Bus Law

Business Law – Chapter 1: Law of Contract/Agreement MBA II Semester I G. Manhangwe R890800P

CHAPTER 1 LAW OF CONTRACT/AGREEMENT 1.0 Introduction The heart of a contract is its enforceability. Definition: A contract is an enforceable agreement. It is a lawful agreement made by two or more persons within the limits of their contractual capacity and with a serious intention of creating a lawful obligation, communicating such intention without vagueness each to the other and being of the same mind to perform positive acts. 1.1 Essential requirements The parties must: 1. Communicate their intentions to each other through the medium of offer and

acceptance. Offer + Acceptance = Contract 2. Be within their limits of the contract – “Locus standi in Judicio” – to be in a

position to sue and to be sued. You cannot sue an infant, a certified idiot, etc but a minor can be sued.

3. Seriously intent to go into contract – “Animus contrahendi” – the serious intention

to be bound by the contract. “Serious intention” is sufficient, and “consideration” is not part of a contract.

Consideration is a counter promise to performance. In Roman Dutch Law (RDL) the doctrine of consideration is not part of the contract. Consideration is the price paid by each party to the contract for the other party’s promise and it can be defined as some right, interest, profit or benefit accruing to one party, or alternatively some for bearance, detriment, loss or responsibility given, suffered or undertaken by the other. White Vs Bluett Facts: The alleged consideration was a son’s promise to his father that he will cease complaining to him if the father bought him a car. Court: This was not a valuable consideration. A valuable consideration should contain material counter offer element.

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Louisa Vs Vander Berg & the Protector of Slaves Facts: Vander Berg was a well-known philanthropist whose mission was to facilitate release of slaves. He promised to facilitate the release of Louisa but failed to deliver the promise. Louisa sued Vander Berg for breach of contract. Vander Berg’s plea was that there was no valuable consideration. Court: Dismissed the plea citing that consideration was not part of the RDL. That being so Louisa was entitled to specific damages. Louisa sued through some one with locus standi in judicio, since slaves lacked locus standi in judicio. 4. Not be vague or should not be “void for vagueness”. In the event of a dispute, there

is need for the court to be able to get to the bottom of the case by determining the serious intentions of the parties to the contract – was there a “Consensus Ad Idem” – a marriage of minds, that is, speaking the same language manifested through offer and acceptance.

If the contract is “Void AB Initio” then there was never a contract thus it is void. This can be an illegal agreement, for example, X tells M to kill D a business rival for a reward of $10,000, or X in error marries Y who happens to be his aunt. This marriage is void AB initio. There was never a marriage. What X would get is an “annulment”; or an infant is offered to someone in marriage. This is a legal nullity. A “Voidable” agreement is a contract with defects. The injured party can sue citing that there was no consensus ad idem. For example, a buyer of a car discovers the model year of manufacturing was incorrectly entered, or an election petition – the result was not properly acquired. A Voidable contract remains in force until set aside by the weaker/injured party – a girl coerced into a relationship.

5. The performance of the contract should be possible. If there is physical

impossibilities from the word go then it is void AB initio since the parties cannot give effect to their agreement.

6. Legal – an agreement involving murder, immorality etc is void AB initio – it is not

enforceable. The agreement would be “Contra Bones Mores” – contrary to good public morality.

7. Be of the same mind to the subject of the contract – consensus ad idem – singing

from the same hymn book. 1.2 Offer and Acceptance Consensus is normally manifested through an existing offer. Where the parties are in dispute, the court looks for the instinctive elements of offer and acceptance. A quasi-mutual ascent can also be employed – the Smith Vs Hughes doctrine, or the “Zvinavashe’s doctrine” – that if someone did not fight in the liberation struggle he cannot be president.

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Definition: an Offer is an unequivocal and unconditional business proposition whose unqualified acceptance results in a contract ⇒ invitation to treat/trade – this involves a preliminary discussion which if accepted by the other party will result in an agreement – an advertisement or display at a shop window does not mean a firm offer. Crawley Vs Rex 1909 Facts: A Johannesburg shopkeeper displayed a placard outside his shop advertising tobacco at a cheap price. Mr Crawley came into the shop, bought some of the tobacco. He returned later for another installment and the shopkeeper refused, and when Crawley repeatedly ignored the shopkeeper’s demands – made in front of a policeman – that he should leave the shop, Crawley was arrested. When prosecuted, he claimed that he had every right to be in the shop, since he and the shopkeeper had a contract, which had not yet been carried out. To Mr Crawley the display of the tobacco amounted to an offer, which he had accepted. Court: Pronounced on the validity of Mr Crawley’s argument – there was no contract. It was quite clear that the display of an article with a price at a window is merely an invitation to treat, and its no sales offer the acceptance of which constitutes a contract. The same decision was arrived at in the case of Pharmaceutical Society of Great Britain Vs Boots Cash Chemists Limited. Principle: Shopkeepers’ advertised prices are not offers, but merely invitations to do business, and therefore they cannot be compelled to sell. Rather, it is the potential buyer who responds with an offer – in turn – may be accepted or rejected by the shopkeeper. Pharmaceutical Society of Great Britain Vs Boots Cash Chemists Limited Facts: Boots displayed on self-service counters certain drugs whose sale was prohibited by the Pharmacy and Poisons Act (1933) except under the supervision of a qualified pharmacist. Customers selected drugs, placed them in a wire basket and took them to the cashier’s till, where a pharmacist was stationed with authority – when he thought this necessary - to prevent the customers removing any drug from the shop. Issue: The case arose from a contention that Boots were nevertheless contravening the statutory prohibition, since sales were actually finalized when the buyers placed the goods in the baskets and therefore before reaching the cash desk plus the supervising pharmacist. Consequently, at such time the pharmacist no longer had the right to refuse the sale. To answer the question satisfactorily the court had to determine the distinction between an offer and invitation to treat. Court: Consistent with the principle in Crawley Vs Rex, that the counter displays are not offers and consequently Boots had not contravened the legislation. Offers occurred only when buyers tendered the purchase price – at which point therefore the pharmacist could still intervene since sales were complete when the cashier accepted a buyer’s money. Otherwise, ‘once an article has been placed in the receptacle, the customer himself is bound and would have no right to substitute an article later of a similar kind and which he perhaps preferred. By displaying the drugs in the supermarkets the respondents were not in breach of the law. The display constitutes an invitation to treat. The customer was the offeror and the respondent the offeree who could decline the customer’s offer.

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1.3 Implications of Offer and Acceptance 1. Usually an offer is made to a particular individual. However, there is also a situation

where an indiscriminate offer is made to the whole world.

Carhill Vs Carbonic Smoke Ball Fact: The company advertised in the press that it will give a reward of $100 to any customer who had used its medicine in a particular way for some time and still went on to catch influenza. Mrs Carhill bought the said medicine and used it in the prescribed manner, and despite all this she caught influenza and sued the company. The company had a variety of pleas/defence: ♦ This was not meant to be a firm offer but an invitation to treat. ♦ This was an offer targeted at nobody but to everybody and that it would be

preposterous for the company to be bound to everybody. Court: Shot down both pleas and upheld that the company can only contract with customers who used the medicine in the prescribed manner – there was a contract between the company and Mrs Carhill.

2. The offeree is expected to accept an offer whose existence he is aware of. A

contractual situation cannot arise from a “blind date”.

Bloom Vs American Swiss Watch Company (ASWC) Facts: The company premises were broken into and jewellery stolen. The respondent advertised offering reward to the public for information leading to the arrest of the thieves. Mr Bloom witnessed the heist (incidence) and reported the matter to the police, who recovered the said jewellery. It was common cause (not in dispute) that Bloom was not aware of the existence of an offer. Upon learning of the offer he tried to lay a claim, which the company refused. Court: Bloom was not entitled to the reward because he could not accept an offer that he was not aware of.

3. In situations involving reward cases, if there were only one reward available, then

the reward would ordinarily go to the first person to bring the information – freely and voluntarily

Lee Vs American Swiss Watch Company (ASWC) Facts: - The same as in Bloom Vs ASWC. When Lee gave information to the police and was aware of the offer, he did so after Bloom. Court: Held that information is not information unless it contains something substantially new ⇒ Ratio Decidendi – Lee’s information was redundant.

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4. It is up to the offeror to define the rules of engagement – the methods and manner of acceptance and the time; for example, acceptance has to be done telephonically within 7 days.

Laws Vs Rutherford (1924) Facts: Mrs Rutherford offered Mr Laws a contract to cut timber on her farm subject to; offer being accepted by a given time (28 July), and accepted by way of a registered post. On the 29th of July Laws simply moved to the farm and started cutting timber. Court: The acceptance has not been done by (i) registered post, and (ii) Mr Laws went to the farm on 29th July a day after the lapse of the offer. Mrs Rutherford got an interdict order (prohibitory order (civil remedy)/peace order (criminal remedy)) barring Mr Laws from the farm. Remedy can be in the form of: ♦ Damages ♦ Specific performance ♦ Interdict (pendite lite) – or litigation given under an emergency situation. Setlegelo Vs Setlegelo To make an interdict, one has to show/prove that; ♦ A clear right is in danger of violation, ♦ Absence of another appropriate remedy

1.4 Termination of an Offer If an offer is accepted unconditionally and within the terms offered by the offeree then that contract ensures. 1.4.1 Revocation The offeror may revoke or withdraw his offer any moment prior to acceptance provided a valid acceptance has not taken place. If the offeror purports to withdraw the offer after acceptance, this amounts to breach of contract.

Greenberg Vs Wheatcroft Facts: On the 6th of June of a given year Wheatcroft signed a written offer to buy certain land from Greenberg who was the owner. On the 7th of June Wheatcroft phoned Greenberg’s agent revoking the offer. On the 8th of June Greenberg signed an acceptance on the document containing the offer. Court: The offer had been effectively revoked on the 7th of June and no longer available for acceptance.

The offeror cannot revoke an offer where there is an option – the offer through a subsidiary contract where the offeror keeps the offer open and cannot revoke it during this period.

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1.4.2 Counter Offer An offer can be negated/nullified by a counter offer – counter business proposition whose effect is to destroy the main offer.

Watermeyer Vs Murray Facts: Watermeyer offered to sell his farm to Murray on certain terms & conditions. Murray did not accept unconditionally but made a counter offer stipulating a different date for the payment of deposit and other terms, which were generally unfavourable to Watermeyer. Watermeyer was not prepared to deviate from the original terms of the offer where upon Murray then purportedly accepted the original offer. Court: The original offer had been nullified by the counter offer and thus not open for acceptance anymore. Murray was not supposed to accept the original offer because it was no longer available for acceptance. 1.4.3 Lapse of a fixed period – open ended contract Laws Vs Rutherford Acceptance has to be done in a reasonable time. The “Bonus Paterfamilies” (a hypothetical man) or reasonable man is supposed to represent an average man (temperate man). Chief Justice Gubbay described a reasonable man as the man on the Chitungwiza bus – he is not very rich yet not too poor, but he can afford his bus fare. The question is “what is a reasonable time?” This depends on the durability of the goods e.g. perishables and hardware.

1.4.4 Death of one party If one party to an offer has died, that’s the end of the story. But where death supervenes the contract depending on the nature of the agreement then the contract can still survive, that is, if the contract does not depend on the physical presence of the person e.g. sell of property through an estate agent. If the contract depends on the physical presence of the parties (delictus personae) then the contract will immediately lapse e.g. employment, marriage, etc. 1.5 Offer and Acceptance through the Post

“A” makes an offer in Harare through fax or post to “B” in Mutare to supply certain goods. Jurisdiction – is the capacity and competence of the courts to try anyone. If a dispute occurs between A & B on the performance of the contract, the offer becomes a contract at the place and time of acceptance provided B has accepted, signed and posted the acceptance, and provided that; 1. The offeror has not suggested any other mode of acceptance, 2. The acceptance has been done within the stipulated time, 3. Postal services are operating normally, that is, the expedition theory – there is no

insurrection, strike, etc.

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Bal Vs Van Staden Facts: An offer was made and accepted through post at the height of the Anglo-Boer war. It never got to the offeror. The offeree sought to bind the offeror. Court: There was no contract. Household Fire Insurance (HFI) Vs Grant Facts: Grant applied for 100 shares in the insurance company by letter paying a deposit of 1Sh per share and agreeing to pay the balance upon allocation of the shares being made. Shares were duly allotted and a share certificate delivered to Grant by post but never reached Grant. Grant was the offeror and Household Fire Insurance the offeree with the choice to accept or decline. A year later HFI was liquidated. The liquidator wrote to Grant demanding payment of the balance. Grant sought to evade liability on the basis that he never received the share certificate. Court: On the basis of the expedition theory, the contract became binding when the letter of acceptance was posted at the place of signing. Expedition theory - represents the law in Zimbabwe. Other theories, which could have been law, are Acceptance, Reception, and Information theories. Acceptance theory – A in Harare offers B in Mutare, and B accepts through post – this constitute a contract, but this is not law in Zimbabwe. Reception theory – apart from the psychological satisfaction and valid letter of acceptance, the offeror must receive the letter of acceptance for a contract to be valid. Information theory – encompasses the three above, and requires that the letter must have been read to constitute a contract. Telegrams – once posted at the Post Office it becomes binding to the two parties. 1.6 Contractual Capacity – Locus Standi In Judicio (Lsj) He who desires to enter into a contract must enjoy LSJ – the legal competence to sue and to be sued – a legal leg to stand on. Anybody who is of majority status is vested with contractual capacity unless there is other rule of law to the contrary. 1.6.1 Legal Age of Majority John Katekwe Vs Mhondoro Muchabaiwa 1984 Court: A girl who had gone past 18 years could sue for seduction damages or a delict – a private wrong or tort. This was a landmark case – one that makes legal history. Anyone 18 acquires LSJ unless one is a prodigal, or a certified idiot. In such a case one requires a curator bonis.

