Business Law Study Pack Trust Academy

1TRUCT ACADEMY SUCCESS IN BUSINESS LAW FOR C.I.S, Z.I.M CERT., ZAAT, IAC, I.C.M M. MAVHUNGA LLB (S) (UZ) 3 RD EDITION 2000 2 ACKNOWLEDGEMENTS` I would like to thank the Director of Trust Academy, Mr Mataka, The Principal, Mr Sauti and the Registrar Mr Kucherera whom without their support this study pack would not have been a success. To them I say keep the god spirits for enhancing the college and making it a force top reckon with according to international standards. Would also like to thank the Trust Academy Secretaries and Typists of this book, particularly, SHELTER MAVHUNGA, MISI MAKUZWA, AMANDA MANDA and JESCA KAMUNGA for their commitment to duty. Again their handwork in the production of this copy is highly appreciated. Anyone who directly contributed to the success of this module I say, God bless you. However none of the above will be accountable for any errors of omission or commission which might appear in this study pack. M. MAVHUNGA 3 Dedication This study pack is dedicated to the targeted students who commit themselves to passing the interesting course of business law. Foreword Business Law is a very broad course and covers many aspects. It is a challenging course a proper approach is not advised to new students but an interesting and very simple course once one grasps the concepts. The objective of this module is to simplify Business Law to be understood by Ordinary Advanced Level students who may be taking any of the above courses. The field has been complicated by legal jargon used by some authors and leaving students complaining that such sources are not very digest. Not really attacking other textbooks, but only trying to reveal some experience gathered when dealing with students of these courses This study pack will assist business law lecturers providing a guiding framework as how to approach the course when dealing with students in fields other than the legal field. It is intended that the study pack will cover all essential aspects for the specified students and focus will be comprehensive enough for a student who cannot afford to buy relevant textbooks. Another area, which will be dealt with, is how students should tackle their examination questions. Techniques of how to answer questions will be provided and model essays derived from past exam questions will be found at end. It has been noticed that ZAAT business law examinations are set locally whilst IMM and IAC examinations are from South Africa. This is not a matter of concern since both jurisdictions apply Roman Dutch law. However where the modules intend to deal with a specified group of students, this will be highlighted. MAXWELL MAVHUNGA (TRUST ACADEMY) 4 C CC Chapter 1 hapter 1 hapter 1 hapter 1: : : : Introductìon to busìness |aw Introductìon to busìness |aw Introductìon to busìness |aw Introductìon to busìness |aw 1 11 1.1 .1 .1 .1 50UPUL5 0I LAW 50UPUL5 0I LAW 50UPUL5 0I LAW 50UPUL5 0I LAW When we discuss sources of law we are referring to where our laws originate. A law has to come from somewhere before it can be recognized as such and we should thus engage into an investigation of the tool of a law. In this discussion it is emphasized that the sources of law in Zimbabwean and South African law are basically the same. 1.1.1 CUSTOM Custom may be defined as those habits or usual practices of behavior observed by individuals in a society. There are social customs, which are rules of conduct - in any society. These are social customs which are rules of conduct – in any society. Those things, which we have always held to be rules of our own societies although they are not written in any book of law. Thus for example it is a custom practiced by all Shona speaking that the first son would inherit the name and a title of a dead father. Custom or the usual practices are the basic source where our customary law comes from. Thus most African law before the coming of whites was based on custom i.e. the practice of the people, which they regarded as law. One important aspect in custom is that it may differ amongst different ethnic groups but that does not mean that it is not uniform. At least it is uniform in that group of people where it applies. Sub-species or another branch of custom followed by different people in their trades or professions bur are written anywhere. Thus all doctors or accountants may develop a practice in their field which is followed and known by all doctors or accountants but not written anywhere. The courts are prepared to accept that or custom as Law. In our courts custom or trade usage is now being now recognized as law provided a number of requirements are to be satisfied by this custom / trade usage. These are: 1. Reasonableness Obviously for any custom / trade usage to be recognized as law it should be a reasonable custom and the test of Reasonableness is objective (This will be expanded under law of delict). 2. Long – established For a custom to be binding as law it should be shown that it has been established over along period of time. 3. Uniformly observed A custom should be uniformly followed by the people to whom it applies. 4. It should be certain This means that it should be clear and not always changing. In a certain case Van Breda Jacobs 1921 AD 330 the plaintiff (one sues another) sued another where there was a custom of first come first pull amongst fishermen of False Bay in the Cape. Thus he who came first would set his lines for fishing nets and no one was allowed to set their own nets nearer to the first fishermen. The defendant (one being 5 sued) came and spread his nets near the plaintiff and was sued. The defence by the defendant was that there was no law, which prohibited him from fishing near the first- fisherman. The court ruled that there was a custom, which was known by all fishermen in the area, and which was certain and this custom was binding as if it is a law. Lower courts in Zimbabwe usually administer customary law although the appeals can be heard in the high courts. 1.1.2. LEGISLATION This is undoubtedly the most important source of law in any country. Legislation refers to the laws that are made by the law making body of a country and in most countries it is the Parliament. Parliament is constituted by members of parliament whop are elected by the general population to represent them in the process of law making. The law so made thus should reflect the wishes of the people. Legislation can actually override any other source of law. Laws passed by Parliament are called Acts of Parliament for example the Consumer Contracts Act or Customary Law and Local Courts Act Chapter 7:05 for an Act of a Parliament to be passed it is first made as a proposal in Parliament, called a Bill and if it is voted by the majority it will then be made law after being signed by the President. Parliament cannot fill in the flesh needed in the Acts so that they usually provide the broad skeleton and the Act itself empowers other individuals or bodies to fill in the flesh. Thus an Act of parliament is called an enabling Act if it enables other lower groups to make other laws. The laws made by such groups are called Subsidiary Legislation and examples are statutory instruments, Regulations, by laws etc made by ministers or local authorities like City of Harare. The umbrella term for both legislation emanating from Parliament and subsidiary legislation is statutory law. A minister who is empowered to make a law by an Act of Parliament cannot make a law, which exceeds the powers he is given. This law is beyond his powers and is therefore Ultra Vires. An Act of Parliament will cease to be law if it is: i) Repealed (cancelled) by Parliament especially where a new law is passed. ii) Where another Act which opposes the previous one is passed without repealing the earlier one, this earlier one is said to have been implied repealed. iii) If the time period set for the Act has passed. This is in situations where the Act state that it shall operate for a specified period and thereafter comes to an end. 1.1.3. JUDICIAL PRECEDENCE / CASE LAW / JUDGE MADE LAW In a democratic society there is what is called separation of powers. This means that powers of government should be divided amongst different state organs to prevent dictatorship or Mobutuism. Thus the one who makes a law is not the one who should ensure that the law is followed and the one who ensures that it is followed is not the one who presides over a dispute of the law if it arises. This means the parliament shall make laws, the executive i.e. the police shall ensure that the law is followed and the judges shall adjudicate over a dispute. If we have the same person making, enforcing and 6 adjudication then it is easy to create Mobutuism and Hitlerism which s commonly called dictatorship. Despite this separation of powers, it is now widely being accepted that although judge’s role is to interpret the law not to make it, they are in practice making law. This is true for example where the words used in an Act of Parliament have got a number of meanings. The judge may end up using any one of the meanings, which was not even the intention of the parliament when it passed the law. In difficult cases, which do not fit well into the Acts, the judge has to pass a judgment so he would attribute his own understanding. These hard cases are called penumbra cases and a typical example is a case called Madzimbamuto V Ladneburke. 1.1.4. COMMON LAW The Common Law of Zimbabwe is that law which does not have its origins in Zimbabwe. South Africa and Zimbabwe have the same common law. This is the law that was brought in from outside by settlers and in both countries we apply the Roman and Dutch law. One may be left wandering why we apply Roman and Dutch law in these countries not English colonies. The reason is essentially historical. The first White person to arrive at the Cape in 1652 was Jan Van Rees Berg and he was a Dutch. He brought with him the law of the Holland. But by the time he brought the law of Holland one would glean that even in Holland their laws had largely been fused with Roman law, which was regarded then as the most civilized society. So in essence the Dutch settlers brought an already fused system of law called Roman Dutch law. In most areas the Dutch uprooted most of the African laws, which they regarded as barbaric and uncivilized but most importantly, because they brought that African laws which were largely customary would interfere with their political and economic endeavors. Later when the English came they found an already established and developed system of law and they found no reason to uproot it so they left the Roman Dutch law intact. Some authors call common law that law, which is common to everyone e.g. that one, should not steal is common to everyone. (IT is suggested that the most appropriate way is say common law is the law imposed from outside although some of the laws were already similar to those already there in Africa). The Zimbabwe Constitution stipulates the Common law applicable in Zimbabwe. It states that (In Section 89) the law which was applicable at the Cape of Good Hope on 10 June 1890 shall be law applicable in Zimbabwe subject to subsequent amendments and variations. It is important however to realize English law models that other areas in Zimbabwe and South African law. The basic reason as Bampton and Drury Introduction to Business law notes is that when the English came in 1806 at the Cape they wanted to keep laws which were already there but since they were now the rulers that at times imposed their own English laws in few areas because they could not apply Roman and Dutch laws which 7 they did not understand. Thus for example Bampton and Drury notes that most of the Criminal pr0ocedure was changed from Roman and Dutch Law to English Law. In commercial and Company Law were also a number of English principles for the same reason as above but this should not lead us to confusion since our Zimbabwean and South African law is basically Roman and Dutch. As interesting example of a case, which is difficult, to interpret is if an Act says “ It shall be an offence to drink liquor in a public place”. The accused opens his bottle and before drinking he is arrested. He defence will be that “ it is not an offense to open in a public place to drink ”. How will the charges interpret this is difficult so they may make law in the process. When we talk of the case law we are thus referring to judge – made law. Decisions, which are made Superior Courts of a country like the High Court of Zimbabwe and the Supreme Court, are binding on all subsequent cases of the same nature. Thus if the Supreme Court rules that a person is not obliged to carry a national I.D. it means if one is arrested for not carrying it will simply refer to previous judgment of the Supreme Court. Thus by the doctrine of stare decis, the courts, if confronted with a new case, they have to follow the decisions of the superior court in a case similar to the one before them for example, it was held in one case that n awarding a divorce and distributing the property of the spouses the court should not have serious regard as to who caused the divorce because it is not relevant. So in any case involving divorce and distribution of property we have refer to this case. The doctrine of stare decis states that the decided cases should stay. This means they should not be constantly changed because it will result uncertainty of law. The facts of a previous case may not exactly be same with the one before the judge so the judge may decide to take only the reasoning behind a previous decision and apply that reasoning to new facts before him. This is called Ratio Dicidenti An Obiter Dictum in a judgment is something which is not central but which is said in passing or is just included incidentally. For example in a divorce case a judge may talk of custody of minor children even though in that particular case there may be no children. It means it is just something he comes across in passing a judgment Decisions of inferior courts are not binding on any court e.g. decisions of magistrate courts are not to be followed. Practically, decisions of superior courts High and Supreme Courts n Zimbabwe and Provincial Decisions and Appellate Division in South Africa, are recorded in books, which are called law reports. So all cases of a particular year are found in the Law Report of that year. The Law reports may come in two volumes or more depending on the number of cases in that year for example we usually have two volumes in Zimbabwe and up to four volumes in South Africa. Thus we may cite cases as Book V Davison 1988 (1) Z.L.R. 365 or Ncube V Ndlovu 1985 (2) Z.L.R 281. The case has the plaintiff who is suing and the defendant who is being sued, the year in which the case was recorded, the volume in which it appears, ZLR means Zimbabwe Law Reports and the actual page where one can find the case. 8 Similarly one can site South Africa cases as Karol V Fidel 1948 (4) S A466. It is important to know a number of cases, as they are equally an important part of Business Law. 1.1.5. TEXTBOOKS Textbooks are another recognized source of law. Some authors or jurists who write legal works became so recognized that their works could be cited as sources of law i.e. where a law emanates from. Such respected Roman and Dutch authors like Voet and Gratius are largely respected for their works in Legal field and courts have accepted them as authoritative. However what we see mostly is that legal authors do not create new law but merely try to modify and interpret the existing laws be they customary, common law or legislation. It would be proper thus to cite distinguished authors as authorities of law. 1.2 1.2 1.2 1.2 0IvI5I0N5 0I LAW 0IvI5I0N5 0I LAW 0IvI5I0N5 0I LAW 0IvI5I0N5 0I LAW Law can be divided into a number of divisions but for a business law student it is sufficient to realize that it can be divided into private and public law. The basic difference between Civil or Private Law and Criminal / Public Law is that with private law / civil, it is that law that regulates relationships amongst private individuals without involving the state. In other words the state leaves it up to individuals to enforce their rights. Thus in this branch of law the police are not involved. Typical examples where an individual has to enforce his civil rights against another are; a) Family law, which involves divorce, custody of children, paternity issues. b) Business law which involves contracts entered into private individuals, company law etc c) Law of delict – where someone claims damages for some injury or loss caused by the other or where one sues fore defamation of character etc. Private individuals who should issue summons and the aim is not to punish but to seek compensation from other party commence civil law actions. On the other hand Criminal or Public Law is the law, which regulates the relationships that exist between the state and its people. Some wrongs are regarded are wrongs not only to private individuals but also wrongs to the public at large and here the state is interested to punish the offender. The state is thus one, which commences the action by way of an arrest or a warranty of arrest. Prosecutions involving all criminal offences are thus brought in the name of the state for example S V Chidhumo - - -. Although harm may be done to a person, the state says that such harm is against the whole public that is why the state may interfere. It is important to note however that the injured party does not gain anything where it is made a criminal offence. The fine, if any, is paid to the state. If the aggrieved party wants to sue he can then proceed to issue summons by private law. This means that a single act can both be a civil and criminal offence. The fine, if any, is paid to the state. If the aggrieved party wants to sue he can then proceed to 9 issue summons by private law. This means that a single act can be both be a civil and criminal offence for example a road traffic accident is a crime, where one drives negligently he can be arrested but the injured party can also sue the driver for injuries sustained. Another examples are assault, bigamy etc. Certain actions however are only civil wrongs e.g. defamation of character, breach of contract etc whilst public drinking and over speeding may be purely criminal where no one is injured. The following table represents some of the differences that exists between civil law and criminal law CRIMINAL CASE CIVIL LAW CASE 1) State sues represented by the prosecutor and police The plaintiff sues personally. 2) The one defending is called the accused The one defending is the defendant. 3) The state should prove its case beyond any reasonable doubt i.e. 100% sure that the person committed the offence / crime The plaintiff should prove his case on a balance of probabilities 51% proof is enough for the plaintiff to get judgment in his favor even though doubt of 49% is there. 4) Aim is to punish the offender by paying fine or committing him to prison Aim is to get compensation for the loss suffered not to punish. 5) Accused is either convicted or acquitted Defendant is found liable or not liable to pay. 6) Action brought in criminal court Action brought in civil court. 1.3 THE PROPER PLACE OF BUSINESS LAW The next question a business law student should ascertain is where exactly doe’s business law lies? Obviously if one has grasped the above highlighted distinctions he should be able to establish that business / commercial law is a private / civil law sub-division. The state is not interested and will not interfere with commercial transactions leaves the whole area for private individuals to initiate proceedings on their own without involving the police or state. Business law is therefore that branch of private law, which seeks to define the legal principles that apply to commerce paying particular emphasis to contracts. 10 1. 1. 1. 1.4 44 4 U0UP1 51PUU1UPL U0UP1 51PUU1UPL U0UP1 51PUU1UPL U0UP1 51PUU1UPL It is important that any business law student, particularly in Zimbabwe, should be able to know which court to approach when a certain dispute arises. It is costly and disheartening to approach the wrong court with a complaint. In business law it is obvious that any successful or unsuccessful business person will need to sue or will be sued so it is not really a theoretical topic but one which is more practical than the substance of business law itself. The following discussion therefore is aimed at giving the hierarchy of courts in Zimbabwe from the lowest to the highest. Certain courts do not have jurisdiction (power to hear and try a case) to hear certain cases, which can only be heard in higher courts. The lowest courts in Zimbabwe are the primary courts and community courts which an Act of Parliament called The Customary Law and Local Courts Act chapter 7.05 governs. The primary and community courts have a collective name called local courts. 1.4.1 PRIMARY COURTS These are presided over by a headman or any other person appointed by the Minister of Justice Legal and Parliamentary Affairs. The Headman is assisted by not less that two or more than five assessors. The court can only deal with mattes arising in the village where the defendant resides there. Primary courts only hear customary law cases of civil law in nature which do not exceed $1 500 and the Minister can change this figure. A number of areas are excluded from the jurisdiction of this court e.g. issues of custody maintenance, divorce or determination of immovable property disputes. 1.4.2 COMMUNITY COURTS These are presided by chiefs with not less than 2 or more than 5 assessors. Chiefs can only determine matters arising in their own chieftainship and are of customary law and civil in nature. Thus they cannot hear criminal cases. Their monetary jurisdiction is currently restricted to $3 000 or below. Areas excluded by law under primary courts are also excluded in community courts. 1.4.3 SMALL CLAIMS COURTS This is a new court created by statute. The small claims court deals with small amounts of money not exceeding $5 000 and the cases should be applying general law. General law is that type of law, which does not originate in Zimbabwe. It generally refers to all laws brought from outside. These include common law, case law or legislation. The court is presided over by a magistrate or a person with similar qualifications. The objectives of the small claims court can be found by considering the mischief behind the act. It used to be laborious and tiresome to bring a case in the ordinary courts because a lot of documents had to be filed either with the clerk of court or the registrar of High 11 Court. This was quite complex especially for ordinary Zimbabweans who did not understand the procedures. As a result most people would not bring claims especially if they involved small amounts. Besides these practical difficulties it used to take a very long period before a case was heard in the magistrate or high court because of numerous other cases brought there. As a result there was always a backing of cases to be determined. It is very expensive to bring a case in the ordinary courts with inflation that has ravished Zimbabwe and other economic problems most people could not access justice. It was not and merely the unaffordability of the costs. The small claims were created to remedy a number of such problems. Firstly the procedures are very simple. The rules of evidence, which are strictly adhered to in other courts, are not followed. E.g. hearsay evidence may be accepted as is intended to allow ordinary people to present their cases the best way they can and allow the presiding officer to effectively evaluate the evidence presented by each witness. If the strict procedures were to be followed then it means ordinary people would then be met with problems of failure to comprehend some of the legal issues. Lawyers are not allowed in this court because of the belief that they tend to mystify simple things and they would therefore turn the small claims court into another formal court with lots of procedures. In Practice there is only a letter of demand which is sent to a defendant followed by a summons stating the court date and the nature claim. On the return day judgment is usually granted forthwith if the judgment debtor does not comply then the small claims court to execute the judgment either by garnishee order or other means of enforcing judgment. By these simplified procedures is meant that cases are no longer taking a very prolonged period to be heard determined. This surely is progressive move because justice delayed is justice denied. The small claims court is cheap and affordable and most Zimbabweans can be able to bring their cases to it. The decisions of the small claims court are final. This is logical because one can not appeal against the decision from such an informal court to a formal court. 1.4.4 MAGISTRATE COURTS Magistrate courts are governed by the Magistrate Courts Act. They are presided over by Magistrates. The civil jurisdiction of Magistrate courts is limited to $10 000-00 presently. They hear both civil and criminal cases. A party may decide to ignore the small claims and initiate action in the magistrate court because it is a court of first instance i.e. a court where one can approach directly not having gone to another court. The District Magistrate Court also is a subdivision of the Magistrate court and is also a court of first instance but it also hears appeals from the community courts. Thus one should not that a 12 claim for money of property which does not exceed $10 000-00 goes to the Magistrate court and it less than $5 000 one may approach the small claims. Magistrate courts are also divided further into regional or provincial magistrate courts. If it’s a regional magistrate court it can hear matters from that, region and if provincial it can only hear matters from the province only. Usually provincial, regional and district courts are located at the same place and only separated internally. It is important however to note that in criminal cases Magistrate Courts are not guided for example by the amount stolen but by the maximum sentence that can be passed so it is not strange to hear of a case of fraud of $100 000 being heard in the Magistrate court because the Magistrate is guided by sentence e.g. 7 years not by the amount. 1.4.5 HIGH COURT OF ZIMBABWE The High Court of Zimbabwe has two divisions the Civil and Criminal. It sits in Harare and Bulawayo. It is presided by judges. It can hear any case which arises within Zimbabwe. The High Court is also a court of first instance which means one can approach the High Court directly without having gone to the Magistrate Court. Thus even in cases of amounts of less than $100 000 one can approach the High Court. However the High Court disfavours people who initiate claim in it which cases would have gone to lower courts. It may penalize the plaintiff by charging costs at a higher scale. The High Court, although a court of first instance also hears appeals from the Magistrate court. 1.4.6 SUPREME COURT This is not a court of first instance meaning that you cannot approach it directly without having gone to a lower court. It is an appeal court which only sits to hear appeals from the lower courts. It is only a court of first instance where on is alleging violation of his human rights as enshrined in the constitution. This is only where one can go directly to the Supreme Court without having approached a lower court. The Supreme Court is presided over by judges of Appeal and it is the final court of appeal which means that no further appeal after the Supreme Court. A common phrase “Constitutional Court” is widely being used nowadays. There is nothing complex about this because it simply refers to a supreme court that is sitting to decide on a constitutional matter therefore it is a constitutional court. 1.4.7 ADMINISTRATIVE COURT One may be wondering where the Administrative Court lies in the hierarchy of the courts. This is a special type of court and deals with certain types of cases. These are usually special permits on licences under particular Acts e.g. the Administrative Court can sit as The Liquor Licensing Board can also deal wit Special Water rights under the Water Act. 13 It may also sit as a review court when reviewing decisions of other lower tribunals. For one to know what the Administrative Court can or cannot do one has to look at the particular Act governing the court. 1.5 CIVIL PROCEDURE Ordinarily any prudent business law student may want to know how one can bring his claim to court and what actually happens in the courts of law. He may want to know what to do next after getting a judgment in his favour. It is submitted that business law students are not being trained to be lawyers and need to venture into the complex legal aspects of civil and criminal procedure which obviously are beyond the scope of their course. However if one decides to be a self-actor, then the little skeleton gathered in business law should be his starting point. 1.5.1 ACTION PROCEDURE In most cases when one has a claim against a defendant he needs to issue summons. The summons contains the details of claim against someone. These are taken to the Registrar of the High Court or Clerk of Civil Court who stamps them and give a case number. Summonses are then taken to Messenger of Court who will serve on the defendant. The defendant is supposed to show his intention to defend by noting an Appearance to defend at the High or Magistrate Court and also notifying the plaintiff. If the plaintiff has received the appearance to defend he should seek that the defendant file his / her answer to the allegations. This is called a plea. If the defendant doesn’t enter appearance to defendant the plaintiff can apply that a judgment in absentia called default judgment be entered against the defendant. In a case where the plaintiff receives the plea pleadings may then be closed. After closure of pleadings the parties should discover or show each other documents they are going to use to prove their cases in court. There is no ambush in court. If certain documents are privileged they still have to be mentioned although they will not be disclosed in terms of their contents. After discovery of documents it now for the parties to hold what is referred to as Pre – Trial Conference where they go before a judge or Magistrate in chambers (in his office) not in court. The objective of a PTC is to identify the issues which have to be tackled in court. The judge or Magistrate may also persuade the parties to reach an agreement if it is possible for example where one is claiming $100 000 for injuries in a motorcar accident and the other is offering $60 000, the judge may try to persuade them reach a compromise of, say, $80 000. If the parties agree the matter will end there but if they do not agree then they identify points of conflict and points of agreement in a bid to lessen the time for trial. The trial – On the day of trial plaintiff gives skeleton of her case and he is supported by her witnesses who substantiate her evidence. The witnesses are cross examined by the defendant who summons his witnesses and they are cross examined by the plaintiff. At the end judgment is delivered. 14 1.5.2 WAYS OF ENFORCING A JUDGMENT 1. Write of Execution against Property If the judgment fails to comply with the judgment, the plaintiff can cause the Deputy Sheriff to attach and sell the property either movable or immovable of the defendant. It may be necessary however to know that the certain property may not be attached e.g. beds and bedding, wearing clothes, tools for trade all whose values does not exceed a prescribed amount. The property is sold usually by public auction to the highest bidder. 2. Garnishee Order The judgment creditor can apply to court that the debt due be deducted from the salaries and wages of the defendant. The deductions should however leave the defendant able to meet his basic needs. The amount is deducted before the debtor is paid his money monthly. 3. Civil Imprisonment The purpose of causing the defendant to be put in prison is not to punish him but to try and compel him to pay the debt. So for the defendant to be put in prison for a civil debt the judgment creditor should show that the defendant is able to pay. Usually the defendant is put in prison for a fixed period of time after which he is released. After such release the debt is not discharged, it remains, but the judgment creditor cannot cause him to be rearrested again. He has to use other means of enforcing a judgment. It may be important to note that the judgment creditor pays for the stay of the defendant in custody but he may add such costs to the debt due from the defendant. 4. Contempt of court This is a way of enforcing a judgment where the order is usually that the defendant should do or not do a certain act e.g. that the defendant should not assault his wife (plaintiff). If the plaintiff is assaulted she can show that the defendant has violated the terms of the judgment and therefore is in contempt of court and ca cause the plaintiff to be put in prison or to pay a fine. 15 LAW OF CONTRACT Definition A contract is generally defined as legally binding and enforceable agreement arising from an offer and acceptance. Law of contract is therefore that branch of law that regulates ad determines the rights an obligations arising from legal agreement. Business Law is basically about contracts entered into between two or more persons. Typical examples are contract of sale, contract of lease etc. Requirements of a Valid Contract For us to say that there is a valid contract, that contract has to comply with a number of requirements. Where one of the elements is lacking then definitely we do not have a contract which is valid at law. i) Communication of intentions ii) Parties should have contractual capacity iii) There should be some serious intention to create a legally binding agreement called [Animus Contrahendi] iv) The agreement must not be vague v) The agreement must be lawful vi) There should be meeting of minds [consensus ad idem] COMMUNICATION OF INTENTIONS For a contract to be recognized parties must have expressed their intentions to each other i.e. that they wish to enter into an agreement. There should be communication by the Offeror i.e. the one who is offering something to the offeree i.e. the one who should accept. The Offeree in turn should communicate his acceptance. The offer and acceptance however need not to be in words or writing. There can be a contract created by conduct of the parties only thus one party may offer by conduct and the other accepts by conduct. For example where a bus stops you are offered to board and you accept also by conduct thus there is a contract between the bus and the passenger. 