GRADUATE SCHOOL OF BUSINESS MASTERS DEGREE IN BUSINESS ADMINISTRATIONTHE LEGAL ENVIRONMENT OF BUSINESS

LECTURE 1

Key objectives of this Lecture:

1. To give a general view of what law is.2. To define the sources of law.3. To illustrate how the law can be classified.4. To give an introductory glossary of various legal terms.5. To present relevant key issues in international law.6. To give an overview of the Zimbabwe legal system.

1. LAW DEFINED:Warner [1995] - working definition of law: "Law is a mechanism by which humans order their affairs and force adherence to socially acceptable norms of behaviour".Different branches of law deal with different aspects of human relations: family law deals with matters relating to the family; business or mercantilelaw dealing with commercial or business relations; criminal law which regulates the behaviour of the citizens in a state. Rules - dynamic not static - reflecting dynamics in society in various areas of politics, business and other social relations as well as developing scientific and technological developments.

2. SOURCES OF LAWWhere does the law originate or derive from?Modern state identifies four main sources: Legislation, judicial precedent, custom and writings of authorities.a. LegislationPrimary and regarded as the most authoritative source in modern state.The Legislature of Zimbabwe in terms of the Constitution consists of Parliament [consisting of the elected representatives of the people of Zimbabwe] and the State President. The Legislature has the authority to makeany law it deems necessary in the national interest or to amend or repeal any law it has made. Each such law has a long title and also a short title by which it is known, e.g. the Companies Act [Chapter 24:03] and the Road Traffic Act [Chapter 13:11]The Constitution of Zimbabwe also allows the State President to issue Proclamations. This however derogates from the authority of Parliament.Parliament may and does delegate power to legislate in respect of the detailed application in specialized areas, or where application of general principles covered in the legislation differs according to local conditions,to bodies composed of persons more familiar with the technicalities of the specialized area or local conditions. This type of legislation is referred to as delegated or subsidiary legislation. Normally published in Statutory Instruments and referred to as regulations, by-laws or orders.

For any legislation to become effective it has to be published or promulgated. This takes place through publication as annexure to the Government Gazette.

b. Judicial PrecedentCourts usually follow their own previous decision within certain limits in accordance with the doctrine of precedent. A precedent is therefore the ruleembodied in a judicial decision, which serves as a guide for the determination of similar cases in future. A precedent can only be set by thedecision of a competent court and in Zimbabwe only the High Court and the Supreme Court decisions embody which must be followed by all lower courts orcourts of equal jurisdiction. The advantage of the doctrine of precedent is that it makes the law reliable and predictable.Do judges make law or merely apply the law?

c. CustomCustom has become one of the less important sources of law as it does in anydeveloped system of law.

d. The writings of learned JuristsAs a source of law the writings of learned jurists have also become a less important source of law but from time to time recourse still has to be had to this source to determine the exact ambit and application of particular rules of law. (See the judgement of Mr, Justice Gillespie in Bank of Credit and Commerce of Zimbabwe Limited v MM Builders (Private) Limited 1996 Z L R 492.)

3. CLASSIFICATION OF LAWLaw can in broad terms be classified into various branches. These classifications serve as functional aids to understanding. Some of the more common classifications are:

a. Public and Private LawPublic law deals with relations between the state and its citizens as well as the relations between various state organs. It embraces constitutional and administrative law and criminal law. Private Law deals with the creationand enforcement of individual rights. It includes such areas of law as the law of contract, delict and property, etc.

b. Substantive and Procedural LawSubstantive Law provides the definitive rules creating rights and obligations of legal subjects and the circumstances in which these arise, aswell as defining inappropriate behaviour and prescribing applicable remediesor penalties for failure to respect the rights or full fill obligations towards other legal subjects. Procedural Law describes and prescribes the appropriate means by which legal subjects can enforce their rights in a given set of circumstances. Example - Theft. c. Civil and Criminal Law

Civil Law in general terms consists of those rules of law which prescribe and describe the relations between private citizens as legal subjects inter se and their property and provides remedies for the infringement of the rights of one of them against the other who infringes upon those rights. Criminal Law on the other hand describes socially unacceptable behaviour punishable by the State and prescribes penalties to be applied to the legal subject indulging in such behaviour. Civil Wrong CrimeInfringement of private right Infringement of public right Enforced by legal subject in Enforced by Stateown name whether corporation or individual Remedy [damages, interdict] Penalty [fine. imprisonment

or execution]Proof: Balance of probability Proof: Beyond a reasonable

doubt - to avoid conviction

of innocent persons

d. Common Law and Statute LawCommon Law is essentially law established through the other sources of law except legislation. Statute Law consists of all law deriving from the legislative processes described above. It is to be noted that the extent that there is conflict or an inconsistency between the common law a statutory provision, the statutory provision will prevail. As a rule however, the courts will endeavour to interpret the statute in such a manneras to alter the common law as little as possible

e. National and International Law.In broad terms National Law applies within the jurisdiction of a particular territorial state, whilst International Law regulates the conduct of states toward each other or the relations between citizens of separate states.International law is derived from four sources:aa. International conventions and treaties/bb. General principles of law recognized by civilized nations;cc. International customs;dd. Judicial decisions and teachings of eminent jurists.

4. THE LEGAL SYSTEM OF ZIMBABWE

Disputes resolved through a system of courts. Arranged in a hierarchy.Constitution provides for a High Court and Supreme Court. These exercise original jurisdiction. Referred to as superior courts.

Occupying an intermediary position are specialised courts such as the Administrative Court and Water Court.

The inferior courts - Magistrate's courts, Community courts, Village Courts and Small Claims courts. The latter two categories are "creatures of statute" having only the jurisdiction granted to them by the statute by which they are created.

5. GLOSSARY OF LEGAL TERMSAppellant- Person who appeals against the decision of a court of first instance, in judgement referred to as the court a quo.Applicant- Person who presents an application or petition to a court seeking relief against another called the Respondent.Cause of Action- Refers to the event that precipitates the suit or application.Complainant- Used in relation to the victim of a crime in a criminal case.Defendant- Person who defends against a action brought against him by a plaintiff.Held- This word is normally used in relation to a court decision to indicate that what follows is the court's decision.Jurisdiction- The power or authority of a court to entertain, hear and decide a particular matter.Plaintiff- Person who institutes legal proceedings against another seeking a remedy. Used in relation to civil actions.Respondent- Person who must answer a case on appeal or who is cited in an application or petition by the Applicant.

LECTURE 2Objective of this lecture:a. To introduce the student to methods of dispute resolution.b. Introduce the concepts of judgement and execution.c. Outline the processes of the criminal law.d. Draw attention to current issues in litigation.e. Draw attention to the relevance of International Law and its relevance tothe conduct of international business.

1. LITIGATION AND OTHER METHODS OF DISPUTE RESOLUTION

Law- essentially a system of social control. Dispute- submitted to courts for decision - peace and order - avoid "self-help"- could degenerate into anarchy. Court - rational organ - applies law to the facts to arrive a decision [judgement].

Court required jurisdiction to decide any matter brought before it. Three requirements for jurisdiction:a. Territorial - cause of action, subject matter or person must be within court's territory of jurisdiction.b. Personal - must have jurisdiction over person of parties. c. Subject matter - must have jurisdiction over subject matter of the nature or extent in question.Jurisdiction over the plaintiff is invariably not a problem. Defendant may reside beyond the jurisdiction. This need not be insurmountable as the courtmay have jurisdiction on some other ground such as through submission, attachment of property to found jurisdiction or as a result of the conduct of business by the defendant within the court's territorial jurisdiction.

Trials and Appeals

Purpose of a trail to resolve disputes [conflicting claims]. Application of principles of law to facts found by the judicial officer. The basis of the trail is the cause of action, i.e. the foundation in fact of the claim of the Plaintiff and the defence of the Defendant.

The parties may avoid a trail if they can agree on a compromise forming the basis of an out of court settlement. This option should be used where possible as it saves time, effort and money and avoids frustration and other emotional upsetsfor both parties.

In civil proceedings a summons, including a statement of claim or declaration, settingout the nature and extent of the claim, depending on the forum, is served upon the Defendant by the Messenger of Court or the Deputy Sheriff or the Plaintiff's Legal Practitioner. This calls upon the Defendant to defend the action, if so desired and to file a plea or other answer to the Plaintiff's claim within stipulated time limits.

In the event that the Defendant fails to take the necessary procedural stepsto defend the action, the Plaintiff may apply to the court to enter default judgement against the Defendant.If the Defendant chooses to defend against the Plaintiff's claim and a judgement is granted against either of them such party will be subject to execution being levied against- property.

In the event - party against whom judgement is granted- dissatisfied with the judgement and chooses to lodge an appeal against such judgement, - application - entertained for - stay in execution.

Appeal court - confined to - verbatim record of the proceedings took place before - court of first instance - only receive evidence which was not available at the time of the trail and of which the party who relies on it was unaware. An appeal may be based on the fact that the trail court erred in arriving at a finding of fact when the record indicates that such findingof fact was not sustainable on a balance of probabilities. The appeal court may agree with this view. This would naturally affect the court's application of the rules of law to the facts as well. As a rule the appellate court - loathe to interfere with the trail court's finding of fact. It will normally be guided by these findings because the judicial officer in the trail, who hears the evidence of the witnesses, sees their reactions under cross-examination is in a better position to asses their credibility and come to conclusion regarding the facts to which their evidence relates.

The Appeal court - either confirms the decision of the lower court or reverses or overrules it.Litigation should be regarded as a last resort in the process of dispute resolution. It should be avoided, if possible, as - time consuming, expensive and disruptive of normal business relations, besides being personally emotionally upsetting to those engaged in it. The fact that litigation has two key advantages - not be overlooked. These are that it is a familiar form of dispute resolution and produces results.

2. ALTERNATIVE DISPUTE RESOLUTION

Business would suffer if it acquired a reputation for suing its customers atthe drop of a hat. Whatever the merits of its case such a reputation will ultimately damage it's reputation. Because litigation takes place in open court - leads publicity - which may prove detrimental to business.

Judges and magistrates are not experts in all fields of knowledge. Some disputes involve issues of - technical nature - are best handled by persons with specialised knowledge in that particular area or areas. For these reasons alternative methods of disputes resolution have been developed over the years. Other methods of dispute resolution are:a. SettlementA settlement can be achieved in most matters before the matter is taken to court. Excessive cost of litigation should deter parties from litigating.

b. ArbitrationAn impartial arbiter hears the facts and makes a determination called an award, which can be enforced in the same way as a judgement from a court.

The award based purely on the merits of the case of the party to whom it is made without reference to precedent.

Key advantages of arbitration:aa. Arbitrator normally an expert in the area of the dispute. Saves time, reducing costs and interference with normal business.bb. Arbitration normally takes place soon after dispute arises. No unnecessary delays as in litigation.cc. Conducted in private - avoids embarrassment arising from adverse publicity - especially for business.dd. Proceedings informal not subject to the exclusionary rules of evidence and procedure.ee. The opportunities for appeal are normally limited.

Limitations of Arbitration:aa. Parties cannot be compelled to submit to arbitration. It is a voluntaryprocess unlike litigation.bb. Normal exclusionary rules of evidence and procedure do not apply. Evidence, which would be excluded by operation of these rules, may be admitted to the disadvantage of a party relying on its exclusion.cc. A party may take the view that an arbitration award does not carry the same weight as the judgement of a court. c. MediationSubmission of a dispute to a third party who attempts to assist the parties involved to resolve the dispute by a compromise. Makes suggestions in this regard to the parties.

Main advantage of mediation - it provides a result in the achievement of which the parties both participated as opposed to one imposed upon one or other of them by an outsider at the expense of one or other of them. Useful in relation to continuing future relationships, e.g. family law and labour law disputes.Success depends largely on willingness to compromise.

3. JUDGEMENT AND EXECUTION

A judgement is the final order of the court usually signed by the presiding judicial officer. Execution is the carrying out of the judge's order.Execution can take - form of attachment of - debtor's property to be sold atauction, a garnishee order- obtained against - judgement debtor's employer/creditor directing - employer/creditor to pay - certain amount to the judgement creditor from amounts becoming due to the judgement debtor, orcivil imprisonment order directing the Deputy Sheriff to lodge the judgementdebtor in prison, at expense of - judgement creditor, until - debt - paid infull. Latter order- normally suspended on condition - periodic payment - stated amount - made to judgement creditor. Judgement debtor refuses to comply with order of court - can be found in contempt of the court and incarcerated until he complies with the order.

5. CRIMINAL LAWBusiness community affected by crime. Purpose of criminal law - discourage unacceptable behaviour - punishing persons convicted of crimes. Stateprotects persons and property. Provides weak system of compensation/redress for victim of crime.State must establish - offender [accused prior to conviction]:a. Acted with the intention to commit the wrong - mens rea b. Did something to give effect to his guilty intent - actus reusA suspect crime - reported to - Police - investigate offence and arrest suspects in the light of evidence against them deriving from - investigation.

Once investigations - complete and if satisfied that a particular person should be charged with an offence on the basis of the behaviour complained of. the prosecutor, to whom - Police handover the result of - investigation in the form of a docket, - formulate a charge against - accused, Normally - accused has been arrested by this stage and may be brought before a court tobe formally charged with the offence. At this point the accused may apply for bail.When the trail date is set the proceedings follow a set format. The prosecutor, a member of the staff of the Attorney General's office represents the State. The accused may be represented by a Legal Practitioneror may be unrepresented.

The Prosecutor puts the charge to the accused person who must furnish the court with his plea to the charge, which would generally be either "guilty" or "not guilty". In the event of a plea of guilt being entered the court must be satisfied that the accused is correctly pleading guilty to the offence charged. If not so satisfied a plea of "not guilty" is entered on behalf of the accused and the trail proceeds. If satisfied in regard to the plea of "guilty" entered by the accused the court may follow a summary procedure, hear any evidence in mitigation or aggravation and/or extenuationof the commission of the offence and evidence that may assist it in arrivingat a just decision in regards to the penalty imposed, proceed to give judgement and sentence.

If the accused pleads not guilty the prosecutor on behalf of the State must establish the accused's guilt by producing before the court such evidence aswill satisfy the court that beyond a reasonable doubt the accused is guilty of having committed the offence complained of. This the Prosecutor does by producing oral evidence of witnesses and through at least some of these witnesses bringing before the court such relevant documentary and other realevidence as may be required to establish the guilt of the accused person. Aseach State witnesses gives evidence the accused or, if the accused is represented, the Accused's representative, may cross-examine the State witness. The Prosecutor has the right to re-examine any of his witnesses thereafter.

After the Prosecutor has sled all the evidence for the State, the Prosecutorthen closes the state's case. At this stage the Accused may apply for a discharge on the basis that no reasonable court properly directed would convict on the evidence presented by the State alone.

If the application is unsuccessful or if no application is made because the accused does have a case to answer, the Accused or the Accused's representative will present all necessary evidence on behalf of the Accused to rebut the State case. At the end of the Accused's case, the Prosecutor and the Accused will address the court in that T favour appearing from the evidence. The judicialofficer may require time to consider the submissions made by the parties or may give an ex cathedra judgement, providing reasons therefore later.

6. CURRENT ISSUES IN LITIGATION

As society grows and population - more literate - more aware of rights - litigation increases.Courts overburdened with number of cases. Judicial officers overtaxed.Quality of judiciary suffers.Quality of administration of justice negatively affected. Effect on other social and commercial sectors e.g. banking and insurance.Relevance or otherwise of contingency fee system to litiguousness of a particular society.

7. RESOLUTION OF INTERNATIONAL DISPUTES: THE ROLE OF INTERNATIONAL LAW

International criminal law - poorly developed. Only recently - convention oninternational criminal law - relates only to cases of genocide. Traditionally reliant on extradition treaties between individual states.

Traditionally International Court of Justice [The Hague} - only dealt with disputes between states - not individuals. However regional bodies have in modern times established regional courts to hear disputes between states andtheir own citizens and even citizens of one of the state parties to a regional convention and other state parties to such convention, vide European Union.

Traditionally states had to submit to the jurisdiction of the court or arbitration panel. If it did not matter could not proceed. Generally did - comply with the principle of the 'comity of nations"

Complex set of rules determines jurisdiction embodied in the branch of law referred to as Private International Law or Conflict of Law.

In regard to delicts - general rule - courts of country where the delict is committed have jurisdiction.

In regard to contracts - regard had to: Place of contracting - lex locus contractus. The parties may - subject themselves to - particular jurisdiction and laws in that jurisdiction by contract.If parties - citizens of state parties to U.N. Convention on Contracts for the Sale of Goods and the contract falls in the class of contracts covered by that Convention - the rules of - Convention will apply.

LECTURE 3

BUSINESS ORGANIZATIONKey objectives of this lecture include:1. Introductory remarks on the forms of business organization.2. Differentiate between sole traders, partnerships, private business corporations, companies and statutory corporations.3. Examine characteristics of companies in greater detail.4. Examine the legal nature of companies as business entities.

1. INTRODUCTIONIn Zimbabwe - several forms of business enterprises. Each- ideal specific circumstances. Range from sole trader to public limited liability company. Degree of regulation applicable to each differ - the higher the degree of public involvement - the higher the intensity of regulation. Regulation achieved through registration of entity and publicity requirements. 2.TYPES OF BUSINESS ENTITIES

a. Sole trader

Sole trader - individual - run business for own benefit.Proprietor provides own capital - retains all profits and accepts all lossesof business. Personally liable.Business legal - answerable to no one but self - provided pays taxes to the state. Large percentage belongs to the informal sector.Main advantage - flexibility - business not tied by agreement or memorandum and articles. Main disadvantage - shortage of capital to finance operations and growth. Possibly exacerbated by poor creditworthiness - virtually impossible to source loans from financial institutions.Lending institutions require collateral before advancing loan facilities. Sole trader may lack this.Large sums of money generated in this sector but taxation - a nightmare. Income taxed as if that of the owner.

Great deal said about transforming informal sector through such ill conceived and poorly defined concepts as indigenisation but thus far these have proved a failure. The amounts set aside to achieve these aims over the years have not achieved their aim due to lack of proper planning, transparency and corruption.

b. Partnerships

Partnership- consists of between 2 and 20 persons. In designated professions- may consist of more than 20 persons.Formed by agreement between the parties. No requirement that be in writing. Can be inferred from behaviour of the parties. Working definition - following Bamford; a Partnership is a legal relationship between 2 or more persons {not exceeding 20, with certain statutory exceptions] in terms of which each contributes something to a lawful undertaking with the view to making profit subsequently dividing suchprofit among themselves.

For partnership to be legally constituted the following elements are essential:aa. Agreement;bb. Contribution of something [of commercial value, money, labour, skill, property, licence, expertise etc.] by each partner;cc. Undertaking for joint benefit of all the partners;dd. Aim must be to make a profit.

In absence of agreement on profit-sharing ratios - assumed partners entitledto equal shares.Advantage of partnership over sole trader - pooling of capital labour and skills places more resources at the disposal of the partnership.

In the event of failure of the partnership enterprise all assets of the business are sold first - if insufficient to cover debts - property of individual partners may be attached and sold to satisfy demands of creditors.Formation of partnership [as with sole trader] does not create a separate legal entity [persona], nor does it enjoy perpetual succession. For procedural reasons and simplicity the Magistrate's Court [Civil} Rules provide that a summons against a partnership may cite [i.e. be issued against a partnership in its own name] as if it were an entity. This does not apply to an action in the High Court. Any change in the membership of a partnership dissolves [terminates] it. If the remaining partners continue inbusiness a new partnership is constituted [See Standard Bank v Wentzel & Lombard 1904 SA]

In Zimbabwe, [except with regard to a few exceptional matters in specific statues] there is no statute that regulates partnerships. The law is therefore embodied in the common law.Partnership - largely governed by the law of agency. In Divine, Gates & Co vAfrican Clothing Factory 1930 SA it was observed: "Partners are often styled

agents of each other - they certainly have powers of agents and the broad principles of law applicable to agents apply to this extent to partners".

A partner acting without consultation can bind his partners to a transaction, which forms part of or is incidental to the partnership business.

Partnership can be formed by conduct [See Festus v Worcester Municipality 1945 SA]: F and wife married out of community of property. Bought 3 cows formilking from which - prosperous dairy business developed. They both contributed labour and money. Following a dispute between F and - wife overbusiness - involving municipality the court after reviewing the facts held that a partnership existed between F and his wife. Hence the assets and liabilities of this partnership were to be shared along partnership lines.

No legal personality - partnership cannot be the registered owner of property in its own name. Property registered in the names of partners in shares as described in the deed. This does not prevent one of the partners from disposing and transferring ownership of the property without the authority of the other partner. Nor with the exception mentioned above can it sue or be sued in its own name. The personal liability of some partners can be limited viz a viz outsiders.

Partnership may be terminated by:aa. Agreement [express or implied]bb. Unilateral action by one of the partners;cc. Insolvency of the partnership or one of its members;dd. Death of one of the partners;ee. Illegality of the partnership objects.

c. Private Business Corporations {PBC}

These entities can exist because of provisions of Private Business Corporations Act [Chapter 24:11]

Attempts by legislature to give scope for the formalisation of the informal sector by exempting such business from the rigorous requirements of the Companies Act, PBC's incorporate features of both partnership companies.

S. 4 of the Act - 1 or more persons not exceeding 20 may form PBC by subscribing their names to an incorporation statement.

S. 5 prescribes that Incorporation Statement shall be in the prescribed formand state:i] Name of PBC - words "Private Business Corporation " at end. ii] Postal address of the business.iii] Physical address of the business.iv] Full names and National Registration number of each member.v] Percentage of each members interest in the business.vi] The amount of each member's contribution.

vii] The name and address of the address of the accounting officer to whom the members intent to submit their financial statements in terms of S. 47.viii] The date of the end of the financial year of the business.

S. 9 provides that members of PBC - not liable for debts of business. Concept of separate personality borrowed from company law. Clear distinction- between PBC and members who formed it.

By S. 12 members may agree to limit objects of the business.Also borrowed from company law - but in this case optional.

S. 37 imports agency principle by providing - every member - not a minor - agent for business- acts bind business, provided:aa] authorised expressly or implied by business or ratified subsequently byit.bb] done for purpose of carrying on business in usual way unless member acting had no authority and person with whom dealing knew or ought to have known - had no authority.

S. 51 voluntary winding up of PBC - by resolution of members.

S. 52 winding up by court if:aa] Members - more than half vote resolve that be wound up.bb] Not commenced operations within 1 year of registration.cc] PBC unable to pay debts.dd] Failed to comply with order to change name i.t.o. S 14.ee] Appears to court - just and equitable - PBC be wound up.

S. 53 PBC unable to pay debts if:aa] creditor - $200 or more served letter of demand on PBC - failed to pay or take other measures to pay within 21 days.bb] Writ of execution i.f.o. creditor returned by Deputy Sheriff or Messenger of Court - Insufficient assets to satisfy.cc] Proved to satisfaction of court - PBC unable to pay debts.

Despite simplicity of rules governing PBC's still rare in Zimbabwe because people not familiar with them.d. Limited Liability Companies

Form a large and important part of business community - more will be said about them later. Suffice to say at this stage that company law originated in the United Kingdom and it requires a knowledge of the history of company law and its subsequent development in an attempt to reign in the artifices of the less scrupulous persons who would seek to use them as engines to relieve ignorant, unsophisticated or simply unwary members of the public of their worldly wealth acquiring it for themselves.

In Zimbabwe all limited liability companies are regulated by the Companies Act [Chapter 23:03]e. Public Corporations

Public corporations are each creatures of their own statute. They were originally considered to be public service entities providing necessary service requiring considerable investment in infrastructure for very small returns, which were not considered commercially viable. These services required public subsidisation at their inception. They were normally established as monopolies. These are represented by such unfortunate bodies as the National Railways of Zimbabwe, Air Zimbabwe, Tel/One, Net One and of course the Zimbabwe Broadcasting Corporation.The present debate regarding them is whether the nation can really afford these bloated, inefficient edifices of the heyday of independence euphoria or whether they should be allowed to go the way of all outmoded, outdated monstrosities of a by-gone era by facing them with open market competition. To allow to be or not to allow to be seems to be the question.

3. INTRODUCTION TO COMPANIES AND THEIR LEGAL NATURE

Registered company regarded by law as a person distinct from members. Can indulge in activities which natural person can. Can enter into contracts, own property and sue or be sued in its own name. Companies Act provides thaton incorporation company shall have the capacity and powers of a natural person of full capacity in so far as body corporate is capable of exercisingsuch powers.

