Void for Vagueness

 A contract or an agreement is vague if it is devoid of clarity (not

clear as to the intention of the parties) and not capable of any
effective meaning in the circumstances that it would be too blurred
(unclear) to implement.
 Vagueness arises
– Where the obligation depends solely on the will or
discretion of the promisor.
– Where the vagueness gives an impression that the parties
were never in agreement.
– Where negotiations have not come as far as to bring an
enforceable contract into being, e.g. an entitlement to a
commission to be determined at a later date.
– Where the unspecified details of the contract are
questions of fact which can be determined by evidence
e.g. I will pay when I feel like to.
– In Levenstein v Levenstein 1955 (3) SA 615, X agreed
with Y that he would take over a business from Y and in
return maintain her to the best of his ability during the
remainder of her life. The court held that the agreement
was not void for vagueness and not unenforceable.

 Courts within common law jurisdictions are at variance on whether a

contract that is void for vagueness should be enforced.
 The major contention centres on whether:
– To interpret the contract in order to help the parties
towards what they intended (despite vagueness), or
– Avoid the tendency of being seen to make contracts for
the parties.
 Courts are generally reluctant to enforce vague contracts on the
ground that it is not their function to make contracts for parties.
 That what parties have agreed upon must stand or fall according to
the law. See for example:
– Andrew Beck “Void for vagueness: The layman’s
contract in court” SALJ 1982 (102) 660.
– AJ Kerr & GB Glover “May essential provisions of a
contract be determined by one of the parties alone” SALJ
2000 (117) 201.
– Bell-ville Inry (Edms) Bpk v Continental China (Pty)
Ltd 1976 (3) SA 583.

CONTRACTS IN RESTRAINT OF TRADE

  It is a contract by which a party restricts his future liberty to carry on
his trade in a manner and with whom he chooses
 Such contracts are void as being contrary to public policy on 2
grounds:
– The Law of Contract seeks to protect individuals from
negotiating away their livelihood.
– It is not in the public interest for the state to be deprived
of a valuable benefit in allowing a person to be restricted
in carrying out their lawful trade or business.
 To assess whether the restraint on trade is enforceable, the courts
focus on whether the contract between the two parties is reasonable,
and if it would be in the public’s interest.

 In Nordenfelt v Maxim Nordenfelt Guns & Ammunitions Co.

(1894), a machine gun manufacturer sold his business and agreed in
the contract of sale to restrict his future activities in that business
worldwide for 25 years. The covenant was held to be valid and
binding though prior to this case, the general principle was that
general restraints of this nature were void, while partial restraints
were valid.
 Principles of restraint of trade:
– All contracts of restraint of trade are prima facie void.
– It is a matter of law for the courts to decide if any special
factors exist which may or may not justify the restraint –
if no factor justify, then void.
– If special circumstance point to restraint being valid,
then it must be reasonable as regards to the parties and
interest of the public.
– The burden of proving that the restrain is reasonable is
on the party alleging it to be so – if burden is satisfied,
open to party attempting to avoid the contract to prove it
is contrary to public interest and void on that basis.

Reasonableness of the Restraint

 The courts must first decide whether the contract is in restraint of
trade before considering if it is reasonable or not.
 Reasonableness as regards the parties:
– Restraint of trade will be reasonable if it is designed to
protect the legitimate interest of the covenantee.
– Restraint preventing the vendor of a business with its
goodwill from acting in competition will be valid
 because goodwill is a proprietary interest capable of
being protected.
– Contracts preventing a former employee from making
use of trade secrets acquired while in employment or
soliciting employer’s customers is valid.
– Contracts preventing former employees from being
employed by competitors will not be valid.
– Once established there’s a legitimate interest to be
protected, court allow covenantor to do no more than
protect his/her interest.
–
 Reasonableness as regards the public interest
– These are not common.
– It will be invoked where a contract will have an effect on
the competitive structure of a certain market.
– If a person’s skills are in short supply, the restraint will
be invalid because the skills would be needed in the
wider economy.
 The court will consider the following to decide whether restraint was
reasonable:
– The duration of the restraint – struck down if it is
unreasonably extensive as to duration which is one of
fact and dependent on nature of business. 25 years was
held to be reasonable in Nordenfelt.
– Area of restraint – dependant on individual cases.

