BUSINESS

LAW

MODULE

FOR IMM/BBA, IAC, ICM, SAIM, CIS & ZAAT STUDENTS.

BY

INNOCENT MAJA

EDITED BY: ELIAS TAFADZWA MADZIMURE

1
PREFACE

Ever since I began to lecture Business Law at Trust Academy, I was bothered and
disturbed by the dearth and scarcity of study material for this course. The desperation of
the students, their participation in class together with the labour I invested in looking for
and convivially studying the materials in order to teach this course have all compelled me
to come up with this study guide.

This module is not intended to be and is not, neither can it be, an exhaustion of the
Business Law Course. It is a mere study guide intended to provoke much study of
Business Law.

My prayer is that it may cure the reader’s ignorance on this course. One writer once said
“The purpose of education is to replace an empty mind with an open one.” May the
God of the Christian Bible bless you and give you enlightenment and wisdom as you flip
through the pages of this module.

**Any reference to masculinity (he) also imports a feminine meaning(she).

April, 2003
Innocent Maja [contact – 023 895 124]
(Lecturer of Business Law at Trust Academy)

ACKNOWLEDGEMENTS

I am indebted to the God of the Christian Bible, through his Son Jesus Christ – the
Messiah, who is the quintessential fountain of my limited wisdom.

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CONTENTS

Chapter Topic Page

1 The Legal System 4
2 The Law of Contract 12
3 Contract of sale 23
4 Law of agency 33
5 CREDIT AGREEMENT 38
6 INSURANCE 41
7 NEGOTIABLE INSTRUMENTS 45
8 PARTNERSHIP 52
9 LABOUR 54
10 SECURITY 61
11 COPYRIGHT 66
12 CONSUMER LAW 73
13 LEASE 77
14 INTRODUCTION TO CORPORATE LAW 83
15 INSOLVENCY 101

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 CHAPTER 1
THE LEGAL SYSTEM
What is a Legal System?
It is the sum-total of law and the way it is made and enforced and the institutions that are
involved in law-making and enforcement.

What is law?
Law refers to a system of rules and regulations that govern human conduct and societal
relations and are enforced by the state.

Note – there are many rules and regulations that govern societal conduct but not all of
them are law. What qualifies them to be law is the element of state enforceability. It is
pertinent to note that a rule or regulation cannot qualify to be law because of its
effectiveness or goodness but only because the state says it is law. Hahlo and Kahn1
convincingly contend that:-
“Law itself, in the strict sense, is the only body of rules governing human
conduct i.e. recognized as binding by the state and if necessary enforced. This
does not mean that there are no sanctions as far as other practical laws are
concerned. There is the conscience of the individual, pressure or public
opinion, social approval or disapproval. But only law in the strict sense is
enforced by the courts of law or some other organ of the state.”

Of course, Natural Law Theorists like Cicero, Aristotle, Justinian, St Thomas Aquinas,
Grotious, John Locke, Finnis, Fuller (etc) contend that every law should conform to some
higher principles of justice, morality etc., for it to be valid. This school of thought is
based on the Latin maxim “Lex ir usta non est lex” (An unjust law is no law at all). The
idea of a higher law is still used by judges in our day in resolving controversial cases
which raise moral questions. For instance, in Corbett V Corbett,2 the court held that a
marriage between a man and a person who had undergone a sex change was a nullity
since it was against the natural and biological determining order of a marriage. Also in
Myres V Leviton,3 it was held that “There is no person who quite takes the place of a
child’s mother. There is no person whose presence and natural affection can give the
child the sense of security and comfort that a child derives from its own mother.”

Natural law therefore presupposes that for a law to valid, it should conform to some
higher moral or just standards. This means that apart from state enforceability, laws
should be moral or just. An unjust or immoral law, though passed by the state, is not a
law at all.

It is arguable that the natural theory’s conception of law is misleading because not all
laws are moral or just 4. For example a person cannot be held personally responsible for
failing to help a person in need (e.g. a drowning person or one involved in an accident).

1
In their book, “An Introduction to South African Law” Pages 3-4.
2
1977 IP 83.
3
1949 (1) SA 203 @204.
4
The concept of justice is elusive a subject to debate.

4
This law is inconsistent with the parable of the good Samaritan in the Christian Bible in
Luke 10 Verses 25-37. Again one person once referred to homosexuality as “moral
decadency” yet South African laws allow homosexual relations and marriages. These
laws do not cease to be laws because others view them as morally unjust. Like Hart, it is
arguable that natural law theorists deal with the question of what law “ought to be” and
not what law is.

It is submitted that the positive way of thinking reflect clearly what law is. Positive
theorists – like Hart, Jeremy Benthan, John Austin, Hans Kelsen etc- convincingly
contend that law is law despite its moral content. Professor Hart 5, in particular, argues
that
“It may be that a legal system ought to show some conformity with justice or
morality; but it does not follow that a criterion of legal validity must include
expressly or by implication, any reference to justice and morality.”

Thus, a rule of law may be morally iniquitous, but it still remains law because the state
says so.

From the above, it is discernible that law “is a system of rules and regulations that
govern human conduct and societal relations and are enforced by the state.”

Business law thus becomes the branch of law which governs commercial transactions.

The Concept of the State

Having qualified that the state determines what law is, it is pertinent to define what the
state is. Attention will not be devoted to proponents of the social contract or the Marxist
conception of the state. Layout will simply be given on what constitutes the state.

The state or government is divided into 3 namely:-

i) The Executive – this consists of the president and cabinet. They are
responsible for formulating policy and drafting bills which are presented to
Parliament for debate.
ii) The Legislature – consists of Parliament and the President. The legislature is
responsible for making laws which are called statutes or ‘Acts of Parliament.’
iii) The Judiciary – consists of the courts whose main responsibility is to
interpret laws.
Law should thus emanate from these 3 arms of the state.

Purpose of Law
1) To maintain peace and order in society – this functions is crucial in that it
prevents chaos
2) To do justice – applies to some laws. However the concept of justice is elusive
and attracts a lot of debate which I will not deal with in this book. One American
judge commented:-

5
in his book, “The Concept of Law.”

5
 “The life of law has not been logic but it has been experience. The felt
necessities of time, the prevalent moral and political views have had a great deal
to do with the law than anything else.”
3) To enforce morality – law has some moral fibres but not all laws are moral.

Divisions of Law
1) Public and private law
The destinction is not easy to make. However, it
may be generally stated that private law
enshrines private interests. It regulates the rights
and duties of persons. On the other hand, public
interests (rights and obligation of the state vis a
vis private persons) are governed by public law.
2) Criminal Law and Civil Law (Delict)
A crime is a wrong committed against the state
and punishable by the state through either
imprisonment or a fine or both. A criminal
action is instituted by a state or public prosecutor
on behalf of the aggrieved party. A delict, on the
other hand, is a wrong committed against an
individual and the main relief is compensating
the victim for loss suffered. It is the prerogative
of the aggrieved individual to institute a delictual
action either on his own or through a legal
practitioner of his choice.
3) International and national law
National law refers to a body of rules perculiar to
a particular country or state while international
law refers to rules which are binding on states

6
 and their relations with one another (This is
sometimes referred to as public international law
to distinguish it from private international law
which deals with the exercise of jurisdiction by
national courts in matters involving a foreign
element e.g. a foreigner)
**Public International law does not
automatically become part of the laws of a
nation. That particular nation has to ratify
international treaties and incorporate it into a
statute for public international law contained
therein to apply.
4) Substantive and procedural law
Substantive law deals with specific legal rights
and duties of persons. In other words, the nature
of the rights and duties; how they are
distinguished or constituted and their legal
affects. Procedural law, on the other hand,
comprises of rules which govern the enforcement
of rights i.e. steps to be taken in enforcing rights.
It is sometimes referred to as adjectival law and
includes the law of civil and criminal procedure
and evidence.
5) General and Customary Law
As will be discussed, general law relates to
common law and statute law whilst customary
law refers to African Customary Law.
6) Common, civil and equity

7
 The term ‘common law’ can be used to refer to
legal systems derived from English law. In
England, there is also reference to the law of
Equity. Equity refers to a branch of law which
was administered by the King and his court
(called the Court of Chancery) to alleviate the
injustices stemming from the common law.

SOURCES OF LAW
For a rule to become law, it has to be derived from a
sources recognized by the state. In Zimbabwe and
South Africa, there are mainly 5 sources of law
namely:-
i) Legislation
ii) Common law
iii) Judicial precedent aka case law
iv) Custom
v) Authoritative texts

Legislation
Refers to rules of law that are made by the legislative
authorities of the state. In terms of hierarchy of
sources, legislation is the most important source of
law because it emanates form an elected body and in
terms of democracy ‘Law should be made by the
people’s representatives.

8
Section 32 of the Zimbabwean Constitution provides
that the legislature is made up of Parliament and the
President.
Statutes are ranked in order of their superiority as
follows:-
i) Constitution
It overrides all other law in the country
inconsistent with it. Section 3 of the
Zimbabwean Constitution provides that:-
“This constitution is the supreme law of
Zimbabwe and if any other law is
inconsistent with this constitution, that other
law shall, to the extent of the inconsistency,
be void.”
ii) Acts of Parliament
Acts of Parliament are laws that are passed by
Parliament e.g. Labour Relations Act,
Banking Act etc.
iii) Statutory Instruments or by-laws
This refers to laws passed by either the
president or ministers or local authorities in
terms or powers delegated to them by
Parliament.
* Statutes may be cited in either of the
following 3 ways
i) By reference to chapter e.g. Labour Relations
Act (chapter 38:01) or Deeds Registries Act
(Chapter 20:05)

9
 ii) By reference to the short title which includes
the calendar year in which it was enacted e.g.
Labour Relations Act, 1985 or
iii) By reference to the short title plus a full
citation showing the number of statutes in the
calendar year e.g. Labour Relations Act,
1985 (Act No 16 of 1985)

Common Law
Zimbabwe and South Africa’s common law is based
on Roman-Dutch Law. The development of Roman
Dutch law was based on the writing of jurists like
Grotious, Simon Van Leeuwin and Johannes Voet.
Infact it was Simon who coined the term Roman-
Dutch law. Section 89 of the Zimbabwean
Constitution refers to it as the law that applied at the
Cape of Good Hope on 10 June 1891.

Now the law that was applied by the British at their

colony (Cape of Good Hope) was largely Roman-
Dutch Law (Roman law plus Dutch customs).
However, in difficult or ‘hard’ cases, the English
judges applied the English law of Equity. The law
that was applied at the Cape on 10 June 1891 was
Roman-Dutch law with English Law graftings.

Roman-Dutch authorities are therefore binding on the

courts in South Africa and Zimbabwe except where

10
they are shown not to have been applicable on 10
June 1891. English authorities are of persuasive
value only unless it is shown that English law was
already part of the law at the Cape on 10 June 1891.

NB – Roman Law Simpliciter is not directly relevant

because the law applicable at the Cape was Roman-
Dutch Law. However, where there are conflicting
Roman-Dutch opinions and if the Roman Law on the
point is clear, that rule of law would be followed.

Judicial Precedent /Case law

This refers to decisions passed by the court. The
general rule is that the decision of a superior (or
higher court in rank – to be discussed when talking
about the Court Structure) are binding upon inferior
courts. This is referred to as stare decisis in Latin.
The justification for this approach is consistency,
uniformity, predictability, reliability, convenience
and certainty in law – it being argued that “like cases
should be treated alike.”

Stare decisis literally translated means “to stand by

the decision and not to disturb settled points.”
According to Hostein, “the idea of precedent
suggests the resolution of questions today in the same
manner as they were decided yesterday either
because it is convenient to do so or because it is a

11
means of profiting from the accumulated wisdom of
the past or because it ensures certainty ….”6

It is not everything in the previous cases that is

binding. A proposition is binding if:-
a) It is a proposition of law and not fact,
b) It was decided in a court whose decisions are
binding on the court that is deciding the case.
E.g. the decisions of the supreme court are
binding on the High Court and conversely, the
decisions of the High Court are binding on the
Magistrates Court,
c) It forms part of the ratio decidendi of the case
i.e. the reason or principle upon which the
decision is based.
d) There are no relevant differences between the
cases

NB The ratio decidendi has been described in the

following terms:-
“The ratio decidendi of a case is any rule of law
expressly or impliedly treated by a judge as a
necessary step in reaching his conclusion”7

A proposition of law that is not necessary for the

decision (i.e. a proposition of law mentioned by a
judge which has nothing to do with the case at hand)
is called Obiter

12
6
Page 386
7
See Cross & Harris – Precedent in English Law (4th
Ed) 1991 – page 72
dictum. The obiter dictum is not binding but is of
persuasive value.

It is important to note that a court is not bound by its

own decisions. For instance, the Supreme court
decisions are binding on the High Court and not on
the supreme court. This means that whenever a
similar case comes before the Supreme court, they
can change their previous decision. E.g. In Katekwe
V Muchabaiwa, 8 the Supreme court held that a
father of an African female who has reached the legal
age of majority (18 years) no longer had the right to
sue for seduction damages under customary low in
respect of that daughter. However in Magaya V
Magaya the Supreme court overruled the Katekwe
decision by holding that such a father has a right to
sue for seduction damages. The rationale was that
under customary law, the father does not sue for
seduction damages on behalf of the daughter but on
his own because of demunition in the amount of
lobola chargeable on daughter who had been
seduced.

8
1984 (1) ZLR 112.

13
*******************************************
*****************************
NB – A case is cited as follows: Zesa v Dera 1998
(1) ZLR 500. This means that this was a matter
between Zesa and Dera. When you want to read that
case, you can find it in the 1998 volume 1 of the
Zimbabwe Law Report at page 500. it is a Supreme
Court judgement.

In an ordinary case, the person who brings the matter

to court claiming a judgement against the other is
called the Plaintiff. If it is an appeal, the person is
referred to as the Appellant. His name is the one
which first appears when citing a case. In this case it
is Zesa. On the other hand, the person who is
supposed to answer a claim is called the Defendant or
Respondent if it is an appeal. His name appears
second. In this case it is Dera.
*******************************************
*****************************

Custom
Customs are rules, not recorded in writing, which
become binding in the course of time through
continual and uniform observance by the community
in question. Generally, customs become legally
binding when they satisfy the following
requirements:-

14
 i) Reasonableness
ii) If they have been long established
iii) If they have been uniformly observed
iv) If they are certain

Authoritative Texts
This refers to textbooks written be renowned authors.
For example, the writings of popular Roman-Dutch
jurists. However, modern textbooks have no inherent
authority but may be regarded as persuasive
authority.

The persuasive nature of an opinion of an author

depends on, inter alia, the standing of the author, the
scholarly level of the piece of work involved and the
convincing nature of the presentation e.g. Professor
Christie’s Business Law in Zimbabwe.

COURT STRUCTURE
Can be classified into two namely:-
1) Criminal courts and
2) Civil Courts
For purposes of Business Law, we will restrict
ourselves civil courts. Those are divided into 2
namely:-
1) Ordinary courts and
2) Specialist courts

15
Zimbabwe’s Ordinary Court Structure

Supreme Court

High Court

Magistrates Court

Community court

Customary Court
Village court

South Africa’s Ordinary Court Structure

Constitutional Court

Supreme Court

High Court

16
 Magistrates Court

Customary Court
In South Africa and Zimbabwe, the Supreme Court is
presided over by judges (so is the High Court and the
Constitutional court in South Africa) whilst the
Magistrates court is presided over by a magistrate.
The Customary courts are presided over by either a
chief or herdman.

In Zimbabwe, the Supreme Court deals with appeals

from the High Court only. However, it can only be a
court of first instance when dealing with constitution
matters. Conversely In South Africa the Supreme
Court only handles appeals from the High Court.
The Constitutional court is the one which deals with
constitutional matters like relief for infringement of a
human right which is provided for in the
Constitution.

Both in Zimbabwe and South Africa, the High Court

is a court of first instance in all civil or delictual

17
claims. Its monetary jurisdiction is unlimited. It also
handles appeals form the Magistrates Court.

The Magistrates Court deals with civil matters with a

monetary jurisdiction not exceeding $200 000.
Customary courts deal with customary issues not
exceeding $50 000. In the same regard, small claims
courts deal with matters involving small claims of not
exceeding $50 000.

Ordinary Courts deal with both customary and

general law claims.
NB - Matters relating to the dissolution of a civil
marriage or interpretation of a will can only be heard
in the High Court.

Specialist courts
These are courts set up for a specific purpose and
they deal only with those particular matters for which
they are set up. For instance, the Labour Relations
Tribunal deals with labour disputes only. Similarly,
Administrative courts preside over land disputes
only. The Income Tax Court deals with matters
relating to income tax alone. The Small Claims
Court deal with small claims up to $50 000.
Customary courts deal with customary disputes with
claims not exceeding $50 000. Appeals from the

18
Administration, Income Tax, Water Courts and
Labour Relations Tribunal go to the High Court.

CHAPTER 2
THE LAW OF CONTRACT

A contract is a legal agreement. For an agreement to

qualify as a contract the following essential elements
should be satisfied:

(1) Consensus ad idem

- means the meeting of the minds of the parties to
the contract. The meeting of the minds can be
express or implied from the conduct of the parties.
In the case of Smith v Hughes1 the court had this
1
[1871] 6 QB 597

19
 to say about agreement by conduct “if whatever a
man’s real intention may be he conducts himself
in a manner that makes another party believe that
he is assenting to a term of the contract, then he
is bound.” This law is known as "Quasi-mutual "
assent. The party who has made the representation
is precluded from denying that he assented to the
terms of the contract. This is called the principle of
Estoppel.

{2} Animus Contra hendi

- This refers to an intention to be legally bound.
Social agreements are not contracts in the legal sense
of the word because they lack an intention to be
legally bound. In Kantor v Kantor2 the husband
called his wife to make an agreement for lunch which
he failed to honour. The question before the court
was whether this gave rise to a valid contract. The
court held that there was no contract because a social
agreement lacks an intention to be legally bound.

{3} Possibilty to perform

Whatever parties agree to should be within the
capability of human beings to perform. Anything
short of this is null and void.

{4} Clarity/Must not be vague

2
1962 (3) SA 207 T

20
The terms of the contract should be clear and not
vague.

{5} Formalities
Some contracts need to comply with formalities e.g. a
mortgage bond has to be reduced into writing and
registered with the Deeds Registries Office for it to
be binding to the parties. Generally contracts can
either express or oral.

{6} Legality
Every contract has to comply with the provisions of
the law. Illegality comes in two forms namely:
[a] statutory illegality – this is when a contract
contravenes a statute.
[b] Common law illegality – This is when a contract
contradicts public policy. In the case of Sasfin (Pty)
Ltd v Beukes3, contract contrary to public policy was
defined as an agreement that run contrary to socially
accepted norms. For example, contracts injurious to
the institution of marriage, administration of justice
(Bribe ) and the state interests and contracts that are
contra bonos mores (contrary to good morals)

As a general rule illegal contracts are not enforceable

at law. This is called exturpi causa. Where value has
changed hands in a illegal contract the law provides
3
1989 (1)SA 1 (A).

21
that loss lies where it falls. This is called in pari
delicto. However, this is not a rigid rule. It is subject
to the following exception:
(1) Unjust enrichment action – courts have come to
realize that no party should benefit unduly even
where therein is an illegal contract. It is in the best
interests of justice, fairness and equity that no party
benefits even from an illegal contract. In the case of
Dube v Khumalo4, Dube was in an adulterous affair
with Khumalo. There were Municipality regulations
to the effect that a person was not allowed to own
more than one house in Bulawayo. Dube already had
a house. In order to facilitate his adulterous affair and
to circumvent the municipal regulations, Dube
bought a house and registered it in Khumalo’s name.
As time went on, their relationship soured beyond
reconciliation and Dube demanded his house from
Khumalo. The question that the courts had to
determine was whether or not Dube was entitled to
his claim since this was an illegal contract.
The court held that the contract was illegal but the
unjust enrichment principle had to be invoked to
prevent Khumalo from unduly benefiting. The court
thus ordered Khumalo to transfer the house in Dube’s
name.

4
1986 (1) ZLR 103

22
The unjust enrichment action comes in two forms
namely:
{1} Conduction indebiti – payment under a
mistaken belief that payment is due.
{2} Conditio sine causa – payment without cause

7. CONTRACTUAL CAPACITY
- For a contract to be valid the parties must have the
capacity to enter into legally binding agreements
(locus standi in judicio). The law recognizes two
types of people namely:
{1} Artificial persons – These are companies or
business organisations which are given corporate
status in order allow them to transact business. They
can enter into binding contracts through their agents.
With companies, the power to enter into commercial
transaction is found in the memorandum and articles
of association and partnerships are regulated by a
partnership deed.