Company - in Zimbabwe law refers to those entities registered under the Companies Act [Chapter 24:03] - Member of a company may, but need not, be a shareholder.Company - legal person - artificial person. Cannot act for it self - only through human agents. Agents of Co. called directors - formulate policies, steer Co. toward achieving its objectives. Leading case on separate legal personality of Co. Salomon v Salomon & Co. [1897 All E R [HL] - S carried on profitable business as a sole trader as a boot and shoe manufacturer. The business's assets exceeded its liabilities. S decided to form a Co. to which he transferred the business as a going concern. Held virtually all shares except on each transferred to his wife, daughter and four sons. He caused the Co. to issue debentures to himself in respect of the purchase price of the business. On liquidation the Co. had assets worth 6 000 but owed 7 000 to unsecured creditors and 10 000 in debentures. If debentures - valid, debenture holders would take whole amountrealised from the sale of the assets leaving the unsecured creditors with nothing. They, through the liquidator, claimed that debentures - invalid because:aa] Co was S in another form;bb] Co. did not have members - independent and unconnected with ea. other.Court of Appeal found i.f.o. unsecured creditors. House of Lords reversed the decision of the court of Appeal and held: Once Co. registered has legal existence of own separate from those who form it. To hold otherwise fly in the face of the provisions of the Act. Co. could not be Salomon in another form as argued. Co's transactions valid and the debentures were valid.

4. CHARACTERISTICS OF COMPANIES

a. Separate legal personality.Although Co. has no physical existence, by a legal fiction, it has the same powers and rights of a natural person. Property of the Co. is not owned by members although they own the business. In Macaura v Northern Assurance Association [1925], M was a sole trader - formed a limited liability Co. to which he transferred all his business interests and property. M - sole shareholder of the Co. Among the property transferred was a consignment of timber. This timber insured against risk of destruction or damage by fire inthe name of M. The timber was destroyed by fire and M claimed compensation from the insurer i.t.o. the policy. Insurers refused to meet - claim arguingthat M had no insurable interest in the timber at the time the event giving rise to the destruction occurred. M sued the insurers and lost. The court holding that since the timber was Co. property the right person to insure the timber was the Co. itself and not M. M's insurable interest had terminated with his transfer of the timer to the Co. This decision based solely on the concept of the Co's separate legal personality.

b. Limited Liability

The word limited that appears in the name of every Co. serves to give noticeto all who deal with it that the liability of the shareholders to the creditors of the Co. is limited. For Co's. with share capital members cannotbe required to contribute more than the amount outstanding on their shares. Key difference between limited liability Co's. and partnerships and sole traders.

c. Transferability of shares

Shares in Co. are property - can be transferred, pledged, mortgaged, sold etc. Extent to which shares can be dealt with depends on - type of Co. and it's Articles of Association. Private limited liability Co's. are obliged torestrict transferability of their shares by S. 33 of the Act. Shares in public Co's are generally freely transferable.d. Perpetual successionCo's. life only terminated by judicial process winding-up or liquidation. Unless wound up or liquidated, Co. continues to exist no matter what changestake place in its membership, except for the statutory limitations on the lowest number of members, directors and officers a Co. may have. As separatelegal entity it has a life separate from its members. It has perpetual succession. The death of a member does not terminate the existence of the Co. as is the case with partnerships.

e. Capital

When Co. is registered the amount of its share capital must be disclosed in its Memorandum of Association. The Registrar must be notified of subsequent alterations to the capital clause in the Memorandum. Capital may consist of

different classes of shares, namely: ordinary shares; preference shares, etc. Differ as to their rights to dividends and voting power.

f. Objects

The object for which the Co. is formed disclosing the business it will become involved in - set out in Objects clause in Memorandum of Association.No Co. can be registered with vague and uncertain objects. Amendment to the objects clause in the Memorandum requires specific procedures.

g. Management

Co. artificial person cannot manage itself - acts through human agents - directors. Form management of Co. Directors have legal responsibility to formulate Co. policies - manage it in best interest of shareholders and other stakeholders.Directors answerable to the Co. in general meetingsShareholders - power to appoint and remove directors.

5. TYPES OF COMPANIES2 broad categories, viz. Co's. limited by shares and those limited by guarantee.Co's limited by shares raise capital through issue of shares. Such Co's. further divided into 2 categories, namely: Private and Public Companies.

Private Co. apart form having the words "Private Limited" in their names, restrict the transferability of their shares and may not have less than 2 ormore than 50 members [excluding employees] in terms of S.7 of the Act. Usually the restriction on the transferability of shares in Private Co's. takes the form of pre-emption rights in favour of remaining shareholders to whom the shares are first offered by the shareholder wishing to sell the shares.

Public Co. generally do not restrict the transfer of their shares and in whom the public at large are invited to purchase shares. It may not have less than 7 members but no maximum number is prescribed by the Act. Only a public Co. can apply for listing on the Stock Exchange and if, successful the Stock Exchange rules require that its shareholders be increased to at least 300. A Public Co. [unlike a Private Co.] is required by S. 124 of the Act to hold a statutory meeting prior to the commencement of business.

Co's. limited by guarantee do not issue shares but members undertake to contribute a certain amount of money to the Co. In event of liquidation members' liabilities limited to the amount guaranteed.

Every Co. registered to conduct business in Zimbabwe must have at least 2 directors, one of whom must be ordinarily resident in Zimbabwe. The liability of its shareholders is always limited unless it chooses to operatewith unlimited liability, or it falls foul of the provisions of the Act interms of which the limits on its liability is forfeited.

LECTURE 4

THE LAW OF PROPERTY

Key Objectives of this lecture are:

1. Define "property"2. Classify property.3. Define intellectual property.4. Identify interference with property rights.5. Discuss trends in property law ant treaties governing intellectual property.6. Discuss methods of dealing in property.

1. THE LAW OF PROPERTYThe word property means two things: * the right of ownership in and to a thing; * the thing to which the right relates.

In one sense property is not a thing but a right in and to a thing.

The law of property is that body of law, which regulates the legal relationsbetween persons and things. Concerned only with objects of economic value.

Freedom of property - often said to be a basic right - expression of demand that the state obliged to protect - rights in and to property and interfere with them as little as possible. The failure of the state to protect property rights can be equally if not more deleterious to public order, safety and health, to the same extent as an over zealousness to interfere with, regulate or control property rights in the interests of society. Limitations on property rights can range from building, environmental and public health regulations to social and economic reform programmes, each with their own implications for the national economy and the business sector.

2. CLASSIFICATION OF PROPERTY

Property can be classified in various ways. For purpose this discussion classified broadly into movable and immovable, each category containing the sub-classifications of corporeal and incorporeal. Most important form - corporeal immovable property - land and the fixed improvements thereon. Incorporeal immovables - i.a. praedial or personal servitudes upon immovables. Vast category corporeal movable property - all property which not immovable. Incorporeal movable - shares, goodwill of business.

Distinction between movable and immovable property - practical importance for following reasons:a. Ownership of movables - transferred by means delivery of the thing to the transferee. Ownership of immovable t/ferred by registration of the t/fer.b. Real security provided by means of registration of a mortgage bond in the case of immovables and by means of a notarial bond or pledge in the caseof movables.c. Immovable property of a minor can be alienated or encumbered only with the consent of the High Court, no such requirement in respect of movable property.d. Debtor's assets attached in preparation for a sale in execution - movable assets must be attached before immovable.

All property t/ferred voluntarily or involuntarily. Voluntary t/fer - resultof sale or donation. Involuntary t/fer sale in execution or expropriation.

Generally speaking - person has the right to use and enjoy property free from unreasonable intrusion. This right infringed person has remedy. Rei vindicatio - action by which owner can recover things that is still in existence and identifiable which unlawfully removed from owner's physical control. Interdict - summary court order directing respondent to perform a certain act [mandatory interdict] or refrain from or discontinue a certain act [prohibitory interdict]. The object of an interdict is to prevent or terminate the prejudice for an owner resulting from the action or default of

the respondent in regard to the thing in question. Often used in connection with nuisance or other infringements related to the law of neighbours. Declaratory order is an order of the High Court in which the rights and obligations of the applicant are confirmed.

The condictio furtiva delictual remedy against thief or his heirs to recoverthe thing or to pay the owner or his heirs the highest value of the thing stolen, since its theft. Actio legis Aquilliae provides the owner - means toclaim damages from person responsible for the unlawful and culpable [negligent or intentional] destruction of or damage to property also extendsto damage resulting from unlawful control over property. Trespass and nuisance - delicts encountered in connection with interference with propertyrights. Trespass intentional interference with landowner's use and enjoyment- property. Remedies interdict and damages. Unreasonable interference with owner's use and enjoyment of property. Private - if affects one of few persons. Public - if affects a large section of the community.

3. INTELLECTUAL PROPERTY

Fruits of intellectual endeavour, e.g. authorship or inventions, subject to protection. Author/artist - right not to have work reproduced without authority thereby causing financial prejudice.

Intellectual/artistic efforts not protected against piracy incentive to invent/create undermined. Intellectual property law embraces copyright, patent and trademark law. Basic objectives of law in these areas two-fold: a] Provide ownership rights i.r.o. intellectual and creative work. b] Provide framework for enforcement of those rights by remedies for theirbreach. Not every idea or invention protected.

Co's. faced with dilemma. Benefits of innovation obvious but why innovate ifinnovation can be replicated by competitors with impunity? Failure to innovate may lead to loss of competitiveness in market place.

a. Patent LawConcerned with securing and enforcing exclusive right to profit from ownership of invention. Research and development costly. Involves considerable risks. Patent law attempts to enable inventors - recover some of the costs by preventing others from copying inventions as soon as it proves successful. Attempts to discourage free rider syndrome.To merit registration and achieve protection invention must be new, originaland useful process, machine, manufacture or composition or an improvement off an existing patented design.

Patents granted by Registrar of Patents., Trademarks and Copyright to whom application for registration must be submitted. If application granted, holder will be entitled to protection for specified period. Holder may licence some other person to produce patented item.

Unauthorised replication off patented item- infringement entitling holder todelictual damages against offender.

b. CopyrightCopyright - declaration by copyright owner of property interest in the thingto which copyright relates e.g. book, song, film, etc.

Only requirement for copyright- work must be original. No formalities required to bring copyright into existence. Should still apply to formally register copyright.As in case of patents infringement of copyright - delict - entitling copyright holder to interdicts and damages. Permissible to use copyright material for research, review and educational purposes. Credit must be givento copyright holder by supplying references to the work. Referred to as fairuse.

c. Trademarks and Service MarksAny unique trademark, branch name, symbol or sign that identifies product orservice as the product of the holder of the trademark or service can be protected as a registered trademark or service mark. It identifies the product with the holder and assures consumers of the quality of the product or service. Such marks are capable of registration in the same manner as patents.

Unauthorised use of a trade - or service mark is likely or calculated to confuse the public amount to the delict of passing off and renders the offender liable to a claim for damages.

d. Major International Treaties on Intellectual Property.

International law affords protection for intellectual property through various treaties.i] Patents: Paris Convention on Industrial Property [1833] Main provision - states must provide same protection to foreign inventions as that provided to local inventions.ii] Copyright: Universal Copyright Convention [1952]Major problems in dealing with international intellectual property infringements in the areas of detection of infringements and enforcement of holder's rights. Problems can only be dealt with at highest government levels and requires good bi-lateral relations between the states involved. Losses in this area amount to billions annually from goods that are passed off as being that of the patent or trademark holder.

4. EXPROPRIATION

Expropriation means the lawful deprivation of the owner of his rights of ownership by the state for a national purpose in the national interest. Powers of expropriation have granted to various agencies of the state e.g. local authorities. Prior to its amendment to accommodate the present government allegedly successful land distribution programme the Constitution

of Zimbabwe provided, as do those of most civilized nations, that expropriation had to be in the national interest and that compensation for the expropriated property was to be paid to the owner promptly and at the market rate.

Land tenure systems and the degree to which property rights are upheld and protected by the state high level of impact on international and even local investors. Any failure in this regard is immediately reflected in the marketplace. This impact has been particularly noticeable since the commencement of the so-called "resettlement programme".

5. DEALING IN PROPERTY

a. Sale/Purchase - Transfer of Immovable Property: Mortgage on sale/purchase of an immovable property the parties normally agree that the purchase price is to be paid prior to transfer or acceptable security for the payment of the purchase price will be provided by the purchaser [mortgagee] registering a mortgage over the property in favour of the seller[mortgagor] for the whole or unpaid balance of the purchase price, which will stipulate in its terms the manner of payment of the amount owing in terms thereof amongst other things. The parties may alternatively agree to involve a third party who will pay the purchase price of the property to theseller and in whose favour a mortgage bond will then be registered.Both the Deed of Transfer and the Mortgage Bond will be registered in the Deeds Registry by a conveyancer or conveyancers, acting respectively on behalf of the seller [transferor] and the lender [mortgagee], who may in some instances be the same person.The purpose of the mortgage bond is to secure the debt so that the mortgageemay sell the property in the event of default by the mortgagor [in this respect a foreclosure clause is usually incorporated in the bond] and it also gives the mortgagee a preferent claim in respect of the proceeds of thesale of the property in the event of the insolvency or liquidation of the mortgagor. The bond normally contains a clause relating to the payment of interest on the debt secured.

Although the debt is extinguished by full payment of the capital and interest due it requires formal cancellation in order for it to be expunged.

A person may also use a mortgage bond as a means to raise capital to secure a loan to lender. Normally such lender will insist that all other debts secured by mortgage bonds be settled in order that they may obtain a first mortgage over the property.

Mortgage bonds are ranked in respect of preference in the order in which they are registered.

b. Leasing

A lease is an agreement between the parties granting the right of use and occupation of a property or part thereof to the lessee for a fixed or

determinable period against payment of a sum of money [the rental] to the lessor [landlord] at stipulated or determinable intervals.In respect of movables their are two types of leases, namely: aa] Finance leases and bb] operating leases. A finance lease transfers substantially allthe risks and benefits of ownership, irrespective of whether ownership of the leased property is eventually t'ferred to lessee [hirer] or not, to the hirer. Such lease is normally not subject to cancellation and secures for the lessor the recovery of the capital outlay in addition to a return on thefunds invested.

A lease is classified as an operating lease if the responsibility of the lease is confined to the periodic payment rental by the lessee to the lessor.

The advantages of leasing over outright purchasing are:aa. Working capital is retained by the lessee and borrowing facilities conserved.bb. The costs of leasing are allowable deductions for income tax purposes.cc. Where property or equipment is superseded by improved models at frequent intervals, an operating lease makes it possible to replace obsoleteunits by later models at frequent intervals and at a reasonable cost. dd. The maintenance service of the dealer is likely to be more efficient if- retains ownership. ee. Can work as a hedge against inflation since rental is usually fixed forperiod of the lease.ff. Since lease expenditure predetermined cash flow projections and budgeting facilitated.gg. In most cases rental paid includes maintenance, the supply of spare parts and incorporates updating facilities.

Finance leasing - leasing based on concept - in production key factor -not ownership of assets rather its availability for use. Ideally appropriate to lease rather than own it, which may require heavy capital outlay.

Financial soundness of leasing dependent on ability of business to make optimum use of capital freed by this option.

Wise, if agreement not fully understood to seek professional advice as to the implications of its terms before signing. To do otherwise unreasonable and negligent. Maxim caveat subscriptor applies to signed agreements. This means that a person is generally bound by the words appearing in the agreement signed - not a defence to plead ignorance of some of its contents.

LECTURE 5LAW OF CONTRACT - PRINCIPLES AND CASES

Key Objects:1. Provide a definition of contract.2. Analyse legal principles governing formation of a contract..

3. Highlight the importance of intention in contract formation.4. Examine factor that vitiate consent to contract.5. Examine contractual capacity.6.Examine the effect of mistake on the validity of a contract.7. Examine what constitutes a breach of contract.8.Consider the significance of contract in business relations.

1. 1. INTRODUCTIONLaw of contract part of the law of obligation in the branch of law known as civil law. Because it is based on voluntarily accept obligation it is necessary to accept that parties agree to the obligations embodied in their contract. They must both intent to be bound by their agreement [animus contrahendi] and they must be in agreement with each other as what they expect of each other [consensus ad idem]. Agreement is the core of the contractual relationship.

Statutory provisions have made certain inroads into the area of the sanctityof contracts in many jurisdictions. The reasons advanced for this incursion is that the parties seldom contract as equals. The legislature by the statute is passes seeks to protect the less sophisticated parties to unwise contracts from their own ignorance as well as the wiles of the less scrupulous members of the business community who would seek to take advantage of them. To this end Consumer Contracts Act of 1994 was passed in Zimbabwe.

1. 2. CONTRACT DEFINEDFor our purposes we shall content ourselves with a working definition of a contract: A contract is a binding agreement, which the parties thereto create between themselves intending that it be legally enforceable. Courts do no more than attempt to give effect to the intention of the parties.

1. 2. 1. FORMATION OF A CONTRACT - Offer and AcceptanceGenerally - the approach of the courts in ascertaining whether a contract exists - analyse whether an offer was made by the offeror to the offeree whoaccepted it.Agreement may take one of 2 forms., namely:a. Actual agreement - rarely results in legal disputes. Both parties confirm the terms of their agreement.b. Apparent agreement - when to all intents and purposes the parties appearto have agreed but it subsequently appears that one had something different in mind from what the other thought that party agreed to. Comes about because a person's state of mind evidenced by words and actions - may be ambiguous or misunderstood or worse - lead others to conclude that the person speaking and acting has an intention which he in fact does not have. In these circumstances our courts have adopted the approach first enunciatedby Blackburn J in the classic of Smith v Hughes [1871] L.R. 6 QB 597 where he said: "If whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to terms proposed by the other party and that other party enters into a contract with him, the

man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms."

A contract may be entered into orally, in writing or by conduct. Writing - not essential - validity of c/t/t except when required by statute, e.g. HirePurchase Act [Ch 14:04] req all H.P. c/t/t to be in writing. If statutory requirement not complied with c/t/t invalid.In agreement described as c/t/t - meeting of minds - consensus ad idem.What is an n offer for the purpose of formation of c/t/t? Must be:a] Firm;b] Reasonably definite and unconditional;c] Evincing an intention to be legally bound by its acceptance;d] Does not contemplate further negotiations.

Firm offer must be distinguished from offer to open negotiations or do business known as an offer to treat or "offer to chaffer".

As a general rule in our law advertisements not firm offers but invitations to treat or do business - Crawley v R 1909 TS 1105; Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd [1953] QB 401. Same principal generally applies to tenders and auction sales- not firm offers but invitations by persons who conduct them to do business.

Offers may be addressed to particular individual; a particular group of people or public at large.

C/t/t comes into being when - valid offer - accepted by intended offeree. Offer not accepted lapses or expires in the following ways:a] Effluxion or expiry of fixed time. In Laws v Rutherford 1924 AD 261 at 262 Innes CJ - legal position as follows:"Speaking generally, when the acceptance of an offer is conditioned to be made within a time or a manner prescribed by the offeror, then the prescribed time limit and manner should be adhered to".b] No time limit set by offeror - lapses after expiry of reasonable time. Reasonable time - matter of fact ascertained from surrounding circumstances.c] Death. Normally death of offeror or offeree terminates offer. De Kock vExecutors of Van de Wall [1899] 16 SC 463 - offer of donation could not be accepted after death of offeror.d] Loss of contractual capacity. Contractual capacity lost through insanity, insolvency, etc.e] Rejection. Terminates offer.f] Counter offer. Destroys original offer. Hyde v Wrench [1840] 49 ER 132 - W offered to sell farm to H for 1000. H counter-offered 950 - W rejected. H purported to accept previous offer. W no longer keen to sell farm. H sued W. Held: Counter-offer amounted to rejection of offer - therefore no longer open to acceptance. g] Withdrawal or revocation of offer. General rule - offeror can withdraw / revoke offer at any time before acceptance unless specific time given for acceptance. Withdrawal / revocation must be communicated to offeree.

Option - offer to sell - with agreement to keep offer open for certain time:Van Pletzen v Henning 1913 AD 82 and Boyd v Nel 1922 AD 414. Offeror bound to keep option open for period agreed. Failure to keep option open amounts to breach for which offeror can be sued.

2. 2. FORMATION OF CONTRACT: ACCEPTANCEAcceptance converts an offer into a binding c/t/t. No acceptance - no c/t/t.Acceptance must be clear, unambiguous, unequivocal and unconditional. It must correspond with the terms of the offer. Modification of the terms of the offer amounts to a counter-offer if the modification is material.

General rule - acceptance must be communicated to offeror. C/t/t made through the post - When is such c/t/t concluded? Fundamental consideration -what did the parties intend. In the absence of clear intention - c/t/t binding as soon as letter of acceptance posted. Cape Explosive Works v S A Oil and Fat Industries Ltd. 1921 CPD 241 - S A Oil and Fat Industries [SAOFI] [Transvaal] wrote letter to Cape Explosive Works [CEW] [Cape] offering to sell certain quantity of glycerine. CEW posted letter of acceptance on 14/7/16. Letter received by SAOFI. Became necessary to determine where c/t/t was concluded to determine which court had jurisdiction to hear dispute. Held - c/t/t concluded in Cape where letter of acceptance posted.

Where offeror makes offer by post without stipulating another mode of acceptance - presumed that acceptance must be by the same means. Critical consideration in contractual disputed - intention of the parties insofar as this can be ascertained from c/t/t itself and surrounding circumstances. Once c/t/t in existence - party seeking to go back on undertaking in breach - can be sued.3. CONTENTS OF CONTRACTContents of c/t/t fall broadly into 3 categories - conditions, terms and warranties. Collectively - provisions of c/t/t.Term of c/t/t - stipulation - spells out - nature, content and extent of parties' obligations. Clarify who is to do what, when and how. A provision to supply a certain quantity of cement to a given date at a particular date is a term.Condition of c/t/t - makes one or more obligations under c/t/t dependant upon uncertain but possible future event. 2 types of conditions:* Suspensive condition or conditions precedent - provide event takes place. e.g. pay national soccer team 11 million is they win by 2 clear goals.* Resolutive conditions or conditions subsequent - dissolve the c/t/t once the event stipulated - taken place.Because conditions depend on uncertain but possible future event failure of fulfilment of the condition is not actionable unless - failure deliberately caused by one of the c/t/ting parties. Terms of a c/t/t fall into 2 categories, i.e. express and implied terms.Express terms - to which parties apply their minds and agreed upon.Implied terms - though not stated in the agreement - as much part of the contract as an express term. There are 3 types of implied terms:

* Terms implied by law, e.g. in c/t/t of sale - that goods fit for purpose for which they are bought. * Terms implied by trade usage, e.g. a custom in a particular trade or profession. * Terms implied from the facts.When interpreting the contents of a c/t/t the courts aim to ascertain the intention of the parties. Use certain riles of interpretation for the purpose of consistency, e.g. contra proferentum rule that provides that if c/t/tual provision capable of 2 reasonable interpretations will give the meaning favouring the party who did not draft the contract.

4. STANDARD FORM CONTRACTS AND EXEMPTION CLAUSESCommon feature in commercial world. Written c/t/ts. signed or unsigned, drafted by one party [usually supplier of goods or services] for acceptance by other party, usually with no room for alteration. Called standard form because supplier of goods and service present same c/t/t to all potential clients, e.g. dry cleaners, transporters, etc.

Very convenient - supplier does not have to negotiate with each individual customer who consumes his goods and services. Common for standard form c/t/ts [also referred to as "ticket cases"] to contain one or more exemptionclauses [disclaimers]. Exemption clauses - purports to absolve a contractingparty from liability to which that party would otherwise be subject. Liability may be either c/t/tual or delictual. Illustration: A takes suit worth $800 000 to B dry cleaners and is charged $15 000 for cleaning it. B gives A a receipt which states "In the event of damage or destruction of thegoods left for cleaning arising from any cause whatsoever the liability of the dry cleaner shall be limited to ten times the cleaning charge." AssumingA's suit is damaged in the course of dry cleaning so as to render it useless, what is the liability of B?

Common exemption clause: "Goods left at owner's risk". In Essa v Divaris 1947 [1] SA 753, plaintiff usually parked his lorry in defendant's garage close to notice in large block letters which read: "All cars garaged at owner's risk". Plaintiff spoke Italian but very little English. There was a fire at the garage, which destroyed plaintiff's lorry. He sued the owner of the garage blaming the garage's negligence for the destruction of his lorry.Held - the owner of the garage was not liable because of the exemption from liability contained in the notice.Clearly this area constitutes fertile ground for abuse.