Examples of Covenants in Restraint of Trade

 Contracts of employment – can be used while in employment to
demand that employee should not act in competition with employer.
 Contracts for the sale of business – used to protect the legitimate
interest of the business sold.
 Exclusive trading – used by manufacturers to tie in retailers and
prevent them from selling goods of their competitors.
 Anti-competitive agreements and abuse of dominant position –
competition laws outlaw agreements, practices and conduct that
damage competition.
 Commercial agency agreements – restraint of trade clauses will
only be valid if expressed in writing and limited to a geographic area
and customers and goods covered by the agency contract.

Recovery of Money or Property

  One of the effects of illegality is to render the money or property
irrecoverable
 Situations in which parties can be relieved of the illegal nature of
contract:
– Where the parties are not in pari delicto – where the
parties are equally blameworthy, the defendant has the
stronger position.
– So it is possible for the less blameworthy person to
recover money or property under contract.
– Also apply were the less culpable party was induced to
enter the contract by fraud or undue pressure.
– Where the illegal contract has been withdrawn from
– property or money transferred under such may be
recovered if the contract did not take effect because of
the plaintiff’s decision to withdraw from it.
– Plaintiff will make a claim to withdraw during a time of
repentance.
– Recovery ceases to be possible once the illegal purpose
has commenced whether completed or not – Kearley v
Thomson (1890).
– Withdrawal from the contract has to be voluntary. If
contract frustrated, recovery not allowed because not
voluntary – Bigos v Bousted (1951).
– Where the illegal contract is not relied on for
recovery – recovery not based on illegal nature of
contract but the existence of a proprietary interest in the
goods.
– Bowmakers Ltd v Barnet Instruments Ltd (1945) –
defendants came into possession of certain machine tools
under an illegal hire purchase agreement. They failed to
pay instalments and sold some tools contrary to
agreement. Plaintiffs sued under tort of conversion to
recover the value of the tools on the basis of the
proprietary rights they retained in the tools.

Partially Void Contract

 A void contract may only be partially invalid
– In this instance, if the reason for invalidity only affects
certain parts of the contract, the court may have to
decide in accordance with the principle of severability;
whether the contract forms one indivisible whole or
 whether the invalid parts could be separated (severed)
from the valid parts.
– If the invalid parts are severable from the valid parts, the
invalid parts will be considered as pro non scripto (as if
they never formed an integral part of the contract) and
the court would have the competence to enforce the valid
parts.
 Example – contract of employment.
– A contract of employment may contain several valid
terms such as relating to wages, leave and duties of an
employee. The contract may however, have an additional
clause requiring the employee to work 30 hours of
overtime a week, for example. If such a clause
contravenes labour law, which prescribes that a person
may only work 12 hours of overtime a week, then the 30
hrs of overtime is invalid and can be severed from the
contract so that the valid clauses remain binding.
– Effect: the employee will retain his/her job but will not
be required to work 30 hours of overtime.

-----------------
VOID FOR MISTAKE
 Courts would relieve parties of their rights and liabilities where a
contract lack consensus, over time it allowed the mistake of parties
to vitiate the existence of a contract.
 At common law, mistake had the effect of rendering a contract void
ab initio, which affected 3rd parties who dealt in good faith.
 The implication is that a 3rd party’s rights will be prejudiced by a
mistake in a contract that they were not aware of, leading the courts
to have recourse to the equitable doctrine of mistake where contracts
are held to be voidable so that innocent third parties can redeem
some rights.