{2} Natural persons – for natural person to enter

into binding contractual relations, they should have
reached the legal age of majority (21 and 18 years in
South Africa and Zimbabwe respectively) .The
following people are disqualified from entering into
binding contractual relations:

23
[a] Minors – are persons who have not yet reached
the legal age of majority. The general rule is that a
minor cannot enter into binding contractual relations
without the assistance of a parent or guardian.
Children between the ages of 0-7 have no contractual
capacity at all. Those between 7 and 18/ 21 need
assistance from a parent or guardian but can enter
into binding contracts if they are tacitly emancipated.
NB – an emancipated minor is the one who is no
longer under the control of his or her parents. In the
case of Dickens v Daley,5 a 20 year old who operated
his own account paid rent and was responsible for
sustaining his parents was held to be tacitly
emancipated. Once a minor is declared tacitly
emancipated, he is given majority status.He can enter
into binding contracts without the assistance of
parents or guardian.

When a major enters a contract with a minor, such a

contract is called a limping contract. The major is
bound by that contract whilst the minor is not. This is
called Exceptio non admpleti contractus. However, a
minor will be bound if there is unjust enrichment or if
he misrepresents his age.

[b] Insolvents – are persons who accrues more

liabilities than what their assets can pay for. The
5
1956 (2) SA 11 (N)

24
general rule is that these cannot have contractual
capacity at all unless they are assisted by a trustee.

[c] Prodigals – these are people who fail to run

affairs because of their propensity to squander. They
are not allowed to enter into contractual relations in
respect to their property unless assisted by a Curator.

[d] Mentally retarded persons - Once a person is

declared insane according to the Mental Health Act,
such a person does not have contractual capacity at
all.

[e] Drunkards – cannot enter into a valid contract

when drunk.

[f] Married women: the contractual capacity of

women is determined by the type of marriage that
they enter into. Marriages are classified into two
namely:
{1} Marriage in community of property - these
are marriages where the husband and the wife have a
joint estate. The husband is the administrator of the
estate. He can enter into contracts in relation to the
estate without the consent of his wife. In South
Africa all marriages are presumed to be in
community of property unless parties enter into
antenuptial contract to the contrary.

25
{2} Marriage out of property – the husband and
the wife own property separately and the wife is
allowed to enter into contractual relations in respect
of her property. In Zimbabwe marriages are
presumed to be out of community property unless
parties enter into antenuptial contract to the contrary.

8. OFFER AND ACCEPTANCE

>>For a contract to be valid, one party has to make
an offer and other has to accept it.
Christie defines an offer as a proposal of the terms of
a contract. The offer has to be clear. However, it
should be distinguished from an invitation to do
business in that the former has a serious intention to
be legally bound whilst the latter does not .As a
general rule, advertisements and auctions are viewed
as invitation to do business. These invite the
members of the public to come and make offers.
However, not all advertisements are not invitations to
do business.

In the case of Carlill v Carbolic Smoke Ball

Company6, the company was selling smoke balls.
They placed an advertisement in the newspaper to the
effect at anyone who uses the smoke balls for 21 days
and contracts influenza will be compensated by the
company. The advertisement had the statement
6
[1893] 1 QB 256

26
“anyone who uses our smoke balls per instruction
and contracts influenza will be paid 120 pounds as
compensation. 1000pounds has been deposited into
the bank to show our sincerity in this matter.” The
court had to decide whether this advertisement
amounted to an offer. The court held that it did since
the company had committed itself to pay the affected
parties by depositing 1 000 pounds into a bank
account.

Types of offers
(1) Option – this is when 2 parties agree to
keep an offer open for a specified period of time.
If the offeree does not accept the offer within the
stipulated time, then the offer can lapse and the
offeror can make an offer to a 3rd party. But if
the offeror offers a 3rd party before the stipulated
time elapses, he will be in breach of the offer and
he will be liable to pay damages.
(2) Right of first refusal or preemptive right
– this occurs where one party does not want to
make an offer but promises the other party that in
the event of him deciding to offer, he will offer
the other party first. If he offers another party at
the material time, then he will be considered to
be in breach of the preemptive right and will be
liable to pay damages.

27
**Before an offer is accepted, it can be revoked. At
times it can lapse in any of the following
circumstances:
(a) If the person who offers dies.
(b) If it is for a specified period of time and
the said time elapses.
(c) If contractual capacity is negated.
(d) If parties agree that the offer lapse.
(e) If it is expressly rejected.

ACCEPTANCE : the offeree should accept the

offer. It’s a general rule that a counter offer does not
lead to the conclusion of a valid contract e.g. if A
sells his radio to B for $10000 and B proposes $9500.
This amounts to a counter offer. The effect is to
nullify the original offer. It will be up to A to accept
the new offer for a contract to come into being. If B
later on accepts $10000 no contract will come into
being because there will no longer an offer to accept.

Acceptance should be communicated. It is a general

rule of the law that if an offer is made by post, it
should be accepted by post if the mode of acceptance
is not specified.
However when acceptance is by post a valid contract
is bought into being when the letter is posted
irrespectively of whether or not the offeree received
the letter of acceptance. As regards acceptance

28
through a telephone, a valid contract comes into
being when the other party hears of the acceptance.
The same applies to acceptance by fax and E-mail
both of which are instantaneous communication
pathways.

TERMS OF CONTRACT
these can either be express or implied. Express terms
are those that are expressed by the parties and are
usually expressed in writing. They are easy to prove
in a court of law.
Courts usually use the parole evidence rule to
interpret expressed terms. This rule provides that no
external evidence should be interpreted when
interpreting express terms. However, this is not a
hard and fast rule. It is subject to the following
exceptions:
{1} when the words used are ambiguous, external
evidence will be admitted to give meaning to such
words.
{2} when words are used in a technical sense,
external evidence will be admitted to give meaning to
such words.

As regards implied terms, these are terms that are not

reduced into writing but are read into the contract

29
either because of the conduct or the law or trade
usage.
TERMS IMPLIED BY FACTS
These are terms that are not reduced into writing but
are read into the contract through the conduct of the
parties. For example, if the landlord and his tenant
write in their lease agreement that rent will be $20
000 per month, and the landlord increases this
amount verbally without altering the agreement and
the tenant pays, the new amount paid will be read
into the contract as the new rental amount.
Terms implied by the law
These are terms that are read into a contract by
statutes. For instance section 22 of the Hire Purchase
Act provides that a buyer cannot waive his rights
under the Act. This provision will be read into every
Hire Purchase contract to prevent buyer from waiving
their rights. It is a general rule that when law that
minors should be represented by guardians and
insolvents by trustees when entering into a contract.
Terms implied by trade usage
These are customs that are adopted by a certain
profession that may not be part of the contract. For
instance, the Banking Act does not provide for a right
to charge interest on overdraft facilities but this is
derived from the customs and practices of the
bankers and are usually read into the contracts which
offer overdraft facilities.

30
Conditions

Terms of contracts which make the operation of a

contract dependant on an uncertain future event.
They come in the following forms:
(1) SUSPENSIVE CONDITION -This suspends the
operation of a contract until the occurrence of an
uncertain future event. For example, A can agree
with B that he will sell his house if B secures a loan
from the bank.

{2}RESOLUTIVE CONCLUSION – it terminates

a contract upon the occurrence of an uncertain
future event. For instance, A and B can agree that
their lease of agreement will terminate if B marries.
**However, parties are prevented from either
hindering or deliberately facilitating the occurrence
of the uncertain future event. This is called fictional
fulfillment.

VOID AND VOIDABLE CONTRACTS

A void contract is one that is not enforceable at law
because it lacks one or more of the essential elements
of a valid contract. On the other hand, a voidable
contract is one which has all the essential elements of
a valid contract but can be set aside at the instance of

31
one party on the basis of duress, misrepresentation,
undue influence and mistake.

FACTORS VIATING A CONTRACT

{1}MISREPRESENTATION: this is when one of

the parties utters a false statement which induces the
other party to enter into a contract which he didn’t
want had he known the actual facts. It comes in three
forms

[a] Fraudulent misrepresentation – this is when a

person utters a statement of material fact either as a
deliberate lie or not believing it to be true. In the case
of Ranger v Wykerd, Ranger bought a house with a
swimming pool from Wykerd. Upon inspection of the
premises, the Plaintiff noticed a crack in the pool
which the Defendant assured him that it was minor.
However, upon occupation of the premises, Ranger
discovered that the crack was major and he lost R22
000 in repairing it. He then brought an action against
the Defendant on the basis of fraudulent
misrepresentation. The court held that the Defendant
had lied to the Plaintiff and that the plaintiff had the
right either to uphold the contract and claim for
damages or set aside the contract. The court further
held that since fraud was a delict (a wrong committed

32
against an individual), the Plaintiff was entitled to
claim for delictual damages.

[b] Negligent misrepresentation – this is when a

person utters a statement of material fact without
taking necessary steps that a reasonable person
should take to ascertain the truth of the statement.
The test for negligence is whether a diligens
paterfamilias (or reasonable person) placed in the
position of the accused party would have acted in the
same way as the accused. If yes, then there will be no
negligence but if not, then the accused will be held to
be negligent.

In the case of Bayer South Africa Pvt Ltd v Frost8,

the 2 parties agreed that Bayer would spray Frost’s
vineyard which had onions intermingled with wheat
using a helicopter. Bayer assured Frost that the wheat
and onions would not be destroyed in the spraying
process. However, these were destroyed when the
vineyard was eventually sprayed. It was discovered
that the company had never sprayed vineyards which
had onions and wheat intermingled using a helicopter
before. Neither had the company taken any steps to
discover whether or not this was possible. The court
found them negligent and further held that negligence
was a delict which attracted delictual damages.
8
1991 (4) SA 559

33
[c] Innocent misrepresentation – occurs when a
person utters a false statement believing it to be true.
The usual remedy is rescission of contract. This is
when a contract is set aside and the parties are
restored to the status quo ante (the position they were
before entering into the contract).

[2] DURESS
Occurs when a person is forced into a contract
through violence or threats of violence. In the case of
Broodrick v Smuts9, the Plaintiff was forced to join
the army by threats of death both on his person and
his family. The court had to set aside the contract on
the basis of duress. The court held that a party
pleading duress should prove the following:
- that there was a threat of imminent danger either
to the person or family or property of the other
party.
- The other party was induced into entering the
contract which he would not have entered into
had it not been for the threats.
- That he was prejudiced.

The remedy for duress is rescission of contract or a

claim for damages if any loss has been suffered.

9
1942 TPD 47

34
[3] UNDUE INFLUENCE
This is when one party is induced to enter into a
contract by another because of a relationship of trust
that exists between the 2 parties, for example doctor
and patient.

In Preller v Jordan10, the Appellant was entrusted

with the responsibility to transfer 4 of the
Respondent’s farms to the Respondent’s wife and
children when the Respondent was very sick on his
deathbed. However, the Appellant only transferred 3
of the 4 farms and kept one for himself. When the
Respondent recovered, he brought an action for the
recovery of the farm on the basis of undue influence.
The court held that the Appellant had used his
position to deprive the Respondent of his farm and
the contract had to be set aside.

The essential elements of undue influence are as

follows:
(a) There should be a relationship of trust
between the parties concerned.
(b) The dominant party must have used his
influence in an unscrupulous manner.
(c) The weaker party’s power of resistance must
have been weakened and his made pliable.

10
1956 (1) SA 183.

35
 (d) The aggrieved party should have been
forced to enter into the contract which he would
not have entered into had it not been for the
influence.
(e) He should have been prejudiced in doing so.

[4] MISTAKE
This refers to an error of a material fact made by one
or both parties that influenced parties to enter into a
contract which he or they could not have entered into.
Mistake comes in 2 forms namely:
(a) Unilateral mistake – occurs when one of the
parties is labouring under a misapprehension of a
material fact of the contract. In the case of
Mabhena v Bulawayo Polytechnic11, the Plaintiff
had a Zambian Ordinary Level Certificate
equivalent to 3 ‘O’ Levels. He applied for a
cookery course at Polytechnic which required 5
‘O’ Level. The principal admitted him mistakenly
believing that the Zambian certificate was
equivalent to 5 ‘O’ Levels. The principal tried to
set aside the contract on the basis of mistake. The
court held that it was not a justified mistake and
refused to set aside the contract on the basis of
unreasonableness

11
HC 22/94

36
(b) Common mistake – this occurs when both
parties are in error concerning a material fact of the
contract. This was illustrated in the case of
Dickinson Motors v Oberholzer12.
Facts – Mr Oberholzer sued the appellant for
repayment of the sum of 291 pounds which he
alleged to have paid in error. He paid it to obtain a
car which both parties thought had been sold by the
appellant to the Respondent’s son on Hire Purchase
terms. In fact it was a different car, which belonged
to Alris Motors from whom the Respondent’s son
had bought it on Hire Purchase terms. The Messenger
of Court had attached the 2nd car thinking that it was
the first and it was delivered to the Appellant for
repossession. The Respondent had paid 291 pounds
to get the car back. It was held that the respondent
could recover the money he had paid under a
common mistake. The general rule is that such a
contract is void and unenforceable.

**It is important to note that mistake or ignorance of

the law is not an excuse. In the case of Ncube v
Ndlovu, the Plaintiff had seduced the Defendant’s
daughter who was a major and made an undertaking
to pay for seduction damages. He later on discovered
that the law no longer permitted the father of a
daughter who had reached the legal age of majority to
12
1952 (1) SA 443

37
sue for seduction damages in respect to that daughter
and tried to set aside the contract on the basis of
mistake of the law. The court held that mistake or
ignorance of the law is not a valid ground at law to
set aside a contract.

EXEMPTION CLAUSES.
These are terms of the contract which seek to
exclude or limit the liability of one of the parties to
the contract. Usually, courts focus on 2 issues when
dealing with matters relating to exemption clauses
namely:
(1) Whether the exemption clause is part of the
contract. If it is, then it will be enforceable.
(2) The meaning of the exemption clause – the
exemption clause can be enforced if it is clear.
But if it is ambiguous, it will be enforced against
the person who drafted it. This is referred to as
the contra proferentem rule.
** There is a general principle that says that if
a person signs a document, he will be bound by
the contents of that particular document. This
is referred to as the caveat subscriptor and was
reiterated in the case of George v Fairmead13.

13
1958 (2) SA 465.

38
 Covenants in restraint of trade
A covenant in restraint of trade is a term of
the contract where the covenanter undertakes
that he will not engage in a specified trade or
with specified persons for a specified period
of time. It is normally found in employment
contracts where the employee undertakes that
if he leaves his employer, he will not engage
in the same business competing with the
employer.

In the Zimbabwean case of Book v Davidson14

which followed the South African case of Magna
Alloys and Research (S.A) (Pty) Ltd v Ellis15, the
court gave the following guidelines regarding
covenants in restraint of trade:
(1) That on the face of it (or prima facie), they
are valid. This is based on the principle of
freedom of contract which allows parties to enter
into any contract of their choice.
(2) It cannot be enforced if it is contrary to
public policy.
(3) The aggrieved party must be the one to
prove that it was unreasonable.
(4) The reasonableness of the covenant is
determined at the time the court makes a dec sion
14
1988 (1) ZLR 365
15
1984 (4) SA 874.

39
 and not when the parties entered into the
contract.
(5) The court has the power to enforce the
reasonable parts and eliminate the unreasonable
parts in the covenant in restraint of trade. This is
called the blue pencil test.

DISCHARGE OR TERMINATION OF
CONTRACT
A contract can be terminated in any of the following
ways:
(1) Performance – if both parties perform their
obligations, a contract will be terminated.
(2) Agreement – both parties can agree to
terminate the contract and the court will effect
this.
(3) Novation – this is when the contracting
parties replace an old contract with a new one. It
comes in the form of cession and delegation.
Cession entails the transfer of rights from one
person to another whilst delegation entails the
transfer of obligations from one person to
another.
(4) Set-off – usually occurs when both parties
are mutually obligated to one another and the
obligations cancel one another. For example, if A
owes B $1 000 000 and B has a radio worth the

40
 same amount, the debt can be set off. However,
this is subject to the agreement of the parties.
(5) Merger – usually occurs when 2 companies
are joined together to form 1 company. The
contracts that existed between the said
companies will automatically be terminated.
Merger may also happen when the landlord sells
property under a lease agreement to the tenant. In
this case, the tenant replaces the landlord and the
lease agreement will be terminated.
(6) Prescription – it would be unfair for one
person to be sued for a debt years after taking
that debt. The Prescription Act provides that
ordinary debts cannot be claimed after 3 years
and debts owed to the state and mortgage bonds
will not be claimed after 30 years.
(7) Death – can only terminate a contract if the
contract if of a personal nature. For example
marriage. For all other contracts, an executor will
be appointed to administer the deceased’s estate.
He will be responsible for upholding the
deceased’s contracts.
(8) Insolvency – can terminate a contract if the
contract is of a personal nature. For all other
contracts, a trustee or liquidator will be
appointed to fulfill the obligations of the
insolvent person (see notes on Insolvency).

41
 (9) Supervening impossibility – this occurs
when performance of contractual obligations is
made impossible because of circumstances
beyond human capabilities. These circumstances
are called casus fortuitus or vis major or acts of
God.

In the case of Krell v Henry16, the Plaintiff hired a

hotel suite to watch the coronation of king Henry
V11. however, on the morning of the coronation
ceremony, the king fell sick and the ceremony was
postponed indefinitely (or sine die). The Plaintiff
then refused to pay the money for the hotel suite and
an action was brought against hi, to recover these
amounts. He sought to defend himself on the basis of
supervening impossibility. The court held that the
sickness was an act of God which entitled the
Plaintiff to terminate the contract.

Similarly, in the case of Cradwell v Taylor17, the

Defendant hired a hall for the purpose of holding a
performance. 3 days before the date of performance,
the hall in question was destroyed by fire. The
Defendant refused to pay the booking fees arguing
that the destruction of the hall by fire was a
supervening impossibility which frustrated the
16
[1903] 2 KB 407
17
1971 (2) SA 184.

42
contract. The court upheld this argument and
terminated the contract.

BREACH OF CONTRACT.
Occurs when one or both parties violet a term or
terms of the contract. It comes in any of the following
forms:
(a) Mal-performance – this is when a party
fails to perform either at all or in time or
correctly.
(b) Cancellation – occurs when one party
terminates a contract prematurely.
(c) Repudiation – this is when one party
behaves in a way that makes the other party
believe that he is going to terminate the contract.
It is sometimes referred to as anticipatory breach.
(d) Mora debitoris – this is when the debtor
fails to perform his obligations in a contract.
(e) Mora creditoris – occurs when a creditor
fails to accept the performance tendered by the
debtor.

Remedies for breach

This refers to the relief given to the aggrieved party.
The remedies include:
(1) Specific performance – this is when the
innocent party will be asking the court to order

43
 the guilty party to fulfill his contractual
obligations.
(2) Interdict – is an order either restraining a
person from doing a particular act or compelling
a person to do a specific act. Interdicts usually
come in 3 forms namely:
[a] Prohibitory Interdict – is an order restraining
a person from doing a particular act.
[b] Mandatory Interdict – is an order compelling
a person to do a positive act in order to remedy a
wrong.
[c] Restitutionary Interdict – is an order
compelling a person who has disposed another of
his property to restore possession.

(3) Cancellation – this is when a party is

allowed to set aside a contract. Unlike rescission
of contract where parties are restored to the
status quo ante, cancellation sees parties being
placed to the position they would have been had
the contract not been breached.
(4) Damages – they are only claimed for
financial loss. They usually come in 2 forms
namely:
(a) General or Consequential damages –
these are damages that flow directly from
breach. They flow naturally as a direct
consequence of breach

44
 (b) Special or Prospective damages –
these are remote from breach. However, 2
tests are used to compute special damages
namely:
(1) The Contemplation principle – the
question that the court usually asks is
whether the loss was reasonably foreseeable.
If it was, then special damages will be
granted but if not , the special damages will
be denied.
(2) The Convention principle – it provides
that in addition to loss being reasonably
foreseeable, parties should agree that the
guilty party will compensate the innocent
party in the event of such loss occurring.
**In practice however, courts have done away
with the convention principle. This means that the
binding principle for computing special damages is
the contemplation principle.

Mitigation of loss
This principle provides that the innocent party should
try as much as possible to minimize loss whenever it
occurs. The guilty party is not obliged to compensate
the innocent party for loss which could have been
easily avoided. However, if the innocent party
mitigates loss, the guilty party is obliged to reimburse
him for the amount expended in minimizing loss.