Legislative intervention in Zimbabwe and elsewhere has been employed in attempt to protect consumers. Here Consumers Contracts Act [Chapter 8:03] seeks to protect consumers but does not apply to sale, lease and employment c/t/ts. UK more comprehensive legislation in Unfair Contract Terms Act [1977] providing that a contractual clause [including exemption clause] willonly avail a party if it is proved to be reasonable. If a clause is found tobe unreasonable - court will not uphold it.

SIGNED DOCUMENTS

Signed documents of a contractual nature the rule caveat subscriptor [let the signatory beware] applies. In our law a person is bound by his signatureon a contractual document regardless of whether he reads the document or not, he is illiterate or not or whether the document is written in a language he could have understood or not. In Burger v Central South African Railways [1903]: "It is a sound principle of law that a man when he signs a contract is taken to be bound by the ordinary meaning and effect of the words which appear over his signature". In Bhikagee v Southern Aviation {Pty} Ltd 1949 [4] SA 105 a person who understood no English signed a document he knew to be in English was held bound by his signature.

Exceptions to the caveat subscriptor rule: A person will not be bound by hissignature to a contractual document in the following circumstances:a] Where the contents of the document have been misrepresented to the signatory.b] Where the signature was obtained by duress or undue influence.c] Where the signatory was labouring under a reasonable mistake of fact, i.e. justus error.d] Where a person is fraudulently induced to sign a contractual document, such person will also not be bound.

FACTORS VITIATING INTENTION TO CONTRACTConcerned with those factors which render an apparent concluded c/t/t invalid because the intention of one of the parties to enter into the contract was lacking. e.g. If party enters into a c/t/t because of threatened harm to himself of a member of his immediate family, it will not be upheld in a court of law because such party would lack the intention to enter into that contract.Necessary to distinguish between contracts which are void and those, which are voidable at the instance of one of the parties. * A void c/t/t is one, which is invalid [of no force or effect] from its apparent inception, so that it is incorrect to speak of a void c/t/t becausethere is no c/t/t. * A voidable c/t/t is one that is perfectly valid from the moment of its inception and remains so until set aside by one of the parties who has legalgrounds for doing so. These grounds are that the consent of the party to the terms thereof was:a] Induced by misrepresentation;b] Induced by undue influence;c] Induced by duress [metus]d] Involves a minor as one of the contracting parties without the assistanceof such persons' guardian.

MISREPRESENTATIONA misrepresentation is a false statement of fact made by one party to another, before or at the time of c/t/ting, with the intention of inducing ac/t/t. To enable the aggrieved party to have the c/t/t set aside on this ground the misrepresentation must be:a] Material;b] Intended to induce the innocent party to enter into the c/t/t;

c] A statement of fact not law;d] The factor that induced the innocent party to enter into the c/t/t.

Categories of misrepresentation, namely: Innocent, negligent and fraudulent.Party induced to enter into c/t/t basis of misrepresentation can sue the other party [misrepresentor] for rescission of the c/t/t, or alternatively, can refuse to perform his obligations and us the misrepresentation as a defence when sued.

Misrepresentation must be distinguished from what is known as "mere puffs" or simple commendatio [i.e. praising ones own merchandise]. In Naude v Harrison 1925 CPD 84, defendant [D] who was selling a house told plaintiff [P] that the house in question was "well built". P bought the house and discovered that the walls were cracking and sued D for misrepresentation. Held- the statement that the house was "well built" - not a misrepresentation but a mere simplex commendatio.In c/t/ of sale \, failure to disclose latent defect in merx, of which seller is aware amounts to misrepresentation. In Dibley v Furter 1951 [4] 73, P bought a piece of land from D. D knew that the piece of land in question had been used as a graveyard but did not disclose this to PWhere there is a misrepresentation the remedy of rescission of the c/t/t is available to the injured party but it must be accompanied by restitution [i.e. the return of what the party had received under the contract]. See Harper v Webster 1956 [2] SA 49

DURESSDuress simply means intimidation. For an action based on duress to succeed Broodryk v Smuts N.O. TPD 47 lays down the following requirements:a] The party invoking duress must have been induced to c/t/t by threats ofor actual violence;b] the threat of violence must be directed at the c/t/ting party or his family or property;c] the threat must be of a imminent possible evil;d] the threat must be contra bonos mores or illegal;e] the threat must be the cause for the party entering into the contracts.

UNDUE INFLUENCEImproper use of influence gained by one party over another so that the one whom the influence is exercised is incapable of exercising an independent discretion. Usually exists where there is a special relationship between theparties, such as lawyer and client, doctor and patient, etc. These relationships normally involve an element of trust or reliance by the one party upon the other. The party seeking rescission on this ground must provethat but for the undue influence he or she would not have entered in to the contract.

CONTRACTUAL CAPACITYAny person entering into a contract must have the requisite capacity to do so, otherwise the resulting contract will not be binding. Every party entering into a contract is presumed to have the required contractual

capacity unless the contrary is proved: Serobe v Kippies Bantu Community School Board 1958 [2] SA 265.

Generally speaking a person is said to possess contractual capacity if:a] Attained legal age of majority, i.e. 18 years; or b] Not having attained that age but has either become tacitly emancipated or become married.

Contractual capacity may become an issue when one of the parties thereto is:i] An artificial person, e.g. company;ii] a minor, a natural person below the legal age of majority;iii] a married woman;iv] a mentally disordered person;v] an intoxicated person;vi] an insolvent;vii] a prodigal.

Company subject to ultra vires doctrine. Questionable validity in view of Section 10 of the Companies Act [Chapter 24:03]

Since the passing of the Married Persons Property Act of 1929 all marriages contracted in Zimbabwe under the provisions of the Marriage Act have been out of community of property. This did not apply to traditional marriage according to African law and custom. Therefore it is still an open question as to what the c/c/tual of married women in this category is.

In Zimbabwe a minor is any person under the age of 18 years as provided in the Legal Age of Majority Act. Such a person required the assistance of his/her guardian in order to enter into a c/t/t. A party who c/t/ts with a minor without the assistance of his/her guardian cannot enforce the c/t/t against the minor. If the minor seeks to enforce the c/t/t must perform his/her obligations. Although other party cannot enforce c/t/t against a minor with whom c/t/ted without the assistance of the guardian, the minor isliable to that party by way of unjust enrichment for any benefit derived by the minor from the c/t/t.

A minor who is tacitly emancipated thereby acquires full c/t/tual capacity. This occurs where the minor is allowed by the guardian to carry on any business or occupation without parental control or to live apart from the parent or guardian in circumstances indicating that the parent/guardian. In Dama v Bera 1910 TPD 928 an Indian girl who was a minor had been earning herliving as a servant for on five years. She lived with her parents but retained control over her income and paid a certain amount to them for boardand lodging. Following a wage dispute with her employer the question arose whether she had legal capacity to represent herself. Held: She was tacitly emancipated and could sue her employer for the wages due to her. Per contra see Grand Prix Motors v Swart 1976 [3] SA 221 in which the respondent whilstshe was an 18 year old student nurse had entered into a hire-purchase c/t/t to buy a car unassisted by her guardian. She paid a portion of her purchase price in instalments and then returned the car being unable to continue the

payments. Soon thereafter she got married and claimed repayment to her of the amount she had paid under the hire-purchase contract as she contended that at the time, she was still a minor and the contract was therefore not binding upon her. The appellant led evidence establishing that at the time she was living in a student hostel and spent her salary as she saw fit. Her parents were divorced and neither of them had any say in how she spent her money. They argued that on the basis of these facts the Respondent was tacitly emancipated at the time and was therefore bound by her contract. Held: The respondent was not tacitly emancipated hence was not bound by her contract. It is clearly risky to contract with minors.

MISTAKE AND ITS EFFECT ON CONTRACTSThere are basically three types of mistakes that can be distinguished:

a] Unilateral mistake- where one party to the contract is mistaken and the other is notb] Mutual Mistake where both parties are mistaken about each other's state of mind.c] Common Mistake this occurs where both parties are of one mind and share the same mistake.A person may subjectively be mistaken so that it may be said that there is no consent yet because of the objective approach a court of law may hold that a contract exists on the basis of the doctrine of quasi-mutual assent [the rule in Smith v Hughes] earlier advert to. For a unilateral mistake to entitle a mistaken party to repudiate a contract, such a mistake must be proved to be a justus error, i.e. a reasonable mistake. A mistake will be reasonable if the mistaken party can show that:a] The other party was aware of the mistake; or b] as a reasonable person the other party ought to have been aware of the mistake; orc] the other party cased the mistake.No matter how material the mistake is, it will not entitle the mistaken party to repudiate the contract if it was due to that party's own fault. Acacia Mines Ltd v Boshoff 1957 [1] 1 SA 93. A distinction needs to be drawnbetween a material mistake and a fundamental mistake. A mistake is fundamental if its very existence renders agreement non-existent - to the extent that no contract could be said to exist at all. Such a contract is void ab initio. In Maritz v Pratley 1894 [2] SC 145 - a mirror and a mantelpiece were placed on top of the other at an auction. The two were however being sold by the auctioneer as separates lots. P made a bid on themin the mistaken belief that the constituted one lot [he was buying both]. P refused to take the mantelpiece without the mirror and M sued him in breach of contract. Held - there was no sale since there was no consensus on the subject matter of the sale.

BREACH OF CONTRACT AND REMEDIES OF THE INJURED PARTYWhere there is a breach of a material term of the c/t/t the injured party has the option to treat the contract as cancelled and sue for damages or

alternatively can abide by the c/t/t, sue for specific performance and claimsuch damages as he would have suffered.SPECIFIC PERFORMANCEA party to a c/t/t who is in breach may be compelled to perform the obligations in the manner specified in the c/t/t. Courts have a discretion whether to allow specific performance as remedy. Will not grant an order of specific performance in the following circumstances.

a] Where it is no longer possible to fulfil the obligation contemplated in the c/t/t. In Shakinovsky v Lawson & Smulowitz 1904 TS 326 a purchaser sued a specific performance under a c/t/t of sale. At the time the seller had disposed of the subject matter to a bona fide third party. The court held that specific performance could not be granted since it was no longer possible to perform the obligation contemplated by the contract. The purchaser was therefore limited to the payment of damages actually sustained.

b] Where despite the non-existence of any other ground an award of damages would adequately compensate the injured party.

c] Where it would be difficult if not impossible for the court to enforce the order. At common law a court would not order an employer to retain the services of an employee who was wrongfully dismissed.

d] Where the obligation to be performed involve rendering of service of a personal nature e.g. for a surgeon to perform an operation.

e] Where the order would result on extreme hardship being imposed on the defendant or the public at large

Before an injured party will be granted an order for specific performance hemust either have performed his obligations under the contract or have pledged to do so.

CANCELLATION OF THE CONTRACTAs stated where one party repudiates a c/t/t or is in breach of a material term thereof the other party may treat the contract as cancelled and sue fordamages. To avoid unnecessary disputes the parties may expressly agree that failure to perform certain obligations will amount to breach which will entitle the party to whom performance is due to cancel the c/t/t. By so doing the parties make that term a material one. Stipulations of this natureusually fall into one of the following categories.

a] Forfeiture clause - often found in lease agreement. Entitle landlord to cancel lease and eject tenants when tenant in breach e.g. in payment of renton the due date. In the absence of a specific provision - non -payment of rent - not a material term entitling landlord to cancellation. b] Foreclosure clause - normally found in mortgage bonds and debentures. Entitle mortgagor to call up the balance due in terms of the bond if the

mortgagee [debtor] is in default. Normally entails disposal of mortgaged property.c] Lex commisoria - c/t/t of sale entitles seller to cancel on the breach ofone or more of the terms of the c/t/t. Normally found in instalment sale andhire purchase agreements. Normally contains penalties such as authorising the seller to retain amounts paid cancellation and recovery of the subjectmatter of the sale.

DAMAGES Most common remedy for breach of c/t/t. Whether or not the term breached - sufficiently material to warrant cancellation of c/t/t - injured party always entitled to such damages - as can prove to have suffered as a result.Damages assessed at time of breach of c/t/t. Innocent party placed on same position as would have been if in c/t/t properly performed to the extent that this can achieve through monetary payment without undue hardship to defaulting party,In determining appropriate damages- following considerations decisive:a] The loss must result from the breach itself- causal link.b] Must be actual monetary loss incurred or gain not made.c] Natural consequence of the breach - must have been in the contemplationof the parties at the time of contracting. Loss must have been reasonably foreseeable by the defaulter at the time of contracting.d] The injured party must do all within his power to keep his damages as low as possible [mitigate his damages]. Cannot allow damages to increase whilst doing nothing about it.

There are different types of damagesi] Compensatory DamagesThese are awarded as a measure of the actual loss suffered. e.g. if A agreesto sell 10 tonnes of maize to B at $60 000 per tonne and A defaults, forcingB to purchase from another source who charges him $70 000 per tonne. The compensatory damages would be the $10 000 difference between the agreed price in buying the maize from A and the price from the alternative supplier.ii] Consequential DamagesFor these damages to be recoverable they should have been reasonably foreseeable at the time the contract was entered into. In Hadley v Baxendale[1845] the engine shaft of plaintiff's [P] corn mill had broken and P hired defendant [D] to transport the shaft to the manufacturer who was to make a new one using the broken shaft as a model. D failed to deliver the shaft within the time promised. With the engine out of service the mill was shut down. P sued D for lost profits during the period the mill was shut down. Held - the lost profits could not be recovered as damages because in many cases millers sending broken shafts do not shut down their mills, using spare shafts. Therefore damages of this kind were not reasonably foreseeablesince D was not aware of the special circumstances.iii] Liquidated DamagesThese are damages that the parties agree upon before the breach and form part of the terms of the c/t/t, governed by the Conventional Penalties Act.

When damages are in issue the plaintiff must prove his loss. The courts willnot speculate when awarding damages.

LECTURE 6

THE CONTRACT OF SALE

Key Learning Objectives

1. To build an appreciation of what constitutes a sale in the legal sense,2, To examine the obligations of parties to a contract of sale.3. To analyse the rules governing the passing of risk in a sale.4. To analyse the rules governing ownership and delivery in sale transaction.5. To present the legal position where defective goods are sold. 6. To examine the remedies available to either party where one defaults.7. To give an outline of specialised sales.

INTRODUCTION

Buying and selling is a fundamental transaction in the modern commercial

world. Goods and services are exchanged largely through the sale agreement

and it is only logical that the law provides for specific rules and

regulations applicable to this transaction. A sale is basically a contract

and as such all the rules governing formation of contracts in general apply

equally to sale agreements. However, in certain instances there are

additional legal principles which govern sales specifically which are not

found in other contracts.

WHAT IS A SALE?

At a basic functional level, a sale is a contract where the seller promises

to deliver a thing to the buyer, the latter agreeing to pay a certain price.

Thus, the agreement alone suffices to constitute a sale. Payment of the

purchase price or delivery of the things sold is not material requirements

for a sale to come into being. A sale is said to be perfect immediately

after parties are in agreement as to the subject matter of the sale and the

price to be paid by the buyer. The agreement can be oral or in writing.

Sale of non-existent things [merx] which cannot come into existence at all

in future is void Scrutton v Ehrlich and Company [1908] TS 300. However

where the thing is sold is non-existent but may come into existence in

future, such a sale will be valid and our law refers to such sales as sales

of res sperata.

Whatever the case there will be no sale in the absence of an express or

implied agreement on the price to be paid.

OBLIGATIONS OF THE PARTIES

A sale involves two parties viz - the buyer and the seller. The obligation

of the buyer can be summarised as follows:

i] To pay the purchase price;

ii] To pay the seller's necessary and reasonable expenses to maintaining the

merx pending delivery;

iii] To accept delivery of the merx.

Where the buyer defaults on his duty to pay the purchase price [mora debitoris]

by the due date, the seller cannot cancel the contract because the general

rule is that time is not of the essence of the contract in the absence of

anything to the contrary. In such a case, the seller's remedy will be to sue

for payment. However parties may agree to make time of the essence of their

contract by use of such clauses as the lex commissoria in which case failure to

pay by the due date will automatically entitle the seller to cancellation of

the contract. Non-acceptance of delivery by the buyer entitles the seller to

sue for specific performance or to treat the contract as cancelled.

Obligations of seller include:

i] To take care of the merx [subject matter of the sale] pending delivery.

ii] To deliver the merx to the buyer.

iii] To pass good title to the buyer.

iv] Duty to supply goods of the right quality.

THE PASSING OF RISK

When a person is bound to bear the accidental loss of or damage to the goods

sold, such goods are said to be at his risk. On conclusion of the contract,

risk of accidental damage to the thing sold passes to the buyer in the

absence of any express provision to the contrary. Only the risk of

accidental loss passes to the buyer. If the loss or damage is attributable

to the fault of the seller, the buyer will not be liable to pay the purchase

price. Just as risk to the buyer on conclusion of the contract, any profits

accruing from property sold also passes to the buyer. [see Me

Manley &Company]

The above general rule on the passing of risk has several exceptions. The

risk will not pass to the buyer in the aforesaid manner in the following

situations:

a] Where there has been an express or implied agreement varying the

general rule.

b] Where the goods bought have to be measured, weighed or counted in order

to fix the price or appropriate them to the contract.

c] Where there is default on the part of the seller in making delivery.

Thus in Jacobs v Petersen & Another [1914] CPD 705 J sold and delivered a

horse and cart to P for a price of $8 which was to be paid in

instalments. the contract was subject to the condition the ownership of

the property was to pass only on payment of the full purchase price. P

paid the first instalment but the horse died soon thereafter. J sued

for the balance of the purchase price. Held- the sale was subject to

the suspensive condition that ownership was only going to pass on

payment of the full purchase price, hence the risk of destruction of

the goods remained with the seller until the counting or weighing is

done. Thus Poppe, Schunhoff & Guttery v Mosenthal & Company in [1879] Buch 91

the plaintiff bought from the defendant 200 cases of brandy on 6 July

1878. Of these, 110 cases were delivered on 18 July 1878; 60 cases were

delivered on 6 August 1878 and the remaining 30 cases were delivered on

15 August 1878. On 25 July an Act imposing excise duty on brandy became

law. This meant that the brandy that had not been delivered by 25 July

was liable to pay duty. The issue before the court was who between the

plaintiff and the defendant was liable for duty on the 90 cases that

had not been delivered as of 25 July. The court found that nothing had

been done to distinguish the buyer's brandy from the rest of the stock

in the seller's possession. Held - the risk remained with the seller

who was therefore responsible for the payment of the duty.

VACCUO POSSESSIO AND THE IMPLIED WARRANTY AGAINST EVICTION

In the contract of sale, the seller undertakes to pass free and undisturbed

possession of the thing sold to the buyer i.e. vacua possessio. If the

buyer's vaccuo possesio is unreasonable and unlawfully interfered with, he

is protected by the implied warranty against eviction. This term is Implied

by the law in a contract of sale whereby the seller undertakes that the

buyer will not b e disturbed in his use and enjoyment of the thing bought.

The warranty does not give protection against the unlawful acts of other

people. Rather it protects the buyer lawful eviction because of defective

title. In Nunam v Meyer [1905] 22 SC 203 X sold three head of cattle to Y who

upon being informed by Z that the cattle had been stolen from him, handed

them over to Z. Y then claimed the purchase price from X. Evidence led

proved that the cattle had indeed been stolen form Z. Held Y was entitled to

succeed even though he had handed the cattle voluntarily over to Z without

any judicial process of eviction.

In similar circumstances to those in the Nunam case, the best course of

action to take would be for the buyer to inform the seller first that his

possession is being threatened before voluntarily surrendering the property.

Otherwise he runs the risk of losing his right of recourse against the

seller should it later turn out that the third party's title is not

incontestable [i.e. should it be proved that the third party's title

inferior to that of the seller]. In Nunam v Meyer if it had turned out that

X's title was superior to that of Z, then Y having surrendered the cattle

without seeking protection from X first, would have lost both the cattle and

the purchase price.

The implied warranty against eviction will however not apply in the

following circumstances:

a] The warranty will not apply if the parties expressly agree that the

seller will not be responsible in the event of the buyer's eviction.

But even in such cases, it is critical that the seller act in good

faith because if he is aware that a third party has a claim in the merx

and he does not disclose this to the buyer, the sale would be voidable

at the buyer's instance for fraudulent non-disclosure - Vlotman v

Landsberg [1890] 7 SC 301.

b] Where the buyer is aware that a third party is the owner of the

article, he has no right of recourse against the seller in the event of

eviction. By proceeding to buy the property, the buyer voluntarily

assumes the risk of eviction by the owner.

c] Where the cause of deprivation of possession arises after the sale and

the seller is not at fault, the warranty will not apply because that is

considered to be risk which passes to the buyer on conclusion of the

contract. In Rood's Trustees v Scott & De Villiers [1910] TS 46. The plaintiff

sold a piece of land to the defendant. Before transfer but after the

sale a new law was passed under which portion of the land was

confiscated to the state. Held - the loss fell on the buyer because

risk had already passed to him.

DELIVERY AND OWNERSHIP

The seller must undertake to deliver the merx to the buyer free from

interference i.e. vaccuo possessio. With immovable property delivery takes the

form of registration at the Deeds Office. Delivery of movable property can

be actual, or constructive. Actual delivery [traditio] is the actual physical

handing over of the thing sold or at least the placing of the thing within

the effective control of order.

Constructive delivery [fictitious delivery] is merely delivery at law

although no physical handing over of the merx takes place. There are

basically five forms of constructive delivery in our law and these are:

a] Symbolic delivery: This involves not the merx itself but some other item

which enables the buyer to exercise control over the thing sold e.g. giving

the buyer a bill of landing for goods sold while in transit. The bill of

landing being a document of title will enable the holder and no one else to

deal in the goods.

b] Traditio longa manu [Delivery with the long hand]. This occurs where

physical delivery is not possible because of the sheer size of the item in

question. It takes the form of pointing the item to the buyer.

c] Traditio brevi manu [Delivery with the short hand]. This mode of delivery

takes place where the thing to be delivered is already in the possession of

the person to whom it has to be transferred. It is often used where goods

have been pledged and the same goods are later taken over by the pledgee.

d] Constitutum possessorium. This is the converse of traditio brevi mann. It denotes

a form of delivery in which the transferor retains physical control over the

thing in which he has agreed to transfer ownership to the transferee. Thus

the thing remains with the transferor with the acknowledgement that it shall

henceforth be owned by the transferee and that he will keep it on behalf of

the latter e.g. where a person buys a watch from a jeweller but leaves it

with him for the belt to be adjusted.

e] Attornement. This occurs where the thing to be delivered is not in the

possession of the transferor nor the the transferee but under the custody of

a third party who is holding it either as an agent of the transferor or in

some other capacity e.g. a hirer. In such a case the transferor will

instruct the third party to hold the article on behalf of the transferee

provided:

i] There is mental concurrence of all the three parties involved, and

ii] The third party in question actually is in control of the property.

Delivery is the legal process by which ownership in a thing is transferred

from one person to another. Where the owner is unlawfully dispossessed of

his property, he has a right to recover possession from whoever is found in

possession of his property and this is called the right of vindication. The

right to vindicate can be exercised whether the other party gained

possession right-fully or wrongfully. Vorster v Hodgeson [1902] 19 SC 439. Thus

if the buyer is to have good title in the merx, he must have ownership not

just vaccuo possessio. All sales are presumed to be for cash unless evidence

clearly proves the contrary.

THE IMPLIED WARRANTY AGAINST LATENT DEFECTS

The seller has a duty to deliver the thing sold without any defects. For

patent defects [i.e. those easily identifiable] the rules relating to breach

of contract by defective performance apply. The buyer has an option to

accept or reject the article. Where he chooses to accept the article, he may

through the actio quanti minoris demand a reduction of the purchase price.

Where the defect is latent, [i.e. hidden and not easily identifiable] the

buyer has some special remedies unique to the contract of sale and these

remedies apply whether or not the seller was aware of the defect at the time

of sale. If the merx is totally unfit for its ordinary use because of the

defective, the buyer may by means of the actio redhibitoria cancel the

contract and claim the purchase price against a return of the defect

article. The general rule is that a party who seeks rescission of a contract

must be prepared to tender restitution. Thus in SA Oil & Fat Industries Ltd. Park

Rhynie Whaling Co Ltd. [1916] AD 400 - the plaintiff bought a quantity off whale

oil that was defective from the defendant. Before becoming aware of the

defect, the plaintiff mixed other oil and fatty acids with the oil bought

from the defendant. He could therefore not return the oil bought.

When the plaintiff finally became aware of the defect, he sought through the

actio redhibitoria to cancel the contract. Held - that since the plaintiff

could not tender restitution, his prayer for cancellation of the contract

failed and only the actio quanti minoris [reduction of the purchase price]

was available as relief.