1.1 Offer An offer is proposal made by one party called the offeror to another called the offeree which if accepted will create a binding contact. An offer should i) Define all the materials o which an agreement is sought ii) Meet all the requirements of a valid contract i.e. it should be a legal offer, made by a person with capacity etc 16 A contract should come into existence as soon as the offeree accepts without any further negotiations. An offer maybe made to a particular person to a group of persons or to t public at large. It was held in Havey V Facey 1893 that where one is supplying information that is not an offer. In this case H telegraphed F saying “Will you sell us x farm? Telegraph us your lowest price”. F replied saying “the price for x farm was £500.” H then telegraphed o ay that they were willing to buy it at that price. But F was not willing to sale and H sued saying he had accepted an offer by F which stated the price. The court ruled that it was not an offer since he was only supplying information asked for. The reply only indicated the price which F was willing to sell if and when decided to sell. Is an advertisement an offer? An advertisement to the general public is generally regarded not to an offer to other party. The precarious position was going to arise where 1 000 people would also accept an advertisement with only 10 items. It means all these people can sue if the seller does not perform what he had advertised since there would be a contract. That an advertisement was not an offer was noted with approval in Crawley V rex 1909 T 1105. A shopkeeper displayed a placard at his window which advertised tobacco at a cheap price. Crawley bought a packet and went away only to come back to buy another one, this time the shopkeeper refused to sell to him and Crawley refused to leave the shop arguing that the advertisement on the window was an offer and he had accepted so there was a contract which had to be fulfilled by the shopkeeper before he left the shop. He was convicted of trespassing because the court said that h had no right to be there since an advertisement was not an offer but merely an invitation to the public to come and negotiate for an offer and acceptance with the advertiser. So the seller has a right to refuse to sell to a prospective buyer, goods displayed on the window. In Fisher V Bell 1961 (1) ob 394 it was an offense to offer for sale flick knives. A shopkeeper displayed a flick knife for sale on his hop window. He was charged with the offense of offering it for sale. The court found him not guilt and held that displaying the knife on the window was simply an invitation to treaty as opposed to an offer. In certain circumstances however the courts have said some advertisements are really offers whereby its appearance the advertisement is so serious that what the offeree has to do is just accept not to go for negotiations. This has been held to be so especially where a reward is offered for doing a certain act. By merely doing the act then there should be a contract. Lee V American Swiss Watch Company 1915 AD 100 American S. W company advertised a reward of £500 to any person giving information leading to the recovery of jewellery that ha been stolen from the company. Having given information Lee claimed the amount Held here there was an offer which had been accepted by Lee so there was a contract despite the fact that it was an advertisement. It 17 may be necessary to note that Lee did not succeed for a different reason other than that of an offer. Carlill V Carbolic Smokeball Company 1802 1QB 256 The defendant advertised that they would pay £100 to any person who caught flu after using their carbolic smokeball in the prescribed manner. Mrs Carlill used it in the prescribed manner but she however caught flu. She sued for the £100. The company argued that the advertisement was not an offer therefore there was no contract on which Mrs Carlill would rely. The court ruled that this was an advertisement and amounted to an offer and communication of acceptance was not necessary in such circumstances. How does an offer come to an end? i) By acceptance – ordinarily if an offer is accepted hen it comes to an end since it is now converted into a contract. ii) By Revocation – The offeror may withdraw his offer at anytime before it is accepted by the offeree he cannot withdrew it after acceptance because there would now be a valid contract. Withdrawal of an offer is what referred to as revocation. For it to constitute effective revocation the offeror has to notify the offeree that has revoked the offer. The withdrawal of an offer may be affected where the offeror grants the offeree an option. An option is separate agreement between the offeror and the offeree that the offeror shall keep his offer open for a certain period of time. Here the offeree maybe taking time to make his decision. The offeror thus, where he grants an option, cannot withdraw the offer until the agreed date of the option has lapsed. An option should however be distinguished from a Right of Preemption. A right of preemption is a separate agreement between two persons where one stipulates that should he intend to offer or to sell something, he will offer first to the other party before offering to other people. iii) By a counter offer – As noted elsewhere above an offeree is only supposed to say, “yes” to the offer for there to be a contract. If he introduces a new condition or term then it is not acceptance but a counter offer which also has to be accepted by the first offeror. In Hyde V Wrench 1840. D offered to sell his property to P for £1 000. P wrote that he would accept £950. D refused this and P then sought to accept the £1 000 D had by this time decided not to sell. P sued D saying there was a contract since D had offered £1 000 and he had accepted. Held the court, when P refused the offer by suggesting £950 which the seller also had to accept. The seller had refused this so P would not renew a original offer which he had already cancelled. iv) Lapse of time – If an offer stipulates a period within which it should be accepted and there is no such acceptance within that time then it will lapse. If no time is stated then the offer will lapse after a reasonable time. v) Rejection - Rejection should be distinguished from revocation. With rejection the offeree is the one who rejects or refuses to accept the proposed offer. If the offeree rejects the other then it comes to an end. 18 vi) Death – Ordinarily speaking death of either the offeror or the offeree would terminate an offer. Acceptance Acceptance is by the offeree. It may be made in writing. Oral or may be gathered from the conduct (behaviour) of the parties. Acceptance must be: - i) Made during the life of the offer i.e. before the offer comes to an end or lapses and by the person to whom it was made. ii) Acceptance must be unqualified and must meet all the essentials of a valid contract. Jones V Reynolds 1913 AD366. In this case the offeree replied to an offer for lease of a farm saying “- - this serves to accept (your offer), but as I explained to you, conditionally upon your deleting clause 9 having reference to sub letting. The court held that this statement constituted a conditional acceptance amounting to a counter offer which canceled the original offer. Therefore since there was no longer an valid offer to accept the acceptance was invalid and the alleged contract void. iii) It should be in the manner prescribed by the offeror. iv) Acceptance should be communicated to the offeror before the contract becomes binding. Where however the offeror prescribes that acceptance of the contract shall be by post the golden rule is that the contract becomes binding as soon as the letter of acceptance is posted by the offeror not when it is received by the offeror. In this situation it can therefore be validly sated that where acceptance is by post the need for communication is regarded as dispensed with because there is a binding contract even before the offeree has received the response. If the letter gets lost or destroyed before reaching the offeror, the law there is a binding contract. A case to illustrate acceptance by post is R V Nel 1921 AD 339. This case shows that a contract comes into existence where the letter is posted. N had a license to sell liquor in the Transvaal only not in the Cape. X ordered liquor from the Cape and N dispatched the liquor by post. N was convicted for selling liquor to a person in the Cape without a license to sell there. It was however held on appeal that the transaction or the contract of sell had taken place in Transvaal when N accepted the order by posting the liquor not in the Cape where it was received. Thus the sale was not in the cape but in Transvaal where N had a license. Cape Explosives Works Ltd V South African Oil and Fat Industry Ltd 1921 CPD 244. On 10 July 1916 SA Oil and Fat Industry made a written offer from Transvaal to sell glycerine to the plaintiff in the Cape. On the 14 th the plaintiff posted a letter of acceptance. C. E. W Ltd was now suing on the contracts in a Cape court. The defendant argued that the Cape court had no jurisdiction i.e. power too hear the case since the contract had been concluded in Transvaal. The court ruled that the contract had taken place in the Capel when C. E. W had posted the letter of acceptance thus the Cape court had jurisdiction to hear the case. 19 It should however be noted that if the offeror prescribes that postal communication be used as a mode of acceptance and his postal address is incorrectly spelt by the offeree through the offeree’s own fault, the acceptance will be postponed until the letter is received and if it is not received then there would be no valid acceptance hence no contract. If the error of address is the fault of the offeror through giving incorrect, incomplete information or failure to notify change of address, then the acceptance will be valid upon posting even if the letter does not reach the offeror. v) An offer can be accepted by express words in writing or by conduct. So where one requests that he needs a delivery of sugar and the seller dispatches without saying a work, this is valid acceptance as inferred / gathered from his behaviour. CAPACITY TO CONTRACT In order for any contract to be a valid contract both parties must have capacity to enter into such a contract. The general rule is that all people have capacity to enter in to contract as. However certain groups of people may not have full capacity. These groups are discussed below: 1) MINORS A contract with a minor is invalid at law. The contract is void ab initio i.e. invalid from the start. A minor is an unmarried person who is below the age of 18 in Zimbabwe below the age of 21 years in South Africa. He is under the custody and authority of a guardian whose duty is to look after the minor, to look after his property and assist him in entering into contracts. As a general rule the contract with a minor can be enforced by the minor against a major person but a major person can not enforce it against the minor. So the discretion is on the minor to be bound or not to be bound by the contract. However in certain circumstances a minor may be held liable especially in the following instances. a) Unjust Enrichment Where a minor is unjustly enriched, i.e. gets a benefit for nothing in return, contract remains invalid but he is under an obligation to make restitution (to return) to the other party anything that is still in his possession at the time of the action. Thus the minor should return any benefit obtained by him under an invalid contract. b) Tacit Emancipation This occurs where a minor is allowed to carry on business and enter into contracts without the assistance of his guardian. This is obviously of practical necessity. Honestly a person who is below 18 years and is employed, earns a separate salary and lives all by herself should be tacitly emancipated to be able to contract without the assistance of anyone. 20 c) Fraudulent Misrepresentation Here the minor would have fraudulently lied as to his or her age. The major party who would have contracted with that minor cannot sue on the contract because it is an invalid contract but can sue for a civil wrong or a delict done to him by the minor. His claim would be to recover all that he would have lost. d) Ratification If a minor enters into a contract with another person without guardian assistance the guardian can later ratify such a contract. Ratification means accepting all that has been done without authority as if it was done with such authority. Ratification may also be expressed or implied. 2) Married Women The capacity of married women in Zimbabwe and South Africa differs considerably. Zimbabwe In Zimbabwe all marriages since 1929 are presumed to be out of community of property. When people marry out of community of property it means that although husband and wife are now living together there is no fusion or mixture of property. The husband still retains what belongs to him although they are under one roof. Thus according to Zimbabwean law the wife is free to deal with her share of property without the assistance of her husband. So the wife in Zimbabwe has full contractual capacity to contract with any other person. It is also perhaps necessary to emphasise here that once a minor, for example a 17 year old, is married in Zimbabwe she is tacitly emancipated and becomes a major on marriage. If the marriage is terminated before she reaches 18 years she does not revert back to minority. So in essence women married out of community of property in Zimbabwe have full contractual capacity. South Africa All marriages in South Africa are presumed to be inside community of property. If parties marry in community of property it means that there is mixture of the wife and husband’s property such that no none can distinguish what is his or hers. In Zimbabwe on divorce the wife takes what rightfully belongs to her and the husband takes his, in South Africa we do not question who bought what? The property is distributed equally each taking half share despite that fact that one of the parties may not have bought anything at all. However where the property in brought together in South Africa, one person is put in charge of it whilst the parties are married. Thus the husband is appointed as the administrator of the joint property. He enjoys what is called marital power. Therefore since he is the administrator of the joint property. He enjoys what is called marital power. Therefore since he is the administrator of the joint estate, the wife in South Africa 21 does not have contractual capacity to deal with the property since she is placed under the power of the husband. Therefore in entering contracts effecting the property, the wife lacks capacity and any contract entered without the assistance or consent of the husband is void ab initio (invalide from the beginning). The only exceptions where a wife can contract the assistance of the husband are where she is buying household necessaries and other few exceptional cases. It has however to be pointed out that is Zimbabwe parties may opt to marry community of property by entering into a contract called ante – nuptial contract. In South Africa those who don’t want fusion of property and want to marry out of community of property also have sign an ante nuptial contract. In short, women married outside community of property in Zimbabwe have full contractual capacity and women married in community of property in South Africa are under the marital power of their husbands and do not have full contractual capacity especially when dealing with matrimonial property. 3) Insolvent Persons Insolvency occurs where a person’s financial position is such that he cannot pay off his debts i.e. his liabilities exceeds his assets. The person in trouble may apply to court that he be declared insolvent. The creditors of that person can also apply. Once one is declared insolvent his property is taken away from him and placed under a Trustee who realizes it and try to distribute equitably the remains of the property amongst the creditors. In terms of the Insolvency Act an insolvent person lacks capacity to enter into contract especially when dealing with his property. Any contract entered into with an insolvent person without the assistance of his trustee is void ab initio. 4) Prodigals A prodigal is a person who has been declared by the court to be incapable of managing his affairs as a result of a propensity to squander his assets. A prodigal differs from an insolvent in that a prodigal may still have the assets and may still have money to pay his debts but he is just careless in his spending. A prodigal cannot contract with regard to his property and if he does so that contract in void but besides his property, he can contract. The prodigal has a curator appointed to assist him in his contracts. 5) Insane Persons A contract entered into by an insane person is void ab initio. Thus where one can establish that, he /she was incapable of understanding and appreciating the transaction or that his contract was influenced by an insane delusion caused by a mental illness, the contract can be treated as invalid. 6) Drunk Persons 22 Where a person enters into contract while so drunk that the does not know what he is doing and has no idea of the terms; the contract is void but not if the drunk person is merely more persuadable or more willing to contract. 7) Artificial Persons Artificial persons include companies and associations. In Zimbabwe a company can enter into any contract as if it were a natural person. It used to be that where a company entered into a contract exceeding its objects clause in the memorandum of association, that contract was void ab initio but the position was changed by the Companies Act and any transaction entered into by an agent of an artificial person is a valid and binding one. SERIOUS INTENTION TO CONTRACT For the contract to be a valid one it should be shown that the parties has serious intention to contract (Animus Contrahendi). Thus one should expect action to be bound legally therefore courts will not treatment such as an enforceable contract. The concepts of serious intention to contract has actually engulfed that the agreement itself should not be vague. A vague agreement is thus treated as lacking the much needed animus contra hendi. The courts have described the following as vague agreements. i) Contracts which depend on a condition that the promisor will be bound if he so wishes. Kantor V Kantor 1962 (3) SA 207. Under a contract K agreed t settle on his wife (give his wife) “all such furniture, linen plate and domestic effects, together with any and all renewals of and additions to the same, as he may then or thereafter acquire, at such times and is such quantities as may be expedient to him”. This promise was held to be too vague and unenforceable as it gave unlimited discretion to the donor. ii) Where a contract is impossible to perform when it is entered into, it in void ab initio. The impossibility, to render a contract void should be absolute impossibility i.e. where performance is impossible not only to the other party but also to everyone else. Thus where parties contract to buy a dog which they are not aware that it has been run over by a car, this contract is invalid from the start because it is no longer possible to deliver the dog. If the contract is invalid from the start because it is no longer possible to deliver the dog. If the contract becomes impossible after it has come into existence this is called supervening impossibility and the contract will come to an end as soon as the impossibility surfaces. LAWFULNESS A contract must be legal for it to be valid. An illegal contract is treated as if there is no contract at all. There are a number of ways in which a contract can be invalid. a) Common Law & Illegality: 23 This is a contract which is illegal because it is against public policy or is contrary to good morals i.e. contract contra bonos mores. A contract which is against public policy is for example where one enters into a contract with an alien enemy or a contract to bribe a public official. A contract which is against good morals would be for example where one contract to participate in homosexuality or the contract to encourage divorce. The courts are not prepared to enforce these contracts. b) Statutory Illegality: The legislation may make its intention clear by passing a law that any contract of a specified nature or which does not fulfill certain statutory requirements shall be null and void and of no force or effect. Thus for example the Hire Purchase Act stipulates that all contracts of hire purchases should be reduced down to writing. The effect of this is that if such a contract is not reduced to writing it is invalid as a Hire Purchase. Another example where a statute prohibits a certain type of contract is the Companies Act chapter 24:03 section 177 which says that nay contract by a company to offer loans to its directors shall be invalid. i) A Contract in Fraudem Legis Where one is aware that the contract he intends to enter into is an illegal contract prohibited especially by a void contract. The argument here is that the contract is disguised so as to fall outside the scope of the statute when in actual fact it falls inside. Thus if a law prohibits a minister from owning business and he proceeds to register the business in the name of his niece when in actual it is his business, this is a contract in fraudem legis. ii) Ex Turpi Causa non Oritur Actio When dealing with illegal contracts, the above maxim is important. It means that where one party suffers some loss in an illegal contract the courts are not prepared to enforce such a contract. Thus where one contract seek to bribe a driving inspector to process a license for hem and the inspector does not process the license or to be given back what he had paid over under the illegal contract, the court can not enforce such contracts because it does not want to be a participant in an illegal transaction. In Lion Match Company V Wessels 1946 OPD 376. W sued for the price of wood he had sold and delivered to L M. It was a requirement that W had to have a license first before the sale but he did not have one. It was held that he sale contract was illegal and unenforceable. iii) In Pari Delicto Rule This rule means that where property or money has been transferred under an unlawful agreement, the loss lies where it falls, which means that the money or property will remain where it is. This means for example that one party who receives property under an illegal contract will continue to have it even though he has not paid for it because the other can not sue him since the contract was illegal. In Dube V Khumalo 1986 (1) ZLR 103 Bulawayo Municipality prohibited a person from owning two houses in the city. The parties had contracted to buy a house to be registered in the name of the girlfriend. The 24 use of the girlfriend’s name was to deceive Bulawayo Municipality because the husband had another house with a wife elsewhere in the city. When the relationship between the husband and the girlfriend soured (as it will always do), the husband sought to recover his money for the buying of the house. The court first stated that the rule in pari delicto would mean that the wife will keep the house and loss would lie where it is. The husband should not seek help of the courts where he had entered into an illegal contract. However strict application of this rule would be unfair to the husband and a benefit to the wife who had also participated in an illegal transaction. So generally the courts are prepared to relax the rule to do justice between man and man to prevent unjust enrichment. Thus in Dube V Khumalo (supra) the rule had to be relaxed to allow the husband to recover a portion of the money. Another interesting case where the in pari delicto was well enunciated is Jagbay V Cassim 1939 AD 537. J the registered owner of a piece of property had sublet the property to another. The laws did not allow subletting. When the tenant refused to vacate he then wanted to sue to evict the tenant. The tenant was not supposed to have occupied the premises in the first place. Here if inpari delicto was to be applied in strict sense the tenant could not evicted but the court relaxed this rule noting that both parties were equally guilt. Covenants in Restraint of Trade A covenant in restraint of trade is a contractual agreement which purports to stop/restrain a person from exercising any lawful craft, business etc at his own discretion. This may be for example: a) An agreement by the seller of a business not to compete with the buyer b) By a retiring partner not to compete with the firm c) By an employee not to compete with his employer after the terminator of his contract of employment. The old position of the law was that such contracts are contrary to public policy and are therefore void and unenforceable at law. However if the party trying to restrain the other could prove that the restraint was reasonable, then the restraint may be upheld. The old position was noted in the case of Nordenfelt V Maxim Nordenfelt Guns and Ammunition Company Ltd 1894AC 535. Nodernfelt sold his gun and ammunition business to the Maxim company undertaking over a 25-year period not to engage directly or indirectly: i) In any similar business ii) Or any business competing or likely to compete in any way with that for the time being carried on by the company. Held the clause was wider than necessary to protect the business therefore unacceptable but the court was prepared to severe the clause. However the position was changed by the South African case of Magna Alloys and Research (SA) Pvt ltd V Ellis 1984 (4) SA 874 and the Zimbabwean Case of Book V Davidson: 1988. The contract in restraint of trade is no longer prima ficie (on the face of it) void but is now treated as valid from the beginning. Instead of the restraining party who should prove unreasonableness? The courts will only not enforce it if it is unreasonable. The unreasonableness should relate to when the contract is brought to court not when the contract was entered. The courts can now severe certain parts of the restraint. For example where one is restrained from carrying on business in Harare, 25 Bulawayo, Mutare and Gweru and the company caries on business IN Harare and Bulawayo only the restrained employee here, may be allowed to carry out business in Gweru and Mutare. Considering the nature of the restraint it may be treated as unreasonable because it prohibits a wide range of activities. It may also be unreasonable where the sole purpose is fear of competition. An employer may however be restrained from infringing his ex employer’s proprietary interest which would include trade secrets or retention of clients. VOIDABLE CONTRACTS It is important to draw a distinction between those contracts which the law treats as being invalid right from the beginning which are void contracts. A void contract is treated as if the contract never existed at all. Thus where one of the essentials or requirements of a contract is not there e.g. where one person lacks capacity to contract or where the contract is impossible to perform, this is a void contract. The common term used is void ab initio (right from the start) However there are certain contracts which are valid when they are entered into but the law would allow one of the parties to set it aside. These are called voidable contracts it is a valid contract but one of the parties has a choice whether to stick to it or seek that it be set aside. The reasons which would allow one of the parties to set the contract aside are basically; 1) Misrepresentation 2) Mistake 3) Duress 4) Undue Influence 1) MISREPRESENTATION A misrepresentation is an untrue/ false, statement made by one party to another in order to induce the other party to agree into a contract. It is important to know that a misrepresentation is made to induce a contract therefore it is a false statement made before the actual contracting. An innocent party who has been included to enter into a contract can set the contract aside or claim damages whilst he stands by it. But for one to be able to set a contract aside on the basis of a misrepresentation he has to prove the following: a) The misrepresentation must have been made with intention to induce the other party to enter into a contract. It should be a mere puff or simplex commendation which is a statement made before contracting which the maker does not intend you to take it seriously and which statement has no legal consequences. Thus 26 where a seller depicts the subject matter of the sale with glowing colours, it is not a misrepresentation. An example would be where the seller says “ My car can really fly”. Here the maker of the statement does not have intention to be sued if the car does not fly. Another question is whether if someone keeps silent about a contract to be entered into, can he be sued for having misrepresented. The answer is that silence will only amount to a misrepresentation only where there is a duty to speak. b) The other party should actually have been induced to contract relying on the misrepresentation. Thus where on enters into a contract for other reasons not because of the misrepresentation then he cannot set the contract aside on the basis of misrepresentation. c) The statement must be false in fact. A mere statement of opinion, although it might be false, may not be a misrepresentation. Thus in Lamb V Walters 1926 AD 35 an opinion by the seller that the price was fair and reasonable was held not to be a misrepresentation although – it was false as the price was too high. On the same note a misrepresentation as to the position of the law dos not amount to a misrepresentation. Thus where one induces someone to enter into a contract by lying what the law says, the other party cannot set the contract aside. The logic is that no one can be lied to about the position of the law because everyone is presumed to know the law and also that ignorantia juris neminem non excusat ignorance of law is not a defence. d) The misrepresentation must be material. A material misrepresentation is one which is likely to induce another one in to contracting. Where one can establish the existence of the above mentioned facts then he should be allowed to set the contract aside on the basis of misrepresentation. However it is also noteworthy that misrepresentation has about three basic types. Thus a prudent student should be able to draw a line between the types of misrepresentation and the requirements which have been elaborated as above. TYPES OF MISREPRESENTATION a) Innocent misrepresentation This is where the representor makes a false statement to the other party without fault. The representor genuinely believes that he is telling the truth and has explored all avenues to establish the correctness of his statement and genuinely believes it to be true but it however turns out to be false. b) Negliegent Misrepresentation The representor makes his statement so carelessly without considering or investigating whether it is true or false and this statement turns out to be false after it has induced another party to contract. 27 c) Fraudulent Misrepresentation Here the representor is fully aware that he is not telling the truth but he misrepresents so as to try and persuade the other party to enter into the contract. Dibley V Furter 1951 (4) SA 73. Furter sold to Dibley a four acre farm without disclosing that one acre was a recent graveyard which had been ploughed over. The court held that Dibley could avoid the contract because this amount had fraudulent misrepresentation by willful non disclosure. Where the other party withholds information e.g. where there is a latent defect with object the other party just withholds without a hidden agenda. Remedies of Misrepresentation Suppose one then realizes that he has entered into a contract because of a false statement what can he do? As I noted above, such a contract is a voidable contract so he can do any of the following. a) Rescission For all types of misrepresentation the innocent party is allowed to resile from the contract. By rescission the contract is treated as cancelled. The parties are returned to the status quo ante, i.e. to their original position as if they had not contacted at all. The parties should however be prepared to re store whatever they had benefited under the contract. This is called Restitution. b) Damages For one to be able to claim damages for the loss that he has suffered because of the misrepresentation he should establish first that it is fraudulent or negligent misrepresentation. Thus one can not claim damages in addition to rescission if it is innocent misrepresentation. For fraudulent and negligent misrepresentation the injured party can be allowed to claim damages after canceling the contract. The damages are usually paid in monetary terms. C) The innocent party may however decide not to cancel or rescind the contract but may only claim damages whilst he abides by the contract. 2) MISTAKE Mistake exists where parties to a contract think that they have agreed when in actual fact they have not. For a party to be able to set a contract aside on the basis of mistake he has to establish the following: 28 Requirements of a mistake a) The mistake should be one of fact not law. b) The mistake must concern a material fact. To determine whether a mistake in material the question is whether a party would have contracted had he known of the mistake. If he would have contracted then the mistake is not material but if he would not have contracted then it is material. c) It must be a reasonable mistake. TYPES OF MISTAKES a) Unilateral Mistake This occurs only when one of the parties is labouring under some misapprehension i.e. one party is mistaken and the other is not. The general rule is that a party who is mistaken under unilateral mistake cannot set the contact aside on the grounds of mistake unless it can be shown that the mistake is Justus i.e. justifiable and reasonable Mabhena V Bulawayo Polytechnic College H.B 22 – 94. The applicant was admitted to a cookery course at Bulawayo College. The applicant had 3 Zambian Ordinary Level subjects. The college’s minimum requirements were 5 Ordinary Level subjects. The applicant was admitted by mistake. The college now intended to expel her and she sued. The court stated that before a party can opt out of a contract on the grounds of unilateral mistake it has to be shown that the mistake is reasonable. It was held that the college would not opt out of the contract because the mistake was neither justified nor reasonable. Maritz V Pratley 1894 11 SC 345. At an auction sale two lots, a mirror and a mantelpiece were separately numbered but however the mirror was placed on top of the mantelpiece. Maritz the auctioneer knocked the mantelpiece to Pratley and then invited bids for the mirror. Selling a mirror and a mantelpiece together was quite common. Pratley refused to pay for the mantelpiece arguing that he had bided for both the mirror and the mantelpiece. When he was sued for the price the court held that the mistake was justified and reasonable and Pratley could avoid this contract. b) Common mistake This exists where both parties are mistaken. There they would be thinking that they have agreed when in actual fact there is a common mistake on either side courts have usually allowed both parties to set such a contract aside. The academic argument which is well founded is that such a contract should be treated as void because one of the requirements i.e. consensus ad idem is missing. That a mistake of law does not invalidate a contract was held in Ncube V Ndlovu 1985 (2) RLR 281. The appellant seduced a major daughter of the respondent. The appellant then signed an agreement undertaking to pay the respondent damages for seduction. He wanted to avoid the contract on the basis that he was mistaken as to the law i.e. he did not know that a father has no right to sue for damages in respect of seduction damages of a major daughter. The appeal was dismissed because this was a mistake of law not a fact. 29 2) Duress Where a party is compelled to enter into a contract by force and fear induced on him by threats of violence the innocent party should be allowed to set such a contact aside. However for one to be able to set aside a contract on the basis of duress he has to prove the following elements (requirements): a) The threat must be of actual violence and should cause reasonable fear. b) The threat must be directed at the party or his family. c) The threat must be of imminent or inevitable evil meaning that it cannot be averted otherwise than by agreeing to the contract. d) The threat must be contra – bonos – mores- contrary to good morals. e) The threat or pressure must have caused the party to contract. f) Duress by a third party who is not the other party to the contract entitles the innocent party to resile from the contract. The lading case on duress is Broodyk V Smuts and Anor 1942 TPD 47. B entered into a contract of voluntary enlistment into the army because he was threatened that failure of such enlistment, he would be killed. It was held that such threats were of grave nature to him and his family so he was allowed to resile from the contract. Economic Duress Our courts are now prepared to recognize duress of a purely economic nature. Thus where one can prove that he was threatened financially e.g. that his account will be frozen, then he may be allowed to resile from the contract. Duress of goods If goods are wrongly detained and the owner of those goods is compelled or forced to enter into a contract, say of paying money which is not owed by him, such payments / contracts are involuntary. He can claim his money back or in other words cancel the contract when his goods have been released. Here the seller should have paid under protest, i.e. should not have waived his rights to such money. Blackburn V Mitchell 1897 14 SC 335, a ship ran aground near Cape Town and there was a danger of it breaking up of the weather. A tug offered to assists Mitchell, the captain of the ship at two thousand pounds. Mitchell protested that he was an exorbitant amount but the tug threatened to leave unless Mitchell signed an unconditional promise to pay which he eventually did. The court ruled that the agreement to pay had been signed under protest. It was further held that where the alleged duress is to the property (duress of goods) as opposed to the person of the aggrieved party, a contract will be set aside if the party made a categoric protest at the time of paying. However the court was on the view that the tug was entitled to a reasonable remuneration. 30 UNDUE INFLUENCE If a party can show that he entered into a contract because of undue influence he can be allowed to rescind or opt out of the contract. Unlike duress, undue influence is not direct but indirect pressure. Thus it usually exists where one person occupies a position of influence in another person’s life e.g. the relationship between a son in law and his father in law or doctor and a patient. These influential people can weaken the power of resistance especially where they ask to contract with you. They weaken the power of resistance of the other party. The person who occupies an influential position however should have used his position in an unconscionable manner to persuade the other to agree to a prejudicial transaction. Requirements of Undue Influence a) That the other party exercised influence over the other. b) That the influence weakened the latter’s power of resistance. c) That the other party exercised in the influence in an unscrupulous manner to induce him to consent. Preller and Others V Jordan 1956 (1) SA 483 AD J claimed back his 4 farms which he had donated to his doctor. He alleged that the contract took place when he was so old and mentally weak and exhausted. P influenced him to transfer his farms to him (P) for P to administer them for the benefit of J’s wife. It was held on appeal that in various cases in judicial dicta or in decisions, it has been recognized that such improper influence may be a ground for canceling the contract. Whilst undue influence is likely to exist where there are special relationship it can also exist where there is no such relationship as can be illustrated by the case of Patel Grobbelar 1974. 