FARAI FAIFI

60F6214

CONTRACT LAW A NOTES FOE EXAMINATION PREPARATION

Offer

Determines legal obligations, the person upon which these legal obligations are

attached as well as the terms of agreement

LAWSA at par 149

An offer is a statement of intention in which the offeror sets out to the

person to whom the offer is made; what performance and what terms they

are prepared to bind themselves to.

The proposal is made with the intention that by its mere acceptance,

without more, a contract should be formed.

Offer is key to the formation of the contract

The notion of offer and acceptance in South African Law is a virtual replica of

the English Law process

An offer is usually conveyed by an express offer or statement of an offer,

however, some may be implied

Requirements for a Valid Offer:

To a specified person or group of persons

Animus Contrahendi

Definite and Complete

Carlill v Carbolic Smoke Ball Company [ENGLISH CASE]

CSBC made products against the flu Made open offer that if anyone who bought the product and used it in the prescribed fashion contracted the flu, they

would then be entitled to a reward Carlill bought the product yet still contracted the flu Carlill claims that CSBS made an offer which she accepted in the prescribed fashion and now demands the reward CSBC claims that the offer of a reward was a marketing tactic and did not constitute a serious contractual offer ISSUE:

o Who was the offer open to?o Was there even an offer at all? [Puffery/advertising]

Court rejected CSBC’s argument Held: The offer was made to the whole world Held: Offering a reward is a generic offer with contractual consequences Held: If anyone can apply, this created the potential for a valid contract

Communicate to the offeree

To a specified person or group of persons

Principle in contract law that one may contract with whomever they so choose

The offer may be made to either an individual or a group

Even though this is an English case, it has relevance in our law since it was

accepted into South African law through Bloom v American Swiss Watch

Company

Animus Contrahendi

A contract is an agreement entered into with the intention of creating legal

obligations

Examples where there is a clear lack of animus contrahendi include:

Promises formed out of "passion "(jest, anger, in the throes of the

loins)

Mere social arrangements

Domestic arrangements [Recall Pothier]

Definite and Complete [Clear and Unequivocal]

Offer must be definite and complete

The whole process of making an offer must have been gone through in its

entirety

Thus, before a valid contractual offer is constituted, it must first be:

Definite

Complete

Clear

Unambiguous

Easily understood and clear as to what it is about

The following do not constitute definite and complete offers:

Invitations to negotiate

Requests for an offer

This is often the case in the sale of property. The owner gives the

situation to the agent who then draws up a statement of information and

presents it to potential buyers for their perusal, inviting them to make an

offer of purchase.

Robinson v Randfontein Estates Gold Mining Co Ltd

Robinson acquired mining property and resold it to his company at a profit

Company demands profits from him

Robinson claims that he had a right of pre-emption from previous owners of company which he’d gotten from them verbally for helping establish beacons for them“If ever we sell the farm, you shall have the right of first refusal as far as the purchase is concerned”

Held: That offer for right of first refusal was given without animus contrahendi and merely arose out of overwhelming gratitude

Held: promise binding on honour and conscience rather than constituting a definite contractual undertaking enforceable at law

Statements of Information

o Merely says “If I desire to contract, these will be my terms”

Efroiken v Simon

Simon informs his agent that he has 3000 bags of oats to sell and that he should see who might be interested in buying it

Agent sends a telegram to Cape Town: “3000 bags of Oats 11Shillings per bag have seller, can you find buyer?”

Efroiken’s Agent sends Telegram in response saying “Yes, found willing buyer”

Simon doesn’t want to sell to Efroiken

Efroiken claims that he had accepted an offer to sell and goes to court

Simon claims:

He requested his agent to see if anyone was willing to buy

His offer was not definite and complete

Issue: Did the telegram constitute a definite and complete offer?

Held: Not an offer

Merely a request for an offer to purchase Communication between the two agents was not a statement of intention but a request

Held:Simon never made an offer for Efroiken to accept

"A request to make an offer dos not constitute a complete and definite offer"

Harvey v Facey

Facey receives telegram asking how much he would sell his farm for

He responds: £900

Harvey claims that this constituted an offer and now he wants the farm for £900 because he accepted the offer to sell

Facey claims:

He only answered the telegram Made no offer to enter into an agreement Merely stated the value of the property with no intention to sell

Held: Agreed with Facey

This was purely a statement of information No offer to sell propery No commitment to make an offer

Tentative/Incomplete/Preliminary Proposals

Pitout v North Cape Livestock Co-op Ltd

Pitout owns cattle and her son is in deep debt with respondent through his failed trade in livestock

When respondent comes to collect the debt, Pitout’s son is not around and she, in an attempt to resolve the debt, proposes to sell her cattle to the respondent at R170 per head.

Son arrives and is rude and insults respondent

Pitout storms off and says she will leave them to resolve the issue amongst themselves

After confrontation, son is still in debt and respondent now wants to contractually hold Pitout to her proposition

Respondent claims Pitout made a contractually binding offer and is now liable to it

Pitout claims:

She made proposition, but it was not definite or complete

She had left before the offer had been finalised or an agreement had been reached

Since this was her son’s debt, he also had to contribute

Issue:

Was the undertaking an offer made, animo contrahendi, which upon acceptance would give rise to an enforceable contract, or was it merely a proposal made...while the parties were in the process of negotiation and were feeling their way towards a more precise and comprehensive agreement?

Held: No offer had been made completely. Merely tentative proposal because on a balance of probabilities:

1. At the time the proposal was made, Pitout had no clear picture of the situation and it was unlikely that she would have finally committed herself to the terms of the undertaking before obtaining such confirmation

2. Until the matter had B been discussed with John appellant would not have known what attitude he was going to adopt; and, in the circumstances and bearing in mind past experiences, it seems improbable that she would have committed herself irrevocably to the undertaking before John's arrival.

3. The terms of the undertaking were left very much in the air. Thus, for example, there did not appear to be any unanimity among respondent's witnesses as to what the so-called "guarantee" meant and what would happen, for instance, in the event of the proceeds of the sale of the 72 cattle falling short of the "guaranteed" figure of R12 240.

4. There is a similar uncertainty as to precisely which cattle were intended as the subject-matter of the G undertaking. No doubt these uncertainties would also have been ironed out when the agreement was finally concluded and reduced to writing.

5. Whatever the identity of the cattle to be sold in terms of the undertaking, they were at the time under lease to John. Consequently, his consent to the proposed sale would have been necessary. Presumably, this was another reason why he was summoned. Until he gave consent it is difficult to see how appellant A could have given an unqualified promise in terms of the undertaking.

6. The Conversation between the respondent’s witnesses savours rather of an attempt to salvage something from the wreck of the negotiations than of a firm conviction that a contract had been concluded.

Communicated to the Offeree

The offeror must communicate their offer to the other party.

One cannot accept an offer of which they do not know about.

Both parties must know that the offer has been made, as well as exactly

what is going on and what the arrangements are.

Specific Issues Regarding Offer

Advertisements and Price Tickets

Although a firm offer may be made to anyone in the whole world by way of

advertisement as was seen in Carlill v Carbolic Smoke Ball Company

“It is an offer made to all the world; and why should not an offer be made

to all the world which is to ripen into a contract with anybody who comes

forward and performs the condition?”

Bloom v American Swiss Watch Company

De Villiers AJA

American Swiss Watch Company is robbed of lots of expensive jewellery.

Puts up an advertisement contractually offering a reward to anyone who might, in a prescribed fashion, provide information that will lead to the recovery of the jewellery and the arrest of the criminals

Bloom provides the information in the prescribed manner which leads to the recovery of the jewellery and arrest of the criminals, not knowing anything about the existence of the reward offer.

Some time later, he discovers the reward offer and attempts to claim.

American Swiss Watch Company says no because he did not know about the offer.