Mistake at Common Law

 The courts at common law can be persuaded to find a contract void
ab initio on the following:
– Where parties entered into a contract on a common
mistake as to the state of affairs which both thought
existed but does not – common initial mistake e.g. A
agrees to hire a car from B and unknown to both of
them, the car had had an accident
 – Where parties make a mutual mistake as to the terms of
the agreement e.g. A offers to sell a Ford Galaxy GL and
B accepts believing he is buying a Ford Galaxy GLX.
There is no consensus ad idem
– Where one party makes a fundamental mistake of fact as
to the term of the agreement which the other party is
aware or presumed to be aware of the mistake –
unilateral mistake e.g. A accepts an offer to sell goods
to B who pretends to be X and A only intends to sell to
X as X’s identity is important to him. There is no
consensus ad idem
 The mistake must be a fundamental mistake as to fact or law

Common Initial Mistake

 Parties make a mistake as to the existence of a certain state of affairs
which does not actually exist
 If unknown to the parties, a fact fundamental to the agreement never
existed or ceased to exist before entering into the contract, the
contract will be void
 But if the state of affairs existed at the time of the contract but
subsequently ceased to exist, the contract will be binding but may be
discharged for frustration
 The doctrine of common mistake is strict, so if the mistake is found
to be attributable to one party or the contract provides for the risk of
mistake in terms, then the doctrine will not operate.

Mistake as the Existence of the Subject Matter

 This arises where unknown to the parties, the subject matter of the
contract had ceased to exist at the time the contract was entered into.
Often referred to as res extincta.
 Supported by Sect 6 of SOG Act, 1979 – contract void where goods
have perished without knowledge of seller at time of sale
 In Couturier v Hastie [1956], plaintiff sold a cargo of Indian corn to
the defendant. Unbeknown to the parties, the captain of the ship had
sold it a few days prior due to an overheating of the cargo, which
had caused the goods to start fermenting. The buyer contended that
the subject matter had ceased to exist so contract was void and was
not liable to pay. The House of Lords held that the contract
contemplated that the goods sold actually existed but since they did
not, the buyer was not liable to pay.
Mistake as to Title
 This is often referred to as res sua
 This is where unknown to the parties; the buyer is already the owner
of that which the seller purports to sell to him – see Bell v Lever
Bros [1932].
 In Cooper v Phibbs [1867] an individual agreed to lease a fishery
from another. Unknown to them, the purchaser already owned the
fishery. The contract was held to be void.

Mistake as to Quality of the Subject Matter

 Mistakes as to quality will not generally void contracts of sale.
 The quality has to be essentially different from what it was thought
to be.
 Impossibility of performance is measured by the extent of deviation
from the ‘substance of the contract’, which is determined by the
party’s common purpose.
 Relief is given in unexpected and wholly exceptional situations
where the quality makes it essentially different from what it was
believed to be.
 The law of mistake is concerned with the impossibility of
completing a contract. Thus, a mistake as to quality may not be
sufficiently fundamental to render a contract impossible.
 An argument based on mistake as to quality is unlikely to succeed
unless the quality is made a term of the contract, the absence of
which will not make the contract impossible to perform in
accordance with its terms.
 If there is a clause relating to quality, there will be an action for
breach of contract.