1. SA 532, in this case the owner of a farm had mortgaged his property in favour of a person whom he believed to have supernatural powers. The court allowed the cancellation of the bond because it had been induced by the other party. POSSIBILITY FOR PERFORMANCE For a contract to be valid at law it should be possible to be performed at the time of contracting. Where it is impossible to perform the contract will be treated as void because of initial possibility. A contract can only be void because of initial impossibility if the impossibility is absolute i.e. it should be impossible for everyone not for a single individual. In the case of Wilson V Smith and another 1956 (1) SA 393. W sold part of a larger area of land in Johannesburg. Both parties thought it was possible to subdivide this land and give the buyer his own portion. However because of municipal laws at that law at that time this was not possible. Wilson applied that eh sale be declared null and void. It was 31 held that this contract was impossible to perform because of the law therefore it was void ab initio. Initial impossibility would generally apply but if a party seeking to avoid the contact knew or forsaw that it would be impossible then he cannot avoid the contract. TERMS OF A CONTRACT When one speaks of terms of contracts one will be looking into the contract itself and figuring out what the parties agreed. In other words what did the offeror promise to do for the offeree and what the offeree promised in return. These are basically the terms of a contract. Terms which are important in a contract are the ones which we should concern ourselves with and these are called material terms. Material terms stipulate how the contract should be performed when and where it should be performed. They actually go to the root of the contract. Whether a term is material or not is to be established by the court considering the circumstances of each case but the parties themselves may stipulate that some terms in their contract are material. The doctrine of consideration This is the doctrine which stipulate that for a contract to be valid at law, there should be quid pro quo i.e. something for something. The first party should offer to give something in return for something. Where the other party does not give something in return then this is not a valid contract. Thus where a certain clothing factory decides to donate some clothes bearing the president’s face to ZANU PF. Women’s league, this is not a valid contract because the league is not giving something in return. It should however be pointed that this doctrine is rooted in English law but it is not part of our Roman and Dutch Law. In Roman and Dutch Law a donation is a valid as any other contract and we do not ask whether something was given in return. TYPES OF TERMS IN A CONTRACT a) Express Terms These are terms in a contract which the parties discussed and agreed upon to be part of their contract. These express terms that are either oral or written down by parties. b) Implied Terms Without the need for any discussion or an agreement, the type of contract which the parties enter into may determine the terms. The terms may also be gathered inferred from the conduct of the parties. These terms are to be regarded as part of the contract without even referring to the people who are contracting. TYPES OF IMPLIED TERMS i) Terms Implied from the Facts / Tacit Terms 32 Christie – Business Law in Zimbabwe explains a tacit term as an unexpressed provision of the contract which derives from the common intention of the parties as interfered by the court from the express terms of the contract and the surrounding circumstances. The conduct of the parties thus may mean that certain terms are part of their contract. The question would thus be looking at what was actually said and the conduct of the parties what are the possible terms of that contract? This is the significance of the doctrine in Smith V Hughes LR 6 QB 597 in which the judge said, “if whatever a man’s intention maybe, he so conducts himself that reasonable man would believe that he was ascending to the terms proposed by the other party, and the other party upon that belief enters into a contract with him, the man thus conducting himself is equally bound to the contract.” The law seems not to concern itself with what is in the mind of the person but what that person actually externally manifested. iii) Terms Implied by the Law The law may impose certain terms into your contract without referring to the parties’ agreement. For example it is term implied by common law that all contract of sale should have the price and the goods to be sold terms which are implied by law were best explained in the case of McAlpine and Son (Pty) Ltd V Provincial Administration 1974 (3) SA 506 in which the judge said: “In legal parlance the expression “implied term” is an ambiguous one in that it is often used without discrimination to denote two, possibly three distinct concepts. In the first place it is used to describe and unexpressed provision of the contract which the law imports therein, generally as a matter of course without reference to the actual intention of the parties. The intention of the parties is not totally ignored. Such a term is not normally implied if it is conflict with the express provisions of the contract. On the other hand it does not originate form contracted consensus: it is imposed by the law from without. Indeed terms are often implied by the law in cases where it is by no means clear that the parties would have agreed to incorporate them in that contract. Ready examples of such terms implied by law are to be found in the law of sale e.g. the seller’s implied guarantee or warranty against defects, in the law of lease the similar enjoyment and absence of defects. Such implied terms may derive from common law, trade usage, custom or form statute. In the sense it simply represents a legal duty imposed by aw unless expressly excluded in the case of certain contacts”. iii) Terms Implied by Trade Usage Those dealing in specialized commercial fields e.g. accountants or lawyers may develop terms, which although not written or discussed are regarded as already part of their contract for a term to be implied by trade usage it has to meet the requirements of trade usage noted above. The Parole Evidence Rule This rule states that where we have a written contract and we intend to find out what actually was agreed, no oral evidence may be received by the court which tend to contradict, alter or vary any written term of the contract. Thus the document is said to be 33 the sole and exclusive memorial of the contract. In other words when one wants to find out what was actually agreed he merely needs to refer to the document. This rule is important because: a) The document will help us to know the final terms of the contract where negotiations take place over a long period and an agreement is finally made. We need to know the final terms not the negotiations. b) If the contract can be varied by oral evidence then the benefit of it being written down would be lost. This however is the general rule, in number of circumstance exceptions do exist for example where the parties do agree that their contract shall be partly in writing and partly oral. Exemption Clauses The general rule is that where parties enter into contract where one of the parties is asked to sign a document, the party signing is bound. This is not only where the party signing the document studies it but also where he carelessly or recklessly and when he fails himself an opportunity to study the provisions of the document. This is also known as caveat subscriptor rule which means signer beware i.e. any one signing a document should be very careful in doing so. Exemption clauses are simply terms in a contract where one of the parties exempt himself from being liable for something in a situation where he should be liable. Bhikagee V Southern Aviation Co 1949 4 SA 105 B, an experienced businessman, who was accompanied by a friend could not read English but signed a document written in that language when he wanted to hire a plane from the company. However the document had an exemption clause which said that if the journey was prevented by bad weather the company was not liable and B still had to pay. Incidentally, the journey was prevented by bad weather and B refused to pay. He was sued for the fare. Held B had to pay because he was bound by the term in the contract since he had signed. Curtis V Chemical Cleaning and D yeing Co Ltd 1951 1 ALL ER 631 C when delivering a dress to a company for cleaning was asked to sign a document which had an exemption clause that the company was not liable for damage howsoever arising. C asked why she had to sign and the attendant told her that the company would not accept liability for damage done to the beads and sequins on the dress. She signed without reading the document and when her dress was damaged the company refused to compensate her. When she sued the court held that the company’s assistant had made a misrepresentation to C and that C had relied on it so the company had to pay. The principle therefore is that where a party goes to the great length of enquiring the meaning of certain words in a document which is supposed to be signed and he is lied to, he is not bound by his signature. 34 Ticket Receipts and Notices The issue here is that there is no document which is signed and a contract contains an exemption clause, or a party is given a ticket written. “Chengetai nhumbi dzikarasika hatiripe” “Keep your goods if lost no refund” Situations also exist where a notice, says, “Goods are left at owner’s risk”. What should be the position of the law here? The approach of the courts in situation where one is given a ticket is to ask the following questions: 1) Did the person who received the ticket know that there was some printing or writing on it; If so; 2) Did he know that the printing or writing contained a provision exempting liability. If the answer to these questions is in the affirmative then he is bound by the ticket. If one of the questions, mostly the second is in the negative then we go to the 3 rd questions. 3) Did the person giving the ticket do what was reasonably sufficient to give the other notice of the conditions. If yes the provision is part of the contract and the receiver should not complain, if not then the receiver is not bound and should be compensated. Dyer V Melrose Steam Laundry 1912 TPD 164. A laundry list stated that the articles which were to be washed were washed stipulating that the laundry company would not be liable if articles were lost. Dyer never read this and when her goods were lost she sued. The court ruled that the company had not done what was reasonably necessary to ensure that Dyer saw the conditions therefore the company was liable for the lost articles. Similar principles would apply when reliance is placed on a term of contract which is posted in a prominent position such as notices that “Cars are garaged at owner’s risk” Essa V Divaris 1947 (1) SA 753. D who conducted a garage and service station had herbally contracted with E to store a lorry at E’s risk at D’s garage. There was a notice which said, “All cars are driven and garaged at owner’s risk”. This notice was placed at a prominent place with broad letters. E seemed to know of the notice and did not bother to ask further. The lorry was damaged by fire and he sued for the lorry. The court ruled that the notice if placed on a prominent position and written in bold and clear words would allow D to exempt himself from liability of any damage. The important point to note is that it should be in a prominent position such that it would be difficult to allege that one did not see it. The court would the state that “you ought to have seen it” not that “you actually saw it”. However as will be discussed in the next topic under of sale the Consumer Contracts Act has affected the common law position of exemption clauses especially where one is dealing with consumer goods. 35 CONDITIONS In English law the word conditions is used to refer to terms of a contract. Thus one would ask, “What are the conditions of the contract” referring to the terms of the contract. However this is not the meaning in Roman and Dutch Law. In our usage, a condition is a future certain or uncertain event and a conditional contract is one whose operation depends on the occurrence or non-occurrence of a future event. Types of Condition a) Suspensive Condition This is a condition which suspends the operation of a conduct until the condition has been fulfilled. Thus where one says “I will give you my car if you go to town on a “stay away” Wednesday and some back without any injuries. A contract which is subject to a suspensive condition is a valid contract. From the moment it has been entered into no party can resile or cancel it unless there is misrepresentation and such other factors. If the condition is fulfilled the contract becomes immediately enforceable retrospectively to the time of making the contracting unless the contract provides otherwise. b) Resolutive Conditions This is the opposite of suspensive condition. By resolutive condition the contract is effective and operational now but we are saying it will come to an end if the condition is fulfilled. If the condition is fulfilled then the contract ends. Thus is one says “If you drink beer I will take away my daughter from you” It means there is a contract to have the daughter which is operating but it will end if the condition is fulfilled i.e. “if you drink beer”. The Doctrine of Fictional Fulfillment If a person who imposes a condition in a contract makes it impossible for the other party to fulfill the condition so that he in turn can avoid what he is supposed to do if the condition is fulfilled fictionally. For example where one says, “You can only marry my daughter if you pass “A” Level. The condition is to pass “A” Level. For the father to avoid giving his daughter should the boy pass, he intercepts and destroys the answer sheets of the boy. In such a scenario the law will treat the boy as having passed (fictionally) so the father should be compelled to marry the daughter to the boy in question. Johannesburg Consolidated Investment Co Ltd 1924 AD 573 at 591 where he said “I am therefore of the opinion that in our law a condition is deemed to have fulfilled as against a person who would subject to its fulfillment, he bound by an obligation an who has designedly prevented it fulfillment unless the nature of the contract or the circumstances show an absent of dolus on his part”. Dolus refers to fault, either negligence or intention. 36 In the words of R H Christe Law of Contract in South Africa “the law would be seriously defective if it contained no rules to prevent one party to a conditional contract form deliberately preventing the fulfillment of the condition precedent and blithely maintaining that he is not bound by the contract because the condition has not been fulfilled. In the above case JCI contracted with Mac /duff to form and register a new company and take up shares in it. The condition was that Macduff had to pass a certain special resolution. When the market conditions changed JCI found that it had made a bad, bargain and it bought all the shares in Macduff and then used its control to ensure the Macduff would not pass a special resolution to register the new company. Macduff went into liquidation and the liquidator for the benefit of creditors, successfully claimed that the doctrine of fictional fulfillment should be applied and JCI be ordered to pay damages for breach of contract not being able to shelter behind the non-fulfilment of the condition which was taken as if it had been fulfilled. PARTIES TO A CONTRACT Under this sub topic we are basically concerned about who are the parties to a contract i.e. who are those people involvement in a contract. For convenience sake, in any contract there is a debtor and creditor. The debtor/ creditor concept will be used to explain some aspects of this topic. a) Co-contractors Where there are more than one debtor or one creditor in a contract the second parties are the co-contractors. i) Co-debtors These are two debtors in a contract who owe something to a creditor. In terms of payment, the general rule is that each debtor is only liable for his own proportionate share. For example A, B and C are co – debtors in a contract and they should pay X $600. X can claim $200 from each of A, B and C. This is called joint liability. However liability may be called jointly and severally. This is where X can be allowed to recover his money from other two. Liability jointly and severally may exist where: a) There is an agreement to that effect b) Where one signs a contract as a surety or where parties operate as a partnership. ii) Co – creditors The same principles apply. Third Parties to a Contract A third party to a contract is any person who is not a party to the contract. The question is whether a person who is not a party to the contract can acquire some benefits or 37 obligations in a contract entered into by other people. This can be possible in a number of ways as detailed below. i) Where the contract was entered for the benefit of 3 rd parties ii) Where cession, delegation or assignment has taken place. i) Contracts for the Benefit of Third Parties (Stipulatio Alteri) Parties in a contract are allowed to enter under a contract which will benefit someone who is not involved that contract. The 3 rd party may or may not be in existence. An example is where a father enters in a n insurance contract with an insurer or a promoter of a company contracts for the benefit of a company not yet performed. If the third party has accepted the contract it means he is also accepting obligations that are in that contract. The original parties have power to vary or cancel the contract before the third party has accepted. ii) Cession A party can transfer his rights under a contract to a third party by cession. In a case of a debtor and creditor cession is where the creditor transfer his right to a third party. The third party can claim something from the debtor so here the third party becomes the new creditor of the debtor. Thus the debtor now has to perform to the new creditor. The party transferring his rights to another 3 rd party who become the creditor is called the cedent and the one receiving the right is called the cessionary. As a general rule cession can take place without the consent or knowledge of the debtor but where the debtor without knowing that there is a new creditor, pays the cedent, then he is said to have effectively discharged his obligations. Some rights may however, not be ceded without the consent of the debtor. The debtor is allowed to raise any defence he would have raised against the cedent because the cessionary only steps into the shoes of the cedent himself. 38 Delegation Is the opposite of cession. Here there is the substitution of one debtor for another who becomes the debtor. For there to be a new debtor, the creditor’s consent is needed. Thus there is in effect a new contract created between the new debtors the old debtor and the creditor. Where a new contract substitute an old one, this is called Novation. Assignment Here not only rights are transferred but rights and obligations. An obligation is a duty to do something for the other party. BREACH OF CONTRACT Breach of contract is failure by one of the parties to a contract to observe one or more of the terms of the contract. Breach of contract does not mean that the contract does not mean that the contract will end but it will continue to exist in its breached state. There are a number of ways in which a party may breach a contract. a) Repudation When one of the parties acts in a way as to lead a reasonable person in the position of the other party to believe that he does not want to fulfill his party of the contract altogether or not to respect a material term, he is taken to have repudiated the contract. Repudiation can take place before the actual date on which performance is to be made and this is called anticipatory breach. An example of repudiation in advance or anticipatory breach is where one contract to buy a car and the other party sells and delivers the same car to someone else. It is obvious that when the date of delivery to the first buyer comes by, he will no be able to deliver it because it is no longer there. When a party shows that he does not intend to be bound by the contract the other party may cancel the contract. b) Mora Debitories This is where the debtor who is the other party to the contract fails to perform his obligations on a fixed date of performance and if no date is fixed, with reasonable time of receiving demand from the creditor for performance. The debtor is usually said to be in mora. Failure to pay money on due debt is a typical example of mora debitoris. c) Mora Creditories Where the other party to the contract refuses to accept performance when it is tendered by the other party the creditor is said to be in mora. An example would be where the seller refuses to accept payment tendered by the buyer in a contract of sale. d) Positive Malperformance 39 This is where the other party performs but the performance is not adequate enough to comply with the contract. It thus amounts to defective performance and is breach of contract. Remedies for Breach of Contract Remedies for breach of contract is the relief that one would seek where the other party has breached a contract. a) Specific Performance As a general rule the aggrieved party ha s a right to seek specific performance. This is an order from the court compelling the other party to do what he was supposed to do under the contract. The injured party should therefore be prepared to carry out his own part. The court however has the power / discretion whether to award the order of specific performance or not. Thus if you are seeking specific performance, you should always include an alternative of damages. The court would usually nor order specific performance in the following situations” i) Where it is almost impossible for the other party to render specific performance as in Shakinovysky V Lawson Investments 1904 TS 326 S sued for specific performance of delivery of a shop he had bought but the seller had sold it to someone else who was innocent of the previous transaction and had taken delivery of the shop. It was held that S was not entitled to specific performance i.e. delivery of the shop as this was impossible. ii) Where damages are enough to compensate the injured party iii) Where it would be difficult for the court to enforce its order iv) Where it would cause great hardships to a 3d party Haynes V Kingwilliamstown Municipality 1951 (2) SA 370 AD. The municipality contracted to release 250 000 gallons of water daily from its storage dam to Mrs Haynes who lived downstream. In 1922 there was a drought and Mrs Haynes allocation was affected. She sued for specific performance i.e. the release of the water as per the contract. The court ruled that the plaintiff had a right to claim either specific performance or damages. However in this case the order for specific performance was not granted because it could have caused great hardships not only to the respondent but also to the residents of the town to whom the respondent owed a public duty to render adequate supply of water. v) Where the contracts of personal nature. Where the contract involves personal services to be rendered the courts are reluctant to award specific performance because of the possibility that disputes will always arise. E.g. in an employer relationship specific performance is tantamount to compelling people to continue working together when their relationships has already been strained. b) Cancellation 40 Where a party breaches a material or a certain term which the parties agreed should not be breached, the other party has an option of canceling the contract. i) A Forfaiture Clause: This usually a clause in a contract of lease where the landlord is entitled to cancel the lease and eject the tenant if he breaches any of the specified terms such as non payment of rent on due date. ii) Fortfaiture Clause Such a clause in a mortgage bond entitled the mortgagee to call up the bond where the mortgagor is in default usually by failing to pay interest on due date. iii) Lex Communssoria Usually found in a contract of sale under which the seller is entitled to cancel the sale on breach of one or other of the terms of the contract, usually non payment. Cancellation and Restitution After canceling the parties should be prepared to restitute i.e. to bring whatever benefits they received under the contract. Thus cancellation may not be appropriate where it is not possible to restitute. In addition to cancellation a party may seek damages. c) Damages When one claim damages for breach of contract, he intends to be placed in the position he should have been had the contract been properly performed in so far as that can be achieved by payment of money and without undue hardship to the other party. Damages for breach of contract therefore essentially differ with those for a civil wrong or delict. For a delict the party is to be returned to the original position as if he had not been injured at all where as for breach of contract, the damages are to place the other party at a prospective position. Damages can only awarded for breach of contract where the injured party can establish the following requirements: i) The loss must result from the breach itself. General damages are those damages that flow directly from the breach and special damages are those remote damages. For one to claim special damages he should show that the parties actually or presumptively contemplated that they would probably result from the breach. If the loss was not caused by the breach then one cannot claim damages for breach of contract. ii) The loss must be actual loss or a monetary gain which is lost. No damages, under law of contract, are awarded for sentimental loss or injured feelings. Jockie V Meyer 1945 AD 354. J had booked a hotel, was given key of Room 309 and took occupation. M’s agent a few minutes later sent for J and told him that there was a mistake and he had to return the keys. When he returned the keys the hotel was fully 41 booked. He sued for damages for breach of contract and included damages for humiliation and loss of prestige. It was held that under damages for breach of contract he could not be awarded damages for humiliation and loss of prestige. iii) The injured party must do all in his power to mitigate the loss. This is called mitigation of damages. The injured party cannot sit back and relax and allow the damages to increase day by day and do nothing about it. He must take reasonable steps to minimize loss. d) Interdict An interdict is an order in which a person is ordered to refrain from doing a particular act. This is the most appropriate where; a party to a contract has good reason to fear breach by the other i.e. to prevent threatened breach. This remedy is not limited to law of contract only. e) Declaration of Rights The High Court has power to declare rights. If parties to a contract are not able to ascertain who has the right under a contract they can seek the H.C to clarify the position for them without penalizing any one of them. i) Money loan lent by the state- 15 years ii) Debt owed to state – 6 years iii) Any other debts – 3 years The period of prescription begins to run as soon as the debt is due and it may be interesting to know that a judgment debt prescribe after 30 years. So one starts to count the period from the day when the money was supposed to be paid. Prescription may be delayed if: i) The creditor is a minor or is increase ii) The debtor is out of the country iii) The debt is being disputed in court Prescription maybe intercepted by: i) If the debtor acknowledges the debt expressly or implied ii) Service of summons i.e. delivering summons to the defendant claiming the money owed f) Set of Where two persons are in debt to each other, the debts automatically cancel each out they are of the same amount. If one is larger than the smaller is extinguished and the larger reduced by the amount of the smaller debt provided than both debts are: 42 i) are liquid ii) are due iii) are due to the same person g) Merger Merger terminates a contract. Here we have the concurrence if the debtor and the creditor in the same person and in respect of the same obligations. The obligation is automatically destroyed. For example in a contract of lease, the lessee is the debtor and the lessor is the creditor. If the lessee buys the property in which he is staying it means he become the debtor and creditor in the same person so the contract between him and the former landlord ends. h) Insolvency If a person is declared insolvent it means his abilities exceeds his assets and all the contracts by such person are vested to the trustee who is appointed by the Master of High Court. i) Death Death does not bring contract to end but would. 2. CONTRACT OF SALE A contract of sale is a contract on which one person the seller or vendor promises to deliver a thing to another, the buyer, the later agreeing to pay a certain price. Thus a contract of sale has the following important elements: i) The agreement ii) The thing to be sold called the merx iii) The price to be paid i) Agreement An agreement to sell is formed by offer and acceptance and the general principles of law of contract would apply. For example the agreement should be lawful, made by people with capacity etc. 43 ii) The Property Any Corporeal or incorporeal asset of some value is capable of being sold. The property should be well defined without any vagueness. Sale of property which is no longer in existence is a void sale because of initial impossibility. iii) The Price The price should be fixed or capable of ascertainment. Ascertainment of a price may be made by reference to market rates. If it cannot be ascertained then the contract does not have a price and will not be enforced. The price in a contract of sale has to be in monetary terms and if it is not in money then it is barter trade not a contract of sale. If the payment is partly by money and partly by goods then we establish which element is greater than the other money or goods, if then sale, if goods not sale. Consequences of a Contract of Sale a) Passing of ownership If property is sold to a buyer, the buyer will only be the owner of the goods if two other things have occurred: i) The property must first be delivered to the buyer ii) The buyer must have paid the purchase price if it’s a cash sale or obtained the credit facility if it is a credit sale so it is important to realize that even though the full purchase price has been paid the buyer is not the owner until the goods are delivered. Delivery of the property There are a number of ways which are regarded as delivery at law. Here we are concerned with how the seller passes on the goods to the buyer. 1) Actual Delivery There the merx is actually delivered and handed over to the buyer who takes possession. 2) Constructive Delivery This is where there is no actual delivery of the property but at law the goods are said to have been effectively delivery. Constructive delivery takes a number of forms. a) Delivery longa manu (by long hand) Here the buyer gets effective control of the property from the seller where it has been pointed out to him e.g. how cattle may be delivered by a father to a son. b) Deliver brevi manu (by shorthand) 44 The buyer here buys property which is already in his possession. For example, if a tenant buys the property in which he is staying. Thus the buyer continues to have property which he already had. He is now a possessor and owner at the same time. Originally he was only a possessor but not the owner. c) Constitutum Possessorium The seller sells his property but does not pass it over to the buyer. Instead he now keeps the property on behalf of the buyer. Which means the seller is no longer the owner, but the possessor. He holds it as agent of the buyer. d) Symbolical Delivery The buyer is given the means of control over the merx e.g. keys of a car or house. e) Attornment With attornment the property is in the hands of a third party. It is not with the seller or with the buyer. The 3 rd party will now hold the property on behalf of the buyer not the seller. So the property is said to be delivered to the buyer. Passing of risk When we talk of risk in a contract of sale we refer to the risk of accidental damage or destruction of the merx. The risk is that of vis major or casus fortnitus. Risk if the goods are accidentally damaged or destroyed immediately passes to the buyer upon the conclusion of the contract of sale. The conclusion of the contract is not the delivery or the payment of the price but soon as the parties agree to sell to each other the buyer now has the risk even though the goods are not his because they have not been delivered to him. It means that if the goods are destroyed whilst still with the seller the buyer will still have to pay for them. However risk will not pass to the buyer in the following situations: i). Where the parties agree that the risk shall not pass. ii). Where the sale is subject to a suspensive condition. iii). Where the goods are destroyed due to the negligence of the seller. iv). Where the goods have to be counted, or measured in order to fix the purchase price. v). Where the seller does not deliver on the agreed date. Where risk has passed to the buyer the courts have softened the rule to say that profits also go to the buyer. DUTIES OF THE SELLER 45 i). Duty to Take Care of Thing Sold Although the risk has passed to the buyer, the seller still has to take care of the goods because if they are negligently stolen or destroyed he would be liable but for an accident caused by no fault of his. ii). The Duty to Deliver The seller has the duty to deliver the goods sold to the buyer as per contract. The manner, time and place are governed by the contract. A seller may however refuse to deliver unless the purchase price has been paid but it depends on whether the sale is credit or cash, if credit then the seller has to deliver even before payment. A purported delivery which is not in conformity with the contract entitles the buyer to refuse to accept delivery and either cancel the contract and / or sue for damages. iii) Duty of Warranty Against Eviction This is a duty implied by law. The buyer undertakes that the buyer will not be disturbed by the seller or any other party in his (vacuo possessio) vacant possession that no one with a better title can come to claim the goods. The seller therefore should be the owner to give this promise / warranty. In cases of double sales it was held in Crundall Bros (Pvt) Ltd V Lazarus No & Anor 1990 1 ZLR 290 that where was a seller makes a second sale of the same property to a bona fide (innocent) buyer who takes delivery. The first buyer can only claim hi purchase price. This however does not apply where the second buyer was aware of the first sale. The warranty against eviction will not be implied: a) If the parties’ agree otherwise expressly b) If the buyer is aware that the seller is not the owner c) If the cause of deprivation of possession arose after the sale and the seller is not to blame iv) Duty to deliver property free from latent defects Patent defects to any goods are those defects which are obvious and can be identified by merely inspecting the goods. So where a buyer buys goods with obvious defects he should nit be heard to complain because the law expects him to inspect the goods. The seller has a duty to warrant or to promise that his goods are free from latent defects, which are defects which are hidden and not obvious to the eye. If a defect surfaces soon after delivery it is presumed to have been there even before the goods were delivered. Holden & Company V Morton & Company 1917 ED L40 Here the defendant contracted to sell tins to his plaintiff. The manufacturers sold tins knowing well that the tins were going to be used for canning fruits. Some of the tins leaked and the fruit company sued. It was held that the manufacturers were liable under the implied warranty against latent defects. 46 However if a buyer contracts to buy goods voet stoots he is accepting the goods as they are whether with or without latent defects. If a buyer buys goods voet stoots he should not complain because by accepting them as they are he is taking full responsibility of any defect that may be in them. So in essence where a seller does not want to warrant against latent defects he can simply sell the goods voet stoots. The seller however cannot sell goods, as they are especially where he is aware that they have a defect because this would amount to fraud. In Matambo V Chakauya H.B 23/92. The plaintiff purchased a house from the defendant. The house was sold voets stoots sometimes later when the rains came there were bad leaks of water through the roof. It was found by the court that the defect in question were latent and that the defendant was aware of them. It was held that the defendant could not escape liability on the basis of voet stoots Effect of the Consumer Contracts Act on Voetstoots Simply put what the Customer Contracts Act (Zim) say is that where one is dealing in the course of business and the other is the final consumer of consumer goods, the seller cannot sell goods as they are. In other terms there is no voetstoots allowed by the consumer contracts Act but for one to establish that the voetstoots clause is not allowed in a particular contract he has to show that: i) One is a dealer in the business and he is the final user of the goods ii) The goods are consumer goods. It is submitted that what amounts to consumer goods is not well defined in the Act. We may have to resort to case law to see how the courts would have interpreted it. iii) That the goods are brand new goods as the Act does not apply to second hand goods. Thus the main purpose of the Consumer Contracts Act Chapter 8.03 is to protect consumers from voet stoots clauses. Most people were always prejudiced when they bought goods ‘as they are’ and they sought to return them, their attention would be drawn to the voet stoots clause. The Consumer Council of Zimbabwe was now receiving numerous reports of people who were ignorant of the meaning of this phrase. However it settled law that ignorantia juris neminem excusat i.e. ignorance of law is not a defence. These provisions were prima-facie unfair to consumers especially where consumer goods were sold. The main objective behind due act is therefore to protect consumers but also any unfair provisions from being included in the contracts of sale. The court is given powers to interfere and make any order necessary in cases where a contract of sale has an unfair provision. Other prohibited provisions not to be included are that the seller cannot limit his liability in a contract where he would otherwise be liable or where he is negligent. The seller cannot include a provision that he shall not reimburse the purchaser, replace the goods, repair the goods at the expense of the seller, reduce the price or amount payable in the event that the goods do not comply with the contract or are not fit for their purpose. So in any other situations not covered by the above Act, the seller is allowed to sell goods, as they are i.e. to remove the duty to warrant against latent defects. 47 Remedies of the buyer where latently defective goods are sold The buyer has ordinary contractual remedies but there are two special remedies available in contracts of sale. These are generally called Aedilition Remedies and they come in two basic forms: a) Actio quanti minoris If the defect is not so material the buyer can decide to use this remedy where he would take the goods. By action quant minoris the buyer is claiming the difference between the purchase price and the actual value of the goods in their defective form. b) Actio Redhibitoria This is only available to the buyer if the defect is a material one to render the property totally unfit for the purposes of which it was bought. The test for materiality is objective. The buyer is in effect canceling the contract and claiming repayment of the price if it has been paid. The buyer must at the same time return the article to the seller i.e. he should restitute. DUTIES OF THE BUYER a) To pay the purchase price b) To pay the seller’s necessary expenses in maintaining the article sold until delivery. This is so because the buyer is the one who could be at risk as from the time the contract was concluded. c) To accept delivery – It is the duty of the buyer to accept delivery. This is only a duty if the delivery is not effective and the goods would comply with the requirements and the terms of the contract. Seller’s Remedies 1) Where the buyer does not pay the seller may cancel the contract or may sue for payment of the price. 