Private Law 372 notes
Semester 1
Chapter 4: Improperly obtained consent
Rescission of an existing contract due to improperly obtained consent
INFO: Use slides and podcasts as point of departure – THEN refer to the TB
So far: we’ve tried to figure out if we have consent/not and if we did not have consent – can we still have
liability.
But now: we are going to deal with situations were there is consent – but there’s something wrong with it (law
still thinks one might have to set contract aside)
Situations where someone obtained consent in a way that we do not like + we would like the victim to have the
opportunity to have contract set it aside. Not all or nothing situation where we have a contract/ not. Here: we
do have a valid contract, but it is VOIDABLE
List of improper ways of obtaining consent:
* misrepresentation (4.2)
• Can sometimes cause a mistake which excludes consensus – then iustus error doctrine can apply.
• Can also only be a mistake in motive relating to reasons you entered into contract.
• If a mistake like this is caused – does not necessarily mean that the contract is void (=voidable). (We do
not like it that people use misrepresentation to induce mistake).
* duress (metus) (4.3)
• cannot use unlawful threats to obtain consent
* undue influence (4.4)
• Cannot exploit people in an improper way who are weak and vulnerable/ in a relationship of
dependence (From English Law)
* others: bribery etc (4.5)
Relationship between these improper ways to obtain consent?
Categories are not completely watertight:
Savvides v Savvides: Husband left family home and then threatened that he would only return
after his wife signed a power of an attorney which made her donate property to him. This could
be: A case of indue influence? Exploiting relationship of dependence between him and his wife?
Might also be unlawful threats. So not always clear which of these categories we are dealing with.
4.1.3 TB → Problem to determine to what extent we should have a broader category – Just
improperly obtained consent as a general ground which would render contracts voidable?
Jana Oosthuizen [19990677]
,*Some people: Group it in broader categories, we get ‘lumpers and splitters’. There is no residual
category developed yet / it is also not said that we can lump these together.
Remedies if consent is improperly obtained:
*Rescission (terminate obligations)
- Victim can further claim:
*Restitutio in integrum (return performances – you are put into earlier state you were before
improperly obtained consent was obtained. Contract must FIRST be set aside for this to happen)
*Delictual damages (negative interesse: claim an amount of money, which would put you in a position
you would have been had there been no delict – misrepresentation – could also mean had there been
no contract/ contract entered into in correct terms. Here you do not have to rescind first.)
Page 190 TB Pause for reflection: Writers say that all the cases here of improperly obtained consent
should be regarded as a delict. No real reason why one should want to do that. Look at this box* But
we are not following this approach.
• If you want to claim for delict: you also have to meet the requirements for a delictual claim – ito
rescission and restitution you do not have to – simply meet the requirements which the court have set
out.
1) Misrepresentation
• Various requirements for relief – they differ according to the remedy that you may be seeking. NB to
keep in mind elements for relief are not identical - differs if you claim rescission on the one hand/
when you claim damages in delict (have to meet requirements ito law of delict) – not necessary the
same as when you rescind.
There are main/common elements of the 2 claims (there is a certain overlap)
- If there Is a question/ problem regarding misrepresentation; ask yourself what remedy Is relevant here
+ what are the various requirements? (common/ not common to the two claims e.g. fault)
- Generally (recap): Misrepresentations can have 2 effects on someone's state mind - can cause two
different types of mistake.
- If misrepresentation causes a mistake in motive --> merely voidable
- Material mistake --> VOID according to Iustus error.
- So: when you get a question where there Is misrepresentation, just ask yourself: what type of mistake
did this misrepresentation cause? Of fundamental Importance.
- Fundamental Importance:
• Where a misrepresentation is used to case a mistake in motive, the contract is voidable.
• If the misrepresentation causes a material mistake, then the contract could be void under the iustus
error doctrine.
• Can be fraudulent, negligent or innocent.
Once you found out If It Is a material mistake (relates to parties/nature/object of contract) - Iustus
error route (principles set out In section 3).
If merely causes mistake In motive - now In terrain of misrepresentation as a ground for rescinding
contract, which Is voidable - but not void.
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,Figure this out – think of examples where the distinction would be relevant. (caselaw dealt with later will also
help).
Elements for obtaining relief based on misrepresentation:
*Remember that these requirements differ depending on type of remedy that you are seeking – whether you
want to rescind/ be in position where you would rather say I would have damages.
Situations where there is consent, but the law does not like this.
1. Representation or Conduct
- Few issues that require some attention
- Has to relate to some statement of fact relating to the past/ present.
- Should on the other hand not be an opinion, opinion of the future.