Mutual Mistake
 Mutual mistake arises where the parties make a mistake as to the
terms of the contract – no consensus ad idem.
 A offers one thing and B accepts another, which would render the
contract void.
 To establish this, one has to show from an objective view that there
is such a degree of ambiguity that it is impossible that the parties
intended to be bound by one set of terms.
 If on an objective view the parties could only have come to a single,
common understanding of the terms of the contract, then they will be
bound by the contract, despite the actual view of the mistaken party.
Unilateral Mistake
 Unilateral mistake arises where only one party to the contract is
mistaken and the other party is aware and takes advantage.
 For this to operate, there must be a fundamental mistake as to the
nature of the promise made by the other party – a mistake as to
quality will not suffice.
 Unilateral mistake falls into two categories:
– Mistake as to the terms of the contract.
– Mistake as to the identity of the person contracted with.
 Mistake as to terms – this arises where one party makes an offer to
another and they are aware that other person is fundamentally
mistaken as to the nature of the promise contained in the offer.
 In Hartog v Colin & Shields [1939] – offered to sell hare skin per
pound instead of per piece which was normal trade usage. The
contract was held to be void for mistake.
 Mistake as to the identity of the person contracted with –
– A contract may be void where A is mistaken as to the
identity of B and B is aware of the mistake.
– B’s identity must be of fundamental importance to A for
this to operate.
– Courts generally seek to protect innocent parties and are
often faced with a conflict of interest because, a rogue
‘B’ would misrepresent their identity to an innocent
party ‘A’ to get goods to sell to an innocent 3rd party
‘Z’.
– Where A is unable to prove that the contract is void for
mistake as to identity, they could show fraudulent
misrepresentation, which would make the contract
voidable.
– Timing is of essence because A has to show intention to
rescind the contract either by reporting to police as soon
as they discover the deception to avoid title passing B.
– If A rescinds before B sells to Z, ownership will revert
to A;
– but if A rescinds after B sells on to Z, B would have had
good title and A cannot recover from Z.
 An exception to the strict rule of one cannot give what one does
not have (nemo dat quod non habet) was developed which would
allow a non-owner to pass on good title provided they had authority
of the owner – to protect an innocent 3rd party.
  By Sect 27 of the Hire Purchase Act 1964 – if a purchaser acting in
good faith purchases a car from a seller without notice of the hire-
purchase agreement, he obtains a good title – see Shogun Finance
Ltd v Hudson (2003) UKHL 62 – a person who buys on HP (bond)
is not the owner, only hires until full amount is paid up.
 In face-to-face contracts, the fact that the vendor is under a
misapprehension as to the identity of the person in front of them
does not in itself render the contract void for mistake.
 A contract becomes void for mistake as to identity when the identity
of the person is of direct and important materiality in inducing the
vendor to enter into the contract.
 When a contract is in written form, the parties only intend to contract
with the parties named in the contract; and if the contract turns out to
be with anyone other than the individuals named in the contract, it
will be void for mistake – see Cundy v Lindsay [1878].
 In proving unilateral mistake as to identity, the person alleging
mistake must prove each of the following:
– An intention to deal with some other person.
– That the other person knew of this intention.
– That the identity is of fundamental importance.
– That reasonable steps had been taken to verify the
identity.

Mistake as to the Nature of the Document Signed

 This arises where a person is induced by a false statement made by
some other person to sign a written contract that is fundamentally
different from the one they thought they were signing.
 This was traditionally referred to as non-est factum – it is not by
deed which arose as a limited defence to the proposition that a
person is bound by a document he signs.
 This rule was developed in medieval times when few people could
read and write and relied on others to describe the contents of a deed
to them – which they could avoid if the fact did not represent the
true intention of the signor.
 The scope of the plea later widened to include people who are
tricked to sign, people of low intelligence, mentally infirm and blind
persons.
 Persons of full capacity and literacy cannot generally rely on it.

Mistake in Equity
 Mistake at common law has the effect of rendering a contract void
while mistake in equity renders the contract voidable.
 The court has the discretion to grant relief to the innocent party
 Rescission – this is where the contract is set aside and the parties are
put back in the position they were before the contract was made.
– The court will use its discretion to apply this remedy
subject to any terms it feels appropriate to restore parties
to their pre-contract position.
– The remedy is lost where a party fails to apply for it
within a reasonable time or would deprive 3rd party of
rights or resitutio in integrum is impossible.
– It can also be used where the contract was found to be
void and parties are to be restored to their pre-
contractual position.

