Chapter 4 - improperly obtained consent PDF

Preview

Summary

CHAPTER 4 IMPROPERLY OBTAINED CONSENSUS 4) INTRODUCTION When a person enters into a contract as a result of misrepresentation, duress or undue influence exerted upon him another party, there is no lack of consensus since the parties know precisely with whom and on what terms they are contracting. Ho...

Description

CHAPTER 4 – IMPROPERLY OBTAINED CONSENSUS 4.1) INTRODUCTION 

When a person enters into a contract as a result of misrepresentation, duress or undue influence exerted upon him by another party, there is no lack of consensus since the parties know precisely with whom and on what terms they are contracting.



However, since the consensus is flamed, the contract is voidable at the instance of the innocent. The innocent party can have the contract set aside, however until such a time as it is set aside, it remains valid.

4.1.1) RESTITUTIO IN INTEGRUM  This is a remedy for recession and restitution and is used to set aside voidable contracts.  Restitution in integrum is available as both an action and as a defence to a suit on the contract.  It is aimed at restoring both parties to the position they were in prior to entering the contract.  If the innocent party chooses to uphold, he/she remains bound.  If the innocent party elects to rescind, the other party must be notified and the contract comes to an end on the receipt of such notice.  A duty then arises to restore any performance that has been made i.t.o of the contract.  GR – the innocent party’s right to claim restitution is dependent on his/ her own willingness or ability to return what was received i.t.o the contract.  If the other party is unable to make restitution, the innocent party is able to claim the value of the performance made.  The right to rescind a voidable contract is lost by affirmation of the contract, waiver or prescription.

4.1.2) DELICTUAL DAMAGES  The conduct of the party who induced the other party (contract) by improper means will frequently constitute a delict.  The innocent party may recover damages in respect of any financial loss that he/ she may have suffered as a result of the delict, irrespective of whether he/ she chooses to uphold or rescind the contract.  Damages are governed by the principles of the actio legis aquilliae.  Damages are measure according to the party’s –ve interest; aim to place him/ her in the financial position he/ she would have been had the contract not occurred.  Therefore this is applicable to the extent that the innocent party is still worse off as a result of concluding the contract even where restitution has already occurred, eg wasted expenses. 1

 Even where the contract is upheld, the innocent party can still claim damages on any loss incurred on the transaction, eg paying more than the worth due to the delictual conduct of the other party – reduction in price.

4.2) MISREPRESENTATION 

Form of misstatement, whereas a misstatement is simply an assertion that does not accord with the time facts.



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



Can take the form of an express statement or can be implied by conduct.

4.2.1) TYPES 1. FRAUDULENT MISREP:  This is made:  Knowingly  Without belief in its truth  Recklessly or carelessly  Made without honest belief in its truth 2. NEGLIGENT MISREP:  Made honestly but carelessly 3. INNOCENT MISREP:  Made without fraud or negligence

4.2.2) MISREPRESENTATION AND MISSTATEMENT  Remedies for the two differ may overlap and misled party is entitled to a choice of remedies.

4.2.1.1) WARRANTIES OR CONTRACTUAL TERMS  When a statement is made during the course of pre-contractual bargaining or embodied in a contractual document (car is 1985 model), the question arises as to whether it is a representation or a warranty (a term of the contract; something to which a man must be taken to bind himself). 2

 The test to distinguish misrepresentations and warranties focuses on the intention of the parties: did they intend the statement to form part of the contract – giving rise to contractual liability.  The maker of a representation assumes no responsibility for his statement – the law may impose such a responsibility.  A person who warrants or guarantees the correctness of his/ her statement agrees to be liable if it should prove to be incorrect.  As a warranty is a term of the contract, its breach gives rise to the usual remedies for breach including cancellation of the contract (where the breach is material) and positive interest damages.  Placed in the same position he/ she would have been had the statement been.  If a misrepresentation is made prior to the contract and is subsequently incorporated into it as a contractual term, the representee may sue either for misrepresentation or breach of contract.

