Chap 4: Improperly obtained

consensus
Consensus obtained improperly
• Consensus exists, thus contract valid, but
• Voidable
• Election of innocent party
Uphold or rescind

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 Restitutio in integrum
Rescission + restitution = rest in integrum
Action or defence
Once elected to rescind
• Notify other party
• Contract ends on receipt of notice
• Duty to restore
 GR: right to claim dependant on willingness
and ability to return what was received
 Unable to make restitution – value of the
performance made 2
 Damages
Improper conduct = delict
Irrespective of choice
actio legis Aquiliae
Delictual damages = negative interest
• position of parties if delict not committed (then
there would be no contract, i.e. position before
contract)
• Rescind: consequential losses (wasted)
• Uphold: damages, if any, incurred on the
transaction e.g. pay more than thing is worth
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 1. MISREPRESENTATION
False statement of past or present fact [not
law or opinion] made by one party to other
before or at time of contract concerning
some matter or circumstance relating to it
[p116]
Express, verbal statement; conduct; or
silence
Remedies dependant on state of mind with
which misrepresentation is made

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 Misrepresentation - types
Fraudulent
• One made without honest belief in its truth
• Knowingly; without belief; recklessly
Negligent
• Honestly but carelessly
Innocent
• Without fraud or negligence

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 Misreps & other type misstatements
Remedies differ
May overlap
1. Warranties or contractual terms
– Representation or guarantee (term of a contract)
– Test: Did parties intend contractual liability in respect of
statement (i.e. term of contract)?
Car is 1979 Mercedes Benz
– Intention - determined objectively
– Not true = breach [cancel if material + positive interest
damages
– If misrep is made prior to contract and incorporated into
contract: choice – sue for breach (contract) or
misrepresentation (delict)
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Misreps & other types misstatements...
2. Opinions, statements as to future
– Opinion or forecast: usually not misreps
– If fraudulent, can be liable
3. Statement of law
– Traditionally considered opinion & not
actionable
– But if induce party to contract based on stated
construction, held to it even if incorrect

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Misreps & other type misstatements...
4. Puffs (simplex commendatio)
– Mere singing the praises is to be expected
– Objective test: is it puffery or misrep?
– S41(1)(b) CPA:
In … the marketing of any goods the supplier must
not by words or conduct
(b) use exaggeration, innuendo or ambiguity as to
a material fact, or fail to disclose a material fact …

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Misreps & other type misstatements...

5. Dicta et promissa
– Material statement by seller to buyer during
negotiations regarding quality of res vendita
beyond mere praise
– Aedilitian actions: actio redhibitoria (cancel) &
actio quanti minoris (reduction)
– But, if incorporated into contract as term –
breach
Choice: remedies for breach or aedilitian actions

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 Misrepresentation & Mistake
Misrep will not always result in mistake
Normally error in motive does not exclude
consensus (not material)
If mistaken belief induced by misrep
resulting in contract: voidable
– Cause of action = misrepresentation
Mistake induced by misrep of material
nature – no consensus, void ab initio if
error is iustus
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 Misrepresentation & Mistake...
Can parties exclude liability for
misrepresentations in contract?
– Yes, but party can show that as a misrep
resulted in iustus error making contract void
ab initio (including exclusion clause)
Not drawing attention to such clause can establish
iustus error
– S 51(1)(g) of CPA: ‘not falsely expresses
acknowledgement that no representations or
warranties were made’

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 Remedies for misrepresentation
1. Rescission and restitution
i. Misrepresentation
Made by other party (not third)

ii. Inducement
Causal connection
Test = subjective
Would have contracted despite misrep but on more
favourable terms – rescind?
Dolus dans (but for fraud no contract) - rescission
Dolus incidence (still contract but different terms) –
damages only 12
Remedies for misrepresentation...
iii. Intention to induce
No intention, reliance upon misrep unreasonable

iv. Materiality
of such nature that it would have natural and
probable effect of inducing reasonable person to
enter into contract
Material: effect of inducing representee and likely to
effect reasonable person

– Fault is not required (misrep can be

fraudulent, negligent or innocent) 13
2. Damages
Fraudulent misrepresentation
– Deliberate deception that causes financial harm
is a delict and actionable under actio legis
Aquiliae
– 5 elements
i. Representation
ii. representor knows is false
iii. Intend that other party must act on it
iv. Induced other party to act
v. Other party suffers damage as result

• Victim to be put in the financial position she

would have occupied had the representation not
been made 14
 Damages...
Negligent misrepresentation
– Bayer SA v Frost
Allowed action for negligent misrepresentation
Subject to all requirements for aquilian liability
being satisfied