2) Where the buyer does not accept delivery (mora creditoris), seller may cancel the contract or sue for specific performance. LIST OF AUTHORITIES 1) Peter Volpe: Commercial Law of Zimbabwe - Contract 2) R. H Christie Business Law in Zimbabwe 3) E. C MacColl Case Briefs in Contract and sale for Zimbabwean Students 4) Gibson Mercantile and Company Law in South Africa 48 5) R. H Christie Practical Commercial Law in Zimbabwe 6) A. J Manase L Madhuku: A handbook on Commercial Law in Zimbabwe 49 3. HIRE PURCHASE AGREEMENTS Definition A hire purchase agreement is an agreement where the buyer of goods obtains delivery and the price is to be paid in installments of which ownership does not pass to the buyer until he has paid the final installment. Components of a hire purchase It is important to note that the seller continues to be the owner of the goods even though the contract has been concluded and delivery effected. If the installments are not paid in a Hire Purchase agreement, there is usually a lex commissoria ie a clause entitling the seller to cancel the contract upon breach and also a penal provision allowing him to retain possession of the installments already paid. It is also important to understand the involvement of finance houses in Hire Purchase agreements. If sellers were to wait for the buyer to pay installment and wait for months, or probably years, for him to do so, this was going to paralyze them in their production as now they would not have sufficient funds to continue with production. In practice therefore sellers cede their rights to finance Houses. Thus they receive their full amount from the finance house and the finance house would then recover from the Hire Purchase buyer. The finance houses make their profit by the interest charged on all hire purchase sales. By this process is meant that the seller is kept in business and the buyer would afford goods which he would otherwise not have afforded. A question may be asked of what would be the situation if the buyer has a complaint on the goods. Does he approach the finance house which has taken over the rights of the seller? Certainly not, what the seller passes to the finance house by cession are only rights to receive payments from the buyer but he is still bound by any obligations that he may be asked to perform by the buyer. The whole concept of cession only involves rights not obligations. However despite the foregoing argument the somewhat controversial decision in General Finance Co (Pvt) Ltd V Robertson 1980 ZLR 168 A should be noted. Here the court held that although it is regarded as cession, the transaction between the seller and finance house also involves transfer of obligations / duties. In Zimbabwe Hire Purchase Agreements are covered by the Hire Purchase Act. Hire Purchase Act 14: 09 [Zimbabwe] 50 1) The Hire Purchase Act defines Hire Purchase Agreement as every contract under which the price is payable in two or more installments and the seller has a right to return of the property if the price is not paid. 2) The Act only applies to movable goods and does not apply where the state is the seller. 3) Every agreement of the Hire Purchase should be in writing and signed by or on behalf of all parties to the agreement. 4) The agreement should state the cash price at which goods would have been sold the whole purchase price should also be stated including the amount to be paid in installments the mode of payment, the date and the rate of interest. 5) In every agreement a specified percentage of the price must be paid before delivery. 6) Any cash borrowed directly or indirectly from the seller for any person who makes a business of advancing money for payments under agreements with the seller will not be accepted. This provision was enacted to protect the finance houses in situations where the seller sells fictionally his goods to a buyer and the seller gives the buyer the money to pay as deposit so that he (the seller) can go and recoup the whole purchase price from the finance house. In effect this is fraud by the seller because the buyer has not paid anything but the seller is being given the whole purchase price by the finance house. 7) If the seller fails to comply with number 1 to 5 above the sale will be treated as a credit sale and the buyer would now pay 25% less the amount stated in the agreement over the same period of time. An important distinction should be identified between a credit sale and a hire purchase sale. At common law in Hire Purchase sale, ownership does not pass to the buyer on delivery but if it is a credit sale ownership passes to the buyer upon delivery even though the full amount may not have been paid. 8) Section 8 stipules provisions which are apparently unfair on the purchaser which should not be included in any hire purchase sale. a) The seller cannot stipulate that her agent be entitled to enter the premises and repossess goods and shall not be liable for any damage caused by the entry b) That the buyer shall be liable in the event of termination of the contract which liability would exceed that stipulated in the act c) The seller shall not compel the buyer to pay interest which exceed that which stipulated by the minister which is in force at the time. d) The seller cannot stipulate that any person who is acting on behalf of the seller in the conclusion of the agreement shall be deemed to be the agent of the buyer. 9) A buyer who is engaged in Military services will have obligations suspended whilst on duty. So any soldier who was engaged in Democratic Republic of Congo (DRC) cannot be said to be in default in his Hire Purchase payments when he was there. 10) Section 6 provides that the seller has a duty to make a copy of the agreement available to the buyer as soon as possible after the agreement has been entered into failing which he shall be criminally liable to pay a fine or to imprisonment. 11) Section 9 confers a duty on the seller to provide the buyer with certain information for example a statement of the amount paid under the agreement or the amount due. If the seller does not provide this statement then he may not seek payment against the purchaser. If there is failure to provide the information after a request by the buyer and the failure is for more than 30 days, then again the seller is criminally liable. The seller thus has to account to his buyer. 51 12) Section 20 generally provides that if the contract is lawfully terminated by the seller after the buyer had paid 50% of the price then the seller shall not be entitled to return of the goods but such goods shall be sold by a person appointed by a magistrate. After the sale the seller shall pay amounts owing to the seller and after deducting the costs, the difference shall be returned to the buyer. 13) Certain warranties are implied in to a Hire Purchase by common law but also more specifically by Section 12 of the Act. These are that the buyer shall enjoy quite possession of the goods, that the seller will and shall pass ownership of the goods to the buyer when the time comes and that the goods shall be free from any encumbrance in favour of any third party when ownership passes. These provisions are designed, mostly to protect the buyer. If the seller repossesses the goods purchased under a hire purchase contract because the buyer has failed to pay the installments, the buyer is entitled to return of the goods. If he pays the amounts in arrears within twenty-one days of the sellers repossession. Thus section 15 gives the buyer a second bite of the cherry. The buyer is allowed to accelerate his payments and where he does so he is entitled to have the amounts due reduced by 25%. An analysis of the foretasted provisions would show that the Hire Purchase Act, whilst it protects the seller and the finance houses in a number of ways, it largely affords a protection to the buyer. However there are also other provisions which would safeguard the interests of the seller for example. Section 10 provides that the seller is allowed to seek the purchaser’s address and to notify any change of address in writing stipulating the premises to which the goods will be kept and the name of the landlord. If the purchaser does not supply this information he shall be guilty of an offence. In terms of Section 11 the seller is allowed to stipulate that the goods shall not be removed from Zimbabwe without his consent. If the buyer purports to this he shall be guilt of an offence and the seller is empowered to commence action to stop the removal of the goods. 52 7b CREDIT AGREEMENTS (Specifically for IMM and IAC Students) The credit agreements are governed by the Credit Agreements Act Number 75 of 1980. The Act applies only movable goods sold on credit. Hire purchase agreements is regarded as a special type of credit agreements. Where there is sale of immovable goods the alienation of land Act of 1981 provides the mechanism and in Zimbabwe it is the Contractual penalties Act. Application of the Act - The Act covers credit transactions, leasing transactions or agreements of similar nature. - A credit transaction includes an installment sale transaction in which goods are sold or services rendered against payment of a stated or determinable sum of money at a determinable future date or in whole or part instilments over a period in future. - An installment sale is a credit transaction other a transaction in terms of which services are rendered, where the buyer does not become the owner of the goods by mere delivery and the seller in entitled to return of the goods if the buyer fails to pay. - A leasing transaction is a transaction in which goods are leased against payment of a stated sum of money at a stated or determined future date in whole or in part in installments over a period in the future. - A credit grantor is the person who gives the credit - A credit receiver – is a buyer or the person to whom services is rendered. The Minister may by Regulation in the Gazette a) Prescribe the maximum period within which the full price under a credit agreement shall be paid. b) Prescribe the portion of the cash price which shall be paid as initial payment or rental. c) Prescribe the manner in which the price of any goods or service shall be displayed or advertised. d) Prohibit any advertisement if in his opinion it contravenes the Act. Provisions which should be found in all credit agreements If the provisions are not compiled with it is a criminal offence although the transaction is not rendered void as disclosed by Section 5(2) of the Act. Provisions which should be found in all credit agreements If the provisions are not complied with it is a criminal offence although the transaction is not rendered void as disclosed by Section 5 (2) of the Act. The Requirements are set in Section 5(1) 53 a) It should be in writing signed by or on behalf of the parties. b) State the names and business or residential addresses of the credit grantor and the credit receiver or any other address if they don’t have one. c) State the amount to be paid as initial deposit or rental d) Contain a description of the goods or services sufficient to make them readily identifiable. e) In installment sales, to state the conditions if any as to the reservation and passing of ownership of the goods. f) Be in official language which the creditor receiver may request in writing. A credit agreement shall not have the following by virtue of section 6: a) That the representative of the credit grantor is appointed as the agent of the credit receiver. b) The credit grantor is exempted from liability for any act of omission by his representatives. c) That the period of the credit agreement is left underdetermined. d) The credit receiver is prohibited from resilign from the credit agreement and from claiming repayment of any amount paid by him if the goods or services have not be delivered or rendered to him within 30 days of the agreement. e) The credit grantor or his representation is authorized to enter upon any premises for the purposes of taking possession of the goods or is exempted from liability of such entry. f) The credit receiver agrees to forfeit any monies paid by him in terms of a credit agreement or any claim in respect of the goods or services if he fails to comply with any term of the agreement before the goods or services are delivered or rendered to him. g) The credit receiver acknowledges that he has inspected the goods. h) The credit receiver acknowledges that the credit grantor or his representative did not make any representations or give any warranties. The credit agreement is not binding until the credit receiver has paid at least the initial payment or rental prescribed by regulations. The credit grantor may not make any money available or cause money to be available for the purpose of making any payment. Results of the Credit Agreement 1. If a credit receiver fails to comply with any obligation under the agreement he can not claim the return of the goods unless he notifies the credit receiver of the non compliance and requires him to remedy the problem in a period, not less than 30 days from the date of handing over or posting the letter. 2. If the credit grantor recover possession of the goods other wise than by a court order, the credit receiver is entitled to the return of the goods provided that the credit receiver pays within 30 days of recovery of possession. Third Parties and the Buyer 1. If the buyer sells the goods during the currency of the credit agreement without the consert of the seller and deliver them to a third party the commits a crime of theft. 54 The seller however is not allowed to vindicate if the buyer has taken them in good faith. 2. The seller will be estopped from vindicating if he has entrusted his goods to the buyer under circumstances which may fairly be reasonably have induce a 3 rd party to believe that the buyer was the owner. 3. On the insolvency of the buyer the seller acquires a hypothetic over the subject matter of the credit agreements whereby the amount still due to him secured. The trustee of the insolvent estate is required on request to deliver the goods to the seller and the seller is then deemed to hold the goods as security for the amount still due to him-see section 84(1) of the Insolvency Act. 4. Pledge –if the buyer pledges the goods which are subject matter of credit agreement which shows intention to alienate them he commits a criminal offence. The seller has same rights of vindication as the case where the goods are sold 5. Lien –there are two types of liens. a) Real Lien These are further divided into: i) Salvage Liens: This is where necessary expenses, whether in terms of contract or not were incurred bona fide by one person on the property of another and such expenses must be necessary for the preservation of the property. ii) Improvement Liens: Necessary expenses which have improved the value of the property. b) Debtor and Creditor Liens - This is where expenses have been incurred by one person on the property of another or implied. - It is possible for any one of the above liens to attach to goods which are the subject of the credit agreement e.g. Suppose X buys a second hand motor car from you Hire Purchase X parks the care on beach below a high tide mark. While away he gets injured and is taken to hospital. A storm develops and Z realizing that the car is in grave danger removes it his garage, incurring certain expenditure in so doing. Z has a salvage lien on the car as security for reimbursement. - In the event of the buyer’s insolvency whilst the goods are in 3 rd party’s possession, the lien and the seller’s rights will conflict. The settled law is that the live holder’s security will rank in preference above the seller’s claim in case of real liens but not in debtor lien where he expenses are neither necessary nor improved the property. 55 8. AGENCY Definition Agency is the relationship that exists between two persons when one person called the agent is appointed by another called the Principal to represent the principal in making contracts with strangers called 3 rd parties. Why is an Agent Necessary? i) An agent is necessary because the principal cannot be in many places at the same time is business hence the need to appoint someone who would enter contracts on the principal’s behalf. So an agent is basically appointed for convenience in commence. ii) Another reason why one may need an agent is because he cannot do that particular job himself because it may need an expert. Thus for example one person may appoint a lawyer to represent him in court because he does not understand the legal procedures or concepts involved in his case. In this situation the principal is the client and the lawyer is the agent. This is the same where one appoints a conveyancer to enable him to transfer property to someone else. It is a rule of law that anyone want his property transferred he has to appoint a conveyancer as his agent to transfer the property. iii) An agent may be needed when we deal with companies and other juristic persons. A company is said to be fictions person which can exists on its own and which can sue or be sued. In reality however, someone has to represent the company in such situations. So the person representing the company would be acting as an agent of the company. Formation of Contract of Agency To become an agent you have to be appointed by the principal. So in essence there has to be an agreement between the principal and the agent under which the agent agrees to represent the principal in return for a certain benefit. The contract between the principal and the agent is governed by the general rules of contract. There has to be offer and acceptance the people should have capacity etc. Technically speaking, there are no formalities which need to be followed for there to be a contract of agents which means that a contract of agency may either be verbal, in writing or it can be gathered from the conduct or behaviour or the parties. Types of Agents There are numerous types of agents but the most popular types of agents are: a) Brokers 56 A broker is an agent employed by the principal to try and negotiate contracts with 3 rd parties. His duty as a broker is only to negotiate for the contract but not to conclude it. Common example of brokers are the insurance brokers. They only arrange insurance policies. The don’t have power to conclude the contract and issue the policy but merely introduce prospective customers to their principal (insurer) although they may at times be empowered to issue temporary cover pending the acceptance of the proposal form. When you ask a broker to fill an insurance form on your behalf it should be noted that he is not acting as an agent of the insurer but your agent in trying to help you fill the proposal form. b) Factors A factor is an agent to whom goods are sent and has to sell them on behalf of the principal. In most cases the factors just sell the goods without disclosing that they are selling on behalf of someone. Factors are common where you want to sell goods abroad. You just have to send them to someone already there carrying out business there. c) Del Credere Agent This is an agent who guarantees the payment of the purchase price. He gives the guarantee in return for an extra commission. d) Auctioneer Is an agent whose business is to sell by public auction on behalf of his principal, the seller. The Authority of Agents For an agent to act on behalf of a principal he should, as noted above have authority to do so. The extent of authority would differ in each contract. The issue of whether an agent has authority to do a particular act or not would be gathered by clearly looking at the contract of agency that exists amongst the parties. There are various types of authority that an agent may have. 1) Express Authority As a general rule there are no prescribed formalities which have to a followed to form a contract of agency. The parties have only to agree on the scope of authority and remuneration to be paid. Express appointment is where one is actually appointed either verbally or in writing. It may in an informal way like letter or a formal way like a power of attorney. A power of attorney is a document giving authority to an agent and is signed by the principal and by two witnesses. 57 General Power of Attorney This is a formal document granting authority to an agent but the authority allows an agent to do anything on behalf of his principal. His authority is not limited to single transaction. Special Power of Attorney This is a power of attorney appointing an agent for a specific purpose and the agent’s authority starts and end there. An example is where an agent is appointed to transfer ownership of property and this agent is called a conveyance. 2) Authority Implied by Law In certain circumstances in the absence of a agreement one person may have authority of law to represent another. The law provides that certain persons who are considered incapable of handling their own affairs should be represented e.g. minors, and insolvent persons should be represented by guardians and trustees respectively. 3) Authority Implied From Facts Where there is no express authority to act for another, authority may also be gathered from the behavior of the parties. Thus at law we say it may be inferred from the conduct of the parties. In Karol V Fiddel 1948 (4) SA 466 K allowed F to negotiate for sale of a hotel to a potential buyer and had sought F’s presence at the final negotiations and on numerous occasions he had offered him various amounts of money. The inference was that F was acting as K’s agent although they had not really agreed so. The court held that in such situations F was K’s agent. To infer agents by conduct the conduct of the parties must be such that according to the dictates of common sense of no other interpretation but parties indended the relationship to be of principal and agent. 4) Negotiorum Gestor A person who does not have express on implied authority but steps in to act on behalf of another person with the intention of benefiting him in the other person’s presence is called a negotiorum gestor. Thus a person who steps in and uses his extinguisher to save another’s car from burning is doing that on behalf of the owner of the car although he does not have authority to do so. As a general rule this person has right to recover from the owner necessary and useful expenses incurred by him in trying to help. But since the gestor has no form of authority he can not claim remuneration for his services and he would be delictually liable if he causes any damage or loses to the property by negligence in his voluntary administration. For more see the case of Khug and Khug V Penkin 1932 CPD 401. 58 Ostensible / Apparent Authority Where there is no authority express or implied, a third party may still hold the principal liable to the contracts entered into by him and the ostensible agent. If the principal’s behaviour is misleading to a third party to believe that surely the agent had authority and the third party has been induced to contract with the ostensible agent on the strength of such conduct, then the principal would be bound. A person who seeks to have ostensible authority should prove the following aspects: i) That there was a representation by the principal. ii) That the representation is of such a nature so as to mislead. iii) That the third party acted on the faith of such misrepresentation. iv) That he was prejudiced in so doing. Ratification Where there is no authority to act either express or implied an act performed by a person who professed to be an agent of another can be accepted of confirmed by the purported principal. Thus where someone enters into a contract purporting to have authority when in actual fact he does not have such authority, the person in whose name the contract was entered can later accept it as his contract. Ratification has the effect of clothing the act as if it had been the principal. Thus where someone contracts to buy a car he would be treated to have implicity accepted the contract because although he did not authorize the act he however behaved in a way to show that he had accepted the contract. For one to be able to accept a contract entered in his name without authority, in other words for principal to be able to ratify the contract the following requirements must be in existence: 1) A person making the contract must profess at the time of making it to be be acting on behalf of a principal. 2) The principal must be ascertained and the act done in hid name. 3) The acts must be legal, void contracts cannot be ratified. 4) The principal must have been in existence at the date which the contract was entered into. This is not a contract for the benefit of a third party. 5) The fact that the principal has accepted a contract entered into without authority does not mean that the principal cannot hold the agent liable for exceeding his authority. DUTIES OF AN AGENT 1) Performance of the Mandate The agent should perform his duties fully. If he fails to do so he forteits his remuneration and is liable for damages to the principal. It is however sufficient for the agent to show that he has substantially and significantly complied with the mandate. In Deny V Elvy 1965 RLR 45 the agent breached the duty by selling the principal’s property for less than the authorized minimum selling price and was held liable. 59 2) Duty of Utmost Good Faith The duty of utmost good faith is perhaps the most important duty that an agent has towards his principal. The contract of agency creates a fiduciary relationship i.e. a relationship of being faithful and hones to the principal. This duty of being faithful has a number of faces (multifaceted) in that it includes the following. a) The agent should not put himself in a position where his interests would conflict with that of his principal. He must act for the benefit of the principal and not for his own benefit. In Robinson V Reintfontein Est Gold Co - A director sought to benefit from a transaction in which he had entered into as a director of his company (the company is the principal). He bought some property in his personal capacity so as to sell it to his company at a higher price. The court held that this was breach of the duty of good faith. There is likely to be a conflict of interest. Where an agent buys the goods entrusted to him to sell to 3 rd parties. This is so because the agent would now be interested in a lower price and the merx and the principal would be primarily concerned with a higher price. b) The agent should not make a secret profit. This duty does not mean that the agent is not allowed to gain from any transaction the enters into on behalf of his principal but that if he acquires a profit or a gain he should disclose it to the principal. Jones V Eastrand Mining Company 1903 TS. J was prospecting coal on X farm on behalf of F. He discovered some coal on an adjacent farm and then came back later to prospect the adjacent farm in his individual capacity. The principal claimed profits which he made form prospecting on the adjacent farm. His argument was that if he had not sent the agent to prospect coal on the other farm he would not have realized that there was coal on an adjacent farm so it is an opportunity that he gathered whilst employed as an agent. The court held that the agent had made a secret profit out of his business as an agent and had to account the same to his principal. c) The agent cannot further delegate his powers to another. The maxim delegates non- protest delegare would thus apply. If the principal agree then there would be no great problem. The reasoning is that if the agent is supposed to be faithful to his principal how then would he know whether the person to whom he has delegated his authority would be faithful to the principal especially in light of the fact that there is no contract of agency whatsoever between the principal and the delegated authority third party. d) Duty not to disclose information. It is part of the fiduciary relationship between an agent and a principal that he should not disclose information gathered whilst he is operating under the principal e.g. a lawyer who acts as an agent to a client should not disclose the confidential information that he receives from his client. 60 3) A separate duty on the agent is the duty to exercise a reasonable degree of care and skill in the performance of his mandate. He must act with such care as prudent man would show. Where he is negligent, he will be liable to the principal. 4) The Duty to Account to the Principal An agent must give a full account of information of what he has done in carrying out the mandate. He should allow the principal to inspect all the books. Remedies of the Principal Suppose an agent breaches any of the above duties what then are the remedies available to the principal. In dealing with remedies we should remember that the principal agent relationship is a contractual relationship thus the principal may: i) Claim Damages These are damages for breach of contract and the principal seeks to be position he would have enjoyed had the agent not breached any of its duties. ii) Cancel the Contract The agent may have his contract cancelled by the principal with or without an addition of damages. iii) Claim the Profit Where the agent has made a secret profit the principal may claim that the secret profits be delivered to him. 61 DUTIES OF THE PRINCIPAL 1) Payment of Remuneration This obviously is the most important duty of the principal. Where parties have expressly or impliedly agreed on the payment of remuneration and the agent has substantially performed his mandate, the principal is obliged to pay such remuneration. The amount of remuneration to be paid but this may be implied or gathered from trade usage which is to say “What is the amount of remuneration ordinarily given to such agents in their trade?” If this amount can be ascertained then the same amount would be awarded to the agent. The amount awarded by the court as reasonable remuneration is referred to as (quantum meruit). 2) Reimbursement of Exprenses Where an agent incurs some expenses in carrying out the principal’s duties he has a right to be reimbursed by the principal. However the principal only has a right to reimburse those expenses which have been reasonably and necessarily incurred but not due to extra vacancy. 3) The Duty to Indemnify for Losses There is a distinction between expenses and losses. If someone has to buy fuel for a vehicle to travel to Gweru on the principal’s business, this is an expense but where an agent’s car is externally damaged in an accident not because of his fault, this is a loss and the principal should indemnify. However an agent can not claim indemnification if the losses have been suffered improperly or outside the scope of the mandate. REMEDIES OF AN AGENT Where the principal has breached his duties the agent also has contractual remedies available to him. 1) For non-payment he can cancel the contract and claim damages in the form of payment. He can also stand by the contract and claim specific performance which also amounts to payment. 2) For reimbursement and indemnification, the agent may also seek specific performance or damages and may also cancel the contract. The Relationship between the Principal and 3 rd Parties - The principal is the one who sends an agent to contract with a third party on his behalf. What would be the situation if the agent has so contracted? - As soon as the agent has acted within his authority and entered into a valid contract with a third party on behalf of the Principal, he drops out of the picture. Thus the contract is said to exist between the principal and the 3 rd party not between the agent and the third party. Thus the general rules of a valid contract would regulate the relationship between the principal and the third party. If there is breach of contract 62 the agent should sue the principal and likewise it is the principal not the agent who should sue the third party for any breach of his part. Unnamed or Undisclosed Principal A sharp distinction has been noted in our law between an unnamed and an undisclosed principal. Unnamed Principal This is where an agent tells the third party that he is acting on behalf of someone who is the principal but however, he does not disclose the identity or the name of the principal. This is accepted but the problem would arise if there is breach of contract. The third party here can proceed to sue the agent because he does not know the name of the principal but if he gets to know the principal he can sue him but he cannot sue both. Undisclosed Principal Here the agent does not even disclose that he is acting on behalf of someone else although this is so in actual fact. The third party can also sue the agent but the principal can volunteer and reveal himself. An agent exceeding his authority The general rule is that the principal is not bound by any transaction which the agent enters into exceeding his authority because he did not authorize such act. However he may decide to ratify (accept) such a contract and then proceed to claim damages from his agent. In some situations unauthorized actions can clearly be separated or distinguished from unauthorized acts and where this is the situation, the principal may only be bound by the authorized acts only. Thus if an agent is given the mandate to purchase five vehicles and ten computers and proceed to buy five, the vehicles and twenty computers, there is no reason why the principal can not be bound to the vehicles and ten computers which he had authorized which he had authorized. In exceptional situations the principal may be bound by the unauthorized acts of an agent. The situations are where there is estoppel or where there is unjust enrichment. a) Authority by Estoppel Where an agent acts without authority the principal may be bound to such an act if his (the principal’s) conduct or behaviour to a 3 rd party made the third party to believe or to think that the agent had authority. The requirements to establish that the principal should be bound are that: 63 i) There should be a misrepresentation either by words or by conduct made by the principal. ii) The misreprentation should have misled the 3 rd party to think that the agent had authority. iii) The misrepresentation should actually have induced him to contract where a third party can show these elements then the principal is bound by an unauthorized act. b) Unjust Enrichment This is not really a doctrine which lies under law of contract but it is under delict law or law of civil wrongs. The principle behind unjust enrichment was clearly elaborated in the leading case of Reid and others V Warner 1907 TS at 974 – 5 where the judge noted that “It seems to me a sound principle that where an agent has without authority, borrowed money on behalf of a principal and where such money has been spent for the benefit of the principal the principal is liable to repay it unless if he refuses to accept matters to their original position. The Relationship Between the Agent and Third Parties As noted above where an agent has contracted on behalf of his principal with a third party liability in respect of such contract would attach to the principal in circumstances where he has acted within authority. An agent may however be liable not to the principal but to 3 rd parties. The agent in a contract impliedly warrants that he has authority to do on behalf of his principal. Thus there is an implied undertaking by the agent that his principal shall be bound by the contract, and if the principal does not ratify the unauthorized act the agent is not liable under the contract as such but would be liable for breach of warranty of authority. It seems clear that where is fraud the third party may, if he wishes, hold the agent liable on the warranty of authority and also may make use of his ordinary delictual remedies against the agent and claim any loss he has sustained because of the fraud i.e. the amount by which his patrimony has been diminished. TERMINATION OF AGENCY As emphasized elsewhere agency is a contractual relationship and it comes to an end by the ordinary means by which a contract comes to an end (see Module A). However there are special ways in which the contract may come to an end. 1) Revocation by the principal The general rule is that the principal has power and right to revoke without incurring any damages to the agent. See Consolidated Frame Cotton Corporation Limited V Sithole and Others 1985 (2) SA 18. On revocation the agent must deliver to the principal any property in his possession which the principal has entrusted to him the contract. Where however the agent had commenced performance in terms of his authority he will be entitled to damages as he can prove on the principals revocation. The principal can not revoke his authority 64 without incurring liability for damages if he expressly or impliedly, agree not revoke the authority. This is not an example of an irrevocable contract but a contract that can not be revoked without incurring liability. Where the principal has revoked his authority and does not notify the third parties who may contract with agent then the principal may be bound by contracts entered into by an agent without by the doctrine of estoppel. By this doctrine, as will be remembered, the conduct of the principal is the one which would have misled a third party to third party to think that an agent still has authority. Thus in Bulawayo Market Company V Bulawayo Club 1904, the club failed to notify its supplier that its agent’s authority to buy on credit had been revoked. The agent went on to buy on credit from the supplier. The supplier sued the club for the money. The club wanted to argue that the agent’s authority had been revoked but the court held that the club had to pay because it had not notified the supplier of the revocation hence the supplier had contracted on the belief that the agent still had authority. 2) Renunciation of Agency An agent may renounce his authority at any time provided he does so on just grounds e.g. deadly enmities, bad health etc. In the absence of such just cause the agent will be liable to the principal in such damages as the latter may prove. 65 9. LEASE AGREEMENTS Definition A lease is a contract between two persons the landlord (lessor) and the tenant lessee for letting by the former and hiring by the later of specified of movable or immovable property in terms of which the landlord grants the use and occupation of the property to the tenant for a specified period in return for payment of a sum of money. So one can gather that in Roman and Dutch law even a contract of employment is regarded as a contract of letting and hiring in the sense that the master or employer would be hiring the services of the servant or employee. Formation of the Contract To form a contract of lease the general rules of a valid contract would apply e.g. that the parties should have capacity, have intention to contract, should be a lawful contract etc. Besides these requirements there is no other prescribed formalities that need to be followed in order to form a valid contract of lease. On this note therefore, a contract of lease can either be in express words (orally), can be in writing or can be inferred tacitly meaning that if can be conduct. However besides the absence of formalities a contract of lease will only be valid if it meets a number of requirements. NB. There is a difference between formalities and requirements. Requirements for Valid Lease Agreement 1) The Property The property to be let must be specified. The ordinary rules of void for vagueness would apply where there is uncertainty as to the property. The person letting the property need not necessarily be the owner of the property. Thus a tenant may sublet the property in which he is residing. 