 Rectification – this arises where a written document does not

represents the common intention of the parties.
– It is a discretionary remedy.
– This does not arise where there is an error in the subject
matter of the contract but where there is an error on the
face of the record.
 The party seeking rectification must show that:
– The parties had a common continuing intention in
respect of a matter to be rectified.
– There was an outward expression of accord.
– The intention continued at the time of the execution of
the instrument sought to be rectified.
– By mistake, the instrument did not reflect that common
intention.
 There must be convincing proof that the concluded agreement does
not represent the common intention of the parties.
 In Joscelyne v Nissen (1970) 2 QB 86, the plaintiff made over his
car-hire business to his daughter in which they agreed that she would
make payment for some bills which was not contained in the written
document. When daughter failed in paying the bills, the plaintiff
sought a declaration that she should, and the written document be
rectified to reflect the common intention of the parties.
 Rectification is also possible in unilateral mistake where a mistaken
claimant could show that a term, beneficial to himself, which both
parties had intended to include had been omitted and the other party
knew of the omission at the time the document was being executed –
Roberts A & Co Ltd v Leicestershire County Council [1961].
  Refusal of specific performance – where a person refuses to
perform their side of a contract, the other party petition the court for
a decree of SP to compel them to carry out the contractual
obligation.
 As a discretionary remedy, the court can refuse to grant it if common
law remedy of damages is adequate except where the goods could be
regarded as unique
 SP could also be refused where one party has contracted under such
a mistake that it would be inequitable to compel them to carry out
their contractual obligations
– In Webster v Cecil [1861] plaintiff was offered several
plots of land by the defendant for £1250. Soon after
sending the offer, realised he should have stated £2250
and informed plaintiff who had already accepted.
Revocation came too late and the court refused an order
of SP as plaintiff was aware of mistake because
defendant had refused an offer of £2000.

VOIDABLE CONTRACTS
 A voidable contract is one that is only potentially void
– It is valid in principle and binding i.e. all essential
requirements of a valid contract were met.
– However, one of the parties acted improperly through:
(i) misrepresentation (untrue),
(ii) duress (threats) or
(iii) undue influence (abuse)
- in these three instances, the wrong party used such
undesired methods in getting the other party to
consent to the contract.
– E.g. where a person is forced or tricked to contract, that
contract is voidable at the instance of the innocent party.
 The innocent party has a choice of either setting aside the contract,
or upholding it.
– If the contract is set aside, it becomes void (invalid) and
cease to be enforceable by law.
– If the innocent party upholds the contract, the validity of
the contract subsists and remains enforceable.

1. MISREPRESENTATION
 Misrepresentation (misrep) is a statement or conduct by one of the parties
which is made before contract, and which creates false impression in the
 mind of the other party (innocent party) and induces them to enter into an
agreement or contract.
 The test to determine if a pre-contractual statement is a term of the
contract is determined by the intention of the parties.
i.e. what did the parties intend to achieve?
A pre-contractual term becomes a term of the contract if it is
repeated in the contract itself.
 The statement may become a term of the contract or may be a mere
representation.
 If the statement is a term, if it is not complied with, the remedy is
for breach of contract.
 If it is a mere representation, which turns out to be a false
statement but calculated to induce a party to enter into a contract,
then the remedy will be an action in the law of delict for
misrepresentation.
Misrep will render the contract voidable, giving the injured
or innocent party an option to rescind (cancel) the contract or
sue for damages or both.
 The representer’s intentions when they made the contract are irrelevant
but may affect the type of misrepresentation claimed.
 An actionable misrepresentation therefore is a false statement of fact that
induces another to enter into a contract.
– The claimant can rescind the contract or claim damages
– But where the misrepresentation is not made with the
requisite state of mind, damages will not be awarded.

(a) Elements of Misreps

In Novick v Comair Holdings 1979 (2) SA 116 (W) at 149D – 150 C, it was
held that a statement /conduct which (wc) creates a false impression will only
amounts to a misrep if it meets the following 5 elements:
(i) False representation;
(ii) Of fact;
(iii) Which was intended to induce a contract;
(iv) Which caused actual inducement (causation), and
(v) Materiality.