Held: There was an offer with a specified mode of acceptance

Held: even though Bloom followed the mode of acceptance, because he did not know about the offer, lacked the animus contrahendi required to accept and enter into a contract and create a vinculum iuris between himself and the Company. He did not intend to accept anything.

Held: “There is no loose equitable principle that a person who, in ignorance of a published offer, complies with its terms can take advantage of it”

As well as in Bloom v American Swiss Watch Company, A mere advertisement

or price tag does not necessarily constitute an offer.

What needs to be established is who it is, exactly, that is making the offer:

Is it the shopkeeper who is making an offer to sell or is it the general public that

comes into the shop that makes an offer to buy?

Thus, in these instances, the general rule is to:

Determine what the advertisement actually means HOWEVER

Sometimes the seller may go beyond giving out a mere notice of intention

to sell, in which case, he would be bound to a contract

Tenders

Calls for tenders do not constitute an offer

Merely an invitation to do business (make an offer)

Crawley v Rex

Shopkeeper puts up an advertisement for really cheap tobacco

Crawley comes in, buys some, leaves, then returns again to buy more

Shopkeeper declines to sell to him again and insists that he leaves.

Crawley refuses and says that by his acceptance of the offer (the advertisement) to contract, he was entitled to remain in the shop until the contract was performed.

Issue: Was there even an offer? Who made it?

Held: advertisement was merely the announcement of an intention to sell the product at the stated price

Held: the shop does not make the offer to sell, he merely invites an offer. It is the buyer that makes an offer to buy

Held: the tradesman is entitled to accept or refuse the offer

Held: ruling that it was the shop that made the offer would present too onerous a burden for the shopkeeper to bear, including the consequences of dealing with the impossibility of performance due to lack of stock etc

Options

An option is analysed in two parts

Offer to enter into the main contract

A concluded subsidiary contract binding the offeror to keep the offer

open only to the offeree for a certain period

e.g. I offer to sell my car to someone for R50 but they only have until nest week

Monday to accept after which I can make the offer to someone else.

Note: An option is an irreversible offer

Two Kinds of Options:

Initial Option

There is no contractual relationship between the parties yet, save for

the arrangement binding the offeror to leave the offer open to the

particular offeree for a specified period of time

Secondary/Renewal Option

Existingcontractual relationship with a further agreement binding the

offeror to leave the next offer concerning the object of the agreement

open to the particular offeree for a specified period of time e.g. Lease

arrangements

Rights of Pre-emption

Also known as the right of first refusal

Conditional and is guaranteed only if the granter decides to sell

Termination of Offer

Effluxion of fixed time

Lapse of reasonable time

Death

Loss of contractual capacity

Rejection

Counter offer

Withdrawal or revocation

Irrevocable offers

Effluxion of fixed time

The offer has to be accepted both by the date specified as well as in the manner

specified

Lapse of Reasonable Time

When the offeror does not give a specific date to accept by, then the acceptance

must be made within what can be considered a reasonable time. This is gauged

on a balance of probabilities by the Courts.

Death

If either party dies, consensus cannot be reached. This includes donations, but

NOT bequests.

Loss of contractual capacity

“Speaking generally, when the acceptance of an offer is conditioned to be made within a time or in a manner prescribed by the offeror, then the prescribed time limit and manner should be adhered to.” Dies interpellat pro homine (the day demands instead of the [offeror])

Innes CJ Laws v Rutherford

The question arises as to whether the offer expressly or impliedly permits

acceptance to be made in the circumstances, and the implications will not be

lightly made.

Rejection

Counter Offer

It is usually regarded that a counter offer incorporates a rejection of the initial

offer and, therefore, destroys the original offer

Withdrawal or Revocation

The general rule is that the offeror may withdraw or revoke his offer at any time

before it has been accepted.

“An offer continues only until the offeree has replied to it, and directly he replies the offer ceases to be directed to him. Unless this were so, an offeror would never know when a refusal might be turned into an acceptance, and so he would be precluded from seeking other parties with whom to contract”

Wessels JA

“It must also be remembered that a counter offer is a general equivalent to a refusal of an offer and that thereafter, the original offer is dead and cannot be accepted until revived”

Watermeyer v Murray

“If an offer is made, the oferee may enquire whether the offeror will modify his terms and such an enquiry will not constitute a refusal”

Wessels JA

The withdrawal or revocation becomes effective only from the time it comes to

the notice of the oferee. This is not to say that an oferee is obliged to take note

of any rumour that may come to their attention.

NOTE: not every offer to the public will be susceptible of this interpretation as

the Court may sometimes be driven to the conclusion that a particular offer of

this type may not only be withdrawn without notice, but impliedly may not be

withdrawn even with notice if the withdrawal would amount to fraud on any

member of the public who has embarked on the process of acceptance.

Irrevocable Offers

Although offers are normally irrevocable, an offeror may expressly or impliedly

make their offer irrevocable for a fixed period of time (e.g. by means of an

option.)

Acceptance

A contract only comes into existence once a consensus ad idem is reached by

way of acceptance.

An acceptance is a statement of intention in which the oferee signifies their

assent to the proposal embodied in the offer.

Requirements for a Valid Acceptance

Acceptance must be made by the person to whom the offer was made

Acceptance must be in response to the offer

Acceptance must be unconditional/unequivocal and unambiguous

Acceptance must be communicated to the offeror before the contract can

come into being

Acceptance must be made in the prescribed manner

Acceptance must be made by the person to whom the offer was made

Recall the principle in contract law that one may contract with whomever they

so choose

Note: If offer to contract is made to all the world or a group/class of unspecified

people, the first person to accept the offer, is entitled to the performance of

the contract.

Acceptance must be in response to the offer

Acceptance must be made intentionally

There must be an animus contrahendi to enter into the particular legally

enforceable contract.

Bloom v American Swiss Watch Company

ASWC offers reward for information relating to stolen goods

Bloom gives valuable information but is NOT aware of the offer of reward

Court holds he is not entitled to the reward as he had no intention to accept the offer and, as such, there was no consensus ad idem required for the conclusion of a contract

Levin v Drieprok Properties

Acceptance must be unconditional/unequivocal and unambiguous

Acceptance must be communicated to the offeror before the contract can

come into being

Boerne v Harris

Lease of hotel from 15 April 1942 – 15 April 1947 with option to sign for a further 5-year period

Notice of intention renew to be given by 15 October 1946

Boerne sends letter of action to renew the lease through his lawyer.

Letter reads that lease to be renewed from 15 October 1945 (wrong date) when it should have been 16 April 1947

Majority Judgment:

Boerne showed intention to renew lease but not enough, because:

Acceptance letter was unclear and ambiguous in relation to main contract

Thus did not constitute acceptance of offer and no right of renewal

Dissenting Judgment Schreiner JA:

Majority judgment too harsh, can construe from the context what Boerne meant to say

Intention was clear

Note: “The acceptance should leave no room for doubt. The recipient is not required to apply any special knowledge or ingenuity in ascertaining the meaning of the letter” Greenberg JA

This ensures that a consensus ad idem is reached.

Acceptance must be made in the prescribed manner

Offers are sometimes made generally, but the sometimes attach a manner of

acceptance that is required. E.g. via post etc and Recall Bloom v American Swiss

Watch Company

If an offer is prescribed, then the oferee must comply with the mode of

acceptance to accept and finalise the contract.

If there is a failure to comply, there is no acceptance and thus, no contract.

Laws v Rutherford

Rutherford gave Laws a 3month option to enter into a contract where he could cut timber on her farm. Option until 26 July

Mode of acceptance was to be by way of registered letter to Rutherford

Laws builds plant on farm but doesn’t accept by the prescribed mode in time

Accepts on 28 July by letter and 29 July by telegram

Rutherford tells Laws to Pack and Go

Laws claims that Rutherford ought to have known that the offer was accepted when she saw him set up the plant on the property

Held: Laws did not accept within the prescribed time in the prescribed way

There was no proof that Rutherford waived her right to demand definite written notice

Held: No contract

Driftwood Properties (Pty) Ltd v McLean

This case dealt with an offer to purchase. The offer was open and binding upon both parties until signed by

both parties, on or before 17 May 1969. It was stated that the contract would lapse if only one of the

parties signed. The respondent signed on 30 April and the appellant signed on 17 May. The signed

Silence as Acceptance?

