Chapter 4: Recession

Requirements for misrepresentation as a ground for recession:

 Lamb v Walters 1926 AD 358
o L concluded a contract with W to buy some land near the then Salisbury
(today Harare). L, however, was a foreigner, who only arrived in the country
from Britain 3 days prior to the sale. Before entering into the contract, L asked
W whether the asking price is fair and reasonable, and W assured him that it
was. The truth was that the price was much higher in comparison to the
prices in that region. When W wanted to enforce the contract, L argued that
there was a misrepresentation made in regard to the price. The Court,
however, held that W only gave an opinion and that it did not constitute a
misrepresentation as he was not an estate agent. However, when a person
gives an opinion which he does not believe himself, he makes a
misrepresentation with regard to fact, namely his state of mind. That could
amount to a misrepresentation
 In Feinstein v Niggli 1981 2 SA 684 (A)
o although the seller of shares in a restaurant knew that the monthly turnover of
the restaurant was not enough to cover the buyer’s financial commitments, he
still informed the buyer that it would be enough. The court held that F made a
misrepresentation.
 Lourens v Genis 1962 1 SA 431 (T) states that it would still apply; whilst the other line of
cases following Otto v Heymans 1971 4 SA 148 (T)
o ), states that there is no need for the reasonableness test. In the Lourens v Genis
case, Lourens defrauded Genis by telling him that his son has so-called x-ray eyes
and that he is capable of spotting underground soil water without having to drill for
it. The court held that no misrepresentation was made since no reasonable person
would have believed L’s story. The contract could, therefore, not be rescinded. In
the Otto case it was held that the defrauder could not rely on an argument that a
reasonable person would not have believed the misrepresentation and that the
other party was too easily induced by it. Until now there has not been any clear
answer to this issue but it seems that the majority is inclined to not require proof of
materiality in cases of fraudulent misrepresentation.
 Bird v Murphy 1963 2 PH A42 (D)
o Bird admired Murphy’s Mercedes for quite some time and saved money until
he thought he had enough to approach Murphy with an offer. During
negotiations Murphy represented the car as a 1957 model and Bird based his
offer on that. After he had bought the car, he found that it was actually a 1953
model. He consequently applied for rescission of the contract. However,
during cross-examination he admitted that he still would have bought the car
even if he had known the car was an older model but that he would have
offered less for it. The court ordered that he was only entitled to damages in
the amount that he paid in excess to what he would have paid in different
circumstances and that he could not have the contract rescinded.
 For example: A buys a car from B for the amount of R100 000. However, the contract
was induced by B’s misrepresentation. The actual value of the car is R80 000. In the
absence of the misrepresentation he would not have concluded the contract. A meets
all the requirements for rescission. However, A decides not to rescind the contract
but to claim damages. A’s actual position is that he now has an asset worth R80 000.
His hypothetical position would be that he would not have concluded the contract and
that he still would have had R100 000. His loss is the difference between the two and
he will be entitled to R20 000 damages. However, if he would have bought the car in
any event, he will be unable to prove a causal link between the misrepresentation
and the contract and, therefore, he will not be able to cancel the contract. However, if
he can prove that he would only have been prepared to pay the actual value of the
car, he will be able to claim damages. In these circumstances, his actual position is
that he paid R100 000 and his hypothetical position would be that what he would
have been prepared to pay if he had known what the real value was, namely R80
000. Once again, the amount of damage will amount to R20 000.
 Hendricks v Barnett 1975 1 SA 765 (N)
o an economic threat was made but in the end the case was decided on other
grounds. Hendricks, an expert horse breeder was the manager of Barnett’s
stud farm. Barnett visited the farm from time to time but never had enough
knowledge of the horses to be able to identify them. When Barnett decided to
sell the farm, he told Hendricks that he would pay him a bonus when his
services were to be terminated. There was no agreement on the amount of
the bonus. Hendricks would stay on until the horses had been sold on an
auction. The auctioneers advertised the auction widely in the press and also
printed a catalogue of the horses that were for sale. A few days prior to the
auction, Hendricks threatened to leave before the auction was held unless
Barnett paid him R10 000. If he would leave, for all practical purposes, the
auction would not proceed because he was the only person who could
identify the horses. Barnett would suffer a huge financial loss if that were to
happen. Out of fear, he agreed to pay the bonus. However, economic threats
will not easily give rise to rescission as you will have to prove that the threat
was unlawful. Here you will have to distinguish between economic duress and
pure hard bargaining. The latter will not be unlawful.
 In the Witwatersrand court in Machanick Steel & Fencing v Westrhodan; Machanick
Steel & Fencing v Transvaal Cold Rolling 1979 1 SA 265 (W),
o the court held that these contracts could sometimes be enforced. The court
said that a threat is unlawful only when the person making the threat receives
an advantage that he otherwise would not been entitled to, e.g. where the
threatened person is obliged to pay back the money stolen plus an additional
amount for keeping silent about the theft.

 The Durban High Court in Ilanga Wholesalers v Ebrahim 1974 2 SA 292 (D) said the
threat is not unlawful if the money is actually due, but that it would only be if the
amount is not known with precision.
 In the Cape in Arend v Astra 1974 1 SA 298 (C), the court took a much narrower
approach. The court said that such a threat is always unlawful because the contract
amounts to compounding a crime and stifling its prosecution, and that there is always
an unfair benefit for the person who exerts the threat. [But see the BOE case.]
 In BOE Bank Ltd v Van Zyl 1999 (3) SA 813 (C),
o Van Zyl signed surety for his son-in-law’s debts with BOE Bank. The bank
discovered that the son-in-law (K) was defrauding the bank by not paying
back his debts as per their agreement. Subsequently, the bank threatened to
have K arrested or to have his estate sequestrated. Because Van Zyl’s
daughter was married in community of property to K it would mean that their
joint estate would be sequestrated and that both his daughter and his
grandchildren would suffer. The same result would happen if K were to be
arrested. Because of this threat, Van Zyl signed as surety and co-debtor for
K’s debts towards BOE. When the bank sued Van Zyl on the deed of
suretyship, he alleged that the contract was signed under duress. The Cape
Court, however, held that the threat was not unlawful. Compare this
judgement of the Cape Court with their judgement in Arend v Astra supra. Is
this judgement correct? The bank benefited from the surety in a way that it
otherwise would not been entitled to. Under normal circumstances, the bank
would only have shared in the proceeds of the insolvent estate as a preferent
creditor, whilst now they were ensured of the full amount plus interest.