2) Period of Lease The period of lease also need to be agreed to by the parties. The basic difference between lease and sale is that is a contract of lease the lessor and the lessee both don’t intend to that the lessee use the land permanently. Usually the time is for a fixed period e.g. two years. It can also be a periodic lease which has no fixed duration but which runs from month to month, year to year etc. A periodic lease may be entered into expressly or may be gathered from the way in which rent in paid. If it is paid monthly then it would mean that it is a periodic lease renewable every month. Periodic lease, unlike fixed periodic lease, may only be terminated after giving reasonable notice. However with period lease the landlord may give notice to reaffirm the duration of the lease and inform the lessee that he does not intend the tenancy to proceed beyond the stipulated period. Rent 66 Rent is an essential element of the lease agreement. The amount should be specified. Unlike the price in a contract of sale, which has to be in monetary terms only, rent may be paid by way of goods e.g. farm produce. The Duties for the Landlord It is important to know that a contract is an agreement between two people and they may change what is implied by law. In other words although the law stipulates that these are the duties of the landlord, the may agree to vary them and say they are the duties to be performed by the tenant. Obviously there are some duties which cannot vary as will be noted below. Once a contract of lease has been entered the law imposes a number of duties that have to be performed by the landlord on the property and for the tenant. i) Duty to Deliver The landlord has a duty to deliver the property which is the subject matter of the lease at the time agreed by the parties. Delivery of property which cannot be effectively used for its purposes amounts to failure to deliver by the landlord. The property must be delivered together with its accessories like keys to the garage etc. The landlord cannot deliver property which is lawfully or unlawfully occupied by another person since it is his duty to evict such person and give free and undisturbed possession to the tenant. a) Failure to Deliver and Remedies of the Tenant Where the landlord fails to deliver the property which is to be used the tenant can do any of the following. i) Claim specific performance with or without damages i.e. a claim that the landlord should make delivery and compensate by way of damages for the loss that the tenant has already suffered due to failure to deliver or merely claiming that the landlord should deliver without and further claim for damages. ii) Damages with canceling the contract i.e. claim damages for the loss suffered by the failure to deliver and at the same time cancel the contract. iii) Interdict – This should be remembered from law of contract. An interdict is available usually to order someone to stop what he is doing or to remove something he would have done. In this instance an interdict is sought – where the landlord is obstructing the tenant from getting access to the premises. Thus the tenant seeks an order that the landlord, should be stopped from obstruction the tenant’s access. ii) Duty to Warranty Against Interference The landlord should be given fee and undisturbed possession of the property. This is almost equivalent to warrant against eviction in a contract of sale. By warranty against interference, it is implied by law, that the landlord promises that the tenant will not be disturbed in his possession either by the landlord himself of by a third party who has no legal right to the property. It is not necessary for the landlord to be the owner of the 67 property to give this warranty. Thus a sub tenant can be given such warranty by the tenant. Quiet enjoyment would also mean that the landlord is not entitled to enter the property without the consent of the tenant and the tenant can seek an interdict to bar the landlord from entering the premises. However this position of the law is usually expressly varied / changed by the parties who would allow reasonable access for the landlord to enable him to make inspections. In Zimbabwe where the rent regulations apply, it is a criminal offence if the landlord prevents a tenant to use and occupy the dwelling or the premises. Where the landlord fail to warrant the tenant has the following remedies: i) May seek an interdict to stop the interference ii) May cancel the contract with or without damages iii) Warranty Against defects and Duty of Maintenance It is the duty of the landlord to maintain the property both internally and externally. He must maintain it in a condition reasonably fit for the purposes of which it is let. The landlord should thus execute all repairs and remedy such dilapidation and flaws as would unreasonably interfere with the use of the property for the contemplated purpose. However the lessee would have a duty to repair where the damage is caused by his own fault. This common law duty on the landlord is usually varied to say that the tenant would effect other repairs such as water tapes etc. The contract has to be very clear for us to be satisfied that the tenant has deprived himself of the right to have the landlord effecting the repairs. If a tenant takes occupation of defective property and does not complain he is said to have waived or ignored his right and should not complain later. a) Remedies of the Tenant If the landlord does not repair the property he is in breach of contract and the tenant can do any of the following: i) The tenant can call upon the landlord to effect the repairs ii) Tenant can affect the repairs himself. But it is safer to have a court order first before the tenant effects the repairs because the landlord may want to argue that these are unnecessary repairs. It is however important to realize that a tenant cannot withhold rent whilst staying in the premises on the grounds that the landlord has refused to effect repairs. He can only rent payment if: iii) He cancels the contract and vacates the premises because the defect is of a service nature and the landlord has refused to effect repairs despite demand. The defect develops suddenly and is a dangerous one compelling him to vacate temporarily. He can withhold rent for the period he was not in occupation. 68 In a situation where the tenant would have effected the repairs with or without the consent of the landlord he can recover the expenses incurred from the landlord. He may thus deduct the amount from rent payable. iv) Duty to Compensate the Tenant for Damage caused by material Defects. Since it is the duty of the landlord to repair the property. The landlord thus the duty to compensate a tenant if such defects cause to the tenant or to his property. This is not so if the tenant is the one who has created the source danger. The landlord can only compensate where he was aware or ought to have known of the defects. If he had no knowledge how would one have expected him to repair? v) Payment of Rates and Taxes Rates and taxes should be distinguished from rent. If the tenant pays rates and taxes on behalf of the landlord he may recover them from him. DUTIES OF THE TENANT i) Payment of Rent This is the most important duty of the tenant. Rent should be paid in the manner prescribed on or before the due date. Rent may be paid in arrears e.g. rent for August, or in advance, rent for November paid before November. With fixed period lease, there may be lumpsome rent at the end of the period. The amount of rent may be agreed by the parties but it is important to realize that especially in Zimbabwe, we have Rent Regulations (to be discussed later) which may prescribe the maximum rent payable for certain premises. Remedies of the Landlord i) The landlord can sue for the rent i.e. specific performance ii) He may at the time of demanding payment, give notice that if payment is not made within reasonable time he will cancel the contract. The parties will usually include a forfeiture clause in their contract of lease which states that the landlord will be entitled to cancel the lease and eject the tenant if the later breaches any material term of the contract which would include non payment of rent. iii) Landlord’s tacit hypothetication At common law the landlord may hypotheticate/ attach movables brought into the premises as security for payment of rent. It is not important whether the movables belong to the tenant or to a 3 rd party provided that the landlord was not notified that they belong to a third party. This is the reason why a tenant who is buying property on hire purchase should notify the hire purchase seller of his new landlord and the hire purchase should notify the hire purchase seller of his new landlord and the hire purchase seller would in turn notify the landlord that certain movables in the property which is subject to hire purchase. It is also essential to note that the landlord may only attach the property whilst it is still in his premises. This attachment should be confirmed by the court, so in essence, the landlord should 69 apply to the court for an interdict bearing the tenant from removing the property from the premises which property is equivalent to the amount owed. ii) Duty to Take Care of the Property A tenant should ensure that the property is not misused. Misuse of the property is using it for other purposes than that it should be used for under the lease agreement. The tenant should take care of the property. If there is no agreement as to the nature of use of the premises then it is implied that the premises will be used for the purposes as before the lease agreement. In most common cases of all it is not misuse of property and the landlord has no right to eject a tenant on the grounds that he is privately leading an immoral life unless he is behaving unlawfully disturbing others, creating a nuisance or causing patrimonial loss. If the property is destroyed it is expected that the tenant is to blame unless the tenant can prove vis major or a casus fortuitous. He can also prove that the goods had a latent defect or that the destruction is caused by a third party to whom the tenant is not responsible. Remedies of the landlord i) If the misuse by the tenant is material, the landlord may cancel the contract and eject the tenant with or without an additional claim for damages for the loss suffered. ii) If the misuse is not material, he may only claim damages. Whether a misuse is material or not can be gathered from the circumstances or facts of each case iii) If the tenant is continuing to misuse property the landlord may seek an interdict i.e. an order compelling the tenant to stop misuse. iii) Duty to Return the Property Undamaged At the end of the lease the tenant has a duty to return the property undamaged i.e. in the condition it was at the beginning of the lease courses deterioration would be excepted. The tenant is not liable if the property is destroyed or damaged and the destruction or damage is not attributable to the tenant. The onus or burden to prove that the property was not destroyed or stolen due to his fault is on the tenant. a) Remedies of the Landlord i) If the property is returned damaged the landlord may claim damages for breach of contract. ii) In cases where the tenant fails to return the property at the conclusion of the lease and where the tenant remains in occupation or “holds over”, the landlord may eject him by the due process of law for the tenant is in unlawful possession of the premises. Subletting In a sublease the tenant is still a tenant to his landlord under the contract but he decides to sublet the premises to someone else. To that subtenant the tenant will be the landlord. Thus we say the tenant steps into the shoes of the landlord vis-à-vis the subtenant. In other words the subtenant will pay rent to the tenant. If the sub tenant misuses the 70 property the original landlord can not sue him for breach of contract because there no contract between them but he can only sue him in delict or civil wrong which does not depend on the prior existence of a contract. For a tenant to sublet the premises to someone else, the common law is that the tenant is not entitled to seek the consent of the landlord in an urban tenement but not rural tenement. This position may however be expressly varied by the parties who may agree that the lessee shall not sublet without the consent of the landlord. Assignment A prudent student should distinguish between sublease and assignment. In assignment the tenant drops out of the picture and gives over his rights to a third party who now becomes the tenant of the first landlord. Thus a new contract between the first landlord and the new tenant comes into force and in effect this is novation. The old Tenant and the New Landlord On the death of the landlord the lease remains in force and the landlord’s estate is simply a substituted landlord. Thus the estate is bound by the contract of lease entered into by the deceased person. When the landlord sells the property the rule is that the buyer is bound by the lease in accordance with the doctrine called the huur goat voor koop. This is a doctrine aimed at achieving fairness and to protect tenants where the landlord has sold the property. However it is important to know that this doctrine has a number of exceptions e.g. where a statute expressly state that it does not apply. It is also important to know that a lease agreement may be registered. The effect of registering a lease agreement is to convert a personal right into a real right which can be enforced against the public at large because they will be aware of its existence. In South Africa a lease for more than 10 years or more will not bind the new landlord after the ten years unless it is registered. In Zimbabwe the position was explained in the case of Shell Rhodesia (Pvt) Ltd V Eliasov 1979 RLR 211 in which case Gubbay J as he then was, stated that a long lease to bind the new land lord must be registered unless successor is notified of such lease before hand. So whilst in SA all long leases have to be registered to bind new landlords in Zimbabwe they also have to be registered but if the new landlord was told of such lease it will also be binding on him. An unregistered lease is however binding on: i) The immediate parties ii) Gratuitous successors of the lessor iii) The purchaser who had no notice of the lease for a period of not more than 10 years. The Effect of the Rent Regulations in Zimbabwe 71 As Christe notes, for more than fifty years there has been shortage of houses, offices and rooms. With such a situation the landlords are asking for more rent and the tenants are likely to pay the high amounts because they are in a desperate situation. On the other note tenants were always prejudiced and inconvenienced when they were evicted from the premises on unjustified grounds. The effect of the Rent Regulations is to try and protect the tenants from being over charged and also from unnecessary evictions. The Minister is empowered by Parliament to pass such regulations which control the amount of rent payable for certain premises. Thus where these regulations apply the landlord is prohibited to fix an amount higher than that stipulated in the regulations. It is also necessary to know that in Zimbabwe there was creation of the Rent Board which is a special court sitting at the civil Magistrate court. Its purpose is to resolve disputes between landlords and their tenants with regard to the amount f rent payable. So if a tenant is challenging that the amount of rent charged is excessive not only because it may exceed that fixed in the regulations but also for other reasons, like the premises are not worth it, he can bring his case before the Board. Thus all cases involving rent should be taken to the Board which can actually fix the amount payable. In Zimbabwe we have two types of Rent Regulations: a) Commercial premises (Rent) Regulations of 1983. These apply to commercial premises only. b) The Rent Regulations 1982. These apply to dwellings which are located in urban areas. Protection offered to the Tenant by the Regulations In terms of section 14 of the rent regulations a tenant or the landlord may make an application to the rent board for determination of what would be fair rent in the circumstances. The board is empowered by Section 18 to determine what is fair in the circumstances considering the interests of all involved parties. The board would also stipulate the date the order or variation shall have effect. Part III of the regulations discusses payments which are unacceptable. Firstly it generally provides that where there has been a determination by the board the landlord cannot seek an amount exceeding that stipulated by the order. Secondly the landlord cannot seek advance payment of rent exceeding one month’s rentals. If the landlord is to seek a deposit then it should not exceed a month’s rentals. If the landlord has drawn the lease agreement he can ask for a fee but it should not exceed 5% of the first month’s rent. If the lessor has received a deposit in considering he shall refund the lessee with a period of 14 days after the date on which the lessee has vacated the premises. 72 The rent regulations also create what is called a statutory tenant. Where there is a fixed lease agreement and the lease has expired. The tenant will immediately become a statutory tenant and will not vacate the premises even though it has expired. In an indefinite lease agreement the tenant becomes a statutory tenant when he has been given notice and despite the expiry of the notice period the tenant will also not vacate the premises. A statutory tenant is a protected tenant despite the lapsing of period or notice he is protected from eviction by the landlord. If the landlord intends to evict a statutory tenant he has to provide reasons as stated is the regulation. Any other reason may not be acceptance except where one has obtained a certificate from the rent board. A statutory tenant can only be evicted for the following reasons: i) Unless he has done or is doing material damage to the dwelling. ii) The lessee has been guilty of conduct likely to cause material damage to the dwelling or inconvenience to neighbours. iii) Unless the landlord intends to use the premises himself, his parent child or employee and has given two months written. The notice in terms of section 30 (3) (a) (i) should specify the person to occupy the dwelling. If the dwelling is not occupied by the stated person does not occupy the premises for a period of 6 months thereafter then the lessor shall be guilty of an offence. The lessor will also be criminally liable for any false statement in any notice to vacate. iv) Where the premises are required for reconstruction or rebuilding the nature of which preludes human habitation and the landlord has given two months written notice. v) Where the landlord has obtained a certificate from the rent board that it is fair and reasonable that the tenant vacate. This is only applicable where the landlord wants to evict the tenant for the some reasons not contained in the regulations. The rent regulations also give additional protection by prohibiting the landlord from removing the property of the tenant without his consent. If the landlord does this without a court order they shall be guilty of an offence and the landlord may be compelled to compensate the tenant for any loss or damage caused. The landlord shall not be allowed to refuse a prospective tenant on the basis that there shall be a minor child residing in the premises. It is not even allowed to enquire whether the prospective lessee would permit a child to reside in the dwelling. Section 34 (2) provides that it shall be unlawful to evict a tenant solely on the basis that a child has been born leading to an excess to the number of people residing in the premises. The appeal from the decisions of the Rent Board would lie with the Administrative Court. Students may be left wondering how these provisions may be enforced. For example a landlord may stipulate that he want to occupy the premises himself and then later give them to another new tenant. Parliament was well aware of this and included a number of protections and safeguards. If also makes a number of actions criminal offences. 73 Termination of Lease Agreement Although there are certain safeguards to a tenant by the regulations the common law position is that since a lease is like any other contract it should come to an end in the ordinary ways in which contracts except that in some circumstances there is need for notice. Improvements Where a tenant has made some improvements to the leased property he may remove useful improvements and not improvements which were necessary to protect the premises from destruction. Necessary improvements would e.g. include pillars created to prevent the building from collapsing whilst useful improvements may be those made in order to make the place beautiful or luxurious. It is also important to know that even the useful improvements may not be removed where removing them would cause damage to the premises. The tenant can only be compensated for useful improvements where they were made with the consent of the landlord. In the absence of such consent of such consent then the landlord will not compensate. Therefore when dealing with improvements is drawn between necessary and useful improvements. 74 10. PARTNERSHIP CONTRACTS Definition A partnership is a contract between two and twenty persons in which parties agree to contribute money labour or still to a common stock and carry on business with the object of making profit for their joint and benefit. Essentials of a Valid Partnership Contract It can be noted that for it to be a partnership agreement there are a number of requirements which have to be there. Thus not all business agreements between two and twenty people may be partnership. The definition itself gives us the picture of the requirements. i) There should be a contract of 2-20 people ii) The object should be to make profit iii) The business should be carried out for the joint benefit iv) The partnership itself should be a lawful one Where all these elements are present then it can be properly called a partnership agreement. If one is lacking then it can not be a partnership. 1) The Contract The contract of partnership itself should meet all the other requirements of a valid contract. A partnership agreement need not be in writing. Thus there can be a partnership by verbal or oral agreement or it can be gathered from the conduct of the parties. Fink V Fink In this case F and his wife were married out of community of property. They bought three cows and started to sell the surplus milk from this, a milk producing and marketing business grew. The relationship soured and they divorced. The wife claimed a share of the business as a partner. The husband said there was no partnership at all. It was realized that both parties had contributed money labour and skill. The court held that there was a partnership. Although there was no formal agreement the other requirements of a partnership were in existence. It should be noted that if the parties were married in community of property the position would have been difference. Contribution 75 One of the important features within a partnership is the contribution. With a partnership partners should contribute something but what is interesting is the nature of the contribution. In companies the contribution is measured by shares held by a shareholder (in terms of monetary value) but with a partnership a partner can contribute money, labour skill or even property. In Lafton V Griffing and others the court held that surety for the surety to be a partner. Co-ownership (i.e. property owned jointly) is not necessarily a partnership but it is an essential element of a partnership. Which means that we can have people owning property jointly but they are not in partnership where as there is no partnership without co-ownership. iii) Partnership Property This is the property contributed to the partnership. It is not correct to say that a partnership can own property because a partnership is not distinct from its members but it is just a contract. So in essence a contract cannot own property. At the termination of the contract the property is generally returned to the individual partners in the proportions in which it was contributed. Where one has contributed labour or then we consider the share of profits. iv) The Partnership for Joint Benefit The profit should be shared equally or in proportions amongst the partners. Nature of a Partnership It will be realized that with a company, once it is property incorporated, it has a separate existence from its members. It is regarded at law, as a person who can sue or be sued in his own name. Thus for a wrong done to the company, it is the company which should sue not necessarily the shareholders. This is different when dealing with partnerships. A partnership has no separate legal identity and thus it can sue or be sued with its name. In other words in a partnership all the partners have to be sued in their own names. Likewise they also have to sue in their names. In short a partnership is a contractual compound of several personal. A partnership as will be noted is managed by the partners. This is different in companies. The company is not managed by shareholders. However the shareholders may appoint themselves or one or more of theirs to be in the board of directors. The concept of liability is also very important when considering partnerships an d companies. All active partners are jointly and severally liable to pay debts of the partnership in the event that the partnership is being dissolved and is unable to meet its obligations. In company law the concept of corporate personally means that a company is separate from the shareholders, this also means that a company is liable for its own debts, the 76 members liability is limited to what they have interested in the company. If on winding up the assets of the company cannot discharge its debts then creditors would be unfortunate. A company has perpetual succession the death of a member does not bring a company to an end. In fact in terms of the Companies Act Chapter 24. 03 a company can operate without members for a period of six months. A partnership however does not have life after death. The death of a partner would terminate a partnership unless there is an express agreement to the contrary. If the remaining partners proceed with the partnership then there is novation i.e. the substitution of an old contract with a new one. The Relationship and Duties of Partners 1) Duty of Utmost Good Faith The partnership contract is a contract of utmost good faith uberrima fide. The duty extends to persons who although not yet parties are negotiating to be partners in Wegner V Surgerson 1910 TS 571 Wessels described the relationship between partners as a kin to that between brothers. Thus the elements of utmost good faith discussed under law of agents would be relevant here. The partners should not make secret profits, should not have their interests conflicting with those of the partnership etc. In the Weigner’s case one of the partners applied without the knowledge of the other, for the renewal to himself individually of the lease agreement to the partnership property granted after the partnership had been dissolved. The other partners was now claiming for the benefits of the lease. The court held that one partner cannot appropriate partnership property of his own benefit. There was breach of duty of good faith because the benefit was acquired during the scope of the partnership field and during its existence. In an interesting case of Mattson V Yannakis 1976 (4) SA 154 M and Y were friends and they frequently pulled their resources in jackpot permutations [bating horses]. One day the two predicted their horses and agreed to make joint investment and share the profits if made. After they had separated Y decided to add two more horses to the ones predicted as winners. One of the added horses won and the venture would not have yielded anything. The issue was, whether Y was obliged to pay M half of the proceeds. The court had to decide whether the situation was a partnership in the first place and it was said to be a partnership and it was said to be a partnership but the judge said that Y had no obligation to act as he did so the profits could not be shared. This case has been criticized. The critics say the common business is the bating of horses and if the partners have put their money into that pool then whatever result should be shared. 2) Duty to contribute A partner has a duty to contribute having contracted to do so. He thus may be compelled / forced to contribute to the partnership. A partner may contribute use of property only whilst he retains ownership. Thus in the words of a certain judge in Johns V Hogg 1932 SR V619. 77 “Suppose Winterbotham and Sidebotham go into a partnership on a farming ventures, Winterbotham supplying the farm and Sidebotham, the skilled management, each party taking half of the profits. If after a few weeks Winterbotham is obliged by Sidebotham’s drunken habits to dissolve the partnership, must give up his entire farm? Clearly not unless it can be read into the contract that he contributed not only the use of the farm but the farm itself and even then he would be entitled to the return of his whole capital contribution.” Partners’ own the property in common and undivided shares. The size of each partner’s share and sharing of profit is a matter of their agreement. A partner may not transfer his share to anyone be it an outsider or insider because this amounts to breach of utmost good faith. 3) Duty / right to share profits This is both a duty and a right. The partners should share profits. Should a partner fail to share the profit, he may be compelled to do so, then it is his duty to do so and maybe compelled. If one is denied profit then we say he has the right to claim it. 4) Duty / right to manage A partner act as a principal in himself and also an agent of the other partners in any transaction he enters into. Thus the partner has the duty of utmost good faith. The general rule is that partners are jointly and severally liable for the debts of the partnership provided that these debts were incurred within the authority of the partnership. Each partner is legally entitled to manage the business but the contract of the partners may stipulate who is to manage. The partners may also stipulate the remuneration to be paid to any of the partners. 5) Duty / right to share losses A partner is also entitled to be indemnified for any losses which has incurred in conducting the business of the partnership. In this sense it is a right. It becomes a duty if a partner is supposed to contribute towards the losses of the partnership. The relationship of a partnership and third parties As noted above, a partner is an agent of the other partners in carrying out business with third parties. The acts of a partner are binding not only on him but also on the other partners. In this sense, since he is also a partner, he can be said also to be a principal. For a partnership to be liable as a partnership the third party should show that: a) A partnership exists b) That a partner acted within the scope of his authority c) That he acted as a partner a) That a partner exists 78 This may be proved by evidence. It may be shown that the person whom it is sought to hold liable held himself but to the third party as a partner by words, conduct or both. b) That the partner acted within the scope of his authority As in other cases authority of a partner may be express, implied or ostensible. In most cases a partner relies on ostensible authority. Partners may also ratify acts done by one of a partnership will ordinarily not be bound by any acts which exceeds the scope of the partnership for e.g. if a partner buys goods which are not ordinarily used in connection with the firm’s business. Meyer V Mosental Brothers 1925 TPD In this case there were two partners Meyer was a junior partner the business was milling business. The junior partner was buying goods without the consent of the firm. He proceeded to buy a truck and other goods described as for the benefit of the partnership. The senior partner was unaware of this. The junior partner falsely represented to the suppliers that the goods were for the store which the milling partners were contemplating to open. He did not pay and the partnership was sued. The court held that what there is no ostensible authority, to hold the partnership liable, the burden to prove is on the seller to show that the transaction fell inside the usual business of the partnership. In this case the plaintiff failed to prove this so the partnership was not liable. Termination of Partnerships In terminating a partnership it is always safe to note that it is contractual agreement and the ordinary ways in which a contract comes to an end would apply here e.g. where there is performance of the agreed activity, supervening impossibility etc. However some of the ways in which partnership comes to an end need to be elaborated further. 1) By Agreement If the partners agree that their partnership should come to an end so who are we to say it should continue? The partners when contracting may even stipulate the date of termination when the contract should end. An implied agreement to terminate a partnership will be inferred where the object of the partnership is completed. It is also important that if the partners decide to change the membership of the partnership of the contract will come to an end. So the elimination or addition of one partner would mean that the old partnership has ended and a new one has come into existence. 79 2) By Unilateral Action of a Partner One of the partners may cancel or terminate one contract by giving notice of remuneration. Thus if a contract of partnership has no time period, the contract is one at will and can be terminated at any time on notice. The notice for remuneration should be reasonable. If the partnership agreement is of a specified period it may only be dissolved by unilateral action of one of the partners by an order of court. The court has discretion either to dissolve or not to dissolve the partnership if one of the partners has applied for dissolution. In given circumstances, the court is likely to dissolve the partnership. a) Destruction of mutual cooperation and confidence between the partners b) Impossibility of making profit c) Incapacity through illness of a partner. The partner suing should not be the one who is ill. The capacity need to be permanent but only that which substantially affect the other partner in doing business d) Mental incapacity e) Other circumstances that may make it just and equitable that the partnership be dissolved 3) Insolvency of a partnership or a partner Here the partnership is terminated automatically on the sequestration or liquidation of the estate of a partner. Effect of Termination of a Partnership If a partnership is ended, the creditors of the partnership can sue the members of the firm as individuals jointly and severally for the debts. If a partnership has terminated a partner has no authority to bind the partnership. This is also the case where one of the members ceases to be a partner. This act cannot bind the new partnership that comes into existence but the partnership may be bound by6 such person’s acts where there is authority by estoppels. In Monzali V Smith 1929 AD 382 a partner from a partnership and a new partnership of the remaining members existed. The customers were notified of the dissolution and the dropping partner continued business and contracted with a 3 rd party in the partnership name. It was held that the partnership was liable for the debts to a third party by estoppels because they should have told the third party of the dissolution keeping silent amounted to a misrepresentation which was relied on by a third party. Winding up Dissolution of a partnership is followed by winding up. The assets must be realized by the liquidator, all creditors of the partnership are paid and all debts are collected. The assets are returned to the individual parteners. 