(i) False Impression –

 There must be conduct that creates a false/wrong/ incorrect
impression in the mind of the other party (innocent party) ie, the
contracting party.
  In most cases, this take the form of positive conduct, ie active
misrep.
 eg of active misreps:
(a) X sells a car to Z, and in the process X tells Z that the car
is a 2022 model. However, in actual fact, the car is a
2020 model.
(b)Z buys a bag from X’s shop. X had displayed the bag
together with bags made of genuine leather. The bag in
question was made of synthetic leather. By displaying
bags made of genuine leather together with a bag made of
synthetic leather, X created an impression that the bag in
question was also made of genuine leather.

 Misrep can also be in the form of negative conduct ie, failure to

remove a false impression if there was a legal duty to act, eg
misrep by non-disclosure or by silence.

(ii) Of fact –

 Practically, facts can be true or untrue (incorrect/wrong facts).

 Generally, courts are of the view that a misrep must refer to
something that can be factually achieved, eg opinions or
predictions.
(a) Opinions or predictions:
- Previous case law portrayed that an impression or
a prediction cld not give raise to an actionable
misrep.
- Eg (i) I think this is a good business to invest in;
(ii) the price of gold will rise within a week.

- A statement of opinion is a belief based on

grounds incapable of actual proof.
- They are not statements of fact and are not
actionable because they turn out to be inaccurate.
- In Bisset v Wilkinson (1927) – vendor of a farm
asked the number of sheep that the farm could
hold. In his judgement, said it could support 2000
sheep but in actual fact the farm had never held
sheep. The court held that such a statement could
amount to nothing more than an honest statement
of opinion and not statement of fact – action
failed.
- Statement of opinion can be actionable if:
 They are dishonest;
If representor is in a better position to
know the truth – court will imply
reasonable ground for his/her opinion.
They are a contractual term – due to superior
knowledge.

 However, in Feinstein v Niggli 1981 (2) SA 684 (A), the court held
that a statement of opinion genuinely holds (believe) of that
opinion.
 Such an opinion cld imply a representation that there are facts on
which the opinion is based.
 If a party never honestly believed their opinion, or the implied
statement as to the existing state of affairs is false, there will be
misrep.

(b) Puffs
Vague and exaggerated statements may amount to neither terms nor
representations because it would be unreasonable to rely on them.
Statements of extravagant nature which praises a product are
generally not misreps but puffs.
Advertisements that make bogus claim are mere puffs because it
would be unreasonable to rely on them.
- A puff is a statement that does not mislead
compared to a statement intended to mislead.
However, the more the statement resembles a statement of opinion,
the more likely it would be found to be a statement of fact.
Whether a statement amounts to a mere puff or misrep depends on
the nature of the statement and the surrounding circumstances.
Also, the context and specificity of the statement may elevate it to
the status of a term. Read this case: Carlill v Carbolic Smoke Ball
Co [1893] 1 QB 256.

In Phame (Pty) Ltd v Paizes 1973 (3) SA 397 (A) at 418B – C, it
was held that whether a statement is a mere puff or misrep depends
on 4 factors, which are:
(a) Whether a statement was made in answering to a question
from a customer/buyer?
(b) Its materiality to a known purpose for which the buyer
/customer was interested in buying;
(c) Whether the statement was one of fact or of personal
opinion;
 (d) Whether it wld be obvious even to a gullible person that
the seller was only praising their wares or products?
- A gullible person is someone who is easy to trick,
easy to deceive/ someone who is too willing to
believe what others say/ a person who is easy to
fleece etc.

(iii) intended to induce a contract

 Misrep is only actionable if the wrong party realizes that their
statement wld influence the other (innocent) party’s decision to
contract.
 It does not matter whether the maker of the statement knew that
their statement untrue or not.
 Even if the maker of the statement genuinely and reasonably
believed that the statement was true, this requirement will still be
met.