45
 CHAPTER 3
CONTRACT OF SALE

The leaner should fully understand the following:

Essential elements of a valid contract of sale
Implied terms of the contract
Modes of delivery
Passage of ownership and risk
Voetstoots sale
Remedies for breach of contracts of sale

DEFINITION

A contract of sale is a legal agreement in which a

person called a seller or vendor promises to deliver a
thing (or merx) to another person called a purchaser,
with the purchaser agreeing to pay a certain price (or
pretium).

46
 Four major essential elements of a contract of
sale emerge namely:

1. CONSENT

The buyer and seller should be in agreement as

to the thing sold and the purchase price. There
should be an intention to sell and related
intention to buy.

As regards consent, the general principles of

contract apply.

2. SUBJECT MATTER (OR MERX)

Manase and Madhuku1 define a merx as “any

corporeal or incorporeal asset of some
value.”

Parties to the contract must be in

agreement as to the subject matter of the
sale. Hence the merx should be clearly
defined and ascertainable.
Thus, if property is unknown to the parties
or is not in existence at the time of sale or
ceases to exist at the time of the contract,
1
in their book “A Handbook in Commercial Law In Zimbabwe.”

47
 the contract becomes void for initial
impossibility.
A contract of sale is however, binding if
the non-existence of the property is
attributable to one party or if the seller
represented that the property exists.
Partial destruction of the merx unknown
to both parties does not affect the validity
of the contract of sale as long as
substantial performance can be made by
the delivery of what remains against
payment of a proportionally reduced
price2.
The sale of another person’s property was
held to be valid, the seller’s duty being to
deliver the merx and guarantee against
eviction.3

3. PURCHASE PRICE (PRETIUM)

Parties to a contract of sale must be in

agreement to the purchase price of the merx.
Cassimjee V Cassimjee4 held that the
purchase price “must be in current money and
it must be fixed, certain and real”

2
see Hilliard and Westborne v Tabor Frost 1938 SR 89.
3
Fries v Ryes 1957 (3) SA 575 @ 581.
4
1947 (3) SA 701.

48
 * Requirements were summed up by the
Zimbabwean Supreme Court in the case
of Chikoma V Mukweza5 where it was held
that “There can be no valid sale unless
the parties have agreed on a purchase price.
If it is not stated clearly, it must be stated
impliedly: there must be an agreed method
by
which the price can be ascertained - - -”

In the case of Baxter V Maxwell6, the court

held that the contract of the sale of milk at “
current wholesale rates” was void because the
evidence showed that it was impossible to
calculate the current wholesale rate in that
trade at the time.
On the contrary, Macey’s Consolidated Ltd
V Chaseborough Ponds7 held that a sale of
future goods at the ruling price at the time of
the order being placed was valid as the ruling
prices were readily ascertainable.
* The moot question remains: whether in the
absence of the sellers usual price
or a ruling market price, an implied
agreement to pay and accept a fair and

5
1998 (1) ZLR 541.
6
1923 SR 120
7
1967 RLR 253

49
 reasonable price gives rise to a valid contract
of sale?
This question was left unanswered in the case
of Elite Electrical Contractors V Covered
Wagon Restaurant 8where the court vaguely
observed that “There is no general rule of
contract that a contract to pay a reasonable
price for goods sold and delivered is invalid”.
However, in Smith V Marketrite (Pvt) Ltd
9
the court held that as a general rule, Roman
Dutch Law, there can be no valid contract of
sale at a reasonable price because it is difficult
to determine a reasonable price.

FACTS – parties entered into a contract for the

manufacture and sale of nuts. No price was
agreed between the parties, it being accepted
that a reasonable price be charged.

HELD - that despite the vague provision, sale

at a reasonable price was valid because it was
easy to determine or ascertain the price from
the facts and circumstances of the transactions.
In the court’s words “courts must strive to
find what is fair and reasonable where prices
are not mentioned in a contract of sale even
8
1972 (2) RLR 223.
9
HH 156/90

50
 if it means enlisting the services of experts to
do it”.
* English law provides that, where prices are
not mentioned and there is no ruling market
price, courts assume that there is an implied
agreement to pay a reasonable price10.

4. DELIVERY

The seller has an obligation to deliver the thing

under sale to the buyer in time. The seller
however, has no obligation to transfer
ownership to the buyer. He is only obliged to
transfer the merx. In Kleynhans Brothers V
Wessels Trustee11 the court observed that “A
contract of sale with us does not have the
effect of a translatio domini (transfer of
ownership), it is simply an obligation to give
vacua possession coupled with the further
legal consequence of a guarantee against
eviction”.

PASSING OF OWNERSHIP

Once a contract of sale is validly concluded, all

what the purchaser is assured of is free and
10
1920 CPD 333.
11
1927 AD 271 @ 282.

51
 undisturbed possession of the merx (vacuo
possessio).
NB Ownership does not automatically pass. For
it to pass, the following should be satisfied:
a. The purchase price must be fully paid.
b. The seller must be the owner of the merx.
In law, one cannot pass on rights which (s)
he does not possess. If a non –owner
transfers ownership illegally the true owner
of the merx always has the right to take back
the merx from whoever possesses it.
c. There must be an intention by the buyer to
receive ownership.
d. There must be delivery of the merx.

MODES OF DELIVERY

Immovable property is delivered by registering

the names of the purchaser on the title Deeds of
the property in terms of the Deeds Registries
Act12.
As regards movable property, there are 2 main
modes of delivery namely:

1) FISCAL / NORMAL DELIVERY

12
Chapter 20.10

52
 This refers to the actual movement of the merx
from the seller to the buyer.

2) CONSTRUCTIVE / FICTITIOUS
DELIVERY

This occurs where actual delivery is difficult, or

impossible or unnecessary. Where fictitious
delivery takes place, the merx stays where it is at
the time of legal delivery and need to move.

This delivery takes the following form:

a. Symbolic delivery - here, the seller delivers

some symbol of the merx and not the merx
itself. E.g. handing over keys of the warehouse
where the merx is stored.
b. Delivery with the long hand - (Traditio
longa manu)
This takes the form of pointing out the merx
by the seller to the buyer and giving the buyer
the right to remove the merx at his own
convenience.
- This may occur where actual delivery is
impossible because of the
weight/bulk or the special circumstances eg
Government regulations.

53
 c. Delivery with short hand - (Traditio brevi
manu)
Occurs where the buyer is already in physical
possession of the merx and subsequently takes
possession as the owner.
d. Constitutum possessorium - Occurs where
the seller retains possession of goods but
continues to hold the goods as an agent of the
buyer.
e. Attornment - Occurs when an agent has
possession of the merx but continues to hold
the goods not for the principal but for buyer.

PASSING OF RISK

- Risk relates to the destruction or damage of

the merx or the profit of the merx.
- Under Roman Dutch Law, risk generally
passes to the purchaser immediately
at the conclusion of the contract of sale. In
legal terms, risk passes when the
contract is perfecta. (Clear as to what is to be
sold and the purchase price
thereof).

Exceptions to this rule include:

54
1. If the seller is negligent or where he
Intentionally damages the merx. Here risk
remains with the seller.
NB Where the merx is damaged by the
actions of the 3rd party, risk is with the
purchaser. The buyer can however, sue the
3rd party for damages only If he has received
cession of goods or the right to sue from the
seller. This is because the seller is still the
owner of the goods and has the locus standi
to sue.

1. Risk does not pass where the sale is subject

to a suspensive condition until the condition
passes or is fulfilled.
2. Risk does not pass where pretium cannot be
fixed without weighing, measuring or
counting the merx. Risk only passes where
pretium is fixed.
3. Where the parties agree that the risk rule
does not apply, risk does not pass.
4. In cases where risk has passed, such risk
will return to the seller if he fails to deliver
the merx on time.

NB where risk has passed to the purchaser,

the purchaser has to pay the purchase price

55
 even though the merx is destroyed and he
cannot plead supervening impossibility.

DUTIES OF THE SELLER

1. To take care of the merx – Before delivery, the

seller must take proper care of the merx even if
risk is not on him. He is liable for any loss
caused by his willful act or negligence. If
delivery is late because of the purchaser’s fault,
then the seller is only responsible for willful acts
and gross negligence.
Buyer’s remedies – He can claim damages. But
if damage of the merx is extensive, then he is
allowed to cancel the contract.

2. Duty to deliver the merx – the merx must be

delivered at the stipulated contractual time. If no
time is stipulated, then delivery must be effected
within a reasonable time.
- The quantity delivered must not be more or less
than what was contracted. If more, the buyer
may reject it in toto or accept what has been
delivered but pay its prorata value and proceed
to sue for what has not been delivered.

56
 - If he has been mixed delivery, the buyer may
reject the whole package or may opt to sort them
out but be paid damages for so doing.
- If there is no delivery and delivery is material to
the contract, the buyer may opt out of the
contract with or without damages or he may seek
damages or specific performance. If the buyer
had paid pretium, he has the right to reclaim it.

3. To guarantee against eviction - all contracts of

sale have an implied warrant against eviction ie
the seller promises the buyer that he would not
be disturbed in his possession of the merx. The
buyer would enjoy vacant possession of the
merx.

Relevant Considerations of eviction

- Eviction should not be due to the fault, acts or
negligence of the buyer.
- When threatened by 3rd parties, the buyer
must give the seller notice of the 3rd parties
action so as to enable the seller to take over
proceedings and defend whatever legal action on
behalf of the buyer. This is only irrelevant
where the 3rd party’s superior rights to the seller
are so glaring that notice would be considered
absurd in the circumstances.

57
- When threatened by 3rd parties, the buyer must
not give up possession voluntarily unless if the
rights of the 3rd party are unassailable (obvious
that they cannot be challenged).
* Under the Old Roman law, the buyer was
obliged to raise every defence available to
defend title of goods
NB The guarantee against eviction will not be
implied in the following circumstances:
a. Where parties expressly agree that the seller will
not be liable in the event that the buyer is
evicted.
b. Where it is within the buyer’s knowledge at the
time sale is concluded that the 3rd party is the
owner of the merx.
c. Where the cause of eviction arises after the sale
and the seller is fraudulent. Its important to note
that where the guarantee against eviction is
breached, the buyer has a right to claim for
recovery of the purchase price and other
damages, depending on the nature of the sale.

4. The duty to guarantee against defects - the

buyer must be given the opportunity to inspect
the merx and see whether it tallies with what was
agreed. If it does not tally, the buyer may reject
the merx and the seller will have failed to effect
delivery.

58
 Defects may take 2 forms namely:

a. Patent defects – are those that must have been

obvious to an ordinary purchaser at the time of
sale. A buyer who, at the time of sale, inspects
the merx when it is suffering from a patent defect
cannot complain when the seller delivers the
merx to her in the same defective condition.
However, where there has been no inspection of
the merx, the buyer’s remedy when a patently
defective merx is delivered depends on whether
the sale is one of ascertained or unascertained
goods. If unascertained, then the buyer’s remedy
lies in aedilition damages.
b. Latent Defects – are hidden defects at the time
sale is concluded. It is the seller’s duty to
guarantee against latent defects. In fact, every
agreement of sale has an implied warranty
against latent defects. ie the law assumes that the
merx is sold free from defects which make it
unfit for the purpose (ordinary or specific )it was
sold/bought.

EXCEPTIONS

59
 I. Where the defect does not exist at the time of
sale. The ordinary rule as to risk of the thing
sold applies and the loss falls on the buyer.
II. Where the buyer is aware of the defect at the
time of the sale or becomes so aware
subsequently one expressly or impliedly accepts
the position, he is taken to have waived his rights
against the seller in respect of that defect.
III. Where the actions for claim of damages have
prescribed, the buyer has no claim against the
seller.
IV. Where the seller expressly contracts out of
liability by agreement with the buyer, the goods
are sold ‘voetstoots’ (or as they stand) and the
buyer, in contracting on this basis, becomes
bound by the term.

- If the seller knows that the goods are

defective and fraudulently conceals this to
the buyer, the sale would not be considered
Voetstoots. This is called fraudulent
non- disclosure. Here the buyer can cancel the
contract and seek damages or he can seek a
reduction of the purchase price.

Elston No V Dicker 13

13
1995 (2) ZLR 375 (SC).

60
Facts – Dicker bought a house from Elston’s late
mother. Before the sale, the buyer observed a
crack in the building, but the seller described it
as minor and said nothing more. Her son, the
appellant, had lived in the house for several years
and noticed several cracks, which he said were
progressive. They had been filled in as they
appeared but not professionally. The sale was
Voetstoots. After the buyer moved in, major
cracks started appearing at the end of the rainy
season. All were old cracks, which had been
previously patched up and plastered over.
Experts were called in to assess the damage and
as a result, major repair work to the foundations
of the house was carried out. The buyer sued the
seller’s estate for the expenses and succeeded in
the High Court.

On appeal the court held - that to establish the

seller’s liability for the latent defect complained
of, the buyer must show directly or by inference
that the seller actually knew of the defect. It was
clear from the evidence that the seller must have
known of the defects at the time of the sale and
deliberately refrained from disclosing them.
Even if she had been aware of the exact cause of
the cracking, she must at least have appreciated

61
 that there was something remiss with the
structure.

NB Where there is doubt as to whether a sale is

voetstoots or not, there is a presumption against
voetstoots. It is also presumed that a defect that
manifests shortly after the sale existed at the time
of sale.

Buyer’s remedies – Come in the form of

aedilition damages. These come in 2
types namely:

a. Actio redhibitoria – This relief entitles the

buyer to rescission of contract (or redhibition).
The purchase must prove the following:
(i) That the defect is so serious as to render the
property unfit for the purpose for which it was
sold and bought.
(ii) That the buyer will not have purchased the
merx had he known of the defect.
A redhibitory action is therefore available to the
buyer who shows that the merx fails to live up to
a dictum et promissium (This is a material
statement made by the seller to the buyer during
negotiations, bearing on the quality of the merx
and going beyond mere praise and
commendation)

62
 A redhibitory action entails restitution. Parties
are restored to the status quo ante (the situation
he was before he entered into the contract).
NB Where restitution is not possible, the buyer can
make a claim under the actio quanti minoris.

b. Actio Quanti Minoris - this means a

reduction in the purchase price. The action is
normally brought by a buyer who is entitled to
redhibit but decides not to do so for either of
the following reasons
(i) He may not be able to give restitution
(ii) The defect in the merx may not be
sufficiently serious to justify redhibition
or rescission of sale.
(iii) Where the buyer is entitled to redhibit but
does not, insisting on a reduction of the
purchase price.

The damages are usually measured by assessing

the difference between the purchase price and the
market value of the merx in its defective
condition.

S.A Soil and Fat Industries Ltd V Park Rynie

Whaling Co Ltd 14

14
1960 AD 400.

63
 Facts – The defendant bought from the plaintiff
certain oil used for soap making. The oil was
delivered and most of the pretium was paid. The
oil contracted was no. 3 Whale Oil but that
which was delivered was a mixture of Whale and
Sperm oil. The defendant separated the Whale
from Sperm oil and used whale oil for soap
making. The reminder sperm oil was useless and
the defendant incurred loss. In an action for
aedilition damages, the court
Held – that since some of the oil was used,
restitution was not possible. Hence the
defendant was entitled to relief under the actio
quanti minoris and the measure of relief was the
difference between the purchase price and the
actual value of the oil supplied.
c. Aedilition damages have been extended to
compensate the plaintiff resulting from the
defect if the seller actually manufactured the
article himself or makes it his business to deal
in such articles or publicly profess to be an
expert in such articles

Lockie V Wightman and Co Ltd 15

Facts – the plaintiff sued the defendant for the

sum of £250 being damages suffered by her as a
15
1950 (1) SA 361.

64
 result of the death of her horse. The death was
caused by the horse eating fodder containing
arsenic. The defendant company were dealers in
produce including horse fodder. The fodder
arrived to the Plaintiff packed very tightly in
thick waterproof brown paper, intact and showed
no sign of contamination.

Held – that the general rule is that the vendor or

seller is not liable to the buyer for damages
where he is ignorant of a defect in the article
sold. But where the merchant sells ‘works of his
own manufacture or articles of which he
professes to have special knowledge, he cannot
escape liability even though he was not aware of
the defect. This is because merchants ought to
sell good products.

Duties of the buyer

1. Duty to accept delivery of the merx.

2. Duty to pay the pretium.
NB If the buyer neither accepts delivery nor pay
the purchase price, he would have committed a
breach that goes to the root of the contract (or
fundamental breach). The seller can therefore
have either of the following remedies:
a. He can sue for specific performance or

65
b. He can cancel the contract and claim damages.

SPECIAL SALES
(1) C.I.F Sales – refers to Cost, Insurance
and Freight and is normally used when
goods are transported by sea transport.
Normally the seller will take out a marine
insurance policy and load the goods at the
port of departure. He is then issued with a
Bill of Lading which he sends to the buyer
together with the insurance policy and the
invoice for payment of pretium. When the
buyer receives these documents, he is
obliged to pay the pretium.

The legal significance of a C.I.F sale is that

goods are sold whilst they are afloat. Since
the Bill of Lading contains a description of
goods which are being transported, it
necessarily follows that whosoever is in
possession of the Bill is deemed to be the
owner of the goods in question. He is
allowed to sell the goods using the Bill of
Lading. If goods are destroyed whilst afloat,
the buyer is obliged to pay the purchase
price.

66
 (2) F.OB sale – is the opposite of C.I.F
sales. Here, goods are transported Free On
Board. It is the responsibility of the buyer to
take out an insurance policy and to pay for
transport charges.
(3) F.O.R sales – Free On Rail. The above
principles apply.
(4) C.O.D sales – Cash On Delivery.

Vindication
Provides that the true owner of goods has the right to
reclaim his goods from whoever is in possession of
them at the material time. However, this action is
limited by the principle of estoppel. It provides that
the true owner is prevented from denying that he
assented to the disposition of goods if by his conduct
he made a representation to that effect. Grosvenor v
Douglas17 convincingly held that the following
should be satisfied for estoppel to succeed:
- There must have been some negligence or
fault on the part of the owner.
- There must also be a representation by the
owner.
- The 3rd party must have acted in reliance on
the representation.
- The 3rd party must have been prejudiced.

17
1956 (3) SA 420.

67
68
 CHAPTER 4
LAW OF AGENCY

- An agent is a person who represents another.

- Common law defines an agent as a person
appointed by his principal to enter into contractual
relations which are binding between the principal
and the 3rd party. Thus the relationship created is 3
fold namely:

1) Principal-agent relationship – which is

contractual. It is referred to as the mandate.
2) Agent – 3rd party relationship – which is not
contractual save for certain circumstances.
3) Principal – 3rd party relationship – which is
contractual. This is the main contractual
relationship in the law of agency.

69
- It is then logical to conclude that the law of agency
is concerned with the relationship between the
principal and agent and the relationship between
the principal and a 3rd party.
- It is pertinent to note that juristic or artificial
persons can only act through agents e.g.
Companies
- An agent should always be distinguished from an
independent contractor who is not told how to
carry out the mandate on his own account.
- As soon as the agent brokers the principal and the
3rd party by concluding a contract, he falls out of
the picture.
- The essence of appointing an agent is to do a
specific act which the principal finds very
inconveniencing, difficult or taxing to do on his
own.
- The law of agency is based on the maxim “Qui
facit per alium facit per se” meaning that “he
who acts through another acts through himself”.

Agent – Principal relationship

- The basic essential elements of a valid contract

should exist e.g. contractual capacity of parties.
- As regards juristic persons e.g. Companies, one has
to look at the Memorandum and Articles of

70
 Association to see the capacity of such a company
and its officers to enter into contracts.
- If an agent lacks capacity, then the contract is void.
- He should be authorised by the principal to enter
into contracts

Power of Attorney

- This is a document signed by the principal

authorizing the agent to do a specific act (in case of
a Special Power of Attorney) or to do general
mandates (in case of a General Power of Attorney).
It specifies the agents authorized and the act to be
done. Some acts have to be done after producing a
Power of Attorney.

Authority
- This is a backing power given by the principal to
the agent permitting the agent to stand in
representative capacity. It exists in three species
namely:
(a) Express authority
(b) Implied authority and
(c) Ostensible authority or authority by
estoppel.

71
 Express authority
Is that authority found within the four corners of
the agreement. It is also called actual authority. In
most cases express authority is reduced in writing
thereby constituting a power of Attorney.
- It then follows that the scope of the agent’s
authority is governed completely by the wording of
the Power of Attorney.