- Factual v Opinion Logic: opinions are Inherently things you can't rely on too strongly. E.g. "gold price
will rise" - If they happen to be wrong, can't say afterwards It was a misrepresentation.
- Sometimes boundaries are not set that straight. Described In prescribed case:
Feinstein v Niggli
- Sale of a business (shares in a restaurant CT). After sale concluded, realised things are not going well -
then decided to rescind/ cancel contract based on what they regarded as fraudulent representations
by seller. In return for shares (worth nothing at that time) wanted their money back. Seller wanted
them to still pay money due.
- What was the basis here Ito misrepresentation? Remedy they are seeking: cancel/rescind contract +
restitution (their money back).
- 1st question: Is there representation? Court did not have any difficulty with that. 694-695
- Clear - 2 representations made:
1) That restaurant is making a substantial profitable
2) NB to purchaser that turnover would be at a certain level - that would enable them to also afford
their living expenses
Representations both wrong.
Seller stated that what we are dealing with here are matters of opinion. They are not capable
of founding claims for rescission based on misrepresentation.
(694-696 of judgment court focuses on distinction of categories).
Court said we must be careful here: Opinions of the future are traditionally not actionable, but
sometimes If you express an opinion there could be some form of statement of the present.
So, statements made by Feinstein - underlying has to have some sort of factual basis/ based
on past experiences based on the profitability of a restaurant. (Thus distinction Is not as water
tight as one would like It to be)
Question: Is this distinction absolutely necessary? Bc In both Instances you can ultimately
establish that someone has In fact been disappointed If these expressions are untrue.
➔ Flag a separate requirement - MATERIALITY? Isn't this rather a roundabout way of determining
whether the req have been met that the misrep has to be material?
➔ 1st part of case (relevant in this context: What there has been said about the difference between a
statement and opinion/ facts - look at It In a bit more detail: Consider English Law caselaw
references. Famous statement by a judge: "state of a man's mind Is as much fact as a state of his
digestion."
-
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,Puffery → 4.2.1.3 Difference between sales talk. Don’t constitute actual misrepresentation.
What is the type of conduct that constitutes misrepresentation?
Issue of difference between representations by omissions (silence) as opposed to commissio (positive action)
• Representations need not always be expressed/ or Implied. If you think back at Feinstein: some of
these representations were also by Implication - but were representations nonetheless.
Cicero example: starving people on an island who await some form of relief – ship appears over horizon, captain
sells them all sort of supplies tremendously inflated prices. He says nothing about fleet that was on it’s way to
save the people. Did he by saying nothing make a representation (is it the sort of representation that could give
these people a claim).
Basic rule: you can have representation by omission IF there was a duty to speak.
When is there a duty to speak? In delict – can say it’s a question of WF. But if not dealing with delict, must find
another principle e.g. good faith.
Practical – Identifying specific categories where this duty will arise. TB deals with in 4.2.4 (look at this)
Historically most prominent:
➔ Contracts involving some form of fiduciary relationship -
→ Contracts governed by utmost good faith --> uberrimae fidei
- examples of where there Is a duty to diclose.
- classic example of Insurance/ COS (must disclose latent defects) : must know risks etc
Modern examples: attorneys and clients also have these relationships.
Is there some sort of general principle at play here / that could help us e.g. advise client?
Some support in our law: When does duty of speech arise? Will arise if there is involuntary reliance on the
purchaser to expect of the seller to disclose. In example of latent defect.
• What does involuntary reliance entail?
National Stevedores v MV Afris Pioneer
Misrepresentation by omission/silence
Facts
• MVA contracted with NS to operate a crane on MVA. Vessel with cranes attached to them, something
went wrong when NS employee operated crane. NS agreed to pay for damage, and indeed paid R300 000.
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, When a merchant vessel off loads cargo it makes use of cranes; the operation of these cranes is
outsourced to service providers, in this case the contract was concluded with NS.
• During the process the crane is damaged by a NS employee and NS agreed to compensate for the damage
to the crane (repairs).
• Owner of ship knew that a previous ship had had the same problems with a similar crane – technical
problem/defect with crane that caused damage (no necessarily the fault of employee operator), but did
not disclose this fact.
• NS wants to set aside the contract (rescind) on the basis of misrepresentation (they agreed to pay as they
were persuaded by the defendant that the employee had negligently caused the damage; had NS been
aware they would not have agreed to pay) and reclaim payment.
Issues
To what extent does it matter whether or not the failure to speak was negligent, or intentional or neither?
When is there a duty to speak? To what extent is it important that the mistake was material? Is there a general
principle that a duty to disclose can exist?