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1.6.2 Mental illness – an agreement where one of the members is inflicted with mental illness or idiocy is Void Ab Initio – it is a legal nullity of no force of effect, for example, same sex marriage is void ab initio – no divorce but annulment will be issued. Uys Vs Uys Facts: One afternoon Mr Uys met his future wife in a café in Port Elizabeth and continued their association later that evening at a cinema. He told her that he owned a farm in the Free State and that he was finding it difficult to manage it by himself. He said he wished to marry her and proceeded to marry the following morning. Soon afterwards Mrs Uys noticed conducts of a peculiar and irrational nature that something was amiss. Mr Uys did not own a farm but was suffering from mental delusion. Evidence was led and showed that Mr Uys was unable to appreciate the nature of the marriage covenant. Court: Annulled the marriage on the basis of one of capacity absence. Mr Uys lacked LSJ. 1.6.3 Prodigals – are people who handle their estate/assets in an extremely careless and imprudent way. The court would have to declare them as incapable of handling their own affairs as a result of the propensity to spend their wealth and squandering their estate recklessly. Once declared a prodigal, a curator bonis is appointed – one’s legal protector or mentor in relation to one’s proprietary interests. Cillie Vs Cillie Facts: A wife alleged that her husband from whom she was separated was squandering his assets and continuously under the influence of liquor. Upon verification of the facts Mr Cillie was declared a prodigal by the court and a curator bonis was duly appointed. The curator bonis’ legal brief is to protect the material/proprietary interests and not his other personal interests. Mitchel Vs Mitchel Facts: Mr Mitchel had been declared a prodigal and a curator bonis had been appointed. Thereafter, without the curator’s consent Mr Mitchel married Mrs Mitchel. Mrs Mitchel aided by the curator sought to have the marriage set aside on the basis of lack of legal competence by Mr Mitchel at the time of marriage. Court: The marriage had nothing to do with the declaration pronouncing Mr Mitchel as a prodigal – such a declaration does not bar him from conducting in personal transactions of a legal nature provided that such transactions have no bearing on one’s assets. 1.6.4 Drunkenness - A contract can be set aside on the basis of drunkenness – if someone is so drunk to an extent of incapability to understand the nature of the contract. The onus to prove that one cannot be bound because he was drunk to the extent of not understanding the contract lies with the one who was drunk. If the level of drunkenness were of such a nature that the affected person was easily persuadable then that would not be sufficient for setting aside the contract.

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1.6.5 Artificial Persons – Incorporated Associations Once an organization is incorporated in terms of the Company’s Act Chapter 24:03 it acquires the capacity to sue or to be sued. Section 9 of the Act reads – “ Upon incorporation a company shall have the capacity and powers of a natural person of full capacity in so far as a body corporate is capable of exercising such powers.” The same is true for statutory organizations – university, parastatals, etc. Section 9 is mere re-affirmation of the common law position which has evolved over the years and has its ancestry in English law – “ Once a company is registered it acquires legal personality and it can enter into contract or out of contract in terms of its constitution or its articles of association.” Salomon Vs Salomon & Company Facts: Salomon, a leather merchant/trader sold his boot-manufacturing business to a company, which he had just formed. In part payment for the assets he had assigned to the company he got shares, and also lend money to the company and by way of security he got debentures in the company. After a year of trading the company ran into problems and was wound up. A liquidator was appointed to reside over the orderly dissolution of the company. The liquidator got a claim among other creditors from Mr Salomon. He argued that Salomon was not entitled to repayment. Mr Salomon owned 98% of the shares. There was no distinction between Mr Salomon the natural persona and Salomon & Company the artificial persona. Court: Shot down the liquidator’s argument recognizing the distinction between the shareholder and the company. The shareholder does not own the company. Natural persons are different from artificial persons even though they have shares in the company. Dadoo Vs Krugersdorp Municipality Facts: Under the apartheid era non-white people (Africans, Asians, etc) were prohibited from owning movable property in the Transvaal and Krugersdorp area. Mr Dadoo and Mr Dinda formed a company where they owned all shares. Both of them were Asiatic. The company bought movable property in Krugersdorp. Issue: Whether the law was violated? Court: Dadoo limited the company was separate from its shareholders notwithstanding that people of Asiatic origin owned it. 1.6.6 Partnership Shingadia Vs Shingadia Facts: Three brothers had a thriving furniture manufacturing business in Mutare. One of the brothers leased immovable property belonging to the partnership. He defaulted on his rent obligation and was sued by the other two brothers who purported to issue summons in the name of the partnership. Court: The partnership did not have locus standi in judicio. Shingadia the defendant could not be the plaintiff and defendant at the same time. This case articulates the principle

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that a partnership lacks locus standi in judicio i.e. a common partnership. Remedy available to the two brothers – they could sue as individuals and not as a partnership. 1.6.7 Minors A contract is voidable at the discretion of the minor. A minor is Doli Incapax – incapable of making a decision or mensrea – the wicked intention. The capacity to determine the desirability of an intention – the minor has no capacity to determine criminal intent. Actus Reus – the physical act of the crime. For anybody to be charged with criminal element the two should be evident. An infant below the age of 7 lacks Doli Incapax. Between 7 & 18 years, the minor still lacks LSJ and still lacks capability to determine desirable intention – the contract is voidable and only binding at the minor’s option but the other party cannot bind the minor. The minor can rescind the contract with impunity. During minority status, if assisted by a guardian at the start of the contract or at conclusion, and upon reaching majority status inspite of the fact that the minor was assisted he can still set aside the contract on the basis that the contract was not to his advantage, like the case of; Wood Vs Davis Facts: Wood who was a minor inherited some money upon the demise of his grandfather. His guardian and natural father sought to use his money to buy movable property ostensibly on behalf of the minor. The value of the property was $1150. The father decided to pay $1750. There was a forfeiture clause in the contract, which allowed the seller to cancel the sale, repossess the house and keep all installments paid in the event of breach of contract. The minor was at a boarding school and upon attaining majority status he sought to rescind the contract on the basis that the contract was not to his advantage. Court: Agreed with the submission and ordered restitution – the status core ante – the positions the two were before the contract. The house had to be repossessed and the paid sums plus interest were returned to the minor. There are situations where the contract is not voidable: 1. If the minor so desired,

2. If the minor does not want the contract to continue:

(a) He cannot keep the benefits of the contract while unwilling to perform – this will be an unjustifiable enrichment.

(b) Minor is tacitly emancipated – freed from the shackles that are associated with

minority even though physically he is still a minor. Defacto – for practical purposes, he is an adult. Emancipation can be; Partial – if it affects a few specified areas, Total – the guardian has abandoned control over the minor – the minor fends for himself for all purposes.

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Whether or not the minor is emancipated is a factual enquiry which the court can investigate and include the following;

♦ Minor gainfully employed, ♦ Lives on his own, ♦ Pays his own food and lodging, ♦ Married.

The court must be convinced that the minor is independent. Dickens Vs Daley (1956) Facts: Daley the minor was sued for breach of contract by the plaintiff based on a cheque that had bounced, which had been issued by the defendant in favour of the plaintiff for outstanding rent. Daley was gainfully employed and prior to joining the plaintiff’s house he had been living with his mother and stepfather and was contributing monthly money for his sustenance. His biological father who was separated from his mother exercised no control over him. His defence was based on the fact that he was a minor and therefore not bound. In the alternative that the contract was enforceable at his option. Court: Shot down the argument on the basis that the minor was tacitly emancipated – he had achieved adulthood before his time. Dama Vs Bera (1910) Facts: Bera – although just under 21 years old and therefore in South African terms still a minor – had earned her own livelihood as a domestic for some four or five years. She controlled her own income and paid part of her earnings to her mother and stepfather – with whom she lived – for board and lodging. The stepfather disclaimed any responsibility for her. The case arose when Bera sued Dama (her employer) for wages due, to which Dama raised a defence that Bera – being a minor – had no locus standi in judicio. Court: It was quite clear that Bera was emancipated and the contract was binding. It was also reiterated that an agreement involving an unassisted minor is binding at the option of the minor. There was implied abandonment of the minor by his parents. The minor upon reaching majority status makes a conscious decision to enter the contract ex post facto.

(c) Fraudulent misrepresentation – when the minor pretends to be emancipated thereby inducing the other party to enter into contract – the minor has obligation – that is Delict – opposite of crime. A delict is a private wrong and liable to damages from breaching a contract. “Malice” in minors makes up for age and the minor will be bound.

(d) Once married – even when divorced during his minority, the minor is still bound.

Once married, the minor is an adult.

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1.7 Quasi-Mutual Ascent Principle Quasi – means “as if”. If there is a dispute and reference is made to the courts, look for offer and acceptance, that is, the equation offer + acceptance = contract although there may be additional formalities to be complied with, for example, the reduction into a return form of a contract. In some instances it may be sine qua non (condition precedent): ♦ A marriage contract has to be registered, if not it is a customary union; ♦ A contract for sale of movable property in terms of the registry act has to be written

agreement. Parties could agree that unless contract is in writing, agreement remains in complete. Such a CAVEAT/RIDER would be perfectly binding and enforceable;

♦ Short of this a VIVA VOCAE (vocal agreement) is just as binding. ♦ Where the courts have been unable to establish a case of offer and acceptance

(express/implied) the next port of call is to determine whether or not a situation of Quasi-mutual ascent is attained – based on an objective rather than subjective test.

Question: Whether a reasonable man has been made to believe that a contract exists? (Can it be made?). The quasi-mutual ascent philosophy is also known as the Peters Vs Salomon/Smith Vs Hughes doctrines. Observation: Smith Vs Hughes; “if whatever a man’s real intention may be he so believes in himself that he was assenting to the terms and that other party upon that belief enters into a contract with him, the man would be equally bound as if he intended to agree to the other party’s terms.” The objectives evidence of consent guides the courts. Any unexpressed reservation by one party is immaterial. Subjective mental attitude remains a third factor. Colleen Vs Reitfontein Engineering Company Facts: After some correspondence (supply of pump and an engine) Colleen wrote to Reitfontein, enclosed please find a cheque in part payment of my pumping plant. Reitfontein paid the cheque of $150 into its bank account and did not reply to the letter. Later, Reitfontein supplied a different pump which proved unsatisfactory and Colleen refuted the contract. Court: Colleen’s letter amounted to an offer and although Reitfontein did not accept the offer expressly, by paying the cheque into their account, a reasonable person would believe that they had accepted the offer and therefore they were bound by the contract on the basis of quasi-mutual ascent. The court could only interpret the behaviour of the parties on the basis of the objective facts available to it.

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Peters Vs Salomon Facts: Peters, having been undertaken to pay off B’s creditors, including an amount paid to Salomon, he requested all creditors to send money owed to B to him. Salomon sent in a statement, being owed $490 with no objection. Peters confirmed that their previous undertaking stood. Peters thought the amount owed was $345 and not $490. Court: Held that Peters would have to pay $490. Observation: When a man X makes an offer in plain unambiguous language, understood in its ordinary sense by the addressee, and accepted Bona Fide (in good faith), then there is a concluded agreement. Any unexplained reservations hidden in the mind of the other party are completely irrelevant – he cannot say that his promise was subject to a condition he omitted to mention and which the other party was unaware of.

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Business Law – Chapter 2: Factors that vitiate a contract MBA II Semester I 2002 G. Manhangwe R890800P

CHAPTER 2 FACTORS THAT VITIATE A CONTRACT 2.0 Void ab initio/voidable At the time of contracting there may be a defect, a reason or flaw/deficiency, which might militate against the enforceability of a contract: 1. Illegality – tainted 2. Mistake – provided that the mistake was of fact rather than law because of the

“ignorantia juris” principle – ignorance of the law is no defence/excuse. The mistake should be reasonable and material.

3. Duress – entering into agreement through fear. That agreement is unenforceable. 4. Undue influence - is closely allied to duress. 5. Misrepresentation 2.1 Void Ab Initio Vs Voidable Agreements Void ab initio agreement is a legal nullity right from the beginning and parties do not acquire obligations and rights since the agreement is unenforceable. Voidable contracts are those contracts with defects. 2.1.1 Examples of void ab initio marriage agreements are: 1. Where same sex parties sex wittingly or unwittingly purport to marry each other; 2. In cases of vagary where both parties or one party were validly married to another

person at the time they purport to marry; 3. Where one party has consented to marriage as a mistake due to the circumstances

at hand, or the one party has mistaken the identity of the other party; 4. One of the parties or both are insane, suffering from mental idiocy at the time of

marriage (Uys V Uys); 5. Where the parties are related to each other within the prohibited blood

consanguinity or affinity – siblings, first level cousins, etc. What is obtained here is a decree of annulment – a declaratory announcement.

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An agreement, which gives one party unlimited discretion, would be void for vagueness, as in the case of; Kantor V Kantor Facts: Under an ante nuptial contract, the prospective husband agreed to settle on his future wife “all such furniture, linen, plate and domestic effects, together with any renewals of and additions to the same, as he may then or thereafter acquire, at such times and in such quantities as may be expedient to him, to the value of R3,000 …” . Mrs. Kantor sought performance of this promise, but her husband claimed that the agreement was void for uncertainty. Court: Ruling was in favour of the husband, that the contract was indeed unenforceable since the terms of the offer were unclear and left the donor free to act or not to act as he wished. The contract was void ab initio for vagueness. Baretta V Baretta Facts: A contract between the parties by which a debt was acknowledged and certain property pledged provided that the debtor hereby undertakes to pay a substantial sum every year. Court: Contract was void ab initio for vagueness on “substantial sum” – the court could not come up with reasonable interpretation of what the parties meant by “substantial sum”. 2.1.2 Examples of Voidable marriages are: 1. Where both parties are minors and have consented to marriage without the consent

of guardians or judge of the high court; 2. One of the parties has been intimidated or coerced into the marriage – this is

voidable at the option of the complainant within reasonable time – she can chose to remain in the marriage or opt out;

3. Where one of the parties suffers from permanent impotence; 4. Where the woman at the time of marriage unknown to the husband was pregnant by

another man as a result of illicit sex – rape, incest, etc; 5. Where the marriage has not been celebrated due to the stubborn or willful refusal of

one of the parties; 2.2 Illegality ♦ Agreements which are illegal or tainted with illegality are void ab initio and

unenforceable from the beginning. The courts normally refuse to deal with any illegal agreements – “No action would arise out of an evil cause” – Ex Turpi Causa rule

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♦ If agreement is contrary to public morality (contra bones mores) – the agreement is illegal in that it contravenes public morality.