(iv) Actual inducement (actual causation)

 A misrep is actionable if it induces (cause) the other party
(innocent party) to contract on the terms they did.
- A misrep is only legally relevant if it is causal.
- Inducement (causation) has 2 elements:
(a) The innocent party actually believed the misrep,
and
(b) The innocent party actually contracted on the
terms that they did because of the misrep.

 The test for inducement is subjective:

- One has to inquire into the innocent party’s state
of the mind, and NOT what a reasonable person
wld have done.

 Causal misreps may be in 2 forms, namely fundamental and

incidental misreps:
(a) fundamental misrep -
- the innocent party wld not have contracted at all if
they had known the truth (dolus dans); and

(b) Incidental Misrep -

- The innocent party wld still have contracted if they
had known the truth, but on different terms (dolus
inicidens).
- Eg: Y buys a car from X for M50 000. X tells Y that
 the car is a 2015 model but the truth is that the car
is a 2014 model.
(i)Y wld not have bought the car if they have
known the truth. This is a fundamental
misrep.
(ii) Y wld still have bought the car but on
reduced price. Y wld have bought the car for
M35 000. This is incidental misrep.

 If the misrep is not causal, then the misrep is not legally relevant
and the innocent party will have no remedies. See Bird v Murphy
1963 (2) PH A42 (D).

(v) Materiality
 In addition to actual inducement (causation), the misrep must be
material in the sense that a reasonable person wld also have been
induced to contract.
 However, what qualifies as material is debatable.
- Hence it is critical to distinguish btwn misreps and
mere puffs.
- This is problematic, however, where the
wrongdoer wld intentionally exploits the
vulnerable/ gullible or the inexperience of the
innocent party, by making a fraudulent misrep.
See Lourens v Genis 1962 (1) SA 431 (T).
- However, in cases of fraudulent misrep, the
requirement of materiality has been criticized
because it put the gullible in the mercy of the
fraudster/ wrong party.
---------------------------------------

Types of Misrepresentation
 Misreps can be classified according to the state of the mind (fault) of a
party making the misrep.
 The remedies available to a claimant varies according to the nature of the
misrepresentation alleged.
 Originally, only fraudulent and innocent misrepresentation were
recognised, but over the years there’s been the development of negligent
misrepresentation at common law and by virtue of the Misrepresentation
laws.

(i) Fraudulent Misrepresentation

  A party making the misrep knew that their statement was false/
untrue but nevertheless went on to make the misrep and that it wld
influence the other party (innocent party)’s decision to contract.
 To establish a claim for fraudulent misrepresentation/deceit, the
representee must prove that the representor made the false statement
– Knowingly;
– Without belief in its truth (including knowing that he or
she is ignorant of its truth); or
– Recklessly, careless of whether it be true or false, even if
his or her motive is worthy
 Acting unreasonably is not enough, what is required is gross
carelessness justifying an inference of fraud
 The claimant must identify the representation made and show that
the representor knew what he was saying and that he knew that he
was not telling the truth.

 Carelessness of itself does not amount to dishonesty,

– but where a person acts recklessly it is open for the court
to find dishonesty in that the person could not reasonably
have believed in the truth of their statement.
– Care needs to be taken because careless and reckless are
regarded as negligence which must not be confused with
fraud.
– Thus a statement made carelessly or recklessly may
amount to evidence of fraud though if the maker believes
in its truth, they cannot be liable for fraudulent
misrepresentation.
– To establish fraudulent misrepresentation, it had to be
shown that the recklessness of the defendant was such
that it amounted to a disregard for the truth so could be
regarded as having acted fraudulently.
– Proof is required with respect to both knowledge and
recklessness
– An action under this should not be taken lightly because
failure to prove may lead to an action in defamation.

