Basic Business Law. Lesson 3. Contract Interpretation

2.1 Misrepresentation
The innocent party will be allowed to rescind from the contract if he can prove that the other party induced
the contract by intentionally making a representation with regard to a material fact that was either false or he
didn’t disclose such a material fact. For example, whether or not a car was previously involved in an accident
is a material fact and a salesman who lies about it or keeps the information from a seller, will be guilty of
misrepresentation
The misrepresentation can be verbal, non-verbal or a combination of words and actions.
Where somebody expresses an opinion that he doesn’t really believe or he doesn’t really have facts to back
up his opinion he can also be guilty of misrepresentation.
A party to a contract is not generally expected to reveal all information available to him, but there are cases
where he is under a duty to speak and if he doesn’t, he will be guilty of misrepresentation as in the following
cases:
• Where he has told a half truth that could be misleading
• Where a statement is no longer correct because of changed circumstances
• Where he has taken steps to prevent the other party from finding out the truth
• Where the proposed contract requires a relationship of truth and confidence
• Where the other party is dependent on him as a source of information
The law accepts that persons who are eager to sell their goods, or let their services will habitually use
exaggerated language to describe their wares or service. This practice is known as puffing and is not
actionable as misrepresentation.
Example
Salesman Vusi tells Tshepo that the car he is looking at, is the best car on their catalogue and that he must
move fast or someone else is likely to snap up the vehicle. - This is puffing: Tshepo will know that Vusi is
expressing a subjective opinion on car.
Salesman Vusi tells Tshepo that the car he is looking at has the best fuel economy on the market knowing
that this is not the case. - This is misrepresentation: Fuel economy can be objectively ascertained and if
Tsepo believes what Vusi is telling him, he could end up buying a car he wouldn’t have, if he knew the truth.
2.2 Duress
Rescission will also be allowed where a contract was induced through an unlawful threat of imminent or
inevitable harm as long as the innocent party’s fear was reasonable.
Example
Patrick Prospector believes that there is gold on the farm of Farmer Brown. He offers Farmer R2M for the
farm, which is worth about R1.5M, but Farmer refuses to sell, so Patrick puts a gun to his head and forces
him to sign the contract.
If gold is discovered on the farm Farmer will be able to rescind the contract and he will be entitled to the
benefits of the find. If however no gold is discovered, Farmer could choose not to rescind the contract and
Patrick will be obliged to pay him the full purchase price of R2M.
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