Wessels Vs Lion Match Company Facts: Wessels sued for the recovery of the purchase price of wood that had been sold and delivered to the defendant, which despite lawful demand the defendant neglected to pay. At the time of the conclusion of the agreement the plaintiff had not sought special permission from the ministry of trade, which was supposed to be secured before the sale of controlled commodities. Court: The money was unrecoverable because of the statutory prohibition – the agreement was contrary to statute – it was actually illegal. 2.2.1 Common Law Illegality This is centred upon what is deemed to be in the best interest/pursuit of good/morality/ideals – for example, agreements which: 1. Interfere with administration are unenforceable – X who is facing a possible

prosecution bribes a law enforcing officer to buy immunity, but the law enforcing officer decide to proceed with prosecution – X cannot sue for breach of contract since such an agreement is against public good.

2. Undermine/interfere with marriage, as in the case of; Pietchz Vs Thompson Facts: Pietchz claimed the return of certain gifts or their monetary equivalent in pursuance of an agreement under which Thompson would divorce her husband and marry Pietchz. Thompson then decided not to divorce her husband. Court: The gifts were not recoverable because they had been given in pursuance of an immoral agreement. The same argument was said in the case of; Friedman Vs Harris Facts: Friedman sued Harris, a married man, for damages due to seduction (reduction of marriage chances on the market). They then entered into an out of court settlement to avoid unnecessary litigation/compromise where by it was agreed that if Friedman repay the amount that she received from the man the man would proceed to divorce his wife. In the event that he did not she decided to sue for breach of contract. Court: The amount that she had repaid to the defendant is unrecoverable due to the immorality surrounding the agreement.

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2.2.2 Consequences of an illegal agreement An illegal agreement is void ab initio and unenforceable and the parties thereto do not acquire rights and obligations. In Pari Delicto Rule (which is a logical extension to the ex turpi causa), in an illegal agreement where one party deceives the other, the cheated party cannot expect to get relief from the court. The loss will lie where it falls and no judicial remedy will be forthcoming. 2.3 In Restraint of Trade Agreement It is an agreement which restricts/circumscribes a party’s ability to engage in unfettered trade or profession – for example, an agreement where an employer places restrictions on the employee to the extent that the employee cannot compete with the employer within specified time and radius, or bonding after company assisted training; sell of good will where X sells to Y but puts restrictions. 2.3.1 In Maxim Modernfern: The courts described an agreement in restraint of trade as an interference with individual liberty of action in trading or profession. Such interference is prima facie (at face value) contrary to public interest and therefore void – general rule, but there are exceptions where the restraint is perceived to be reasonable – if the idea is to restrict or forestall competition and nothing more, such a restraint would not be upheld by the court and will be contrary to public policy and therefore unenforceable. However, if the idea is to protect the legitimate interest of the employer or fellow trader where good will is evident it will be enforceable, as in the case of; Schawtz Vs Subel Facts: The defendant sold a general dealer’s business to the plaintiff. A clause in the agreement of sale provided that “the seller was not permitted to open up a shop in opposition to the buyer’s business within a radius of 5 miles”. Soon after the agreement and payment, Subel purchased a business 1.5 miles down the road. Court: Schawtz was able to obtain an interdict permanently restraining Subel from operating the new shop. The idea was to protect the good will, which Subel had sold to Schawtz with the inventory. 2.3.2 Covenants between employers and employees A covenant prima facie is contrary to public policy and therefore unenforceable if its only purpose is to restrict honest competition. However, the courts are more tolerant of covenants, which try to strike a balance between the interests of the two parties. Covenants which recognize and uphold that where you have a skilled employee he should be allowed to practice his profession without hindrance if it is beneficial to the individual and society, unless the employee is privy to the employer’s trade secrets.

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Court: As long as the employment covenant is reasonable it becomes enforceable. If the idea is not merely to avoid/restrict competition then it is enforceable as in the case of; Munyaradzi Mangwana Vs Brian Muparadzi & Others Facts: In 1986/7 Munyaradzi Mangwana completed his legal studies at the University of Zimbabwe. At the turn of the New Year he joined Brian Muparadzi & Others legal company as a qualified assistant. He signed a covenant to the fact that should he leave the employer he will not be allowed to practice as a lawyer at his own or with others anywhere in Zimbabwe for 5 years. Soon afterwards he took up employment in Chinhoyi. After a year he decided to form his own company in Chinhoyi about 0.5 km down the road. The matter went to court to determine the question of its enforceability or otherwise. Court: The agreement was not acceptable because of its infinity nature (too broad in nature) and at the same time, in the mind of the good judge fortified with the case (involving lawyers who should actually be legal experts), he decided to invoke judicial activism at the risk of being part to the judicial combat/arena. Adversarial system of justice – the judicial officer should be a neutral umpire deciding a case on the basis of evidence submitted. Inquisitive system – the judicial officer takes a more pronounced role in trying to get to the bottom of the story probing either side actively. The court decided to go into judicial combat and modified the agreement reducing the time frame 5 years to 3 years and the place restriction from the whole of Zimbabwe to Chinhoyi. Munyaradzi Mangwana simply moved to Kadoma swapping business premises with a friend. Morris V Saxel Facts: Saxel was employed as a teller’s assistant by Morris and they agreed that should Saxel leave his employer he would not be allowed to practice his trade within 10km from the employer. Court: Was not convinced that the case met the required legal thresholds – such a covenant should not solely aim to restrict competition. It was an anti-competition agreement/device or trick and nothing else, and that being the case it was contrary to public policy and therefore unenforceable.

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2.5 Mistake A contract that is induced by mistake is void provided that certain conditions are in place – the mistake was one of;

1. fact and not law, 2. Justus error, and 3. material.

These three conditions should exist simultaneously – they should be contemporaneous. Mistake of fact – ignorantia juris non excusat ex – ignorance of the law is no defence or excuse – it is not a privilege but a misfortune. A situation induced by mistaken motive is irrelevant. Mistake going to the root of the problem – what would a reasonable man say? – officious bystander – one way of describing the profile of a hypothetical reasonable person. Cases deemed to constitute an essential mistake; 1. Error in Egotio A mistake to the nature of the agreement. If X thinks that he is selling goods to Y who on his own thinks the goods are a donation, that is, no consensus ad idem – there is no agreement. 2. Error in Corpore Relate to the identity of the subject matter of the agreement. X wants to sell a donkey and Y wants to buy a horse. Parties are at cross-purposes – there is no unanimity of minds. 3. Error in Personae A mistake that relates to the identity of the other party. Issue- if the contract envisages personal performance, personal identity is important, for example, with marriage and employment, then the error is essential – agreement contains elements we call Delictus Personae – identity, reputation, integrity of a particular individual is material consideration – for example selling goods on credit, select some and snub others, if cash sale there is no matter who buys. More errors are subject to additional qualifications that they have to be reasonable – be able to stand scrutiny in the mind of a reasonable person – a Justus error. If a mistake were reasonable one would be bound on the basis of Quasi-mutual assent because of the impression in the mind of a reasonable person, as in the case of;

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Merrington Vs Davidson Facts: At an auction sale, Davidson bought certain pieces of land comprising lot numbers 1-28 in block CC for six pounds each. Despite the fact that lots and blocks were clearly identified on a plan, Davidson sought to void the contract on the grounds of his mistake. Davidson argued that he had meant to buy lots in block C and not CC and therefore that his mistake rendered the agreement VOID. Court: Although there was a mistake, it was not a Justus error, so did not find sufficient reason for setting aside the agreement. Error in corpore will only void a contract if there is Justus error. Therefore Davidson could not escape the contract, there has been no misrepresentation and since the plans had been clearly displayed – he had obviously been careless. Consequently his mistake could not be considered reasonable. Principle: Where a contracting party’s mistake in identifying the subject matter of a contract is due to his own negligence, such a contract stands and he is bound. 2.4.1 Caveat Subscriptor Rule Let the signatory beware – warring signatories to be aware of the contents of the documents. He who signs a document has familiarized himself with the contents therein. Signature signifies consent. If later there is discovery to the contrary then he blames himself. Signing documents carelessly (having not understood the meaning and contents e.g. mortgage bonds), one is bound by one’s signature, as in the cases of; George Vs Fairmead Facts: George a guest at a hotel signed a hotel register, which also doubled up as a contractual document, at the time he became a guest at the hotel. One of the provisions, which George did not read, was that “in the event that property was lost/damaged/stolen, the hotel owner was exempted from liability”. When clothes were stolen from his room, George sued the hotel company, claiming a mistake through ignorance based on Justus error in that he had believed himself to be signing merely a hotel register – not a contract – and that in any event his attention had not been drawn to a written term not included in his oral agreement.. Court: Dismissed the case on the basis of the caveat subscriptor rule. Consequently, his signature bound George on such contract. “When a man is asked to put his signature to a document he cannot fail to realize that he is called upon to signify, by doing so, his assent to whatever words appear above his signature.” The courts in numerous other cases reinforced the decision. Principle: Unless induced by misrepresentation or fraud, one is bound under the doctrine of caveat subscriptor by one’s signature – even if the material to which it is attached has been neither pointed out nor read.

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Bhikhagee Vs Southern Aviation Company Facts: Bhikhagee signed a flight ticket containing contractual provisions, one of which was to the effect that Bhikhagee would still be obliged to pay full fare even if the flight was discontinued. Bhikhagee, an Indian businessman with a limited knowledge of English language and in a hurry, signed. The flight was cancelled because of bad weather and passengers were obliged to use alternative ways to get to their destinations. Presented with a full bill, his argument in evading being bound by the agreement was that of English language deficiency. Court: “Can a man who has signed a document in the form of the one now before us claim that he is not bound by it simply because he did not know what the document referred to”. No! The fact that the defendant did not read the conditions on the ticket and did not know their contents is immaterial – and he is in no better position if he is unable to read (a fact unknown to the company). By his signature he elected to take the risk, and he is bound. Observation: It is a sound principle of our law that when someone signs a contractual document he is taken to be bound by the ordinary meaning and effects of the words which appear over his signature. Even when he has not read the document and propheses of ignorance. Where there is duress or misrepresentation one can invoke Non Est Factum – there was intimidation – the consensus ad idem does not arise as in the case of; Shepherd Vs Farrell’s Estate Agency 1921 Facts: Seeking to sell his interest in a business, Shepherd responded to a newspaper advertisement by Farrell’s Estate Agency which read: “Business wanted… our motto: “no sale, no charge. All advertisements at our expense”. In the process he signed a document which stated contrary to the advertisement – though this was not pointed out to him – that the estate agency would have sole selling rights and was to receive commission if the business was sold within three months, irrespective of whether that business was sold through the agency or not. Shepherd’s business was subsequently sold through another agency and Farrell’s Estate Agency then sued on the agreement for $75 commission. Court: No commission was payable because: Although Shepherd would be normally liable on his signature, the onus of blame had been shifted to Farrell’s Estate Agency by the misrepresentation inherent in the fact that “the contract which the defendant was asked to sign departs most seriously from the advertisement”. Principle: Advertisements are not offers and therefore an advertiser cannot be compelled to enter into a contract on the basis of his advertisement. But if a contract does arise from an advertisement, then the terms of that advertisement must be followed unless the party contracting on the basis of such advertisement has first been notified otherwise.

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2.6 Misresentation Definition: A misrepresentation is a false statement of fact, which is made either in writing or orally by the one party or his duly authorized agent, which has the effect of inducing the innocent party to enter into a contract with the first party. 2.5.1 Essential Elements of Misrepresentation ♦ A misrepresentation was made by one party or his agent to the other party in order

to induce him to enter into contract. ♦ That the misrepresentation was material – must be of such a character that it will

persuade a reasonable man to enter into a contract with the misrepresentor. ♦ That the misrepresentation was in fact false – element of falsity/untruthfulness is

essential. A misrepresentation is not a misrepresentation unless it contains an element of falsehood – A who is an Art dealer makes a misrepresentation to B who is an arts enthusiast that the piece of work which he is selling was made by Mr. C a celebrated artist and turns out that it was in fact made by an unknown Mr. Moyo a starter in the game – that is misrepresentation.

2.5.2 Distinction between Misrepresentation and Puffery Puffery is cheap “sales talk” or boastery language, which a reasonable man would be able to distinguish. It is an over exaggeration of one’s goods and services – a bicycle I am selling will be able to do 100km/hr; Shakespeare Maya claiming he will win the 2002 presidential election, etc – its not misrepresentation but mere puffery. ♦ An opinion which is wrong but given bona fide and well entertained is not a

misrepresentation e.g. X says that her husband is elegant and handsome, but her friend thinks he is horrible – this is an opinion and not a misrepresentation.

♦ A dishonesty opinion is misrepresentation – when you are aware that what you are

saying is wrong. ♦ A prophecy or forecast that turns out to be wrong is not a misrepresentation – a

misrepresentation has to relate to an ascertainable fact i.e. verifiable. In the case of; Naude Vs Harrison Facts: The seller of a house described the house as well built and the purchaser then discovered that in fact the house was disappointing. Court: It was a mere opinion and not a misrepresentation. But if it can be proved that the opinion was dishonestly entertained then it would become a misrepresentation.