However the above rule will not apply in the following situations:

a] Where the goods have perished after delivery as a result of the latent

defect making restitution impossible.

b] Where the goods have been consumed in the course of normal use to which

the seller knew they would be applied and the buyer had no knowledge of

the defect. In African Organic Fertilizers & Associated Industries Ltd v Sieling [1949]

[2] SA 131 S bought a quantity of Karoo manure from A, informing him

that it was to be used on land where flowers, vegetables and seeds were

being raised. The manure delivered contained salt rendering it unfit

for the purpose for which it was bought. S being unaware of this defect

used the bulk of the manure. He tendered return of the remainder and

claimed rescission. Held - S was entitled to succeed.

The effect of the aedilition remedies [i.e. the actio rehibitoria and the actio

quanti minoris] is that the seller impliedly warrants that the article is fit

for its ordinary purpose. The seller also impliedly warrants that the

articles are free from latent defects enough to reduce the value of the

article. If the article is latently defective to this extent, the buyer may

invoke the actio quanti minioris to claim a reduction of the purchase price.

The seller is however not responsible for latent defects in the following

circumstances:

a] Where the seller expressly contracts out of liability by agreement with

the buyer i.e. voetstoots sales. But contracting out of liability will

not help the seller where he sells voetstoots knowing that the merx is

latently defective, Van Der Merwe v Culhane [1952] [3] SA 42. Effectively

the seller must not be silent about latent defects of which he is

aware. Where he does so, even a voetstoots clause will not avail him.

Thus in Hadley v Savory [1916] TPD 385. H bought a colt at a public

auction of bloodstock from S, the sale was voetstoots. To the knowledge

of S the cold had previously run into a wire and seriously injured his

shoulder to the extent that he went lame and was unfit for racing

purposes. Of these facts nothing was said at the sale. Held -, the colt

was latently defective and despite the purposed voetstoots clause, the

buyer was entitled to cancel the contract.

b] If the defect does not exist at the time of sale. In such cases the

ordinary rules on passing of risk will apply and the loss lies with the

buyer. The onus is on the buyer to prove that the defect existed at the

time of the sale.

c] Where the buyer is aware of the defect at the time of sale or became

aware of it consequently and expressly or impliedly accepts the

position. In the case the buyer would be taken to have waived his

rights - Theron Africa [1893] 10 SC 246.

d] Where the seller makes a dictum et promissum which is unfounded, the buyer

can invoke the aedilitian remedies against the seller. A dictum et

promissum is a statement made by the seller during the negotiations

preceding the contract which bears upon the quality or value of the

thing sold and which can reasonably be constructed as intended to be

acted upon by the buyer.

e] Where there is wilful non-disclosure of a latent defect, the seller

acts fraudulently. But mere non-disclosure of a defect known to the

seller does not necessarily amount to fraud without evidence to show

that the non-disclosure was calculated to induce the buyer not to

refrain from entering into the contract. Thus intention must be proved.

LIABILITY OF DEALER AND MANUFACTURES

Dealers and manufacturers are presumed to be aware of latent defects in the

article they sell or manufacture. Not every dealer however is treated this

way. A dealer is only liable if he professes special knowledge of the goods

sold. A dealer professes special knowledge if he publicly professes to have

attributes of skill and expert knowledge in relation to the goods sold. -

Kroonstad Westelike Boere Ko-op Vereniging Bpk v Botha & Another [1964] [3] SA 561.

In Young Provisions Stores [Pty] Ltd v Van Ryneveld 1963 CPD 87 it was held that a

dealer in foodstuffs is liable for damages suffered by a consumer of his

products and even if he had no means of finding out the defect. The case

concerned canned food. Similarly in Odendaal v Bethlehem Romery Bpk 1954 [3] SA

370) bought from B a dealer almost dealing exclusively in the sale of stock

feed, a quantity of fine bonemeal for purpose of cattle feed. The bonemeal

was, unknown to either O or B contaminated with anthrax germs. As a result

of eating the meal 13 of O's cattle died. O sued for the recovery of the

value of these cattle from B. Held- O was entitled to full compensation.

Where the manufacturer or dealer has given an express warranty against the

existence of the defect, the ordinary rules governing breach of a term of

the contract will apply. The buyer may therefore claim cancellation of the

contract and damages or damages alone- depending on the materiality of the

term.

SPECIAL SALES

1. Sales by Description. This is a sale off - unascertained goods in which

the parties agree that the item sold will be of a particular type. The

sale contains an express warranty by the seller that the goods will

meet the description given.

2 Sale by Sample. This is a sale in which parties agree that the goods

will be of the same quality as the exhibited sample.

3. Free of Board [F O B]. This is a form of sale where it is the duty of

the seller to place the goods free on board on a ship named by the

buyer. In this type of contract risk passes to the buyer of shipment of

the goods. Once the goods are on board, the seller is deemed to have

delivered them to the buyer.

4. Cost, Insurance and Freight [C. I. F.] Sales. With this type of export

sale, the price is to include cost, insurance and freight. The seller

must ship the goods and within a reasonable time he must tender the

shipping document to the buyer i.e. the invoice, bill of landing and

the insurance policy.

5. Auction Sales. This is a sale by an agent [auctioneer] on behalf of the

seller. The item should be sold to the highest bona fide bidder. The

sale is subject to "conditions of sale" and the buyers are taken to

have assented to these whether or not they read them - Hofmeyer & Son v

Luyt 1921 CPD 837. Sales by auction can be with or without reserve. An

auction with reserve is one in which ordinary rules of offer and

acceptance applies. Bidders offer to buy at the reserved price or more

and the auctioneer on behalf of the sell may accept an offer or reject

the bid at his option. An auction without reserve is one where the

seller must allow the thing to be taken by the highest bona fide

bidder.

Contracts of sale drive the world commerce all over the world. They can also

be the source of huge liabilities for a business. Consequently it is vital

that business people and consumers have an appreciation of what the law is

on this area.

LECTURE 7

PRODUCT LIABILITY, EMPLOYER'S LIABILITY AND VICARIOUS LIABILITY

Key Learning Objectives

1. To give insight in product liability from both a local and international perspective.2. To define the bases of product liability.3. To define the duties of employers at common law and under statute.4. To define vicarious liability and its rationale.5. To present policy issues shaping the development of vicarious liability.

PRODUCT LIABILITY LAW

Product liability law is based mainly on the concept of consumer protection.

Suppliers of goods used by the public have a legal duty to ensure that the

goods they supply are fit for their intended use and more importantly, they

are not harmful to the end user.

The liability of a manufacturer or supplier of goods is founded on primarily

three bases in our law namely:

a. Liability arising in contracts,

b. Liability arising in delict; and

c. Strict liability.

LIABILITY IN CONTRACT

A purchaser of defective goods can bring an action for breach of an express

or an implied term in the contract. The term could be a warranty given by

the manufacturer

about his product. A warranty is a representation about the nature or

quality of an item sold that becomes part of the contract of sale. Failure

of the product to conform to the warranty automatically renders the giver of

the warranty [usually the manufacturer] liable for breach of contract.

One key advantage of suing in contract for a defective product is that

liability attaches without the need to prove fault on the part of anyone.

For example in a contract of sale, there is an implied term that the goods

will be reasonably fit for the purpose for which they are sold. If the goods

do not prove fit for that purpose, the buyer has no obligation to prove that

the seller was in any way to blame for that fact. In fact liability in

contract is strict in that when a breach occurs, there is liability without

the necessity of proving fault.

The main disadvantage with contractual liability for defective products lies

in that remedies in contract are only available to parties to the contract.

Outsiders, like the recipient of goods as a gift or user of the goods who

was not a purchaser have no remedy in contract. This is a serious limitation

indeed such that any person who is injured by a product he did not purchase

has to look for a remedy outside contract. The doctrine of privity of

contract on a third party. This doctrine is very much part of our law hence

a person cannot recover damages under a contract to which he is not part. To

this extent therefore, liability in contract for defective products has a

limited scope and it excludes many people from recovering damages on the

grounds that, although they may be victims of defective products, they would

not be standing in a contractual relationship with the person responsible

for that product.

LIABILITY IN DELICT

A wider scope for product liability is found in delict. A delict is a civil

wrong involving breach of legal duty giving rise to a civil action at the

instance of the injured party. It is now settled law that even in the

absence of a contract, there may be a remedy in delict for victims of

defective goods. The remedy largely lies on the manufacturer who has a duty

to ensure that the ultimate consumer is not injured by his product. Provided

it can be shown that it was reasonably foreseeable that the product, if

released in that state, would harm the consumer, there will be liability.

A remedy in delict is only recoverable upon proof that the manufacturer was

at fault. Failure to establish fault will automatically deprive the injured

consumer of a remedy. Fault is usually founded on the concept of negligence.

Put simply negligence simply means failure to take care in circumstances

where the law demands that care be taken. The standard by which conduct is

measured is that of a reasonable man. The question to ask in the case of

defective products is - what would a reasonable manufacturer have done in

the circumstances?

With reference to products, negligence can take many forms e.g. inadequate

inspection, processing, packaging, warning or design. Because of the

difficulty of identifying and bringing to court the manufacturer, many of

whom may be domiciled in a different country from that of the consumer, many

countries now extend the range of possible defendants to include those who

assemble goods, repairs as well as suppliers.

Notwithstanding its wider range of consumer protection compared to contract,

delictual liability suffers from the following disadvantages:

a] Liability is concerned with defects in the quality of the product only

as opposed to defects that give rise to dangers in health and safety of

consumers. In other words it is the physical harm caused by the product

that is covered and not pure economic loss.

b] In many cases it is extremely difficult to gather the necessary

evidence to establish fault on the part of a manufacturer of a highly

technical product for example. This can only be possible where the

injured consumer has evidence from some internal source and a detailed

knowledge of the manufacturing processes involved. Cases based on

negligence will not succeed unless the defendant can establish that the

defendant can establish that the dependant failed to exercise

reasonable care. Further, where it is shown that the defendant could

not have known of the possible dangers in the product because of lack

of existing scientific knowledge, there is no negligence. This is the

so-called state of the art defence.

STRICT LIABILITY

Because of the limitations of suing in contract and delict highlighted

above, it is sometimes the case that the law will impose strict liability on

manufacturers and suppliers of certain commodities. With strict liability

there is no need to prove fault on the part of anyone. It suffices to just

show that the product in question caused the harm or injury complained of

i.e. all there is to prove is causation.

The purpose of strict liability is to insure that the costs of injuries

resulting from defective products are borne by the manufacturers who put the

responsible products on the market in the first place rather than burden

consumers who in most cases are powerless to protect themselves. Strict

liability is commonly found in cases involving foodstuff and in the United

States it is one of the main sources of product liability, In our law,

outside the area of foodstuff, there are not many areas where the law

imposes strict liability. But once such area where pressure is getting

stronger to impose strict liability is that relating to pollution and

environmental impairment.

EMPLOYER'S LIABILITY

Virtually all business organisations of whatever nature have employees

working for them. The law imposes a wide range of duties on employers aimed

at reducing the number of accidents at the workplace and also ensuring that

the general welfare of employees is protected. The liability off an employer

is either founded upon the common law or under statute. A contract of

employment does not only concern the two parties involved. The state,

through its social security department is an interested part too.

COMMON LAW DUTIES OF EMPLOYERS

At common law an employer of whatever stature has the following duties

towards his employees:

[i] Duty to employ competent staff. Employers must ensure that the workers they

employ are competent enough to undertake the tasks required of them.

This duty extends to ensuring that known troublemakers and comedians

are disciplined or dismissed. Thus in the English case of Hudson v Ridge

Manufacturing Co Ltd [1957] the company employed a well-known practical

joker. During one of his pranks the joker caused injury to a fellow

employee and the company was found liable.

ii] Duty to provide proper plant and equipment. All equipment provided for use by

employees must be of a safe standard. This encompasses the duty to

ensure that the equipment is properly maintained and serviced. But

where employees deliberately decide not to use safety equipment or

protective clothing, which is supplied, the employer will not be

liable.

iii] Duty to provide a safe workplace. However an employer is not expected to

inspect every place where his workers are to be deployed particularly

where working away from the employer's premises is involved.

iv] Duty to provide safe work-systems. This is a question of fact. Employers

are expected not only to devise safe working systems but to train their

employees in using them as well. Thus in Pape v Cumbria Country Council

[1992] a part time cleaner contracted dermatitis because of exposure to

irritant cleaning products. Although the employer had provided gloves,

it was held that they should have pointed out the dangers of

contracting dermatitis if gloves were not worn.

v] Duty to ensure health and safety. This is a duty that no employer has power

to exclude at common law. In the English case of Johnstone v Bloomsbury

Health Authority [1991] a junior doctor employed by the defendants was

required by his employers to work exceptionally long hours including up

to 48 hours overtime on average every week and explicit provision was

made for this in his contract of employment. The doctor claimed that

working for such long hours had made him ill and he sued his employers

for breach of an implied term in his contract of employment at common

law that his employer would take reasonable steps to care for his

health and safety. The House of Lords unanimously agreed that there is

an implied term in all contracts of employment that the employer will

take reasonable care of the health and safety of employees.

Apart from the employer's duties at common law, there are in many countries

including Zimbabwe many statutes that are meant to regulate working

conditions and these impose additional duties on employers. Some of these

statues are industry specific while others are of a general application.

Further some of the statutes provide civil remedies in the event of breach

while others are just regulatory and do not confer any civil remedies for

injured workmen. Thus the National Social Security Authority Act [NSSA] obligates all

employees to contribute into a state scheme aimed at compensating injured

employees.

VICARIOUS LIABILITY

Vicarious liability is the strict liability of one person for the delict of

another. This

type of liability exists where the following relationship are proved.

a] Employer - employee;

b] Principal - agent; and

c] motorcar owner and motorcar driver.

An employer is vicariously liable for the delicts [wrongs] committed by his

employees acting in the course and within the scope of their employment. The

principle is often justified on the following grounds:

a] By instructing his employees to engage in work on his behalf, the

employer creates the risk that his employee may cause harm to others.

b] The employer operates his business through his employee and makes

profit through that.

c] The employer is usually in a far better financial position to

compensate the injured party than the employee therefore it would be

unfair to expect an employee to pay compensation for a delict arising

out of performing work on behalf of an employer.

d] The employer rather than a single individual can better absorb losses

of this nature by buying insurance or passing the cost to consumers

whereas an employee cannot.

For vicarious liability to attach two key conditions must be satisfied:

i] The person who commits the delict must be an employee and not an

independent contractor; and

ii] The delict must have been committed while the employee was acting in

the course of and within the scope of employment.

A person is an employee when he contractually makes his working capacity

available for remuneration in such a way that the latter may exercise

control [authority] over the former. This is usually referred to as a

contract of service i.e. locatio conductio operarum. A contract of service should

be distinguished from a contract of mandate, i.e. locatio conductio operis, where

one person undertakes to render services to another for remuneration without

however being subject to the control of the other. A contract of mandate

involves an independent contractor and does not create vicarious liability.

In terms of the State Liabilities Act, the State can be sued in delict for

wrongs done by its employees in the course of their employment.

Although the question of control is decisive in establishing whether one is

an employee or independent contractor, it was held in Midway Two Engineering &

Construction Services v Transnet Bpk 1998 (2) SA 17 that a multifaceted test should be

utilised taking into account all the relevant factors and the circumstances

of the specific case. Some of the factors that can be used to determine

whether a person is an employee or not include the following:

a] Who owns the tools? Independent contractors usually provide their own

tools while employees are provided with tools by the employer.

b] Method of payment. Payment of a wage or a salary usually suggests that

the recipient is an employee while payment of a fee or a lump sum may

suggest that the recipient is an independent contractor.

c] Tax arrangements. Independent contractors usually arrange for payment

of their taxes whilst for employees, the employer is responsible for

the deduction.

For vicarious liability to attach, the harm caused need not be due to the

fault of the employer. The employer may still be liable where he has

instructed the employee properly. A distinction must be drawn between a

person who does what he is not employed to do and one who does what he is

employed to do wrongly or against the express instructions of the employer.

The following three English cases will illustrate this point. In Century

Insurance Ltd v Northern Ireland Road Transport [1942] an employee caused a fire by

attempting to light a cigarette while transferring petrol from a delivery

tanker to an underground tank. In Limpus v London General Ombibus Co. [1862] a

driver caused an accident by racing another bus contrary to his employer's

express instructions against the practice. In both cases the employees were

held to be acting in the course of their employment hence their employers

were held vicariously liable for the damage caused.

By contrast in Iqbal v London Transport Executive [1974] a bus conductor caused an

accident while attempting to reverse a bus contrary to his employer's

express instructions. The court held that the employer was not vicariously

liable since the employee was not acting in the course of his employment

when he caused the accident. Driving was not a part of his job.

Under Roman-Dutch law, it is not enough to simply allege that the employee

committed the delict during business hours. Where the employee does

something entirely for his benefit which does not form part of his duties at

all, the employer will not be held liable e.g. if a person employed at a car

assembly plant steals from a fellow employee, the employer will not be

vicariously liable. Even where the employee does something with the

intention of benefiting the employer, the latter will not be liable if the

employee did something which is neither part of his employ nor reasonably

incidental thereto.

The fact that an employee deviates from the course of employment does not

necessarily mean that there will be no vicarious liability. For the employer

to escape liability, the deviation must be a major one in terms of time and

distance. The employer will however generally not be liable in cases of

wilful misconduct by the employee.

Where instructions have been given, the crucial question to ask is whether

such instruction seeks to limit and define the actual sphere of employment

or whether they merely regulate the conduct of the employee within the

sphere of employment. If it is former, disobedience of the instructions will

not create liability for the employer whereas disobedience of the latter may

still result in vicarious liability.

Commission of a delict during the performance of a forbidden act will create

vicarious liability if the forbidden act is connected to the general

character of the employee's work and thus falls within the scope of his

employment - Magage v Murray & Stewart Bpk 1980 [4] SA 294. Thus in General Tyre and

Rubber Co SA Ltd v Kleynhans 1963 [1] SA 533 the driver of a tractor, contrary to

the express instructions of his employer, drove on a public road and

negligently caused an accident. The employer was held liable. By contracting

in the Magage case employee who was a driver transported a person who was

not an employee of the company contrary to his employer's instructions not

to carry non-employees as passengers. The employer was held not vicariously

liable because what the employee did was totally unconnected to the general

nature of his work transporting company employees.

As a general guideline an employer should be liable for the delict of his

employee if his appointment and working circumstances enable him in such a

way to commit a delict that it can be attributed to his employer on grounds

of reasonableness, fairness and justice. The fact that the employee was on

duty when he committed the delict should be prima facie indicative of

liability.

It is therefore crucial for any employer to have a clear understanding of

the law on vicarious liability. Given that this is a form of liability

without fault on the part of the employer, great caution must be exercised

when choosing employees. The trends seem to show that in terms of the risk

theory, courts are learning more and more in favour of victims rather than

towards absolving employers from the wrongs done by their employees acting

during and in the course of their employment. It is simply not good enough

for the employer to plead that he specifically instructed the employee not

to do what he did. This area of law is now governed to a very large extent

by public policy considerations which dictate that strict liability be

imposed on employers for delicts emanating from those people w\that do work

for them.

ANNEXURE I

THE LEGAL SYSTEM OF ZIMBABWE

The courts of Zimbabwe are arranged in a hierarchy. The apex of this

hierarchy is occupied by the Supreme Court and the High Court whilst the

inferior or lower courts are the Magistrate's Courts and the Customary or

Primary Courts. These not the only courts, there are a number of special

courts dealing with particular cases only, such as the Administrative Court,

Water Courts, etc.

The courts are differentiated from each other because they have different

jurisdictions. Halsbury, The Laws of England, defines jurisdiction as: "By

jurisdiction is meant the authority which a court has to decide matters that

are litigated before it or to take

cognisance of matters presented in a formal way for decision".

1.1. The Supreme Court and High Court

The Supreme Court and High Court were not created by statute

and derive their powers from the common law even though some of their powers

and functions are set out in the Supreme Court and High Court Acts. They

are therefore said to have inherent jurisdiction.

The jurisdiction of a court is determined by several factors -

a] geographical area of jurisdiction:

b] the nature of the issue [cause of action];

c] the persons subject to jurisdiction.

The High Court has unlimited jurisdiction throughout Zimbabwe, but a

plaintiff may find himself being burdened with additional costs in the event

that the High Court decides that the matter could more appropriately have

been dealt with through a court closer to where the cause of action arose,

or some other ground such as the balance of justice and convenience.

The Supreme Court is exclusively a court of appeal, which means that it does

entertain trials. A court of first instance or a court with original

jurisdiction is a court that may be directly approached by a litigant. A

litigant who is dissatisfied with the judgement of a trail court [court of

first instance] may appeal against that decision to the Supreme Court.

A court of first instance or with original jurisdiction hears testimony and

receives all other forms of evidence from the parties and/or their witnesses

and then applies a rule of law to those facts in arriving at a decision as

to the true situation, notwithstanding the view of the parties whether

represented by legal council or not. A court of appeal, on the other hand,

as a rule, is confined to the verbatim record of the proceedings before the

court of first instance, including all exhibits and other evidence tendered

before it, together with the arguments presented on behalf of the parties by

their respective legal counsel. The exceptions to this rule are extremely

narrowly defined in order to avoid the appeal process degenerating into a

re-hearing.

1.2. The Lower Courts

The magistrate's courts and primary courts are the most important of the

lower courts. There are also now the small claims courts.

The lower courts are referred to as "creatures of statute" i.e. they come

into existence by virtue of the Act of Parliament under which they are

created and have no more powers than are given to them in terms of the

provisions thereof. They cannot arrogate to themselves greater jurisdiction

than the relevant Act specifically provided for.

The magistrate's courts are established under the Magistrates Courts Act and

are presided over by magistrates who, unlike judges are members of the civil

service. these courts apply the common law of Zimbabwe. Magistrate's courts

have both civil and criminal jurisdiction and are organised in a hierarchy

according to the seniority of the presiding magistrate, being district

regional and provincial magistrates courts, respectively. The jurisdiction

of these courts being increased in line with their level of seniority in the

hierarchy. Limitations on their civil jurisdiction are based on geographical

area, nature of the cause of action, i.e. the property or right in issue,

and the value of the claim. In certain civil and criminal matters they have

no jurisdiction at all, these being mainly matters affecting the status of

persons such as the dissolution of marriages, declarations of prodigality,

insanity and insolvency, those concerning the validity or interpretation of

wills, those dealing with the validity of title to any immovable property,

claims for an order of namptissement or perpetual silence, claims for an order

for specific performance without an alternative claim for damages and those

claims in terms of which rights in future can be bound.

Magistrate's courts do not have appeal or review jurisdiction although

regional magistrates scrutinize the records of district magistrates' courts

in criminal matters before these are sent for automatic review by the High

Court where the requisite sentences have been imposed in the magistrates'

courts.

The criminal jurisdiction of magistrates' courts is limited territorially

and as to the value of the subject matter of the offence, as well as the

nature of the offence and the sentence that it can impose. Criminal matters

dealt with before these courts are subject to automatic review before a

judge of the High Court where the sentence imposed is above a certain level

of severity. The reason for this automatic review is for the High Court

Judge to certify that the proceedings, the conviction and the sentences are

in accordance with real and substantial justice. Where this is not the case,

the High Court is empowered either to quash the proceedings where there has

been a substantial procedural defect and remit it to the original court for

re-trial, if there has been no prejudice to the accused or, where there has

been substantial prejudice to the accused, to issue such directions as it

deems fit or where the sentence imposed is not in accordance with real and

substantial justice to quash the sentence and impose such sentence as it

deem fit.

The primary courts are presided over by civil servants known as presiding

officers and exists for the purpose to determining matters that fall to be

decided in terms of indigenous customary law. They range from village courts

to district courts in a separate hierarchy with the final appeal lying to

the Supreme Court, but then applying indigenous customary law and not the

common law of Zimbabwe. In the lowest of this tier of courts litigants

appear personally and are entitled to representation by legal practitioners.

The small claims courts were established in order to make the administration

of justice more accessible to the public by introducing a simpler procedure

whereby a claim could be instituted by the litigant without assistance from

a legal practitioner at low cost thereby avoiding the attendant complexity

and delays of the more formal procedure of the magistrates courts. They

apply the general law of Zimbabwe. The presiding officer is known as the

commissioner of small claims and is appointed from the ranks of attorneys,

advocates and magistrates of certain standing and experience. The

jurisdiction is limited as to the amount thereof, the cause of action, the

area and persons. Obviously, their jurisdiction is more limited than the

magistrates' courts.