Court:
Basic principles
• The obligations to make in a pre-contractual setting will arise only if there is a duty to disclose. The duty
arises in certain specific circumstances.
• Contracts which are termed uberrimae fidei
o Established situation where it is accepted that there is a duty to disclose.
o These are contracts governed by the utmost good faith (e.g. insurance contract).
• Cases which refer to involuntary reliance by one party on the other for information material to making
his decision to contract or not. He obligation to disclose certain latent defects in the merx in the law of
sale is one illustration of parties’ involuntary reliance on the other to disclose material information.
• The non-disclosure must in the circumstances have been material (a reasonable person in the position
of the contracting party would not have concluded the contract if he had known the facts).
• A person who knowingly withholds information which he is under a duty to disclose is said to be
fraudulent and his concealment or silence is designed to induce the other to conclude the contract.
• It is now established by our authorities that a non-disclosure can occur in circumstances where a person
is negligent rather than fraudulent.
• To establish whether negligence is present, the court will have to apply the classic objective standard of the bonus
paterfamilias and ask the question whether a reasonable man would have made the disclosure.
Application
• Applicant relied on a negligent disclosure.
• A reasonable man in the position of the defendant would not have exchanged this information and
therefore there is no legal duty for disclosure.
• Mistake is not material
• Therefore application is dismissed.
- Can you now in these cases say that there was a misrepresentation by omission?
- When do we have non-disclosure (court discusses this) and then get to the point where the test Is
was there an Involuntary reliance?
→ Millner: Tried to refine this test of Involuntary reliance. ": “Duty to disclose exists when
there is involuntary reliance of the one party on the frank disclosure of certain facts
necessarily lying within the exclusive knowledge of the other such that, in fair dealing,
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, the former’s right to have such information communicated to him would be mutually
recognised by honest men in the circumstances.”
→ Whether there is In a particular situation that special relationship of dependence and
trust - must rely solely on judicial Interpretation of social norms and standards.
Cicero: was there voluntary reliance/ special relationship/ duty to disclose.
Another issue – (will look at fault req later) look at how court deals with the other requirement of
negligence and fault. Court said in this case it was actually necessary to prove fault. Ask yourself if
people rescind contracts, why must there be a requirement of fault? It was not a delictual damage
that was the remedy sought here.
Last issue – Whether conduct could also be that of 3rd parties?
- Could you get relief If misrepresentation was made by 3rd?
- Test: whether the defendant Is responsible for this third party
- Davidson v Bona Fide
Seller's estate agent was held responsible (structural ground on which house was built) relating to
condition of property. Seller was responsible for actions of Its agent.
Also dealt with this in: Allen v Sixteen Sterling Investments case (3.1): estate agent made It look as If
house was closer to the sea than actual subject-matter. Seller was also responsible, but difference was
that misrepresentation did not cause mistake in motive - but a material mistake whichh was
reasonable --> IUSTUS ERROR (difference in misrepresentation causing different mistakes: material and
motive NB) thus made the contract Itself VOID.
Karabus Motors (cf Saambou v Friedman 999-1000)
At end of Saambou case refer to Karabus: Defendant was not responsible for the conduct of third
party – therefore the contract was enforceable.
• Contrast Davidson with the Karabus case.
2. Material (if seeking rescission)
- Misrepresentation you are relying on In order to seek relief when this misrepresentation caused a
mistake In motive that It must be MATERIAL.
- This requirement most certainly set If you're seeking the remedy of rescission
- Not that clear If It Is also required If you seek to claim damages.
- What does materiality mean? (meaning unclear)
* Most clear: objective test - If a reasonable person would have been Influenced by this
misrepresentation.
* Essentially means: It requires a certain minimum standard of behavior when someone Is making a
representation to you.
*This Issue was also relevant In context of NS v MVA - court briefly considered (p99-100) the Issue of
materiality - MVA failed to establish that this requirement had In fact been met. Could not Indicate that
a reasonable person would have acted In the way that they did.
*Idea in the end: You must display a certain degree of reasonableness when faced with representation.
How far should the law go in protecting people? Difficulty arises in cases where you’re dealing with
fraud → Lourens v Genis (not prescribed), unusual case: One party was a farmer and got hold of the
services of the other party who had a son with what is called X-Ray vision (he could see the water
underground). Son told him there was water. Court dismissed this on the basis that a reasonable
person would not believe this nonsense, but one does feel for farmer? Because it allows for the
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,fraudster to say ‘Yes, I said a lot of things that was not true, but they just should not have believed
me.” → that argument not attractive.
Orville Inv. (Pty) Ltd v Sandfontein Motors (more recent case)
- Court will at least In cases where there was fraud, NOT require materiality In the sense that a
reasonable person should have been moved by representation - will simply apply a SUBJECTIVE TEST.