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2.5.3 How a misrepresentation come about 2.5.3.1 Active concealment or blatant lie Mr. X who is married says to Miss Pretty Face he is a single man – that is misrepresentation. A seller says his farm has two perennial rivers when he knows they are seasonal rivers, etc. 2.5.3.2 Non-disclosure Simple non-disclosure of material fact may be misrepresentation only where there is a duty of disclosure e.g. contracts involving agents are under duty to uberrammae fide – disclosure of everything in utmost good faith i.e. moralizing everything. Note that law and morality do not always coincide. 2.5.4 Types of Misrepresentation 2.5.4.1 Fraudulent The guilty party issues a false statement of fact intentionally, knowingly and deceitfully i.e. he is aware of the fact that what he is saying is not true as in the case of; Derry Vs Peek Court: In order to establish the existence of misrepresentation deceit must be proved. Generally fraud is proved when it is shown that a false misrepresentation was done intentionally, knowingly and without belief in its truth e.g. A is the owner of a piece of land. Bordering his piece of land is another piece of land belonging to the municipality, a fact that A is aware of. A then sells the two pieces to B saying both pieces are his – that is fraudulent misrepresentation and the contract is voidable at B’s option. 2.5.4.2 Negligent The person making the contract is careless. A reasonable person would verify the truthness. A owns a piece of land which he intends to sell to B. He thinks that there is sub terrain water like in all other farms in the area. He makes a representation to B and on that strength B buys the farm only to discover that there is no sub terrain water – that is misrepresentation – because A could not just jump to the conclusion of sub terrain water just because his neighbours have such water. He should have verified the facts as pertains to his own farm. In negligent misrepresentation we speak of the state of mind on conditions obtaining.

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2.5.4.3 Simple Misrepresentation The misrepresentor does not have a guilty mind. He is wrong but the statement is made honestly and sincerely without knowledge of its falsity. 2.5.5 Remedies for Misrepresentation 2.5.5.1 Requirements to Prove Misrepresentation 1. The innocent party must have contracted on the basis of the misrepresentation. The

misrepresentation should be the reason why he concluded the agreement. Poole & Nourse Vs McLenna Facts: McLenna advertised in a magazine called “The Farmers’ Weekly” the sell of a farm in Chegutu area. He deliberated exaggerated the farm where upon Poole & Nourse visited the farm for three days during which time McLenna was able to put the record straight. They proceeded to buy the farm as joint purchasers and later on decided to repudiate the contract allegedly on the misrepresentation in the advertisement. Court: Since at the time of conclusion of the agreement they were aware of the true state of affairs there was no misrepresentation. 2. The contracting party must make the misrepresentation. Where the

misrepresentation has been done by a third party the injured party cannot rely on the misrepresentation unless the third party is acting on behalf of the injured party to the contract i.e. duly elected. The innocent party should establish privities of the case.

3. The innocent party must be able to prove to court that the misrepresentation was

material fact i.e. should be able to go to the root of contract – it should not be a feverous consideration.

2.5.5.2 Expected Action by Injured Party As soon as the innocent party becomes aware of the deception its incumbent upon him to choose within a reasonable time what to do about his situation: whether to stand by the agreement or to rescind it and the choice of one option necessarily mean having to forgo the other option. Undue delay may be regarded as condonation of the misrepresentation. The courts may not excuse delatory action as in the case of; Bowditch Vs Peel & McGill Court: The injured party cannot approbate and reprobate (blow hot and cold). Once he makes a decision he has to stand by that decision.

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2.5.5.3 Nature of Remedies Character or nature of remedies available to the injured party to a large extent are determined by the type of misrepresentation e.g. with fraudulent misrepresentation the injured party has a number of options available to him: ♦ He can content with the cancellation/rescission of the contract and claim restitution –

to restore to status quo ante – the position that existed before the conclusion of the agreement. This is a remedy found in equity to avoid unjust enrichment.

♦ The injured party could claim damages or a combination of rescission, restitution and

damages. Or simply he could claim damages for any loss he might have suffered. Petit Vs Abrahamson Facts: Petit intending to buy, inspected three horses belonging to Abrahamson. On being asked about their ages, Abrahamson said two horses were 5 years and the third was 6 years old. Petit bought the three horses and later discovered that none of the horses was less then 10 years. Court: Petit was allowed to rescind the contract and obtain restitution. Coomers Motor Spares Vs Albania Facts: Albania sold a second hand Mercedes Benz to Coomers Motor Spares (CMS). He indicated that the car was a 1971 model and that it was never involved in an accident and had done no more than 70,000 miles. It turned out that the car was a 1975 model and had done 150,000 miles. It had been involved in accidents in at least three occasions. Court: Allowed rescission, restitution and damages. With fraudulent misrepresentation it is important for the injured party to prove deceit as was said by the court in the case of Derry Vs Peek. Mere negligence will not do. ♦ For negligent misrepresentation rescission is always available. Rescission is standard

in all three misrepresentations. In Roman Dutch Law, damages for misrepresentation are not given just as a matter of course. The courts take into account certain considerations as said in the case of;

Bristol Vs Lycetl Facts: A tourist was gnawed by a lion in the lowveld due to negligence of the warden. Court: In misrepresentation situations/cases, liability arise only if there is duty, if one speaks at all, to give the correct information and this involves many considerations. Legal duty is not necessarily moral duty.

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The considerations are: 1. There must be knowledge or its equivalent that the information is required for a

serious desire; 2. That he to whom it is given intends to rely and act upon it; 3. That if false or erroneous the innocent party will be injured in person or property; 4. The relationship between the parties arising out of the contract or otherwise is that

in law the one party has the right to rely upon the other party for information and the party offering the information owes a duty to give that information with care.

A case that encompasses these considerations is; Wood Vs Northwood Service Station Facts: Wood was a regular customer of Northwood Service Station. On one occasion as was usual he send his car for service. He was told by the representative (mechanic) that it was not economic to repair the car and that the car as it stood was worth $800. It was better off to dispose of the car. Wood sold the car to one of the garage persons who after minor repairs restored the car to good working condition. [This was negligent misrepresentation. Fraud involves bad faith.] Court: Wood was entitled to recover damages through misrepresentation. As a general rule where a customer is in a habit of asking for such advice the garage has a legal duty to advise him with care and that he has a right to rely on the garage for such information. The remedy available for simple/innocent misrepresentation is rescission only, damages are not available. 2.6 Duress/Metus (force or fear or absence of free will) Duress and undue influence – essentially there is a binding agreement. However, there is a defect in the consent but it is not such that the contract will be void ab initio unlike a situation where there is a mistake – cross purposes – there is no consensus ad idem. The law says as long as the injured/weaker party chooses to remain in the contract then the agreement is binding. Once he acquires knowledge of the deception he is put to his election either to stand by the agreement or to repudiate/rescind it within reasonable time. Selection of one option means abandoning the other option – he has to choose one of the two options – the agreement is voidable at his pleasure. A contract induced by duress is voidable at the pleasure or option of the party coerced into the contract – the innocent party. Duress involves threat, intimidation and whatever

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will produce fear in the weaker party causing him to conclude the agreement as a result of fear. To rescind such contracts certain elements have to be established namely: ♦ That one party induced another party to enter into a contract as a result of

reasonable fear of violence; ♦ That the fear related to the threat of some evil to the weaker party and his family –

and the evil should be considerable e.g. “if you do not vote us we will unleash mayhem and there will be another war” – a reasonable person will not simply dismiss such threats;

♦ The implementation of the threats must be imminent and inevitable; ♦ That the threat/intimidation must be contra bones mores – contrary to good

public morals – “ stop stealing or I will call the police” is a good moral threat; ♦ The fear caused in the mind of the weaker party must not be unrealistic, vein or

foolish but must be such that it overcomes a mind of ordinary firmness and fortitude. Broodryk Vs Smuts N.O. (in his official capacity) Facts: Broodryk, a married road worker with one minor child – alleged he had only entered a contract of voluntary enlistment for military service in the South African army during the WWII because he had been threatened by two government recruiting officials that if he did not, he would be regarded as hostile to the government and interned. On which basis, Broodryk claimed rescission of the contract, citing as defendant General Smuts, the South African Prime Minister, in his capacity as Minister of Defence. Court: Ruled in favour of Broodryk because his fear was reasonable in the circumstances alleged, fear of internment was not “vain or foolish” and was certainly as to overcome the mind of ordinary firmness. 2.7 Undue Influence Undue influence is closely allied to duress and misrepresentation, and has the effect of making a contract voidable rather than void ab initio. Undue influence: ♦ Is a situation where one person (the stronger party – politically, socially,

economically) obtains an influence over the weaker party which influence weakens the other party’s resistance rendering his will pliable or manipulable;

♦ That the stronger party however you define their strength uses his influence/power

in an unscrupulous manner to persuade the weaker party to enter into a prejudicial

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or disadvantageous contract which he would not normally have entered into with freedom of will.

Whereas duress relies on overt force (open force) undue influence relies on subtle force. In English law certain contractual relationships give rise to a rebutable presumption of undue influence. The legal position in Zimbabwe is not as clear cut as the English law even though the balance of legal opinion is in favour of the English law position. Some of the relationships that will be affected are the following: ♦ Doctor / patient ♦ Lawyer / customer or client ♦ Parent / child ♦ Teacher / pupil ♦ Employer / employee ♦ Minister of religion / parishes The important issue is whether there was freedom of volition, its not all relationships where undue influence can be cited. Preller & others Vs Jordaan Facts: Jordaan, an elderly farmer, donated and transferred four farms to Preller, his doctor and adviser – to be administered by Preller for the benefit of Jordaan’s wife and farm labourers. Preller then transferred one of the farms to his son and two to his daughter. But Jordaan, seeking to recover the farms from Preller and his children subsequently claimed that at the time of the contract he had been sick, spiritually weak and mentally plus physically exhausted. In which condition, he had fallen totally under the influence of his doctor, who had used such influence in an improper and unlawful manner to obtain the farms which Jordaan would not otherwise have transferred. Court: Rejected the defense arguments that “undue influence” was not – in Roman-Dutch law – a valid ground for setting aside a contract. Consequently, the court ordered restitution to Jordaan of the one farm retained by Preller. It was unable to order restitution on the three farms held by Preller’s children. It was agreed that a contract based on undue influence is not void but voidable so that ownership had indeed passed under the contract to Preller, who could therefore, provided this occurred (as it did) before the contract was set aside by the court – pass it on in turn to his children. The contract was voidable but remained valid until set aside by the weaker party within a reasonable time. Before set aside third parties can acquire legal rights and obligations. Preller could do whatever he wanted with the farms.

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Business Law – Chapter 3: Termination of Contracts & Remedies MBA II Semester I G. Manhangwe R890800P

CHAPTER 3 TERMINATION OF CONTRACTS AND

REMEDIES Contractual agreements can be terminated in a variety of ways:

• Agreement • Operation of law • Breach

3.1 Termination Through Breach Breach can be through a variety of ways but it simply involves conducts, which are inconsistent with proper performance of the agreement. It’s a violation of a material aspect of the agreement – an aspect that goes to the root of the contract. 3.1.1 Repudiation Where the debtor (the person to whom performance is due) shows a clear intention to be no longer bound e.g. a house that has been let to A by the lessee is re-let to B, or a situation of double sale of a car. The creditor could accept repudiation and sue when the time of performance is due. Alternatively he can refuse the repudiation and sue for specific/exact performance originally envisaged in the contract by the parties. Damages are the monetary equivalents to performance. They constitute the surrogate to specific performance. Specific performance is usually given at the discretion of the courts – on the basis of specific consideration the courts may refuse to grant specific performance. 3.1.2 Mora Apart from repudiation there is also mora – delaying performance without lawful excuse where time is a material aspect of performance e.g. if the time within which performance is clearly defined (within 7 days). Commercial agreements are accompanied by lex commissoria (foreclosure or forfeiture). A forfeiture clause is a penalty clause, inasmuch as a foreclosure. Whereas a lex commissoria is also a penalty

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clause in an agreement, which empowers to cancel the agreement and impose a penalty, in the event of breach of contract e.g. delivery dates. Apart from the defined time of performance the debtor can also be in mora if time is of essence – when it is clear to a reasonable person that performance has to be rendered without undue delay e.g. Munashe telephones Cannan a plumber to fix a leaking tap at his house. Cannan comes after a week, he is in mora. Or Mr. Gushungo in panic telephones the ambulance to come as his wife is in labour and the ambulance comes two weeks later. Broderick Properties V Rood Facts: Broderick Properties borrowed from a bank on first mortgage R220,000 – the money to be available only upon registration of the bond, but interest at 7.5% to be payable in any event from 16 November 1959. on 20 October 1959, Broderick Properties instructed Rood – a conveyancer – to register the bond, but it was in fact only registered on 11 February 1960. Consequently, Broderick Properties only received the R220,000 after having already paid interest amounting to R3,899 – covering an approximate three months period during which Broderick Properties did not have use of the capital sum. Broderick Properties therefore sued Rood for this amount. But Rood countered by claiming that, since time had not been fixed and Broderick Properties had made no prior demand setting a date for performance, he was not in mora. Court: Ruled in favour of Broderick Properties on the grounds that there is no inflexible rule that “where there is no date specified in the contract there must be interpellatio (prior demand by the creditor for performance by a reasonable date) before there can be mora (liability for a default in performance on the part of the debtor)….”. Rood was quite in mora and that the receipt and use of the money by Broderick Properties was dependent upon Rood’s expeditions and implementation of the undertaking. Rood was to attend to the matter without delay. 3.1.3 Mal-Performance When the debtor under-performs either in terms of quality or quantity e.g. Kudzai, a butcher is supposed to deliver to a city café 100kg of high quality beef but delivers 50kg, or she delivers 100kg of offal. 3.2 Termination Through Agreement This is an amicable way of terminating a contract. It involves the consensus of both the creditor and debtor. And because there was agreement there is no question for suing for breach of contract.