The procedure for trial in these courts provides that the commissioner acts

inquisitorially, i.e. he must not assume a neutral attitude. Rules of

evidence need not be strictly adhered to and the presiding officer may take

into account any facts presented in a manner he thinks fit. Evidence, which

is given under oath, may be presented orally and in writing and witnesses

may be called but the parties may not cross-examine each other's witnesses,

although they may question each other. The commissioner is entitled to

question any witness in order to arrive at the truth, even if this in fact

amounts to cross-examination. No appeal lies against the decision of the

commissioner, but the decision is subjected to review before the High Court

of certain specified grounds.

Enforcements of the judgements of this court are through the officer of the

Messenger of the Court who also enforces the judgements of the other lower

courts in civil matters.

1.3. Types of Proceedings

There are as can be seen under 1.4.1 two basic types of proceedings, namely

criminal and civil. We will briefly look at the main characteristics of each

and because of the nature of our study more detail is given of the latter

than the former.

1.3.1 Criminal Proceedings

Criminal proceedings take place before the High Court and the magistrate's

court where the presiding officer conducts the trail to which the prosecutor

[representing the state] and the accused are the parties. Usually

prosecutions are at the public instance. A decision to prosecute is made by

the attorney general, who is subject to the control of the minister of

justice, or his representative. Only rarely does a private prosecution take

place. A private prosecution is a 'safety valve' mechanism which is resorted

to where the attorney general refuses to proceed against an accused and

issues a certificate to that effect [a nolle prosequi] and private citizen

who believes that the 'accused' should be prosecuted proceeds to do so.

Criminal proceedings can take the following forms:

a] A curtailed preparatory examination;

b] a preparatory examination;

c] a trial;

d] review or appeal.

The most common form is the trial where an accused is notified or summoned

to appear in court or, if he is in custody, is brought to court and informed

of the charge against him and is requested plead guilty or not guilty or any

of several other pleas which may be entered, e.g. autrefois acquit or

autrefois convict. Once he has pleaded he stands arraigned and the trail may

proceed. Unless there is some difficulty, e.g. the accused appears to be of

unsound mind that requires medical examination, the court may find the

accused guilty, if he has pleaded guilty and the court has satisfied itself

that he has done so correctly. The court then hears any evidence that the

accused may tender in mitigation and any evidence the state may submit in

aggravation of sentence and then sentences the accused. If the accused

pleads not guilty or the court is not satisfied that the accused correctly

pleaded guilty and enters a plea of not guilty, the prosecution proceeds to

prove the state's case against the accused. At the end of the state's case

the accused may apply for discharge by the court if the evidence is not such

that a reasonable court properly conducted would convict the accused without

further evidence. This means that no proper case has been made against the

accused if the court discharges him and he is not required to establish his

defence. He has in other words 'no case to answer'. This based on the

principle that our law that no person is required by his own evidence to

supply the deficiencies in the state's case [evidence]. If the accused has a

case to answer he must proffer evidence that establishes his defence

sufficiently to create a reasonable doubt as to the veracity of the state's

case against him.

In regards to the two forms of preparatory examinations it need merely be

stated that these exist to ease the load of the High Court and the attorney-

general and is instituted to determine if the offences are of a degree of

seriousness to warrant the accused being indicted before the High Court or

whether the trial can be proceeded with before any other court. It gives the

attorney general an opportunity to decide before which forum the accused

should be properly arraigned.

Litigation in criminal matters need not necessarily end at the conclusion of

a trial but may go on review or appeal. Review must be distinguished from

appeals. On review the record of the proceedings of the lower court is

scrutinised by a judge to ascertain whether material irregularities took

place during the proceedings. A magistrate may, for instance, have decided a

case on evidence not presented in the prescribed manner - this is irregular.

As noted above automatic review exists from certain decisions in the

magistrate's courts. The decisions of regional magistrate's courts are not

subject to automatic review except in contempt of court cases. Even in those

cases in which a matter is subject to automatic review a legal practitioner

or an accused, who was represented, may address a minute to the reviewing

judge regarding any aspect of the matter to which it is considered special

consideration should be given. It is open to take any interlocutory decision

by the trail court to review before a judge of the High Court, in the case

of a magistrate's court to determine whether the decision was correctly

arrived at. This form of review is different from automatic review and

required notice to be given to both the magistrate and the prosecutor of the

nature of the complaint with reference to the record of the proceedings.

Evidence that does not appear from the record may be adduced before the

court on review and the court may hear evidence that was not given in those

proceedings. The court before which the review takes place will then hear

argument thereto containing such directions as will ensure that the matter

is dealt with in accordance with the principles of real and substantial

justice. The right to take a matter on review is based on the High Court's

inherent jurisdiction whereas the rights of appeal are prescribed by

statute.

Appeals, on the other hand, are noted against the decision of the lower

courts and the reasons for dissatisfaction [ground of appeal] are stated by

the accused or the state. The court hearing the appeal does not retry the

case but considers the record of the proceedings at the trial and hears

argument from legal representatives as to why the grounds of appeal should

or should not be upheld. As pointed out before, new oral [viva voce] or

written evidence will only be received by the appeal court in very

exceptional circumstances. Where the appeal is not automatic an application

for leave to appeal must be made.

1.3.2 Civil proceedings

In the absence of the status to appear before the court [locus standi in iudicio]

the litigant wishing to institute proceedings [plaintiff] in it, may not

proceed even if he has a cause of action. The cause of action may be a right

that has been infringed. A minor, similarly to several other persons, has no

locus standi in iudicio and proceedings must be brought on his behalf by his legal

guardian.

As with criminal proceedings various forms of litigation exist. The

plaintiff can proceed by action or by application, either ex parte or on

notice of motion, each type of proceeding being more suited to specific

circumstances than others.

The action proceedings are commenced by the issue of a formal document

referred to as the summons setting out the plaintiff's statement of claim

[cause of action] giving particulars of the facts upon which it is based and

calling upon the other party [the defendant], who has allegedly infringed

the plaintiff's rights, to answer the claim within a specified time before

the forum from which it is issued. The defendant may not wish to defend

against the claim in which event he may elect either to consent to judgement

or not to appear to defend and hereby become liable to default judgement

being granted to plaintiff against him. If defendant elects to defend

against plaintiff's claims he must within a specified time after entering

appearance to defend file his answer to plaintiff's claim and the matter

then proceeds through a number of procedural steps that culminates in a

trial before the presiding officer of an appropriate court. .

In the trial the plaintiff presents his case, calling the appropriate

witnesses and producing such documentary and other real evidence in support

of his claim as may be necessary to establish his claim. Once the plaintiff

has closed his case it is the opportunity of defendant to produce his case

in the same manner. All witnesses are subject to cross-examination by the

other party and to questioning by the court. When the court questions any

witness it must give both parties the opportunity to question the witness on

the response given to the presiding officer's question. When the defendant's

case is closed both parties are entitled to address the court on the merits.

This basically directs the court's attention to those aspects of the

evidence whether led by them or the opposing party that supports their view

and those aspects of the evidence that destroys the credibility of the view

taken by the opposing party of the evidence that has been led. The court is

then obliged to give a judgement in favour of one or other of the parties on

the basis of its findings of fact in the light of the applicable

law.

In applications on notice of motion [referred to as motion proceedings] the

notice of the proceedings is accompanied by affidavits containing the

evidence that the applicant is relying on to establish his claim. The

opposite party [respondent], if he intends to oppose, files his notice of

opposition and also the affidavits his witnesses. The procedure is

appropriate only if the dispute is not one of fact in which complicated

evidence will be required but rather one relating to the applicable rule of

law or the effect of the applicable rule of law given the factual situation.

In ex parte proceedings notice is only given to the other party after a judge

in chambers has granted an interim order referred to as a rule nisi on the

application of the petitioners. This is a negation of the audi alterem partem

requirement of the rules of natural justice, that notice must be given to a

party against whom a remedy is sought and that both parties must be heard,

before a decision is made in regard to the relief sought. For this reason

the courts require a party using it to display the utmost good faith and not

to mislead the court. However, to counter the infringement by this procedure

of the audi alterem partem rule, the interim order granted has to be served on

any interested party and in appropriate cases also has to be published in

the daily press and in the Government Gazette, for the benefit of any

interested party. The rule nisi must contain a date when any interested party

can approach the court to consent the confirmation of the rule if it

conflicts with that party's right and interests. An example of its proper

use would be where an application is made to a court by a minor's to

transfer property belonging to a minor, where it is in the interest of the

minor to do so and the court's consent is necessary for this purpose, in

it's capacity as upper guardian off all minors.

The rule nisi will be confirmed if unopposed on the return day. It will then

be in the nature of an order of court that the person in whose favour it

granted can enforce through the ordinary process of enforcement available to

a judgement creditor.

A category of orders which may be granted as interim orders, if applied for

ex parte, are interdicts which are aimed at protecting the rights of a party

which are either threatened with imminent infringement or have been

infringed and immediate rectification of the situation is required until the

matter can be finally dealt with by a application on notice of motion, or

where the urgency of the matter is such that resort to the above forms of

procedure will render any remedy granted pointless in the light of the

irreparable harm that will be sustained by the applicant in the period

between the date when the application or action is commenced and the date

when judgement is granted. They may take one of three forms, namely -

a] prohibitory [directing that a person[s] s, normally the respondent[s],

may not do or allow a certain thing to be done];

b] mandatory or directory [requiring the respondent[s] to act in a

particular manner];

c] restitutory [requiring the respondent[s] to make restitution in a

particular manner to applicant].

Civil proceedings in the magistrate's courts are similar to those in the

High Court in many ways, but there are certain major differences. From the

provisions of the Magistrate's Court Act and Rules for civil procedure there

under, relating to action or summons procedure, it becomes clear that the

procedures off these courts were developed with the intention of expediting

debt collecting, by providing procedures which reduced delays to a minimum.

Proceedings by Notice of Motion have a limited application in the

magistrate's courts. Interdicts can be granted, with the rule nisi [of the

High Court procedure] being referred to merely as an interim interdict or

order. The main ones among these are automatic rent interdicts granted to

landlords to protect their tacit hypothec for rent over the movable property

of the tenant and all claiming a right of occupation through the tenant

which is on the property and the mandament van spolie or spoliation orders

to restore quiet possession of property to possessors who have been

dispossessed thereof and orders for arrest tanquam suspectus de fuga for the

arrest judgement debtors who are seeking to evade the payment of debt by

fleeing the jurisdiction of the court.

The last matters to be dealt with under this heading are appeals and reviews

of civil proceedings. A dissatisfied litigant may appeal from the

magistrate's court to the Supreme Court and the same applies to a

dissatisfied litigant in the High Court. The judgement of the Supreme Court

is final. The exact rules relating to and the procedure for lodging an

appeal are beyond the scope of this course. Review proceedings in relation

to civil cases in the magistrate's courts are brought by proceedings of

notice of motion with the magistrate and the opposite party being cited as

the respondents. Review is possible in situations where there has been a

breach of the rules of natural justice, e.g. where the magistrate acted from

bias or improper motive or failed or refused to take certain procedural or

substantive rules into account.

1.4. The execution of judgements and sentences

Once an aggrieved party has received judgement in his favour as judgement

creditors that party is in a strong position. If the judgement debtor [the

party against whom judgement has been granted fails to comply voluntarily

with the order off the court, the judgement creditor can follow any one of a

number of courses to obtain satisfaction of the judgement. The first of

these, in the event that the judgement is for the payment of a sum of money,

is to issue out of the relevant court a Writ of Execution (in the case of

the High Court) or a Warrant of Execution in the case of the lower courts.

This authorises the Deputy Sheriff of the High Court or the Messenger of the

relevant lower court to attach and take into execution so much of the

judgement debtor's property as will be sufficient to satisfy the claim of

the judgement creditor under the judgement.

Once the process of execution commences the parties become known as the

execution creditor and debtor (as the case may be). The property will

eventually be sold and the proceeds applied to the payment to the execution

creditor of the sum of money due in terms of the judgement. If this fails to

satisfy the judgement and the judgement debtor has no more property that can

be attached there are alternative means of obtaining satisfaction, e.g. by

attaching an existing or future debt owing to the execution debtor by some

debtor of his, most commonly the execution debtor's employer. This order is

referred to as a garnishee order. If the execution debtor is self-employed

or there is some other impediment to proceeding with a garnishee order then

the execution creditor may proceed to obtain a writ for the personal

attachment of the execution debtor in terms of which the Deputy Sheriff or

Messenger of Court, 65utates mutants, is authorised to lodge the execution

debtor in prison for a specified maximum period or until the debt is paid or

arrangements are made to the satisfaction of the execution creditor for the

payment of the debt. This process is commonly referred to as a Writ or

Warrant of Civil Imprisonment. Of course, this latter course can only be

followed where the execution debtor is a natural person. There is one

further course open to the execution creditor and that is to apply for the

sequestration of the estate of the execution debtor on the ground of

insolvency, in the case of a natural person, partnership or unincorporated

association, or the liquidation of a duly incorporated corporation. This

latter course is not lightly resorted to and is normally followed where

there are grounds for believing that there have been some dealings,

amounting to misdealing regarding the estate of the judgement debtor that

gave rise to the inability of the judgement debtor to meet the execution

debt. The reason for not resorting to this course of action lightly is

simply that if the execution creditor is declared insolvent or is

liquidated, as the case may be, and is subsequently rehabilitated the debt

will have been expunged, unless the court granting the order for

rehabilitation makes payment of the execution debt a condition of

rehabilitation, which it will seldom do without proof that the insolvent or

liquidated corporation, as the case may be, purposely sought to deprive the

former execution creditor [applicant in the insolvency or liquidation

proceeding] of payment.

There are a number of other procedures for the judgement creditors to obtain

satisfaction of a judgement debt that does not sound in money. In the case

off an order to cease of desist from a certain act a recalcitrant judgement

debtor can be imprisoned for contempt of court. This remedy is also not

lightly granted, although, if it is the last resort, the court from whom it

is sought will not hesitate to use it. If the order is for the delivery up

of a movable item of property the court will authorise the Deputy Sheriff to

obtain possession and deliver it to the execution creditor. If it is for

transfer of movable property or movable s such as shares it will authorise

the Deputy Sheriff or Messenger of Court to effect transfer thereof in due

and customary form in the place and stead of the execution debtor,

authorising that official to sign all necessary documents on behalf of the

execution debtor. If it is for the delivery of occupation the remedy will be

a Warrant of Ejection or Eviction of the occupier and the delivery of

occupation to the person entitled thereto.

In criminal matters the court may sentence an accused who has been convicted

to be executed, imprisoned or fined or both imprisonment and fined. It may

impose corporal punishment or any other sentence the law allows, e.g. a

sentence to render community service. The Department of Prisons enforces

sentences and the appropriate officers mete out corporal punishment. Any

other order will be enforced by contempt of the court proceeding against the

appropriate. Note that the person is not imprisoned in order for him to be

punished there.

1.5. The Rule of Law

You will have noted from the above that the legislative and executive arms

of the state as well as the courts and private citizens have a role to play

in regard to the proper administration of justice in our society. Of

necessary the rules of law and their individual circumstances affects their

roles in this regard. When the rules of law that govern a society are

equally and equitably applied to all constituent elements thereof without

fear or favour and equally enforced in favour of or against those

constituent elements through the appropriate socio-legally constituted

organs it can be said that the "Rule of Law" is applied and respected

therein. When, however, one of the constituent elements of society, for

whatever reason or on whatever ground, fails, neglects or refuses to apply,

enforce or subject itself, or any of the constituent elements of itself, to

the rules of law that govern that society, to that extent it acts in breach

of the "Rule of Law".

In modern societies it has been accepted that the state in its three

branches, namely the legislature, the executive and the judiciary are the

main bearers and guardians of the "Rule of Law" in their society and to the

extent that any of them fails to protect it the "Rule of Law' is injured and

the citizens on whose behalf they purport to act are injured thereby.

ANNEXURE II

THE LAW OF CONTRACT

I.. INTRODUCTION

A contract may be defined as an agreement enforceable at law [Text 1 and 2]

The essential requirements of a valid contract are:

[a] that the parties be in agreement [Chapters II and III]

[b] that the agreement be final and sufficiently certain to be enforced.

[Chapter IV]

[c] that the parties intend that the agreement should be legally enforceable

[Chapter V]

[d] that the parties have the capacity to contract [Chapter VI]

[e] that the formalities prescribed by law, if any, be complied with

[Chapter VII]

[f] that performance of the contract be possible [Chapter VIII]

[g] that the agreement be lawful [Chapter IX]

II.. AGREEMENT

The first essential of a valid contract is that the parties be in agreement

as to the terms of their contract. An agreement usually [but not always]

consists of an offer followed by an acceptance. The acceptor must, of

course, be aware of the offer he accepts.

Invitations to do business, including advertisements or the display of goods

for sale, even in a self-service store, are in general not constructed as

offers; but if a contract is entered into on the strength of an

advertisement, it is presumed to be in the terms so set out unless the

advertiser informs the other party before the contract is entered into that

he intends deviating from those terms. An advertisement will, however be

constructed as an offer where it is clearly intended to be one: this is

particularly true of offers of reward. If only one reward is offered, then

only one person to accept is entitled to it.

An offer remains open for acceptance until:

[a] the offeree is notified that it has been revoked or

[b] a reasonable period of time has elapsed or

[c] either the offeror or the offeree dies or

[d] it is rejected, for example by a counter-offer. A request to the offeror

to consider modifying his terms does not constitute a counter-offer leading

to the lapse of the original offer.

An offeror can, by a separate contract, agree to keep his offer open for

acceptance for a period of time. Such a contract is called an option. It is

a controversial question whether an option for an indeterminate period is

valid.

For a valid contract to come into existence, the offer must be followed by

acceptance, either express or manifested by conduct. Mere silence cannot be

taken as acceptance unless there is some duty upon the offeree to speak. The

acceptance must be:

[a] unequivocal

[b] by the person intended by the offeror to accept

[c] communicated to the offeror, unless the offeror dispenses with such

communication and indicates some other way in which acceptance can be

manifested, or where he cannot be found and the acceptance is sent to his

address.

[d] in the manner prescribed by the offeror.

Though the offeror can prescribe the method of acceptance, he cannot dictate

the method of refusal, stating for example that unless the offeree indicates

his refusal in a particular manner, or before a particular time, a contract

will come into existence.

Acceptances through the post have occasioned some difficulty in the past,

but it is now settled that where in the ordinary course the Post Office is

used as the channel of communication, and a written offer is made, the offer

becomes a contract on the posting of a letter of acceptance. The same rule

applies to telegrams. Where the offer is made verbally, however, then the

acceptance must in fact be communicated to the offeror, the mere posting of

a letter of acceptance being insufficient; and where the communication

between the parties are instantaneous, as by telephone or telex, then

acceptance must be communicated to the offeror before a valid contract can

come into existence.

In the absence of a discernible offer and acceptance, a contract will none

the less be implied where the conduct of a parties leads inescapably to the

inference that they did in fact contract.

ESTATE BREET v. PERI-URBAN AREAS HEALTH BOARDThe issue involved in the appeal was whether the claim of the respondent for

an endowment consisting of a percentage of the site value of lots disposed

of in a town-ship approved by the Administrator of the Transvaal arose out

of a contract within the meaning of the Prescription Act, or out of the

statute under which the approval was granted [Transvaal Ordinance 11 of

1931].

The court held that the claim arose out of the statute, and according

dismissed the appellant's plea that it was prescribed. Van den Heever J.A.

reached the same conclusion as the majority of the Court,' but for somewhat

different reasons.'

BLOOM v. THE AMERICAN SWISS WATCH COMPANYInnes C.J. On 19th March 1913, a robbery was perpetrated at the Cape Town

premises of the defendant company and jewellery to the value of $5 000-00

was forcibly removed. In the press of the following day appeared a notice in

these terms: 'Mr. J. Hirchsohn of the American Swiss Watch Company called at

the Argus office this afternoon and stated that he was prepared to pay to

any person a reward of $500 for information to be given to the C.I.D. which

would lead to the arrest of the thieves and the recovery of the diamonds,

jewellery, etc., stolen from the premises on the 19th instant. If the

information leads to the recovery of a portion only of the property, the

reward will be paid proportionately'. Information reached the police

authorities from various sources; the culprits were arrested, and the bulk

of the property was recovered. Thereupon proceedings were commenced by

different persons claiming the reward, The actions were heard together, and

the trail Judge came to the conclusion that it was the information furnished

by the plaintiff which led in due course to the arrest of the thieves and

the recovery of the goods. But he also found as a fact that the plaintiff

when he communicated his information to the police was unaware that a reward

had been offered; and upon that ground he entered judgement for the

defendant. The matter is now before us on appeal from that decision.

EFROIKEN v. SIMONA Johannesburg broker sent a Cape Town broker a telegram to the effect that

he had a seller of 3,000 bags of oats, adding the terms of delivery. The

question for decision was whether this telegram was an offer the acceptance

of which would result in a binding contract.

CRAWLEY v. REXAppeal against a conviction by the Assistant Resident Magistrate of

Johannesburg. The appellant was convicted of a contravention of Section 9 of

Ordinance 26 of 1904, which made it a criminal offence for any person

entering premises to remain therein wrongfully and unlawfully after being

requested by the owner or occupier to leave.

SPENCER AND OTHERS v. HARDING AND OTHERSThe defendant through their agents sent out a circular to the plaintiff, and

to other persons in the wholesale trade, as follows:

"We are instructed to offer to the wholesale trade for sale by tender the

stock in trade of Messrs. G. Eilbeck & Co., of No. 1 Milk Street, amounting

as per stock-book to $2 503-13 and which will be sold at a discount in one

lot. Payment to be made in cash. The stock may be viewed on the premises,

No. 1, Milk Street, up to Thursday, the 20th instant, on which day at 12

o'clock at noon precisely, the tenders will be received and opened at our

offices. Should you tender and not attend the sale, please address to us

sealed and enclosed, "Tender for Eilbeck's stock"

Stock-book may be had at our office on Tuesday morning."

The plaintiff contended that the circular was an offer to sell the stock to

the highest tenderer for cash. They had submitted the highest tender, but

the defendants declined to accept it and to sell the goods to them.

PHARMACEUTICAL SOCIETY OF GREAT BRITAIN v. BOOTS CASH CHEMISTS [SOUTHERN] LTD.At their Edgware branch, Boots displayed for sale a number of drugs, or

substances containing them, the sale of which was prohibited under the

Pharmacy and Poisons Act, 1933, except under the supervision of a registered

pharmacist. The shop was a 'self-service' shop, the customers selecting the

articles they wanted and placing them in a wire basket provided before

paying at the cash desk at the exit. A registered pharmacist was on duty

near the cash desk to prevent the removal of a drug from the shop by a

customer if he thought fit. The court was asked to decide whether Boots had

contravened the Act by selling a listed poison otherwise than under the

supervision of a registered pharmacist.

In the court of first instance, Lord Goddard C.J. held that the sale took

place when the cashier accepted payment and that it was under proper

supervision. The Pharmaceutical Society appealed.

SHEPHARD v. FARRELL'S ESTATE AGENCYAppeal from the decision of the Additional Magistrate, Johannesburg.

Shepherd, wanting to sell his interest in a business, went to Farrell's

Estate Agency, being induced by a newspaper advertisement inserted by the

Agency which contained the following: 'Business wanted... Our motto: no

sale, no charge. All advertisements at our expense.' At the Agency's offices

Shepherd signed a document headed' Information form respecting sale of

business', whereby the Agency was given sole selling rights and was to

receive commission irrespective of whether the business was sold through it

or not within three months from the date of the agreement. Shepherd's

business was subsequently sold through another agency. Farrell's Estate

Agency then sued Shepherd on the agreement for $75 commission. The

magistrate gave judgement in favour of the Agency. Shepherd appealed.

CARLILL v. CARBOLIC SMOKE BALL CO.The defendants, who were the proprietors and vendors of a medical

preparation called 'The Carbolic Smoke Ball', inserted in the Pall Mall

Gazette of 13th November, 1891, and in other newspapers, the following

advertisements:

$100 reward will be paid by the Carbolic Smoke Ball Company to any person

who contract the increasing epidemic influenza, colds or any disease caused

by taking cold, after having used the ball three times daily for two weeks

according to the printed directions supplied with each ball $1000 is

deposited with the Alliance Bank, Regent Street, showing our sincerity in

the matter.

During the last epidemic of influenza many thousand carbolic smoke balls

were sold as preventives against his disease, and in no ascertained case was

the disease contracted by those using the carbolic smoke ball.