Implied authority – this refers to authority that is

not found in the 4 corners of a Power of Attorney but
can be inferred from either conduct, the law or trade
usage. Thus, in some cases the law provides that
some persons should be represented by others
without looking at the presence of an agent –
principal relationship e.g. minors.

Another authority may be inferred from the conduct

of the parties where such conduct admits no other
interpretation besides that the parties intended the
relationship of principal – agent to exist between
them. Implied authority can also be found where an
agent without actual appointment purports to act on
behalf of a principal. For such a contract to be valid,
the principal should ratify the contract provided that
he has become aware of all the material facts of the
contract.

72
Dreyer V Sonop1
Facts; A child who was Dreyer’s son took a school
blazer from a shop after signing the invoice. He
informed the seller to send the invoice to his father
(Dreyer). Upon arrival of the invoice D demanded
more details of the sale and was furnished with the
same. D failed to pay and was sued. His defense
was that he was not a party to that contract of sale.

Principle; The son was acting as his father’s agent

and by asking for further details, Dreyer had ratified
the contract so, he was a party and therefore obliged
to pay.
Ruling; In favor of the seller (Sonop). NB Start a
new paragraph from here. For a contract to be
rectifiable it should be valid where its null and void,
the principal cannot ratify. Where its’ ungratified yet
ratification is necessary, the principal is not bound
and the 3rd party is free to cancel the contract. The
principal on whose behalf the agent acts should be in
existence because one cannot enter into a contract on
behalf of a yet to exist company. This was held in
Mcllough V Fernwood Estates Ltd.

Ostensible authority.
1
1951 (2) SA 397.

73
This is an authority that is neither express nor
implied. It is authority be estoppel. It is almost
similar to implied authority but Manase and
Madhuku aver that representation suggesting the
presence of authority should be made by the principal
yet in implied authority it is made by the agent. It
occurs where the principal represents or conducts
himself in such a manner as to suggest that the agent
has express or implied authority, the representation of
which is relied on by the 3rd party to enter into a
contract. It is called agency by estoppel where the
principal is estopped (stopped) from denying the
existence of authority on the agent. The
representation by the principal must mislead the 3rd
party into believing in the existence of authority.

Professor Christie2 convincingly argues that the

difference between implied and ostensible authority
is that implied authority is based on quasi mutual
assent whilst ostensible authority is based on
estoppel.

Baptist Connection Zimbabwe – V – Ben3

Facts; Ben did some work at a Baptist school. The
work was done in a period of more than 2 months
under the supervision of the school secretary who
2
in his book “Business Law in Zimbabwe.”
3
SC 161/93

74
bought the building material which was being used.
In a dispute arising from the contract (non-payment
of Ben for the work done), Baptist denied the
existence of authority on the part of the secretary.

Principle; By letting the secretary handle cash

transactions and supervising the construction taking
place at the school, Baptist conducted itself in a
manner as to suggest the presence of such authority.
It should be stopped from denying giving the
secretary authority.

Ruling; In favour of Ben.

To plead estoppel the following factors should be
established
1) There was a representation by the principal
2) Representation could mislead any reasonable
person
3) The 3rd party acted on the representation
4) He was prejudiced by so doing. Ostensible
authority is similar to apparent authority.

Undisclosed and unnamed principals

The two must not be confused at all. The unnamed
principal is one whose name or identity the agent has
not disclosed but has disclosed his existence whereas
an undisclosed principal is one the agent has not
disclosed his existence resulting in a 3rd partly

75
believing that he is dealing with the agent in his own
capacity. The 3rd party does not know that X is an
agent. The agent of the undisclosed principal is
bound by the contract on the basis of quasi-mutual
assent.

TYPES OF AGENTS
(1) Factor – refers to a person to
whom goods are assigned for
sale by a merchant residing
abroad and at a distance away
from the place of sale. He
normally sells in his own name
and on his own account
(2) Del credere agent – is a factor
or selling agent who guarantees
the payment of the purchase
price. He must be allowed a
reasonable time to endeavor to
obtain the guaranteed price. But
if such time lapses, the owner
can either demand that the agent
sells the goods at the best price
obtainable or recall the goods
and sell them himself or he may
claim the guaranteed price and
abandon the goods to the agent.

76
 (3) Broker – is a middleman or
intermediary whose office is to
negotiate between 2 parties until
they are ad idem as regards the
terms they are prepared to buy
and sell.
(4) Auctioneer – is an agent who
sells goods by public auction.
(5) Estate agent – is an agent
whose normal modus operandi is
to endeavour to find a buyer for
his client’s immovable property.
He is only entitled to commission
if his principal concludes a
contract with a willing and able
buyer introduced by the agent.
(6) Negotiorum gestio or gestor
– refers to a person who
undertakes the business of
another without the latter’s
authority and in his absence.

Duties of the agent

(1) To carry out the mandate –

agents are bound to do what they contracted
to do.

77
(2) To exercise care and
diligence in carrying out the mandate –
here, the test used is that of a reasonable
person in the shoes of the person alleged to
be negligent.
(3) To impart information
(4) To advise the principal
(5) To act in utmost good faith
– the agent should not make secret profits.
Neither should he allow himself to be in a
position when his interests conflicts with
those of the principal. He must not misuse
confidential information. In terms of section
3(1)(d) of the Zimbabwean Prevention of
Corruption Act, it is a criminal offence for
an agent to connive with a 3rd party to
commit a breach of the agency-principal
relationship.

DUTIES OF THE PRINCIPAL

1) Duty to remunerate
He is obliged to do so only if the agent did
the assignment. ( Bloom’s case).
He should pay reasonable remuneration if
not expressly stated.

2) Duty to re-imburse and compensate the

78
agent

It is a requirement and compensate the agent

who met genuine expenses or loss during
execution of a mandate should be in
indemnified by the principal. Expenses and
loss incurred should be within the scope of
the mandate.

3) Duty to account or advise

Where the nature of the transaction makes it

indispensable for the agent to be furnished
with information, the principal should do so.

Termination of agency
Same as contract. The ways include:
Mutual agreement between the parties.
Revocation: The principal has such a right
to revoke agency without attracting liability
in the absence of an express or implied
agreement to the contrary.
Renunciation: An agent on equitable
grounds can renounce the agency without
incurring any liability in damages.

79
NB Agency is a contract where in one party
comes the principal engages the services of
another party (agent) who in turn realizes
remuneration called commission for doing a
particular act called mandate.

80
 CHAPTER 5
CREDIT AGREEMENTS.

These are akin to Hire Purchase Agreements

in Zimbabwe.

The Hire Purchase Contract.

It is a credit sale in which it is agreed that
the price is to be paid in installments and
ownership only passes upon payment of the
last installment.

Hire Purchase Agreements are governed by the

Credit Agreements Act no.75/1980 in South
Africa.
The Act applies to movables.

The Credit Agreements Act.

Applies to Credit Agreements which are
defined as meaning credit transactions, leasing
transactions or agreements having the same
import whether or not such transactions are
subject to suspensive or resolutive conditions
(section 1 of the Act).

Formation of a Credit Agreement

Section 5(1) provides that a Credit Agreement
should:

81
 - Be reduced into writing and signed by and on
behalf of the parties.
- State the names and business or residential address
of the credit grantor and credit receiver.
- State the amount paid or to be paid as initial
payment or initial rental;
- Contain a description of the goods or services to
which the agreement relates sufficient to make
them readily identifiable.
- State the conditions, if any, as to the seller’s right
to the return of goods, the reservation and passing
of ownership of the goods if it is an installment
sale transaction.
- Be in the official language, which the buyer may
request in writing.

**However, it is surprising that section 5(2)

provides that non-compliance with the provisions
of section 5(1) does not render the agreement
invalid. This implies that the provisions of section
5(1) should not be religiously adhered to. This is
problematic since the use of should or shall in
statutes impose mandatory compliance. It is
submitted that section 5(2) should be removed
from the statute.

*Section 3(1) gives the Minister extensive powers

regarding regulation of prices, installment and

82
advertisement of Credit Agreements.
A credit agreement is not binding until the buyer
has paid at least the initial payment or rental
prescribed by regulations (s 6(4))
**Section 6 proscribes or prohibits the following
provisions:
- Exemption clauses for any act or omission of the
seller’s liability;
- Exemption clauses for unlawful entry by the
seller to the buyer’s premises;
- Forfeiture provisions;
- Where the period of the credit agreement is left
undetermined etc.

Consequences of a Credit Agreement

- It obliges the credit receiver to notify the credit
grantor by post within 14 days any change of the
residential or business address’ removal of goods
and any partial loss of possession of goods under
the credit agreement.
- A credit grantor cannot have repossession of the
goods from the credit receiver without a court
order. If he takes possession without a court order,
he is obliged to reinstate the credit receiver.
- If the credit grantor terminates the agreement
without fault on the part of the credit receiver,
section 13 obliges him to return all installments

83
paid by the credit receiver.
- Any summons issued by the credit grantor in
legal proceedings has the effect of restraining any
transfer or use of goods under the credit agreement
(automatic interdict).

**Section 22 prohibits any waiver of rights by the

credit receiver under the Credit Agreements Act.
This provision entrenches the credit receiver’s
rights under the Act and affords him maximum
protection.
**Section 23 imposes a penalty of either a fine not
exceeding R5 000 or at most 2 years imprisonment
for failure to comply with the provisions of the
Act.

The Usury Act 73/68.

Provides for the limitation and disclosure of
finance charges levied in respect of money lending,
credit and leasing transactions.

Rights of the parties who finance the contract.

Normally, the finance company pays the seller the
amount of goods in question. The seller then cedes
his rights to the goods to the finance company.
Usually, the seller sells the goods to the buyer on
behalf of the finance company. All the interests
paid on goods under a credit agreement over the

84
 period agreed are payable to the finance company
and not the seller.

- The rationale for such an arrangement is the buyer

will not be able to pay cash for the goods bought.
The seller also cannot wait for the payment of the
last installment and the finance company is a profit
making organization.

Sale of goods by the buyer.

R v Mapanga1 held that if a buyer sells goods that
are under a credit agreement without the seller’s
consent, he commits theft. The seller as the owner
can vindicate the goods from the 3rd party in
possession of goods. (See notes on vindication).

Landlord’s Hypothec
Where the buyer is a tenant in terms of a lease of
immovable property, the landlord has a tacit
hypothec over all movables on the leased premises
(including goods subject to a credit agreement) for
any amount of arrear rent and such hypothec
accrues automatically as soon as the rent is in
arrears (See notes on this subject in the Law of
Lease).

1
1953 (2) SA 784.

85
- Creditor’s claims on the buyer’s insolvency
Upon the buyer’s insolvency, the seller acquires a
hypothec over the subject matter of a credit
agreement as security of money owed. Section
84(1) of the Insolvency Act requires the buyer’s
trustee to deliver the goods to the seller on request
by the seller. The remaining creditors will have
recourse to the residue in the buyer’s estate.
Pledgee – a buyer who pledges goods which are
under a credit agreement during the subsistence of
the agreement, in circumstances which indicate the
intention to alienate them, commits theft. The seller
has the right to vindicate the goods if the buyer
sells them. In cases of insolvency, the seller’s and
pledgor’s claims conflict. However, many a time
the seller’s hypothec is preferrent.
Lien holders – these are people who are entitled to
retain the possession of goods of others as security
for repayment of incurred expenses for improving
the property of another. Leans also attach to goods
which are subject to a credit agreement. In the
event of the buyer’s insolvency, the lien and
seller’s hypothec conflict. However, liens will be
given first preference.

86
-
-
- CHAPTER 6

THE LAW OF INSURANCE

It is largely governed by the Insurance Act1.

1
Chapter 24.07 in Zimbabwe.

87
Insurance is defined as the pooling of risk. The
main object of insurance is to protect people from
financial disaster. Such protection is brought by the
payment of a moderate price in exchange for a
promise to pay an agreed amount if or when the
disaster or loss occurs. This agreement is usually
reduced into writing and is referred to as the
insurance policy. The person who compensates for
loss insured is usually referred to as the insurer
whilst the person who pays premiums as called the
insured.

Parties to the insurance contract.

The insurer – his/her main responsibility is to
compensate the insured in the event of occurrence
of loss. They come in the form of individuals,
insurance companies, mutual insurance societies
and associations of underwriters. Professor Christie
convincingly contends that in practice, the
individual insurer is almost non-existent and
insurers are either insurance companies, mutual
insurance societies or more rarely, associations of
underwriters such as Lloyd’s.
The Insured – his/her main responsibility is to pay
a moderate price in exchange of compensation if
loss insured against ensues.

Formation of an insurance contract.

88
 Given that the insurer usually comes in the form of
Insurance Companies or mutual insurance
societies, it becomes common cause that they act
through their agents (called the insurance broker).
Section 35 of the Insurance Act provides that an
insurance broker must be registered. (S) he owes
his principal a duty to obtain a policy according to
his instructions. He also owes the insured the duty
of care and skill. In Dickson and Company v
Devitt2, the court held that the insured is under no
obligation to read the policy, but is entitled to rely
on the skill and efficiency of the broker.

It is common practice insurers require the insured

to fill in standard form proposal forms containing a
number of questions, on the answer to which the
insurer will decide whether to issue a policy or not
and the terms to be included therein. Because
insurance contracts are based on trust and require
utmost good faith (uberrimna fides), the insurer
should answer all questions truthfully and honestly.

When the insured fills the proposal form, he does

so as a proposer of an insurance contract. It is only
when the insurer is satisfied and accepts these
proposals that an insurance policy comes into
being. The insured thus becomes the offeror whilst
2
(1916) 86 LJKB 315.

89
the insurer becomes the offeree.

The insurer usually gives a temporary cover note in

lieu of the insurance policy. Here, the insured can
deposit an amount as an installment known as a
premium. Upon final consideration of the proposal
form, an insurance policy will be issued containing
the terms of the insurance contract. The issuing of
an insurance policy is usually an acceptance by the
insurer of the offer contained in the proposal form.

CORE PRINCIPLES OF INSURANCE.

INSURABLE INTEREST.
Provides that an insured cannot insure against
something that (s) he has no interest in. The
invocation of this doctrine dates back to the early
17th Century England where gamblers were
allowed to take out insurance policies in favour of
the property they used in gambling or the lives of
people they gambled with. What would normally
happen was that someone would take out an
insurance policy today, lose his property tomorrow
in bait and then claim compensation the next day.
Conversely, someone would ensure the life of the
person he gambled with today, kill him tomorrow
and the claim compensation the next day. This was
because the people concerned had no interest in the
subject matter of the insurance contract.

90
 This caused a lot of hardships to insurance
companies. However, to overcome this problem the
English legislators promulgated the Insurance Act
of 1745 and the Life Assurance Act of 1774 which
provides that the insured should have interest in the
subject matter of the insurance contract. Where the
insurable interest did exist, no greater sum than the
actual value of the property could be recovered.
This interest is deemed present where the insured
stands to lose out if the subject matter of the
insurance perishes as a result of the risk insured
against happening or if (s) he benefits from the
non-occurrence of risk.

In the English case of Little John v Norwich

Union Fire Insurance, a husband insured his
wife’s shop and stock from fire. The wife was the
owner of the shop whilst the husband was
responsible for the management. The shop in
question was destroyed by fire and the husband
claimed compensation. The insurance company
refused to compensate arguing that the husband
had no insurable interest in the property of the wife
because he did not own it. The court rejected this
argument and held that the husband actually had
insurable interest in both the shop and stock, since
he would incur loss in the event of the risk insured

91
against occurring. He also stood to benefit in the
continued existence of the subject matter of the
insurance.

Similarly, in the English case of Phillips v

General Accident Insurance Company, a
husband insured his wife’s wedding ring against
theft or any other form of loss. The ring was
subsequently lost and the husband claimed
compensation. The issue of insurable interest arose
in litigation. The court held that the husband
actually had insurable interest as he was the one
who would be obliged to replace the ring and also
the husband could actually sell the ring in the event
of financial hardships in the family.

From the above cases, it is discernible that

insurable interest exists where:
The insured stands to lose if the subject matter of
the insurance perishes as a result of the risk insured
against occurring or
If the insured benefits from the non-occurrence of
risk or
Both.
DOCTRINE OF SUBROGATION.
It is similar to the Roman-Dutch concept of
Cession. It provides that an insurance company,
after compensating or indemnifying the insured, is

92
entitled to step into the shoes of the insured and
claim against the party or person who caused the
loss as if the company was the insured himself.
Here, the insurance company is entitled to any
benefit given to the insured by the 3rd party with
the object of minimizing his loss. The rationale for
this is to prevent the insured from double
satisfaction or unjust enrichment.

In the English case of Castellain v Preston, there

was a sale agreement involving a house. The seller
then insured the said house against fire. A fire
subsequently broke out, destroyed the house in
question and the insurance company indemnified
the seller for the loss. The house was subsequently
sold and the seller got the full purchase price from
the buyer. The insurance company objected to this
and made a legal claim for subrogation of the
purchase price. The court upheld the claim holding
that the insurance company was indeed entitled to
the full purchase price because it had already
indemnified the seller.

THE DOCTRINE OF DISCLOSURE

Provides that there is a duty on both the insured
and the insurer to disclose to each other all facts
material to the contract or which are material to the
risk (periculum) or the assessment of the premium.

93
 This arises from the English law’s principle of
uberimna fidei or fides (utmost good faith).
However, this doctrine is not strictly applied in
South Africa. For instance, where one party
misrepresents, the court will determine whether the
misrepresentation affected the calculation of risk
i.e. was the misrepresentation a material breach of
the insurance contract. A fact is deemed material to
the insurance policy if it can guide a reasonable
and prudent insurer in the assessment of the risk or
calculation of the premium.

TYPES OF INSURANCE
Marine Insurance – covers risks which might
occur when goods are transported using sea
transport. This includes the ship itself, freight or
goods. The risk insured against must always be
specified in the insurance contract and insurable
interest must be present.
Fire Insurance – is often combined with other
policies for the protection of property. Here, the
insurer insures his property from fire. However,
when a fire breaks out, the insured’s duty of utmost
good faith requires him to take reasonable steps to
put it out. If he fails to do this, the case of City
Taylors v Evans3 held that he would not be
compensated because his failure has become the
3
(1929) 91 LJKB 379 @ 385.

94
proximate cause of the loss.
Motor Vehicle Insurance – section 22 of the
Zimbabwean Road Traffic Act makes it an offence
to use a motor vehicle or trailor on a road unless
covered by a statutory policy. This means that
motor vehicle or trailor owners should take out
insurance policies to cover risk caused by or
arising from the use of the motor vehicle or trailor
concerned on the road.
This policy covers theft and damage of the car as
well as liability to certain occupants or 3rd parties
in respect to injuries or death (and their
dependants). The scope of cover depends on the
terms of the contract.
Life and Accident Assurance – usually comes in
the form of funeral policies wherein the insurer
undertakes to take care of funeral expenses in the
event of the insured’s death as a result of either an
accident or anything specified in the insurance
contract.

Types of Insurance Agents.

Canvassing agent – only solicits for proposals. He
has no authority to conclude the insurance policy
or contract. He cannot bind the insurer through his
transactions. If he completes the proposal form
then he is transformed into the agent of the insured
and his knowledge will be imputed onto the

95
insured. The canvassing agent’s knowledge cannot
be imputed to the insurer unless written down.
The Insurance Broker – an independent agent
who deals with insurers or insurance of his own
choice. He is the agent of the insured and is liable
for his negligence.

Consequences of the Insurance Contract.

Once an insurance contract is concluded, the
insured is obliged to pay premiums and the insurer
is mandated to compensate the insured when loss
occurs. However, the insured has to notify the
insurer of the loss within a reasonable period of
time.

Termination of Insurance
Same as an ordinary contract. However, it suffices
to say that an insurance contract can also be
terminated if the insurable interest in the subject
matter of the contract ceases.

96
-
-
-
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- CHAPTER 7
NEGOTIABLE INSTRUMENTS

They are governed by the Bills of Exchange Act.

It is a topic that has been clouded with a myriad of
mysteries since it is somewhat technical. Even
courts have accepted this conception. In Ballows
Motors Investments v Smart1, the court held that
negotiable instruments are notoriously difficult.

What is a negotiable instrument?

In Impala Plastics v Coetier2, a negotiable
instrument was defined as “an instrument which
defies a precise definition. However, mysterious as
the topic appears to be we will try as much as
intellect permit us to demystify the topic.