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3.2.1 Novation Involves the conclusion of a new agreement, which supercedes and negates the existing agreement e.g. a contract of sale that is transformed into a donation. 3.2.2 Waiver Where the creditor intentionally releases the debtor from his obligation without compulsion and purposeful decision. 3.2.3 Cancellation A contract that has not yet been performed can be terminated by the parties agreeing to cancel the agreement may be after realizing they may encounter problems in its implementation. If one party or both had already performed part of the agreement they are entitled to restitution to effect simple justice and avoid unjust enrichment. 3.3 Termination Through Operation of Law Operation of law does not involve breach and neither does it involve agreement. Nonetheless the courts would pronounce there is no agreement any more. The following situations apply; 3.3.1 Death Usually the death of one of the parties to the agreement should not really herald the end of the agreement because the deceased’s estate can be bound through an executor – A sells a house and before the sale is concluded he dies – this should not bar the completion of the sale even though delays would be experienced during appointment of the executor. Where the identity and presence of the other party is material component of the agreement then the death of that party would entail termination: e.g. contract of service in which you had employed an agent, marriage, ordinary employment etc. 3.3.2 Set-off Where two persons owe each other money and the two debts can be weighed up against each other. If the two are equal then the two can be extinguished. If one is smaller then the smaller is extinguished provided that;

I. The debts must exist between the parties in their personal capacities,

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II. The reciprocal debts must both be due.

3.3.3 Merger or Confusio Takes place where there is a coincidence or coalition of capacities of both creditor and debtor – capacities united into one person. Such a debt becomes extinguished because one cannot be debtor and creditor for the same obligation - e.g. A owes B his landlord, and A marries B under community of court. There is merger of capacities. 3.3.4 Prescription Is when debt/obligation is extinguished due to passage of time and the creditor has done nothing about recovering the debt. Two types of prescriptions: ♦ Extinctive Prescription – becomes extinct. ♦ Acquisitive Prescription – acquire the prescription e.g. if X moves to a piece of land

belonging to B and B does nothing to evict the squatters. After 30 years X can acquire title deeds. Ordinary debt where X owes Y some money, after 3 years the debt lapses.

A prescription is interrupted by; an acknowledgement of debt by the debtor, through issuance of summons through legal action – formalization of the case.

3.3.5 Supervening Impossibilities This is the “doctrine of frustration” – a contract is frustrated due to intervention of outside forces – due to emergency of providence due to act of God or act of state – those factors that cannot be foreseen by reasonable forecast or cannot be prevented by reasonable means/care – vis major & casus fortuitus. Only objective and not subjective supervening impossibilities may be considered.

Casus fortuitus – is an unusual occurrence or accident. Vis major – is the intervention of elements such as drought, floods, hailstorm, earthquake, legislation of an adverse character, which outlaws an activity, which used to be lawful, is regarded as an act of state and therefore considered as supervening impossibility. In English law the nearest equivalent to the notion of supervening impossibilities is the “doctrine of frustration”. A contract is frustrated where although possible to perform at the time the contract was agreed upon it subsequently becomes impossible through the occurrence of an event which was not the fault of anybody – this doctrine has been underpinned by lots of cases:

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Taylor V Cardwell Facts: The plaintiff entered into an agreement with the defendant for hire of a certain music hall for purposes of holding a series of concerts. Before the series was due to begin the hall was accidentally gutted by fire. Court: The destruction of the hall constituted frustration of the contract. Both parties were excused from performing the contract. Krell V Henry Facts: Mr Henry a monarchist through and through hired a room for two days so that he could view the coronation of king Edward II from a vintage point. The king fell ill and the proceedings were postponed to an undefined time when the king would have recovered. Mr Henry decided not to take occupation of the room. When sued for breach of contract he pleaded frustration of the contract in defence. Court: Agreed with Mr Henry’s submission. In Roman-Dutch law the notion of supervening impossibilities related to the non-performance of a contract on account of an event, which cannot be avoided even when ordinary precautions are taken. However, a self-created impossibility will not do or where performance becomes inconvenient and not objectively impossible will not be accepted e.g. where a builder neglected to put an escalation clause in a contract, and due to inflation it becomes costly to complete the project – this is not supervening impossibility. Peters, Flamman & Company V Korstad Municipality 1919 Facts: Peters, Flamman & Company contracted with the Korstad Municipality to light the town with acetylene gas for a period of years. But at a time when the contract still had ten years to run, Peters and Flamman were interned as enemy subjects. Following which, the Treasury – acting under statutory powers – ordered the partners’ business wound up by a controller, who accordingly cut off the gas and discontinued the light supply. Consequently, the Korstad Municipality sought $20,000 in damages for the breach of contract plus forfeiture under a penalty clause in the contract of plant and equipment erected and installed by the partnership. Court: Under common law the contract is void if under the time of its conclusion the contract is impossible to perform. Where also a contract becomes impossible after it has been entered the situation is the same. The position… was that by the order of the Treasury winding up the business of the partnership it became impossible for the defendants to carry out the contract with the plaintiff, and the question is whether in these circumstances they can be held liable for damages for breach of contract. On which the court took the view – in line with the authorities – that “if a person is prevented from performing his contract by vis major or casus fortuitus, under which would be included such an act of state as we are concerned with in this appeal, he is discharged from liability”. Because “the contract was extinguished so soon as it became impossible for the defendants to carry it on …. And if the contract had come to an end, there could be no further breach of it, and consequently no action would lie for damages for breach of contract ..” and therefore no forfeiture.

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The doctrine of supervening impossibilities would not apply in the following cases:

♦ The contract becomes more expensive to perform, ♦ Where one party expressly say he will do which he later finds he cannot do,

♦ Where one party by his own conduct or misconduct includes impossibilities e.g.

where a businessman fails to comply with the relevant legislation governing his industry and is forced to close down he cannot plead supervening impossibility.

Parties to a contract that has been frustrated by factors beyond their control are discharged from further performance of the contract. If there was already partial performance the courts would normally effect a situation of restitution in gratia – to avoid unjust enrichment. 3.4 Remedies For Breach Of Contract Where a dispute arises to the alleged contract there are a number of pertinent issues, which the aggrieved party has to resolve; 1) He must show that there is a cause of action – there was a binding agreement which

was breached by the other party i.e. offer and acceptance, quasi-mutual assent, etc. 2) The breach must relate to a material term of the agreement – going to the root of

the contract. If the breach is peripheral or inconsequential then the injured party is not entitled to a remedy.

The main remedies available in our jurisprudence are;

1. Interdict (pendite lite), 2. Cancellation, 3. Specific performance, 4. Damages.

3.4.1 Interdict (Pendite Lite) Is an extraordinary remedy given in extraordinary situations. It is a prohibitory order, which makes it mandatory for the concerned party to refrain from doing what has been mentioned in the order in which the applicant would have to show that if the interdict is not given an irreparable harm would be done. An interdict should show urgency as in the case of Setlegelo V Setlegelo.

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3.4.2 Specific Performance Is exact performance. A general approach of the courts is that a party who is willing and able to observe the obligations on his part is also entitled to expect the other party to perform – not surrogate performance. A rider to this proposal is that specific performance is discretional – in appropriate legal circumstances the courts may decline to grant specific performance – these are exceptions. Farmers’ Cooperative Society V Berry 1912 Facts: Berry – obliged as a member of the Farmers’ Cooperative Society to deliver his whole crop to the society – nevertheless he refused to deliver a crop of 1,200 bags of mealies as agreed. Consequently the Society sued for specific performance or – alternatively – damages of $765, being the computed additional cost to the Society of replacing the 1,200 bags through the open market in order to fulfill the Society’s own contractual obligations to deliver to various merchants. Though at the trial no damage was shown to have actually been caused in this manner. Court: On appeal, that the Society had indeed ‘failed to prove any portion of its damages as laid .. But that only disposes of the alternative claims as framed; the question of whether specific performances should be decreed .. still remains’. In which regard, the court ruled in favour of the Society and a grant of specific performance, because basically, ‘every party to a binding agreement who is ready to carry out his own obligation under it has a right to demand from the other party, so far as it is possible, a performance of his undertaking in terms of the contract. It is true that courts will exercise discretion in determining whether or not decrees of specific performance should be made. They will not of course be issued where it is impossible for the defendant to comply with them. And there are many cases in which an award of damages can fully and conveniently do justice between the parties. But that is a different thing from saying that a defendant who has broken his undertaking has the option to purge his default by the payment of money.’ 3.4.2.1 Situations Where Specific Performance Is Not Available ♦ Where it is felt that damages can adequately remedy the loss, ♦ Where the claim by the creditor is easily available on the market and is not a

rare/unique/extraordinary commodity, ♦ In contracts envisaged the rendering of personal performance

(marriage/employment etc), ♦ Where unreasonable hardship will be caused on the debtor and the public – an

award of specific performance will be injurious to the debtor and members of the public.

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Haynes V Kingwilliamstown Municipality Facts: The Kingwilliamstown Municipality was obliged under a 1911 agreement to release to Mrs Haynes 250,000 gallons of water daily from its storage dam. This agreement was faithfully carried out until 22 April 1949 when, due to drought and in order to relieve the consequent shortage of water plus concomitant threat to health in Kingwilliamstown, Mrs Haynes’ water allocation was reduced to between 1,500 and 2,000 gallons daily. Although she had adequate water from other sources, Mrs Haynes sued for specific performance. Court: Against Mrs Haynes, because, although a plaintiff has a right (which the defendant has not) to choose between claiming specific performance or damages and although the court ‘will as far as possible give effect to a plaintiff’s choice to claim specific performance, it has a discretion in a fitting case to refuse to decree specific performance.’ 3.4.3 Damages Damages are the monetary equivalent of specific performance. In general the courts would like to place the injured party in the position that he would have occupied through the payment of money and without undue hardship to the debtor. Contractual damages emanate from breach of contract e.g. Farmers’ Cooperative Society V Berry. Delict damages emanate from situations where there is no contract. The damages are not meant to punish the debtor – they should not be vindictive. They are meant to place the injured person in the position that he would have occupied had the contract been performed. 3.4.3.1 General Guidelines In Assessing Appropriate Damages The idea is to avoid an in determinant/infinite amount of damages in an in determinant way: (a) Damages Must Be Direct The courts insist that the damages should be direct rather than indirect. Direct damages flow naturally from the breach – they are not remote. Damages must be within the contemplation of the parties so much that a reasonable person would agree that the damages are a direct consequences of the breach. Victoria Falls & Transvaal Power Co Ltd V Consolidated Langlaagte Mines Facts: Under an agreement of 25th February 1911, the Victoria Falls & Transvaal Power Company Limited undertook to provide 1,200 kilowatts of power to Consolidated Langlaagte Mines Limited for the introduction of a new reduction plant. Consolidated Mines made clear that the power was required by 1st July 1912 – a deadline acknowledged by the Power company with the words: “We have duly noted these requirements and will make the necessary arrangements.” But in fact the power was not actually supplied until 29th September 1912. Consequently, Consolidated Mines sued the Power Company for damages as follows:

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♦ $4,080 lost in extraction because of the need to continue using the less efficient, old system for a further period of three months after the agreed completion date, plus

♦ $27,833 profits deferred due to the need over the same period to treat ore at the old

rather than the new mill – profits which would consequently only be recoverable at the end of the mine 22 years hence, plus

♦ $6,910 loss due to greater development costs by failure to provide the power promised

by due date, plus ♦ $3,281 loss on shaft sinking arising in similar manner. Court: Dwelt at length on calculating the actual amount of damages, which, though already reduced by the trial court from $42,104 as originally claimed to $29,527 – were nevertheless the subject of an appeal by the Power Company. Which appeal was successful in the sense that the Appellate Division further reduced the damages awarded to $19,000 (plus costs) – confining damages only to profits actually lost because of the delay. But throughout there was no doubt whatsoever of the Power Company’s liability – which the court determined and evaluated on the basis of ‘the general principles, which govern the investigation of that most difficult question of fact – the assessment of compensation for breach of contract’. (b) Mitigation Of Losses The injured party must mitigate his losses as a reasonable person. He is expected to take practical steps to curtail his losses e.g. a contractor relocates elsewhere before he completes the contract – you would naturally take steps to minimize the loss. The debtor is not expected to take unreasonable/extraordinary steps to mitigate his damages as in the case of: Bulmer V Woollens Limited (in liquidation) 1926 Facts: Bulmer contracted to be the managing director of Woollens Limited for a period of 5 years. But after a little more than 2 years Woollens Limited was placed in voluntary liquidation and Bulmer’s employment terminated. When Bulmer sued, the defence was raised that he could easily have obtained employment as a builder’s foreman – so mitigating his loss – and that in the light of failure to do so his claim for damages should be reduced accordingly. Court: Bulmer was entitled to damages for full amount of his loss, because the position of builder’s foreman was of totally different and subordinate character to his previous employment. Consequently, he was not obliged to take such a position in an effort to mitigate. Principle: Where an employee who has been wrongfully dismissed seeks damages, he is entitled to the actual loss he has suffered – namely the amount he would have earned up to the earliest date at which the contract could lawfully have been terminated either by

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notice or passage of time. Moreover (although he should attempt to mitigate his loss and the cost to the other party by seeking during that period similar employment – the earnings from which can offset against the damages) he is not obliged to take an unsuitable or subordinate position. (c) Avoid Unjust Enrichment These setbacks are meant to ensure that the injured party is overly paid and that the debtor should not be unreasonably punished. Damages are meant for patrimonial (quantifiable) loss and not normally for sentimental loss. Jockie V Meyer Facts: Jockie a Chinese officer on a British vessel plying the route England – Port Elizabeth, made arrangements to get accommodation at Meyer’s Hotel in Port Elizabeth. Upon arrival and realizing that Jockie was Chinese, the Hotel decided not to honour the contract. Jockie sued for damages, which included a portion that related to injured feelings because of his race. Court: On appeal the court said that contractual damages normally should not include injured feelings – they are for patrimonial damages. However, where the accent of the contract is the conferment of pleasure and that pleasure is not forthcoming then damages may be available for injured feelings e.g. in the hospitality industry, as in the case of Jarvis V Swan Tours. Delict: is a private wrong that damages one’s reputation in the eyes of right thinking members of the public. It is defamation. In English they call it a tort. Dolus – wicked intention; culpa – an accidental negligence. Defamation causes injuria – violation of one’s individual dignitas. Defamation can come through a direct reference or indirect reference (innuendo) – that bears defamatory meaning e.g. the Daily News cartoon of Jonathan Moyo. To a reasonable man an innuendo means one thing – negative perception about the person. Injuria impairs one’s self worth. An example of defamation: to say that somebody is a thief, prostitute, homosexual etc when they are not. The question of defamation is contextual and relative to the individuals and circumstances. Recent cases of defamation include: ♦ Mujuru Vs Moyse ♦ Joseph Madimba Vs Zimpapers ♦ Edison Zvobgo Vs Kingstons ♦ Edgar Tekere Vs Zimpapers

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Defences Open To The Defendant Under Defamation Cases 1. Justification – involves two things that it is: (a) true component; (b) in the interest

of the public; 2. Privilege – parliamentary privileges – MPs in the chamber can say anything whilst

in the chamber – they enjoy absolute privilege. Other people may enjoy qualified privileges – a priest on the pulpit, or a judicial officer, a parent in certain situations when counseling children.

