Part C: Factors affecting consensus
Misrepresentation
Misrepresentation: common law
In common law, misrepresentation may render a contract voidable.
- Common law will apply (and not the CPA) when the contract is between a
supplier who does not sell, lease or offer the particular services in the ordinary
course of business and/or the consumer is a juristic person with a net asset
value or annual turnover in excess of R2m.
- A voidable contract is valid. The party who has been wronged has an election,
either to cancel or abide by the contract. If the party chooses to cancel, the
contract does not become void, instead it is cancelled and both parties
make restitution. This means there is no unjustified enrichment claim.
Misrepresentation: a false statement of fact made by one person to another, with the
intention of causing the other party to enter a contract, and which does not actually
cause him to do so. This is made before the contract is entered (during negotiations)
Jane wants to sell her car to Karin. She knows that Karin would rather buy a newer
model than an older one, so during the negotiations/ before the contract is entered
into, Jane lies and tells Karin that the car is a 2015 model when actually it is a 2012
model.
Different types of misrepresentation:
- Fraudulent misrepresentation: Where the person making the statement knows
it is false or that it may be false or has no belief in its truth. Example above.
- Negligent misrepresentation: The person believes in the truth of what he is
saying, but he has been careless, he has not checked the facts to the extent
that a reasonable person would have and the information he has given is
incorrect. Jane wants to sell her car to Karin. Jane does not know a lot about
cars, and she thinks it has a two-litre engine, so she tells Karin that. But it is
not a two-litre engine. Jane should have checked her facts; she was careless
and negligent.
- Innocent misrepresentation: this is made without fraud or negligence.
Forms of misrepresentation:
- Verbal/written misrepresentation: this is obvious, in example above they were
all verbal misrepresentation.
- Misrepresentation by conduct:
- Misrepresentation by silence (non-disclosure): the general rule in SA law is
there is no duty to speak or disclose information. But there are a few
exceptions i.e., when there is duty to speak and if you don’t then your silence
is a misrepresentation by silence.
, Where the person has told a half truth and creates a misleading
impression. During the sale negotiations the seller (Eldman) of a farm
told the buyer (Marias) that he had pumped a borehole on the farm for
three years without its failing. Eldman failed to mention that this had
taken place 14 years ago and that the depth of the borehole had since
been reduced from 125 to 104 feet, which means it was now less likely
to produce water.
Where a person has, by his conduct, prevented the other party from
discovering the true situation. Furter sold a farm to Dibley without
disclosing that there was a graveyard next to the farmhouse. In fact,
before the sale, Furter had ploughed over the graveyard and
obliterated all traces of it and planted a beautiful garden where the
tombstones had been!
Where the person has by an earlier statement or conduct, given the
other party a certain impression and circumstance have changed. Mr X
was interested in buying a flat from Mr Y. The apartment block had no
security at all i.e., no perimeter fencing, no electric fence or main door
security access. During the sale negotiations and before the contract
was concluded (entered), Y told X that all the owners in the block had
agreed to install security. After the contract of sale between X and Y
was signed, but before X took occupation of the flat, and before X
became the owner of the flat, the other owners in the block changed
their decision and decided not to proceed with the security. Y forgot to
mention this to X.
Where the facts are in the exclusive knowledge of one party. A person
wants to buy a flat in Sea Point because he wants the sea view. The
seller says nothing during the negotiations with the buyer before the
contract is entered into about a big development that is going to be
built that will obscure the view. But the seller knows the development is
going to happen.
Common law rule that a seller must disclose latent defects (that are not
obvious).
Basic requirements for misrepresentation to render a contract voidable.
Not every misrepresentation renders a contract voidable. For the misrepresentation
to render it voidable, ALL the following requirements must be met:
1) The misrepresentation was a false statement of fact.
The misrepresentation must be a statement or non-disclosure of fact.
Generally, opinions and puffs will not render the contract voidable.
A want to sell B his shares in a company. He tells B that in his opinion, the
price is fair. This turns out to be wrong. All A is doing here is giving his
opinion. He has not given any facts, like produced the financials, or auditor’s
valuations. So A’s opinion does not render the contract voidable. The contract
is valid, B cannot get out of it, even if it turns out that the price was too high.
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