4.2.1.2) OPINIONS, STATEMENTS AS TO THE FUTURE & STATEMENTS OF LAW  Representation is a statement of past or present fact, mere expressions of opinions, forecasts or statements of intention that prove to the incorrect will not amount to misrepresentation.  Fraudulent misrepresentation of one’s state of mind, i.e. the speaker does not hold the belief or opinion which he is expressing, he/ she may be liable.  Statement of law has traditionally been considered to be one of opinion and therefore not actionable.  Where a party induces another to enter into a contract by representing that he/ she places a particular construction upon a clause in the document, he/ she will be bound by that construction, even if it is not the legally correct one.

4.2.1.3) 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.  The party is merely singing the praises of his wares and the other party is generally expected to be aware of this.  Distinction between misrep and puffery is a question of fact to be determined objectively.  S 41 (1)(b) CPA – In…..the marketing of goods the supplier must by words or conduct, use exaggeration, innuendo or ambiguity as to a material fact or fail to disclose a material fact.

4.2.1.4) DICTA ET PROMISA

3

 Material statement made to the seller by the buyer during negotiations, bearing on the quatity of the res vendita and going beyond mere praise and commendation.  If such a statement turns out to be unfounded the purchaser can make use of the aedilitian remedies.  May cancel the contract with the action redhibitoria or sue for a reduction in the purchase price with the action quanti minoris.  Is limited to a contract of sale.  If it is guaranteed i.e. incorporated into the terms of the contract – gives rise to the remedies for breach of contract.

4.2.2) MISREPRESENTATION AND MISTAKE  All actionable misreps induce a mistake.  The misapprehension induced by misrep usually amounts to a mistake in motive which cannot invalidate the contract ab initio as it does not exclude consensus.  Where the mistaken belief has been induced by misrep of the other party, the contract is voidable.  The cause of action would be misrep.  On the other hand, where the mistake induced by the party is so serious that it excludes consensus – material mistake – void ab initio provided the error is iustus.  The cause of action would be mistake.  Can parties exclude liabilities for misreps in contract?  At common law, a provision in a contract to the effect that neither party has made any misreps to the other party is effective, in the absence of fraud, to exclude reliance on misrep as a cause of action.  However, it will not prevent the other party from leading evidence to show that as a result of misrep. by other party, he/ she laboured under a iustus error in regard to the terms of the contract, for if the contract which it forms part of is void for mistake, the exclusion clause is equally devoid of legal effect.  Failure to draw the attention of the other party to an exclusionary clause, where there is a duty to do so – misrep. by silence – iustus error as to the contents of the contract.  S 51 (1)(i)(g) of CPA – not allowed to falsely express acknowledgement that not misreps or warranties were made.

4

MISREPRESENTATION MATERIAL MISTAKE IMMATERIAL MISTAKE Error in corpore, negotio eg. Allen v Sixteen Error in substantia, motive eg Trollip v Sterling, Du Toit v Atkinsons Motors  Dissensus – B’s error is iustus –  

induced by A’s misrep. Void ab initio for mistake Exclusion clause is also void



Cause of action = Mistake

Jordaan, Du Toit v Atkinsons Motors  Consensus obtained by improper  

means Valid but voidable for misrep Exclusion clause binding: B cannot

set aside contract Cause of action = Misrep.

4.2.3) REMEDIES FOR MISREPRESENTATION  A contracting party who has been misled into contracting by misrep may set the contract aside, claim restitution or raise misrep. as a defect, and can claim damages.

4.2.3.1) RESCISSION & RESTITUTION  Where a party has entered into a contract as a result of misrepresentation, such party is entitled to rescission and restitution provided the following requirements are met: a) Misrep. by other party: If misrep. is made by an independent 3rd party, it has no effect on the validity of the contract, unless it induces a material mistake – void for mistake – delictual claim.

b) Inducement: o

The misrep. must have induced the representee to enter into the contract; there must be a causal connection between the misrep. and the conclusion of the contract.

o

No relief will be granted if the representee knew that the statement was false.

o

The test for inducement is a subjective one.

o

The q is whether the misrep. in fact induced the representee to enter into the contract not whether it would have induced a reasonable person to do so.

o

Matter of inference from the facts whether actual inducement occurred.

o

Distinction drawn between 2 types of fraud: 

Dolus dans locum in contractui – if but for the fraud the contract would not have been concluded = entitles one to rescission.