(ii) Negligent Misrepresentation

 A party making the misrep did not know that the statement was
false/untrue but a reasonable person wld have realized that the
statement was untrue.
 Common law delict due to negligence covers negligent
misstatements that result in loss.
  Prior to this, it was thought that all misrepresentations that were not
fraudulent were innocent.
 A representor has a duty of care to do all that is reasonable to ensure
their statement is accurate irrespective of fiduciary or contractual
relationship.
 Burden of proof lies on the representee to prove the existence of a
special relationship but also the existence of a duty of care and its
breach, and resulting and foreseeable loss.

 In the UK, section 2(1) of the Misrepresentation Act 1967

eliminates the need to prove special relationship with the representor
or prove representor’s negligence.
 The representee is entitled to damages once he shows that:
– The representor made a false statement which
– Induced him into a contract with the representor
– Unless the representor can prove his honesty and
reasonableness in making the statement
 The provision imposes a liability for negligent
misrepresentation.
 Sect 2(1) reverses the burden of proof where the claimant
proves actionable misrepresentation and burden shifts to
defendant to show that he had reasonable grounds to believe
statement to be true.
 Fiction of fraud – damages are assessed on the same basis as
if the misrepresentation had been fraudulent though it was
not.

(iii) Innocent Misrepresentation

 Prior to Hedley Byrne v Heller (1963), this encompassed all
misrepresentation that were not fraudulent
 After Hedley, it describes any misrepresentation that the representee
cannot prove was made fraudulently or negligently.
 In Thomas Witter Ltd v TBP Industries Ltd (1996) it was stated that
if an action failed under Sect 2(1) because of the ‘innocence
defence’, it was still possible for the claimant to plead innocent
misrepresentation.

Remedies: Rescission and Indemnity

 The general rule is that the effect of misrepresentation renders the
contract voidable and not void.
 In other words the contract is still subsisting until the representee
(innocent party) decides to set it aside or affirm it.
  Once representee rescinds or affirms the contract, they cannot retract
from it. If they delay, they would be taken to have affirmed.
 One can also apply to court for a formal order of rescission where
their intention will not have any effect e.g. buying shares.
 The representee could also cease the performance of the contract and
become liable for damages where they can raise misrepresentation as
a defence.
 The effect of rescission is to render the contract void ab initio
 Where rescission cannot place the parties to their original position,
indemnity can be used to recover expenses incurred by the
representee.

(i) Bars to rescission

 A person may be barred from exercising the remedy of rescission in 4
circumstances:
– Affirmation – representee knows about the
misrepresentation but continues performance of the
contract or acts in a way implies performance from
conduct
– Lapse of time – rescission not barred for lapse of time in
fraudulent misrepresentation. Rescission must take place
within a reasonable time; and time becomes relevant
from the discovery of the truth of the misrepresentation
– Restitution impossible – where it has become impossible
to restore parties to their original positions e.g. subject
matter has deteriorated or changed
– Third parties’ rights – the right to rescind will be lost if
an innocent party acquires the subject-matter in good
faith and for value
 Court has discretion to award damages in lieu of rescission

(ii) Damages
 Claimant is compensated for loss incurred by entering the contract
 Awarded on a tortious measure which is based on the principle of placing
the injured party in the same position they would have been in had the
wrongful act not been committed
 Damages in tort limited to remoteness of damages i.e damages that are
reasonably foreseeable, not in fraud
– Fraudulent misrepresentation – damages awarded for all losses
including consequential losses
– Negligent misrepresentation at CL – based on tortious measure
thus subject to test of remoteness of damages – see Naughton &
anor v O’Callaghan ]1990] 3 All ER 191
– Negligent misrepresentation under sec 2(1) – no measure of
damages specified but there is a suggestion that tortious measure
intended
– Innocent misrepresentation – damages not recoverable unless the
court decides to exercise its discretion under sec 2(2) and award
damages in lieu of rescission