If an offer is made and there is no response, the silence cannot be construed to

amount to acquiescence unless in circumstances which give rise to a “duty to

speak” if the offeror is not prepared to accept the offer.

Driftwood Properties (Pty) Ltd v McLean

This case dealt with an offer to purchase. The offer was open and binding upon both parties until signed by

both parties, on or before 17 May 1969. It was stated that the contract would lapse if only one of the

parties signed. The respondent signed on 30 April and the appellant signed on 17 May. The signed

Seeff v Silberman

Silberman, while still in Australia concluded a contract with the appellant, Seeff Properties, which required the appellant to act as project manager and oversee the redevelopment of his property.

Seef to build according to plans agreed upon by both parties at a price not exceeding R 1’616’500 at a fixed date. Upon completion, Silberman says unsatisfactory as it breached the terms of the contract, costing him damages exceeding R 2’000’000. He launched a claim for the recovery of the amount which, in turn, was met with a counter claim for payment of commission. The Judge a quo held that there, indeed, was a contract, which the appellant had breached.

Issue: Consensus

Held: For contract, consensus ad idem. Secondly, since notification of acceptance is required. This acceptance of offer may be either implicit or express, meaning, if the offeror acts without communicating the acceptance in accordance with the terms of the contract, it is taken that it has been accepted. The law also holds that if the offeror has indicated that express notification of the contract is unnecessary to

The same principle applies in cases of the reception of unsolicited goods.

Silence will amount to acquiescence unless the receiver of the goods sends them

back (omitting postage fare) to indicate a refusal of the offer OR send a letter

(again, omitting postage fare) stating a refusal of the offer and refusing

responsibility for the goods which will be treated as abandoned if not collected

immediately. Goods may be kept and used or disposed of without any liability if

not collected by sender within a reasonable period of time.

Contracts Concluded through the Post

Four Potential Theories of Acceptance through the Post

Declaration Theory

Expedition Theory

Reception Theory

Seeff v Silberman

Silberman, while still in Australia concluded a contract with the appellant, Seeff Properties, which required the appellant to act as project manager and oversee the redevelopment of his property.

Seef to build according to plans agreed upon by both parties at a price not exceeding R 1’616’500 at a fixed date. Upon completion, Silberman says unsatisfactory as it breached the terms of the contract, costing him damages exceeding R 2’000’000. He launched a claim for the recovery of the amount which, in turn, was met with a counter claim for payment of commission. The Judge a quo held that there, indeed, was a contract, which the appellant had breached.

Issue: Consensus

Held: For contract, consensus ad idem. Secondly, since notification of acceptance is required. This acceptance of offer may be either implicit or express, meaning, if the offeror acts without communicating the acceptance in accordance with the terms of the contract, it is taken that it has been accepted. The law also holds that if the offeror has indicated that express notification of the contract is unnecessary to

Information Theory

Declaration Theory

Acceptance takes place when the receiver declares their intention to accept the

offer. The contract is made from the day the letter is written

Expedition Theory

Acceptance takes place when and where the letter of acceptance is posted.

The posting of the letter constitutes acceptance of the offer.

Reception Theory

Acceptance occurs when and where the letter of acceptance is received.

Information Theory

Acceptance occurs when and where the offeror opens and reads the letter of

acceptance. Acceptance is when the offeror becomes informed of the

acceptance.

Fern Gold Mining Company v Tobias

Tobias applies for shares in Fern Gold Mining Mining Company, pays £250 for them on application

18Feb, Director allots Tobias 500shares

19Feb Tobias writes to agents, repudiates shares and demands refund

19Feb (After Tobias’ Letter) Agents write to Tobias and inform him that his shares have been allotted to him

Tobias claims that he repudiated the shares before the letter informing him of the shares was written and is, as such, not liable for those shares.

Held: “When an offeree accepts an offer, he must communicate his acceptance thereof to the offeror. Until the acceptance has reached the mind of the offeror, no obligation can arise, and until that happens, the offeror is entitled to withdraw his offer”

Held: Tobias repudiated offer before the notice of allotment – even before the letter was posted.

Held: no binding contract between him and the company

Fern Gold Mining Company v Tobias

Tobias applies for shares in Fern Gold Mining Mining Company, pays £250 for them on application

18Feb, Director allots Tobias 500shares

19Feb Tobias writes to agents, repudiates shares and demands refund

19Feb (After Tobias’ Letter) Agents write to Tobias and inform him that his shares have been allotted to him

Tobias claims that he repudiated the shares before the letter informing him of the shares was written and is, as such, not liable for those shares.

Held: “When an offeree accepts an offer, he must communicate his acceptance thereof to the offeror. Until the acceptance has reached the mind of the offeror, no obligation can arise, and until that happens, the offeror is entitled to withdraw his offer”

Held: Tobias repudiated offer before the notice of allotment – even before the letter was posted.

Held: no binding contract between him and the company

Cape Explosive Works Ltd v SA Oil and Fat Industries

Cape Explosive Works and SA Oil and Fat Industries want to enter into contract

Cape Explosive Works contends they accepted the offer in Cape Town where they posted the letter of acceptance

SA Oil and Fat Industries denies this and says that the offer is only accepted when and where the letters of acceptance were received (Transvaal and Natal)

Kotze JP

Expedition theory most practical – A contract is made through the post when the letter is posted with the post marks and stamp serving as evidence.

NOTE: In the conclusion of contracts by post, the expedition theory is the

default theory unless it is expressly indicated within the contract that it does not

apply. Contractants are free to state as a term in the mode of acceptance that an

offer is only deemed as accepted when e.g. the letter of acceptance is delivered

into the offeror’s hand (reception theory) and read out loud to him (information

theory).

Electronic Contracts

Governed by Electronic Communications and Transactions Act 25 of 2002

(ECT)

Kerguelen Sealing and Whaling Company Ltd v Commissioner for Inland Revenue

Contracts of whale oil signed in London by offeror and sent to Cape Town for signature by oferee company, which then posted the signed contracts back to London.

Commissioner for Inland Revenue contends that incomes should be taxed under SA Union since contract concluded in SA

Kerguelen says no, contract concluded in London

Held: Income derived from the contracts was derived from a source within the Union by virtue of a contract concluded within the Union

Held: Accepting Cape Explosive Works Co Ltd conclusion that since contract accepted in Union by a company registered in the Union AND there was no express intention stipulated by the contractants as to where the contract was to be deemed to be concluded, the contract was, by Expedition Theory, concluded in the Union and is subject to Union tax laws

Thus: Confirmation of Cape Explosive Works case

22. Formation and validity of agreements

(1) An agreement is not without legal force and effect merely because it was concluded partly or in whole by means of data messages.

(2) An agreement concluded between parties by means of data messages is concluded at the time when and place where the acceptance of the offer was received by the offeror.

23. Time and place of communications, dispatch and receipt

A data message -

THUS: A contract is only concluded once the notification of acceptance is

received by the offeror.

22. Formation and validity of agreements

(1) An agreement is not without legal force and effect merely because it was concluded partly or in whole by means of data messages.

(2) An agreement concluded between parties by means of data messages is concluded at the time when and place where the acceptance of the offer was received by the offeror.

23. Time and place of communications, dispatch and receipt

A data message -

Theories of Contract and the Law of Mistake

One can only escape a contract if they can show that a legally significant

mistake has been made in the conclusion of the contract.

