Chapter 4 - Improperly Obtained Consenses PDF

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CHAPTER 4 IMPROPERLY OBTAINED CONSENSUS 4) INTRODUCTION There is no lack of consensus, there IS CONSENSUS because parties know with whom and on what terms they are contracting Therefore contract IS VALID provided that all the other elements are with Since consensus of the parties is (obtained improp...

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CHAPTER 4 — IMPROPERLY OBTAINED CONSENSUS

4.1) INTRODUCTION •

There is no lack of consensus, there IS CONSENSUS because parties know with whom and on what terms they are contracting

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Therefore contract IS VALID provided that all the other elements are present/complied with

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Since consensus of the parties is vitiated/flawed (obtained by improper means) contract is VOIDABLE

4.1.1) RESTITUTIO IN INTEGRUM •

Remedy of rescission with restitution is known as restitutio in integrum

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Remedy allows innocent party to cancel or rescind the agreement THEREFORE parties give back what you received/performed

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Don’t need to go to court to get a court order o

When right to rescind is disputed best to get a court order confirming cancellation

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Remedy is available as an action and defence aimed at restoring parties to their previous position before entering into the contract

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Remedy is used as in the case of breach of contract

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The innocent part can either rescind the contract OR uphold it Once this decision is communicated to the other party it is final and irreversible without the other party’s consent ▪

If upheld the innocent party ALSO remains bound by all the contractual terms

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If rescinded the contract comes to an end on notification to other party of this decision and duty to restore any performance that has been made in terms of the contract

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General Rule is that the innocent party’s right to claim restitutio in integrum depends on his or her willingness and ability to return what he/she received under the contract BUT in cases of rescission for breach the court will relax this if it is interest of justice and equity

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If the other party cannot make restitution the innocent party is entitled to claim the value of performance he/ she made

4.1.2) DELICTUAL DAMAGES •

Conduct of the party who induced the contract by improper means will constitute delict

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Innocent party may recover damages due to any financial loss he/she has suffered as a result of delict irrespective whether he/she decides to affirm or rescind the contract

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Damages are delictual in character and therefore governed by the principles applicable to the actiolegisAquiliae

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The aim is to place the innocent party in the financial position he/she would have been in if the delict had not occurred In other words: the position prior to contracting

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If the innocent party, despite restitution, is still worse off as a result of having concluded the contract, he or she may demand compensation to restore his earlier position fully

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If innocent party chooses not to rescind the contract he/she incurred on the transaction

his/her damages include the loss(if any) that

4.1.3) GENERAL GROUND FOR RESCISSION Where originally a contract could only be set aside on the grounds of dolus and metus, in common day law, fraud has also been extended to include non-fraudulent misrepresentation and undue influence. A forth ground has also been added, namely that of commercial bribery of an agent. • The reason for setting a contract aside usually lies in the defective will of the latter party • It is held that no person should be held bound to a contract to which his or her consent was improperly obtained. 4.2) MISREPRESENTATION •

Known as a false statement/ misstatement

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A false statement of past and present fact, not law or opinion, made by one party to another before or at the time of the contract concerning some matter or circumstance relation to it

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Usually a form of expression, verbal statement but can also be implied by conduct

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Where there is a duty to speak

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Intention helps determine the type of misrepresentation which tells us which remedies are avaliable

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Misrepresentations are classified as being fraudulent, negligent or innocent

silence may also constitute misrepresentation

Fraudulent misrepresentation: -

is one made: o

knowingly, or

o

without belief in its truth, or

o

recklessly, careless whether it should prove to be true or false

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it is one made without an honest belief in the truth

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Test of honest belief is subjective negligence or unreasonableness, however gross, cannot constitute fraud

Negligent misrepresentation: -

one made honestly, but carelessly

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contains: o

fault

o

negligence

o

carelessness

Innocent misrepresentation: -

one made without fault, fraud or negligence

4.2.1) Misrepresentation Distinguished from Other Pre-Contractual Misstatements: •

must be distinguished from other misstatements because remedies available differ between misstatements

1. Warranties or contractual terms: ▪

When a statement is made during pre-contractual bargaining or is found in a contractual document need to determine whether it is mere representation or warranty (a term in a contract – ‘something to which a man must be taken to bind himself’)

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Classic test for distinguishing warranties from representation the intention of the parties: did they intend the statement to form part of their contract?

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In determining the intention of the parties, the court is guided by objective criteria: - The importance of the truth of the statement - The stage of the transaction at which it was made - Whether it was made in response to a query by the representee - BUT none of these tests are conclusive!!