One carbolic smoke ball will last a family several months, making it the

cheapest remedy in the world at the price, $1, post free. The ball can be

refilled at a cost of 5ocents. Address, Carbolic Smoke Ball Company, 27

Princes Street, Hanover Square, London.

LEE v. AMERICAN SWISS WATCH CO.This was an application for leave to appeal in forma pauperis from the

decision of the Cape Provincial Division referred to in Bloom v American

Swiss Watch Co., 1915 A.D. 100 [Case No. 3 above]. The applicant had given

information to the police after the information given by Bloom. The trial

judge had held that, as Bloom's information was the first applicants were

not entitled to the reward.

GOUS AND ANOTHER v. VAN DER HOFFGous obtained from Van der Hoff an option until a certain date to purchase

certain land. Before the date in question Van der Hoff withdrew the option.

Gous then sued Van der Hoff for transfer of the land, or, in the

alternative, for damages for breach of contract.

BYRNE & CO. v. LEON VAN TIENHOVEN & CO.The defendant, in Cardiff, posted a letter on the 1st October 1879, to the

plaintiff, in New York, offering to sell 1,000 boxes of tinplates. The offer

was accepted by the plaintiffs by telegram on 11th October. Meanwhile, on

the 8th October, the defendants posted a letter to the plaintiff withdrawing

their offer; but this letter only reached the plaintiffs on the 20th October.

DIETRICHSEN v. DIETRICHSENThe plaintiff J.J. Dietrichen sued his brothers, F.J. and M.H. Dietrichen,

for transfer of a portion of a farm, which he alleged they had sold to him.

A document had been drawn up on 1st November 1907, in terms of which it was

stated that the defendant sold the land concerned to the plaintiff for $500.

The defendant signed the document but the plaintiff did not. It was agreed

that the document was to be converted into a formal contract typed, but when

this had been done the defendants refused to sign the typed deed. The

plaintiff then said he was going to sign the document of 1st November 1907 -

which had been given to him by the defendants. He did not in fact do so

until the following February; nor did he tell the defendants that he had

signed the document until long afterwards. By that time they had repeatedly

told him that they did not acknowledge the contract any longer.

HYDE v. WRENCHThe defendant offered to sell his farm to the plaintiff for $1, 000. The

plaintiff immediately made a counter-offer of $950. After considering the

matter, the defendant advised the plaintiff that the counter-offer was not

acceptable. The plaintiff thereupon purported to accept the original offer

to sell at $1,000.

WATERMEYER v MURRAYAction was brought by the plaintiff Murray, against the defendant,

Watermeyer, for specific performance of a contract of sale of certain land,

or alternatively for $1,000 damages.

Murray had made an offer to Messrs. Elliot and Walker, Attorneys of Kokstad,

to buy Watermeyer's farm for $1,700. Watermeyer informed Murray, through

Elliot and Walker, that he was agreeable to a sale at $1,700, provided

Murray paid all expenses and $1,000 of the purchase price as soon as the

agreement was signed. Murray agreed to take the farm on Watermeyer's terms,

but asked Elliot and Walker to stipulate in the Deed of Sale that payment

would take place at the expiration of the lease to which the farm was

subject.

A Deed of Sale to this effect was drawn up by the attorneys, signed by

Murray, and sent to Watermeyer for signature. Watermeyer declined to sign,

and told Elliot and Walker that certain clauses would have to be deleted

from the agreement before he would even consider the matter. Murray then

endeavoured to accept Watermeyer's original terms, but Watermeyer then said

he had decided not to sell the farm.

The trail judge gave judgement against Watermeyer, who appealed.

AMALGAMATED SOCIETY OF WOODWORKERS OF S.A. v SCHOEMAN N.O. AND ANOTHERIn the labour dispute it became necessary to decide whether the second

respondent, one Beetge, was an employee of the Amalgamated Society.

By letter dated 15th August 1950, Beetge was offered the post of temporary

national organizer of the Society, on terms set out in the letter. On the

17th of August he replied, thanking them for the appointment and saying that,

while he was in agreement with the great majority of the terms set out in

the letter to him, there were two matters which he wanted to bring to the

attention of the executive council of the society, namely the inadequacy of

the period of appointment and the nature of the reports he would have to

make. He requested the council to consider extending the period, suggested

that reports should not be made in respect of definite periods and ended up

by expressing the conviction, that there would be whole-hearted co-operation

between himself and the council if these two matters could be cleared up.

VAN PLETSEN v. HENNINGSolomon J.: The plaintiff in the court below sued the defendant upon a

written contract, dated 14th February 1912 which is not annexed to the

declaration, but the main provision of which are incorporated in it. The

plaintiff's case was that in terms of that contract an option for a period

of eight months was given him by the defendant to purchase certain landed

property for the sum of $3,000, and that on The 27th September 1912, he

exercised the option, whereupon a contract of sale was concluded between him

and the defendant. It seems to have been assumed by both parties, as well as

by the court below, that the effect of the contract was to give to the

plaintiff an option of purchase. In the course of the hearing in this Court,

however, the question was raised from the Bench, whether that was the proper

construction to place upon the document and in his argument the respondent's

council definitely raised this point and contended that no such right was

given, and that no binding agreement o the sale of this land had been

concluded between the plaintiff and the defendant, It is important,

therefore, to examine carefully the language of the agreement, for the

purpose of determining this question. The first clause, as set out in the

declaration provides as follows: 'The said defendant agreed to sell and the

said plaintiff and the said Jan Hendrik Henning agreed to purchase the farm

Lusthof, No 283 and Zamenspan, No 294, both in the district of Rouxville,

for the sum of $3,000 under the following conditions': Then follow the

conditions, the first of which is ' that this purchase would be provisional

for a period of eight months from the date of said contract.' By that I

understand that for the present the agreement was not to be binding upon

other party, but that they had a period of eight months within which do

decide whether the sale should be concluded or not.

BOYD v. NELDe Villiers J.A.: The plaintiff sues the defendant, the owner of the farm

'Diamant' in the Boshof District, for $50,000 damages, under the following

circumstances as set out in the declaration. It is alleged that on the 18th

October 1921, the defendant gave the plaintiff an option in writing to

purchase the said farm. That immediately after the option was given the

defendant permitted Naude and others to prospect on the farm, as a result

whereof the Government issued notice of intention to proclaim the farm as an

alluvial digging in terms of Ordinance 4 of 1904 [O.F.S.]. That in ignorance

the prospecting was permitted, the plaintiff on getting the option proceed

immediately to make all arrangements for cutting the farm into one-acre

plots and selling them to the public at $50. $100 and $150 per plot

advertised the fact and received a very large number of applications for the

plots. That by this conduct the defendant had put it out of his power to

carry out the terms of the option given to plaintiff and plaintiff's plan

has had to be abandoned. As a result the plaintiff has suffered damages in

the sum of $50,000. The letter giving option is annexed to the declaration,

and is in the following terms: 'I agree to give you an option on my farm

'Diamant,' Boshoff District, for four months, to purchase same outright for

the sum of thirteen thousand dollars.' To this declaration an exception was

taken as vague, embarrassing and bad in law disclosing no cause of action on

four grounds, the Court of first instance upheld two of which. The first

ground is that the declaration contains no allegation that the option was

ever exercised by the plaintiff, and that in consequence of the absence of

such allegation it is not competent in law for the plaintiff to make the

claim set out in the declaration. The second ground is that the declaration

does not set out sufficiently or at all any damages which plaintiff is in

law entitled to claim from the defendant. The question is whether the

exception can be supported on either or both these grounds.

HERSCH v. NELNel, the respondent, granted to E. and A. Hersch a month's option [in

writing] to purchase two farms, acting on his own behalf [he and his wife,

to whom he was married in community of property, being the usufructuaries of

the farms] and also registered owner of the farms. E. and A. Hersch ceded

the option to the appellant, I. Hersch, who duly accepted and exercised it

on the same day, notifying Nel accordingly. The owner of the farms, however,

refused to be bound by the option, since Nel had no authority from her to

grant it. I. Hersch now sued Nel for damage, but the Orange Free State

Provincial Division upheld an exception on his declaration as disclosing no

cause of action on the ground that the option was not capable of cession.

Hersch appealed.

THOMPSON v. VAN DER MEYERHall J.: The plaintiff in this case sued the defendant for the payment of

the sum of $5,000 being the purchases of property situated in the village of

Montague which she alleged has been sold by her agent to the defendant on

the 20th March 1951. The sale is alleged to have been effected by means of an

offer made by the defendant on the 17th March 1951, and the acceptance of

that offer on the 20th March 1951. The defendant admitted that he hade made

the offer on the 17th March 1951, but averred that he withdrew it before the

20th March and that in consequence of that withdrawal, no sale was concluded.

Plaintiff replicated to the effect that it was agreed between the parties

that defendant's offer to purchase should be irrevocable and remain in

effect until Thursday, 22nd March, and that for this reason the defendant was

not entitled to withdraw his offer on the 19th March. To this replication the

defendant excepted on the ground that the replication was of no legal force

and effect in that the contract which is set out did not warrant the relief

off which the plaintiff sought.

[Counsel for the defendant] based his argument upon [the contention] that an

offer to purchase could always be withdrawn even if it contained an

undertaking by the offeror not to withdraw it before the stipulated time.

TREADWELL AND ANOTHER v. ROBERTSThe application had given Roberts a written option 'for an indefinite

period' to purchase 24 base metal claims, part of a block of 70 in respect

of which the claim licence has been handed to him. The applicant sued for

the return of this licence, but Roberts, while willing to have it divided,

contended that he was entitled to retain it for the 24 claims. The

applicants contested this on the grounds that the option they had given was

bad in law because it was vague, indefinite and uncertain; they had

cancelled it for this reason and also because the respondent had had a

reasonable time to exercise the option and had failed to do so.

HANEKOM v. MOUTONWatermeyer J.: [Counsel for the defendant] submitted the Court should find

that the contract was concluded in the following terms: 'that plaintiff

should have the right to purchase the farm when he was in a financial

position to do so'.

BENONI PRODUCE AND COAL CO., LTD. v. GUNDELFINGERThe Benoni Produce and Coal Company asked a broker, one Kantor, to obtain

matches for them, and told him they were in immediate need of them. Kantor

communicated with Gundelfinger and ascertained that although they had none

at Pretoria matches had been railed to them from Durban, and that

Gundelfinger was prepared to sell them subject to arrival. Without

communicating these facts to the Benoni Produce Company, Kantor purchased

three cases of the matches from Gundelfinger, and sent out 'bought' and

'sold' notes to purchaser and seller in the ordinary course of his business.

These notes were made out in identical terms, and did not mention the fact

that the matches were sold 'subject to arrival'. The matches arrived about

two weeks later, and the Benoni Produce Company refused to accept them on

the ground that immediate delivery had been stipulated for. Gundelfinger

thereafter sued for the purchase price of the matches.

The magistrate having found the plaintiff, the Benoni Produce Company

appealed.

EAST ASIATIC CO. [S.A.} LTD. v. MIDLANDS MANUFACTURING CO. [PTY] LTD.Action to recover an amount alleged to be due under a contract of purchase

and sale. Plaintiff alleged, inter alia, that the defendant had accepted a

counter-offer it had made to the defendant, by its conduct. The fact upon

which the plaintiff relied was the defendant's failure, regard being had to

the circumstances prevailing at the time, timeously to repudiate the

counter-offer, which was contained in a sale note. The circumstances relied

on were the previous negotiation between the parties relating to the sale,

the alleged knowledge of both parties that the market was fluctuating that

the transaction had to be concluded forthwith and that the defendant knew it

was customary for the plaintiff to issue a sale note reflecting the terms of

concluded sales.

BOERNE v. HARRISAppeal from a decision of the Cape Provincial Division.

The appellant, a lessee, had an option to renew his lease for five years

from the 15th April 1947. The option had to be exercised by 15th October 1946.

Through his attorneys, he wrote to the respondent, the lessor, stating that

he intended 'to renew the lease for a further period of five years from the

15th October 1946, in terms thereof'. The lessor contented that this was not

a valid acceptance of the offer contained in the option.

BLEW v. SNOXELL

Appeal from a decision of the Additional Magistrate, Johannesburg.

Blew wrote to Richard Currie Limited offering to buy a certain piece of land

for $1,900. The land was owned, not by Richard Currie Limited, but by

Snoxell, who indicated to Richard Currie Limited in writing that he accepted

the offer. Richard Currie Limited thereupon notified Blew that his offer had

been accepted by the owner of the land.

When Snoxell later sued Blew for damages for alleged breach of contract,

Blew excepted to the summons on the ground that there was no valid agreement

between him and Soxell. The magistrate having dismissed the exception. Blew

appealed.

BIRD v. SUMMERVILLE AND ANOTHERBird, the appellant, authorised a firm of estate agents to endeavour to

dispose of a block of flats belonging to him. After some negotiation

Summerville and the second respondent agreed with the estate agent to buy

the block for a certain price. The estate agent then submitted to Bird for

signature a printed form of agreement of sale [referred to in the judgement

as 'exh. B] in which Summerille was named as the sole buyer. Bird signed it

and sent it back to the estate agents, who, in turn, forwarded it to

Summerville. Noticing that only his name appeared as buyer, Summerville

added the name of the second respondent before signing the document and

having it signed by the second respondent.

In an action to recover a deposit against the sale paid to the estate agents

by the respondents, it was argued inter alia that the estate agents had been

employed by Bird to sell the property, and that the identity of the

purchaser was immaterial.

NAUDE v. MALCOLM AND ANOTHERAppeal from a decision of a magistrate.

George Malcolm and Harry Malcolm leased certain farms to Naude, who received

an option [exercisable at the expiration of the lease, or at any time during

its existence] to purchase the property concerned for $1,400. Before the

expiration of the lease George Malcolm died, and no executor was appointed

to his estate. Harry Malcolm went to England, and Naude, wishing to exercise

his option, gave notice to Harry Malcolm by letter addressed to the only

address of Harry Malcolm, which he had been able [after some difficulty] to

ascertain. The letter returned from the dead letter office.

CAPE EXPLOSIVES WORKS, LTD. v. SOUTH AFRICAN OIL AND FAT INDUSTRIES, LTD.2 CAPE EXPLOSIVES WORDS, LTD. v. LEVER BROTHERS [SOUTH AFRICA] LTD.On 10th July, 1916 the first defendants wrote and sent by post from Delmore,

Transvaal, the plaintiffs at Somerset West, Cape, a letter containing an

offer to sell a certain quantity of glycerine at a certain price. On the 14th

July, 1916 the plaintiffs replied through the post to the defendants at

Delmore accepting the offer. On 11th September, 1916, the second defendants,

at Durban, sent by post to the plaintiffs at Somerset West a letter

containing an offer to sell to the plaintiffs a certain quantity of

glycerine. The letter of acceptance of 16th September, 1916 was posted by the

plaintiffs in Somerset West to the second defendants in Durban.

In action on the contracts [which were argued together], the defendants took

exception to the jurisdiction of the Court on the ground inter alia that the

contracts were not entered into in the Cape but in the Transvaal and Natal

respectively, where the letters of acceptance were received by the

defendants.

YATES v. DALTONOn the 12th February, 1937, Yates telegraphed an offer to Dalton's agent,

Schoeman who, at 9.40 the next morning, telegraphed an unqualified

acceptance. An hour and half later, Schoeman received a telegraph from Yates

cancelling the offer.

SMEIMAN v. VOLKERSZApplicant and respondent were equal sole shareholders in a company. At a

meeting in the offices of an attorney, one Gelb, respondent gave applicant a

verbal option to purchase his interest in the company. This option was later

extended to the 15th February, 1954. On this date the applicant's Pretoria

solicitors telephoned Gelb in Cape Town and instructed him to exercise the

option on their client's behalf. Gelb telephoned the respondent's office at

Wynberg, Cape Town, and was informed that the respondent was away in

Kroonstad. He thereupon wrote a letter to the respondent at the company's

usual address in Wynberg exercising the option on the applicant's behalf. He

also wrote to the respondents In Kroonstad enclosing a copy of the letter

exercising the option. Both letters were posted on 15th February, 1954, the

date of the expiry of the option, but reached their destination later.

When the applicant sued for delivery of the subject-matter of the option

respondent contended inter alia that the option was not timeously exercised.

ENTORES, LTD. v. MILES FAR EAST CORPORATIONThe plaintiffs made an offer by Telex to the agent of the defendant

corporation in Amsterdam. The offer was accepted by a message received on

the plaintiff's Telex machine in London.The plaintiffs later sought to sue

for damages for breach of contract, and contended that the contract had been

made within the jurisdiction of the Court. The defendant maintained that the

contract had been made in Holland.

TEL PEDA INVESTIGATION BUREAU [PTY.] v. VAN ZYLVan Zyl, who resided and carried on business in East London, sued in the

Magistrate's Court, East London, for payment by the Tel Peda Company of

Johannesburg of amounts claimed to be due to him in respect of an

investigation he had carried out for the Company. The Company filed a

special plea challenging Van Zyl's contention that the whole cause of action

arose within the jurisdiction of the East London Court. It appeared that the

company had made its offer over the telephone from Johannesburg to Van Zyl

at Eat London, where Van Zyl had accepted. The magistrate held that the

contract had been concluded at East London and that the Court did have

jurisdiction. The Company appealed.

FESTUS v. WORCESTER MUNICIPALITYThe Worcester Municipality installed a lavatory and drain in property

occupied by Festus to connect with a municipal sewerage scheme. Festus

signed an acknowledgement of debt undertaking to pay the cost of

installation in instalments, but when sued on the document he pleaded, inter

alia, that he had signed it in ignorance of his true rights, and that as he

had not entered into a contract with the Municipality regarding the drainage

it had no legal claim against him for the cost of installation. A magistrate

having found for the Municipality, Festus appealed.

III.. AGREEMENT - MISTAKE

We have seen that here can be no contract where there is no agreement

between the parties. It sometimes happens, however, that the parties

mistakenly think that they are ad idem, whereas in fact they are not. In

solving the problems that arise in such cases, the law draws a fundamental

distinction between error as to the motives of the parties and error as to

the contents of their agreement. Mistake as to motive is irrelevant, and

will have no effect on the validity of the contract - unless it was brought

about by misrepresentation. Mistake as to the law not induced by the other

party is similarly not a defence. But where the mistake relates to what is

in fact agreed, or provided it is material, to the identity of the parties,

no contract comes into existence.

Thus according to the Roman law classification, there is no contract if

there was a mistake as to the nature of the agreement - error in negotio; or as

to the identity of a party, provided this is material - error in persona; or as

to the identity of the subject matter- error in corpore; or as to some essential

quality- error in substantia. Mistake as to some non-essential quality is equated

with mistake as to motive and in the absence of misrepresentation is

inoperative- i.e. it does not avoid the contract. Mistake as to the price-

error in pretio - is only partly operative.

Where, however, one of the parties through his own blameworthy conduct,

whether negligence or fraud, has led the other reasonably to believe that

agreement does exist, then if the other can show actual or potential

prejudice the blameworthy party will be precluded by law from denying that

agreement exists. This is by virtue of the doctrine of estoppel, which

requires

[a] a representation by word or conduct that a certain state of affairs

exists [e.g. that the parties are in agreement],

[b] blameworthy conduct [culpability] on the part of the party making the

representation,

[c] reasonable reliance by the other party on the representation,

[d] prejudice [patrimonial loss]. either actual or potential, suffered by

the parties relying on the representation, and as a result of such reliance;

it has been suggested that the mere act of entering into a contract is a

sufficient alteration of one's position to one's detriment to satisfy this

requirement. The problem created by mistake in contract has sometimes been

solved by express recourse to the doctrine of estoppel. In the other cases,

though it is not mentioned in terms, the decision is in fact arrived

at on the same principles.

The courts have also frequently held that a party cannot escape liability

under a contract by relying on his own mistake unless he can prove that his

error was justus [reasonable]. It is submitted that this is itself recourse to

the doctrine of estoppel by virtue of which the mistaken party would be

culpable, and he would thus be estopped from saying that he was mistaken. In

other words he would not be allowed to rely on his own mistake.

Where a party signs his name to a document unaware that it contains a

contract, or in the mistaken belief that the document contains terms of a

contract other than those he intended, he will, in general be estoppel from

relying on his mistake to escape liability. The rule is expressed in the

maxim caveat subscriptor [let the signer beware], the rationale being that a

reasonable man generally takes care that documents he signs correctly

reflect his intentions, But in the rare cases where no culpability attaches

to the mistaken signer, estoppel will not operate, and the 'contract' will

be void for mistake.

Where again, the other party is aware of the mistake, he cannot be heard to

say that he reasonably relied on the representation that agreement existed,

and the mistaken party may thus rely on his error to escape liability, even

if it was culpable. As against an innocent third party who has acted on the

document to his detriment, however, the mistaken signer will be able to

escape liability only if he was not in fact culpable.

Where an offer is 'too good to be true' and the offer is obviously mistaken,

the offeree cannot by snapping up the offer bring a valid contract into

being; the parties are not in agreement, and the estoppel cannot operate as

the offeree was not induced by the offeror's representation to believe that

the offer meant what it said.

If one party intends that terms set out or incorporated by reference in a

'ticket' or similar document handed to the other shall form part of the

contract, and the other is not aware of this, then in accordance with the

principles set out above the party who handed the ticket will be estopped

from relying on his ignorance of the contents of the ticket only if such

ignorance is in fact blameworthy-as where his attention has been directed to

the terms so incorporated in the contract. This rule applies a fortiori when the

ticket is obtainable only on payment, its possession not being an essential

ingredient of the contract.

Where the parties are in fact agreed as to the terms of their contract but

the written memorial they signed does not correctly reflect their

intentions, the court will, on the application of either or both of them

order that the document be rectified.

When the parties agree on the terms of a contract but both act under a

supposition, which is vital to the transaction, then if the supposition is

incorrect, the 'contract' is invalid.

DIEDERICKS v. MINISTER OF LANDSIn 1953 Diedericks was allotted certain farm properties under the Land

Settlement Act, No 12 of 1912, which he hired in terms of a written

agreement with the State subject to the right to purchase them for $5286

payable in a series of annual instalments. Clause 20 of the agreement

entitled the State to resume possession of the properties should they be

required for irrigation purposes, and provided for the payment of

compensation in a determined manner. In 1961 the Department of Lands

informed Diedericks that a portion of one of the farms was required to be

released from the operation of the agreement, and on 14th March 1962, wrote a

letter- signed by a regional representative in the Department - offering to

purchase this portion for $2477. No mention was made of the State's right to

resume possession in terms pf Clause 20, and Diedericks, also unmindful of

the provisions of the clause,

accepted the offer. Shortly afterwards, the Department discovered the

resumption clause and repudiated its offer to purchase - which was said to

have been made in error, owing to an oversight by a clerk. Diedericks was

informed that the State intended to re-posses the portion against payment of

$628-73 calculated as compensation in terms of Clause 20. He refused to

accept the repudiation, however, and claimed an order declaring that a valid

contract existed.

MARITZ v. PRATLEYAt an auction sale, two lots, a mirror and a mantlepiece, were placed one on

top of the other, each lot being separately numbered and catalogued. The

mantelpiece was knocked down by Maritz, the auctioneer, to Pratley, but when

Maritz put up the mirror, Pratley claimed that he had bought it with the

mantelpiece. He refused to take the mantelpiece without the mirror, and when

Maritz sued him in the magistrate's court for the purchase price the

magistrate found that because there was no mutual consent as to what was

being sold there was no completed contract. Maritz appealed.

TROLLIP v. JORDAAN

Appellant had purchased a farm from the respondent in terms of a deed of

sale, which correctly reflected this boundaries and extent as set out in the

respondent's title deeds. Clause 8 of the deed read as follows: 'The parties

hereto acknowledge that the aforewritten agreement constitutes the entire

contract between them and no other conditions, stipulations, warranties or

representations whatsoever have been made by either party or his/her/its

agents other than such as may be included herein and signed by the parties

hereto.' Moreover clause 1 contained the following words: 'the seller makes

no representation and no warranty to the purchaser, including the sale'.

Appellant had been misled by representation of the respondent's agent into

believing that the property described in the deed of sale included more

afforested land than in fact it did, as a result of the agent's having

incorrectly pointed out the boundaries. In his declaration appellant had

claimed that his mistake was material, reasonable and bona fide, that but

for it he would not have bought, and accordingly that the deed was void.

Respondent having successfully excepted to the declaration in the Transvaal

Provincial Division, appellant appealed.