So the question would be: Was this particular person moved by this. (looks more like causation)
Sometimes when courts refer to materiality - they seem to regard it as requiring that the
representation must to relate to some sort of material fact/ had to go to the root of the contract.
® What is going on here?
The focus is not what the victim should have done/ how the victim should have reacted, It's on the
actual Importance of the term Itself - thus a different Interpretation (a bit messy)
Most of the time there Is this reasonable person requirement, does not apply n case of fraud.
3.Causation/ Inducement
- The representation had to cause the loss/ contract which ultimately ended up being the loss-making event
- What does It entail?
= Can be at least defined in 'but for' causality (like in Delict).
= Test would then be: Would the contract have been concluded on those terms had It not been for the
representation.
Feinstein v Niggli: Court considered whether the representation contributed to the decision of the
buyers to buy the restaurant. Found – if it was not for this representations of the profitability, they
would not have bought the restaurant (there is this idea of ‘but for causation’).
*Not clear – whether there is also this requirement for juridical causation (we’re not going to consider
this).
*Again: May be necessary to link up the idea of materiality here – difference between the causation
req + materiality req.
Difference between materiality and inducement requirements:
Materiality requirement asks: Whether a reasonable person would have acted
Here: we just asked – Did the representation cause the act itself (do not look at the act of
reasonableness).
4. Intention to Induce
* One who made the representation (wrongdoer) had to have the intention to induce
* Deals with the state of mind of the defendant.
* Must have Intended that the victim will act on the representation.
* Does not necessarily mean fraud - just means that he had to act DELIBERATELY.
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, → Feinstein v Niggli: Court refers to seller having been anxious to dispose of the business and knowing how
desperate/keen the buyers was to buy. Also limiting the information available to buyers. Thus did Intend
that the victim will act on the representation.
TB p127: With good reason asked whether this really was necessary + Whether one cannot link this to the
materiality requirement as well?
*Ask yourself --> What Is the link between the requirement that the defendant have to Intention to Induce
and the requirement that representation must be material.
5. Fault
* Crucially: required If you claim in delict (damages)
* Not generally required If you want to rescind contract
* Fault: act with Intent/ fraudulently OR you made representation negligently.
- If you cannot prove fault you cannot claim damages - based on misrepresentation being a delict.
- Don't need to prove fault If you rescind - but In MVA case: court considered fault.
Question: Should the court have done this? This was not a claim in delict?
Rationalise It In the following way If you want to understand the judgment --> Normally, you do not require
FAULT If one seeks to rescind/terminate - but If you want to do so on the basis of an OMISSION (failure to
speak where there was a duty) THEN exceptionally fault would be a requirement.
6. Damage/Harm
* When you claim in DELICT and not when you want to RESCIND.
7. Wrongfulness
* Requirement belong in Law of Delict.
* Not a requirement If you seek to rescind.
*So: We have this list of 7 elements of misrepresentation. Each time you must ask yourself this question: Is
this element required for the remedies that I'm seeking? (Either to rescind / to claim delictual damages).
4.2.2 Remedies arising from misrepresentation:
1) Contractual claim based on breach of warranty
- Based on a contractual term which we call a warranty
- Way to protect yourself ito misrepresentations in advance
- That warranty is only there if you put it in the contract, TB 4.2.1.1 (look at this)
- Chapter 16.7.4 – example of a warranty (not prescribed)
- Warranty = being liable for certain state of affairs (/they do not exist)
E.g. Person states that business has made a particular profit in previous financial year – you say: “ok
put your money where your mouth is, you have now made the representation – I want you to warrant
that” Put a term in the contract stating that the seller warrants that the turnover was a particular
amount.
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, → If this is not the case: Seller will be held liable for CONTRACTUAL damages, because of breach of
contractual term.
(Clever way to upfront protect yourself from misrepresentations)
1st prize: You put this warranty agreement in a written contract of sale.
(on LexisNexis under forms and precedents there are various precedents for commercial transactions: one of them is sale of
business agreement and clause 9 refers to warranties where there are all sorts of warranties where the seller can be held liable
for all sorts of things – for interest sake)
BUT sometimes people do not put this in the contract, and it can be argued that there was a tacit
warrantee – silently thought or agreed on/ you would think that it was agreed on in particular set of
facts.
Minister van Landbou-Tegniese Dienste v Scholtz (only NB what is said in class)
- Deals with the sale of a bull, who was supposed to be used for stud farming – but he was infertile.
- Purchaser alleged that it was warranted by the seller that the bull would be suitable for breeding/ stud
farming purposes.