Dolus incidens in contractum – there would still have been a contract but on different terms = will not lead to rescission but can claim damages or reduction in price. 5

c) Intention to induce: o

Should be made with the intention of inducing the other party into the contract.

o

Not the same as fraud as a non-fraudulent misrep. can be made with the clear intention of inducing the other party to contract.

o

Envisaged that the misrep. would lead to a certain outcome.

d) Materiality: o

Misrep. must be material in order to lead to rescission.

o

It must be of such a nature that it would have the natural and probable effect of inducing a reasonable person to enter into the contract.

e) Fault: o

Right to rescind exists whether the statement or misrep. was made fraudulently, negligently or innocently.

4.2.3.2) MISREPRESENTATION AS A DEFENCE  Misrep. can be used as a defence to an action on the contract brought against the other party by the representor.  The process of pleading misrep. as a defence is considered as being a form of rescission as the representee will have to prove the same facts that are necessary for rescission.

4.2.3.3) DAMAGES  Whether the representee chooses to uphold or rescind the contract, he/ she may be entitled to recover damages in respect of any patrimonial loss caused by the misrep, depending on the state of mind which the misrep was made.

1. FRAUDULENT MISREPRESENTATION  Deliberate deception that causes another financial harm is a delict actionable under the action legis acquiliae.  The 5 essential elements of the cause of action are: 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 5. The representee suffered damage as a result

6



The motive of the representor is irrelevant provided only that he/ she made the assertion without an honest belief in its truth and intended it to be acted upon.



The right to claim damages for fraud is not dependent on materiality.



An agreement that purports to exclude the right to claim redress for fraud is contrary to public policy and unenforceable.

2. NEGLIGENT MISREPRESENTATION  The decision in Bayer SA v Frost determined that delictual damages might be awarded in respect of a negligent misrep. inducing a contract.  All requirements of the Aquilian action have to be present.  The damages awarded for negligent misrep. will be measured in the same manner as damages for fraud.

3. INNOCENT MISREPRESENTATION  I.t.o innocent misrep, the misrepresentation is not a term of the contract and is made without dolus or culp, there is neither the breach of contract necessary for contractual damages nor the culpable conduct required to sustain an Aquilian action.  Consequential losses are thus not compensable and there is no claim.  In the case of sale contracts, such relief is available under the action quanti minoris, which is limited to a reduction of the price.

4.2.4) MISREPRESENTATION BY SILENCE: non-disclosure  Failure to disclose a material fact, when under a legal duty to do so constitutes a misrep by silence – commission per onissionem.  G.R – a contracting party is under no legal duty to disclose information known to him/ herself, even if he/ she is aware that the disclosure would influence the other’s decision whether to enter or on what terms to enter the contract.  There are exceptional cases where the law imposes a duty to speak include f.f: a)

Where the contract is one of insurance, agency, partnership or engagement  A party must disclose any fact that could reasonably be expected to influence the risk whether asked about such fact/ not.

b)

Where there is a fiduciary relationship between parties – eg attorney & client, guardian and ward

c)

Where a statute imposes a duty of disclosure – eg the Companies Act specifies matters that must be disclosed in a prospectus inviting the public to subscribe for shares in the company.