Two requirements must be fulfilled, though:

1. The mistake must be essential to the object of the contract.

a. The rationale, here, is that if one or both parties had known about

whatever it is that is the source of the problem, they would not

have concluded the contract.

b. This is often very hard to prove.

2. The mistake must be justifiable by law

There are two theories which are used to determine this as well as much debate

as to which is the best

Theories of Contract

Subjective/Will Theory

Objective/Declaration Theory

Reliance Theory

Subjective/Will Theory

Requirements:

The minds of both parties must meet subjectively on all the proposed

terms

There must be a true subjective agreement between the parties for a

contract to be formed

The wills of the parties must coincide

Each party must know exactly what the other party is proposing and

thinking i.e. their views must coincide perfectly

If there is no identical true agreement, there can be no contract

Unless the agreement is perfect, there can be no guarantee at all

Problems:

This theory has made it too easy for a party to avoid a contract on the

basis of mistake

o Since people’s minds cannot be read, it will be almost

impossible to prove the contrary

The slightest reservation from either of the parties can exonerate them

from the contract, thus, getting a 100% subjective clarity on the

agreement is too onerous a burden to bear

There is no security of contract because it is easy for either contractant

to change their mind and get out of fulfilling their contractual

obligations

Legitimate expectations would not be fully protected

Objective/Declaration Theory

The primary question here is: does it appear objectively from outward

declaration for there to be a contract between these two parties?

Only looking at the outward appearance

Application of the standard test:

What does the arrangement look like from a third party perspective? Does it

look like there was an agreement?

The key to the test is: does it look like the contractants declared an

agreement between each other?

This theory makes it a lot simpler to prove whether or not there was a contract

between the parties

One can look at the particular situation, see the evidence and then decide

whether or not there was a contract

SA Railways and Harbours v National Bank of SA Ltd

“Although the minds of the parties must come together, courts can only judge form external fact whether this has or has not occurred. In practice, therefore, it is the manifestation of their wills and not the unexpressed will which is of importance

“The law does not concern itself with the workings of the minds of parties to a contract, but with the external manifestation of their minds. Even if from a philosophical standpoint the minds of the parties do not meet, yet if by their acts, their minds seem to have met, the law will, where fraud is not alleged, look to their case and assume that their minds did meet and that they contracted in accordance with what the parties purport to accept as a record of their agreement. This is the only practical way in which Courts of law can determine the terms of a contract” Wessels JA

Further Confirmed Roberts AJ in Jordaan v Trollip

Problems

The objective/declaration theory takes o account of the intentions of the

parties.

o It is a key feature of consensus that there must be a consensus ad

idem-which is not given much consideration by this theory

The theory makes no consideration of the erring nature of human beings

[Pathetic]

It is suggested that there would be no defence to fraud [this argument is

overridden by Wessels JA’s specific mention of fraud in SAH & R v

National Bank of SA Ltd]

NOTE:

Both theories are problematic when viewed in isolation.

Subjective theory: Not enough evidence

Objective theory: discounts the minds of the parties

Thus

Reliance Theory developed and introduced as a compromise theory

Reliance Theory

Saambou Nasionale Bouvereeniging v Friedman

The subjective theory should only serve as a point of departure for determining the existence of the contract.

o Was there a meeting of the mind? In most contracts, there is a subjective contractual arrangement

In certain circumstances, there has to be some sort of compromise – an appeal to objectivity.o Subjectivity can lead to impractical or unfair results. Thus, one must sometimes make

an appeal for the objective theory. This is particularly important in the Law of Mistake.

Also known as:

The Doctrine of Quasi Mutual Assent

The Doctrine of Apparent Agreement

In this theory, the mistake is called a iustus error [legal mistake]

Process:

P alleges a contract

Q disagrees and claims a mistake or confusion thus no agreement since no

consensus ad idem

A contract will be confirmed if:

The party alleging a mistake (Q), by his outward actions, creates in the mind of

the other party (P) the belief/reliance that an agreement has been reached

The facts show that the belief/reliance of the other party (P) is reasonable

Thus, what needs to be asked is:

Was Q’s conduct that of a contract?

Based on the facts, was it reasonable for P to think that there was a contract?

While there is no subjective agreement, it is not so easy in the reliance theory

for Q to exonerate themselves from the contract if the created, in the mind of P,

an impression of there being an agreement that reasonably led P to accept it and

assume it binding.

Thus

The burden of proof is carried by the party alleging a mistake (Q)

Method:

Is it reasonable for P, looking at how negotiations proceeded as well as Q’s

words and conduct, to be entitled to assume a valid contract?

Was P’s reliance on Q’s declarations/conduct reasonable?

If yes, there is a contract.

Smith v Hughes

“If, whatever a man’s real intention may be [Q], he conducts himself that a reasonable man [P] would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself [Q] would be equally bound as if he had intended to agree to that other party’s [P] terms.” Cockburn J

Hodgson Brothers v SA Railways and Harbours

Hodgson Bros inform SA R&H that they have a lorry to sell at £500 Negotiations ensue about terms of contracts, but not once is the price disputed Negotiations concluded, SA R&H makes complete and definite offer to purchase the lorry Hodgson Bros receives and accepts offer by post 5 days later, SA R&H sends telegram (Sorry, forgot to mention that we’re only buying at £300) Hodgson refuses this and says the agreement was £500 and they had accepted the offer already,

so contract concluded SA R&H claims mistake

o Only willing to pay £300

Reliance Theory and signed Documents

Principle of caveat subscriptor

Attaching one’s signature to a contract signifies assent to the contents of the

document and, unless mistake can be proved, bound to contract.

Hodgson Brothers v SA Railways and Harbours

Hodgson Bros inform SA R&H that they have a lorry to sell at £500 Negotiations ensue about terms of contracts, but not once is the price disputed Negotiations concluded, SA R&H makes complete and definite offer to purchase the lorry Hodgson Bros receives and accepts offer by post 5 days later, SA R&H sends telegram (Sorry, forgot to mention that we’re only buying at £300) Hodgson refuses this and says the agreement was £500 and they had accepted the offer already,

so contract concluded SA R&H claims mistake

o Only willing to pay £300

Burger v Central South African Railways

Burger’s agent, on his behalf, couriers valuable law books by train to Grahamstown

Agent signs consignment note incorporating the terms and conditions by reference “as though they were fully stated thereon”

Burger reads consignment note before books go off, but says nothing

Books get lost in transit, burger wants to claim full value of books

SAR says no, only a small fraction as per Terms and Conditions which he assented to by signature (agent’s)

Held: No doubt about signatory being bound by what they have assented to if the terms were printed on consignment note and there’s no difference if they are referred to

“It is a sound principle of law that a man, when he signs a contract, is taken to be bound by the ordinary meaning and effect of the word which appear over his signature” Innes CJ

Thus: Burger had to be happy with small amount received as calculated as per the regulations to which he assented

Cape Group Construction v Government of the United Kingdom

Cape Group Construction makes offer to make repairs to Govt UK consulate in Cape Town

Quote [offer] faxed to Govt UK and accepted. At bottom after signature line, says T&C [limiting liability for damage] on reverse – no reverse was faxed

Construction happens, fire breaks out. Damage to UK Cconsulate

UK Govt says Cape Group Construction liable and should pay for damage

Cape Group Construction says no, UK Govt assented to T&C. “This order can only be cancelled on payment of 15% of the total amount. See reverse side for further conditions”

UK Govt says T&C not sent and “T&C overleaf” was overlooked, presumed to refer to payment when looked at in context.