1
1993 (1) SA 347 @ 352 F-G
2
1984 (2) SA 393

97
Generally, a negotiable instrument is a document
of title to money. Historically, negotiable
instruments are a creation of law merchants due to
a difficulty in handling large sums of coins. It was
found safer and convenient to devise instruments
which would give the bearer thereof the right to
transfer – as nearly as possible – with the necessary
ease and safety with which a cash payment is made
but without the inconvenience of carrying large
sums.

Types of Negotiable Instruments.

Promissory Note – section 89 (1) of the
Zimbabwean Bills of Exchange Act as well as
section 87 (1) of the South African said Act define
a promissory note as “an unconditional promise in
writing made by one person to another signed by
the maker and engaging to pay on demand or at a
determined future time a sum certain in money to
a specified person or his order or bearer.”

An example of a promissory note is the monetary

notes which we use in our day to day lives. The
characteristics of a promissory note are as follows:
- It is an unconditional promise
- In writing
- Signed by the maker
- It should have an intention to pay money on

98
demand.
- It should be payable to a specified person or
bearer

Bill of Exchange – is define by section 3 of the

Zimbabwean Bills of Exchange Act as we as
section 2(1) of the same Act in South Africa as “an
unconditional order in writing addressed by one
person to another signed by the person giving it,
requiring the person to whom it is addressed to
pay on demand or at a fixed or determinable
future time a sum certain in money to the order of
a specified person or to bearer.”

An example is a cheque and the following

characteristics are discernible:
- it is an unconditional order
- in writing
- addressed by one person to another (a third party)
requiring him to pay the payee on demand or at a
determinable future time.
- It should be signed by the drawer.

**However, it is pertinent to note that unlike a

promissory note which has 2 parties, a bill of
exchange has 3 parties.

Cheque – is a bill of exchange drawn on a banker

99
and payable on demand [section 72 and section
2(1) of the Zimbabwean and South African Bills of
Exchange Act respectively.

**It is important to note that ordinary bills of

exchange are drawn on any 3rd party whilst a
cheque is drawn on a banker only. Also, an
ordinary bill of exchange is payable either on
demand or at a determinable future time whilst a
cheque is only payable on demand.

Parties to a cheque
Drawer – this refers to a person who draws up or
addresses a cheque.
Drawee – the bank.
Payee – the beneficiary of the cheque.

The Negotiation of a Negotiable Instrument.

The essential characteristics of negotiability can be
summed up as follows:
*The instrument and the rights evidenced by it – a
negotiable instrument may be transferred by either
delivery or by endorsement and delivery.
*A bona fide transferee for value of a negotiable
instrument may acquire a better title than the
predecessor in title notwithstanding that the
predecessor had a defective title. Such a transferee
obtains a good and complete title to the instrument

100
and is referred to as a holder in due course.

A bill is negotiated when it is transferred from one

person to another in such a manner as to constitute
the transferee a holder in due course. However, it is
important to note that transferability of a bill
bespeak the conveyance of a bill from one person
to another with or without defects or equities. On
the other hand, negotiability refers to the transfer of
a bill without defects or equities. The holder of
such a bill gets an assailable or undisputable title to
the bill. He is referred to as a holder in due course.

Holder in Due course

Section 28 and section 27 of the Zimbabwean and
South African Bills of Exchange Act respectively
provides that a holder in due course is a person
who take a bill free from equities or defences. Ie he
obtains unassailable rights or he gets a complete
tiltle to the bill. This means that the defences that
would have been raised against his predecessors in
title cannot be raised against him.

However, such title does not just come about. The

following preset requirements must be satisfied:
(1) the bill must be regular on the face of it. Lord
Denning in Arab Bank Ltd v Ross held that
“Regularity is different from validity…on the

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 other hand an endorsement which is quite invalid
may be regular on the face of it. Thus the
endorsement may be forged or unauthorized and
therefore invalid…but nevertheless there may be
nothing about it to give rise to any suspicion. The
bill is then regular on the face of it…”
- (2) The holder must have no knowledge that the
bill was once dishonoured.
- (3) The holder must take the bill in good faith and
for value. Lord Blackburn in Jones v Gordon3
held that “(a) if a man suspects that something is
wrong with a negotiable instrument, that is
enough to prevent him from taking it in good
faith. The suspicion need not be accurate
provided it is near the truth and (b)if a man
admits that he was careless in not discovering a
defect in the title of the bill, he is entitled to be
treated as having acted in bad faith…”
**However, from this quotation, it is discernible
that what is relevant in this particular case is not
whether the person who took the instrument ought
reasonable to have suspected a defect in the title
but rather the suspicion must have arisen in the
light of the reasonable knowledge which he
actually possessed.
(4) The holder must not have had notice of any
defect in the title of the person who negotiated the
3
(1876-77) 2 App Cas 616

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bill to him.

NB – A bill may be payable to either bearer or a

specific person but not to both.

Bill payable to bearer.

It is usually expresses in the following terms “Pay
bearer on demand.” The legal significance of a
bearer instrument is that the document and the
rights evidenced by it can be transferred by simple
delivery. No endorsement or signature is needed
inorder to transfer such an instrument. This means
that whoever is in possession of such an instrument
is entitled to benefit from the proceeds thereof.

The main problem with such instruments is that

they are risky and not safe because whosoever is in
possession of such cheques can present them over
the counter for payment.

Bill payable to a fictitious person

In South Africa, a fictitious person is the same as a
non-existent person. But in Zimbabwe, just like in
England, a fictitious person is not the same as a
non-existent person. A fictitious person in this
context is one where the drawer never intended to
make payment to the payee written on the
instrument but only inserted his name nominis

103
 umbra (as a way of pretence). I.e the courts have to
look at the state of mind of the drawer when he
made the cheque. Did he intend to make payment
to the said payee or did he just insert the name as a
way of pretence? If it was the former, then the
payee is not fictitious. But if it is tha latter, then the
payee is fictitious4.

The legal significance of declaring the payee

fictitious is that such an instrument is payable to
bearer [section 6(3) of the Zimbabwean Bills of
Exchange Act]

Instruments payable to a specific person or his

order.
Such instruments are payable to the person
mentioned on the instrument as the beneficiary.
The common phrase for such an instrument is “Pay
Innocent or order.” This means that such a bill is
payable to Innocent or whosoever Innocent orders
the Bank to pay. For such an instrument to be
transferred, an endorsement is needed. An
endorsement is a signature that is placed on a
cheque solidifying the mandate given by the
endorser.

4
see The Governor and Company of the Bank of England v Vagliano Brothers 1891 AC 107 (HL).

104
 There are 3 common types of endorsements
namely:
(1) Endorsement in blank – this does not specify
the endorsee. The instrument with such an
endorsement is payable to bearer.
- (2)Special endorsement – it specifies the person to
whom the bill is payable. It is payable to such a
person or his order.
(3)Restrictive endorsement – it prohibits further
negotiation of a bill. It comes in phrases like “Pay
Innocent only.” This means that Innocent is the
only beneficiary of the bill. He is not permitted at
law to transfer such an instrument to any other
person.

***NB – The payee can transfer a cheque to a 3rd

party by simply writing the name of such person at
the back of the cheque and putting the payee’s
signature. For example, Innocent can write at the
back of a cheque “Pay Moses Matimba” and the
put his signature on a cheque to which he is the
beneficiary. This means that the new beneficiary of
such a cheque will be Moses Matimba. Moses can
transfer the same cheque to another person in a
similar manner and the chain can go on and on like
that. What will validate the transfers is the
signature of the existent beneficiary of the cheque.

105
 It sometimes happens that unscrupulous persons
can forge the payee’s signature. In such
circumstances, section 23 of the Bills of Exchange
Act provides that the bank should not honour the
cheque since the mandate will be invalid. Legally,
no rights can flow from such an instrument unless
if the principle of estoppel is invoked4. Here, the
payee’s right to recover is twofold:
*He can seek recovery from the banker because the
bank acted without authority or
*He can sue the person who benefited from the
fraud or forgery under the unjust enrichment
action.

However, the payee’s right is subject to the

following duties of the customer under common
law:
(1) Duty to notify the bank of all known forgeries
Greenwood v Martins Bank 5
Facts – a husband operated a joint account with his
wife. He later closed this account and opened
another one in his own name. However, the wife
drew up cheques by forging her husband’s
signature for about 8 months. The husband realized
it but he did not notify the bank because he feared
that his wife would commit suicide. With time the
4
see Leites v Contemporary Refregeration (pvt) ltd 1968 (1) SA 58 (AD).
5
1933 AC 51

106
 wife committed suicide and the husband claimed
the amount paid under the forged cheques from the
bank.
Held – the husband had no claim since he was in
breach of the customer’s duty under common law
to notify the bank of all known forgeries.

(2) Duty to draw cheques in such a way as not to

facilitate fraud. The customer should exercise
reasonable care whenever he draws a cheque to
avoid the possibility of a 3rd party tempering with it
in such a way as to mislead the banker as to the
customer’s instructions.
[See London Joint Stock Bank Ltd v Mc Millan
and others]6.

When a person signs a cheque in a representative

capacity, such information should be indicated on
the said cheque.

Crossings on a cheque
These are two parallel traverse lines that are
normally placed across the face of the cheque.
They can be positioned anywhere and they need
not cover the width of the instrument. Crossings
are used as safety devices which prevent cheques
from falling into wrong hands. By crossing a
6
(1898) AC 777.

107
cheque, the drawer instructs the bank to make
payment to a specific payee using specific
methods. The net effect of crossing a cheque is to
restrict the transferability or negotiability of the
cheque.

Types of crossings.
(1)General crossing – section 82(1) and 75(1) of
the Zimbabwean and South African Bills of
Exchange Act provides that a cheque is crossed
generally if it bears across its face 2 traverse lines
with or without the words ‘and Company.’ Where a
cheque is crossed generally, the banker on whom it
is drawn shall not pay it otherwise than to the
banker himself. Ie it cannot be cashed over the
counter but will be debited into the payee’s
account.
(2) Special crossing – section 79(2) and 75(2) of
the Zimbabwean and South African Bills of
Exchange Act provides that a cheque is crossed
specially if it bears across its face the name and
branch of the bank which should pay the payee.
This means that the payee cannot be paid anywhere
else but the branch and bank specified on the
cheque. For instance a cheque can indicate that it is
payable at Barclays Bank Nelson Mandela Branch.
What this means is that if the payee cashes the
cheque on any other Barclays Bank branch which

108
is not Nelson Mandela, it will not be honoured.

**There are times when some words are added to

the crossings namely:
*“Not Transferrable” – section 7(1) and 6(3) of
the Zimbabwean and South African Bills of
Exchange Act provides that such a bill cannot be
transferred at all. This means that such a bill ceases
to be negotiable since transferrability is a sine qua
non of negotiability.

*“Not Negotiable” – section 84 and 80 of the

Zimbabwean and South African Bills of Exchange
Act provides that the holder of such a bill cannot
acquire or give a better title to such a bill than his
predecessors in title. In other words, the payee gets
the bill with its defects or equities. He cannot enjoy
the benefits of a holder in due course.

*“Not Negotiable Account Payee Only” – this is

a combination of not negotiable and a restrictive
endorsement. This appears to be a paradox because
“not negotiable” renders a bill transferable with
defects whist a restrictive endorsement renders a
bill not transferable. A combination of these is
honestly paradoxical.

However, the Bill of Exchange Act does not say

109
 anything about such bills. Resort should thus be
had to case law. In the South African case of
Standard Bank South Africa v Sham Magazine7
and the Zimbabwean case of Philsam v Beverley
Building Society8, the court held that these words
do not render a cheque not transferable. Rather,
they operate as some safeguards if the cheque falls
into wrong hands. However, the nature of
safeguards is not very clear since they were not
explicitly stated in these cases. On the other hand,
the South African case of Rhostar v Netherlands
Bank9 and the Zimbabwean case of Zimbank v
Pyramid10 held that the effect of these words is to
render a bill not transferable.

It appears as if the Sham and Philsam decisions

supra (which are the most recent and binding
according to the principle of stare decisis) favour
the not negotiable interpretation whilst the Rhostar
and Pyramid decisions favour the restrictive
endorsement interpretation. It is submitted that
both decisions are wrong. If the interpretation was
that simple, the banking practise would not have
bothered to invent the term “not negotiable account
payee only.” They would have used the restrictive
7
1977 (1) SA 484
8
1972 (2)SA 546
9
1972 (2) SA 703
10
1985 (1) ZLR 385

110
endorsement and “not negotiable.” It is therefore
suggested that a compromise should be struck
between these interpretations to come up with a
solution. That failing, it is wise to eliminate such
problematic phrases in our law of negotiable
instruments.

Defences
They are classified into absolute and relative
defences.
Absolute defences – these are the only defences
that can be raised against a holder in due course
namely:
Forgery
Fraud
Lack of contractual capacity
Material alteration to the instrument.

Relative defences – can be raised against a holder

generally. These include mistake,
misrepresentation, undue influence, illegality etc

The contract of aval

– occurs when a creditor is not prepared to take a
negotiable instrument, whether from the maker,
drawer or endorser, unless it is ‘backed’ by
someone else of good credit. The signatory of an
aval is a surety guaranteeing payment of the

111
instrument and the benefit of this guarantee passes
with the instrument to successive holders.

Other parties to a negotiable instrument

(1) An Accommodation party - is a security who
signs a bill or note as a party to it, ie, drawer,
maker, or endoser. He signs without receiving
value thereof but for the purpose of lending his
name to some other person.
(2) A Signer of aid - a security on a bill or note
who signs the instrument but not as a party ie, as
drawe, maker, acceptor or endoser. The essential
difference between a signer of aid and an
accommodation party is that the former is not a
party to the instrument whereas the latter is.
(3) A referee in case of need - he is a person
whose name may be inserted into the bill by the
drawer or an endorser so that a holder may resort to
him in case of need.
(4) An acceptor for honour or payee for honour
- is a person who is not liable on a bill who
intervenes when a bill is protested for dishonour by
non-acceptance or by non-payment and he himself
accepts or pays the bill for the honour of any
person liable thereon. He is a good samaritan who
intervenes when things go wrong.

112
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- CHAPTER 8
LAW OF PARTNERSHIP.

A partnership is a legal relationship between 2 to

20 people who contribute something into the

113
partnership business with the object of making
profit and sharing the profits or losses amongst
themselves.

Essential elements of a valid partnership

Were summarized in the case of Joubert v Tarry
as follows:
- The agreement must be a result of a legal
relationship – just like any other business venture.
- The partnership must be a result of an agreement
which may either be express or implied. Both in
Zimbabwe and South Africa, the partnership
agreement neeed not be reduced into writing.
However, if it is in writing it is reduced into a
partnership deed which is taken as evidence for the
agreement by the parties.

It is also important to note that a partnership can

also be created by conduct. In the case of Fink v
Fink, the following ensued:
Facts – a husband and his wife were married out of
community of property. They then started a daily
and dairy product company. The wife was doing
most of the management as the husband was fully
employed somewhere else. They never shared the
profits. Rather they ploughed the profits back into
the business to improve and enlarge it. From a very
humble beginning, their business flourished but

114
their love went the opposite direction. On divorce,
the wife demanded the dissolution of the business
as a partnership.
Held – that although there was no partnership
deed, the conduct of both parties satisfied the
requirement for validity of a partnership. The
conduct of the wife was more than wifely
contribution or assistance. A partnership had been
created by conduct.

- The parties must contribute something to the

partnership business. The nature of the contribution
is unlimited. It may either be in terms of money or
labour or skill or marketing prowess or both. The
contribution must be to a joint occupation or
towards some common interest. However, this
should be distinguished from co-ownership in that
co-ownership (unlike a partnership) does not have
as its primary aim the making of profit.
- The parties must have an intention to make profit
out of their endeavour. This is the primary purpose
of forming a partnership. Where the noble intention
of making a profit is lacking or the prospect of
making a profit ceases to exist, then the partnership
will be dissolved.
- The parties must have an intention to share profits
and losses. Usually partners agree on a profit
sharing ratio. Where this is absent, profits and

115
losses will be shared according to each partner’s
contribution.

Types of partnerships.
*Partnership en commandite – this is when
partners make an undertaking that in the event of
dissolution of the partnership, each one of them
will make an agreed contribution in settling the
partnership’s debts. This is akin to a company
limited by guarantee.
*Sleeping partner – this is one who does not
participate in the day to day running of the
partnership but simply contributes to the capital of
the partnership business. He is liable to the extent
of his contribution or according to the loss sharing
ratios.

Internal relations
Partners are viewed as agents of the partnership
business. This means that they owe each other a
duty of care which is imputable on every agent.

As regards management, unless there is an

agreement to the contrary – every partner has the
right to manage the partnership. They should try as
far as reasonably possible to further the best

116
interests of the partnership. Their interests should
not conflict with those of the partnership. Neither
should they make secret profits.

External relations.
Each partner has the right to enter into binding
contractual relations on behalf of the partnership.
He does not need a special power of attorney to do
this. He is entitled by virtue of his being a partner.

Where a partner commits a delict or crime only in

the furtherance of the partnership business, then the
partnership will be bound.

Dissolution of a partnership
The grounds for termination of a partnership are as
follows:
*Lapse of time.
*Mutual agreement
*Change of membership – this is because a
partnership does not have perpetual succession.
*Insolvency – unlike a company with limited
liability, the personal assets of the partnership will
be attached if the partnership property does not
adequately pay the partnership’s debts during
insolvency.
*On application by one or more of the partners
– here the partnership can only be dissolved when

117
the court is satisfied that there are just and
reasonable grounds for dissolution. For instance,
misappropriation of funds, incapacity to perform
duties, serious violation of common law duties,
deadlock, loss of mutual confidence, lack of mutual
trust, frustration of business etc.

CHAPTER 9
LABOUR LAW

Deals with how work is supposed to be organized

in society and is governed by the Labour
Relations Act both in Zimbabwe and South Africa.
In its broadest sense, labour law consists of those
legal rules that govern the relationship between (a)
the employer and the employee, (b) the employers
and trade unions and (c) trade union federations,
employers’ organizations and the state.

Labour law can be divided into two namely:

(1) Individual labour law – consists of those legal
rules which govern the relationship between the

118
individual employer and individual employee.
(2) Collective labour law – embraces the law
relating key group players in the labour market
namely:
the relations between organized workers and either
the individual employer or organized employers.
The relationship between the state and trade unions
and employers.

***It is pertinent to note that individual labour law

is largely governed by the employment contract
and common law whilst collective labour law is
largely governed by statute.

THE EMPLOYMENT CONTRACT

An employment contract is an agreement between
2 legal personae (or parties) in terms of which one
of the parties (the employee) undertakes to place
his services at the disposal of another party (the
employer) for an indefinite or determined period of
time in return for a wage.

Developed from the Roman law contract of letting

and hiring of services (locatio conduction). There
were 3 types of locatio conduction namely:
(a) Locatio conductio rei – hiring of specified
items.
(b) Locatio conduction operis – hiring of services

119
 by an independent contractor.
(c) Locatio conduction operarum – the hiring of
services by an employee.

The 3rd category constitutes the modern day basis

of the employment contract. Thus a distinction
should always be drawn between an employee and
independent contractor because different results
flow from these relationships. For example, the
Labour Relation Act does not apply to independent
contractors and the NSSA scheme only applies to
employees.

The question which inevitably arises is how one

should determine whether a person is an employee
or an independent contractor. Courts have devised
3 tests namely:
(1) The control test – an employee works under
the control and supervision of the employer whilst
an independent contractor does not. Such control involves the employee
1

reporting directly to the employer or his representative, having fixed hours of work, a
fixed lunch and tea time etc
(2) The organization test – an employee’s work is an integral part of the of the
employer’s organization whilst an independent contractor’s work is not. Also, the
position of the employee should be within the organizational structure of the
employer’s business premises whilst that of the independent contractor is not.2
(3) Multiple or dominant impression test – the court realized the limitation of the
control and organization test and formulated the dominant impression test. Here, the
courts will look at many factor (including the control and organization test, whether
the purported worker is entitle to pension, other benefits, leave, etc) and then come up

1
see Colonial Mutual Life Society v McDonald 1931 AD 412
2
see Smit v Workers Compensation Commission 1979 (1) SA 51

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 with a conclusion as to whether such a worker can be called an employee or
independent contractor3.

