whether the mistake was justifiable and material to the agreement
• Whether the exemption clause in the agreement of sale precluded the purchaser from relying on the misrepresentation and resulting mistake to avoid the contract
• Whether a contract vitiated by fundamental mistake induced by misrepresentation is void ab initio, including its exemption clauses

The appeal was dismissed with costs. The high court's order setting aside the agreement of sale and declaring it void for lack of consensus was upheld, as was the order that the seller pay the purchaser R788,157.89 with interest at 15% per annum a tempore morae and costs.

Where a misrepresentation, whether fraudulent or innocent, induces a fundamental mistake that precludes consensus ad idem between the parties, the resulting contract is void ab initio and the exemption or non-representation clauses contained in that contract cannot avail the representor. The entire contract, including exemption clauses, must stand or fall together - consent cannot be found to be tainted in respect of the substance of the contract but untainted in respect of exemption clauses. A party who leads another party, as a reasonable person, to believe that a declared intention represents actual intention when it does not, cannot rely on exemption clauses where the resulting mistake is material and relates to the nature of the merx. The test is whether the error precluded consensus and whether it was reasonable for the resiling party to labour under the misapprehension.

The court accepted the high court's finding that the misrepresentation was not fraudulent since Spendley had genuinely forgotten about the 2007 approval for sub-division, and noted that it was not necessary for purposes of the appeal to enquire into whether fraudulent misrepresentation had been established. The court noted that the emphasis in the law has shifted from the nature of the fault element attending the misrepresentation to the nature and quality of the consensus-vitiating error caused by the misrepresentation. The court expressed approval for the academic commentary that consent to a contract must stand or fall as a whole, and that it is impermissible to find separate untainted consent to exemption clauses when the contract itself is vitiated by lack of consensus.

This case is significant in South African contract law for clarifying that exemption clauses (including voetstoots and non-representation clauses) cannot protect a party where the contract is void ab initio due to a fundamental mistake induced by misrepresentation, regardless of whether the misrepresentation was fraudulent or innocent. The judgment affirms the principle from Allen v Sixteen Sterling Investments over the competing approach in Trollip v Jordaan. It establishes that where a misrepresentation induces a material mistake as to the nature of the merx (error in corpore), no consensus is achieved and the entire contract, including protective clauses, is vitiated. The case demonstrates the application of the Sonap Petroleum test for justus error in the context of property transactions and sectional title schemes. It provides important guidance on the protection afforded to purchasers who enter into contracts based on fundamental mistakes induced by the other party's representations, even where those representations were made innocently.