Held: Subjectively, will of Cape Group Construction to point out all T&C

Held: Objectively, since T&C indicator appeared at foot of order, can only be deduced that the T&C could only considered pro non scripto and Cape Group Construction did not intend for them to be part of the contract

UK Govt could only be bound to terms presented to them which was the one side faxed to them Thus no animus contrahendi to contract on terms which were not included and subsequently unseen

Held: Even though T&C referred to, construction of words does not clearly indicate that they form part of

Reliance Theory and Ticket Cases

Cape Group Construction v Government of the United Kingdom

Cape Group Construction makes offer to make repairs to Govt UK consulate in Cape Town

Quote [offer] faxed to Govt UK and accepted. At bottom after signature line, says T&C [limiting liability for damage] on reverse – no reverse was faxed

Construction happens, fire breaks out. Damage to UK Cconsulate

UK Govt says Cape Group Construction liable and should pay for damage

Cape Group Construction says no, UK Govt assented to T&C. “This order can only be cancelled on payment of 15% of the total amount. See reverse side for further conditions”

UK Govt says T&C not sent and “T&C overleaf” was overlooked, presumed to refer to payment when looked at in context.

Held: Subjectively, will of Cape Group Construction to point out all T&C

Held: Objectively, since T&C indicator appeared at foot of order, can only be deduced that the T&C could only considered pro non scripto and Cape Group Construction did not intend for them to be part of the contract

UK Govt could only be bound to terms presented to them which was the one side faxed to them Thus no animus contrahendi to contract on terms which were not included and subsequently unseen

Held: Even though T&C referred to, construction of words does not clearly indicate that they form part of

Central SAR v McLaren 1903

McLaren lost things at railway cloakroom after he lost his ticket.

Did not know T&C – “Limited Liability” was written on ticket, but description written on this, covering LL. Also, company did not sufficiently draw T&C to attention of McLaren. Central SAR held liable.

“Where a person delivers a parcel at the cloakroom of a railway company, and receives a ticket with conditions on the back limiting...liability, he is not bound if he does not know there is writing on the ticket; but if he knows...he is bound if...notice is given that it contains conditions.” Innes CJ [quoting English law]

Durban Water Wonderland v Botha and Another 1999

“an objective test based on the reasonableness of the steps taken by the proferens to bring the terms in question to the attention of the customer or patron.” Scott JA

Mistake

Since reliance theory not solid enough (because one party can allege that there

was a contract without having to prove it) there is a formula to proving a iustus

error or Mistake.

Formula

1. Party alleging a contract (P) must prove a prima facie agreement

a. A declaration of intent on their part (offer)

b. A corresponding declaration from the other party (Q) (acceptance)

2. If P is successful, onus passes to Q to prove mistake

a. Q is bound by the contract unless they can prove a iustus error on

the basis of:

i. Confusion in a material sense

ii. Unreasonable reliance on P’s part

Material Confusion

Central SAR v McLaren 1903

McLaren lost things at railway cloakroom after he lost his ticket.

Did not know T&C – “Limited Liability” was written on ticket, but description written on this, covering LL. Also, company did not sufficiently draw T&C to attention of McLaren. Central SAR held liable.

“Where a person delivers a parcel at the cloakroom of a railway company, and receives a ticket with conditions on the back limiting...liability, he is not bound if he does not know there is writing on the ticket; but if he knows...he is bound if...notice is given that it contains conditions.” Innes CJ [quoting English law]

Durban Water Wonderland v Botha and Another 1999

“an objective test based on the reasonableness of the steps taken by the proferens to bring the terms in question to the attention of the customer or patron.” Scott JA

Error in negotio [Nature and Type of Contract]

Error in corpore [Subject Matter of Contract]

Error in persona [Contracting Persons]

Error in Negotio

Occurs when there is confusion in the nature and type of contract entered into

This is when the category of contract is confused

e.g. P believes this is a contract in sale whereas Q believes it is one in lease

This is significant because the error goes to the heart and is fundamental to the

proceeding of the contract.

Dobbs v Verran 1923

Verran drove Dobbs 300miles to Grahamstown – no mention of paying for the lift

Dobbs sues Verran £30 for Medical Expense debt

Verran counter-sues Dobbs £15 for Lift

Dobbs claims that he does not owe the money because he thought it was a free lift

Issue: Confusion in nature of contract

A Quo:

Dobbs failed to prove that he was invited as a guest for the lift [Note onus on party claiming mistake from the very get-go.]

It was implied in the oral contract for him to pay the amount Thus Dobbs must pay Verran £15 for lift

Appeal:

No contract expressly or impliedly existed [Note requirement of prima facie evidence of contract – failed]

Dobbs reasonably though that he was guest even if Verran thought he had to pay [Reliance requirement]

Parties not ad idem Thus: Dobbs does not have to pay

Error in negotio goes beyond negotiation, also includes confusion referring to

an essential term of the contract

Horty Investments v Interior Acoustics 1984

Horty agrees to lease building out to Interior Accoustics for 2years

Horty drafts lease contract, typo = 12year lease

Interior Acoustics signs lease and makes no mention of error

Interior Acoustics now wants the 12year lease

Horty says no – typo!

Held: Prima Facie Proof of Agreement [Signed Contract]

Held: The dispute concerns an issue material to the contract [duration of lease]

Held: Even though no evidence that Interior Acoustics knew about the error, Reasonable person would have noticed the error and mentioned the discrepancy

Held: remaining silent on the discrepancy and claiming benefits from what wasn’t agreed in the negotiation process is unreasonable

Held: Although Horty made the mistake, there is a clear error in negotio which was unreasonably exploited by Interior Acoustic

Held: No consensus ad idem, here, Thus no contract on basis of unreasonable reliance

Sonap Petroleum v Pappadogianis 1992

Sonap negotiates to lease property from Pappadogianis for 20years

Pappadogianis agrees, but mistakenly shortens it to 15years when typing addendum to the lease agreement concerning the term

Sonap signs lease on good faith

Issue: How long does the lease last?

Held: Prima Facie proof of contract [Signed Lease Document]

Held: Consensus on Duration of Lease Material to contract

Held: Sonap made a mistake when it signed the contract which Pappadogianis knew about (since this was not what was agreed in the negotiations) and kept silent about

Held: It is unreasonable to keep silent about what is clearly an error and then rely on it to demand that Sonap leave after 15years.

Held: on basis of unreasonable reliance, Addendum shortening the lease = null and void

George v Fairmead 1958

George makes verbal arrangement with Fairmead Hotel receptionist to pay fixed monthly rate for hotel room

Moves in on 1st February and signs the register filling in details at top of form and signing at the bottom

1st March personal effects amounting to £125-03

George wants Fairmead to pay

Fairmead claims not liable – T&C on contract [register] clearly stipulate that the hotel will not be held liable for damage or loss of property which George assented to by signature

George wants exception based on reasonable misapprehension – iustus error in negotio - (didn’t think that register was contract) and attention was not drawn to the clause nor had the T&C been part of the oral agreement

Held: Signed register constituted prima facie proof of contract

Held: George had known he was signing a contractual document as the tariff was written in by the applicant. He chose not to read the additional information and personally took risk of being bound by it.

Held: One cannot claim ignorance in iustus error. The hotel couldn’t have known George was confused or hadn’t read the clause as he had signed the document.

Held: It was reasonable of Fairmead to presume that George knew what he was doing and signing. [Reasonable reliance on conduct of George]

Error in Corpore

This is the confusion as to the subject matter of the contract, the identity of the

thing that is the subject matter of the contract.