DUTIES OF THE EMPLOYEE

(a) To make services available to the employer – the employee must place his
services at the disposal of the employer. However, this duty does not entail that the
employee renders services but that he should only be available to render services.
Conversely, the employer is not obliged to provide work for the employee4.
(b) To be competent – the employee impliedly undertakes to be reasonably
competent or to exercise the normal skill and diligents in the performance of his
work. Common law allows employers to summarily dismiss the employee for
incompetence5.
(c) To act in good faith – the employee is obliged to serve the employer honestly and
faithfully. He should not make secret profits and should not work for is employer’s
rival6 (that is why some employment contracts have restraint of trade clauses).
(d) To be obedient – the employee should obey the lawful orders of the employer.
Under common law, an employee who is disobedient may be summarily dismissed7.
(e) Duty of cooperation – under English law, it is said that every employment
contract has an implied duty of cooperation. It requires the employee “to use his best
efforts to ensure the efficient running of the employer’s enterprise.”

DUTIES OF THE EMPLOYER

(a) To receive the employee into service – as already mentioned, the employer does
not have a duty to provide work to the employee. The only general exception to this is
where the employee’s remuneration depends on the performance of work such as
remuneration based on commission or where the provision of work is necessary to
maintain the employee’s skills/ reputation.
(b) Payment of remuneration – this is based on the common law principle of “no
work no pay.” It is in the interests of justice fairness and equity to pay a person who
has worked for you. 8
(c) To provide safe working conditions – under common law, the employer is
obliged to provide safe working conditions by taking reasonable steps to ensure the
safety of the employees.
(d) To provide leave – under common law, the employer is not obliged to provide
leave to the employee. The duty to provide leave arises out of either statute or the
employment contract. Generally there are 3 if not 4 types of leave namely:
- Annual or vacation leave – the Zimbabwean Labour Relations Act is silent about
this leave. But it is mostly provided for in Collective Bargaining agreements.
- Sick leave – was not present under common law. But section 14 of the Zimbabwean
Labour Relations Act provides for paid sick leave. For workers with a 5 day week,

3
see Southampton Assurance v Mutuma
4
see Muzondo v University of Zimbabwe 1981 ZLR 333.
5
see Wallace v Rand Daily Mail 1917 AD 479 @ 482.
6
see Mine workers union v Brodrick 1948 (4) SA 959
7
Under SI 371/85 the duty has been slightly modified to read “willful disobedience to a lawful order.”
8
see Zimbabwe Sun Hotels v Lawn 1988 (1) ZLR 143.

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 22 days are given as sick leave and 26 days are given to employees with a 6 day
week.
- Maternity leave – absent in common law but section 18 of the Zimbabwean
Labour Relations Act provides for maternity leave. Women should be given 75%
pay when they are on maternity leave and she should take it once every 24 months –
with a total of 3 times with respect to her total service to any one employer.
Compassionate leave – it is usually given when a close relative of the employee dies.
Mc Nally in Swaibo v National Railways of Zimbabwe (Sc 54/95) held that
compassionate leave is “a privilege of the employee alone” and should not always be
given.
- Paternity leave – is usually given to newly weds. It is also a privilege.

(e) To respect the employee – the employer should treat the employee with due
respect as a human being.
(f) To observe the statutory rights of the employee – these include:
- The right to join a trade union
- To be a member of a workers committee
- Not to be discriminated against on the grounds of race, tribe, sex, place of origin, etc
- Right to fair labour standards
- Right to strike
- Right to democracy in the workplace etc

VICARIOUS LIABILITY
Stipulates that an employer is jointly and severally liable for all the delict committed by
his employee in the course and within the scope of his employment. Three things should
be established for an employer to be vicariously liable namely:
(1) There should be an employer-employee relationship – this means that an employer
of an independent contractor cannot be held vicariously liable in any circumstances. The
only time where an employer can be vicariously liable for a delict committed by an
independent contractor is when he tasks the contractor to carry out work which is
inherently dangerous8.
(2) The employee must actually be liable for the delict. It is obviously nonsensical to
hold an employer accountable for a wrong which his employee did not commit.
(3) The delict must have been committed within the scope and in the course of the
employee’s employment. The courts have devised the degree of deviation test to
determine this. The question the the court asks is “in terms of distance and time, can it be
said that the employee was still acting within the parameters of his work or he had
abandoned his work completely.

This means that if the employee acts outside his employment, the employer will not be
liable9. however, when the servant acts in breach of a prohibition given by the employer,
the question that the court asks itself is whether the prohibition limits the sphere of the

8
see Langley Fox Building Partnership (pty) Ltd v De Valance 1991 (1) SA 1 (A).
9
see Roos v De Loor’s Ltd 1931 TPD 100 @ 104.

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employee’s employment or simply regulates the conduct of the employee within the
sphere of his employment. If it is the former, then the employer will be vicariously liable.
But if it is the latter, then the employer will not be liable10.

Where a driver deviates from his route and goes on the frolic of his own, Feldman v
Mall11 convincingly held thus:
“(a) If he abandons his master’s work entirely inorder to devote his time to his own
affairs then the master may or ma not, according to the circumstances, be liable for harm
which he caused to 3rd parties…
If he does not abandon his master’s work entirely but continues partly to do it and at the
same time to devote his attention to his own affairs, then the master is legally responsible
for harm caused to 3rd parties…the test to be applied is whether the circumstances of a
particular case show that the servant’s digression is so great in respect to space and time
that it cannot reasonably be held that he is still exercising the functions to which he was
appointed. If this is the case the master is not liable…Ultimately the question resolves
itself into one of degree and in each particular case a matter of degree will determine
whether the servant can be said to have ceased to exercise the functions to which he was
appointed.”

Rationale for vicarious liability.

Vicarious liability is justified on the following grounds:
*Identification theory – an employer does his work through the hands of the employee
and should be responsible for the wrongs committed by him.
*Interest or profit theory – the employer usually benefits from the work of the
employee and should take it upon himself to incur the loss caused by him. This is called
the risk of business.
*Solvency theory – usually, the employer is in a better position to compensate the
injured party than the employee. This reason favours the no-fault system which tries to
ensue – as much as reasonably practicable – that injured parties are compensated.
The employer can easily absorb losses either by taking out insurance policies or raising
prices if there are no price controls.
*Danger or risk theory – the work entrusted to the employee creates certain risks of
harm (the commission of delicts) for which the employer should be held liable on the
grounds of fairness and justice, as against injured 3rd parties.

TERMINATION OF THE EMPLOYMENT CONTRACT

Can be subdivided into 2 namely:
Termination under common law
Termination under statute

Termination under common law.

The following ways exist:
- By mutual agreement.
- Expiry of time – this is only possible if the contract has a time stipulation clause.

10
see Est Van Der Byl v Swanepoel 1927 AD 141.
11
1945 AD 733 @ 742 &756

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- Completion of a specified task.
- Supervening impossibility
- The insolvency of the employer entitles the employee to cancel the contract and claim
for damages.
- Termination on notice
- Summary dismissal – an employee can be dismissed without notice:
*for incompetence or negligence of a serious nature
*for marked or deliberate absenteeism or failure to work
*on account of unreasonable absence due to illness.
*Willful disobedience to a lawful order falling within the scope of his appointed duties
*Insubordination and other behaviour subversive to discipline
*Dishonesty
*Gross misconduct
*Commercial infidelity to his employer, for example, competing with him or assisting a
competitor, revealing trade secrets, or making secret profits etc.

Termination under statute.

Here particular focus will be had to Zimbabwean legislation. Termination falls in 3
categories namely:
(a) Termination under SI 371/85 – this applies to employees who are not public
servants12. An application should be made to a Labour Relations Officer for permission to
dismiss, citing reasons for the dismissal. If the Officer concerned is satisfied, he will then
send his written consent.
(b) Termination under codes of conduct – whenever there is a registered code of
conduct, section 2A of the Labour Relations (Termination of Employment) (Conditions
of Service) Regulations SI371/85 provides that the regulations will not apply. Thus the
Code concerned will govern termination.
(c) Retrenchment – is the termination of employment “for purposes of reducing
expenditure or costs, or adapting to technological change, or closing down or
reorganizing an undertaking or for similar reasons.”13

Here, employees lose their jobs without fault imputable on their part. The employer who
wishes to retrench must give written notice of the intention to retrench to the Works
Council or Employment Council (if there is no works council). The notice should cite
reasons for the retrenchment and the names of the employees to be retrenched. On receipt
of the notice, the authority concerned should try to secure an agreement between the
employer and employees concerned. If it fails, it will refer the matter to the Retrenchment
Committee which will then make recommendations to the minister of Labour on whether
or not retrenchment is feasible. Once the minister approves of the retrenchment, then the
employer can retrench and pay the employees concerned what is referred to as a
severance package.

MISCELLANEOUS (South Africa)

12
see Section 3 of the Labour Relations Act
13
section 2 of the Retrenchment Regulations (SI 404/90) as read with section 2b of the Amendment of the
said Regulations (SI 252/92).

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 (1) Unemployment Insurance Act 30 of 1966.
requires employers to deduct from the wage of their employees, earning not more than
R26 000 per annum, a contribution according to tarrif, which together with the
employer’s own similar contribution is remitted to the unemployment insurance fund.
The amounts are held available for the employee to meet the contingencies of his
unemployment, or severely reduced wage or loss of wage due to certain illnesses.

(2) Occupational Health and Safety Act

**Primarily aims to protect the safety and health of people at work but does not apply to
the mining industry. It imposes the following duties on the employer:
Duty to provide and maintain a safe and healthy working environment
To eliminate hazards and taking precaution measures concerning those hazards.
**Employees have the following duties under the same Act:
to take reasonable care of his own health and the health of other employees
to report unsafe and unhealthy conditions.
(3) WORKPLACE FORUMS (they are akin to Workers Committees in Zimbabwe).
A workplace forum has 2 general functions namely:
- to promote the interests of all employees in the workplace, irrespective of whether they
are members of the trade union and
- to seek to enhance efficiency in the workplace
**The employer should consult it for the following matters:
- Restructuring the workplace
- Changes in the organization of work
- Partial or total plant closures
- Mergers or transfers of ownership of the company
- The dismissal of employees for operational reasons
- Exemptions from any law or collective agreement
- Job grading
- Criteria for merit increases or payment of discretionary bonuses
- Education and training
- Production development and export promotion
NB – The term ‘consult’ imply that employers must listen to the members of the forum
and note their views. The employer should also try to reach a consensus with the forum.
(4) TRADE UNIONS
They become body corporates with legal personality after registration. However, a trade
union should have a name and constitution before registration. Their main responsibility
is to represent employees.
RESOLUTION OF DISPUTES
(1) Commission of Conciliation – tries to resolve, through conciliation, any dispute.
Conciliation is a process in terms of which a 3rd party intervenes in a dispute to assist the
disputing parties to reach a settlement. The commission should do this within 30 days
failure of which will see the matter being referred to arbitration.
(2) Arbitration –it also involves a 3rd party. However, its main difference with
conciliation is that the 3rd party can actually make a decision which binds the disputing
parties.
(3) Labour Court – consists of a Judge President, Deputy Judge President and as many

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Judges as the president may consider necessary. It has powers to grant orders.
(4) The Labour Appeal Court – is the final appeal court in respect to all judgements and
all the orders made by the Labour Court. It consists of the Judge President, the Deputy
Judge President of the Labour Court and 3 Supreme Court judges. They can only refer a
constitutional matter to the Constitutional Court.

(5) STRIKES AND LOCKOUTS

**A strike is a complete or partial concerted refusal of work by persons who have been
engaged by the same employer or by different employers, for purposes of remedying a
grievance or resolving a dispute in respect to any matter of mutual interest between the
employer and the employees. At least 3 elements of a strike emerge from this definition
namely:
- It should be either a complete or partial cessation or refusal of work
- The action should be concerted – ‘concerted.’
- The aim must be to remedy a grievance or settle a dispute in any matter of ‘mutual
interest.’
**On the other hand, a lock-out is the exclusion by the employer of employees from
the employer’s workplace for the purpose of compelling the employees to accept a
demand in respect of any matter of mutual interest between the employer and employees.
At least 2 essential element arise namely:
Exclusion – the employer must physically exclude (or lock out) the employees from the
workplace.
The purpose must be to compel the employees to accept a demand.
##It is interesting to note that it makes no difference whether or not the employer
breaches the employee’s employment contract.

CHAPTER 10
SECURITY

Whenever a person lends another some money, he usually needs some assurance for the
repayment of the debt in question. Such reassurance is what is regarded as security. Such
securities are classified into 2 namely:
(1) Real security – they stem from real rights which entail an interest that one has in a
thing that is enforceable against the whole world.
(2) Personal security – emanate from personal rights. A personal right is an interest that
a person has in a thing and is enforceable against an individual by virtue of a contract.

REAL SECURITY

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[1] MORTGAGE BOND
– is a bond that is attested by the Registrar of Deeds especially hypothecating immovable
property. It involves a 2 pronged understanding namely:
*Wide interpretation – refers to a right over the property of another to secure an
obligation. An obligation here bespeaks a debt. In this sense, the word mortgage
encompasses both movable and immovable property ie it includes a pledge.
*Narrow interpretation – refers to security over immovable property. Here it excludes a
pledge1.

Parties to a mortgage bond

Mortgagor – refers to the person who hypothecates his property in favour of someone
(who is usually a creditor).
Mortgagee – refers to the person in whose favour the mortgage is created or constituted.

Essential elements of a mortgage

- There must be the principal obligation (usually in the form of a debt). A mortgage is
simply an accessory to the principal obligation. If there is no principal or original
obligation, then there can be no mortgage bond. Similarly, if the principal obligation is
not valid, then the mortgage bond will be invalid also. This means that any defence that
can be raised in relation to the principal obligation can also be raised in relation to the
mortgage bond.
- There must be immovable property to which the mortgage is attached.
- The bond has to be registered for it to create a real right.

Origins of a mortgage.
Mortgage bonds can come into being in any of the following ways:
*By agreement between the parties concerned – such mortgages are known as express
mortgages.
*By operation of the law (either statute or common law). It is called a tacit or legal
mortgage.
*By judicial attachment – this usually occurs where property is attached in execution of
a judgement. Such a mortgage is known as a judicial mortgage.

Types of mortgages
*General mortgages – they do not specify the immovable property. In practice, general
mortgage bonds have fallen into disuse. However, parties can now have a notarial bond
which does not specify movables.
*Special mortgages – they relate to particular or specified immovable property.

Examples of special mortgages

(a) Kustingbrief – is a mortgage intended to secure money for the purchase of land. This
type is passed simultaneously with the transfer of land. It may be constituted for a part or
the whole of the pretium. The bond is usually registered in favour of the person
advancing the money. It is very important because it is given preferential treatment in
case of insolvency of the mortgagor.
1
see Section 2 of the Zimbabwean Deeds Registries Act.

127
(b) Covering bond – is intended to secure payment of future debts. The future debt may
or may not stipulate the amount of debt covered by the bond.
(c) Kinderbewijsen – is given by a surviving parent for the portion of inheritance
retained by him or her belonging to the minor children.

What property may be mortgaged?

Common law says that property that is res in commercium. The law however, excludes
certain property from being mortgaged namely:
- that which is extra res commercium
- that excluded by statute
- Res litigeosa – land subject to litigation. However, such land can be mortgaged where
the interests of 3rd parties are not interfered with2.

[2] PLEDGE
It is governed by the same principles as mortgage except that the right is over movable
property. Parties to a pledge are referred to as the pledgor and pledgee.

For a pledge to be valid, there must be delivery of the movable property in question.
Where there is no delivery, it is possible to have a pledge constituted over movable
property through a special notarial bond. The pledge will cease to be valid if the pledgee
loses possession of the pledged property.

[3] LIEN
It is a right that is conferred by operation of law on a person who is in possession of the
property of another person which he has expended money or labour. The lien entitles the
possessor to retain possession of property until he has been duly compensated. A lien
differs from a tacit hypothec in that a lien exists only where the creditor is in possession
of property. This means that if the creditor losses possession, then he losses the lien.

A lien provides real security like a mortgage and pledge in that the lien holder is entitled
to sale the property to recover the debt is the debtor defaults to pay. It is important to note
that a lien is only a defence to vindication. It does not create a cause of action.

Types of liens
*Enrichment lien – is available to a person who has incurred monetary expense in
relation to the property of another person and that other person had been enriched. They
are classified into:
*Salvage liens – for repairs undertaken on a property.
*Improvement liens – for useful improvements.

*Debtor-creditor liens (or a lien ex contractu) – secures payment for money spent in
relation to property in terms of a contract. The lienholder is entitled to hold the property
until the contract price has been paid. It is personal in nature and is available only against
the debtor or successors in title who had knowledge of the lien.
Where the debtor is not the owner of the property, the lien cannot be enforced against the
2
see Coronel v Gordon Estate 1902 TS 95 @ 101.

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owner except if he ratifies it. One can thus rely on an enrichment lien which can be
enforced against any person.

Termination or extinction (also applies mutatis mutandis to mortgages and pledge).

Can be terminated in any of the following ways:
- Upon payment of the principal debt.
- By destruction of the thing that is the object of the lien.
- If the debtor provides alternative adequate security for the payment of the debt, the
thing can be released from the lien.
- If the lien holder loses possession of the thing.
- By attachment in execution on behalf of the lien holder.
- Where the lien holder loses control as a result of fraud, duress or mistake. However, the
lien holder can apply for a spoliation order. If he obtains possession then a new lien will
be created.
- By renunciation by the holder where the holder renounces the lien as security.

[4] TACIT HYPOTHEC

Is created automatically over the property of another person as soon as that other person
becomes indebted to the creditor. Under common law, there were a myriad of tacit
hypothecs which have now fallen into disuse except the landlord’s tacit hypothec. This
is granted to the lessor or landlord of immovable property over the movables (including
money and the property belonging to 3rd parties) brought onto the leased premises to
secure the payment of rent. The hypothec comes into existence the moment the lessee
falls into arrears. It terminates upon payment of the rent due.

Essential elements
For a tacit hypothec to be existent, the following have to be present:
- The property must have been brought to the premises with the knowledge and consent
of the owner (express or implied)
- There must be an intention that the goods will remain on the premises for an indefinite
period.
- The property must be intended for use by the tenant.
- The landlord must be unaware of the true owner.

**If the property is removed from the premises and received by a bona fide 3rd party, the
landlord’s tacit hypothec will be terminated. If the 3rd party is mala fide, the landlord is
entitled to claim delivery of those goods from the 3rd party.

PERSONAL SECURITY

SURETYSHIP
This is when a 3rd party (the surety) guarantees that if the debtor fails to pay back his
debt, he will be obliged to pay the debt off. Manase and Madhuku3 define suretyship as
“an accessory contract by which a person (known as the surety) undertakes to the creditor
of another (the principal debtor) primarily that the principal debtor who remains bound
3
in their book “A Handbook on Banking Law In Zimbabwe.”

129
will perform his obligation to the creditor and secondarily that if and so far as the
principal debtor fails to do so he, the surety will perform it or pay the debt off.”

The following legal principles are noteworthy:

*A suretyship contract is an accessory contract – this means that it can only exist where
there is a valid principal obligation.
*Under South African and Zimbabwean law, a suretyship contract should be reduced into
writing.
*The capacity to enter into a suretyship contract is not different from the contractual
capacity in an ordinary contract.
*General principles of an ordinary contract apply regarding vitiation.
*The contract can be set aside on the basis of being contrary to public policy.
*The surety’s debt becomes enforceable as soon as the principal debtor is in default.
*Liability of a surety may be fixed or continuing.
*If the creditor cedes his rights, the surety will continue to be bound.
*The defenses that the debtor will be entitled to will be the same that the surety will also
be entitled to.
*If the debtor becomes insolvent, the surety will still be bound.

Defences or benefits of the surety

(a) Benefit of excursion (beneficium ordinis seu excurssionis) – provides that the
creditor must proceed first against the principal debtor before suing the surety.
(b) Benefit of division (beneficium divisionis) – provides that where there are 2 or more
sureties, each surety is obliged to pay the proportional share he owes guaranteed to pay
the creditor.
(c) Benefit of cession of action (beneficium cedendarum actionum) – entitles the
surety who has paid the creditor to an automatic cession of the latter’s rights against a
debtor.

OTHER DEFENCES
*He may challenge the validity of the suretyship contract.
*He may avail himself of any defence which is open to the principal debtor, provided it is
a defense arising on the obligation itself and not a personal privilege granted only to the
debtor.
*The surety may claim to be wholly or partially discharged from liability by the
creditor’s action or inaction.
*A surety who has paid up has a right to recourse against the principal debtor and co-
sureties if he pays more than his proportionate share.

Termination.
- Same as contract. However, it is pertinent to note that a suretyship contract usually
terminates in 2 specific ways namely:
*Where the principal debt has been extinguished.
*Where the creditor’s conduct is taken to have discharged the surety from the contract.