3. Rixa – “an eye for an eye, or a tooth for a tooth” philosophy. It has to be

momentary i.e. there and there without any premeditation. 4. Jest – just joking which is restricted to close friends or family members only.

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Business Law – Chapter 4: Contract of Sale (Emptio Vinditio) MBA II Semester I G. Manhangwe R890800P

CHAPTER 4 CONTRACT OF SALE [EMPTIO VINDITIO] 4.0 Agreement of Sale Elements The agreement of sale essentially involves three elements:

1. Agreement that relates to the, 2. Merx or the identity of the merchandise, and 3. The pretium or price – the modalities of arriving at a price.

It does not matter that the agreement is not in writing – an oral agreement is just as binding as a written agreement unless there is another rule of law that requires that the parties need to formalize in writing e.g. the sale of an immovable property has to be in writing in terms of the deeds act, a marriage contract because of the need for a certificate. The parties themselves could make the tabulation in writing as a condition precedent – unless and until the agreement is reduced in writing it remains void. Once in writing the parties are not allowed to introduce extrinsic evidence to prove the terms of the agreement (the Parole Evidence rule). The document itself is complete. Agreement – the common offer + acceptance less undue influence, illegality, voidability, mistake, lack of consensus ad idem, etc. Merx - should be Res Intra Commercium (merchantable), that is, being capable of being sold and bought – it can either be tangible or intangible i.e. Res Corporial or Res Incorporial respectively - sui generis i.e. a contract of its own kind like lobola. Price/pretium – has to be in money or capable of ascertainment in monetary terms – there should be a modality of arriving at money. It has to be serious and not a disguised donation. The price must be a realistic market price of the merx or res. If you buy a non-existent thing in error then there is no sale, and one cannot be the buyer and seller at the same time – you need at least two parties. Cawcutt Vs Taperson Facts: At an auction sale the purchaser bought a horse at credit terms and paid a deposit with the outstanding amount to be paid at a latter date. He latter realized that he had bought his own horse stolen from him. He then refused to pay.

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Court: The purchaser “was not liable to pay the purchase price” because it was his own property. 4.1 Types of sales 4.1.1 Cash Sale Ownership passes from the seller to the purchaser upon the payment of the purchase price and delivery. Delivery can either be actual or fictional. Actual delivery involves TRADITIO (physical hand over). Fictional delivery has the same effect as actual delivery – the major difference is that the merx or res may already be in the hands of the transferee through an earlier agreement other than sale e.g. through a loan. Examples of fictional delivery are: 1. Traditio Brevi Manu – the purchaser already has the merx e.g. an ox loaned to

him which he now wants purchase – what matters is now the mental attitude. 2. Traditio Longa Manu – delivery by the long hand pointing to the merx e.g. lobola

cattle. 4.1.2 Credit Sale Ownership passes at the time of delivery – actual or fictional/constructive delivery. For a Hire Purchase (HP) ownership passes from the seller to the purchaser upon payment of the last installment. Sales of immovable property (house, stand) – ownership passes from seller to purchaser upon registration at the Deeds Office. 4.1.3 Voetstoots Sale The merx or res is sold as it is with all its defects if any. The seller absolves himself of responsibility in the event that the merx is latently defective. A latent defect is a hidden defect that is not easily discoverable by a reasonable man upon a reasonable inspection e.g. cancer of the lung in an animal, a debilitating heart defect, etc. With a patent defect the caveat emptor rule applies – let the buyer see or and beware – it is an analogue to the caveat subscriptor rule. Caveat Emptor He who buys an item is expected to have inspected and acquainted himself with what he is purchasing – if it has a defect the purchaser has no remedy. If the purchaser is unable to discover a defect, which only an expert can discover, there is still a latent defect and the law gives the purchaser a remedy where the merx was latently defective at the time of the conclusion of the sale or at any rate prior to the conclusion of the agreement. If the latent defect supervenes subsequent to the conclusion of the

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agreement it becomes a risk that must be borne by the purchaser. Under the Roman-Dutch law the purchaser who had not yet benefited from the purchase is entitled to a remedy for the latent defect. Where the seller is fraudulent and sells an article voetstoots which he knows to be latently defective without disclosing the defect to the purchaser, the law says that he is not entitled to the protection afforded by a voetstoots clause – it is only given in cases of genuine ignorance, as in the case of; Vander Merwe Vs Culhane Facts: A timber merchant sold timber voetstoots that was infected with wood ants to his knowledge. It then transpired that he was aware of the existence of the ants. When sued by the purchaser for rescission of the contract he invoked the voetstoots clause. Court: The seller could not rely on the voetstoots clause because of the fraudulent conduct. Matambo Vs Chakauya Facts: The plaintiff bought a house in Marlborough voetstoots. When the rains fell he discovered that the roof was leaking heavily. He sued in the High Court for rescission of the contract. The seller in his plea invoked the voetstoots clause. There was evidence establishing the seller’s mala fide that he was being fraudulent. Court: The voetstoots clause was rendered useless and inoperable on account of the seller’s fraudulent conduct. 4.2 Risks in Purchase and Sale Risk is any disadvantage, loss or depreciation that is occasioned to the merx e.g. buy a car and be a victim of a robbery. On the other hand, benefits in the merx relate to the accruals or advantages gained. The common law says that risk and the benefits go hand in hand. The question is at what stage during the transaction does risk pass from the seller to the purchaser? The law says that once the agreement is Per Fecta (concluded) in relation to the identity of the merx and in relation to the price of the merx (or modalities of arriving at an appropriate price) the principle of law is that risk passes from the seller to the purchaser irrespective of the fact that delivery has been constituted or the purchase price has not been paid. If custody of the merx is still in the hands of the seller and accidentally lost or damaged, then the rule does not apply. Per Fecta – in sales of specific goods, the contract of sale becomes per fecta once the item has been identified e.g. a car parked in the show room. On the other hand with Res Fungbles (RES = any article that is capable of economic utility) – these are bulky goods where you need to weigh, measure, appropriate – the risk will not pass from the seller to the purchaser until the required weighing, measurement, appropriation has taken place e.g. 1000 bricks.

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Fitwell Clothing Vs Quorn Hotel Facts: Quorn bought some clothing items for their hotel staff. There was a discrepancy between what the Purchasing Manager thought was the agreed price on the one hand and the price that appeared on the invoice after delivery. The parties failed to resolve the discrepancy and Quorn called upon the seller to come and recover the concerned goods. Before he could do that the goods were destroyed by fire. Issue: For determination by the courts was “whether or not the purchaser was legally liable to pay the purchase price” Court: No, because the contract was not Per Fecta. There was no agreement on price. Horne Vs Hutt Facts: One farmer in Karoi sold maize for stock feeds to a neighbouring farmer. The maize was set aside for the exclusive benefit of the purchaser. Before delivery could be effected thieves pounced on the lot. Court: Appropriation had been effected and the risk lay with the purchaser. 4.2.1 Exceptions To The Rule: When Does The Risk Remain With The Seller? ♦ If the sale is inclusive e.g. where appropriation has to be done and has not been

done, ♦ Fraud of either party especially the seller – absence of bona fide, ♦ The parties may agree that unless delivery has been done, the risk remains with the

seller – if that is the case, so let it be. The sale is subject to suspensive conditions. The risk remains with the seller until delivery is done. Should the merx be destroyed before the fulfillment, the seller will bear the risk of the transaction.

Jacobs Vs Peterson Facts: Peterson bought a horse drawn cart from Jacobs and undertook to pay the purchase price in weekly installments. The contract included suspensive (namely the seller would remain the owner of both the horse and the cart until the end of the transaction). After the first installment the horse died. Court: The risk remained with the seller and the purchaser could not pay the outstanding balance. By the same token, if a sale is subject to suspensive conditions, benefits in the merx will not pass to the purchaser until the suspensive condition has been fulfilled.

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4.3 Duties Of The Parties A sale is what we call a consensual contract – a bilateral agreement where there are strong elements of Quid Pro Quo. The primary duty of the purchaser is to pay the purchase price at the right time and right amount. At the same time, the seller must be willing to surrender the goods. If the seller delivers goods not in conformity with agreement he would be in breach. Where one party is in breach, the injured party can have recourse to any of the ordinary remedies available for breach. However, if the breach relates to latent defect and the sale is not voetstoots, the common law gives the purchaser the AEDILITION REMEDIES – a peculiar remedy for a latent defect, which can be: ♦ Actio Redhibitoria

action to nullify – predicted upon the assumption that if the purchaser had known of the defect he would not have bought the merx when he did, since the defect is so grave that it impairs the merx.

♦ Actio Quanti Minoris

an action for the reduction of the purchase price – does not negate the contract. What is affected is the purchase price – if the purchaser had known of the defect he would have bought the merx nonetheless but for a lesser price. Normally it is the duty of the seller to effect delivery.

The underlying assumption is that if the purchaser had known of the defect he would have still bought the merx but at a lesser price. Theoretically the purchaser could have rescinded the contract if he wanted but decided not to do so. 4.3.1 Tacit Condition ♦ Where the purchaser refuses to accept delivery for no good reason, he would be in

breach of the sale agreement. The seller would be entitled to remedies – the purchaser had no legal right to refuse delivery.

♦ Where the seller is in MORA and the time for effecting delivery is an important

aspect, the purchaser can refuse to accept delivery. The purchaser would reimburse the seller of any necessary and useful expenses incurred by the seller on account of the merx. Whether or not the expenses incurred (by the seller) are useful, we use the reasonable man’s test. But the expenses would have been of utilitarian character – go towards the preservation of the merx e.g. storage costs. On the other hand if the expenses are strange and cannot be justified then they would not be recoverable.

4.3.2 Duties of the seller

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♦ To look after the merx between the conclusion of the sale and delivery, ♦ Must deliver the merx: the principal + accessories (fruits of the merx – natural or

civil) e.g. cow and offspring. Civil – rents, hired tractors etc. Delivery normally means Traditio, but it can be fictional. For the purposes of the law, fictional delivery has the same legal significance as Traditio.

♦ To give Vaccuo Possessio of merx/res to the purchaser 4.4 Types or forms of fictional delivery With immovable property delivery take the form of registration. Movable property – Traditio De Manu In Manu i.e. physical delivery. Fictional delivery implies delivery, which is not Traditio but legally, has the same effect as Traditio. 4.4.1 Traditio Brevi Manu The transferee already has possession of the merx or res. What he lacks is the ownership only and he acquires ownership through traditio brevi manu e.g. Anna borrows a book from Betty and later wants to buy it. It is not necessary for Anna to repossess and re-deliver it. 4.4.2 Traditio Longa Manu Delivery with the long hand and normally involves bulky goods where the transferor must point out the merx e.g. lobola cattle. Xapa Vs Nstoko Facts: Lobola cattle by the son in law to his father in law were pointed out. Unfortunately for the father in law he could not effect driving away the cattle because of east coast fever regulations prohibiting the free movement of cattle. He argued that because of this legal obstacle, delivery had not taken place. Court: Ownership had been effected through the Traditio Longa Manu. But there must be an intention to use a particular method of fictional delivery, and with Traditio Longa Manu that pointing out evidences intention. Botha V Mazeka Facts: The seller marked the cattle, sold and placed them in a separate enclosure. Court: This did not amount to Traditio Longa Manu as the parties did not have the intention that delivery was to take place by marking the cattle. There was no pointing out.