- It was never an express warrantee, but court found; Tacitly such a warrantee was concluded, and had
been breached by seller.
- If we consider → Feinstein v Niggli (sale of restaurant) + Van Reenen Steel (sale of steel): In both of
these cases had the purchasers protected themselves in advance through properly drafted warrantees,
it would not had been necessary for them to seek relief (in Feinstein’s case based on misrepresentation
/ VR Steel based on common mistake) make use of contractual warrantees to avoid
misrepresentation
-
2) Rescission of the voidable contract and
3) restitutio in integrum (rii):
(HP 4.1.1, 4.2.3.1 TB)
Rescission
o Relates to the termination of the obligation
o Once a contract has been rescinded, there aren’t any obligations left to enforce – any unfulfilled
obligations simply fall away .
o How does one rescind a contract?
Unilateral act, victim has a choice: the election to rescind and waiver
One of the issues which arose in: Feinstein v Niggli 697-700
Q: If you have this right and you do not use it – do you lose it?
Seller of the business decided that it would be a good point to argue that the purchaser actually waived this
right to rescind the contract. He had the chance to rescind but did not make use of it in time. It is not so easy to
prove this to the satisfaction of the court. Court (p699-700): onus is on the seller to prove that the purchaser
had full knowledge of this right when he suposedly abandoned the use of this right. BUT it is clear from the facts
that the seller did not establish that the purchaser lost this right, merely by e.g. approaching auctioneers and
other people to sell the business etc.
(we do not really like the idea in our law to penalize merely on inaction)
Q: What exactly does RII entail?
In integrum → Try through processes of returning things put parties in their previous positions.
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, * return parties to previous position: return what was obtained or substitute
Example: A sale of a motorbike, party later rescinds contract because seller made misrepresentations. Purchaser
would have to give back the motorbike and the seller would have to return the purchase price. ‘
Not always that easy → How do you give back eggs that are rotten? OR a service? some adjustments has to
be made.
BUT it is an equitable process;
→ What do we do if the victim is unable to return what they have received?
→ Who bears risk of loss or deterioration?
(e.g. you used the bike and now it has a few km’s to the clock, value decreased/ is damaged in accident)
Go back to Feinstein v Niggli (top of p701) – court deals exactly with this problem; because here the
purchasers were not able to give back the restaurant in the condition that it was when they bought it,
became valueless. Court: Yes, this is an equitable process (it is all about who has to bear the risk).
IN OUR LAW:
- Victim not liable for deterioration/depreciation if it occurs in ordinary course of business, due to
normal use, inherent defect (bike rendered valueless due to a factory problem which cause the
accident), and is not due victim's fault → Victim can say: “Sorry, here is your motorbike back” without
bearing risk
- If it was victim’s fault → Can still get RII, BUT victim may pay some form of compensation if
deterioration etc (You caused the accident, can still give it back but pay compensation)
RII is not a perfect process/meticulous restoration not always possible
- Can’t always place the parties in exactly the same position
- Thus courts have to be pragmatic:
• Davidson v Bonafede (510-511): Deals with the sale of a house in Somerset West, sold for R38 000.
Seller’s agents made certain false representations about the house – location. Donga was filled up and
house was built on top of it, but agent was not exactly accurate about story behind the filled up donga.
Purchaser was unhappy, because it led to structural issues. Deal w/ facts in casebook.
Claimed: Repayment of the PP (R38 000) + payment of certain wasted cost associated with the
transaction, reimbursements for certain additions made to property, interest paid to the bond,
interest on the funds lost upon portion of PP.
Court: Seller was liable for the representations of the agent (Think of Allen v Sixteen Sterling).
Leave issue of no representation’s clause here (clause which would normally protect the seller
against all sort of representations). Marais J: States that there are various possible grounds for
relief - you could either claim in delicts/ RII/ claim based on action empti (remedy available in
law of sale – not going to deal with this). NB → Complete RII cannot always be ensured and
we have to be pragmatic and allow all sorts of monetary adjustments for expenses, interests
and benefits, etc.
Look at extract (511) where they refer to cases of Wood v Davis, Wolf v Solomons Trustees +
Berkemeyer v Woolf – they deal with various types of adjustments.
Examples: Buyer under a failed sale of property had to account for the use of the property/ if
seller pays certain rates + taxes – buyer would have to account for that. Cost for moving
machinery which tenant had to move under the failed lease agreement, would also have to
account. complex at times, don’t just have to give back what was received but sometimes
monetary adjustments must be made. → This in turn makes one wonder what is the
between RII and certain delictual claims (dealt w/later)
Issue: Can we claim RII?
Link between RII and Rescission:
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