Maritz v Pratley 1984

Maritz was an auctioneer and had a sale in a store, on the morning before the sale, Pratley saw and read the catalogue which included the conditions of sale on which each item had been labelled

During the bidding for no. 1208 (a mantel-piece carrying the mirror - item 1209 and various other items), Pratley bough this thinking that he would get mirror and other items too. Excuses of “I didn’t hear the announcement”

Maritz says no, only the mantel-piecePratley says lots were sold together all or nothingMaritz sues for Pratley sued for £15-10 [Price and commission]

Magistrate: Issue of error in corpore

Magistrate: Prima facie evidence of contract by virtue of sale

Magistrate: Pratley’s reliance on conduct of Maritz and the way the auction was conducted reasonable. The lots were arranged to look as though they were one lot. Could reasonably cause anyone to believe that they were one sale

Magistrate: No consensus ad idem on the subject matter of the contract, therefore incomplete contract

Magistrate: Pratley not liable to pay for sale. Only commission Maritz Appeal

Held: Appeal Dismissed

Allen v Sixteen Stirling Investments 1974

Allen purchases land

Given written deed of sale, which is signed by both parties

After signature, realises diagram of property different to what he was shown

Upon investigation, realise that the estate agent had shown him the wrong property

Contends that but for the agent showing him the wrong property, he would never have bought it – clearly error in corpore

Seller raises exception that it was Allen’s issue since he did not check the property diagram before he signed it and also, exemption clause for any misinformation by the agent

Held: Prima facie evidence of contract [signed Deed of Sale]

Held: Conduct of Estate Agent attributable to the seller thus questionablity of that clause based on Public Policy

Error in Persona  

Confusion regarding the person involved in the contract – confusion as to who

exactly is contracting.

Allen v Sixteen Stirling Investments 1974

Allen purchases land

Given written deed of sale, which is signed by both parties

After signature, realises diagram of property different to what he was shown

Upon investigation, realise that the estate agent had shown him the wrong property

Contends that but for the agent showing him the wrong property, he would never have bought it – clearly error in corpore

Seller raises exception that it was Allen’s issue since he did not check the property diagram before he signed it and also, exemption clause for any misinformation by the agent

Held: Prima facie evidence of contract [signed Deed of Sale]

Held: Conduct of Estate Agent attributable to the seller thus questionablity of that clause based on Public Policy

National Overseas Distributors Corporation v Potato Board 1958

NODC makes a tender to construct steel shed for Potato Board

NODC receives an acceptance letter to the offer after which the begin making preparations for construction

Potato Board makes call saying that sorry, we sent the acceptance letter to the wrong people and therefore there was no contract between them. Actually, tender to someone else.

NODC says NO! Performance! No way of knowing that the letter was meant for someone else

Issue: Who was contracted with?

Held: Prima facie evidence of contract [by virtue of received acceptance letter]

Held: Acceptance letter sent to them, therefore reasonable to rely on Potato Board’s conduct that there was a contract

Held: Potato Board is bound by the contract

Non-material Confusion

Error in substantia – quality of the subject of the contract

Errant motive

Error in Substantia

This refers to confusion as to the quality of the subject of the alleged contract.

Errant Motive

This is where ones motive has changed and one was mistaken, the court

won’t accept this to call off the contract.

E.g. if one’s cow was sick and stopped producing milk and, anticipating

that cow’s death, one entered into a contract to buy a new one. If the cow

Trollip v Jordaan 1961

Trollip purchased a farm from Jordaan, the deed of sale reflected the boundaries and the extent of the property

Trollip was misled by the agents and thought the property had more land – claimed the mistake was material, reasonable and bona fide. But for misrepresentation by agents, he would not have bought the land

Thus cause of action was misrepresentation.

Held: No mistake can have any affect on the deed of sale.

Held: Thus the problem to quality is not considered material for the purpose of the law of mistake.

recovers; one cannot cancel the contract saying that one’s motives for

buying the cow have changed.

Prove Relying on the Contract is Reasonable

Is the reliance on the apparent agreement reasonable in the circumstances?

There are guidelines to determine reasonable reliance, the courts look at the

party who claims there is a contract. There will be reasonable reliance (no

matter what the other party did): if the party alleging the contract exists:

Subjectively knew of the material confusion but kept silent (Sonap) OR:

Ought to reasonably have known of the material confusion, but did not

clarify the position. (Horty)

Caused the confusion by misleading the other party (Allen)

Otherwise there is no mistake. (George, Potato Board)

1. Knew of the confusion and kept silent.

This is if they said nothing and simply snatched at the bargain. It is considered

unreasonable to behave in this manner and remain silent.

2. If one ought to have known there was a problem and kept quiet

unreasonably.

Sonap case: an addendum to a lease was drafted, a mistake was made in this

addendum, the lease was shortened from 20 – 15 years, then it was singed by

both parties. However there was no consensus and the addendum was

considered null and void.

3. Confusion Caused by misleading the other party

If the confusion was caused by misleading the other party, there could be no

consensus ad idem between the parties and, as such, no definite and complete

contract.

Mistake formula

1. The party alleging there is a contract (P) must prove prima facie

agreement

There must be a declaration of intention on their part and

A corresponding declaration on Q’s part.

2. If P is successful, the onus passes to Q

Q will be bound unless he can prove a mistake recognised by law

Q must prove :

Confusion in the material sense

The reliance of P is unreasonable

Final Comments:

If both aspects (confusion in material sense and unreasonable reliance) are

satisfied:

In a general sense there is a mistake ‘iustus error’ or in a more particular sense,

an:

Error in negotio

Error in corpore

Error in persona

(These are only to be used in the conclusion, never use them at the beginning of

a legal essay)

If the above is satisfied, no contract ever existed. The purported agreement is

void ab initio.  

If one can prove the requirements:

There will be no mistake and the contract will stand (George, Potato

Board, Hodgson Brothers) – claim to mistake failed.

The Effect of Finding a Mistake 

The effect of finding that an apparent agreement was tainted by a mistake:

If a mistake is found, then there was :

No meeting of the minds of the parties

No meeting in wither an objective or a subjective sense

No consensus between the minds of the parties

As a result, there was no contract at all.

No agreement was entered into, so the contract is thought to be void ab

initio, and so it is treated as if it never existed.

Misrepresentation

As far as misrepresentation is concerned in connection with the law of mistake,

if it has taken place, then the contract contains a mistake. Misrepresentation

Recall: Allen v Sixteen Stirling InvestmentsOne now has to look back to the formula and determine whether it is in conjunction with the facts.

1. Is there an apparent agreement (document) – yes2. Is there material confusion? – yes3. Is there unreasonable reliance on the part of the seller? – yes

Thus, both legs of the formula have been satisfied, and therefore, the contract never existed. As a result, one cannot rely on a clause in a non-existent contract.

entails total confusion and disagreement between two parties. However, there

are situations where misrepresentation works in a totally different way. Instead

of causing confusion and disensus, it can induce the agreement and meeting of

the minds. It can cause the parties to come together rather than be repelled apart.

This is usually a representation of quality which is false. An issue of quality

refers to the law of misrepresentation. Misrepresentation of the quality induces

the agreement; an element of consensus is present. However, consensus is

wrongfully induced by the misrepresentation. The courts acknowledge that there

is an agreement, but the agreement has been induced by misrepresentation, and

has been tainted by a wrongful act.

Where consensus is present but induced by a wrongful act, the contract is

voidable. Where consensus was never present as in a mistake, it is a void

agreement, there was never consensus.

Schematic Position Established in Petit v Abraham to define

Misrepresentation

Puff: It is a general or broad statement of praise or commendation which a

person makes to promote their goods, but it is not to be taken literally. A

Petit v AbrahamThe appellant inspected the respondents 3 horses with a view to purchase them. He asked the

ages of the horses, he was told that two were 6 and one was 5 years old. After hearing about the

ages the appellant bought the horses. Later it was established that none of the horses were under

the age of 10. The appellant sued for the purchase price. He claimed that because of what the

defendant said about the age of the horses he had misrepresented into purchasing the horses.

Held: Parties had contracted on the basis that the statement should form a term of the contract

and that it was a warranty

simple comment of praise does not bind and therefore misrepresentation

does not fall into this category.

Representation: Statement made before or at the time of contracting

regarding the quality or attributes of the subject matter and the contract. It

goes beyond mere puffery, but is not quite a term. Representation is often

what induces the agreement.

Terms: terms are found on the face of a contract. They are the matters to be

agreed upon to be incorporated into the contract. It guarantees performance;

the term binds one as part of the contract. The contract is breached if any of

these terms are not complied with. The law of misrepresentation is not

concerned with terms and breach thereof.