7

d)

Where a seller has knowledge of a latent defect in what he/ she is selling  i.t.o the aedilitian edict - seller is liable for defects including latent defects, even if ignorant of their existence but knowledge transforms silence into fraud.  Sellers use “voetstoots clauses” – “as is” clauses to protect against liability for latent defects.  CPA S 55 (2)  Voetstoots does not protect if one is aware of the defect.

e)

Where an applicant for credit is an unrehabilitated insolvent – the applicant’s status be disclosed

f)

Where a party’s prior conduct or statement renders silence misleading, eg  Where the prior conduct of a party has the effect of concealing facts that would otherwise be apparent to the other party.  Where a party has by his prior conduct led the other party not to expect to find a particular clause in a contract he/ she signs; there is a duty to draw attention to the clause in q.  Where silence distorts a +ve representation, eg change of circumstances falsifies a statement which was true when made. Cloete v Smithfield Hotel & Mayers v Noordhof – municipality.

4.2.4.1) DUTY TO DISCLOSE  Duty to disclose is not a term of the contract but is imposed ex lege.  There’s a no duty to disclose where matters are open to common observation, or asceratainable by ordinary diligence or accessible to both parties so that each could be expected to exercise his own judgment in the matter.  Test for general liability = a party is expected to speak when information he has to impart falls within his exclusive knowledge and the info moreover is such that the right to have it communicated would be mutually recognised by honest people in the circumstances.  Duty to disclose depends on the circumstances of the contract and not on the type of contract.

4.3) DURESS 

This is improper pressure that amounts to intimidation.



A party who gives consert to a contract under duress, does so, not through the exercise of free will, but through fear inspired bu an illegitimate threat.



As the consent was obtained by improper means, contract is voidable at the option of the threatened party.



Set aside – claim restitution – defence – damages – Aquilian Act.



The threat should be both unlawful and an effective cause of the contract.



A party who alleges duress must establish the f.f elements: 

Actual violence/ reasonable fear. 8



Fear must be caused by the threat or some considerable evil to the party/ his family.



Must be threat of an imminent or inevitable evil.



Must be contra bones mores.



Moral pressure used must have caused the damage.

4.3.1) NATURE OF COERCION  Coercion of will rather than the body of the victim.  Force = vis compulsiva – coercion operates on the mind of the victim by forcing him/ her to choose the lesser of two evils.  Coercion = by threat rather than by physical force.

4.3.2) REASONABLENESS OF THE FEAR  Fear need not be reasonable but the threat must be made with the intention and effect of inducing the contract.  However, more unreasonable the fear – more reluctant the courts will be to accept that it induced the contract, but this is a matter of proof rather than substantive law.

4.3.3) OBJECT OF THE THREAT  The threat must be divided at the life, bodily integrity/ property of the person concerned or his/ her immediate family.  Duress of goods – still applicable if there was no prolest, granted there’s satisfactory evidence to establish that the contract was concluded as a result of duress.  Economic pressure may constitute economic duress however hard bargaining is not equivalent to duress.

4.3.4) IMMINENCE OF HARM  Threat should be of an imminent/ inevitable evil, however, relief can be granted where the threat is not imminent but the threatened party had no reasonable/ acceptable alternatives available other than succumbing to the threat by entering into the contract.

4.3.5) UNLAWFULNESS OF THE THREAT  Threat must be unlawful/ contra bones mores 9

 Person who enters into a contract through fear inspired by a lawful threat has no grounds for complaint.  Threat = unlawful if threatened conduct is unlawful in itself but also if the threat is made for an illegitimate purpose.  Threat of criminal action is unlawful.

4.4) UNDUE INFLUENCE 

Improper pressure brought upon a person to induce him/ her to enter into a contract.



Pressure is subtle, involving an insidious erosion of the victim’s ability to exercise a free and independent judgment in the matter, rather than threats/ intimidation.



Eg: doctor-patient, parent-chil, attorney-client



Treller v Jordaan – grounds for restitution in integrum were wide enough to cover undue influence.



Patel v Grobbelaar – confirms that undue influence forms part of our law.

4.4.2) REQUIREMENTS  The other party obtained an influence over him/ her;  This influence weakened his/ her powers of resistance and rendered his or will compliant;  The other party used this influence in an unscrupulous ma...