PERI-URBAN AREAS HEALTH BOARD v. BREET, N.O.AND ANOTHER

On 4th March 1947, the Provincial Secretary wrote to the agents of the late

Mr. Breet, the owner and proposed developer of the Robindale Township,

advising them that a water reticulation scheme submitted by them for the

township had been approved subject to the condition, inter alia, that any

local authority constituted in the future with jurisdiction over the

township would have the right to take over the whole water reticulation

system, when it so decided, free of charge. At no time did Breet or anyone

on his behalf reply to the letter, or indicate that he was prepared to

accept the condition.

The letter was received on the 6th March, but the township was proclaimed in

the Provincial Gazette of 5th March, the Administrator having signed the

proclamation notice on 27th February 1947.

The applicant, as a local authority since constituted as having jurisdiction

over the township, now sought an order against Breet's Executors declaring,

inter alia, that Breet had accepted or agreed to the condition by reason of

his conduct in failing to respond to the letter.

VAN RYN WINE AND SPIRIT CO. v. CHANDOS BAR

Appeal against a decision by a magistrate.

Frankel, a commercial traveller employed by the Wine and Spirit Co.,

solicited orders for liquor from Mrs. Hurley's, a partner in the Chandos

Bar. He promised a special reduction in price if cash payments were made to

him before delivery, explaining that his company needed money. He said also

that invoices for the full [unreduced] price would be forwarded later, but

that these should be disregarded, as they would be sent only to conceal the

fact that the company had breached a liquor trade 'ring' agreement fixing a

standard price. Mrs. Hurley gave Frankel orders on this undertaking,

honestly believing that he was entitled to enter into such an agreement. She

received the liquor, after paying Frankel in advance by means of bearer

cheques. Some time afterwards she received invoices at the unreduced prices,

but made no comment. The Wine and Spirit Co. later sued the Chandos Bar for

the price of the liquor sold. The magistrate having given judgement for the

defendant, the plaintiff appealed.

NATIONAL AND OVERSEAS DISTRIBUTORS CORPORATION [PTY] LTD. v. POTATO BOARD

The appellant company was advised by the Potato Board, in a letter signed by

its Manager, Mr. A.B. Rust, that its tender for a shed to be erected for the

Board had been accepted. Shortly after the company had received the letter,

it was informed by Mr. Rust that the Board had accepted another firm's

tender, and that the letter had been addressed to the company 'as a result

of an administrative error'

GEORGE v. FAIRMEAD [PTY] LTD.

On 18th January, 1955 George hired a room in the respondents company's hotel

for a fixed amount per month by means of a verbal agreement with Miss Gurek,

the hotel receptionist. He moved in on 1st February, and at Miss Gurek's

request signed the hotel register. At the top of this form he filled in his

name, date of arrival, tariff and nationality. Between this and his

signature at the bottom was a passage, in both English and Afrikaans,

reading as follows:

"I hereby agree that it is a condition of my/our occupation or visit to

these premises that notwithstanding the provisions of sec. 112 of the

Liquor Act, 30 of 1928, a copy of which is exhibited in the hotel

premises and to which my attention has been directed, the proprietor

shall not be responsible for loss or damage to my/our property brought

upon the premises, whether arising from fire, theft, or otherwise by

whomsoever caused, or arising from the negligence or wrongful act of

any person in the employ of the proprietor. Money or valuables may be

handed to the proprietor for custody, when a special receipt will be

issued accordingly. All visitors, whether or not they occupy rooms, are

deemed to contract with the proprietor on this basis."

A month later certain clothing and personal effects were stolen from

George's room in the hotel, and he sued the company in the Magistrate's

Court, Wynberg, Cape, for damages in the sum of $125-00. The magistrate

granted absolution from the instance, and the Cape Provincial Division

upheld his judgement. George appealed, his case based on Justus error- i.e. he

submitted that he was under a reasonable misapprehension that he was not

signing a contract but merely a register, in that he was asked to sign was

really a contract, and without drawing his attention to the important new

condition, which had been no part of his oral contract.

BURGER v. CENTRAL AFRICAN RAILWAYS

Appeal from a decision of the First Civil Magistrate of Johannesburg.

Burger, through his duly authorised agent, delivered a box of law books to

the Railways at Johannesburg for carriage by rail to Grahamstown. The agent

signed a consignment note, which was also signed by an official of the

Railways, and which stated on the face of it that it was issued subject to

the goods traffic regulations in force on the railway. Under section 147 of

those regulations the liability of the department was very materially

limited in the case of loss or damage to goods entrusted to it, unless the

value had been declared and the goods had been specially insured by the

consignor. Burger read the note before the goods left Johannesburg, but did

not make himself acquainted with the regulations. The goods were lost in

transit, and Burger sued for their full value. The magistrate gave judgement

for the amount tendered by the Railways in terms of the regulations, and

Burger appealed.

BHIKHAGEE v. SOUTHERN AVIATION [PTY] LTD.

Bhikhagee had signed a flight ticket but contended that he was not bound by

the terms set out on the back as these had not been brought to his attention

or explained to him, as he was unable to read English.

CHAPELTON v. BARRY URBAN DISTRICT COUNCIL

The plaintiff hired tow deck chairs at a cost of 2cents each from the

defendant Council, and was handed two tickets containing the words

'Available for 3 hours. Time expires where indicated by cut-off and should

be retained and shown on request. The Council will not be made liable for

any accident or damage arising from the hire of the chair'. Near by was a

notice reading 'Hire of chairs 2 cents per session of 3 hours. The public

are respectfully requested to obtain tickets properly issued from the

automatic punch in their presence from the Chair Attendants'.

The plaintiff was injured when using one of the chairs, and sued for

damages. The county court judge found that he was bound by the terms printed

on the ticket, and the plaintiff appealed.

IV.. CERTAINTY

The next requirement for a valid contract is that the agreement must be

final and sufficiently certain to be enforced.

It has been suggested that agreements, which are not, certain enough to be

enforced fall into three classes:

[a] those where the contract depends upon a condition that the promisor will

be bound if he so wishes:

here the uncertainty arises from the acknowledgement of his obligation.

[b] those where the language used is so vague and uncertain that it cannot

be decided what was in fact

agreed upon by the parties.

[c] those where the agreement is not final and there are still terms to be

negotiated, the content of which

cannot thus be determined.

There are, however, cases where, in spite of a lack of clarity to some

extent, the Court can ascertain what was agreed by hearing evidence. In

embarking upon an inquiry of this kind the court is often able to imply a

term relating to reasonableness, and can then hear evidence as to what is

reasonable in the circumstances.

The modern tendency is for the courts to be at pains to uphold agreements

where possible, particularly if the parties themselves have thought that

they have contracted, in order that 'the law may not incur the reproach of

being the destroyer of bargains'. Use is often also made in this regard of

the rule of interpretation that in cases of doubt contracts should be so

constructed that they can have some operation rather than none at all.

Where option contracts provide that terms as to credit are to be agreed upon

later, the courts have nevertheless held that a valid contract has come into

existence when the option holder has exercised the option tendering payment

in cash-the reason for this being that the highest terms the other party

could have insisted upon would have been payment in cash.

SCHNEIER AND LONDON, LTD. V. BENNETT

Appeal against the decision of a magistrate.

Bennett was employed by Schneier and London, Ltd. as a manager of their

timber department at a monthly salary of $40 plus a small commission to be

agreed between the parties. He was dismissed before any agreement had been

reached between him and his employers as to commission. He sued the

employers for commission [inter alia] at the rate of one-fifth per cent on

turnover, which rate he contended was reasonable. The magistrate having

given judgement in favour of Bennett, the employers appealed.

V.. INTENTION TO CREATE LEGAL RELATIONS

The next essential of a valid contract is that the parties must intend that

their agreement shall be legally enforceable.

ROSE AND FRANK CO. v. J. R. CROMPTON & BROTHERS, LTD.

The plaintiff, in the United States, were given a sole agency to sell

certain goods, manufactured by the defendant in England in terms of a

written agreement with the defendants containing the following clause,

described as 'the Honourable Pledge Clause'.

"This arrangement is not entered into, nor is this memorandum written,

as a formal or legal agreement, and shall not be subjected to legal

jurisdiction in the law courts either of the United States or England,

but it is only a definite expression and record of the purpose and

intention of the three parties concerned to which they each honourably

pledge themselves with the fullest confidence, based on past business

with each other, that it will be carried through by each of the three

parties with mutual loyalty and friendly co-operation."

A dispute having arisen, the defendants terminated the agreement without

giving the notice specified therein, and refused to execute certain orders

accepted y them before the termination.

VI.. CAPACITY

The general rule is that all persons have capacity to enter into contracts;

but this is subject to a number of exceptions. Minors under the age of 7

years, mentally disordered persons and drunk persons all labour under

disabilities precluding them from entering into any valid contracts. Others,

such as minors over 7, women married in community of property and subject to

the marital power, interdicted prodigals and insolvents have limit

contractual capacity. A consideration of the contractual capacity of

artificial persons lies outside the scope of this work, but it may be

remarked that in general corporations can contract through their officers in

the same way as natural persons, provided they do so within their powers, as

derived from any general or particular statute applicable, their charter,

constitution or memorandum of association.

A. Minors

A child under the age of 7 years has no legal capacity; his guardian acts

for him exclusively. A child over 7 years but less than 21 who has not

married may validly enter into an agreement in terms of which he receives

benefits but incurs no reciprocal obligations. Any other contract, however,

requires the assistance of his guardian-given either at the time, beforehand

or afterwards failing which it is void, and unenforceable against him,

unless he himself ratifies it on attaining his majority.

Although the unassisted contract of a minor is void, its voidness is

relative, since while the minor is not bound, the other party is. If the

minor wishes to enforce the contract, however, he must perform his promise,

and if he fails to do so, he will be liable ex lege to the other party to

the extent to which he, the minor, has been enriched. Where he has

fraudulently misrepresented his age, he is liable not only in delict but

also on the contract itself.

A contract to which a minor is bound, as one entered into on his behalf by

his guardian, or by himself with the consent or ratification of his guardian

may be set aside by the court if the minor after attaining his majority [or

specially appointed [curator ad litem] can show that the contract was

prejudicial to him at the time it was made. The action is for restitutio in

integrum [restitution] and must be brought within three years of the minor's

attaining his majority. Restitution will not be granted if the minor

fraudulently misrepresented his age. When restitution is granted, the

contract is annulled, and the minor may claim what he has performed. He is

liable, however, to the other party to the extent to which he, the minor has

been enriched.

A contract made by a guardian on his minor ward's behalf is valid unless and

until it is set aside by the court, and the minor is bound even if the

obligations under the contract extend beyond his majority, provided the

contract is desirable in his interests. Unless authorized by the will or

written instrument [if any] by which he has mortgage the immovable property

of his ward without the consent of the court, or if the value of the

property or mortgage is not more than $4000, of the Master; nor may a

guardian enter into a contract for his ward which is only to begin to

operate on or after majority.

When a minor with the consent of his guardian carries on a trade or business

for his own account he will be liable on contracts entered into by him in

connection with that trade or business. In such circumstances he is said to

be tacitly emancipated, and although the law is by no means settled its

development seems to be that a minor living apart from his guardian and,

with his guardian 's consent, earning his own living is liable also,

according to the particular circumstances of the case, on contract other

than those in connection with his trade or occupation.

Exceptions to the rule that an unassisted minor cannot bind himself by

contract are found in the Insurance Act, the Post Office Act and the

Building Societies Act.

B. Women Married In Community Of Property And Subject To The Marital Power

Unless the marital power is excluded in terms of an ante nuptial contract, a

women married in community of property has in general no capacity to bind

her husband, or the joint community estate, by contract. If her husband does

not assist or ratify, purported contracts entered into by her are void. In

his capacity as administrator of the joint estate, however, the husband will

be liable in so far as the estate has been enriched at the expense of the

third party.

A woman married in community of property and subject to the marital power

who, with her husband's consent, carries on a wholesale or retail business

or trade openly and in the sight of all has, by exception to the general

rule, full capacity in respect of contracts connected with her business or

trade. It is, of course, the joint estate, which is bound, and if the

husband withdraws his consent at any time the wife then loses her capacity

to bind the estate.

A married woman, whether married in community of property or not, may bind

the joint estate, or her husband, as the case may be, in respect of

contracts for household necessaries during the existence of a common

household. It is a controversial point as to whether the wife acts as her

husband's agent in pledging his credit for necessaries.

The Matrimonial Affairs Act [No 37 of 1953 as amended] enhances a wife's

capacity in various ways and imposes certain limitation on a husband's

rights to deal with property acquired by or accrued to his wife, while

exceptions to the rule precluding a woman married in community of property

and subjected to the marital power from entering into valid contracts

unassisted are also to be found in the Insurance Act, the Post Office Act

and the Building Society Act.

C. Mentally Disordered Persons, Drunk Persons

The contractual capacity of persons declared by the court to be prodigals is

similar to that of minors. While their disability lasts, and until it is

removed by further judicial decree, they are precluded from managing their

property. Curators bonis are appointed to administer their affairs.

D. Insolvents

An insolvent may not validly enter into a contract that may adversely affect

his estate, or any contribution he is obliged to make towards it, without

written consent of his trustee.

VII.. FORMALITIES

Contracts do not in general, depend for their validity on compliance with

any particular formalities. Provided agreement I reached, in the sense we

have discussed above, the parties will be bound. However because of the

importance from a practical point of view of ascertaining their terms

without the necessity of oral evidence, and for other reasons of public

policy, certain kinds of contract are required by statute to be in writing,

failing which they are void. Some of the most important of these are

contracts for the sale of land or any interest in land, executory contracts

of donation, contracts of suretyship, hire-purchase contracts falling under

the Hire-Purchase Act, contracts of apprenticeship and pre-incorporation

contracts under section 71 of the Companies Act, No. 46 of 1926.

Other contracts are binding as between the parties to them whatever form the

agreement takes but require compliance with certain formalities to be

effective against third parties. Examples are leases for periods of ten

years or more or cessions of such leases, and antenuptial contracts. Other

contracts again require compliance with some formalities in order to be

valid as between the parties and with others to be effective against third

parties. Examples are leases of rights to minerals.

If a contract requiring writing for its validity is not in fact in writing

it is, of course, void, and can give rise to no rights or obligations. If

one party has performed he can recover what he has given if the other party

would otherwise be unjustly enriched at his expense, but he cannot so

recover if the other party is himself willing and able to perform in terms

of the inchoate agreement - except where the policy of the statute imposing

the formality would thereby be defeated.

Parties to a contract often decide to reduce their agreement to writing,

particularly where the terms are complicated or the subject matter is of

commercial importance. If they expressly agree that there shall be no

contract between them until the written document has been acknowledged and

signed by them, there will in fact be no contract until this has been done,

but the mention of a written document during the negotiation will be assumed

to have been made with a view to convenience of record and facility of proof

of the verbal agreement come to unless it is clear that the parties of proof

of the verbal agreement come to unless it is clear that the parties meant

that the writing should constitute the contract.

Where it is a term of a written contract that any amendments to it shall be

in writing, verbal alterations will be of no force or effect.

Two important consequences of the use of writing to set forth the terms of a

contract may briefly be noted. The first is that by virtue o the 'parol

evidence rule' the written document is, as between the parties to it, the

exclusive memorial of the transaction, and evidence will not be admitted to

add to, vary, moodily or contradict the terms so set out. [The rule is,

however, subject to several exceptions and qualifications[. The second point

is that the period of prescription in respect of written contracts is

longer, in general, than that applicable to oral contracts.

VIII.. POSSIBILITY

A valid contract cannot, in general, come into existence unless performance

is possible, but only absolute impossibility of performance [i.e. where

performance is impossible for everyone] renders the c 'contract' void. In

cases of relative impossibility [i.e. where performance is impossible for

the promisor but not for everyone] the promisor is bound. Even in cases of

absolute impossibility the contract is valid if the promisor has warranted

that performance is possible.

IX.. LEGALITY

A valid contract cannot come into existence if the agreement is illegal,

whether it is prohibited by statute, or regarded as contrary to public

policy or contra bono mores [contrary to accepted standards of morality].

An agreement is legal if:

[1] the making of such an agreement is unlawful-for example the sale of

merchandise on a Sunday, or

[2] the performance undertaken is unlawful-for example an agreement to

commit a crime, or

[3] the purpose for which the agreement was made is unlawful-for example a

promise by one partner in an illegal venture to pay a share of the losses

arising out of the venture.

An illegal agreement is unenforceable at law, the principle being expressed

in the maxim ex turpi causa non oritur actio - no action arises from a base cause.

This is an absolute rule, subject to no exceptions, and if the parties

themselves do not mention the illegality, the court will raise the point of

its own motion, and decline to enforce an agreement which it is satisfied is

illegal.

A party who has fulfilled his obligations under an illegal agreement is not,

in general, permitted to reclaim what he has performed, the rule being in pari

delicto potior est conditio defendentis seu possidentis - in equal guilt the position of the

defendant or possessor is stronger. This is known as the par delictum rule,

the court being guided in each case by a consideration of whether public

policy will best be served by granting or refusing the claim. In applying

this test, the court is mindful of the principle that 'public policy should

properly take into account the doing of simple justice between man and man'.

Where the parties are not in equal guilt-as where performance has been

exacted by fraud or duress-the par delictum rule does not apply, and the

innocent, or less guilty, party will be permitted to recover what he has

given.

Where a portion only of an agreement is illegal, the court will, in a proper

case, and provided the illegal portion is severable from the rest of the

agreement, enforce the legal portion; if the illegal portion is not

severable, the whole contract is unenforceable.

X.. VOIDABLE CONTRACTS

In some cases though all the requirements we have discussed have been

satisfied, and a valid contract has come into existence, the contract can

nevertheless be set aside by one of the parties on the ground that his

consent was improperly obtained. Such contract is said to be voidable.

Until set aside, however, it is a valid contract with all the consequences

thereof.

The three main factors giving rise to voidability are misrepresentation,

duress and undue influence. Where the misrepresentation, duress or undue

influence was of such a nature, however, that real agreements in fact never

came into existence, then the 'contract' is void ab initio.

A. Misrepresentation

A contract can be set aside by the aggrieved party on the ground of

misrepresentation where:

[a] a representation was made by one party [or his agent] to the other in

order to induce him to enter into the contract;

[b] the representation was material;

[c] it was false in fact; and

[d] the other party entered into the contract on the faith of the

representation.

A misrepresentation must be distinguished from mere 'puffing', which does

not afford a ground for setting a contract aside.

A misrepresentation of law does not afford a ground for setting a contract

aside, for everyone is presumed to know the law; but a statement by one

party that he puts a certain meaning on a clause in a contract is a

representation of fact. A statement of opinion cannot amount to a

misrepresentation of fact, unless the opinion is not honestly held.

The non-disclosure of a material circumstance is not a misrepresentation

unless there is a duty of disclosure. In general, there is no duty to

disclose, but such a duty does exist where the contract is uberrimae fidei [of

the utmost good faith], such as partnership or insurance, or in contracts of

sale in respect of latent defects of which the seller has knowledge, or,

generally, where the negotiations 'are characterised by the involuntary

reliance of the one party on the other for information material to his

decision'.

Culpability on the part of the misrepresentor is not essential to the right

of the aggrieved party to set the contract aside, but where the

misrepresentation was fraudulent or reckless damages will also lie, not in

contract but in delict [Excursus: Delictual liability for

misrepresentation].

A party who has been induced to enter into a contract by misrepresentation

must within a reasonable time of learning of the misrepresentation, decide

whether he will stand by the contract or claim rescission. Once he has made

his choice he is bound by it.

Whether there is any liability for damages for innocent misrepresentation is

an extremely controversial question.

B. Duress

A contract can be set aside by the aggrieved party on the ground of duress

if:

[a] the contract was entered into as a result of actual violence or

reasonable fear;

[b] the fear was caused by the threat of some considerable evil to the party

or his family;

[c] it was a threat of an imminent or inevitable evil;

[d] the threat or intimidation was contra bonos mores;

[e] the moral pressure used caused damage.

C. Under Influence

A contract can be set aside by the aggrieved party on the ground of undue

influence where:

[a] one person acquired an influence over another, which weakens the other's

powers of resistance and renders his will pliable;

[b] such a person exercises his influence in an unconscionable manner to

persuade the other to agree to a prejudicial transaction, which he would not

have entered into with normal freedom of will.

LAMB v. WALTERS

Defendant had agreed to purchase certain immovable property from plaintiff,

but when sued for the first instalment of the purchase price raised the

defendant that the agreement had been induced by false and material

representations made by plaintiff, the false representation relied upon

being that plaintiff had assured him that the price asked was fair and

reasonable whereas in fact it was grossly expensive.

PRETORIUS AND ANOTHER v. NATAL SOUTH SEA INVESTMENT TRUST, LTD. [UNDER

JUDICAL MANAGEMENT]

Application for an order in terms of section 32 of the Companies Act, 1926,

for the rectification of the register of members of the respondent company.

The applicants contended, inter alia, that they were entitled to rescind a

contract to take shares in the company on the ground that the directors, one

Eliasov and one Mueller, had failed to disclose the existence of a contract

between the company and Nova Estates [Pty.] Ltd. The company had purchased a

flat site from Nova Estates in terms of this contract, which also required

it to commence building a block of flats to the value of at least $300 000-

00 within twelve months. Clause 4 provided that if the company defaulted

Nova Estates would be entitled to cancel the sale, and the flat site would

then revert back to Nova Estates.

BROODRYK v. SMUTS, N.O.

Exception to plaintiff's declaration.

Plaintiff alleged that he had entered into a contract of voluntary

enlistment and had taken the prescribed oath under threat that failing such

enlistments he would be regarded as a person unwilling to support the

Government, and would be interned. At the time of enlistment he was a road-

worker employed by the Government: he was married with a minor child

dependent upon him. He also alleged that the threat was made by two

officials in the service of the Government who were authorized to enlist

persons for military service and to give them information in this

connection. He claimed rescission of the contract, citing General J.C. Smuts

in his capacity as the Prime Minister and the Minister of Defence, as the

defendant.

The defendant excepted to the declaration on the ground inter alia, that the

duress alleged was insufficient to support a claim for the rescission of a

contract.

PRELLER AND OTHERS v. JORDAAN

Jordaan, an elderly farmer, had entered into a contract with Preller, a

medical practitioner who for years had acted as his doctor and adviser, in

terms of which he gave and transferred to Preller four farms- to be

administered by Preller for the benefit of Jordaan's wife and farm

labourers. Preller had subsequently transferred one of the farms to his son

and two of them to his daughter.

Jordaan averred that at the time of the contract had been entered into he

had been old and sick, and bodily, spiritually and mentally weak and

exhausted; he had been influenced in an improper and unlawful manner by

Preller, and would never have entered into the contract had he not been so

weak and exhausted and totally under the unfluence of his doctor. He claimed

against Preller [first appellant] an order declaring that the authority to

pass transfer, which he had signed, and the transfer, was null and void,

together with an order for the retransfer to him of the farm, which Preller

had retained. Against the son and daughter [second and third appellants] he

claimed retransfer of the farms registered in their names.

The defendants excepted to Jordaan's declaration as disclosing no cause of

action on the ground that 'undue influence' was not a good ground for

setting aside the transaction in Roman-Dutch law. The Orange Free State

Provincial Division dismissed the exception and the defendant appealed. In

the appeal it was contended for the first time on behalf of the son and

daughter that, as the transaction was voidable and not void and as transfer

had been passed to them., Jordaan could not claim back the farms concerned

from them by vindicatio.

BARNABAS PLEIN & CO. v. SOL JACOBSON & SON

Application for leave to appeal from a decision of the Transvaal Provincial

Division on appeal from a decision of the magistrate's court, Johannesburg.

Barnabas Plein, an estate agent, had, on the instructions of Sol Jacobson &

Son, found a purchaser, Brest, for the business and stock in trade. Jacobson

asked Plein [on 31st March 1926] to charge a small commission, because Brest

was only prepared to pay a price considerably less than that which Sol

Jacobson & Son had originally asked for. Plein agreed, saying that his

ordinary commission would be approximately $700, but in view of the

circumstances he would charge only $250. This agreement was confirmed by

letter on the same day. Later, unknown to Plein, a contract was finally

concluded between Brest and Sol Jacobson & Son at a price higher than that

envisaged when Plein's commission was fixed. Sol Jacobson & Son paid Plein

the $250 agreed upon, but Plein, on learning of the exact terms of the sale,

contended that the bases of the agreement of 31st March 1926, had fallen

away, and with it the agreement itself. He demanded his full commission

based upon a tariff framed by the Real Estate Agents Institute, of which he

was a member. Sol Jacobson & Son paid Plein a further $40 without admitting

liability, but Plein sued in a magistrate's court for the balance. The

magistrate having found for Sol Jacobson & Son, Plein appealed to the

Transvaal Provincial Division, which upheld the magistrate's decision. Plein

then applied to the Appellate Division for leave to appeal.