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4.4.3 Symbolic Delivery Where the transferor gives the transferee means and wherewithal to access the res e.g. keys to the granary, or keys for the car – both Traditio Longa Manu and symbolic e.g. import/export of a car – on CIF, delivery include total package – cost, insurance, etc. The bill of lading constitutes symbolic delivery. Once the person is in possession of the bill of lading, its symbolic delivery. 4.4.4 Constitutum Possessorium The transferor retains possession of the merx/res but what changes is the mental attitude toward the merx/res. The seller is transferred from being the owner of the merx/res to a custodian. The purchaser is guaranteed Vaccuo Possessio – free and undisputed possession. The third obligation incumbent upon the seller is to give Vaccuo Possessio – guarantee in favour of the purchaser i.e. free and undisturbed possession and enjoyment of the merx. The purchaser should not be interfered with in his enjoyment of the merx. The seller does not guarantee ownership of the merx – a third party should not interfere with purchaser’s enjoyment of the merx. If there is lawful interference (to lawfully recover the merx by the seller) then the seller’s obligation to confer Vaccuo Possessio has been violated –Actio Rei Vindicatio, under which the seller has to prove that:

1. He is the owner, 2. The merx is in the hands of the defendant

Actio Rei Vindicatio is an action against the world at large. The owner of the res is at liberty to do whatever they want with the res. Possession – is purely a physical concept, which denotes a large degree of physical control over the property – factual control. Ownership – is a legal control where the owner of a thing needs not to be in possession all the time. In the case: R Vs Mafohla Facts: A notorious rustler shot and mortally wounded an animal belonging to the National Parks at West Nicholson. Darkness was falling and the illegal hunter could not immediately identify where the carcass was although it was certain that he would in the morrow. He was

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immediately apprehended by the Wardens and brought before a magistrate the following morning charged with illegal possession of the animal carcass. Court: Dismissed the case. At the time of apprehension he was not in possession of the carcass. The res was not in detention of the defendant. 4.5 Mandament Van Spoile Principle Possession can either be bona fide or mala fide. The law protects both because possession is nine tenths of the law – why? Because it is part and parcel of keeping and upholding peace in the community – “the rule of law”. The legal moral of protecting mala fide possession is that everybody should enjoy property rights and “nobody is above the law”. Spoliation – is taking your own law into your own hands. The thief can apply for restoration through the Mandament Van Spolie. The person who has been dispossessed should prove that:

1. There was quite and peaceful possession and enjoyment, 2. He was unlawfully dispossessed or despoiled by the defendant.

Fredricks Vs Stellenbosch Municipality Facts: Mr Fredricks was a notorious squatter who erected two structures on land belonging to the municipality. Without the benefit of a court order the municipality raised the structures to the ground. Mr Fredricks sued for spoliation. Court: Ruled in favour of Mr Fredricks and ordered restitution ante. The municipality should have done it judicially and legally. 4.6 Acquisition of Possession & Ownership 4.6.1 Through Original Means A unilateral act where ownership is acquired through a Res Nullius (property belonging to nobody), or Res Derelicto (abandoned property). This can be through: 1. Occupatio of the Res Nullius or Res Derelicto, 2. Plantatio – things that are planted belong to the planter, 3. Specificatio – where a person uses material belonging to another person to

produce a product that cannot be reverted to the original material e.g. Mr A steals grapes belonging to Mr B to produce wine. The grapes cannot be recovered.

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4. Commitio – two or more people mix liquids to come up with one product, and they

become joint owners e.g. two people mix beer brands at a beer hall. 5. Inaedificatio – things that are attached to land belong to the owner of the land. 4.6.2 Through Derivative Means Bilateral means that requires the cooperation of another person e.g. sale, donation, etc. A mere possessor cannot claim ownership or confer such ownership to another person. The guarantee against eviction is an automatic right enjoyed by the purchaser by virtue of the contract of sale even if both parties are not aware. Where it is violated the purchaser is entitled to rescind the contract and receive damages and a reimbursement of the necessary and useful expenses that he incurred on account of the merx – storage costs, etc. 4.6.3 When Is The Right To Possession Not Available? 1. If it is an express term in the contract – a term that is not implied but explicit in the

written contract, 2. If you buy property that belong to a third party, 3. If property has been lost or damaged through vis major or casus fortuitus after

the conclusion of the sale agreement. 4.7 Guarantee against latent defects In terms of the common law the seller is obliged to take responsibility for defects and flaws which appear in the merx that partially unfit or substantially unfit the merx for the purpose for which it was bought, or for the use for which it was ordinarily to be put. The two specialized remedies available are collectively known as Aedilition Remedies: Actio Redhibitoria, or Actio Quanti Minoris For other forms of breach the purchaser has other remedies in terms of the Actio Ex Empto rule – breach of contract based on the Emptio Vinditio (contract of sale). If the grievance the purchaser has relates to latent defects then the two remedies under Aedilition require that the purchaser prove that:

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1. The merx suffered from a latent defect – it was not of a patent nature because of the operation of the Caveat Emptio rule, which requires the purchaser to have made reasonable inspection of the merx before he bought it. A latent defect is a hidden defect that a reasonable person could not have discovered after a reasonable inspection but requires sophisticated expertise to detect.

♦ In Zieve V Usher – measles in pigs were regarded as latent defect. ♦ In Matambo V Chakauya – a leaking roof was again regarded as latent defect. ♦ In Cattle Producers case along Beatrice road – study bulls delivered for

research and were unable to perform the function for which they were purchased was regarded as latent defect (concealed defect).

2. The defect existed at the time of the sale rather than supervening or subsequent to

the conclusion of the sale. Once the sale is concluded the risk passes to the purchaser unless there is an agreement to the contrary,

3. The sale was not voetstoots – where the merx is sold as it is with its latent defects,

unless the seller was fraudulent as in the case of Vander Merwe V Culhane. 4.7.1 Redhibition under Actio Redhitoria Becomes condition precedent where the parties have to restore their status quo ante – the condition prevailing before the conclusion of the sale. However, out of consideration of equity, even if redhibition cannot be effected because the merx has perished because of the defect complained of and the purchaser has not benefited and neither had he been negligent in his handling of the merx, the law still allows the purchaser to be compensated. Theron Vs Africa Facts: The purchaser bought eggs on a commercial scale. It was discovered that the eggs were not suitable for human consumption and were destroyed. Court: The purchaser was entitled to compensation. Dodd Vs Spitaleri Facts: A purchaser bought a horse, which was later discovered to be suffering from a debilitating bone disease. The horse later died. Court: The purchaser was entitled to compensation. African Organic Fertilizers Vs Seirlius Facts: The purchaser bought manure, which turned out to be useless when applied to the ground, but could not restore it to the original status.

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Court: Purchaser allowed to rescind the contract. Harper Vs Webster Facts: The purchaser bought 387 head of cattle. 54 were either ill or sold when he discovered a latent defect on the remaining 333 head. He wanted to be refunded the entire purchase price although he could only return 333. Court: He could only receive a refund for the 333 head returned because he had already benefited from the 54. 4.7.2 When Is The Actio Redhibitoria Not Available? 1. Sale is voetstoots, 2. Purchaser in spite of knowledge of the defects exercised unequivocal rights of

ownership, 3. Defect is trivial and not serious, 4. Claim has been prescribed.

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Business Law – Chapter 5: Law of Lease MBA II Semester I 2002 G. Manhangwe R890800P

Chapter 5 LAW OF LEASE 5.0 Introduction Lease in many ways resembles sale; except to sale that whereas sale will confirm ownership provided certain conditions have been met e.g. cash has been paid, the transferor is the owner of the merx/res or a duly appointed agent of the transferor – one cannot confer to another person more rights than they legally have. A thief who is mala fide possessor cannot confer ownership on a third party regardless of the bona fide or otherwise of the third party. The true owner can institute Actio Rei Vindicatio to recover ownership of the res. This is action against the world at large – Rights In Rem. It does not matter there was no legal binding or Vinculum Juris. Rights In Personam – are directed to a particular individual e.g. divorce. It is important that both parties envisaged the intent to transfer and receive ownership. You cannot receive ownership by accident unlike possession. Lease only confers Commodus Usus (use of the commodity) – possession. Possession constitute nine tenths of the law regardless of the character of possession – to discourage a culture of the law of the jungle. Sale versus Lease Seller Lessor Buyer Lessee Merx Immovable property Pretium Rent Lease is a typical a example of a consensual agreement. It is a bilateral agreement where rights and obligations flow in both directions unlike in a one sided agreement e.g. a donation – which is as binding as any other agreement. The parties to the contract of lease are at liberty to agree on any term for purposes of regulating their relationship subject to one important caveat rule – essentially the agreement is lawful. It should conform to the 1982 Rent Regulations, which however has become obsolete. However where the parties are silent on the terms and conditions upon which the lessor is willing to let out his property the law then implies the existence of certain terms (implied terms) which are meant to give business efficacy (or completeness) to the agreement unless the parties have expressly excluded such implied terms and conditions.

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5.1 Duties Of The Lessor 1. To deliver the property at the agreed time. The property must be fit for the purposes

for which it is let – if it is residential it should be habitable. 2. The lessor must give the lessee vaccuo possessio (undisturbed, quite and peaceful

possession and enjoyment of the immovable property). Sofiantini Vs Mould Facts: The lessor frequently visited the let property at odd times and would refuse to leave the property with no good reason. Court: Granted an interdict restraining the landlord from undue interference. The landlord was not entitled to enter the premises without the consent of the inhabitant and he must have reasonable grounds to enter the premises e.g. to inspect. 3. The land lord has a duty to maintain the property in the absence of a statement to

the contrary in the agreement. Where he is negligent the tenant can sue for specific performance or damages. The tenant can repair the property and set off the costs against rent due.

Lister Investments Vs Narshi Facts: The tenant requested the landlord to repair broken taps in the apartment on several occasions. The landlord did not cooperate. The tenant effected the repairs and when the rent was due the tenant set off the costs against the rent. Court: This was permissible. 4. The landlord must compensate the tenant for damages due to material defects on

the property e.g. if the roof leaks through no fault of the tenant, and his property is damaged, provided that the leakage was not occasioned by the dolus or fraudulent acts of the tenant. The landlord must reimburse the tenant of any necessary and useful expenses incurred by the tenant on repairs on his property. Usefulness and necessary expenses are of utilitarian character – reasonably justifiable, it is not strange.

5.2 Duties Of The Tenant 1. To look after the immovable property. To pay accurate amount of rent at the

agreed time and place. If the agreement does not specify a date it becomes an implied term that rent becomes due in advance at the beginning of the month. If rent is not paid a forfeiture clause (penalty clause) empowers the landlord to

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rescind or abrogate the contract and repossess the premises in the event of breach or violation of one of the terms and conditions in the contract. The forfeiture clause relate to material breach – non payment of rent, change of land use (from residential to a brothel or shabeen), where one is making unrestrained noise, and illegal subletting.

2. In terms of the common law, unless the agreement excludes subletting, the tenant

can sublet. Naturally the sub-lessee cannot enjoy greater rights than the primary lessee in terms of the lease period, and other conditions.

3. At the end of the lease agreement the tenant is obliged to return the property in its

original condition fair wear & tear. 5.3 Subletting Subletting only becomes illegal if the agreement itself outlaws subletting. Generally subletting is illegal unless if supported by written consent of the lessor. When subletting is permissible the sub-lessee cannot claim or purport to have better rights than the primary lessee in terms of the lease period, dos and don’ts of the agreement, etc. Illegal subletting is normally one of those provisions where a forfeiture clause (penalty clause) can be invoked allowing the lessor to cancel the agreement of lease and repossess the immovable property. 5.4 Remedies for Breach The parties are entitled to remedies, which are due to them in terms of ordinary rules of the agreement. 1. For non-payment of rent, the lessor can sue for specific performance or invoke the

forfeiture clause. The Tacit Hypothe – security for rents that have fallen in arrears, the landlord can judicially attach movable property belonging to the tenant once rent has fallen due – this is done through the operation of law.

2. The lessee can sue for specific performance or damages if the landlord fails to

deliver the property. 3. If the landlord neglects to maintain the property the lessee can sue for specific

performance or damages for costs incurred in repairing the landlord’s property. 4. The tenant can invoke the “Mandament Van Spoile” if the landlord simply takes

movable property belonging to the tenant, which is on the leased property without the benefit of a court order. In Webster Vs Alison the court said to render the tacit hypothe effective it is necessary to have a court order.

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5. The landlord can also attach the property belonging to a third party sub-tenant up to the depth of the sub-tenant’s rent arrears to the primary tenant. Property belonging to a third party may be attached provided that:

♦ There must be knowledge and consent on the part of the property owner, ♦ There must be an intention that the goods remain with the lessee indefinitely,

♦ The landlord or lessor must not be aware that the goods belong to the third

party. 5.5 Termination of a Lease Agreement 1. If the lease is for a fixed time which has since expired, 2. Where the lessee has given reasonable notice of intent to vacate the premises, 3. Where there has been a supervening impossibility – the property is destroyed by fire.

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Business Law – Chapter 6: The Law of Agency MBA II Semester I 2002 G. Manhangwe R890800P

Chapter 6 THE LAW OF AGENCY 6.0 Introduction An agent comes about because of considerations of convenience and practicability of competence – for example, hairdressing at a saloon, or the employer who may be a Juristic person - an artificial person or company. Culturally one may need the beneficial intervention of an agent in order to accomplish certain things – for example, negotiating lobola payment is done through a medium of an agent to create a Vinculum Juris, that is, a legal tie (contract) between the Principal and the other party. The Principal and the third party assume the obligations. The agent is merely a facilitator but owes the Principal certain obligations:

♦ The Principal should pay the agent commission; and ♦ The agent should perform his duties diligently and correctly in utmost good faith

– Uberramae fides principle – should refrain from making secret advantage. 6.1 What is Agency? Agency – is an agreement or relationship that exists between two persons, the one called the agent who is considered in law to represent the other person called the Principal in such a way as to be able to bring about the creation of legal relations between the Principal and third parties. Consider the position of an Managing Director who signs a contract on behalf of the company. The idea behind the appointment of an agent is the performance of services by the agent on behalf of the Principal, which he finds difficult to perform on his own. An agent can either be a servant or an independent contractor – very important primarily because if the agent is an independent contractor, the Principal will not be vicariously liable to the delicts of the agent. This concept is based on privity of interest (coincidence of interest). For example, an employee who drives the employer’s vehicle while not on duty and causes harm or damage to another party. Provided that the agent is a servant and acting in the course of his duties, then the Principal is liable. The agent should not be on frolic fanfare – nothing to do with the furtherance of the Principal’s interest.

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6.2 Distinguishing Factors: Servant or Independent Contractor? 1. Extent of control by which the Principal exert on the agent – the more control there

is the more the courts would regard the relationship as master and servant in the usual case. It may not be decisive.