80 10a. INSURANCE CONTRACT Introduction It is important to point out at the beginning that insurance law is a broad topic. It is therefore imperative that for business law students we should restrict our horizon to the broad principles of insurance law. Insurance law is largely modeled in English rather than Roman and Dutch law. Definition Insurance is a contract where the insurer, in consideration of a premium engages to indemnify the insured against pecuniary loss arising from or pay him an agreed sum of money on the happening of, a specified future event known as a risk or peril. The object of insurance is to protect people from financial disaster. By paying premiums the insured secures cover against the happening of stipulated perils. Types of insurance Contract a) Indemnity Insurance With this type of insurance the insurer promises to compensate or indemnify the insured to the extent of his actual loss occasioned by a specified risk. Thus the loss is actually measured and the insured given the equivalence of the loss e.g. in fire, loss at sea and theft. b) Non –Indemnity Insurance Such as life, sickness etc. Here the insurer agrees to pay a fixed amount on the happening of the event which actually may not be equivalent to the loss suffered. Assurance or Insurance The basic distinction between endowment or assurance policy and insurance policy is that with endowment policy the accident / event is certain that is will happen and with other classes of insurance the event is uncertain. The Contract of Insurance Insurance is a contract and the common law rules as to capacity, offer and acceptance would apply. No prescribed formalities exist. However in modern days the insurance companies have developed their own mechanisms as to the form of the contract and with time our courts may acknowledge such formalities as trade usage. An insurance contract should be an agreement to the following aspects. i) The thing being insured e.g. goods ii) The risk insured against e.g. theft 81 iii) The amount of premiums payable by the insured. iv) The duration for which the cover is to extend. v) Any other conditions e.g. time within which the claim be made. Insurance Agents Since the insurers are usually companies it means that they can only act through agents. If one is an agent of the insurer we need to know what he can or cannot do i.e. he scope of his authority. i) Canvassing Agents These are agents of the insurer but one should know that the scope of their powers is limited to introducing prospective proposals to the company insurer. He cannot enter into a contract on behalf of the principal so in essence he is less than an agent and can be properly called a mandatory. ii) Brokers An insurance broker must be registered. Although a broker is paid commission by the insurer, the law regards him as an agent of the proposer. A broker owes a duty to the proposer to obtain a policy in accordance with instructions. A broker owes a duty to the proposer to obtain a policy in accordance with instructions. In most cases the proposer need not read the policy, as he would be relying on the expertise of the broker. iii) Agents of the Insurer Where one has authority to issue out a policy it means he is the true agent of the insurer. Unlike a broker or a canvassing agent, this is the agent who accepts the proposal form and issue out a policy. If one is an agent of the insurer and helps an insured person in filling the proposal form if must be accepted that he is no longer acting as an agent of the insurer but of the proposer. Thus if a agent fills in incorrect information on the proposal form the farm that the agent knows the information is false will not be attached to the insurer. In one case an agent of the insurer was asked by the proposer to assist him fill in the proposal form. One of the questions was “Does the insured have any physical disability?” The agent knew that the insured had one eye but proceeded to answer the question saying “NO”. The insurer wanted to avoid the policy and the insured argued that since the insurer’s agent knew, when he filled the proposal form, that he was one eyed so it means the principal/ insurer also knew. The court held that the agent was no longer an agent of the insurer when he filled the proposal form but that of the proposer. However the insurer was said to know of the physical infirmity. What is important is that this case has been criticized and subsequently abandoned – Bawden V London Edinburgh and Glasgos Life Assurance Co (1892) 2 QB 534. Parties to the Contract 82 a) The Insurer - This is the party who accepts the risk in return for payment of the premium. b) The Insured/Assured - This is the person being protected. c) Interested Party - This is a third party under an extension clause for example a 3 rd party under compulsory third party motor insurance. The Insurer In Zimbabwe and South Africa the insurance contact is closely regulated by statute thus we have The Insurance Act in both jurisdictions. The main purpose is regulatory. However, the Act states that any insurer should be registered and certain financial requirements need to be met before one can practice insurance business. Although an insurance business can properly be conducted by individuals one would realize that in practice almost all insurers are companies. Insurer’s powers or capacity to contract is governed by the governed by the general rules relating to the validity of a contract. b) The Insured As noted above, an insured is the person who is to be protected against the possible loss. If the insured does not stand to loss if the event happens then it means then it means that he is paid for no loss at all and this will be profit making venture. The law therefore says that for one to insure something he should have an insurable interest in the thing in other words he should suffer some loss if the thing is destroyed or damaged etc. the insurance law is not about profit making but compensation of losses. If people were allowed to insure where they do not have any loss if the risk happened then honestly one would insure the life of a street vagrant who is struggling with cancer so hat when the vagrant dies, the insured would get some payment. This is purely a wagering contract and can not be enforced. That insurance contract is not to profit was interestingly emphasized by Gibson when he notes that paradox may have occurred to more than one reader that the average, insurance transaction has about it an air of speculation, yet insurance is the habit of a prudent gentlemen”. The leading case on insurable interest is Little John V Norwich Union fire Insurance Society 1908 TH 374. In this case it was noted that you can not insure beyond your interest. The plaintiff in this case, insured the shop of his wife. The plaintiff managed the business for their joint 83 benefit. It was held that here the husband had insurable interest in the business of his wife. When one is insuring it is trite that he should disclose the nature of his interest especially if it is less than ownership. It has also been decided that a person has unlimited interest in the life of his wife. An interesting decision is one found in Phillips V General Accident Insurance Co SA Ltd 1983 (4) SA 65 where the court concluded that a husband had an insurable interest in his wife’s jewellery every though he was under no obligation to replace it. As Christe points out is it possible that many people may have an insurable interest in the same this resulting in two or more policies. The question would be whether the insured is permitted to make a profit out of the contract. He is definitely not unless it is life and personal accident insurance where this can be avoided. The Doctrine of Disclosure If one is paying installments for insurance these are not installments on a hire purchase. What one is paying for is cover i.e. security. The insured has a duty to disclose all the information needed by the insurer. This duty is two folded. i) Insured should answer questions put to him in the proposal form truthfully and accurately. ii) He is obliged to volunteer knowledge material to the risk whether or not his is asked for is. Thus an insurance contract is a contract of (uberrima fides). The test of materiality of the information to be disclosed is not for reasonable insurer or reasonable insured but that of a reasonable man. Rules of Disclosure i) Insurer need to know all facts material to the risk which include suspicions, rumours or opinions which if true, would be material. ii) Facts are material if a reasonable man in the circumstances would consider them as such. One cannot however disclose what he does not know. iii) If an incorrect answer is warranted i.e. promised to be true, the insurer can avoid the policy even though the misrepresentation was not material for example “No one of us has had a previous conviction” where one of the parties had been convicted of public drinking. On the other hand a promissory warranty is a warranted promise of future conduct e.g. that “I will not drive the car whilst I am under the influence of alcohol.” iv) The duty to disclose arises upon every renewal of an indemnity policy which may be based on the original form as amended. A life policy is a continuing policy and there is no need to continue disclosing. v) The insured person is not expected to disclose material facts which are already known to the insured. In the same avenue, if the insurer gets to know of the 84 information but he continues with policy he may be estopped from denying knowledge of such information. The Proposal Form Most insurers as a matter of practice require that applicants for insurance policy fill in a proposal form in which a number of questions are asked. These questions assist the insurer to determine whether to take the risk or not. It is in this proposal form that the proposer has the duty to disclose not only asked information but also all information that may be required by the insurer either to decide whether to insure or not or to determine the amount of premiums payable. It is also important to know that the proposal form stands as an offer to the insurer which offers the insurer is at liberty to accept or reject. As noted above, insurance contracts usually contain a “warranty clause”. This clause is promise by the insured that all his answer turns to be untrue then the insurer can avoid the policy. The effect of this is that even if the untrue statement is not material, the insurer can avoid the policy. Temporary Cover Notes Although agents of the insurer may not grant the full policy at times, they may be empowered to issue temporary cover because they usually carry with then temporary cover notes. Broadly a temporary cover note is given to insure or to cover the proposer pending determination of his proposal form by the insurer. If the loss insured against occurs while the temporary cover is still existing, the insurer is at risk and must pay in accordance with the terms of the temporary cover. The Loss For the insured to be indemnified for the loss suffered the insured must prove the occurrence of the loss against which the policy covers him. The loss fall within the scope of what is covered by the policy. He can however not claim for loss of wear and tear or usually for willful misconduct. The loss must have occurred during the life of the policy. The loss here refers to the cause for the loss although the actual loss may have been realized after the lapse of the policy. When a loss has occurred an insured should make a claim. Most policies contain a term requiring the insured to give notice of any loss. If the insured does not give such notice, the terms are expressed in a way that the insurer would reject the claim. In contracts of indemnity the contract usually give the insurer the option of paying the amount of the insured’s loss in cash, reinstating (repairing) or replacing the property insured. If the insurer has this option then the insured cannot object but once the insurer has made his decision he can not change later. 85 It is trite law that the insurer, in an indemnity policy should not be indemnified more than his loss thus should not make a profit out of his loss and three doctrines exist to avoid possible profit being made by the insured. a) Doctrine of Salvage Where an insured person has his property replaced or paid for in full he is supposed to abandon the property which was insured e.g. the damaged car as salvage to the insurer. An insured cannot have his damaged car and its replacement at the same time. b) Doctrine of Subrogation Where an insurer has paid its insured to satisfy the loss that he has suffered the insured would cede his rights to the insurer to bring and claim the insured may have against any other party causing the loss. Thus the insurer steps into the shoes of the insured in bringing a claim against the third party. Thus where X’s car is damaged because of the negligence of Y, X can claim his car from his own insurer and then give up his rights to the insurer who will claim from Y. The insurer is entitled to conduct any such legal proceedings in the name of the insured. By the doctrine of subrogation is also meant that the insurer can recover form the insured. The doctrine of subrogation is premised on the belief that an insured should not profit and also that the insurance company should be compensated for the loss that is has suffered in paying the insured. A question may however be posed as to whether it is not double payment to the insurer who has received premiums from the insured and can also claim against the third party. c) Insured may Recover Proportionate Shares from Insurers An insured may insure the same risk with many insures as he wishes. It would be profit making if he can recover the full amount from all the insurers so this is not possible. The insured need not claim an equal proportion of his loss against each insurer, but if he claims unequally the insurers to spread the risk fairly. This was the decision in North British and Mercantile Insurance Co V London and Liverpool and Globe Insurance Co 1877 5 Ch 569. Statutory Provisions on Insurance Contracts It is important for IMM and IAC students to realize that the South Africa Insurance Act 27of 1943 as amended governs the insurance law. For knowledge’s sake in Zimbabwean, Insurance Act most of the provisions are duplicated from the South African Act so it is rather a distinction without a difference. i) In both jurisdictions the purposes of the Acts is to control those carrying out insurance business. They are designed to ensure that the public is safe in engaging insurance contract. The South African Act contains as some of the protecting as: 86 ii) Section 6: The insurers should make deposits with the treasury for each class of business they conduct. This means that for every class of insurance a certain amount of money had to be kept with the treasury. This money may be used where the insurer fail to meet its obligations. iii) Section 17-19 the insurers should have enough assets to cover long and short term commitments. These assets may not be mortgaged or pledged. iv) Section 29 The Registrar of insurance is actually empowered to investigate the affairs of any insurers and find out how his business is being transacted. v) Section 62 (1) If a premium for a life, industrial or home service is not paid, the insurer must maintain the policy in force of one month, or, if the premiums are paid monthly, for fifteen days and if the insured pays the premium renew the policy. vi) Section 62 (2) Where the insured on life policy industrial or home service has paid for 3 years and the premium is not within the days of grace, then the insurer may issue a paid up policy unless insufficient funds have been accumulated. vii) Section 63(1) the only dispute which a policy may refer to arbitration is the amount of the insurer’s liability provided the insurer demands so within reasonable time. Students may be required to have knowledge of specific types of insurance e.g. Marine Insurance, fire insurance, accident insurance etc. 11b. GENERAL PRINCIPLES OF COMPANY LAW Introduction Company Law in Zimbabwe is largely model led by English Law rather than Roman and Dutch Law which is the law applicable in Zimbabwe. One major feature therefore is the existence of a number of English cases in this area although Roman and Dutch South African cases are also used here and there. In Zimbabwe on should note that company law is largely codified in the form of the Companies Act Chapter 24:03. There are numerous similarities between the Zimbabwe an the English companies Act. When dealing with company law at this stage. Students are not really expected to know the whole substance of the law but the basic general principles which any business law students can not do without. It is also important to note the basic distinctions between a company and other forms of businesses like partnerships, co-operatives. Some of these business forms are highlighted in Module B. FORMATION OF A COMPANY When one intends to form a company the Companies Act Chapter 24:04 lays down what needs to be done. There are also companies’ regulations of 1984. The general procedure is as follows: a) All documents have a standard size and should be printed. 87 b) The documents needed should be lodged at the companies’ registration offices in Harare and Bulawayo. c) For public and private companies the following documents should be lodged. i) Memorandum of Association ii) Articles of Association iii) Pre-Incorporation contracts iv) Notice of situation and postal address fo the registered office v) With public companies, the consent of the directors, their names and their contract to take qualification shared. For these documents to be lodged they have to be accompany by prescribed fees. Promotion of a Company A company is merely an association of persons for the purposes of the same business which is carried in the name of the association. A company however cannot form itself. The person who forms a company is called a promoter. The Companies Act section 2 defines a promoter in relation to a prospectus as any person who is a party to the preparation of a prospects.. So a promoter is the parent and creator of a company. However, if a professional e.g. an accountant or a lawyer helps someone to draw up a prospectus it does not mean he is a promoter because he is only rendering professional services to someone who wants to form company. Students should not confuse a promoter and owner of a company. A promoter is only there to ensure that a company comes into existence but he may not even be a shareholder in that company. So some people only promote companies and once the company is formed they then sell it to some people who become the shareholders. Duties of a Promoter The law has to protect shareholders from a situation where a promoter forms a company, sell shares in the company for cash or sells his own property to the company in return for cash thus making personal profit. A promoter has a duty of utmost good faith to the company he is forming which means he should not make a secret profit out of promoting the company. In the case of Erlanger V New Sombrero Phosphate Company App Cas 1218. Mr E bought a derelict mine. He then promoted a company with the aim that the company buys this derelict mine at a higher price. It was held that Mr E had made a secret profit in promoting the company. That a promoter should not make a secret profit does not mean that he should not make profit at all. It means that any profit made in promoting a company should be disclosed. The promoter should appoint persons to an independent Board of Directors and he can disclose to them. In the above case the Board which was appointed by Mr E was just his clown and had no independent mind. The court would not accept disclosure to such a 88 board. If a promoter breaches a duty of good faith the company can rescind the contract entered by the promoter or claim the profits. A promoter cannot be paid because he cannot be employee of a company which is not yet formed. However the directors may exercise all powers of the company. The directors may therefore pay the promoters. Pre-Incorporation There are certain contracts that may need to be entered into before a company is formed. The promoters would want to do such acts on behalf of the company. They don’t want personal liability. Under English Law of agency one can not be an agent of a non existing principal thus a promoter can not enter into a valid contract on behalf of a non existing company. However in Roman and Dutch stipulatio alteri means that a party can contract for the benefit of a third party which third party should ratify the contract. In Zimbabwe therefore by Section 47 of the Act a company can adopt a pre-incorporation contract provided the person contracting did so as an agent, the contract should be written down and that the adoption of such contracts is one of the objects of the company. Registration / Incorporation The Companies Act stipulates that for the registration of a company the promoters must deliver to the registrar of companies. i) Memorandum of Association ii) Articles of Association iii) Names, addresses, nationally, business occupation, age of the directors and the secretary of the company. iv) Address of the registered office v) Registration fee The Functions of the Registrar of Companies a) To issue a certificate of incorporation i.e. a certificate that stipulate that a company has been properly forced. b) To register and keep safe documents filed by the company c) To provide facilities to members of the public who want to inspect and have copies of the company documents. d) To strike the company off the register once it has been wound up. CONSEQUENCES OF INCOPORATION Separate Legal Personality Once a company has been properly incorporated it becomes a different person from those who formed it. The company thus is a separate legal personal. It means that a company can sue or be sued in its own name as if it were a natural person, it can transact business in its without really considering who is behind it. 89 The leading case in company law to show that a company exists separately from those who incorporate it is Salomon V Salomon and Company 1897 AC 22. Salomon’s trade was making shoes. He sold his sole trading business to a company which he had formed. In the company he had 96%, shareholding his three children had share each so did his wife. By selling his business to the company it means Salomon was now a creditor to the company since company is not himself. He strengthened his position by making himself a preferred creditor who had to be paid first by the company (debenture holder). The company ran into problems and was being wound up. The liquidator of the company objected to paying Mr Salomon first because he was in other words the owner of the company in problems. The House of Lords held that Mr Salomon had to be paid first because he was not the same with the company he had formed these two exist separately. This case was followed in Dadoo Ltd V Krugersdorp Municipality Council 1920 AD 530. A South African Act prohibited Asiatics owning immovable property in Transvaal. Certain Asians formed a company which was based in Transvaal which means there was immovable property of Asiatic Shareholders. The Court said that the Asians were different from the company they formed. The company thus had to be allowed to carry on business because it can neither be Asian, white or black. The effect of these cases is that the shareholders in a company are covered by the veil of incorporation. However there are certain circumstances in which our courts have removed this protection and described the company and the shareholders as one person. These cases are called cases where the veil is lifted. Lifting of the Veil by the Courts In Salomon’s case Lord Halsbury said the corporate veil would be lifted where: i) There is fraud ii) The company was used as an agent of the incorporator iii) The company is not a real one but a myth So whilst a company is different from the people who form it, in the above circumstances the company and the shareholders are not separated. Gilford Motors V Home (1933) Chp 935 Home was employed by G.M. Company. The contract had a covenant in restraint of trade which said that Home cannot solicit the customers of GM company after leaving his employment and can not carry out such business in the stated area. Home left employment, formed a company in which he was the major share holder. Through this company he solicited GM’s customers. GM sued and Horne argued that himself and the 90 company were separate and it was him who was restrained not the company. The court held that the concept of separate legal personally was abused. So the corporate veil was lifted to identify who actually was behind the company and there was Horne who had been restrained to carry out such business. Daimler V Continental Tyre Company 1916 2 AC 207 The British state had declared CT Company as an enemy alien because its major shareholders were Germans (German was at war with Britain). The CT Company was claiming money owed to it by a British company and it was asserting that the CT Company should be treated separately from the Germans who formed it. In other words the company could neither be English nor German. The court held that here the veil had to be lifting to treat the company and the Germans, as one for public policy reasons since there was war. This case thus goes contrary to Dadoo V Krugersdorp Municipalicy. Cattle Breeders Farm (Pvt) Ltd V Veldman 1974 (2) RCR The company was wholly owned and controlled by Veldman. He and his wife were living in a company house. To avoid his duty of providing alternative accommodation to his wife use company to evict the wife form the house since the house was owned by it. It was held that in this case the company and Veldman cannot be separated. Although the company was the registered owner of the property it was said that the company was only the husband’s alterego. In essence it was a husband it was a husband who was evicting his wife in the name of the company without providing alternative accommodation. This could not be allowed and the company could not be separated from Veldman. Lifting of the Veil by the Companies Act In certain situations the companies Act has removed the corporate veil and identified those people would be operating behind it. In other words if treats the people behind the company to be the same as the company. i) Section 32 – Where a company carries on business for 6 months without members any person who knowingly causes the company to do so will be liable for the debts of the company. If we were to say that a company is separate from those behind it here the company, not the people behind it, was to be liable. But the Act here lifts the veil to punish those behind the company. ii) Section 59 – Where there is a misstatement in the prospectus any person who authorized the issue of such prospectus will be guilt of an offence. Thus it is not only the company which is liable but those behind it. iii) Section 318 – where it appears that any business was being carried on recklessly or with gross negligence or with intent to defraud any person, the directors of the company shall be liable. iv) Section 113 (2) – An officer of the company who allows a company not to display its name in legible characters shall be liable if a third party is injured by such actions. 91 In short, the position is that a company is separate from who it but in certain circumstances the courts and the parliament have lifted this corporate personality in order to do justice. In a number of circumstances we see that the company and the shareholders have been treated as one. Memorandum of Association This is the most important document which has to be lodged for a company to be registered. It contains: i) Name of the company ii) Objects of the company iii) That the liability of the members is limited iv) Amount of share capital with which the company intends to start business with. 1) NAME Promoter is at liberty to choose his company’s name. However one cannot use another’s name or where the name has been reserved to be used by someone later. Certain names are undesirable e.g. those which are suggestive of blasphemy or indecency or are of state or government patronage. The name of the company should always end with the words limited to show that the company has limited liability. Limited The word limited is important because the public and creditors who deal with the company need to know that the liability of members is limited. Limited liability means that at winding up, if the assets of the company are insufficient to pay the debts the creditors can not proceed against the private property of the members. The liability a) Company Limited by Shares In a company the capital may be for e.g. be divided in to shares, say the capital in $5 000, divided into 5 000 shares one dollar each. The members of the company are liable to pay their shares either in money or money’s worth. Once they have paid for their shares they are under no further liabilities to the company. b) Company Limited by Guarantee The liability of each capital may be for e.g. be divided in to shares, say the capital is $5 000, divided into 5 000 shares one dollar each. The members of the company are liable to pay their shares either in money or money’s worth. Once they have paid for their shares they are under no further liabilities to the company. The name of the company should also carry the words private or public. A public company issue prospectus to members of public to subscribe and a private company is an internal thing. Members agree to contribute without advertising to the public. Members of private company are limited to 50 – see section 33. 92 2) OBJECTS OF THE COMPANY That a company should have an objects clause was very important in the history of companies. Objects clause is that clause which stipulate what the company intends to do. The reasons why the company had to state the objects clause was: a) To protect the investors who would know that their moneys were being used for the agreed purpose. b) Also to protect creditors who should know the company business before giving out their money. It would not work well if they borrowed money for a food outlet in the city only money. It would not well if they borrowed money for a food outlet in the city only to find their used in blasting rocks. By inserting the objects of the company it meant that any contract with the company besides the objects stated was void ab initio (from the beginning) so one would not sue the company nor be sued by the company on such a transaction. This became known as the Ultra – vires rule which means a company could not exceed its objects clause if it did the transaction was invalid. The leading case on this is that of Asbury Railway Carriage and Company V Riche 18 75 LR 7H6. The business of the company was to sell railway machinery. The company contracted to a railway line. The court held that this was not an object within the company’s memorandum thus it was beyond the objects of the company hence it could not do so. However the strict application of ultra vires rule was not even accepted by business people because it meant the business lacked diversity and flexibility. The companies Act section 9 now, says that a company has capacity and powers of a natural person of full capacity. This means that a company can now do anything, whether it si included in its objects or not. It means there is no ultra – vires transaction nowadays. However we still find the objects clause in memorandum of Association because the members of a company are allowed to sue if the company exceeds its objects although the transaction is treated as valid to outsiders. So vis – a - vis the public no more ultra vires but there can be an ultra vires transaction (inside) where members due their own, directors for exceeding the objects. Gumbo, a University of Zimbabwe company law lecturer describes this as the ghost of ultra vires entering through the back door. 3) THE CAPITAL CLAUSE This states the amount of capital which the company prescribes and its division into shares of fixed amounts. ARTICLES OF ASSOCIATION 93 This deals with matters of internal administration of a company. They are more detailed than the memorandum of association. Section 17 says that the articles may be registered together with the memorandum of association. Generally the articles deal with the issues like transferring of shares, directors’ powers, procedures of meetings the payment of dividends etc. Table A in the Companies Act is a typical example of the articles of association which may be adopted by a company if it does not want to have its own. If an agent of the company does not follow the procedures laid down by the articles it means what he does is procedurally improper therefore ultra vires. Alteration of Articles The Articles may be altered by a special resolution. In terms of section 133 a special resolution of a company means a decision passed by not less than a three fourths of members entitled to vote and twenty one day’s notice having been given. Registered office A company should have a registered office in Zimbabwe to which all communications and notices may be addressed and at which process may be served – Section 112. SHARE CAPITAL Private companies will usually raise their funds their own membership. Public companies source their funds by issue of shares an debentures to the public. In essence money can be raises (share capital) or by debentures (loan capital). The amount with which one intends to commence business is called Nominal capital or the authorized capital. Ordinarily shares issued to members have a nominal value i.e. the value at which they a being sold. The authorized capital may not be raised at once so the company may issue part of this authorized capital. The part issued is called issued capital or subscribed capital. Thus issued capital is a portion of the authorized capital. Of the issued capital the company may call upon a shareholder to pay up on such shares as has been issued to him and he may be allowed to have part of the issued capital remain unpaid for. This is paid up capital and uncalled capital respectively. Types of Shares Shares have different classes and each of shares has its own special rights. a) Ordinary Shares These usually form the largest proportion of the companies capital. Holders of these shares bear the major risk of the company. As a result the ordinary shareholders determine most of the company’s issues. The ordinary shareholders enjoy rights to vote 94 at company meetings. However they can only be paid dividends after preference shareholders have been paid thus if there is not enough profit they may not get anything. b) Preference Shares Preference shares usually carry a fixed rate of dividend. Thus whether a company makes a large profit or small one the preference shareholder would get his fixed rate of dividends. IF the preference shares are cumulative it means that the holders are entitled to their fixed dividends in every year. Any deficiency in amount paid in any one year must be paid up by the profits of the subsequent year. The preference shares may be participatory which means that the holders may participate together with ordinary shareholders in the extra profits of the company after having paid the fixed amount Redeemable preference shares are those shares which the company has capacity to buy them back the company cannot issue these redeemable preference shares unless the company has other types of shares which are not redeemable and redeemable shares may not be redeemed unless they have been fully paid for by the shareholder. A company can only back shares out of its profit and not only from capital and after passing a special resolution. Share may be issued at a price above their nominal value i.e., at premium, for example if there are shares being sold and the nominal value is $1, these shares may be sold at $2. It means instead of raising $15 000 an amount of $30 000 is raised. The outstanding $15 000 transferred to a separate share premium account by virtue of section 74 of the Act. This amount is not profit but part of the capital. Debentures A shareholder is a member of a company and is entitled to attend and vote at meeting. A debenture holder on the other hand is not a member of the company but a creditor to the company. He has rights against the company not in the company. A debenture holder does not attend meetings and is entitled to a fixed percentage of interest of his capital advanced. Thus whether a company makes profit or not a debenture holder has to be paid. Underwriting Contracts A company can raise capital by underwriting contracts. If it is a public issue of shares, the issue may be inadequate to provide the minimum amount of capital wanted. To insure that there is insurance that the minimum capital will always be available a company contracts with another person who undertakes to pay if the company does not raise the required capital. This is an underwriter and usually he takes any shares or debentures which had been issued. An underwriting agreement it should be lodged with the Registrar of companies together with an affidavit signed by the underwriter. 