XI.. OPERATION

Contents Of Contracts

A. Terms

The contents of a contract are its terms, the provisions prescribing the

performance due by each party. Terms are classified as:

[a] Essentialia-terms which are of the essence of the contract and without

which there is either no contract at all, or else a contract of a different

kind; or

[b] Naturalia-terms automatically implied by law, which may, however, be

excluded by agreement; or

[c] Accidentalia-terms agreed upon by the parties either varying the naturalia or

adding to them.

Apart from the terms automatically implied by law, the court will imply a

term in a contract if after an examination of the language of the agreement

itself and of all the circumstances under which it was entered into it is

necessary driven to the conclusion that the parties must have intended the

stipulation in question..

A trade usage will be incorporated in a mercantile contract if it is proved

to exist in the trade and in the

area concerned. The essentials of a trade usage are that it be notorious,

certain and not contrary to positive law.

B. Conditions

A term of a contract must be distinguished from a condition-a provision

which makes the operation of the obligations under the contract depend on

the happening or non-happening of an uncertain future event. Where the

qualification introduced by the condition defers the operation of the

contract altogether, the condition is suspensive; where it provides for the

dissolution of the contract after interim operation, the condition is

resolutive. Pending the fulfilment of a suspensive condition, the parties

are bound to their agreement, even although its operation is deferred.

In terms of the doctrine of 'fictional fulfilment' conditions are deemed to

be fulfilled when the debtor who has bound himself subject to them is

himself and intentionally the cause of their not being fulfilled. Bad faith

on the part of the debtor is not essential to the operation of the

doctrine.

C. Suppositions

Where parties enter into an agreement on the joint assumption, or

supposition, that a certain state of affairs exists, and where they would

not contract but for this assumption, there will be no contract if in fact

that state of affairs does not exist.

D. Divisibility

The question whether an undertaking that by its nature is divisible into

separate parts should in fact be treated as divisible depends upon the

intention of the parties at the time the contract was entered into.

MACDUFF & CO., LTD. [IN LIQUIDATION] v. JOHANNESBURG CONSOLIDATED

INVESTMENTS CO., LTD.

The MacDuff company entered into an agreement with the J.C.I. company on 25th

November, 1920, in terms of which the J.C.I. undertook to form a new company

to take over the MacDuff Company's business, assets and liabilities. The

agreement provided that the MacDuff company should for its part convene the

necessary general meetings to pass a special resolution for its voluntary

liquidation within a certain time.

When it appeared to it no longer advantageous to form the new company, the

J.C.I. acquired all the shares in the MacDuff company, and appointed its own

nominess as directors. It then informed the MacDuff company that as it had

failed to pass the necessary special resolution the agreement off 25th

November had lapsed and was repudiated.

Shortly afterwards the MacDuff company was placed in compulsory liquidation

at the instance of a creditor. The liquidator sued the J.C.I. [inter alia] for

damages for breach of contract. The Transvaal Provincial Division dismissed

the action, and the liquidator appealed.

DICKINSON MOTORS [PTY.] LTD. v. OBERHOLZER

The defendant [Dickinson Motors] sold a Plymouth car to the plaintiff's son

A.G. Oberholzer

on hire-purchase. When the defendant later took judgement against A.G.

Oberholzer and had a warrant of execution issued, A.G. Oberholzer told the

messenger of the court that the Plymouth car was in his father's possession.

This statement was false as far as the identity of the car was concerned in

that the son had meanwhile purchased an identical Plymouth from another

motor dealer, and exchanged it for a Hudson car belonging to his father. The

son then sold this car and the first Plymouth.

Acting under the judgement obtained by the defendant, the messenger attached

the second Plymouth in the plaintiff's possession and removed it, mentioning

that if an amount off $257 was paid the plaintiff could have the car back.

Having failed to get back the Hudson car from his son, the plaintiff wrote

to the defendant at Vereeniging some time later asking whether he could

still have the Plymouth for $257. The reply was that if he paid in cash the

amount outstanding on the car - approximately $291 - he could call and

collect it. This he duly did. The hire-purchase agreement relating to the

first Plymouth being duly cancelled on the signature of the plaintiff and a

representative of the defendant. Both the plaintiff and the defendant were

under the impression that the car was the originally sold by the defendant

to A.G. Oberholzer, but in fact it was the one he had bought from the other

motor dealer.

About a month later, pursuant to a judgement obtained by the second motor

dealer, the car was again removed from the possession of the plaintiff by

the messenger of the court.

Plaintiff brought action to recover the $291 he had paid to defendant as an

amount not owing by him and paid in error. The trail court found in his

favour, and the defendant appealed.

XII.. PARTIES TO CONTRACTS

A. Contracts for the benefit of a third party. [the stipulatio alteri]

It is possible in our law for two parties to contract for the benefit of a

third, whether the third is in existence at the time or not. This concept

has been employed, for example, for contracts for the benefit of companies

to be formed, and for trusts inter vivos. The third party may enforce the

contract as soon as he has become a party to it by notifying the promisor

that the he accepts the benefit stipulated for in his favour. Pending his

decision the original two parties may agree between themselves to vary or

terminate the contract, but neither party may do so unilaterally. Acceptance

of the benefit by the third party implies also his acceptance of any

liability imposed upon him in terms of the contract.

B. Plurality Of Parties

Where there is more than one debtor in respect of the same obligation, the

general rule is that each is liable only for his pro rata share: the

liability, in other words, is joint. The parties may agree, however, that

each co-debtor is to be liable for the full amount of the debt, in which

event the liability is joint and several [each debtor is liable in solidum].

Performance in such cases by one-debtor discharges the obligations, but each

co-debtor is liable to the one who performs for his pro rata share. The

release by the creditor of one solidary debtor releases the other to the

extent of his pro rata share.

The same rules apply, mutatis mutandis, where there is more than one creditor

in respect of the same obligation.

McCULLOGH v. FERNWOOD ESTATE, LTD.

McCullogh sued Fernwood Estate Ltd. for $100 000-00 being the purchase price

of certain land in terms of a contract of sale entered into between him and

one Apsey, acting as trustee for and on behalf of a company to be formed.

After the contract has been entered into, Fernwood Estate Ltd. was

registered as a company, and accepted the benefit of the contract.

A judge of the Cape Provincial Division granted absolution from the

instance, and McCullogh appealed.

XIII.. BREACH OF CONTRACT

There are five forms of breach of contract:

[1] repudiation;

[2] Rendering Performance Impossible;

[3] Positive Malperformance;

[4] Mora Debitoris [delay on the part of the debtor]

[5] Mora Creditoris [delay on the part of the creditor].

The first two forms [Repudiation and Rendering performance impossible] are

sometimes known as Anticipatory Breach because they may occur before

performance I due.

Repudiation takes place when the debtor by act or conduct evinces an

intention no longer to be bound by the terms of the contract for the future.

When repudiation has taken place, the other party has a choice: he can

either bring the contract to an end y accepting the repudiation, and then

sue the other party for damages for breach of contract, or he can refuse to

accept the repudiation, in which case the contract is kept alive and both

parties retain all their rights and liabilities in terms thereof. The

innocent party can then only sue upon the contract when performance is due

and when he has performed, or tenders to perform, his own obligations, if

any, under the contract.

Rendering Performance Impossible takes place when the debtor by his own

culpable conduct disables himself from performing hi obligation.

Positive Malperformance is the failure to perform adequately, either by

doing what one has contracted not to do or by doing inadequately what one

has contracted to do. It differs from Mora Debitoris, or negative

malperformance, which is the failure to perform on time, though there are

cases where failure to perform on time is equivalent to failure to perform

at all, and thus Positive Malperformance.

Before a debtor can be guilty of Mora Debitoris performance must be due. If a

date is fixed for performance, failure to perform on or before that date

amounts to mora debitoris without any action

on the part of the creditor. This is known as mora ex re [delay from the

ting]. Where a date for performance has not been fixed, a demand from the

creditor is necessary before the debtor can be in mora. Failure to perform

within a reasonable time of receiving such a demand renders the debtor

guilty of mora debitoris. This is mora ex persona [delay from the person].

It is a controversial question whether a demand is necessary to place a

debtor in mora in cases where no time for performance has been agreed upon

but where 'time is of the essence of the contract [for the meaning of which

see below].

In cases both of mora ex re and mora ex persona, interest, known as mora interest

is payable from the date the debtor fell into mora, unless the performance

due was unliquidated.

A creditor who refuses to receive the debtor's performance when it is

tendered is guilty of Mora Creditoris.

The main remedies for breach of contract are:

[1] Specific Performance

[2] Damages; and

[3] Cancellation.

In general, a creditor has the right to claim Specific Performance if he so

desires, or damages for the breach. If the creditor chooses specific

performance the courts will order it, but they have a discretion whether to

do so or not. This discretion is not confined to specific kinds of cases

nor is it circumscribed by rigid rules. Specific performance has not been

ordered, for example:

[a] where damages would adequately compensate the plaintiff;

[b] where it would be difficult for the court to enforce its decree;

[c] where the thing claimed can readily be bought anywhere;

[d] where the result of ordering specific performance would be to impose

great hardship on the debtor or

on the public; or

[e] where specific performance entails the rendering of services of a

personal nature.

Damages for breach of contract may be of two kinds: damages as a surrogate

for specific performance or damages flowing from and arising out of the

breach itself. The court endeavours to place the creditor in the position he

would have been in had the contract been performed, in so far as that can be

done by the payment of money, and without undue hardship to the defaulting

party. In assessing damages of the second kind the court only awards such

damages as flow naturally from the breach, or as may reasonably be supposed

to have been in the contemplation of the contracting parties as likely to

result there from. The creditor must take reasonable steps to minimize his

loss. Damages may not be awarded, in contract, for the humiliation caused to

the creditor because of the breach, for the damages claimable must be in

satisfaction of some pecuniary loss.

The assessment of damages for breach of contract is often difficult and to

avoid difficulty contracting parties sometimes include clauses in their

contracts that in the event of a breach a certain sum shall be payable by

the defaulting party. Such clauses are enforceable-but the court can reduce

the amount payable there under if it is out of proportion to the prejudice

suffered by the creditor.

Cancellation is an exceptional remedy: while specific performance or

damages is substitution thereof may in general always be claimed,

cancellation is only available in exceptional cases.

When a debtor is in mora, the creditor may only cancel the contract when

'time is of the essence': time is regarded as being of the essence when the

parties have expressly made it so, or when it appears from the nature of the

contract or from the surrounding circumstances that this was their

intention. There is a strong presumption that time is of the essence in a

mercantile transaction.

When a debtor is in mora, but time is not of the essence, the creditor can

make it so by giving notice that if the contract is not performed by a

certain date, allowing a reasonable time, he will regard the contract as at

an end.

In the case of positive malperformance the creditor may cancel the contract

if the defaulter has broken a promise he fulfilment of which is essential to

the continuation of the contractual tie.

A party wishing to cancel a contract on the ground of the other party's

breach must communicate his intention to the other party [unless it is

agreed that termination may be effected in some other manner] before the

cancellation becomes effective.

In addition to the remedies for breach of contract, the creditor may in

certain circumstances have a defence, the exceptio non adimpleti contractus. This is

available where the contract imposes obligations on both parties: neither

party can, in the absence of a special agreement to the contrary, sue the

other for performance unless he himself has performed or is willing to

perform his side of the contract. But where,

although his performance is in fact defective, a party institutes an action

for performance by the other party in the honest belief that he has duly

performed his side of the contract, he is entitled to such performance less

the cost of remedying the defect. This applies only when the other party has

taken the benefit of the defective performance.

When the attempted enforcement of a remedy amounts to unconscionable

conduct, it may in certain circumstances be repelled by means of the exceptio

doli gereralis. The precise limits of this defence, however. have not as yet

been defined. [Excursus: The exceptio doli generalis].

XIV.. TRANSFER AND TERMINATION

A. Transfer

Contractual rights are transferred by cession. As a general rule the

transfer may be effected by mere agreement between the transferor [cedent]

and the transferee [cessionary] but where the sole proof of the right is the

document which records is the document itself must also be transferred in

order to render the cession valid as against third parties.

If notice of the cession has not been given to the debtor, payment to the

cedent discharges the debt, but the failure to give notice to the debtor

does not invalidate the cession as such.

All defences, which the debtor can raise against the cedent, can also be

raised against the cessionary, but the debtor has no rights of action

against the cessionary even though he may have rights of action against the

cedent.

All contractual rights can be ceded unless they are of so personal a nature

that it would make a reasonable or substantial difference to the debtor

whether the cedent or the cessionary is entitled to enforce the contract.

A clause in a contract forbidding cession without the debtor's consent is

valid if the debtor has an interest in the matter.

The cession of part of a debt without the consent of the debtor is invalid.

B. Termination

Contractual rights and obligations are terminated either by performance, by

mutual agreement or by operation of law:

1. Performance

Performance may be made not only by the debtor himself but also by anyone

acting in his name, whether with his knowledge or not, and even against his

will. The creditor is not entitled to refuse performance in the debtor's

name by a third party where it makes no difference to him by whom the

contract is performed; but if performance by a particular person was

contemplated, the obligation can only be discharged y that person.

Performance must be made to the creditor, his nominee, or to his cessionary

if notice has been given.

The performance of an equivalent act [performance per aequipollens] instead of

that actually agreed upon [performance in forma specifica] discharges the

obligation only if the surrounding circumstances show that the parties

contemplated that such an equivalent act would be sufficient.

Where money has to be paid, the tendering of a cheque is, generally

speaking, not sufficient, but in a commercial transaction, and especially

where payment by cheque has been accepted in the past, the court will not

require very strong evidence to show that the parties contemplated in the

particular case that payment might be made by cheque.

Payments are appropriated to interest before capital, and in accordance with

established rules there after. Interest ceases to run when it reaches the

amount of the capital debt, but if payment is afterwards made , interest

again runs until it reaches the amount off the capital.

Performance must be made at the place expressly or impliedly fixed in the

contract. Where no place has been fixed, and the obligation is do deliver a

thing, performance must be made where the thing is; where money has to be

paid, the creditor must seek out the debtor, but if the money has to be paid

by a fixed date, it is for the debtor to take steps to pay the creditor in

time.

If the creditor requests the debtor to make payment through the post, the

posting of a cheque or other instrument, in an envelope correctly addressed

and stamped, discharges the obligation [subject to the cheque being paid],

but unless there has been a request by the creditor, the posting of a cheque

alone is not sufficient-at the least where the parties reside in the same

town.

Where the creditor prevents or refuses to allow the performance by the

debtor of a term of the contract upon the performance of which the

creditor's own obligation depends, the debtor will be deemed duly to have

performed the term.

2. Mutual Agreement

[a] Novation

Novation is the substitution of a new obligation for any old one; the old

obligation is extinguished as if by payment. Delegation, a form of novation,

takes place when the original debtor is discharged and replaced by a new

debtor, the creditor as well as both the debtors having agreed to the

substitution. Novation such a necessary inference.

[b] Compromise

Compromise [transactio] is an agreement of settlement entered into between

parties the terms of whose obligation, if one exists, are in dispute. An

offer of compromise, if accepted, is binding on the parties, but in the

case of an obligation to pay money, such an offer, or tender, must be

distinguished from a payment of an admitted liability with an attempt to

annex a condition that such payment be accepted 'in full settlement' of the

debtor's obligation; in this event the creditor may accept the payment on

account and sue for the balance. A compromise agreement, once entered into,

precludes an action on the original cause of debt, except where the

compromise specifically or by clear implication provides that the original

claim shall revive in the event of the non-performance of the terms of the

compromise.

[c] Waiver

Waiver [release, acceptilatio] is an agreement in terms of which the debtor is

discharged from his obligation even though it has not been fulfilled. Where

it is sought to prove a waiver, the debtor must establish, on a

preponderance of probability, that the creditor, with full knowledge of his

rights, decided to abandon them, either expressly or by conduct plainly

inconsistent with an intention to enforce them.

3. Operation Of Law

[a] Set-off

Set-off [compensatio] is the mutual extinction pro tanto of debt owed

reciprocally by two persons to each other. Both debts must be due and

liquidated but not necessarily undisputed if they are capable of speedy and

easy proof. They must be owing to and by the same parties and must sound in

money, other fungibles, or indeterminate things of the same kind. Set-off

must be pleaded, but operates automatically with effect from the date when

the parties became indebted to each other.

[b] Merger

Merger [confusio] is the concurrence of the debtor and creditor in the same

person and in respect of the same obligation. The obligation is

automatically destroyed to the extent to which the concurrence of the

opposing capacities renders it impossible to exist.

[c] Supervening impossibility of performance

When performance of a contractual obligation becomes impossible through no

fault of either party the obligation is in general discharged as if it had

been impossible form the inception, but this rule does not apply in cases

where an examination of all the circumstances surrounding the contract shows

that the impossibility was in the contemplation of the parties.

[d] Extinctive prescription.

Extinctive prescription is the rendering unenforceable of rights by the

lapse of time, differing periods applying to differing rights. After they

have become unenforceable such rights continue to exist as natural

obligations until after the lapse of thirty years, when they are completely

extinguished.

GENERAL MASTER'S DEGREE IN BUSINESS ADMINISTRATION

LEGAL ENVIRONMENT OF BUSINESS

ASSIGNMENT 1

Sam agrees to sell ten head of cattle to Brian. Before entering into the contract Brian was rather concerned about an outbreak of foot and mouth disease in the eastern and southern regions of the country. His fear was that since Sam farms in the Masvingo province his cattle might have been affected by the outbreak of the disease. During the course of their negotiations Sam assures Brian that the cattle had been certified free of infection by the disease by the government veterinarian. He also advised Brian that as a precautionary measure his cattle had been vaccinated againstfoot and mouth disease some two weeks before their negotiations commenced.

Brian pays Sam $40 000 000 being the full agreed purchase price for the ten cattle. Soon after their delivery to his farm one of the cattle show signs of being infected with foot and mouth disease. Further enquiries disclose

that contrary to Sam’s assurances the cattle had not been vaccinated againstfoot and mouth disease but against heart water disease.

Discuss the legal rights of the parties in light of the facts disclosed

To what extent, if any, would it influence your advice if Sam were able to

establish that he had genuinely and on reasonable grounds believed that his

cattle had been vaccinated against foot and mouth disease?

GENERAL MASTER'S IN BUSINESS ADMINISTRATION

LEGAL ENVIRONMENT OF BUSINESS – GBA 482

TUTORIAL PROBLEMS

1. Plaintiff - having insufficient funds - entered into an agreement that the defendant should buy and take transfer of a certain piece of land until the former could raise sufficient funds to reimburse the latter for all costs and charges associated with the property. At such time, the plaintiff could claim transfer of the property from the defendant and, meanwhile, the plaintiff would exercise rights of ownership even though the defendant was the registered owner. However the defendant then sold the land to a third party, Consequently, the plaintiff - alleging that he had paid all amounts due to the defendant - sued for damages. But the defendant argued that the agreement was void for vagueness, since no deadline had been set for performance of the agreement.

2. Plaintiffs telegraphed the defendant regarding a piece of land, saying,'Will you sell us Mbalabala Ranch? Telegraph lowest cash price - answerpaid. To which the defendant cabled a reply saying, 'Lowest price for Mbalabala Ranch $900 000 000.' The plaintiff then telegraphed, 'We agree to buy Mbalabala Ranch for the sum of $900 000 000 asked by you.'But the defendant refused to sell. The plaintiff therefore sued on ground that the defendant's' statement of lowest price in response to aspecific enquiry whether they would sell implied an offer to sell whichthe plaintiffs had accepted.

3. The A Co in Harare advertised a reward of $500 000 to any person givinginformation leading to the arrest of thieves who robbed the company andto the recovery of the jewellery involved. Having given the required information, B claimed the reward.

4. G booked into a hotel by completing and signing the hotel register, which contained a clause - though G did not read this - exempting the proprietor from liability for loss through theft. When clothes were subsequently stolen from his room, G sued the hotel company, claiming amistake through ignorance based on justus error in that he had believed himself to be signing merely a hotel register - not a contract - and that in any event his attention had not been drawn to a written term not included in his oral agreement.

5. S sees a car advertised for sale by T at $10 million dollars. After work he visits T and it is agreed that he will buy the car from T for the stated price, which will be paid to T in cash the following morningwhen he will collect the car. That evening, as he always does T locks the car in his garage. Overnight it is stolen. Next day S arrives, carrying the agreed sum of money, only to be told by T what had occurred. He is about to leave when, to his surprise, T asks: “Mr. S, what about my money?”

(a) Advise S. (15)

(b) Would your advice to S be different if, contrary to his customarypractice T, since he expected the car to be collected in the morning had, on this occasion, simply left the car locked and parked in the street. (5)

(c) Is there anything the S could have done to protect himself in thecircumstances described above? (5)

6. X employs Y as a driver of his delivery vehicle. His duties are strictly limited to deliver small orders within a radius of 30 kilometres of X’s business premises and warehouse. He is specifically prohibited from carrying any passengers including X’s employees and signs an undertaking not to do so.

One day whilst driving along on a delivery, A, an employee of X, encounters Y at premises where he is making a delivery and requests himto take A and a relative to a clinic approximately ten kilometres beyond the area in which he makes his deliveries. He does so after completing the deliveries he still had in hand. Whilst on the way to deliver A and his relative to their destination, at a regulated intersection, Y is involved in a collision with another vehicle. In consequence A is instantly killed and both vehicles are severely damaged.

a) Advise both X and Y of their legal liabilities, if any. (18)

b) Would it make any difference to your answer if the delivery vehicle contained a notice on both sides and front and rear in bold red

letters, which read, “Driver instructed not to carry passengers”? (4)

Would the fact that Y and A had stopped off at a bar before the collisionmake any difference to your advice? (3)

GROUP DISCUSSION QUESTIONS

Question 1Sand Sellers (Pvt.) Ltd. take twenty overalls to Spotless Dry Cleaners for cleaning The attendant at Spotless Dry Cleaners issues a receipt to the messenger delivering the overalls on the back of which the following words are printed:

“This firm accepts no liability for any damage to or shrinkage of any items left in its care irrespective of the cause thereof.”

Three days later Sand Sellers send their messenger to collect the overalls. On inspecting the overalls after their return to its offices it is discovered that six of them have been bleached. The manager of Sand Sellers (Pvt.) Ltd. brings this fact to the attention of Spotless Dry Cleaners. The manager of latter firm draws the attention of Sand Sellers’ manager to the condition on the back of the receipt when the overalls were delivered for cleaning and contends that on the basis of this condition his firm is absolved from liability for the damage to the overalls.

Required:(a) Discuss the prospects of success of Sand Sellers (Pvt.) Ltd. if this

dispute were to be brought before the court. (15)

(b) Apart from litigation is there any other means of resolving this dispute and, if so, what are its advantages over a court action? (10)

(25 marks)

Question 2Moyo left a locked suitcase at the cloakroom of the Bulawayo railway stationfor safekeeping. He received a ticket on which the words, "The National Railways of Zimbabwe accepts no responsibility for any article exceeding thevalue of $50 000", were printed in red ink diagonally across the ticket and partly obscured by the cloakroom attendant's description of the package. Moyo knew there was printing on the ticket, but did not know that the printing contained terms limiting the Railways' liability. His attention wasnot directed to the printing, nor was there any notice in the cloakroom calling attention to it.

The package was lost, and Moyo sued for its value which amounted to $25 000 000.

Advise the Railways as to whether it will be able to rely on the exemption clause on the ticket to resist Moyo's claim. In doing so refer to decided cases.

(25 marks

Question 3An engineering company is informed, in a letter received by it from the General Manager of a statutory corporation, that it's tender for the erection of a large shed had been accepted by the tender committee of that corporation. Some two weeks later the General Manager of the statutory corporation informs the Managing Director of the engineering company that the tender in question had been awarded to another company and the letter had been sent to the company as "a result of an administrative error'.

Advise the Managing Director of the engineering company who consults you, fully

(25 marks)

Question 4Mrs. Gwemende an 86 year old lady is approached by Mrs. Muswere to sell her house in Bulawayo to her for 27 000 British pounds. She undertakes to pay the money to her by depositing it into a bank account held by Mrs Gwemende in London. In order to disguise their transaction Mrs. Gwemende enters into an agreement of sale in respect of the house in Zimbabwe in terms of which Mrs. Gwemende is to effect transfer of the property into the name of Mrs. Muswere by the 31st December, 2004, when she is to have paid