Thus:

Misrepresentation: is a representation whether by statement, conduct or silence

(where there is a duty to speak), which is false. Either innocently, negligently or

fraudulently, and which induces a party to contract either to all or on particular

terms.

Fraudulent Misrepresentation

There are 5 requirements to prove this:

1) A false representation

2) Representation wrongfully made

3) Made fraudulently

4) Inducement

5) Misrepresentation must have been made by the other party to the contract

1. False Representation

The statement must have actually been made, and it must have been false. The

statement is usually one of fact. A dishonestly stated expression of opinion of

the future is a false representation. (Feinstein v Niggli)

A false representation may occur in 2 ways:

(a) By words – when one actually says something false.

(b) By conduct – man selling a Villa next to a river, hired many fishermen on

the day of sale to induce the contractor to contract. This was a false

representation through means of conduct.

(a & b) By words and conduct

Scheepers v Handley 1960 [on appeal]

Scheepers sells Handley land which he claims is 997morgenHandley discovers after the sale is concluded that the land was 766morgenScheepers LIED about the size of the landHandley wants damages for overpriced land

Held: Clear misrepresentationHeld: Handley entitled to damages [equitable calculation by court]Held: Appeal dismissed

Bill Harvey’s Investment Trust v Oranjezicht Estates

Bill Harvey buys 35morgen farm for £55’000Oranjezicht lies and says there are 5750 trees actually 4892 treesBill Harvey wants damages of £10300 for missing trees based on fraudulent misrepresentation

A quo: award of £4724 appealed by OranjezichtHeld: onus rests on Bill Harvey to establish extent of how much he had been induced to pay by reason of having relied on the misrepresentationHeld: The representation had no part in inducing the plaintiff to pay the extra £11405 that he was demanding in initial claimHeld: Only £1491-10 shame.

2. Representation Wrongfully Made

Positive misrepresentation will be considered wrongful immediately.

If there was a duty to speak and there is failure to do so, it is considered

wrongful. Therefore, failure to speak is not automatically wrongful, there has

to be a duty to speak.

o If one makes a statement and realises that it is not true, there is a duty

to speak

o There is a duty of full disclosure in insurance contracts.

o Where a fiduciary relationship occurs between two parties, full and

frank disclosure is required.

o Any seller of property is required by law to expose the existence of

any defects on the property.

3. Representation Made Fraudulently

It must have been made intentionally or with dolus. In the case of Derry v Peek,

a false representation was made. Fraud is shown as:

Making a statement knowing it was false.

Making a statement with no belief of truth in the matter

Making a statement recklessly and carelessly without knowledge of it being

true or false.

Trotsman v Edwick

Trotsman tells Edwick that property is a certain size [LIES!!!!!] words

Trotsman paces out boundries with Edwick [LIES!!!!!] conduct

Edwick buys land

Later discoveres that 2/7 of the land actually belongs to the municipality and was about to be made into a public road

Held: Clear misrepresentationHeld: Award for damages

4. Inducement

There has to be a causal link between the making of the misrepresentation and

the final agreement. Trotsman v Edwick case:

Did the statement (representation) induce the contract? The

misrepresentation must have been material to the conclusion of the contract

– the person would not concluded the contract if they had known about those

terms.

Did it induce the contract in entirety or on a particular term?

5. Misrepresentation must have been made by the Other Party to the

Contract

Prior to the contract one has to prove that the misrepresentation was made by

the other party. If misrepresentation is made by a 3 rd party, it has no impact on

the contract.

Remedies

Remedies for fraudulent misrepresentation can be implemented in two ways:

Seek remedy by way of action as a plaintiff

In response to being sued for performance, one can claim fraudulent

misrepresentation as a defence.

There are 2 possible remedies:

1. Rescission and restitution

2. A delictual claim for damages

3. both rescission and restitution and damages

1. Rescission and Restitution

Rescission: if one can prove fraudulent misrepresentation, then one can elect to

rescind, call off, or declare the contract void. Proof of fraudulent

misrepresentation does not mean that the contract never existed, the contract is

voidable.

The contract is valid until one rescinds it. One can rescind the contract if the

fraud was material. It will be material in 2 situations:

If the misrepresentation was of such a nature that if one had known the truth

one would never have entered into the contract. There was a false

misrepresentation.

One would have, but for the misrepresentation still have contracted – but the

terms would have been different. This is also material; the misrepresentation

caused the deal to be different to the one that one would have agreed to. One

would have done the seal, just on different terms.

In both of the above mentioned circumstances, one is allowed to rescind the

contract. But there is a legal debate: Kerr v De Vos: Kerr states that one should

be able to rescind in both instances (dolus dans causum contractum and dolus

incidens in contractum), but De Vos states that one can only rescind in one

instance; one would not have contracted at all for the misrepresentation (only,

dolus incidens in contractum).

Important Points on Rescission

The election to rescind is yours. It must be done within a reasonable time, it

depends on the circumstances as to what reasonable is.

If one fails to express one’s choice within a reasonable time, it is deemed

that one stands by the contract.

Conduct indicating that one will rescind is binding

Once one has made the election, one cant change ones mind about it later.

Restitution – this is an equitable remedy invented by the Praetors in 66BC.

When a contract is rescinded, the contract now disappears; however, one may

have already performed in terms of the contract e.g. paid for part of it.

Restitution is for performance that occurred under the contract. Any

performance is now unjustifiable and therefore on has the right to it back.

Restitution is the right to claim back what one gave – it is an enrichment

remedy. One is restored to the previous position that one was in, as if there had

never been a contract at all.

Parts are usually restored to their original position unless:

Things that one has received have been destroyed as the result of fraud. E.g.

eggs rotten, cannot give them back because they are destroyed. Can’t give

them back but one can get the money back.

Where property has been destroyed by an act of God. E.g. ship sinks due to

lightning, cant give the property back, but one can get the money back.,

Where the property has depreciated due to fair wear and tear. E.g. cant give

property back in the original state, but can get money back.

2. Damages

No matter the decision to rescind or not, one has the right to damages.

One is always allowed to claim for damages as long as one has suffered

them.

Fraudulent misrepresentation is a delictual / fraudulent act, therefore fraud

allows one to claim delictual damages in a negative interest.

The aggrieved party is to be put in the financial position they were in had

this fraud not been committed.

One can claim an amount to put one in the financial position one would have

been in had the contract been performed properly.

Negligent Misrepresentation

There are 5 requirements to prove negligent misrepresentation:

1. False representation

The statement must have actually been made, and it must have been false. The

statement is usually one of fact. A dishonestly stated expression of opinion of

the future is a false representation. (Feinstein v Niggli)

Ranger v Wykerd

Ranger wants house with working poolWykerd says his house for sale has pool [LIES!!!!!!!]Ranger buys house and realises pool does not work – actually crap spends R1000 fixing it

Held: Clear misrepresentation; Held: One needs to look at the value distinctive features that formed the basis of the misrepresentation. In this case, the house bought because it was thought to have a pool in working order (dolus dans causum contractum)Held: Ranger suffered patrimonial lossHeld: Test for damages flexible, every case and circumstance to be treated differentlyHeld: Award for damagesNote: This case formed the authority on awards for damages

A false representation may occur in 2 ways:

(a) By words – when one actually says something false.

Recall Scheepers and Bill Harvey cases

(b) By conduct – man selling a Villa next to a river, hired many fishermen on

the dayof sale to induce the contractor to contract. This was a false

representation through means of conduct.

(a & b) By words and conduct

Recall Trotsman v Edwick

2. Representation Wrongfully Made

Positive misrepresentation will be considered wrongful immediately.

