Improperly obtained consensus

Question 1

What is the effect of improperly obtained consensus?

Answer 1

Where parties enter into an agreement on the strength of a misrepresentation, or as a result of duress, the agreement is real and valid. There is no lack of consensus. However, since the consent is vitiated (because it has been obtained by improper means), the contract is voidable at the instance of the innocent party, who may have it set aside by court order - whereby each party must restore to the other any benefit that they may have received under the contract.

Question 2

What is the restitutio in integrum?What is a warranty?

Answer 2

This is rescission coupled with restitution. A court order is not necessary, but is suggested for confirmation purposes. The innocent party is faced with an election to either rescind the contract, or uphold it. If upheld, the parties are still bound by the contract. If rescinded, upon receiving notice of rescission, both parties must restore any performance that has been made in terms of the contract. If the object of the contract cannot be restored, because it is the result of the misrepresentation (e.g. rotten eggs), then the eggs may still be returned and the money paid reclaimed.

Question 3

What is the purpose/position of delictual damages?

Answer 3

The conduct of the improper party may be liable in delict. In this case, the innocent party may recover damages for any financial loss suffered as a result of the contract, irrespective of whether they elect to affirm or rescind the contract. This usually puts the innocent party in the position they were prior to contracting.

Question 4

Define a misrepresentation

Answer 4

This is a form of misstatement - a false statement of past or present fact made by one party to another, before or at the time of contract, concerning some matter or circumstance relating to it. This can be express or implied.

Question 5

What is a warranty?

Answer 5

E.g. the car is a 1985 model. Either this a warranty that is a term of the contract (i.e. this is a 1985 model), or it is a representation made to induce the buyer to buy the car (i.e. a selling point). One must look at the intention of the parties. It is suggested that whenever a claim is made, the seller should warrant it i.e. put it in the contract so as to reinforce its truth.

Question 6

What is an opinion and a statement of law?

Answer 6

An opinion that proves to be incorrect cannot amount to a misrepresentation. Similarly, a statement of law is considered to be one of opinion, not fact, and is therefore not actionable.

Question 7

What is puffery?

Answer 7

Mere exaggeration of the benefits and value of ones product/services is not worthy of being a misrepresentation. It is mere salesmanship. However, where such puffery is intermingled with facts and details, it may be considered to be misrepresentation.

Question 8

What are dicta et promissa?

Answer 8

A mistake made which goes beyond mere praise and commendation (excluding puffery). Such a representation bears on the quality of the merx sold. If such a statement turns out to be unfounded, the purchaser may cancel the contract or sue for a reduction of the purchase price (aedilitian remedies).

Question 9

What was held in Phame Ltd v Paizes?

Answer 9

A purchaser who has been induced to contract by a seller’s unfounded positive misrepresentation as to the quality of the merx may invoke the aedilitian remedies. If they would not have contracted, they may cancel the contract. Or, they may abide by the contract and claim a reduction of the purchase price. Damages for consequential loss may not be claimed, unless the seller is a manufacturer who publicly professes to have expert knowledge in relation to the goods sold.

Question 10

What are the requirements for the restitutio in integrum?

Answer 10

1) misrepresentation by the other
2) inducement
3) intention to induce
4) materiality

Question 11

When may one recover damages?

Answer 11

Irrespective of cancellation or abiding by the contract, the representee may recover damages in respect of patrimonial loss caused by the misrepresentation.

Question 12

What is a fraudulent misrepresentation?

Answer 12

One made knowingly, or without belief in its truth, or recklessly, careless as to whether it should prove to be true or false. It must be a deliberate deception that causes another financial harm. Elements:

1. a representation
2. which is, to the knowledge of the representor, false;
3. which the representor intended the representee to act upon;
4. which induced the representee to act; and
5. that the representee suffered damage as a result.

Intention need not be dolus directus. The gullibility of the representee is not a defence. Rescission usually covers money paid by way of the contract. Damages are usually limited to other wasted costs.

Question 13

What is the relevance of dolus dans?

Answer 13

Of relevance is whether the representee would not have entered into the contract but for the misrepresentation (dolus dans). If they would not have, they must be put in the financial position that they would have occupied had they not contracted. If the purchaser made a profit, they cannot recover loss for ‘swings’ such as rewiring, because such costs are covered in the gains that they made.

Question 14

What is the role of dolus incidens?

Answer 14

If the effect of fraud was merely to influence the terms of the contract which would in any event have been concluded, one must measure the extent to which the representation inflated the representee’s performance under the contract. The loss is the difference between what they actually paid and the price that they would have paid but for the misrepresentation (dolus incidens). The swings and roundabouts principle is inapplicable.

Question 15

How do courts determine what would have been paid but for the fraudulent misrepresentation?