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A warranty is a term breach gives rise to the usual remedies for breach of contract: - cancellation if breach is material - damages measured according to the aggrieved party’s positive interest In other words: aggrieved party may demand to be placed in the financial position he/she would have been in if the statement was true

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Representee/innocent party may sue either for misrepresentation or for breach of contract

2. Opinions, statements as to the future and statements of law (NOT NB): ▪

Mere expressions of opinion, forecasts or statements of intention that prove to be incorrect or are unfulfilled will not usually amount to misrepresentation

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If the speaker does not: - Hold the belief or opinion which he/she expresses - Lacks the will to give effect to his/her statement of intention when he/she makes it - He/she misrepresents his/her own state of mind

for this he/she may be held liable 3. Puffs (simplex commendatio): ▪

Puffery by a contracting party does not amount to misrepresentation if he/she confines him/herself to ‘ indiscriminate puffing and pushing and does not condescend to particulars’ simplex commendation non obligat

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The party is ‘merely singing the praises of his wares, as sellers have ever been wont to do’ and the other party is generally expected to be aware of this fact

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Exaggeration or puffing is ‘intermingled with facts and punctuated by details’ liability

may entail

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The whole statement must be considered to decide whether it is misrepresentation or puffery - Determined objectively by courts on facts of each case

4. Dicta et promissa: ▪

‘material statement made by the seller to the buyer during negotiations, bearing on the quality of the res vendita and going beyond mere praise and commendation’

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Aedilitian remedies available: o

Actio redhibitoria — used to cancel the contract

o

Actio quanti-minoris — sue for reduction in the purchase price

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Dicta et promissum excludes puffing and is limited to the contract of sale

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Breach will give rise to the usual remedies for breach of contract: o

cancellation if breach is material

o

damages measured according to the aggrieved party’s positive interest In other words: aggrieved party may demand to be placed in the financial position he/she would have been in if the statement was true

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Should he/she prefer, the purchaser retains the right to claim aedilitian relief

4.2.2) MISREPRESENTATION & MISTAKE •

Misrepresentation and mistake are closely related but distinct Misrepresentation includes (depending on the circumstances)

Fundamental/Material Mistake: error in corpore, error in negotio etc...

Identity of the plot sold in the Allen Case

Mistake as to the content of the contract as in the Du Toit Case

Nonfundamental/Immateri al Mistake: error in substantia, error in

Number of trees on the plot in the Trollip Case

The age of the car in Du Toit case

★ Dissensus, and B’s error is iustus because of A’s misrepresentation

★ Consensus, but obtained through improper means

★ Contract is VOID ab initio for mistake

★ Contract is valid BUT voidable

★ Exclusion clause void therefore evidence as

★ Exclusion clause binding at common law

4.2.3) REMEDIES FOR MISREP 1. Rescission and Restitution (Restitution in Integrum) Requirements: I. Need to prove a misrepresentation by the other party a. This is a question of facts, you must prove what the facts are and what was actually given to you. b. Any false statement II. Inducement a. That the misrepresentation induced you to conclude the contract b. Distinguish between dolus dons and dolus incidens i. Dolus dons: You wouldn’t have concluded the contract if it was not for the misrepresentation ii. Dolus incidens: You would’ve concluded the contract but with other terms and conditions if you knew about the misrepresentation c. According to some case law, where there is dolus incidens, contract may not be voided, only damages can be claimed. III. Intention to induce* a. This should not be equated with fault b. If in a contract of sale, A states to Y about certain things regarding the car. Later on, X goes to talk to Y, and Y mentions the things that A has stated. This will not mean that misrepresentation is present as A did not make those misrepresentation statements to X. IV. Materiality Note: Fault is not a requirement, you don’t need to prove negligence or fraud 2. Misrepresentation as a Defence • •

Must prove the same facts that are necessary for the remedy of rescission Can be used to defeat the claim for specific performance

3. Damages • •

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Delictual remedy Fraudulent misrepresentation: The seller knew that the statements made where incorrect o Actio legis acquiliae: Suffers different forms of harm such as (Monetary) patrimonial loss etc. o Fault is required ▪ Conduct must be wrongful ▪ Cause of harm ▪ Causation o Must prove: ▪ A representation ▪ Knowledge of representor is false ▪ Intended the represented to act Negligent misrepresentation

Where a person makes a statement and does so carelessly where a reasonable person would have realised the misrepresentation. o Bayer South Africa (Pty) Ltd v Frost 1991 (4) SA 559 (A) ▪ Actio legis acquiliae is applicable ▪ If there is a misrepresentation made, you can claim damages whether it is made fraudulently or negligently Innocent misrepresentation o Where a person has made a statement thinking that it is true, and a reasonable person would make the same mistake o Actio legis acquiliae is not applicable because fault is required o Aedilitian remedies if applicable ▪ Reduction of performance ▪ Actio quanti minoris: Any emotional pain and suffering. Continue contract but reduce the purchase price of the contract. ▪ Phame (Pty) Ltd v Paizes 1963 (3) SA 397 (A) o

