Trustees, Estate Whitehead v Dumas¹ the court had to decide whether an investor, Dumas, who had by way of a fraudulent misrepresentation invested in a pyramid scheme, have a claim against the estate of Whitehead. Whitehead’s estate had been placed under sequestration. Dumas had instructed his bank to transfer the money to Whitehead’s account to participate in the scheme. All the money in the Whitehead’s accounts were transferred into the trustee’s account after the appointment of the trustees. Dumas claimed the amount back that he invested with an unjustified enrichment action.The appeal court held that where money is transferred from one account holder to another no personal rights are transferred between the accounts holders. The transferor’s personal claim to funds against his bank is extinguished upon transfer and a new personal right is created between the transferee and his bank. The transferor will have a claim in delict against the transferee to compensate him for the loss if the transferor was induced into the agreement through the transferee’s fraudulent misrepresentation. Thus in this case a claim against the trustee’s of the transferee.

Whitehead thus had acquired a personal right to the money deposited by Dumas into his bank account, which was enforceable against the bank when “ownership” passed to it, despite the absence of a valid underlying agreement (cause). The court furthermore held that that Dumas only had a delictual claim against the estate of Whitehead based on fraudulent misrepresentation.

In South African law there is a clear distinction between void and voidable contracts. This distinction is sometimes forgotten when choosing the appropriate remedy. The remedies for the aggrieved party will vary whether the contract is void or voidable.

A contract is void ab initio (void from the beginning) when in effect the contract never took place as one of the elements of contract had not been met i.e one party did not have the capacity to act.  When a contract is voidable if all the elements are present, but due to some reason which existed during the agreement that allows the other party to cancel the contract i.e. duress, undue influence or misrepresentation took place.   Voidable agreements are valid and binding until rescinded. Thus they are voidable and the innocent party may elect to cancel or uphold the agreement and claim damages in either instance.

Choosing the appropriate remedy

If the contract is voidable the appropriate remedy would be to cancel the agreement and retrieve performance in restitution in integrum, which is a contractual remedy. This remedy entitles the innocent party to be placed in the position he/she was before the agreement. On the other hand if the contract is void the contract never came into existence and thus one cannot claim for performance. Unjustified enrichment will then be the appropriate remedy.

It is suggested that the court in the Whitehead case could have reached a different conclusion as the contract was in fact voidable and not void. Thus there was an underlying cause for the transfer of the money in terms of the agreement and as such an unjustified enrichment claims should have been available to Dumas.

Written by Anye Jansen van Rensburg, Schoeman Law Inc

Notes:
1. 2013 3 SA 331 (SCA).