KTR 211 Theme 2 (Part 4) Law of Contract 2024 PDF

THE LAW OF CONTRACT MR LK THUTSE Date: Week 11 to 15 March 2024. INTRODUCTION ❑ When a party enters into a contract due to duress, undue influence or misrepresentation—as consensus has been reached but is has been reached improperly. ❑ Unlike material mistake – parties are aware of with whom and on...

THE LAW OF CONTRACT MR LK THUTSE Date: Week 11 to 15 March 2024. INTRODUCTION ❑ When a party enters into a contract due to duress, undue influence or misrepresentation—as consensus has been reached but is has been reached improperly. ❑ Unlike material mistake – parties are aware of with whom and on what terms they are contracting on. ❑ Contract is deemed voidable at the instance of the innocent party. ❑ Ultimately contract will be deemed to be valid until misrepresentation, coercion or undue influence is proven. DURESS ❑ Improper pressure leading to intimidation. ❑ If one enters a contract under duress—doing so because of fear as a result of an illegitimate threat. ❑ Consent obtained by improper means contract is voidable at the option of the threatened party. ❑ Threatened party may set aside and claim restitution and damages. DURESS Elements: Broodryk vs Smuts No 1942 TPD 47 1. Actual violence or reasonable fear 2. The fear must be caused by the threat of some considerable evil to the party or his family 3. It must be a threat of an imminent or inevitable evil 4. The threat or intimidation must be contra bonos mores; and 5. The moral pressure used must have caused damage. Further: 6. Threat must be unlawful; and 7. The effective cause of the contract (but for the threat to innocent party would not have contracted at all) Savvides v Savvides 1986 (2) SA 325 DURESS Coercion: ❑ vis compulsive—coercion of the will (not physical force). ❑ Coercion operates on the mind of the victim by forcing him/her to choose between entering the contract or suffering harm. 1.Reasonableness of fear: ❑ Threat must be sufficiently grave to affect the mind of a reasonably steadfast person. ❑ The more unreasonable the fear, the greater will be the reluctance of the court to accept that it actually induced the contract. ❑ Paragon Business Forms (Pty) Ltd v Du Preez 1994 (1) SA 434 (SE): This case dealt with a scenario where a former employee had alleged that he felt that he had no option but to sign an agreement containing a restraint of trade. The threat of dismissal was not expressed. The court there was of the opinion that there was no threat of dismissal and that the alleged fear by the respondent was illogical and unreasonable. DURESS 2.Object of the threat: ❑ Threat must be directed at the life, bodily integrity or property, or immediate family. ❑ Some courts have indicated that there has to be proof of protest at the time of payment or entry into the contract – to prove involuntary nature of the transaction. ❑ However – generally silence is not indicative of free consent. ❑ If no protest –relief can still be granted if there is satisfactory evidence to establish that the contract was concluded as a result of duress. DURESS 3. Imminence of Harm: ❑ Threat must be imminent or inevitable. ❑ Courts have shown – if threatened harm is neither “imminent or inevitable”show that the threatened party has no reasonable or acceptable alternative available other than succumbing to the threat by entering the contract. DURESS 4. Unlawfulness of the threat: ❑ Contra bones mores. ❑ Threat to bring a civil action is not unlawful. ❑ Threat to institute criminal proceedings -Threat is unlawful if it is used to extort a benefit to which the Creditor is not entitled to or if the debtor is innocent of the alleged crime. 5. Damage ❑ Financial loss. ❑ Broodryk vs Smuts The person alleging duress must show that he/she has become subject to obligations that he/she would not otherwise have incurred. Undue influence ❑ A form of improper pressure brought to bear upon a person in order to induce him/her to enter into a contract. ❑ Pressure is more subtle here –erosion of innocent party’s ability to exercise a free and independent judgment. ❑ Usually a close relationship between parties e.g. doctor/patient, attorney/client, parent/child, Religious leader/discipline etc. Requirements for undue influence Patel v Grobbelaar 1974 (1) SA 532 (AD) 1. The aggrieved person was subjected to influence by another, 2. The influence weakened the aggrieved person’s capacity to resist and rendered the aggrieved person pliable, 3. The other person exploited this influence unscrupulously to persuade the aggrieved person to agree to a transaction which was both to the aggrieved person’s detriment (prejudicial) AND was a transaction that would not have been concluded had the aggrieved person acted of own free will. ❖ Onus of party alleging undue influence to prove it occurred. Undue influence: Remedy: Restitutio in integrum ❑ Action and Defence. ❑ This remedy attempts to, as far as is possible, restore both parties to the position they were in prior to entering into the contract and it is in the disposal of the Innocent Party. ❑ The restitutio in integrum remedy entitles the innocent party to set aside the legal consequences of the contract (or a previously valid transaction) and the obligation to restore the person from whom they were received any property or benefits given and received in consequence of the original legal relations. ❑ Should the innocent party choose to uphold the contract, he or she is bound by its terms. ❑ If he or she elects to rescind the contract, such a decision must be communicated to the other Party and the contract terminates upon receipt of such notice. ❑ A duty then arises on both parties to restore and/or return any performance that has been made in terms of the contract. ❑ Applicable to also Duress, Misrepresentation… Misrepresentation ❑ A false statement of past or present fact made by one party to another before or at the time of the contract concerning some matter or circumstance relating to it. Not law or opinion. Requirements: The misrepresentation must be: 1. A false statement of fact(s) 2. Be material 3. Made by a contracting party or someone for who’s actions he assumes responsibility. 