95 The Nature of Shares As noted above a share confers rights upon its holder i.e. right to attend meetings and vote. A share holder is entitled to a share certificate. A share itself is incorporeal property owned by the shareholder. As to how the shareholder may transfer his shares, this usually governed by the Articles of Association of each and every company. Shares may also be pledged as security for a debt. Here the shareholder who is the debtor has to deposit his share certificate with the creditor. Payment of Dividends Dividends are payments made to the members of a company. These can only be made out of profits. Shareholders do not have an automatic right to receive dividends even though profits have been made. Directors may decide to plough back the profits into the company. A dividend is therefore not a debt of the company until the directors have declared. Maintenance of Capital If a company has limited liability it means creditors can get so much as is left in the business at liquidation and cannot proceed against private property of the members. This means that the creditors are at risk. To give credit they therefore usually look into the capital of the company for the repayment of their debts. The capital is thus a guarantee fund for creditors. It is because of this that the capital of a company should be maintained. Where a company needs to reduce its capital certain protection should thus be given to creditors. The company has to be authorized to do so by its articles of association, it has to pass a special resolution and the resolution has to be confirmed by a court order (Section 92). Creditors of the company by virtue of (Section 93) are allowed to object to such reduction and a list of the company creditors should be presented before the court before reduction is authorized. It is criminal offence if a name of a creditor is concealed. Membership of a Company and Minorities A person becomes a member of a company when he has agreed to become a member and when his name is entered in the register of members. One can agree to be a member of a company by subscribing to the memorandum of Association, by taking shares allotted to him or when shares have been transferred to him by another member. Every company must keep a register of members which must bear the following information (Section 115): i) Name and address of each member ii) Statement of the shares held by him and the class of shares iii) The amount paid up on each share iv) Date of entry in the register v) The register is prima facie (on the face of it) evidence of this information 96 In a company the one with the majority shares i.e. who has invested more capital is the controlling shareholder. Courts will usually not question why he acted the way he did in exercising his vote. The case of Foss V Harbottle (1843) stated that in cases where a wrong has been done to the company by for example, the directors or where there is an irregularity in the management of company and there arises a need to enforce the rights of the company, it is the company to decide what action to take and the company should be the plaintiff. Thus shareholders are not the proper plaintiffs unless they act through the general meeting. In simple terms a shareholder cannot sue for a wrong done to the company. The reasons for he decision is Foss V Harbottle are that: i) It is the company as a separate entity that has suffered the harm ii) The majority in the company rules iii) To avoid multiple actions, each shareholder may for e.g. bring a separate action on his own for wrong done to the company. Minority Protection at Common Law The rule is Foss V Harbottle places the majority in a strong position that the minority shareholders would be at a serious disadvantage. The minority could thus not be able to bring an action in the company’s name because the majority (as the controllers of the company) can lawfully bar (stop) an action started by the minority since the minority cannot represent the company. However to avoid serious injustice on the minority the rule in Harbottle case is not applied: i) Where the act complained of is an ultra vires act (i.e. an act beyond what the company can do. So here the minority would be allowed to sue the majority if the majority does an ultra vire transaction.) ii) Where a special procedure to do something has to be followed to carry out certain act e.g. where a special resolution is needed and the majority have done the thing without the special resolution. If the minority were not allowed to sue the majority here it means a company which had broken its own rules by the minority saying it alone is the proper plaintiff. iii) Where a shareholder’s class and personal rights are being infringed the shareholder can sue the majority shareholders. iv) Where there is fraud on the minority. Fraud in this sense as the following example will show: a) An issue of shares designed to harm the minority In Re Westborne Gallaries. The business started as a partnership which was later converted into a company. The partners now had equal shares in the company. One party included his son into the company and both parties donated shares to him. The 97 father and son property used their powers to chunk out the other shareholder. The other party petitioned the court and the did not apply the principle in Foss V Harbottle. The court looked at what had happened before the company was formed i.e. there was a partnership and it applied some of the partnership rules i.e. that the two would participate equally. b) Where directors appoint themselves to paid posts with the company at excessive rates of pay thus depriving the complaining members of any dividends. Personal Derivative or Representative Actions a) Personal Actions: Such an action can be brought when a person has been deprived of the individual right as a shareholder e.g. he has not been notified of meeting and an adverse decision was taken in the meeting or that he has not been given a share certificate. This action is brought by him to enforce his individual rights. b) Derivative Actions: Where there is dispute between the company and someone else (whether they may be directors or its controlling shareholders) the minority will appear as the plaintiff on behalf of the company. Minority can only bring derivative action if: i) The wrong has been done to the company e.g. directors not acting for the benefit of the company. ii) The defendants or the persons being sued should be in control of the company i.e. majority, therefore the company itself should have refused to bring the action. iii) The company should be joined as a nominal defendant for it to benefit. A derivative action is brought by the minority of behalf of the company since it is the company that has suffered harm. It follows therefore that if the court awards damages the damages are not for the minority but for the company. But then one would always ask who is the company? Obviously it is the same majority shareholders who were the defendants so the majority can benefit in a case where they have lost because the damages are for the company. c) Representative Actions: Where individual shareholders have suffered personal loss in addition to injury to the company, the shareholder may bring a representative action on behalf of himself and also all the other shareholders who have suffered similar injury. Statutory Protection The Companies Act also has removed the application of the Foss V Harbottle principle. In some cases the aim of removing it is to protect the minority shareholders in companies. 98 i) Section 91: If a company by the majority decides to vary the shares of a certain class that class can object to the variation provided they hold not less than 15% of the shares and they apply to court within one month of such variation. ii) Section 157: the minister has power to appoint people e.g. auditors to investigate the affairs of the company. Thus the minority can petition the Minister to do this. iii) Section 16: If a company intends to alteration by applying to court against the decision of the majority. iv) Sections 195-198: Are specifically for minority protection. If a member applies that the company is having oppressive conduct the court may interfere. The complainant should however be a member of the company. To prove oppression on the minority the complainant need to show that the majority are acting unfairly not that they are merely being unwise, inefficient or careless in the performance of their duties. There is no limit to what amounts to oppression for the affairs of life are so diverse that is dangerous to attempt a universal definition. 99 DIRECTORS AND THE SECRETARY Directors and their Duties The company is an artificial person and can only act through a human being who would act as an agent of the company. Directors are persons to whom management and control of the company is entrusted. Together with secretaries and managers they are called (Officers of the company). A director is an agent of the company which is (principal) and his acts can bind the company. Directors may be divided into two groups. i) Executive Directors or Managing Director His duties are largely governed by the Articles of Association but generally an executive director has continuous attention to the affairs of the company and usually attend all board meetings. ii) Non Executive Director Does not give continuous attention to the affairs of the company and on some occasions he can even absent himself. The companies Act prescribe that a company should have at least (2) directors (Section 169). Qualifications The Act talks f disqualified persons rather than prescribing qualifications. It disqualifies a) A minor b) Another body corporate c) Unreliability insolvent d) A person convicted at any time of theft, fraud, forgery or uttering a forged document. Remuneration Directors are not servants of the company. They are not entitled as of right to remuneration. However the Articles in Table A of the Companies Act empowers a general meeting to fix director remuneration. Powers of Directors As to what powers does a director have we turn to look into the Articles of Association but generally manage the business. So if the shareholders entrust that that their business Be managed by the director they should not interfer with his management. If they disapprove of his acts they must remove him or alter the articles of Association to restrict his powers. They cannot take over the functions of a director. 100 Scott V Scott (1943) The company in a general meeting resolved first to pay dividends to preference shareholders and second that the financial affairs of the company be investigated by a firm of accountants. It was held that such resolutions were not valid because here the general meeting had interfered with the duties of the directors under the Articles of Association. If however the directors’ acts are in excess of their powers the general meeting can ratify those acts done without authority by an ordinary resolution. Board of Directors The directors usually act as a Board rather than individual directors. The directors thus can properly exercise their powers at a properly constituted board meeting. The Board Meeting may be summoned by a director anytime by giving appropriate notice. The issues of the quorum of the board meetings and voting rights are governed by the Articles of the company. Powers of Directors to Bind the Company a) Section 170 states that even though there is a defect in the way a director is appointed i.e. the procedures not followed, the acts of that directors shall be treated as valid. A director may however not bind the company on ordinary rules of agency if: i) The person who purports to be a director was never appointed. NB There is a difference between an appointment that is defective and where there is no appointment at all. ii) If the Board of Directors exceeds its authority the company will not be bound because the company as the principal can only be bound by authorized acts. However on the rules of agency the company may be bound by agency of estoppel. Here the third party who contracted with the unauthorized director would be trying to show that the company itself is the one which misled him to believe that the director had authority therefore by such misrepresentation on the company should be held bound to the unauthorized acts. The party relying on estoppel to bind the company should establish that: a) He was induced to enter into contract by the agent being represented as occupying a certain position in the company. b) That the representation was made by person with actual authority to manage the company and c) That the contract was one which a person in the position of the agent was held out as occupying would usually have authority to occupy. In Freeman and Lockyer V Buckburst Park Properties (1964) A director who had never been appointed managing director assumed powers of management with the company’s approval. He entered into a contract with the plaintiff. The company was held bound to the contract because the nature of the contract was within the scope of authority of a managing director of the company and the plaintiffs were not obliged to enquire whether the person was properly appointed. It was sufficient 101 that the Board had allowed the Director to act as an MD thus misleading the plaintiffs to think that he had authority. Duties of Directors i) Directors have a duty of care to the company. As stated above, they are not employees of the company. It should be emphasized that they do not owe a duty to shareholders individually but to the company. This duty of the directors is largely determined by whether the director is executive or non executive. If a director is non executive his duty of care towards the company cannot be compared with that of an executive director because a non executive director is not expected to give continuous attention to the affairs of the company. ii) Fiduciary Relationship The directors occupy a position of trust vis – a – vis the company thus they have a fiduciary duty towards the company. They must show utmost good faith in their affairs with the company deals. The director owes a duty of utmost good faith to the company and the company alone and not to individual shareholders. The duty of utmost good faith includes that a director should not profit out of a company opportunity. Industrial Development Consultants Ltd V Cooley (1972) The defendant was a highly qualified architect and a Managing Director of the plaintiff company. He was appointed to get contracts from the government. He tried to obtain contracts from one Board of the government. The Board made it clear that they did not want to deal with that company but the company was still pursuing this issue. Later the Board approached the defendant privately in respect of the contracts. The defendant did not disclose this to the company and he resigned from the company on the pretext of ill health. He took this contract in his individual capacity. The company sued him for breach of duty of utmost good faith. The court held that this was a breach of duty because he should have disclosed this. To this conflicting of interests Section 177 prohibits issuing of loans by the company to its directors except where he is given the loan to meet expenses he incurred in transacting the business of the company, or if the company’s business is one of lending money and the loan is given as part of the business. Also a director may have a loan with consent of nineteenth of the shareholders of issued capital or where the loan is to enable him to purchase fully paid up shares in the company to be held by him. iii) Duty to act bonafide and in the interest of the company A director may represent the interests of the person who appointed him, he may even be a servant of that person, but when dealing with his duties as a director, he is at law obliged to serve the interests of the company only to the exclusion of the interests of such nominator or employer. Removal of Directors 102 Because shareholders elect the director they can remove them any time. To remove a director there must be a general on which a special notice is given. A special notice in 28 days. Sections 175 say that even if the articles of a company stipulate that a director cannot be removed he is removable. The Act prohibits directors for life except if she was a director for life on 1 st January 1952. If a director is removed before that a company shall have one secretary ordinarily resident in Zimbabwe. It is usual that the secretary of the company is appointed by the directors and as such they can remove him. Powers and Duties The Secretary is generally the administrative officer of the company. Thus he may be empowered by the articles to employ office staff, can contract to purchase office equipment etc. MEETING AND RESOLUTIONS Annual General Meeting Except a private company every company must hold an annual general meeting in every calendar year with not more than 15 months between each AGM. However provided that the first AGM is held within 18 months of incorporation it need not be held in the calendar year in incorporation following year. Ordinarily the business transacted at an AGM would include issues like declaring dividends appointment of directors in place of those retiring, appointment and remuneration of auditors and any other business that can be transacted there. Extra Ordinary General Meeting Any meeting that is not an AGM is an extra ordinary meeting. The directors are empowered to call for such meeting of the members. The members can also request that the directors call the meeting failure of which the directors can hold it themselves and recover their expenses from the company which company may in turn recover from the directors. The extra – ordinary meeting is usually to deal with emergence issues that arise between two annual general meetings which can not be delayed until the next AGM. RESOLUTIONS Ordinary Resolutions An ordinary resolution is a simple majority voting in favour of a decision. An ordinary resolution is used whenever the law or the company’s articles do not require a special or extra ordinary resolution. Special Resolutions 103 These require a three quarters majority of members present in person or by (proxy) represented. A period of 21 days notice is required for such resolution special resolutions are need to: i) Alter the objects clause in the memorandum ii) To alter the articles iii) To reduce the capital iv) To commence voluntary winding up v) To change the company name JUDICIAL MANAGEMENT Companies must manage their affairs since they are legal persons and they act through properly appointed agents. However there may be situations when the company may be in difficulties due to mismanagement is not lightly entertainment. The reason why a company should be judicially managed is to return the company to profitability. The existing management team is divested of its powers and these are vested in the hands of the manager under the supervision of the master of the High Court (Zim). Thus judicial management has been described as a hospital for the company because if the company is a successful concern then it is returned to the shareholders. What the applicants intend to avoid is the drastic step of the company being would up. There are basically two types of judicial management, provisional judicial management and the final management. With a provisional judicial management order the court prescribes the day on which the manager should report as to the prospects of success of the company and by Section 301 this return day shall not be less than 60 days from the day it was granted. A final judicial order can be made on this day if it is established that a company can be a successful concern again. A member of the company or the creditors are amongst the people who can apply for judicial management but if one has majority shares in a company there is no reason why he should apply that a manager be appointed by the court because he has a really available remedy. He can remove those directors who are mismanaging the company. Stringent requirements have been put in place for the judicial management order to be granted: 1) There should be a reasonable probability that if the company is placed in hospital it will be able to pay its debts and become a successful concern again. 2) That the problems of the company are of such a nature that an internal remedy cannot be found. 3) That it would be just and equitable to do so. It is not any easy decision for the court to make. The company itself can not apply for judicial management order. 104 The judicial manager will assume the management of the company and would consult separately the creditors, members, debenture holders etc. He would then report to the court. If at any time the judicial manager is of opinion that the continuation of judicial management will not help the company to become a successfully concern he ought to promptly apply to the court for concellation of the order and for the granting of a winding up order. The question which needs to be attended to be whether company under judicial management can be a successful venture again since knowledge by people that a company is under judicial management is knowledge that the company is in problems thus there is less interest to have dealings with such a company which aggravates the company’s problems. Winding Up This is the process by which a company is brought to an end Section 296 sets out grounds upon which a company may be would up i.e. i) By special resolution ii) If the company defaults in lodging a statutory report or defaults in holding a statutory meeting. iii) If a company does not commence business within the year of its incorporation or suspends business for a year. iv) If the company ceases to have any members v) If 75% of the paid up share capital, of the company has been lost or has become useless for the business of the company vi) If the company is unable to pay its debts vii) If it is just and equitable that the company be would up There are basically two types of winding up, voluntary winding up and compulsory winding up. Voluntary Winding Up This is where the company itself by the court on the application of certain persons who include the creditors of the company. On winding up a company a contributory i.e. a person who has undertaken to contribute to the assets of the company at winding up, is liable to do so. The effect of winding up order is that it freezes the company’s affairs in a number respects, attachments of property and carrying out of judgments are stayed, disposition of property share transferring and changing the status of the members may not be allowed. A liquidator is appointed by the court. His duties include recovery of debts still owed to the company, taking into his possession the company property. In carrying out his duties the liquidator must take into account any directors he may be given by meeting of creditor or contributories. The liquidator would ascertain the total amount of the company’s debts and then sell the company’s property in his possession. If there are contributories he will call on them to 105 pay their contribution, especially if the available proceeds are insufficient to meet the company obligations (pay off the debts). The final act is distribution of the process amongst the creditors. Dissolution of the Company After the liquidator has completed his functions he should lodge the relevant documents with the Registrar of the companies and an application for dissolution of the company is made. Dissolution has the effect of having the company deducted form the register of companies and extinguish its separate legal personality. LIST OF AUTHORITIES 1. R H CHRISTE BUSINESS LAW IN ZIMBABWE Jutae Co 1992 2. NKALA AND NYAPADI COMPANY LAW IN ZIMBABWE 3. K R ABBOTT, N PENDLEBURY BUSINESS ELBS 1995 (6 th EDDITION) 4. A GUMBO LECTUTURES ON COMPANY LAW (1997) (UZ) 5. THE COMPANIES ACT CHAPTERS 24:03 106 THE LAW OF INSOLVENCY The word insolvency is derived from Latin and literally means an inability to pay. This branch of law is governed by the Insolvency Act Chapter 6.04. If a creditor is owed money he can compel the debtor to pay by getting a judgment against him. If a judgment is granted is his favour they the creditor can execute the judgment by right of execution. This is a command to the sheriff that he should attach and sell the property of the judgment debtor. There is however another way of recovering a debt especially where the debtor places some obstacles to the creditor to seek a court order to dissolve / sequestrate the estate of the debtor. Compulsory Sequestration This is where the estate of the debtor is dissolves at the request of his creditors. In order for the creditors to succeed in their action they have to establish the following: i) Liquidated Claim This a claim which the creditors have against a debtor which is of an amount which can easily be ascertained or which can be clearly and promptly established. Thus a claim for a cheque referred to a drawer or under a judgment debt can easily be converted to cash hence a liquid claim. On the other hand if one is claiming damages under law of delict for example loss like pain and suffering he cannot seek the sequestration of the debtor because the claim is illiquid and the amount has to be determined by the court first. The insolvency Act provides that the creditor must satisfy the court that his estate is indeed insolvent. A creditor who has an unsatisfied claim of at least $100 may apply to the court for compulsory sequestration of the debtor’s estate. ii) That the debtor is insolvent or has committed an act of Insolvency The court can only grant a sequestration order where it is satisfied that the insolvent person is really insolvent or that he has committee an act of insolvency. On the other hand it is very difficult on the part of the creditor to establish that a party is insolvent so the act provides a number of acts which, if performed by a debtor, he shall be deemed to be insolvent. a) If the debtor leaves the country or otherwise absents himself as a way of evading or delaying payment. b) If a court has given a judgment and he has failed to pay and has failed to indicate any disposable property sufficient to satisfy the debt. c) If the debtor attempts to dispose or sell an of his property which would have the effect of prejudicing his creditors or of one creditor against the others. d) If he makes an arrangement or offers that any of his creditors should release him wholly or partially from his debts. 107 iii) Advantages to the creditors The creditors should show or prove to the court that it is to their advantage the estate of the debtor be sequestrated. The advantage should be to be whole body of creditors not against an individual creditor. There should be a reasonable prospect that the creditors will materially benefit in the sequestration. It is not necessary that the creditors show disposable assets at the time of application but simply that if an inquiry is made some assets may be revealed or discovered. Where however there are no assets for the debtor the creditors should show the court that there is a real likelihood of moneys becoming available to be debtors e.g. from salary of the debtor. Voluntary Surrender A debtor himself apply for the sequestration of his own estate. He may do this in order to relieve himself from pressure put upon him by creditors. The machinery for voluntary surrender was primarily designed for the benefit of creditors and not for the relief of a harasses debtor. It was held in the case of Ex parte Pillay 1955 (2) SA (N) that the machinery of voluntary surrender was not primarily designed for a debtor to give them breathing space and hold creditors at bay while he seeks to negotiate with them in the hope that doing so might help him avoid a sequestration order. The debtor who seeks an order of voluntary sequestration should prove the following, i) That the debtor owns a realizable size of property which is enough to enough all the costs involved in sequestration which are paid out of the remaining assets (free residue) after the sequestration has taken place. ii) That the debtor is indeed insolvent iii) That the sequestration would be to the advantage of creditors not simply to defeat their claim. Objects of Sequestration The main object of Sequestration should be to advantage of creditors who have been prejudiced by debtors default. It may also be used to protect debtors from being unduly importuned and harassed by creditors since insolvency is not always out of one’s making. Some creditors may also rush to grab all the remaining assets especially where it can be foreseen that the remaining assets especially where it can be foreseen that the debtor is to be insolvent and there are numerous other creditors. Effects of Sequestration 108 Immediately after the court has made a sequestration order relating to an insolvent the Master of High Court is entrusted with all the property of the insolvent which is under attachment. The debtor is divested of his estate which will now be vested in the Master of High Court until trustee is appointed by the court. The trustee’s main function is similar to that of a liquidator of a company. He is to recover forthwith and reduce into his possession all the assets and property whether movable or immovable of the debtor and apply them in satisfaction of the costs and claims of the creditors. In terms of section 12 the deputy sheriff shall attach and make an inventory (list) of the available assets. Section 23 specially lists the following as the results of sequestration. i) To divest the insolvent’s estate and vest it in the master until a trustee has been appointed. ii) To stay any execution against the property which would have been pending for a judgment previously obtained against the insolvent person. iii) To enable the insolvent, if imprisoned for a debt to apply to the High court for release after notifying the creditor who caused his arrest. Section 42, describes a voidable preference. This is a disposition with in six months and immediately preceding the sequestration. If the disposition prefers one creditor against the others then the court may claim back the property provided at the time it was made the liabilities of the debtor were already more than assets. Section 43 describes an undue preference as any disposition made by the debtors at any time when his liabilities where exceedingly his assets and which had the effect of preferring one creditor against the others. POWERS AND PRIVILEDGES OF AN INSOLVENT PERSON These are discussed in Section 35 of the act. i) The contract into between a third party and an insolvent shall not be regarded as void except where the insolvent purposes to dispose his property in that contract. ii) The insolvent person may follow any profession or occupation or enter into any employment except being employed in the business of a general dealer or a manufacturer in this case written consent of the Master in important. iii) Section 35 (10) provides that an insolvent may sue or be sued in his own name without reference to the trustee in any right so far it does not affect his estate. iv) An insolvent may recover for his own benefit. a) Any person which he may be entitled for services rendered. b) Any compensation for any loss or damage he may have suffered whether before or after the sequestration by reason of any defamation or personal injury. c) Any remuneration or reward for work done. PROPERTY OF THE INSOLVENT’S SPOUSE 109 If there is an attachment and some of the property belongs to the other spouse in a marriage out of community of property, such property shall vest in the Master High Court the appointment of a trustee. The trustee will release the property of the insolvent’s spouse if the following factors are proved. a) That the property was his/hers immediately before their marriage or they were living together. b) That is the spouse who acquired it and it was not donated to him/her without giving value for it. c) That is a protected life policy in terms of the insurance act (chapter 24.07) Any property belonging to the solvent spouse may however not be realized by the trustee without an order of court. THE TRUSTEE Section 72 empowers the Master of High Court to appoint a provisional Trustee where the Trustee has not yet been appointed or has seized office. The provisional trustee should given security for proper performance of his duties and shall hold office until the appointment of a trustee. At the first meeting of creditors of an insolvent estate, the creditors who have proved their claims against the estate may elect one or two trustees. DISQUALIFIED PERSONS a) An insolvent b) A person related to the insolvent (not a distant relative) c) A minor or other person under legal disability d) Any person not resident in Zimbabwe e) Any person whose interests are opposed to those of the creditor. f) A corporate body g) Any person conflicted of an offence involving dishonesty and sentenced to fine exceeding $100 or imprisonment without a fine. h) Any person who acted as a bookkeeper or accountant of the insolvent person in the period of twelve months immediately preceding the date of sequestration. COMPOSITIONS In terms of section 136 the insolvent person can make and offer for composition after the meeting of creditors. This is where the insolvent party would make a written offer submitted to the Trustee. The offer shall provide the nature of security bond or a guarantee then the full names of such a parties. The trustee would then post the offer to the creditors attaching his own report to it. If the trustee refuses to accept the offer the insolvent person is allowed to appeal to the Master who after considering the report of the Trustee post the offer to the creditors. The meeting shall be notified in the Gazette. If a meeting convened by the trustee and hell by 110 the creditor accepts the offer by ¾ majority then the Master shall give the insolvent person a certificate. In terms of Section 137 an offer which has been accepted is binding on the insolvent person and all the creditors. Any moneys to paid and anything to be done for the benefit of creditors in pursuance to an offer composition which has been accepted is done through the trustee (Sect 40) REHABILITATION Rehabilitation is the way in which insolvency would come to an end. This is governed by (section 141-148) of the Act. An insolvent who is awarded a certificate by the Master for an accepted offer for composition is allowed to apply to the High Court for rehabilitation. He shall however furnish security of $150 000 as the possible costs to be incurred by any party who may decide to oppose the application. An insolvent person may apply for rehabilitation if: a) Twelve months have elapsed form the day trustee’s first account of the insolvents) estate was confirmed by the Master. b) Two years have elapsed since the date of the final sequestration order. c) The plan of distribution providing for full payment of all claims has been confirmed by Master together with interest there on from the date of sequestration. d) Five years have elapsed from the date of his conviction of any fraudulent act in relation to existing or previous insolvent. In the application on the insolvent party shall state the following: i) That he has surrendered his whole estate and has not included any creditor of trustee not to oppose the application. ii) Information on the total amount of proved claims the other assets available in his estate and their value, whether the estate had been previously sequestrated, dividend received of any offence arising out of any previous insolvency etc (sect 143) THE EFFECTS OF REHABILITATION Once an order for rehabilitation is granted by the court the effects there of are stated in section 146 of the Act. i) The order brings to an end the sequestration ii) It discharges all debts of the insolvent which were due of the cause of which arose before sequestration. iii) The insolvent is relieved form any disability arising from insolvency. iv) Rehabilitation will however not affect the rights of the trustee or creditors under composition 111 v) It will also not affect the rights of the trustee or creditors to any part of the trustee or creditors to any part of the insolvents which is vested in but not yet been distributed by the trustee. 112 DELICT LAW INTRODUCTION The word delict sounds differently for business law students in that it is not restricted to business law only but also covers other areas including such wrongs like personal bodily harm defamation of character, injury caused by animals etc. One therefore may be left wondering why this has to be covered under business law. There are basically two reasons. The first one is that it is included in the syllabus for ZAAT. Students so an examination may be set from that area, the second in the delict also includes harm caused to businesses by wrong doers and therefore a prudent business law student should know the nature of the delict, the remedies available if any and the prospects of success to get those remedies if and the prospects of success to get those remedies if and when the matter goes to court. In English law the law of delict is referred to as the law of Torts. The law of delict is part of civil law. It deals with civil wrongs as opposed to criminal wrongs. As act however can constitute both a civil and criminal wrong. It should be noted from the start that this module is not intended to cover the substantive aspects of the law of delict but is designed to provide the broad principles that a business law student need to be equipped with. Definition of a Delict “A delict is a civil wrong to an individual for which he can claim damages as compensation” Burchell Principles of Delict page 9. Thus a delict is a wrong looked from the individual’s point of view (unlike a crime which is a wrong viewed from the perspective of the state. The definition tells us that the purpose of law of delict is to provide a civil remedy (relief) by way of compensation for wrongful conduct which has caused harm to others. Difference Between Breach of Contract and Delict A delict is where one breaches a general duty i.e. he breaches a duty of care imposed by law. In other words for one to sue for a delict, which is also referred to a as a civil wrong, he need not to show that there was a contract for the other party not to breach that duty. So a delict does not depend on the prior existence of a contract. Whether there was an earlier contract or not one can sue for a wrong done to him. On the other hand if one is suing that the other party has breached a contract, he need to establish that there was such a contract in existence and the other party has breached it. It is possible to have a single act being both a delict / civil wrong and also a breach of contract. For example: if a patient is injured by the carelessness of a doctor or a surgeon, he can sue breach of contract e.g. that there was a contract between the doctor and him to 113 perform an operation correctly which contact he has breached by performing negligently. He may also sue for a delict /civil wrong i.e. that even though there was or there was no contract. Negligently causing harm to the body of another is wrongful therefore compensation should be given. It is important to know that when one is claiming damages for breach of contract he is claiming damages which will place him in the position he would have enjoyed if the other party had not breached the contract i.e. as if the contract was performed well (without defects). This is a prospective position because the plaintiff is saying “place me in a situation as if the contract has gone through” and not that as if he had not contracted at all. In a delict the plaintiff is claiming to be placed in the original position he would have been if no harm had been perpetrated against him. This is retrospective. Law of Delict covers harm that is done to the body and also harm done to the property and reputation of an individual. For one to be able to claim under law delict, for a civil wrong done to him, his property, there are six requirements that should be proved for an award of damages to be made: i) Voluntary conduct ii) Wrongfulness (unlawfulness) iii) Capacity iv) Fault (intention or negligence) v) Causation vi) Patrimonial loss 1) Voluntary conduct For the injured party to be able to bring an action against a defendant, the defendant’s conduct must have been controlled by his own conscious will. A defendant will thus not be liable if the wrong complained of occurred whilst he had a black out, epilepsy etc. 2) Wrongfulness or Unlawfulness The injured party should prove that the conduct which caused the damage was unlawful or wrongful. It can either be an act of commission where one does something that he was supposed to do. Someone may be sued for an omission i.e. failure to act only where he had a duty to act. Thus one can not be sued for not rescuing a drowning child from the swimming pool unless he had created the danger for the child or the child was left in his custody. Usually the duty to act will exist in the following circumstances. i) Where one has created the source of danger he should act help those endangered by it. ii) It one occupies a public office e.g. a policeman, a doctor etc iii) If the individual suffering the harm has been placed in the protection and custody of the person who is to act. 114 If someone is trying to sue that the conduct of the defendant was unlawful the defendant can state the following as some of the defence available. a) Consent (Colenti non fit injuria) The defendant can defend himself by alleging that what he did was not wrongful or unlawful because the other party consented to it so he should not be heard to complain. The aspect of consent also includes voluntary assumption of risk. This means if someone is aware and has full knowledge of the risk that he is taking and proceeds to take that risk he has volunteered so should not complain. A typical example is where one boards a car of a drunken driver fully knowing that he is drunk and is possibly incapable of controlling the vehicle. In an accident the drunken driver can thus defend himself against a suit by the passenger that the passenger that the voluntary assumed the risk. b) Authority If the injury party is alleging that the conduct of the defendant was unlawfully the defendant can prove that they had authority to do what he did either by common law or by relevant statute. For example the father who inflicts moderate punishment on a child can raise this defense because he is allowed to do so at common law. c) Necessity The defendant can raise that although the conduct was unlawful or wrongful it was necessary that he had to do so. To raise the defence of necessity one must establish that: i) A legal interest had been endangered ii) The threat must have been imminent iii) The threat must not have been caused by the defendant’s fault iv) The action must be necessary to avert the threat v) The means to avert the threat must be reasonable An interesting situation where the defendant can raise this defence is where a boat is stuck out in the sea and there are absolutely no prospects of being rescued or to find food and the defendant kills a friend to feed on his flesh to survive. d) Private Defence (Self Defence) i) There must be an unlawful attack ii) The attack must be on the defendant, a third party or the defendant’s property. iii) The attack must have commenced imminently iv) The defendant’s means must be necessary and reasonable in the circumstances so if a defendant is sued that his conduct was wrongful or unlawful he can raise private defence to justify his actions. 