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Calculation of Damages Dolus dans • But for the fraud, no contract would have been calculated • Damages = Claim what the innocent party performed MINUS the performance/benefit he received PLUS costs and expenses Dolus incidens • But for the fraud, a contract would have been concluded but on different terms • Damages = Claim what the innocent party performed MINUS what he would have performed had there not been the misrepresentation PLUS costs and expenses • NB! Restitution Examples of calculations 1. X wants to buy a house. The seller of the house tells X that the house does not have a termite problem, that the roof does not leak and that the electrical wiring is modern. X offers to buy the house for R800 000. The seller accepts. After talking occupation, X realises that the seller had made a misrepresentation to X, and that X actually received the house to the value of R500 000, yet that he paid R800 000 for it. His legal costs are R10 000. X would never have concluded the contract had it not been for the misrepresentation • Dolus dans • What the innocent party performed o R800 000 • The performance/ benefit received o R500 000 • Costs and expenses o R10 000 R800 000 – R500 000 + R10 000 Damages = R310 000 2. X wants to buy a house. The seller of the house tells X that the house does not have a termite problem, that the roof does not leak and that the electrical wiring is modern. X offers to buy the house for R800 000. The seller accepts. After talking occupation, X realises that the seller had made a misrepresentation to X, and that X actually received the house to the value of R500 000, yet that he paid R800 000 for it. His legal costs are R10 000. X would have concluded the contract had it not been for the misrepresentations, but would have been prepared to pay R420 000, because he would have had to repair the house. • Dolus Incidens • What the innocent party performed o R800 000 • What he would have performed had it not been for the misrepresentation

o R420 000 • Costs and expenses o R100 000 R800 000 – R420 000 + R10 000 Damages = R390 000 3. X wants to buy a house. The seller of the house tells X that the house does not have a termite problem, that the roof does not leak and that the electrical wiring is modern. X offers to buy the house for R800 000. The seller accepts. After talking occupation, X realises that the seller had made a misrepresentation to X, and that X actually received the house to the value of R500 000, yet that he paid R800 000 for it. His legal costs are R10 000. X would have concluded the contract had it not been for the misrepresentations, but would have been prepared to pay R600 000, because he would have to prepare the house. • Dolus incidens • What the innocent performed o R800 000 • What he would have performed had it not been for the misrepresentation o R600 000 • Costs and expenses o R10 000 R800 000 – R600 000 + R10 000 Damages = R210 000 4.2.4) MISREPRESENTATION BY SILENCE: NON DISCLOSURE

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Failure to disclose a material fact, when under a legal duty to do so constitutes misrepresentation by silence (form of commission per omissionem)

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Entitled to the same remedies as other misrepresentation:

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o

Uphold agreement

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Rescission and restitution

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Misrepresentation as a defence

o

Damages (combination remedy)

General rule where conduct takes form of an omission, such conduct is prima facie lawful but the rule is subject to a number of EXCEPTIONS: o

Where the contract is one of insurance, agency, partnership or engagement

o

Where there is a fiduciary relationship between the parties

o

Where a statute imposes a duty of disclosure

o

Where a seller has knowledge of a latent defect in the thing he/she is selling

o

Where an applicant for credit is an unrehabilitated insolvent

o

Where a party’s prior conduct or statement renders silence misleading

4.3) DURESS •

Duress/metus is improper pressure that amounts to intimidation

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A party who gives his consent to a contract under duress does so through fear inspired by an illegitimate threat

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A contract induced by duress is VALID since, in the eyes of the law, a forced consent is still effective consent voluntascoactaesttamenvoluntas

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The consent was obtained by improper means contract VOIDABLE o

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Threatened party can: ▪

set aside the contract

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claim restitution of what was given

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may resist the enforcement of the contract by the other party

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may in a proper case recover damages Aquilian action

as duress is a delict giving rise to the

Party who alleges duress must establish the following elements: 1) Actual violence or reasonable fear 2) Fear must be caused by the threat of some considerable evil to the party or his family 3) It must be the threat of an imminent or inevitable evil 4) Threat or intimidation must be contra bonos mores 5) Moral pressure used must have caused damage

1) The Nature of Coercion Coercion of will (vis compulsive) o This is a method of coercion to get you to conclude the contract. o Your will power has been influenced in order for there to be consensus. o Consensus was improperly obtained. o Contract voidable Vis absoluta o Contract void due to the lack of capacity. o For example, someone takes your arm and forces your signature onto the paper. 2) The Reasonableness of the Fear: -

The threat should be sufficiently grave to affect the mind of a reasonably steadfast person o

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Supported by a number of authorities, ancient and modern, some of whom add that account ought to be taken of age, sex and other personal attributes of the victim

According to Grotius o

Fear need NOT be reasonable

o

This view is preferred

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Apply the objective test

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The more unreasonable the fear the harder to prove

3) The Object of the Threat:

look at intention to induce and the effect of inducing the contract

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Threat must be directed at the life, bodily integrity or property of the person concerned or his or her immediate family

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Grotius considers a threat to one’s honour as sufficient

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In the case of property known as duress goods o

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Courts insisted on an unequivocal protest at the time of payment or entry into the contract as proof of the involuntary nature of the transaction

Threat to the purely economic interests of the other party can constitute duress in our law remains an open question

4) The Imminence of the Harm: -

Threat should be of an imminent or inevitable evil

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Where possible the party threatened should seek legal protection and not yield to the threat

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Relief should be granted even where the threatened harm was neither imminent now inevitable PROVIDED that the threatened party had no reasonable or acceptable alternatives available other than succumbing to the threat by entering into the contract

5) The Unlawfulness of the Threat: -

Threat must be u...