4. Made with the intention of persuading the other party to conclude the contract 5. Made in such a way that the other party believes the facts to be as represented and concludes the contract on the basis of the misrepresented facts Misrepresentation (1)False statement of fact(s) ❑Express statement, verbal statement or implied from conduct. ❑Active concealment: failure to correct a false impression. Misrepresentation (1) False statement of fact(s): (Continued) Designed concealment ( non-disclosure) Intentional concealment of information that the person is under a duty to disclose. See Dibley v Furter 1951 (4) SA 73 (C): F sold a farm to D without disclosing the existence of a graveyard located close the house. Prior to the sale, F had ploughed over the graveyard and removed all visible traces of the graveyard, It was held that F was liable to D for non- disclosure of the existence of the graveyard. Disclosure is obligatory in certain circumstances: Where an omission of facts has created a misleading impression, Person made a statement which is no longer correct due to change in circumstances, Relying on statement of a person with level of skill, in order to contract Law requires full disclosure e.g. insurance contracts regarding risk. Misrepresentation (1) False statement of fact(s): (Continued) Misrepresentation distinguished from other pre-contractual misstatements: (Self-study) (a) Warranties or contractual terms (b) Opinions, statements as to future and statements of law (c) Puffs (d) Dicta et promissa (Aedilition remedies: Cancel contract (action redhibitoria) or sue for reduction of purchase price (action quanti minoris) Misrepresentation Non-disclosure or misrepresentation by silence non-disclosure of a fact is actionable if party remaining silent is under a “duty” to reveal the fact. Generally no duty on party negotiating a contract to reveal information known to him that may influence the mind of the other party in deciding whether to contract or not, Exceptions below: However if you can show one the following, then omission is actionable: (NB: See all the examples on Pg. 144 to 146) (a) if party’s conduct is wholly or partly responsible for other’s ignorance (b) if the contract requires parties to work together in a relationship of trust & confidence (c) if the party is involuntarily dependent on him for frank disclosure due his particular knowledge (d) Fair dealing – the right to have such info communicated to him would be mutually recognised “by honest men in the circumstances”- Pretorius v Nata South Sea Investment Trust Ltd 1965 (3) SA 410(W) party has a duty to inform by operation rule of law e.g. insurance policy Misrepresentation (b) Material: Test: Would the statement made have induced a reasonable person to enter into that contract? Or in the case of a non-disclosure: Would a reasonable person have been persuaded against entering into a contract if disclosure had been made? Misrepresentation (c) By other party to the contract: misrepresentation must be made by a party to the contract or agent Agent—requires relevant authority to conclude a contract and must have made the misrepresentation in the course of contracting. Misrepresentation by an independent 3rd party—only actionable against 3rd party based on delict. (d) Intention to induce the contract: Misrepresentation must be made with intention of inducing the contract, Possibility that party would believe and act on misrepresentation – foreseen. NB…. Misrepresentation must be made with the intention of inducing the other party to contract and must have actually resulted in him/her doing so. Misrepresentation (e) Induced the contract: ❑ If party would have contracted irrespective misrepresentation then, NO RESCISSION. of the existence of ❑ The misrepresentation itself must have persuaded the party to enter into the contract. See Bird v Murphy 1963 (2) PH A42 (D) ❑ Party may obtain rescission and restitution for a causal misrepresentation but NOT for an incidental one. ❖Causal misrepresentation —misrepresentation which results in a contract being formed. ❖Incidental misrepresentation —misrepresentation which does not induce the contract but results in less advantageous terms for a party. Misrepresentation Types of misrepresentation: 1. Intentional (fraudulent) misrepresentation. 2. Negligent misrepresentation. 3. Innocent misrepresentation. Intentional (fraudulent) misrepresentation ❑ Representation of a false fact made fraudulently, which was believed by the representee and was one of the factors inducing him/her to contract ❑ Misrepresentation made with the intention of persuading the other party to conclude the contract Made: knowingly or without honest belief in its truth, or recklessly, careless whether it should be true or false See example in Banda and Another v Van der Spuy and Another (781/11) ZASCA 23. ❑ Renders contract void. Negligent misrepresentation ❑ Representation of a false fact made negligently, which was believed by the representee and was one of the factors inducing him/her to contract ❑ Renders contract voidable. ❑ Remedies: set aside contract enforce contract claim damages if loss suffered Innocent misrepresentation ❑ Representation of a false fact made innocently, which was believed by the representee and was one of the factors inducing him/her to contract. ❑ Renders contract voidable. ❑ Remedies set aside contract enforce contract (no damages claim here) Misrepresentation and Mistake NB: Pg. 131 and 132 (Prescribed textbook)