115 e) Inevitable accident (involuntary conduct) If the harm resulted from an even caused by some other outside force like nature which the defendant had no control the defendant will not be delictual liable. This may include flood or damage caused by wind. 4) Capacity A plaintiff suing another for a civil wrong should be able to establish that the person had the capacity to commit that wrong. Adult same and sober persons are presumed to have capacity to appreciate the wrongfulness of their conduct. A child below seven years has no capacity to appreciate the wrongfulness of their conduct. A child below seven years has no capacity at all to commit a wrong so can not be sued for the wrongs he commits. A child between seven and fourteen, mentally ill persons or intoxicated ones may also lack capacity depending on whether they could reasonably be said to have been appreciating what they were doing. 5) Fault (Intention or Negligence) The defendant must have been a fault to cause the harm to the plaintiff. In other words he should have had the intention to commit or omit or he should have been negligent in his conduct. For intention it includes knowing and deliberately inflicting harm. With negligence a number of issues have to be analyzed. The Concept of Negligence Where the plaintiff is alleging that the wrong doing party was negligent it means that he is saying that the defendant although he had no intention to cause harm failed to conduct himself in a manner that a reasonable man would have done in the circumstances. The test for negligence is alleging that the wrong doing party was negligent it means that he is saying that the defendant although he had no intention to cause harm failed to conduct himself in a manner that a reasonable man would have done in the circumstances. The test for negligence is an objective one. The court will determine how an ordinary, average, reasonable careful Zimbabwean would have behaved in the circumstances. Once the court has determined this standard, it will then decide whether the defendant’s conduct measured up to this standard. If not then the defendant was negligent. More specifically to decide one was negligent three questions may be asked: i) Would a reasonable person placed in the position of the defendant have foreseen the possibility that harm would result from the sort of conduct in which the defendant was engaged? ii) If he would have foreseen harm would a reasonable person have taken steps to prevent that harm from eventuating? iii) If he would have taken steps what steps would be have taken? 116 Dealing with negligence the case of RV Burger 1975 (40 SA 877 is interesting. Here the court stated that a reasonable person in not expected so be unduly timorous to imagine every path is beset with lions, to be of a robust temperament to go where there are obvious dangers, to have prophetic foresight or Solomonic wisdom or to have trained reflexes of a racing driver. In short a diligence paterfamilias (reasonable person) treads life’s pathway with moderation and prudent common sense. In the work requiring skill and special knowledge, the degree of Reasonableness expected is that of similar person engaged in the same activity. The plaintiff has the burden to prove the negligence and this is at times a problem for e.g. to prove that a doctor was negligent. It means you have to know what a reasonable doctor would have done in the circumstances. Concept of Duty of Care A person is said to have breached a duty of care [i.e. to be negligent if he fails to foresee and guard against harm which a reasonable person would have foreseen and guarded. Before done can be said to have breached the duty of care, there should be a sufficient (proximity or neighbourhood between the parties). Thus is one case the police were being sued because they had allowed a soccer stadium to be packed with supporters and had collapsed killing many people. The television viewers of the same match were suing for nervous shock because they had witnessed the horror on television. The court stated that there was no duty on the police to take care so as not harm viewers at home because they were not proximate enough. Of course there was a duty of care towards the spectators and supporters who were in the stadium. 5) Causation For a plaintiff to succeed in an action under law of delict he should be able to show that the harm complained of was caused by the defendant. In other words there should be a casual connection between the conduct and the harm. There are about four tests used to determine whether the defendant’s conduct caused the harm. i) But for test Would the harm have occurred but for the (without) the defendant’s conduct. With this test it would mean for e.g. that a defendant who assaults another and the victim is to be taken to hospital. On the way to hospital there is an accident in which the victim is killed. The test would be but for the defendant will be liable for indirectly causing the death although the assault would in no way have killed the victim. The courts have however limited this test to say that if there is an intervening cause or a novus actus intervenes. ii) The Direct Consequences This is a test so determine whether the harm is a direct of the conduct. If so then the wrong doer is liable. 117 iii) Foreseebility Test By this one is asking whether the harm was reasonably foreseeable to be the result of the wrong doer’s conduct. In other words, did the defendant foresee that his conduct will cause that harm? If so then his conduct is the cause of the harm. iv) Adequate Cause Test Although not directly the cause of the harm, can the conduct be said to be the adequate cause of the loss. 6) Loss A distinction exists between damage i.e. the loss suffered damages i.e. the monetary award made by the court to compensate for a wrong. In law of delict the plaintiff should prove his loss. The loss should be patrimonial loss. Under law of delict one can claim damages for nervous shock and also in some circumstances, for negligence misstatements. In Tobacco finance V Zimnat Insurance the court stated that if one is complaining that conduct of the defendant caused him purely financial loss and nothing else there must be, in the circumstances, regal duty to avoid causing financial loss. This is the case for example in one case where constructors were digging a ditch near a factor belonging to P. Whilst digging this ditch they negligently severed the power cables supplying Ps factory with electricity and the factory could not resume operations until the cables were repaired. During this time it suffered financial loss due to lack of production. Other Types of Delicts It is important to generally note that law of delict is broad and would specifically include what is called action injuriorum i.e. defamation. With an action of defamation there are also separate factors that have to be proved. There is also Pauperian action referring to harm caused by animals. One can sue for a wrong of unlawful arrest and imprisonment where he can show that it was done wrong without any good grounds. Wrongful / Malicious presecution and arrest detention can be civil wrongs caused by some defendant and can be asked to pay damages for such actions. Other delicts or wrongs would include nuisance i.e. interfering with neighbour’s enjoyment of his premises. 118 PROPERTY LAW ELEMENTS INTRODUCTION Like law of delict, law of property is a very broad field of law thus when dealing with this topic is intended that students in business law are given just the broad principles guiding property law. The ZAAT syllabus instructs that students who are business minded should at least have some knowledge on how to deal with their property lawfully. Examination questions on this area are usually generally and simple questions because as noted above it is not intended that a business law student have the substantive property law knowledge. Accordingly this study pack will follow the examiner’s approach and highlight these principles. The meaning and scope of law of property. The law of property is basically about the right of ownership in a thing and the thing to which the right relates. It deals with the methods of how one can acquire ownership of a thing and also when one is an owner, how he is protected in his ownership by the law. The law of property or law of things controls transfer of rights in a thing from one person to another and where there are conflicts, the law settles them. What is property Property is everything that can be valued in monetary terms. In this sense the word thing refers to any thing which is corporeal (tangible and visible) and is material. Period or thing should basically have the following characteristics. a) Corporeality Incorporeal objects such as personal rights are excluded from the definition of a thing. An object is corporeal if it occupies space and can be identified by any one of the five sense. b) A thing is impersonal In other words for anything to qualify as a thing, it should be outside a human being. The old Roman law notion that certain human being e.g. slaves could be treated as things or property is no longer acceptable. 119 c) Individuality In order to qualify as a thing the object at law should be an independent entity. Thus something which does not stand on its own is not a thing because it becomes part of thing which it stands with. d) Susceptible to human control For a thing to qualify as property it should be capable to be placed under human control and appropriation e.g. farms, cars etc. Things that cannot be susceptible to human control are not things at law and these include for example the sun, the moon, stars etc. e) Use and value For a thing to be called property it must be of use and value to man. Classification of things According to Grotius, one of the earliest law authors (jurist) property or things can broadly be divided into two groups. a) The first division is to see how the thing is related to man thus division/ classification of a thing according to its relation to man. b) The second classification is to look at the nature of the thing. A) CLASSIFICATION OF THINGS ACCORDING TO THEIR RELATION TO MAN When looking at how things are related to man we look at whether the thing is capable of being privately owned by an individual i.e. res commercium or those things which cannot be privately owned res extra commercium. 1) Res in Commercium Things which can be privately owned can be further divided into a number of categories. 1.1) Res Nullius These are things which, although they are capable of being controlled and privately owned, they do not belong to any person at a particular point. These include things in commercio which have never been privately owned like birds, wild animals, fish, bees etc before they were later captured to be privately owned. In these groups also are those things which were abandoned. If one has lost his thing it does not mean it becomes a res nullis. The person losing the thing should have an intention not to be the owner anymore. Thus when goods are thrown into the sea to lighten a drowning ship there is no intention to relinquish ownership so such goods do not become res nullius. Another category, of a res nullius are birds, wild animals, bees etc which regain their freedom if one has taken/ captured these by occupatio occupying them, they become res 120 nullius if they escape and therefore become susceptible to private ownership by another person because they are said to have regained their natural freedom whenever they are out of sight of the owner. However ownership of (wild) animals which have been tamed to the extent that they have acquired the habit of going away and returning, is lost only when they cease to have the intention to return. 1.2 Res alucius Things are susceptible/ capable of private ownership if they are res alucius. These are things which are privately owned by a natural or juristic person. Juristic persons are bodies like companies. 2) Res Extra Commercium As noted earlier, res extra commercium are those things which are classified in their relation to man. Their relationship with man is that they are incapable of being privately owned. Res extra – commercium has a number of categories: 2.1 Res Divine luris These are things which are sacred and religious or have been consecrated to gods by priest or pontiff. As a result these things can be privately owned. 2.2 Res Amnium Communes These are things which by natural law are common to all men i.e. are for everyone but belong to no one. Such things as the air, running water, the sea and seashore cannot be privately owned in their entirety. Of course a portion or part of it must be privately owned but not in that entity so they are regarded as incapable or private ownership. 2.3 Res Publicae These are things which cannot be privately owned (extra commercium) in the sense that they belong not to an individual but to the entire community and are regularly referred to as state property. Things such as roads, which benefit the public at large, are the res publicae but not government property which is not intended to benefit the public at a large. This can be privately owned. 2.4 Res Universitas Res universitas are those things which belong to a universitas or a corporate body e.g. a city. Thus there is a difference between property owned by the state which is res publicae and property owned by a city or local municipality which is res universitas. Examples of res universitas are markets, halls and theatres etc which belong to cities, villages etc. 121 B) CLASSIFICATION OF THINGS ACCORDING TO THEIR NATURE 1. Corporeal or incorporeal things This classification has already been discussed above. Suffice to state that the law of things only relates to things which are corporeal. 2. Movable or immovable things It may be the nature of a thing that it can be movable or immovable. This division of things is very important for a number of reasons. There are different legal rules which apply between movable and immovable property. • With immovable property to have a valid transfer of ownership from one person to another, there should be registration in the Deeds registry. Whereas with movables delivery alone is enough to transfer ownership. • In terms of Court Rules when there is attachment of property for sale because a debtor has not paid, movables should be attached first before immovable. • In international law the law applicable to immovable thing is the law where the immovable property is located whereas with movables, the law where the owner resides is the law to be applied. 3. Divisible and indivisible things A thing is divisible in the legal sense only if each of the smaller parts into which it can physically be divided complies with the requirements of a thing elaborated earlier furthermore the nature of each of the smaller parts should correspond with that of the thing as it was before the division and the total value of such parts should not be substantially than the value of the undivided thing. 4. Consumable and inconsumable things Things are regarded as consumable when they usually get destroyed as a result of being used in accordance with their normal destiny. 5. Fungible and non-fungible Things are non-fungible when they can be individually determined for eg stand No 18702 owned by B, the car owned by Mr Luke etc fungible on the other hand are things that can not be individually determined and are defined merely by reference to their weight, number a dimensions eg 50kg fertilizer, 6 cubic metres building sand etc. 122 THE NATURE OF A REAL RIGHT A real right is a right which a person has in thing. A real right actually creates a direct legal connection between a person and a thing, the holder of the right being entitled to control that thing within the limits of his right. A holder of a real right in a thing is protected by the law against interference against any other person. The holder of a real right can enforce his right against any person who seeks to deal with the thing against his interests. In this sense real rights are absolute rights. In contradistinction, a personal right is usually enforceable only against the particular individual not the world at large. It is enforceable against such individual because of the existence of a special relationship such as a contrast or commission of a delict. An example would illustrate the difference between personal and real rights. Suppose X sells his car to Y. Y acquires a personal right under contract to have the car delivered to him. Before delivery X sells the same car to Z who is unaware of the prior sale to Y. Z takes delivery of the car and thus becomes the owner thereof. The personal right acquired by Y will not allow him to claim the car from Z because he has only a personal right against a particular person who is X. If however the vehicle was delivered to Y prior to the second sale and as a result whereof Y acquired the real right of ownership, he will be able to claim the return of the car from whoever is in control thereof because it is said to be enforceable against the world at large thus being an absolute right. By far the basic real right that one can have in a thing is the right of ownership. Ownership of a thing Ownership embraces the power to use alter, destroy alienation the thing concerned, to enjoy the fruits thereof, to prevent others from using and to transfer one’s rights. There may however, be some restrictions on some of these elements e.g. one’s right to use may be limited by law as in instances where the by-laws stipulate that the buildings shall be used for dwelling purposes only. Also the delict of nuisance would mean that anyone couldn’t enjoy his use without restriction, as he would cause prejudice to neighbours. There also restrictions on the matters including the maximum height of buildings, type of buildings etc they may be built on a piece of land. These are also restrictions on one’s ownership rights. Methods of acquiring ownership This basically refers to how one can become an owner of a thing. There are basically two ways: i) Original method of acquiring property. ii) Derivative methods of acquiring property. 123 i) Original Methods of Acquiring Property Original method of acquiring property is basically where one acquires something independently and not from someone who is transferring it to him. Thus it is a unilateral act by one person which does not involve transferring. The ownership is not derived from the ownership of any predecessor. The acknowledges a number of ways in which property can be originally acquired. a) Occupation Occupation may be defined as a unilateral act of taking possession by a person of a res nulius which is res incommercium which is not in the ownership of any other person with the intention of becoming the owner. The taking must be lawful such that a hunter who kills a wild animal (res nullius) without a licence in contravention of game protection laws does not become the owner of the animal. Occupation is possible for example of abandoned property or where one hunts animals with a licence. The question whether ownership of land can be acquired by means of occupation depends of course whether land can in appropriate cases qualify as res nullius. This is not possible in Zimbabwe as all the unalienated land is said to belong to the president/ state. b) Accession Accession is another way one can be the owner of a thing. Accession literally means an addition of or addition to a thing. It is the jointer of two or more separate things that they become one. The test is which of the two things is the principal and which the accessory. By an accesion ownership of the accessory is lost and the owner of the principal thing becomes the owner of the new entity. Various tests are used to determine which is the principal or the accessory. i) The thing with the highest value. ii) The thing with the greatest bulk. iii) The thing without which the accessory cannot exist. iv) The thing which gives the final entity it’s identical, form, name or function. Accession is Natural, Industrial or Mixed Natural Accession: This comes in a number of ways. • Alluvio: A deposit of earth upon the bank of a river so gradual that no one can know how much was added at any one moment. Such deposit becomes part of the native soil of the bank and the owner of the bank becomes owner of the deposit by accession. • Avulsio: If a piece of land is torn off by force of water and washed against 124 another’s land, the owner of the latter becomes the owner of that piece of and as soon as it becomes firmly attached to his. Industrial Accession This is conversion of two or more things into one entity. It includes inaedificatio which is permanent attachment or annexation of structures like pumps, buildings to the land such that at law these structures can not be removed without causing damage. They therefore become part of land owner of the land provided that the things so planted have struck roots. With plantio an satio – industrial accession would mean that things which are planted and sown go with the ground provided that the things so planted struck roots. c) Specification This is another method of originally acquiring property. With specification if a person work on a thing belong to another and produces a new product or gives it a new form, provided the material used ceased to exist as such and can not be restored to its original form and further that the specificans was under the impression that the thing belongs to him, this thing ceases to belong to the owner of the original piece. d) Prescription Ownership of a thing may be acquired if one was in possession of a thing for a specified period of thirty years. i) Acquirer must have been in possession of the thing. ii) Possession must have lasted for thirty years. iii) The possession must have been nec vi without force or peaceably, and nec claim i.e. that the owner with the exercise of reasonable care would have observed it. Unlawful possession will not operate to allow ownership and also if the owner protests, the period of thirty years will be cut down (interrupted) to start running again. 2) Derivative Methods of Acquiring Property Registration As a general rule one can transfer ownership to another by registration if the things are immovable. Registration is thus equivalent to delivery in movable property. The Deeds Registries Act Chapter 20:05 stipulates that transfer of ownership of unalienated state land may be transferred by deed of grant. An approved diagram of the land must be annexed to the deed. If one is transferring land to another person, he can do so by deed 125 of transfer. The deed is prepared by a conveyancer in the way prescribed by the deeds regulations. A number of documents have to be lodged with the Registrar of deeds of the transfer to be valid and it is the duty of the conveyancer, who should be a legal practitioner, to ensure that all such documents are available. Delivery of movables It is unnecessary here to discuss the methods in which movable property may be delivered. One has to refer to contract of sale details. Protection of ownership An owner’s rights in a thing have to be protected against any person who might interfere with it. There are a number of ways in which an owner of a thing may be protected and some of these are: i) By Rei Vindicatio Action An owner cannot be deprived of his property against his will. This means that he is entitled to recover it from any person who has possession of it without his consent. Thus if a thief steals and sells the property to a third party. The owner can still recover his property had been stolen. For one to be recover his property he has to prove that: a) He is the owner of the thing. b) That it is in the hands of the defendant without his consent. The action of rei vindication may not be appropriate if the thing has been seriously damanged or has been used up. Price of stolen property which has been sold cannot be vindicatedby the owner. ii) Actio Ad Exhibendem This is an action brought together with rei vindication. The person in possession of the property is compelled to produce failure of which he is called to compensate the plaintiff for the value thereof. This action can also be brought against a defendant who has fraudently ceased to possess the property. iii) Condictio Futiva When theft occurs the owner may bring this action against the thief to recover the stolen thing, together with its fruits or its highest value since the commission of the theft. 126 POSSESSION Possession is the physical occupation of a thing combined with intention to possess. One may be a possessor but not the owner and or be the owner but not the possessor. In most cases of all possessors who are not owners are common and are to be dealt with here. Possession requires a will to possess which is not available in ownership. However possession may lead to ownership by occupation or by prescription (discussed above). Possession has the following effects i) A bona fide possessor inter alia is entitled to the fruits of the thing in his possession. ii) There is a reputable presumption that the possessor is the owner. iii) Possession is a requirement of a number of statutory crimes e.g. possession of dagga not ownership is an offence. Protection of possession A possessor who may not be the owner is protected from dispossession by one action called Spoliation Order. If a possessor is dispossessed he merely needs to prove that he was in possession and has been deprived of the thing without his consent. Even the owner of thing has no right to dispossess a possessor and in a spoliation order there is no issue as to who is the owner because the owner should not take the law into his own hands. 127 EXAMINATION APPROACH EXCLUSIVELY BY MAVHUNGA M INTRODUCTION Greetings in the name of our lord ZAAT students. Experience has taught that many of you are well conversant with the basic business law principles but have had problems in application since law is somewhat a different course for you. My courtesy to provide you with some of the basic guidelines as to how best to answer business law questions and will give you three model answers which will work as a guide for you. It’s only that we do not determine our fate but that fate determines our destinies, I would have told you with much certainty that a volume will be available containing model essays for most of previous years examinations. Anyway that’s in the pipeline. Wishing you all good luck. TYPES OF QUESTIONS Of particular important are essay type of questions and problems type questions. I will not spent much time dealing part mark questions because they seem more straight forward to warrant deliberations. Essay Type Questions As you learnt from your ordinary level stuff, it is important that when confronted with an exam question paper you read all the questions carefully before you can decide which questions to answer if the paper is optional. It is always risk to rush answering without having gone through the paper because you would regret having answered a more challenging question in the presence of a simpler one. It is advised that you should attempt questions you understand rather than where you have some serious doubts because the doubts in understanding the question will also throw some doubts in your answer which will be accordingly affected. Essay type of questions can be asked in a number of ways including the following: i) Comment With these type of questions you are given the position of the law and asked to comment. You can also be given a quotation which you are asked to express your opinion. The opinion to be expressed include both common sense and legal knowledge. It is important to know that you are not being asked to write an English Language composition but to show some knowledge of legal principles and then use them to give your legal opinion. ii) Critically Evaluate, Analyse, Discuss etc. 128 These questions calls upon you to go into substance whether they are true or false, fair and reasonable, they can even be seeking you to discusss both sides of the story looking at advantages and disadvantages. iii) Write Brief or Detailed Notes Are usually the simplest questions as they seek that you just give detailed legal position on a given point. What you are simply doing is to reduplicate the notes on that particular area. Of course the context will always dictate what is and what is not relevant. The mark allocation at the margin e.g. (20 marks) is placed as a guide to determine the content and detail required. Obviously if a question carries 20 marks for a ZAAT student depending on how one can summarise, three pages and above is more appealing. Any prudent should be able to capitalise on these simple questions so that when faced with the challenging ones you have some marks on your side already. On this note it is advised that in answering questions it is always wise to start with the simple questions because you can afford to spent as much time on them and then just scribble on the more difficult ones when you are running out of time. iv) Name and Explain Depending on the mark allocation, these are simple and straight forward questions in that you can hardly miss both. If you miss the name then you explanation should be sharp to show that you know what is expected. Model Essays Question 1 “Civil and criminal laws are very important in governing relationship amongst individuals and also between individuals and government”. Citing relevant examples of civil law explain the purposes of civil and criminal law. What are the basic differences? (20) Civil and criminal laws exist to regulate individual relationships and also the relationship of the individuals and government. The branch of civil law is also regarded as private law in that it involves private individuals where the state has no interest. With criminal law it is public law because the state has some interests. Basically civil law is that branch of law that regulates relationships amongst individuals. It prescribes what a person should not do to the other. The person who is injured by the conduct of another can thus be allowed to initiate legal proceedings against the wrongdoer. This is done privately without including the police because it is treated as harm to an individual or to his property only. There are a number of examples that can be cited for civil law. Law of contract that regulates contractual relationships amongst the contracting parties, family law which 129 governs the issues of marriages, divorce, custody of children, paternity and maintenance is also civil law. The law of succession which decides who should inherit or succeed to the deceased, law of delict i.e. civil wrongs which deals with situations were one causes harm to another and labour law are all examples of civil law in which the state or the police do not get involved. The purposes of civil law are simply to know the rights of people certain situations and to control the daily lives of individuals. In these situations it is intended to provide compensation for any person who suffer harm at the expense of another. Civil law also prescribes the nature of the remedy that can be given in monetary terms. On the other hand criminal law is that branch of law which is enforced by the state and a wrong which is regarded to be a wrong to the whole public not to an individual only. In short a crime is a wrong to the public even though it may have a specific victim. It is not the purpose of criminal law to compensate a person who may have suffered harm e.g. after assault, but the state through the police and courts, want to punish the offender. So criminal law is primarily intended to punish the offender. The victim however can proceed against the offender in civil law, as it is possible that a single act can both be a crime and a civil law case. For example an assault case is both civil and criminal. If the accused person is convicted the injured party can also sue him for the injuries. There are a number of differences between these branches of law. The first difference has been noted above in the purposes of these two laws. The second is that in criminal cases it is the state through the police and the public prosecutor that bring the action whereas in civil cases it is the plaintiff who sues the defendant in a civil court be it at High Court or Magistrate Court. When one is proving a civil case it is merely on a balance of probabilities whereas the state case needs to be proved beyond reasonable doubt. If the offender, who is the accused in criminal cases, is convicted he is liable to a fine or imprisonment whereas in civil cases the defendant is only found or not liable to do a certain thing or to pay a certain amount of money. In short civil and criminal laws are substantially different in scope purpose and procedure but they all coincide on the aspect that they both intend to regulate relationships. 130 Question 2 Explain the caveat subscriptor rule citing. Under what circumstances can it be said not to apply? The caveat subscriptor rule is very important rule when one is dealing with contracts which need to be signed. The rule says that anyone who signs a document should be careful (i.e. signer beware). In general when one is asked to sign an agreement it is important that he reads the contents of the contract before endorsing his signature because the rule stipulates that if you sign a document without reading it you are bound to that contract by your signature. This can be seen in the case of Bhikagee V Southern Aviation. In this case B could not read or write English. He hired a plane and was asked to sign a document which was written in English. He signed without enquiring as to what it meant. In the document there was a clause saying if the journey failed because of weather problems the company was not liable. It was held by the court that despite the fact that the journey had failed because of weather complications B still had to pay the fare because he had signed hence agreed to this term of the contract. The caveat subscriptor rule however will not be applied in situations where the signer asks an attendant or an agent of the company as to the meaning of the words and the agent decides to misrepresent as to the true meaning. This was the decision in Curtis V Chemical Dyeing and Dry Cleaning Company. It does not apply also in situations where one is compelled or forced to sign by duress or where the transaction or the transaction or the contract itself is invalid because of illegality or any other factor. The facts in “Curtis” case where that Mrs C brought her dress for dry cleaning with the company and was asked to sign a document which said that “The company was not liable for any damage howsoever arising”. She asked the meaning of these words and the attended told here that the company was only not liable for certain minor damage but would pay if the dress was extensively damaged. Mrs C on this belief proceeded to sign and her dress was extensively damaged. She sued to recover compensation and the company sought to rely on her signature to say that she had agreed to contract on this exemption clause. The court however ruled that Mrs C had gone to the pains of asking the meaning of the words and she was lied to. It was because of this fraudulent misrepresentation by the attendant that she signed therefore she should not be bound by her signature and despite the fact that in the document the company was exempting itself from any damage, it had to compensate Mrs C. So in short the caveat subscriptor rule is very important for one to know before signing documents since the circumstances where one would not be bound by his signature are few. Problem type questions 131 Hypothetical Situations When it comes to hypothetical situations, most students encounter some problems and it is important that this area be dealt with. i) Advise X or Advise the parties Students should be very careful when they are given facts in which two people are in a dispute and they are asked to advise. One should first identify who he is supposed to advise. Advise the correct party. If a question says advise parties then you and are both seeking to legal position as it stands as if both parties are sitting before you and are both seeking to know the position. In such questions it is advisable to avoid using first person singular e.g. “I” or “me” or to say “you” or “your”. In advising the parties you first of all state the position of the law then try to apply it to the facts before you. Thus when you start stating what the law says you may cite relevant cases. The simplest way is to say that “The law say ------ and this can be supported by the case of -------------. What happened in this case is --------- and the court ruled that ---- --------. In this case therefore ------------. ii) What is the legal position Like the above situation, you are given the facts of the case and should decide what the law says it is more or less the same like advising the parties. iii) Can Tendai succeed in his claim or what …… the prospects of Farai’s success. Here you are also looking at the position of the law then applying the law to Tendai or Farai’s case to see whether he has any prospects of success. You should actually weigh the prospects.