2. Whether the agent is involved in a distinct task or the Principal is at liberty to issue

instructions related to the tasks or project. Consider the position of a handyman who comes to repair a chimney – he is an independent contractor and the Principal is not at liberty to issue any instruction. With a servant the Principal has more latitude to issue varying instructions.

3. The level of skills that is required for the performance of the particular task. The

more skills the more likely the agent is an independent contractor. 4. The length of time for which the person is employed. The longer the more one is

likely to be a servant. 5. The powers of dismissal enjoyed by the Principal – more enjoyed when the agent is

a servant. 6. The modality of payment for the services – a servant draws a regular wage/salary,

and with an independent contractor there is agreement on payments per task on condition that work has been satisfactorily done.

6.3 If the agent is a servant, is the Principal obliged to provide

work provided he can and is able to pay wages? 1. NO – if the servant is involved with ordinary tasks like a maid who eat at your house; 2. YES – with certain types of relationships the employer is obliged to provide work. For

example, if the employee is paid on commission he should be given items to sell; if he requires regular exposure in his line of work in order to progress then there is obligation for provision of work – a surgeon or any other professional.

Muzondo Vs University of Zimbabwe Facts: Muzondo’s employer was not satisfied with his quality of work and the employer stopped him but he continued to receive his salary. He went to the High Court alleging breach of contract. The employer was obliged to provide work. In his profession he required constant academic interaction with students. Court: Muzondo had a right to teach, short of which the employer should dismiss him.

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6.4 Vicarious Liability For the Principal to be vicariously liable the following conditions should be present: 1. The agent should be a servant and not an independent contractor. The Principal

should have a right to issue commands. The agent should be under the control and direction of the Principal on what to do and the manner to do it.

2. The delicts should have been committed when the servant was doing the scope of

his work. It is not sufficient to say the delict was committed during working hours but should have been furthering the interest of the employer.

Hendricks Vs Catting Facts: The employee was a lorry driver who stopped at a Service Station for fuel. He lit a cigarette causing fire. The petrol attendant was injured. The driver was on duty. Court: The employer was liable. Ministry of Justice Vs Khosa Facts: Two police constables were doing their work and guarding prisoners. One constable in jest pointed a pistol at the other constable. The pistol fired injuring the colleague. Court: The Principal (Government) was liable. If the employee is acting in the interest of the employer the Principal is still held liable whether what the agent did was illegal. Mkize Vs Martins Facts: The employer supplied his two employees with food. They made fire where open fire was prohibited. The fire made extensive damage to the next property. Court: Preparing food was material for the employees to further the employer’s duties and thus the Principal was liable. What is of public interest is important to the vicarious liability. If an employee is executing the employer’s duty and partly doing his private tasks: Freedman Vs Mall Facts: The employee delivered goods belonging to the employer. On his way back he detoured and later was involved in an accident, which injured a third party. Court: The employee was not on a totally frolic of his own spree (some private & personal tasks not related to the employer’s interest).

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6.4.1 Defence against Vicarious Liability 1. Contributory negligence – the third party voluntarily assumes a risk situation, that is,

inherently dangerous or places the plaintiff in jeopardy – where the third party hitchhikes for a lift and fails to put on safety belts.

2. Volenti Non Injuria – he who consent to an injury cannot be heard to complain.

For example, a boxer who ends up with a black eye because the sport is inherently dangerous – unless the other party behaves in unorthodox manner from the rules of the game (Tyson Vs Evander Holyfield). In common law however, one cannot be assumed to have consented to an act that is inherently Mala In Se (naturally wicked) – suicide, etc.

6.5 Formation of Contract of Agency There are various ways through which a contract of agency comes into being. 6.5.1 Express Agreement Through the normal Offer + Acceptance preconditions. For example: ♦ You take your car to ABC auctions so that they sell it on your behalf. ♦ A situation where one party confers the Power of Attorney on the other party –

whatever pleadings in the negotiations are binding on the Principal. The Power of Attorney is a formal legal instrument to act for and on behalf of the Principal.

6.5.2 Agency Can Be Implied The implication must be reasonable and necessary: if you send somebody to fetch your child from a boarding school because you cannot make it yourself – the agent is empowered impliedly to buy fuel and food for your child on the way. 6.5.3 Through Operation Of Law In certain situations in a number of circumstances certain people by virtue of their positions of necessity they have to act as agents: ♦ An appointed guardian – is empowered by law. ♦ A trustee in an insolvency estate – the Morrison Sifelani and Edie Cross situations. ♦ A curator appointed to look into the affairs of a certified idiot (mentally deficient), or

looking after young people without necessarily being their guardian.

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(a) Agency Through Ratification

Somebody who purports to act for and on behalf of someone but does not have mandate to do so at the time of action. The mandate is acquired Ex Post Facto (after the act). Ratifications involve the agent making a contract without authority from the Principal. The Principal may generally sue and be sued thereon in the same manner and the same effect as if he had originally given the authority. However, the fact that the Principal had ratified the contract does not bar him from taking action against the agent where the agent had exceeded his mandate or where there is some other breach.

Mine Workers Union Vs Broderick Facts: Broderick who was the General Secretary of the Mine Workers Union and acting as its agent with regard to purchase of a certain farm misrepresented his employers and professed to the seller that he was authorized to purchase the property which was not the case. He then altered the relevant resolution for the Executive Committee to make appear he was authorized. The Union ratified the agreement and proceeded to dismiss Broderick. Court: Endorsed the dismissal and noted that a Principal, for a variety of reasons, may choose to ratify an agreement done by the agent and still has rights against the agent.

Ratification is retrospective rather than prospective in character – it takes effect from the time the agent concluded the agreement with the third party rather than from the time the Principal adopted the agreement.

(b) Ostensible or Apparent Authority

This is not real authority at all; rather it means appearance of authority. It means that ostensible authorities exists where there has been a representation by the Principal expressly or impliedly of the existence of agency which representation causes the third party to enter into transactions through the agent. The Principal is then debarred or estopped from denying the existence of authority even though in truth and fact there is no authority. The Principal cannot repudiate liability because the impression, which would have been created in the mind of a reasonable man, suggests there was authority. It is analogous to the Quasi Mutual Assent doctrine adopted due to lack of a real agreement.

Baptist Convention of Zimbabwe Vs Ben Facts: The respondent did an installation at the appellant’s school over a period of two months on the instructions of the appellant’s Executive Secretary. The respondent had had occasion to do maintenance work for the appellant in the past having received instructions from the Executive Secretary. The appellant denied that the Executive Secretary had any authority. Court: The Supreme Court found evidence of ostensible authority.

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Hungwe Vs Grinlays Bank of Zimbabwe Facts: The bank applied to dismiss the plaintiff. At a labour hearing before a Labour Relations Officer, the bank’s representative (the Personnel Manager) agreed to withdraw the dismissal charges and reinstate the appellant. On the basis of that resolve the Labour Relations Officer issued a determination ordering the bank to reinstate the appellant. The bank did not authorize the Personnel Manager to reinstate Hungwe, and sought to repudiate the agreement. Court: The bank was bound since there was appearance of authority.

(c) Agent of necessity – Negotiorum Gestor

The Principal had not given instructions to the agent to represent him. The agent acts without authority from the Principal and at the same time without prohibition. The agent acts as a Good Samaritan. The following conditions have to be met:

1. The agent should have been in control of the Principal’s property. 2. A genuine emergency should have arisen which threatens the Principal’s

property. 3. It must have been impossible to obtain the Principal’s instructions timeously – not

feasible to communicate or ascertain the Principal’s wishes before action is necessary.

4. The agent must be acting in good faith and solely to protect the interests of the

Principal, and that if the Principal knew of the situation he would desire for the agent to act.

5. The action taken by the agent is the best method of protecting the interest of the

Principal or a method which the Principal would have desired going by the agent’s knowledge of the Principal.

For example, a neighbour is on holiday and his house is on fire. You incur expenses in extinguishing the fire. You are an agent of necessity. You may not even know the Principal. You are entitled to reimbursement of expenses. Because an agent of necessity is a mere benefactor rather than an employee, he is not entitled to remuneration or commission but only entitled to reimbursement of expenses incurred.

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6.6 Duties of the Parties A contract of agency is a typical example of a consensual contract with rights and obligations flowing in either direction like in agreements of sale, lease, and etc. provided there is material breach the aggrieved party can sue for an appropriate remedy. 6.6.1 Duties of the Principal 1. He must pay the agent his commission in terms of the agreement of agency. If the

agreement is silent on the level of remuneration, the law implies the agent is entitled to a reasonable commission in terms of trade usage or the circumstance of the agreement. The agency commission where he sells immovable property of the Principal; the agent is entitled to 5% of the first $50,000.00 and 1% on the balance.

2. To reimburse the agent for expenses properly incurred e.g. accommodation, storage

costs etc as long as they were incurred in the course of advancing the Principal’s interest.

3. The Principal must indemnify the agent for all losses he has suffered as a result of

performing the mandate. If the agent was on a frolic of his own, he cannot look to the Principal for indemnity.

4. The Principal is vicariously liable for the delict of the agent provided the agent was a

servant rather than an independent contractor, and he was not on a frolic of his own.

6.6.2 Duties of the Agent 1. To perform the mandate within the parameters of the Principal’s instructions. 2. The duty to exercise powers bona fide the Principal. 3. Duty to exhibit skill and diligence e.g. auditors recommending dividend payment

where the company has made losses, the Principal can sue the Agent for lack of skill and competence.

4. To show utmost good faith (uberramae fides) – honest and integrity. Agency

creates a fiduciary relationship based on trust between the Principal and the Agent. The Agent should perform duties of the Principal solely for the benefit of the Principal. He may not acquire or retain secret profits, which may come about as a result of the contract. Any benefits belong to the Principal unless the Principal has made a conscious agreement to forego such benefits.

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6.7 Company Directors Where a conflict of interest arises involve Directors of a company - In terms of the company law every company is enjoined to have at least two Directors one of whom must ordinarily reside in Zimbabwe (S169). In terms of eligibility for appointment to the Board of Directors, because of the fiduciary nature of a Director’s position, certain persons are prohibited from being appointed as Directors (S173): ♦ A body corporate – it is inanimate (lifeless) persona – it is simply juristic persona. ♦ A minor – lacks locus standi in judicio, and is Doli Incapax. ♦ An un-rehabilitated insolvent – already shows propensity towards squandering

wealth and carelessness. ♦ Serve with the leave of court, any person who has been convicted of fraud, theft etc

or any group of offences that involve breach of trust. See the case of Oliver John Tengende Vs Registrar of Companies.

In common law, a Director is subject to fiduciary duties, which requires him to exercise his powers bona fide, and for the benefit of the company. A person possesses fiduciary duties when he is in a position of trust e.g. a guardian who administers the affairs of a minor, he is in a fiduciary capacity and he is enjoined by the law to act solely in the interests of the Principal. With a company Director the fiduciary duties are owed to the company and not to the shareholders. He must act bona fide and should refrain from putting himself in positions of conflict of interests. Anderson Vs Hagreaves Facts: Hagreaves was authorized by Anderson to sell a certain hotel. He sold the hotel for a nominal fee but in reality the purchase was on behalf of a partnership to which Hagreaves had an equal share. Court: Inter alia an agent employed to sell a property who purchases it himself cannot with one hand claim the property as the purchaser and on the other hand claim commission as the agent of the Principal. If he is interested in purchasing the property himself he has to fully disclose to the Principal his interests to purchase so that the Principal can appoint another agent if he is so minded. An agent has a duty to exhibit utmost trust – a very honourous level of trust. Robinson Vs Randfontein Gold Mining Company Facts: The Managing Director (Robinson), using the information he had acquired in the course of his official duties for the company and using a front bought movable property for 60,000 pounds, which property the Principal was also interested in. Using the same

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front (third party) Mr Robinson immediately re-sold the property to the company for 275,000 pounds. Court: The Principal could recover the secret profit from the agent – “where one man stand to another in a position of confidence involving a duty to protect the interests of the other he is not allowed to make a secret profit at the other party’s expense, or place himself in a position where his interests conflict with his duties”. In the case of; Cook Vs Deeks: the court said “it is the duty of all agents including Directors of companies to conduct the affairs of their Principals in the interests of the Principals and not for their own benefits”. In company law if a Director has a direct or indirect interest in a contract involving the company he has a duty to disclose such interest (S186). In the case of; Canadian Aero Services Limited Vs O’Marley Facts: The plaintiff company offered mapping and geophysical exploration services mainly to government – either requiring their services directly or as part of CIDA. The two defendants have been Directors of the plaintiff and have been involved in preparatory work for the plaintiff for a project in Guyana. The Canadian government later invited the plaintiff and others to submit tenders for disposals, where upon the defendants immediately resigned their offices with the plaintiff and formed their own company, which was later, awarded the contract. Court: The defendants had made use of information that had come their way when they were still agents for the plaintiff and used that information to obtain secret benefits. They were held liable for the plaintiff losing the contract. The agent must account to the Principal (full and accurate information) on what he has done in the execution of the mandate. He must have his books of accounts at the disposal of the Principal. 6.8 Termination of Contract of Agency 1. If the agency is for a specific project. If the mandate is for a continuing nature, then

the agency remain open-ended e.g. munyai. 2. Revocation by the Principal: the Principal could revoke without incurring liability for

damages unless the contract of agency specifically proscribes against revocation. 3. Renunciation by the agent: the agent can renounce agency e.g. a lawyer

approached by a client if he discovers that he is related to the other party he can renounce agency if the situation puts him in conflict of interest, etc.

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4. Through supervening impossibilities – an objective impossibility rather than something subjective or inconvenient is required. It can be where the performance of the act becomes illegal e.g. maize is now a controlled commodity and cannot just be delivered anywhere without the Minister’s approval.

5. Through operation of law – the death of the agent.

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Bus Law

Documents

voidable contract

contract invitation

breach of contract

contract locus standi

contract consensus ad

contract animus contrahendi

doctrine of consideration

valuable consideration