If there was a duty to speak and there is failure to do so, it is considered

wrongful. Therefore, failure to speak is not automatically wrongful, there has

to be a duty to speak.

o If one makes a statement and realises that it is not true, there is a duty

to speak

o There is a duty of full disclosure in insurance contracts.

o Where a fiduciary relationship occurs between two parties, full and

frank disclosure is required.

o Any seller of property is required by law to expose the existence of

any defects on the property.

3. Representation Made Negligently

One needs to prove negligence. The case to illustrate this is Kruger v

Coetzee: would a reasonable person have made a false representation? Or

would they have taken care not to?

4. Inducement - did it cause the parties to agree?

There has to be a causal link between the making of the misrepresentation and

the final agreement. Trotsman v Edwick case:

Did the statement (representation) induce the contract? The

misrepresentation must have been material to the conclusion of the contract

– the person would not concluded the contract if they had known about those

terms.

Did it induce the contract in entirety or on a particular term?

5. Misrepresentation must have been made by the Other Party to the

Contract

Prior to the contract one has to prove that the misrepresentation was made by

the other party.

Remedies

One is allowed to claim as the plaintiff or the defendant.

1. Rescission and Restitution

a. One may chose to rescind the contract. If performance has occurred, then

one can claim restitution. The claim is to reverse the situation as if it never

happened.

2. Question whether an aggrieved party can claim damages or not.

a. Both Roman and Roman Dutch authorities state that one can only claim

damages for fraudulent misrepresentations and not negligent ones.

Academic opinion favours developing the law to make damages claimable

for negligent misrepresentations.

b. In the case of Hammond v Moolman, Wessles JA strongly supported the

RD position, he felt that there was no practical reason to claim damages

and heavily criticised the idea. Claiming damages for misrepresentation is a

claim in delict. It includes a wrongful act and so it is delictual loss. The

contract was induced which resulted in performance and then financial

loss.

c. In the case of Kern Trust v Hurter, Friedman decided that the law needed

to be made constant and logical. There is a need to develop the law and

hold people responsible for careless misrepresentation. It was held that we

should recognise the claim for negligent misrepresentation. The matter

went to the SCA and it was held that one may claim damages for negligent

misrepresentation.

Leading Case for Negligent Misrepresentation

Innocent Misrepresentation

This is when a misrepresentation induced a contract, but it is not possible

to prove fraud or negligence. The evidence cannot demonstrate a case for

fraud or for negligence.

Bayer SA v Frost

Frost responsible for farms in the Western Cape, to maintain the vineyards, he had to spray

them, this was very laborious and time consuming.

Bayer’s rep arrived and said he had a new product which is sprayed from a helicopter in one

day.

Frost was concerned about the surrounding crops; Bayer assured him that the spray would

not spread.

The representation turned out to be false, the spray spread and the other crops died.

Held: Negligent misrepresentation; he misinterpreted the reports on the product. The only

remedy at the time was rescission and restitution and this would not have been sufficient

enough.

SCA: Decided that one can claim for delictual damages under the law of delict.

SCA: Negligent misrepresentation may give rise to a delictual claim for damages when it

induces a contract. The law was developed to allow damages to be claimed for pure

economic loss.

When innocent misrepresentation induces a contract, one does have

remedies, even if one cannot prove fault of some sort. The remedies

available are less, as one can only claim for rescission and restitution.

One cannot claim damages as one cannot prove fault.

Exemption Clauses and Misrepresentations

Sometimes a document that is signed contains an exemption clause

excluding the responsibility from misrepresentation.

Allen v Sixteen Stirling Investments (Pty) Ltd illustrates this. There was an

apparent agreement which included the clause. If one finds a mistake then

there is no contract and therefore the exemption clause is void. If one can

prove a mistake then nothing existed.

If the misrepresentation induced the contract, there is consensus and there is

an existing contract. There is an existing contract and thus there is also an

existing exemption clause. If there is an existing exemption clause in the

contract, the clause can deny your action – because one agreed to the clause

when one signed the contract.

One can only have a valid exemption clause for innocent and negligent

misrepresentation. On is not allowed an exemption clause concerning fraud.

Fraud trumps the exemption clause!

Duress

Duress comes from the common law of mentus. It is mainly RL based but does

have a principle of EL.

There are 2 concepts:

Vis Absaluta – this is the use of physical force to make one sign a contract.

However, in this case there is no contract as there is no consensus. (no)

Vis Compulsiva – this is when one is threatened with harm to convince one

that it is in best interest to agree to what the other person is proposing. It is

when one is put in a dilemma situation.

o This is where one is induced into a contract in an unlawful way and one

agrees to accept proposals backed by the threat. There is still consensus.

o A coerced will is reached by consensus - coacta voluntas oluntas est.

o When a threat is made and it induces one to enter into a contract, there is

a consensus, but: it is wrongfully induced and therefore a voidable

contract.

Elements:

Roman and Roman Dutch writers never set out an actual list of requirements.

Wessels JA set out 5 requirements in his textbook that was absorbed into SAL

through Broederyk v Smuts 1942 TPD 47.

Actual violence or reasonable fear of violence.

Fear caused by a threat of considerable evil to the person or family

Immendiate or inevitable evil

Threats must be unlawful / contra bonos mores

Moral pressure used caused damage

1) Actual Violence or Reasonable Fear of Violence.

A reasonable fear of violence is caused by the threat; the threat must provoke

reasonable fear in a reasonable person. One can look to the surrounding

circumstances, the person’s intelligence, background etc.

E.g. if a spouse threatened their partner that they would leave the matrimonial

home if the ownership of the house was not signed over to him.

2) Threat of Considerable Evil to the Person or Family

In theoretical terms this does not count when considering friends or boyfriend,

the approach is too limited. The term is more important for what it doesn’t say;

one needs to examine the possible object of the threat. There can only be a

direct threat to you or a member of your family. E.g. what about a threat to

property? SAL has reached a point where this does exist, it is called duress of

goods and it does not qualify. In addition to the 5 requirements , one must prove

a 6th one:

At the time one entered the agreement, one protested about what was

happening – this is the EL principle.

Hendricks v Barnett 1975 [Duress of Goods]

A cheque was drawn by Barnett in favour of Hendricks; the payment was later stopped by Barnett

as the cheque had been drawn under duress.

Hendricks was a, manager on Barnett’s stud farm which had been recently sold. He promised to

pay Hendricks a bonus upon termination of his employment.

Shortly before the sale of the stock, Hendricks threatened to leave employment unless Barnett

informed him of how much the bonus would be, if it was too little, he would leave immediately. It

was decided that R10 000 would be paid in 2 cheques of R 5 000 each on a posted date. Barnett

later stopped payment on the post dated cheque and claimed the cheque had been drawn under

duress.

It was held that it was unlikely that Barnett communicated to Hendricks any protest or objection

to pay R10 000. The onus is on Barnett, and needs to prove delivery of the second cheque was

made without abandonment of rights. There was duress of goods – threat to property but Barnett

did not protest.

3) Immediate or Inevitable Evil:

The threat should be such that one is not easily able to resist it. It is when one is

faced with a decision to be made in agony of moment.

4) The Threat must be Unlawful / Contra Bonos Mores

This is a threat that would result in a crime or delict occurring, it is a wrongful

threat, e.g. a threat to kill, assault, detain etc. This threat induced a contract

which is wrongful. But one is allowed to make threats which are lawful:

A threat to dismiss useless / lazy employee

A threat to sue someone unless they pay their debt

Threats of criminal prosecution – this is an agreement that no prosecution

will take place for theft if a payment of a certain amount is made. This is a

very difficult decision and is a moot point in SAL, there is no finality as to

whether or not this is allowed.

Medscheme Holdings and Another v Bhamjee [Economic Duress]

5) Moral Pressure Used to Cause Damage

This is not an important element. There is no good reason to prove this unless

one wants to sue for damages.

Leading Case for Duress

Remedies : this is the same as misrepresentation. Rescission or restitution

(voidable contract). Claim for financial damages suffered.

Broodryk v Smuts 1942