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 Damages
Innocent misrepresentation
– No claim for consequential losses because of
reliance on innocent misrepresentation
– Made without dolus or culpa
– In case of sale actio quanti minoris may be
available (dictum et promissum)

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 Misrepresentation by silence
(non-disclosure)
Non-disclosure may induce contract
– CPA s41(1)(c): supplier must not fail to
correct apparent misapprehension by
consumer
Failure to disclose material fact when
under legal duty to do so =
misrepresentation by silence
Problem: when is silence unlawful, i.e.
when does duty exist?
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Misrepresentation by silence
(non-disclosure)
General rule: no duty to disclose info other
party does not have, even if aware that
such non-disclosure will influence decision
to contract

Exceptions...

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 Exceptions
Examples:

1. Contracts of insurance; agency; partnership;

engagement

2. Fiduciary relationship, e.g. attorney-client

3. Statute imposes duty [Co’s Act – prospectus;

CPA – “grey & reconditioned goods”]

4. Where applicant for credit is unrehabilitated

insolvent
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 Exceptions
5. Seller has knowledge of latent defect

Seller is liable for defects, including latent

defects (naturalia of contract of sale –
implied term)
Therefore if aware of latent defect, must
disclose + silence is fraud
Sellers use voetstoots// “as is” clauses to
protect against latent defects- if unaware,
[or even aware, unless with intention to
defraud]

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 Exceptions
6. Where party’s prior conduct or statement
renders silence misleading,
–Eg:
Prior conduct conceals fact that would be apparent
– Dibley v Furter – removal of gravestones
Misrep lead other party not to expect term
– Du Toit v Atkinson Motors
Where change of circumstances falsifies statement
that was true when it was made
– Cloete v Smithfield Hotel 1955 (2) SA 622 (D)
– Mayes v Noordhof 1992 (4) 233 (C)

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 Mistake

Material e.g Non-material, e.g.

Error in corpore error in motive
Error in negotio

Dissensus Consensus

Contract void
ab initio, if mistake is
reasonable & material
Contract voidable
(serious enough cause dissensus) Consensus improperly obtained
Allen v Sixteen Stirling Invest

Cause of action =Misrep

Cause of action = To rescind - must be material22
mistake = significant enough to induce
 Types of misrepresentation

Fraudulent Negligent
Innocent
(intentional)

Remedies: Remedies:
Remedies:
•Rescission •Rescission
•Rescission
•Delictual •Delictual
ddamages ddamages
 2. Duress
= improper pressure amounting to
intimidation
Contract voidable
Threat must be:
– Unlawful
– Effective cause of contract

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 Requirements for duress
1. Coercion
 Coercion of will rather than body
 By threat rather than physical force

2. Reasonableness of fear
 Need not be reasonable

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 Requirements for duress…

3. Object of threat
 Life, bodily integrity, property of person or
immediate family
 Duress of goods
Protest not required, but proof of duress

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 Requirements...
4. Imminence of harm
 Imminent or inevitable [?]
 Even if not imminent/inevitable but no
reasonable alternatives available to innocent
but to enter into contract

5.Unlawfulness
 Threat must be unlawful or contra bones mores
 Generally
threat of civil action not unlawful
threat of criminal action is unlawful
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 3. Undue influence
= improper pressure brought on person to
induce him to contract
‘insidious erosion of victim’s ability to
exercise a free and independent judgment
in the matter...’
Doctor/patient; parent/child; attorney/client
Preller v Jordaan

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 Requirements
1. Other party obtained influence over him
2. Influence weakened powers of resistance
and rendered will compliant
3. Other party used influence in
unscrupulous manner to get him to agree
to a contract that
 prejudicial to him, and
 would not have concluded of own free will

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 4. Abuse of circumstance
Similar to undue influence
A exploits emergency situation of B, but A
not responsible for situation
Common law against doctrine – i.e.
contract enforceable
English equitable doctrine of undue
influence – extends to unconscionable
bargains (unfair advantage of unequal
bargaining position)

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 5. Commercial bribery
Extel Industrial v Crown Mills
– Commercial bribery is distinct ground for
rescinding contract
– Requirements: p 143

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 General ground?
Party should not be held to contract where
consent was improperly obtained

CPA:
– S 40 unconscionable conduct
Physical force; coercion; pressure; duress;
harassment; undue influence; unfair tactics…
Unconscionable to take advantage of a consumer
because of physical, mental disability; illiteracy;
ignorance; inability to understand language, or
similar factor
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