Answer 15

It is difficult to determine what someone would have paid. So, the courts have held that the representee must merely establish the amount that they would have offered, but for the misrepresentation. Only if the representor shows that such an offer is lower than the market value of the merx, will it be necessary for the representee to prove that the lower offer would still probably have been accepted. There must be evidence as to what would have been offered (e.g. a counter offer), otherwise the price actually paid will reflect the value of the merx. Therefore, damages are calculated by subtracting the actual value from the price paid.

Question 16

What was held in Ranger v Wykerd?

Answer 16

The appellant, Mr Ranger, by written agreement purchased a property for R22 000 from the second respondent, Mrs Wykerd. All the negotiations had been done on Mrs Wykerd’s behalf by the first respondent, Mr Wykerd. The appellant was attracted to the property because of the pool and it was of considerable concern to him that the pool was found to be leaking. The cost of repairs was R1250. Mr Ranger alleged that Mr Wykerd had orally represented to him that the pool was structurally sound with the intention of inducing him into the contract. Mr Ranger alleges that the Mr Wykerd knew this statement to be false and that Mrs Wykerd knew this misrepresentation had been made prior to the conclusion of the contract. Mr Ranger further alleges that had he been aware of the presence of defects he would not have paid more than R20 750 for the property. The court a quo found all the allegations in respect of the second respondent had been proved. As to the first respondent it was found that before the sale he knew the nature and extent of the defects and that he nevertheless told the appellant the pool would be in 100% working condition. However the court absolved both respondents from the instances on the ground that the appellant had failed to prove that he suffered any patrimonial loss by reason of fraudulent misrepresentation or fraudulent concealment.

Question 17

What is a negligent misrepresentation?

Answer 17

One made honestly, but carelessly. There is no good reason why the general action for negligent misstatements should not be applied in the pre-contractual sphere to a negligent misrepresentation inducing a contract [Bayer]. Measured in the same manner as damages for fraud.

Question 18

What is an innocent misrepresentation?

Answer 18

One made without fraud or negligence i.e. without fault. This lacks the requirements for Acquilian liability. Why should the representor suffer for making an innocent misrepresentation? As it stands, one cannot claim damages for an innocent misrepresentation. However, one may use the aedilitian remedies to claim a reduction of the purchase price.

Question 19

What is a misrepresentation by silence, and when will the law impose a duty to speak?

Answer 19

Failure to disclose a material fact, when under a legal duty to do so, constitutes a misrepresentation by silence. The law will impose a duty to speak:

1. where the contract is one of insurance, agency, partnership or engagement
2. where there is a fiduciary relationship between the parties
3. where a statute imposes a duty of disclosure
4. where a seller has knowledge of a latent defect in the thing they are selling
5. where an applicant for credit is an unrehabilitated insolvent
6. where a party’s prior conduct or statement renders silence misleading

Question 20

What was held in ABSA Bank v Fouche?

Answer 20

A party is expected to speak when the information he has to impart falls within his exclusive knowledge (so that in a practical business sense the other party has him as his only source) and the information, moreover, is such that the right to have it communicated to him would be mutually recognised by honest men in the circumstances.

Question 21

What is duress?

Answer 21

This is improper pressure that amounts to intimidation. Consensus obtained under duress still gives rise to a valid contract. However, the contract is voidable at the option of the threatened party. The threat must be unlawful and the effective cause of the contract. Elements:

1. actual violence or reasonable fear
2. the fear must be caused by the threat of some considerable evil to the party or their family
3. it must be the threat of an imminent or inevitable evil
4. the threat or intimidation must be contra bonos mores
5. the moral pressure used must have caused damage

Question 22

What was held in BOE Bank v Van Zyl?

Answer 22

Van Zyl was forced to undertake a suretyship for K. The bank came calling, and Van Zyl claimed that his consent had not been properly obtained as there had been duress. The contract was therefore set aside.

Question 23

What is undue influence?

Answer 23

A form of improper pressure brought to bear upon a person in order to induce them to enter into a contract. The pressure is more subtle than duress, and often involves a close relationship between the parties.

A party who seeks to set aside a contract on the ground of undue influence must establish that:

1. the other party obtained influence over them
2. this influence weakened their powers of resistance and rendered their will compliant
3. the other party used this influence in an unscrupulous manner to persuade them to agree to a transaction that was prejudicial, and which they would not have concluded with normal freedom of will

If undue influence is exerted by a third party, the victim must prove that the other contracting party was aware that such undue influence was being exercised.

Question 24

What is commercial bribery?

Answer 24

A reward paid or promised by one party, the briber, to another, the agent, who is able to exert influence over a third party, the principal, with the intention that the agent should induce the principal, without the latter’s knowledge and for the direct/indirect benefit of the briber, to enter into or maintain or alter a contractual relationship with the briber, his principal, associate or subordinate.

Question 25

What is an abuse of circumstances?

Answer 25

Is the situation where A unconscionably exploits an emergency situation in which B finds themself to secure B’s consent to a prejudicial contract, the emergency not having been caused by A. In such a case, the agreement is valid, but the sum to be paid by the victim must be reduced to what is reasonable.