130
CHAPTER 11
COPYRIGHT LAW

Introduction
All matters relating to copyrights in South Africa are controlled by the Copy right Act 98
of 1978. The Act embraces all other acts or works done before its birth on the 1st of
January 1979. The origins of the Act are provisions of the Berne Convention for the
Protection of Literacy and Artistic works to which SA is a party state.

Copyright defined
It is an original work or intellectual property that is afforded qualified monopoly in the

131
use or exploration of the work in order to compensate and reward the creator for the
effort employed, creativity and talent expended and utilized in the creation, so as to give
the creator an incentive to create more useful works of intelligence. Thus copyright law
seeks to protect creators by awarding an exclusive right to benefit from their works even
by transferring those rights for money. The creator holds the right to exploit the work in
a material form e.g. by reproduction, adaptation distribution includes recitation. Non-
material exploitation includes recitation performance, broadcasting visually and audibly.

What constitutes a copyright?

It has basically two components being;
1) Thoughts or ideas contained in the work, and
2) the form by means of which the ideas are outwardly expressed.
- these are what the law seeks to protect. Unless ideas are expressed in work, the law
cannot protect.
- a copyright exists in a literary, musical or artistic work.

Catergories of works (Copyrights

a) Literary works – literature
b) Musical works – sung words recorded and written down
c) Artistic works – e.g. paintings, sculptures, engravings.
d) Cinematograph films
e) Sound recordings
f) Broadcasting
g) Computer programmes

Requirements for a valid copyright

*These have to be satisfied if a work shall enjoy protection.
1) Propriety :- a work should conform to certain principles of public morality
2) Originality
- It should be original and not a copied material
- Independent skill and labour are requirements even where work has been copied. The
degree of resemblance is a matter of fact and not law.
- Originality not only refers to how thoughts were expressed but also to the thoughts
themselves.

Statutory requirements
a) Author be a qualified fellows
-Author/creator should be a citizen of South Africa who is domiciled and resident there.
If it’s a company, should have been incorporated by S. Africa laws.
b) Work published 1st in Berne Convention member Country
For protection work should have been 1st published in a member country even if the
author is not a qualified fellow.

c) Works made by and under state control

All state controlled works/copyrights are governed and protected regardless of whether
they comply with the above statutory requirements.

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Duration of a Copyright {Section 3(2)(a)-(f)}
Once the term expires, the work is no longer protected and its open to free use by the
public.

i) Literary, Musical and Artistic works ; extend to the author’s lifetime plus 50 years after
his death. It is 50 years from his death if they were published after his death.

ii) Photographs and Computer programmes; It is 50 years from making or 50 years from
the year they were first published editions,
iii) Sound Recordings; 50 years from publication. This includes broadcasts and
published editions
iv) Works by joint authors; It is 50 years after the death of the longest living author
v) Works controlled by state; 50 years after publication

Infringement
- Is both direct and indirect. It is direct when one does an act prohibited by the Act.
- The plaintiff (author) should prove the following;
1) That the copyright was copied
2) That the copyright is the source of infringing work
- A substantial part should have been copied.
- What is considered is the quality of copying and not the quantity.
3) That the infringer had access to the copying.

Indirect infringement is perpetrated when;

a) A person intentionally imports an article in South Africa for purpose other than
domestic use.
b) Sells, lets, exposes for sale or hire a copyright
c) Distributors the article in trade to the prejudice of the owner;

Defences to infringement (section 12 – 19b)

1) Fair dealing;
Is when one exploits a copyright without the owner’s authority for purposes of research,
private study (a student), for criticism or review, for reporting current events in the press
and electronic media provided that the source shall be mentioned.

2) Judicial proceedings
Reproduction for judicial proceedings and reporting shall not be taken as infringement of
copyright

3) Quotation
Quotation in newspapers or periodicals does not constitute infringement provided the
source and name of the author is indicated.
4) Illustration for teaching
Exploitation by teaching is a defence provided the source is indicated.

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5) Reproduction for broadcasts:
The S. A. B. C can reproduce any copyright for broadcasting provided its destroyed after
6 months or any longer period agreed on by the owner.

Remedies for infringement

Civil Remedies
a) The owner can site for damages for lost sales
b) Owner can apply for an interdict to stop the infringer from doing so
c) The infringer may be asked to surrender all infringing copies e.g. piracy audio/visual
tapes.

Special remedies
There are moral rights referred to as paternity rights which accords the owner exclusive
rights to use his work. If infringed special remedies especially damages are claimable.

Other remedies
Just like unlawful competition, delictual claims may be instituted here.

NB Ownership of a copyright can be transferred to another by cession / assignment.

An exclusive sub-leases has rights equal to the grantor’s rights and enjoys remedies
for infringement

TRADE MARKS
Introduction: This law is governed by the Trade Marks Act 194 of 1993. The Act is in
accordance with the Paris convention for the Protection of Industrial Property in
1947.

Definitions
“Mark” according to Section 2(1) refers to “…any mark or sign capable of being
represented graphically including a device, name, signature, word, letter mineral, shape,
configuration, Pattern, ornamentation or the aforementioned .”
Trade mark: “Is any mark proposed to be used or used by a person in relation to goods
and services for the purpose of distribution of such goods and services in the course of
trade with any other person.”

Registration
All trade marks should be registered with the trade marks office where they are kept for
public inspection (Section 22(3) )

Registrable Marks
To be registrable, a trade mark should have the ability to distinguish the goods and
services of the owner of such trade mark from that of another.
This is attained through its inherent nature or previous use (Section 9 (1) and (2))

Non-Registrable Marks
These are trade marks that;

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a) Fail to distinguish products and services
b) Designate the kind origin, purpose and quality, value, mode and time of production or
rendering of services.
c) Have become customary in current language
d) The owner has no honest claim to ownership
e) The owner wrongly applied for
f) The owner has no intention to use it as a trademark
h) Deter the development of goods in industry;
g) Deter the development of goods in industry;
h) Bear the South African seal and flag;
i) Contain words implying state patronage or indecency;
j) Give offence to a class of people and in contra bonos mores.
k) Is identical to another’s registered trademark
l) Was applied for by 2 or more persons;
m) Is an imitation of a foreign mark of the same goods;

Infringement
**No person can institute litigation for the infringement of an unregistered trade mark
3 types of infringement :
1) Unauthorised use of an identical mark likely to cause confusion
- The test used is whether the infringing mark is deceptively and confusingly similar to
the registered mark. The owner should prove this.

2) Unauthorised use of a mark in relation to goods or services that are so similar as

to cause confusion
Where similarity of goods or service can cause confusion then there is infringement.

3) Unauthorised use of a trade mark identical to one established in S Africa the use
of which is likely to cause disadvantage to the well known character even in the
absence of deception and confusions.
NB Any other bona fide use of another’s trade mark is not infringement so long to
acknowledges the true owner.

Remedies for infringement

Section 13(3) provides for remedies being;
a) Interdict; Owner can stop one person from infringing his trade mark.
b) Owner may get an order to force the infringing person to remove such a fake trade
mark.
c) Owner may claim for damages.
d) Owner may get reasonable royalty in lieu for damages. This means getting
compensation even where there was no prejudice but potential prejudice.

Well known foreign trade marks

South Africa protects well-known foreign trade marks simply because its party to the
Paris Convention for the Protection of Industrial Property.
- A trade mark is well known if:

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a) It is a mark of a person who is a citizen of a country that is a party to the Paris
Convention:
b) It is a mark of a person domiciled in, or has a real and effective industrial or
commercial establishment in, a country that is party to Paris Convention and practices
business in South Africa.

*The owner should show that the people will be confused if any other person uses such a
trade mark.

PATENT LAW
This is the law that relates to the protection of any new invention which involves an
inventive step which is capable of being used or applied in trade or industry or agriculture
(Section 25(1)) This area is governed by the Patents Act 51 of 1978
- The following are not patentable. Any invention consisting of :
a) Discovery
b) Scientific theory
c) A mathematics method
d) A literary, dramatic or musical work
e) Data presentation
f) Computer programme
- All inventions that do not related to industry, trade or agriculture are not patentable.
- An art is patentable if it does not involve or incorporate state art of a previous invention.
It has to be new (Novelty)

Requirements for a valid patent

a) Novelty:
It has to be distinct. It should be new and not take the form of a previous invention that
was exposed to the public in one way or another

b)Invention step
In addition to newness it should not be obvious. That is to say that it should be
magnificently different from any previous state of art.
- To determine this an expert in the field of that patent is used as evidence/
- Where one adds or develops the main or previous invention, that addition is added to
the main invention. Its not an independent patent.
- As long as the invention is not obvious, then it’s a patent / new invention.

c) Utility
This means the invention should be useful. Where it fails to achieve results associated
with it, it ceases to be an invention – lasting value of utility. It should work the purpose
for which it was invented for. Where it is a multi-purpose invention and one purpose
fails, it remains an invention.

Procedure
The inventor should make an application to the Patent office in writing fully describing
the patent, how it works and its purposes. Can add diagrams and drawings to explain the

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patent. If accepted then it is sealed for 20 years subject to renewal. The application can
be opposed by anyone with a just cause to do so.

Patent Licences
i) Voluntary licences: these are issued by the inventor who voluntarily allows some
people to use his patent in return for money (Patent licencing agreements)
Such a licence entitles the holder to use the patent as he wishes or even to dispose of it.

ii)Compulsory licences
This is issued by the registrar of patents under the following circumstances:
a) If the inventor of a dependent patents can not freely export his patent without
infringing the rights of the inventor of the major patent.
b) When the inventor charges exorbitant prices for his patent or licence.
c) Where business is retarded in S Africa simply owing to the importation of the patent.
d) Where the patent is left idle for no apparent reason in the opinion of the commissioner
of patents.
e) Where the demand a further patent is not met reasonably.

Infringement and Remedies

The benefits of registering a patent is to give the inventor exclusion of others. If then an
individual without authority from the inventor uses or disposes of the patent he is liable
to the inventor in terms of the Act. This is called infringement. The proper plaintiff is
the inventor (patantee) or his licencees (to who he gave licence to use). The dependent
can allege as defence any revocation by the inventor.

Remedies
1) The patentee can seek an interdict stopping infringement
2) Can get an order forcing the infringer to deliver the infringing patent to the inventor.
3) Damages as per the loss incurred.

Special remedies
These are based on the following:
a) National royalty
Inventor is entitled to all damages he can prove.

b) Declaration of non-infringement
Inventor is entitled to declare non-infringement to infringers

c) The “threat provision”: Where one threatens to infringe the patent, the inventor can
apply for a “threat provision” barring the person threatening from doing so.

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CHAPTER 12
CONSUMER LAW

A consumer is the final link on the channel of distribution or the user of commodities.
In essence consumer law is a matter of balancing the legitimate interests of the consumer
of goods or commodities against those of products.

The Zimbabwean constitution does not say anything about consumer rights.
Historically however, common law has provided for some mechanisms upon which the
relationship between the consumer and producers were defined. The following
weaknesses can be observed from common law’s attempt to protect consumers namely:

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- It started from the premise that consumers and producers had equal bargaining power,
- Common law failed to realize that some consumers sign standard form contracts out of
necessity. This was excacerbated by the caveat subscriptor rule.
- The common law principles of freedom and sanctity of contract worked against
consumers. These principles provide that parties are free to enter into any contract and
the court is bound to enforce what the parties have agreed.
- The situation was worsened by the courts attitude towards these contracts. They
adopted a hands off policy and this worked adversely against consumers who had little, if
any, bargaining power.

It is generally agreed that the Consumer Contracts Act was promulgated. Section 2 of
the Consumer Contract Act define a consumer contract as a contract for the sale and
supply of goods and service or both in which the seller is dealing the course of business
and the purchaser or user is not except employment and Hire purchase contracts.

CONSUMER CONTRACTS ACT

The main purpose the Consumer Contracts Act as provided for in the long title is to
provide relief to parties to consumer contracts which are unfair or contain unfair
provisions regarding the exercise or non-exercise of power or discretion or would be
unfair.

The Consumer Contract Act applies to contracts which were concluded before, on or after
24 June 1994. Section 4 gives a court power to do either of the following:
- Canceling or varying or only enforcing part of the consumer contracts that are unfair.
- Ordering restitution or awarding compensation to any aggrieved party to a consumer
contract.
- Setting aside or varying the exercise of power, right or discretion under a consumer
contract.

*Section 4 (3)(a) gives the consumer the right to waive his rights which are given to him
by the consumer Contracts Act. This compromises consumer protection since some
consumers may not know of their rights, later on, the existence of a Consumer Contracts
Act.
*Sections 5 and 6 forbid or proscribes the following unfair consumer contracts or
exercise or non-exercise of powers:-

- Contracts which result in an unreasonably unequal exchange of value or benefit or are

unreasonably oppressive.
- Contracts contrary to commonly acceptable standards of fair dealing.
- If the contract is expressed in a language not readily understood by a party
(modification of subscriptor rule).
- Where the exercise or non-exercise of a power does not result in the protection of any
party’s interest (consideration).

Parties to a consumer contract should derive some substantial or real benefit from the
contract. This was borrowed from the English law doctrine of consideration. It is a

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favourable condition or provision to consumers because it ensures or guarantees a
consumer some benefit from a consumer contract even though he may not be conversant
in that particular trade.

The following provisions are prohibited to all consumer contracts:-

*Voetstoots clauses – this ensures that good products are sold to consumers free from
defects.
*Exemption clause for negligence – this imposes an obligation on the seller to exercise
reasonable skill and deligence when dealing with customers.
*Exemption clauses concerning the seller’s obligation to either (a) reimburse the buyer
(b) replace goods (c) repair defective goods – these provisions encourage fair play.

The main problem with the Consumer Contract Act is that consumers are allowed to
waive their rights through section 4(3)(a). An unscrupulous seller can use that provision
through standard form contracts to deprive the consumer of his rights.

Consumer protection is mainly crippled by the fact that the Zimbabwean Constitution
which is the fundamental law of Zimbabwe does not provide for consumer rights. This
means that consumer rights are not regarded as part of the fundamental RIGHTS.
Hence our constitution has little if any, consideration of consumer rights as compared to
rights like freedom of expression, freedom of conscience, freedom of association,
freedom of movement etc. It could have been much more helpful if rights provided for in
the Consumer Contract Act were entrenched in the Zimbabwe Constitution Bill of Rights.

CONTRACTUAL PENALTIES ACT

This act seeks to provide for the enforcement of penalty stipulations and to regulate rights
and obligations of parties to agreements of sales of land through installments.
*Section 2 defines a penalty as any money, right, benefits of thing where one person is
liable to pay or do or perform.
*Section 4 however, empowers the courts to assist parties that are prejudiced by an unfair
penalty stipulation. The court can order the benefiting party (creditor) to refund or
reimburse the innocent party (debtor) any unjustly paid amount. (The unjust enrichment
action can be invoked to protect the consumers in the event of unfair penalty stipulation).
Section 6 prohibits a person who accepts defective or delayed performance from claiming
a penalty in respect to the defect or the delay. (This is based on the Latin maxim volenti
non fit injuria or voluntary assumption or risk).

Installments Sales of Land

*Section 7 provides that every installment sale of land should be reduced into writing.
The rationale behind this section is that if any disagreement occurs between the parties, it
would be easy to prove in a court of law with the express terms.
*Section 8 obliges a seller to give notice of at least 30 days when he wants to do the
following on account of any breach of contract by the buyer:-
- Terminate the contract or
- Institute legal proceedings for damages.
- Enforce a penalty stipulation or a provision for excelerated payment of the purchase

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price.

*Section 9 gives the court power to grant relief where it is just and fair to parties upon
cancellation as termination of the installment of the sale of land.
*Section 11 provides that there should be no waiver of rights under the Contractual
Penalties Act.

HIRE PURCHASE ACT

*Section 3 defines a Hire Purchase agreement as any sell of movable property where the
pretium should be paid in two or more installments.
*Section 5 provides that a Hire Purchase agreement should be reduced into writing and
should state the following:
- Pretium or purchase price.
- Amount of deposit to be paid
- Amount of installment
- The amount of interest to be paid

The seller should make the copies of the hire purchase agreement available to the buyer.
*Section 11 provides that the buyer should not remove the goods from Zimbabwe
without the consent of the seller.
*Section 8 invalidates exemption clauses, charging inflated interest etc.
*Section 12 provides that every Hire Purchase agreement should have the following
implied warranties:-
- Guarantee against eviction
- Guarantee against latent defects.
The seller is supposed to pass ownership upon payment of the last installment
All the implied warranties in contracts of sale should be present in hire purchase
agreements.

The buyer has an obligation to pay outstanding installments.

However he has a right to terminate a hire purchase agreement but will lose the
installments paid if he has paid less than half of the total amount of the pretium. *Upon
termination, a person will be appointed who will be responsible for the selling of
products. From the proceeds of the sale, he will pay the seller the amount which is due,
deduct his commission for carrying out his work and give the remainder of those
proceeds to the buyer (Section 20 of the Hire Purchase Act).
Section 22 provides that the buyer will under no circumstance be allowed to waive his or
her rights.This section is very favourable to consumers who may not even know of their
rights under the Hire Purchase Act.The rights in the Act are entrenched and are granted to
the buyer of the merx under a Hire Purchase agreement by virtue of him being a buyer.

*Section 26 of the Hire Purchase Act provides that the buyer is exempted from paying
installments in the following circumstances:
- When he is going through national service
- When the buyer has been hospitalized. This definitely protects the buyer from undue
strain in settling the Hire Purchase agreement under such predicaments.

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The main problem with the Hire Purchase Act is that according to section 4 it applies to
agreements where the pretium does not exceed $3 000. Surely with the demise of the
$(Z) (Zimbabwean dollar) the Hire Purchase Act will not govern any meaningful Hire
purchase transactions except for small items like stockings, sweets etc. The rights and
the protection of consumers under the Hire Purchase Act become useless because of the
amount stated in section 4.

In the final analysis, Hire Purchase agreement will be governed by the unfair common
law rather than the Hire Purchase Act. It will make both theocratic and practical sense if
the amount of pretium is increased to at least $1 000 000 to cater for inflation and other
meaningful Hire Purchase transactions.

CHAPTER 13
LAW OF LEASE

Definition: - It is a contract for the letting and hiring of immovable property wherein the
landlord (lesser) lets out his property to another party called the tenant (lessee) who
assumes occupation so granted by the lesser for a specific period of time and a specific
sum of money called rent. In Latin it is called location conductio.

*** To constitute a contract of lease, the following essential elements must be present:

Specified immovable property

Parties should be ad idem as to the exact property being the subject matter of the

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contract. The requirement is satisfied if the court is in a position to determine what has
been leased in the evidence placed before it. As was held in the case of Fryes (Pvt) Ltd
Vs Ries, the lessor does not necessarily need to be the owner of such property for a lease
agreement to be effective.

b) Specified period of time

This aspect distinguishes a contract of lease from that of sale. In lease, parties do not
intend to let the property permanently as the case with a contract of sale, but for a specific
period. There is no regulation as regards the length of time. It is open to the parties’
agreement and mutual will. The common time frame is that of month to month subject to
renewal and or termination by either party. However, leases at the will of either party,
especially the landlord, is valid but may not be terminated by notice of either party.

c) Specified sum of money

This is called rent It may be money or part of the fruits of the leased property e.g.
agricultural produce. Parties should agree on the manner of payment. Where it is not
stipulated, reasonable rent shall be payable at market-related standards.

Formulation of the contract

No formalities are strictly required save for lease agreements that are 10 years or more or
for the natural life of the lessee, which should be registered if it is to be effective against
a creditor or successor in title. This requirement falls away if the creditor was aware of
the situation, otherwise generally a lease for 10 years or more is valid even if not
registered and not written down.

Right and duties of parties

Upon conclusion of the contract the parties take up rights and obligations.

Duties of the landlord

a) Delivery of the leased property
The lessor should deliver the property by making it available to the lessee by giving free
and undisturbed possession. He fails to do so if he delivers it occupied by someone who
may be a trespasser or under colour of right. The property must be presentable internally
and externally at delivery and its condition must be reason able.

b) Maintenance
Must maintain the premises so that they are fit for the purposes of which they are let.
He must repair all such dilapidations and flows that may interfere with reasonable use of
such property provided such faults are not caused by the lessee. Parties may agree to let
the lessee shoulder that responsibility. Such of right by the lessee is enforceable in a
court of law if it is clearly written down. However, this waiver of right should not
interfere with duty to deliver a reasonably conditioned property. A tenant can waive his
right by conduct e.g. assuming occupation of dilapidating premises. However, the law
requires clear indication of waiver not a simple implication.

c) Warranty against interference

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It is akin to the warranty against eviction in the contract of sale. The lord guarantees that
the tenant will not be disturbed in occupation by either the landlord or a third party. The
landlord does not however, guarantee the tenant that he will not be disturbed by a third
party without a legal right to do so.

Duties of the tenant

a) Payment of rent
Must pay agreed rent in the manner agreed by the parties. If this is not stated, then the
tenant must pay before due date at any convenient place or he should make steps to
establish that from the landlord. In the absence of a due date then there is a presumption
that is shall be paid in arrears and not in advance. Rent shall be money or fruits of
property as agreed by the parties.

b) No misuse of property
Must make sure property is used religiously as per agreement excluding all manner of use
that may amount to vandalism. It should be used for its purpose. Any misuse results in
an action for damages against the tenant. As regards use of property, parties must
expressly agree failure of which results in an implied fact that property shall be used for
the purpose previously stipulated.

c) Duty to return the property undamaged

Property should be in the condition it was when it was leased. This duty is absolved if
the property gets damaged, destroyed or stolen without a tenant being in contributory
negligence provided that the tenant proves that the damage was not out of his negligence.

Remedies of Parties
Material non fulfulment by either party gives the innocent party an election, i.e. either to
abide by the contract and sue for specific performance and claim damages as he suffered
or cancel the contract and sue for damages. If the breach is immaterial, he can claim
damages only.

Remedies of the tenant1

a) Failure by the landlord to deliver may result in breach entitling the tenant to sue for
damages after cancelling the contract or claim specific performance and damages.
Specific performance is discretionary and will never be ordered where its now
impossible. In the event of defective delivery if the defect is material then the tenant can
cancel the contract and sue for damages. If it is not material the tenant can simply sue the
lord for reduction of rent or may repair the property and sue the landlord for the expenses
after serving a notice on the lessor. A tenant can also sue for consequential damages-loss
flowing from the defect of the property e.g. Household property destroyed by leaking
roof. Lessor is liable for fraudulent non-disclosure of latent defects or for negligence or
by reason of being a professional in that discipline similar to law of sale – Pothier’s rule

b) Where the lord fails to maintain the property then the tenant can cancel the
contract and quit the premises if want of repair has caused substantial inconvenience and
1
Hunter V Cumnor Investment 1952(1) SA 715.

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made premises comfortably inhabitable.

c) Where the lord fails to honour warranty against interference by his act then the
tenant can apply for an order to stop him (interdict). This is an additional substantial
remedy to damages for breach. If the interference is substantial e.g. eviction then the
tenant can cancel the contract and sue for damages. This is also the position where a
third party having legal rights interferes. If the third party has no such rights then the
tenant proceeds against the third party and not the landlord.

Remedies of the “land lord”

a) Non-payment of rent accords the Lessor a right to demand the same and if not paid
within a reasonable time, he can cancel the contract. Where a forfeiture clause exists then
the lord can cancel the contract if the tenant fails to honour his obligation to pay rent.
However, the lesson may waive this right by conduct i.e failure to enforce the clause
forthwith. This may not be prima facie evidence to show that he has waived the right to
cancel. It is unclear as to whether a landlord who frequently accepted late payments of
rent can later on exercises forfeiture clause for future late payments.

Land lord’s tacit hypothec

The law implies the existence of a presumption to assist the landlord whether or not a
forfeiture clause exists in a contract. This is a security for arrear rent /payments over the
tenant’s movables which are on the leased premises. Its operative only when the rent is
in arrear. It springs from the relationship of the parties but to make it effective the goods
must be attached. Attachment is possible if the goods are not yet removed from the
leased premises. If they are, the right to retention is lost. However, the landlord has a
night to arrest the goods in transit – process of removal to another place. This is called
the right of “quick pursuit”. Once delivered, the right falls away.

While the goods are on the leased premises, the lord can enforce an interdict to bar
removal. It is a condition precedent that the goods should be owned by the tenant or
brought to the leased premises permanently with the consent of the owners. Consent may
be express or implied. Classically the hypothec was effective only against goods as are
“invecta et illata” – goods carried on to the leased property. 3rd party’s property may be
attached if the owner fails to notify the landlord and the landlord being unaware that the
goods do not belong to the tenant. As was held in Bloem foutein Municipality V
Jackson property goods belonging to 3rd parties may be attached. Goods brought on
Hire Purchase by the tenant are also subject to attachment if the owner does not notify the
landlord.

ii) Where the tenant misuses property leased the lord has ordinary contractual remedies
but where misuse is material he can cancel the contract, eject the tenant with or without
damages. To constitute material misuse the misuse should be “markedly serious and
ruinous”. This was held in the case of Spies V Lombard. Alternatively and
additionally, the landlord may interdict the tenant from misusing property

iii) Where the tenant fails to return the property this is called “holding over”. He may do

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so by remaining in occupation. The landlord can object to this and eject the tenant since
he is now a trespasser. If the lessor is not the owner of such property then he should
prove his right to effect ejectment. In addition the lord will claim some damages that
flowed from the misconduct of his tenant. In case of waiver of a right by the landlord, i.e.
where he allows him to remain in occupation in a new lease based on the terms and
conditions of the old lease is implied. This is called ‘tacit relocation.’ As regards the
period of the new lease, it is presumed that it shall run indefinitely. As regards damaged
property the landlord can sue for damages unless the tenant can show that the damage
was not out of his fault. The lessor should show that property got damaged during the
time of lease.

Relations between parties and 3rd parties

a) The landlord and 3rd parties

i) Assignment: Its where the tenant transfers all his rights and obligations to a 3rd party.
This is an example of novation and the agreement between tenant, lessor and 3 rd party is
required. The effect is that a new lease agreement is introduced. Cession may take place
where the tenant led all his rights to a 3rd party such that the latter will enjoy those rights.
However, the tenant remains liable for obligations e.g. rent.
ii) Sublease: A 3rd party assumes occupation but the tenant remains liable for the
obligations. The difference with cession is that with sublease, the 3rd party will exercise
his rights against the original tenant whereas in cession the 3rd party is against the
landlord.

At times an express agreement between the parties will render cession or subleasing void
where they agreed that a notice to the landlord shall be served before effecting cession or
sublease. In the absence of such an agreement, it is implied that the tenant can simply
sublet or code save for rural land which strictly requires a notice and consent. The
sustenance of the subtenant is based on the duration of the tenant. Where the rights of the
tenant have terminated, so do those of the subtenant.

b) Tenant and third parties

The death of the landlord does not extinguish the lease agreement, in fact, the landlord’s
estate simply becomes the landlord, but where ownership changes then there is no
binding contract with the new lord.

Where the landlord sells property the general procedure is that the buyer (new landlord)
is bound by the lease agreement. This is called the “huur gaat voor koop” doctrine. No
new lease comes into existence between the new landlord and the old tenant. There is no
need for a cession of rights as assignment. The new lessor has rights enjoyed by his
predecessor in title and the tenant should continue in occupation as long as he pays rent.
This doctrine is subject to statutory regulations. Any lease for more than 10 years shall
not be binding on the new landlord if the lease is not registered or the successors in title
are aware of the lease when they assumed status of being successors in title. On the other
hand, if the lease is of short duration then the buyer (new lord) is not bound unless he was
aware of the existence of the lease agreement at the time he made the purchase. Such

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knowledge is presumed if the tenant was in occupation at the conclusion of the contract
of sale because if he had inquired, he would have been briefed on the facts.

Discharge of lease agreements

They are terminated in the same way contracts are terminated since this is simply a specie
of a contract. Usually they are terminated by performance. This is discharged when the
lease ends, that is the lesser would have made premise available to that tenant up to the
end of the lease and the tenant paid rent faithfully and returned the property undamaged.
This is the same state of affairs under tacit relocation. The old lease would has been
terminated.

Indefinite leases are terminated by notice from either lord or tenant. It was held in
Tiopaizi V Byo Municipality that the notice should be reasonable e.g. a month’s notice
in leases that are month to month.
NB Any other contractual factors do terminate a lease agreement here.

Positive improvements
Question: What happens if the tenant has made some improvements on the leased
premises? These rights emanate from Placaat of the Estate of Holland of 1658.
Articles 10 to 13 are binding on South African law. The question is “do these articles
apply to all lease agreements?” The answer is, they do. In terms of these articles, the
tenant can remove the improvements on termination or claim compensation for some.
The right to remove applies to useful improvements not improvements which were
necessary for the protection of the property. Removal is only permissible if it does not
damage the property. Generally once the lease is terminated the improvements belong to
the landlord but the tenant is confined to his right to compensation.
According to Article 10, the right to compensation exists only where the improvements
were made with the consent of the landlord. In the absence of such consent, the landlord
is not obliged to pay. What is disappointing is the quantum of damages. It is small since
the tenant gets the value of the improvements. In the case of planted trees, the tenant gets
the cost of planting those trees and not their value. A bona fide occupier or possessor is
someone who develops someone’s property in an honest belief that the property is his yet
it’s not. His compensation is far much more than that of a simple tenant.

CHAPTER 14
INTRODUCTION TO CORPORATE LAW

TYPES OF BUSINESS ORGANISATIONS

1) Sole trader
- This is when one person owns and runs the business alone.
- It is very easy to run.
- The proprietor isn’t obliged to keep any records.
- He is entitled to all the profits.
*Thus if a sole trader draws cash from a till without recording it in his drawings account,
he is considered not to have stolen from anyone, having in effect done no more than take

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his own cash from one pocket and put it in another.
*The risk involved in a sole proprietorship business is that if the business fails and the
proprietor is unable to pay its debts (which are his debts) he faces the threat of insolvency
and the loss of all his property whether or not it is connected with the business.
- The source of capital for sole trader’s business is himself.

2) Partnership
- Is made up of between 2 and 20 people.
- The sharing of the losses to the business is effective only as between the partners, since
each partner is jointly and severally liable to third parties for the full debts to the
business.
- And the only way of limiting this liability is by setting up a limited partnership in which
the dormant partner takes no part in the running to the business.
- If the business becomes insolvent the personal property of the partners is at risk.
*Therefore the sequestration of the partnership estate necessarily involves the
sequestration of the personal estates of all the partners other than dormant partners in a
limited partnership.
Partners are agents and principals to each other.
Thus law imposes on partners a duty of utmost good faith towards each other.

3) Companies
*S22(2) of the Companies Act sums up the characteristics of a company by saying that
from the date of incorporation a company becomes a body corporate with perpetual
succession. Salomon v Salomon1 held that as a body corporate, a company is a separate
legal person in the eyes to the law, separate from its members or shareholders and
directors. So the members may limit their own liability (s7) may incur debts which, in
the absence of fraud or other special circumstances, neither the members nor the directors
are liable to repay.
*Perpetual succession means a change of membership has no effect on the legal
personality of the company.

a) Private Company
- S33 (1) to the Companies Act defines a private company as one which by its articles
restricts the right to transfer its shares, limits the members to 50 excluding employees and
ex-employees and prohibits any invitation to the public to subscribe for its shares or
debentures.

b) Public Company
- Here shares are offered to the public. There is no limit to the size of the membership of
a public company. Since shares are offered to the public, and the need for protection of
investors is at its greatest.

c) Company limited by guarantee

- S7(b) as read with S26 to the Companies Act provides that a company limited by
1
1897 AC 22.

148
guarantee has no share capital and the liability of its members is limited to the amount
they guarantee to contribute on winding up.
- The company must be licenced by the minister provided it exist for public interest.

4) Private Business Corporation

- Is established by the Private Business Corporation Act and enables a small business to
become a body corporate with limited liability and perpetual succession.
It may have a maximum of 20 members who must be individual natural persons acting in
their own right excluding employees and ex-employees.
- It’s members are in a similar position to partners, owing each other and the Private
Business Corporation a duty of utmost good faith and being agents of the business.
- They must elect directors and a secretary to represent and manage the company.

(5) Co-orperative Company / Co-orporative Society

- A Co-operative company is a public company which has as its main object the co-
operative production or marketing of agricultural produce/livestock, or the sale of goods
to its members or both such objects.
- A co-operative society carries on the same business on a small scale.
- Working on the principle that unity is strength, co-operative societies negotiate bulk
sales and bulk purchases for the benefit of their members, whose shareholdings and
voting rights are restricted so as to maintain approximate equality.

(6) Statutory corporations / Chartered Companies/ Parastatals

- These are created by a particular statute.
- They are mainly companies in which a majority of the shares are owned by the state.
- These are sometimes called parastatals.
- Chartered companies or corporations, such as the Old BSAC and University College of
Rhodesia and Nyasaland, owed their existence to royal charters. They have since been
consigned into the dust bin of company law history and are now only of historical
interest.

(7) Universitas/common law corporation

It is a body corporate having perpetual succession, capable of acquiring rights, incurring
obligations, acquiring and holding property apart from its members and suing or being
sued in its own name.

Its aim is not profit making e.g. churches, charitable societies and sporting, social clubs
and associations.

FORMATION OF COMPANY (floatation)

**A Company is usually formed by promoters.
Promoters
Must include those who convert their sole trade businesses into companies; those who

149
assist in raising companies capital, preparation of company documents except where they
are statutorily excluded and taking it upon themselves to get the company going.

Promoters are involved in the raising of capital, including the issue of a prospectus
inviting the public to buy shares, composition of the Board Directors etc.

In re contributories of the Rosemond Gold Mining Syndicate in liquidation

Held – Promoters aren’t merely parents the companies they promote but also creators.
They provide it with ears through which it can hear and eyes through which it can see and
hands through which it works.
They can’t complain if the law obliges them as it does to protect the companies through
its infant life.

Duties
*A duty not to make a secret profit out of the promotion of the company. He must make
full disclosure of the profits he makes.
*A duty to supply the companies with an independent board of directors capable of
making unfettered decisions.
*A duty to make an accurate prospectus. Here ordinary principles of contract as to
misrepresentation will apply. The promoter is liable for any misrepresentation made in
the prospectus.

Pre-Incorporation Contacts
Before incorporation, the promoter may want to do certain things for the benefit of the
company he wants to promote e.g. contracting for fixed assets / preparation of requisite
documents. Here, the company does not have legal existence but the promoter doesn’t
want to attract personal liability.

Newborn V Sensolid and Kelner V Bexter

Held – That under English law, a person cannot act as an agent of a non-existent principal
/ company.

Mc Collough V Fernard
Held – Under Roman Dutch Law, a person can contract as an agent or trustee of a non-
existence company especially for its benefit. This is confirmed by Section 47 of the
Companies Act that provides for the ratification of pre-incorporated contracts.

Names
***Before registration, a promoter should submit 3 names to the Registrar for a name
search. The Registrar has a wide discretion on the use of a company name.
***Section 24 lists a number of names which are prohibited /branded as undesirable e.g.
a name which is currently used by a registered company or suggestive of state patronage /
patronage of the state president. The Registrar of Companies may refuse to register a
name which in his opinion is likely to mislead the public, to cause offence to any person /

150
class of persons, or a name suggestive of blasphemy, indecency or any name which he
considers to be undesirable for any other purpose.

The memorandum of association should indicate the company name.

The name must end with the word ‘Limited’ as per Section 8 of the Companies Act.

Constitutional Issues
- Promoters must prepare the Memorandum and Articles of Association.
#The Memorandum the association governs the relationship between the company and
the outside world whilst the articles govern the indoor management structures of the
company. Section 8 provides that the memorandum must be in English. It must indicate
the following:
- The name of the company
- The objects of the company
- That the liability of members is limited
- The amount of share capital with which the company proposes to be registered with and
its division into shares of a fixed amount

**The provisions in the Memorandum and Articles of Association can only be enforced
by a member in his capacity as a member and not outsiders.

*S27 Provides that when the Memorandum and the Articles have been registered, their
provisions would bind the companies and the members contractually.
*Where the provisions in the Memorandum and the Articles are in contradiction, then the
provision of the memorandum will prevail

The Ultra Vires Doctrine

States that the company should not carry out any other activity than those indicated in the
objects clause (the Memorandum of Association).
Anything done beyond those objects was invalid.

*Ultra Vires Power – carrying out activities beyond one’s power

*Ultra Vires Capacity – carrying out activities that are beyond the provisions of the
Memorandum Of Association.
NB the purpose of the Ultra Vires Doctrine was to protect the shareholders and creditors
against the unauthorized use of their capital. The argument was that those who invested
in companies wouldn’t want to see their money used in activities they didn’t sanction.

#As time went on, creditors and companies themselves discovered that a strict application
of the Ultra Vires rule prejudiced the company. In actual fact, it was clear that investors
especially Corporate or Institutional investors weren’t so much concerned with what the
company did with its capital. Rather, they were interested in a profitable use of their
investment and a return (profit) thereof.
Major parties in companies thus sought to modify the effect of the Ultra Vires rule. This
took various forms namely:
*Companies would include in their objects clause an unlimited number of objects which

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were sometimes unrelated.
*Companies would include main objects and ancillary / subsidiary objects.
*Companies would include a concluding clause to the effect that the company would
carry out any activity which in the opinion of directors would be for the benefit of the
company. Such a clause was held to the permissible in the case of

Bell House Ltd V City Wall Properties

Held – It’s the opinions of directors which is important here and not the opinion of the
Court.
Semble – Directors were now allowed to carry out any activity what so ever if they
believe that it was for benefit of the company.
# The court also allowed companies to carry out activities which are ancilliary to the
main objects although these activities weren’t specifically provided for in the
memorandum.
The problem with the ancillary lever is that it’s difficult to know with certainty what
activities are ancillary to others.

*In the case of Parke V Daily News , the court held that companies are allowed to carry
out those activities which largely benefit the company. The difficulty with the corporate
benefit principle is to determine at which stage the corporate benefit will be derived.
However, there was a realization that business enterprises play a very important role in
the societies in which they are located. Thus where corporate gifts are for societal
development, the courts would hold them to be valid.

*The Articles of Association - contains rights of members as members of the company

and against each other. E.g. the shareholder’s right to proper notice of meetings, attend
meeting and vote thereat to receive a share certificate, transfer shares, strict compliance
with forfeiture provisions.
- The rights contained in the shares are proprietary which the owner may exercise as he
so desires. In the exercise of his vote, he doesn’t owe his brother shareholder a duty of
care.
NB At law, shareholders aren’t per se entitled to dividends but are only entitled where
this is properly declared. The right to declare dividends is given to directors in the
Articles of Association.

LEGAL PERSONALITY AND LIMITED LIABILITY THROUGH SHARE

CAPITAL
Corporate personality
- If a company is properly incorporated, it becomes a separate legal personal and can
therefore acquire rights and incur obligations and perform duties which are capable of
being performed by a body corporate.
- It can sue and be sued in its own name and all the property that it acquires belongs to it
as a company and not shareholders.
*The property, assets and liabilities of a corporate person are separate from those of the
shareholders. Even where a person has got 100% shareholding in the company, the assets
and liabilities of the company will still belong to the company and not the shareholder.

152
emerged. These theories seek to define the concept of legal personality according to
their own interpretation.

(i) Concession theory

Holds that legal personality is just a concession by the state or a privilege granted by the
state which the state may withdraw at any time.

Daimler Company V Continental Tyre Company2

Facts- Daimler was a German company and during the course of the business, it came to
be owed money by continental Tyre Company. World War 1 broke out and D Company
claimed the money owed to it by Continental Tyre Company which refused to pay
arguing that since D was a German Company and German was at war with England,
paying D the money would be tantamount to trading with an enemy. The court upheld the
argument.

(ii) Realist theory

Holds that legal personality does not exist in actual fact and a companies is indeed a
separated legal person distinct from its members in reality.

Salomon V Salomon3
Facts – Salomon ran a sole trading business which dealt in sales and Salomon then
decided to convert his sole trading business to a company. He had 96% shareholding in
the company with the remaining 4% shares being owned by his wife and 3 children one
each. During the course of the business, Salomon gave money to the company and
become a secured creditor of the company. The company then became insolvent and was
liquidated. Solomon claimed payment first since he was a secured creditor but the other
creditors of the company objected arguing that since Salomon had 96% shareholding in
the company, he was in fact the company himself and also that Salomon had formed the
company as a Sham to get the money without paying it back.
Held – Salomon’s Company was a legal person separate from Salomon and Since S had
become a secured creditor of the company, he had to be paid first before all other
creditors. Once legal personality was established, the issue of shareholding couldn’t be
material.

Dadoo Limited V Krugersdorp Municipality

Facts – there existed during the apartheid regime legislation which prohibited non-whites
from owning land in a certain area which was reserve for whites only. Mr Dadoo was an
Asian and he formed a company called Dadoo Limited and it bought land in the white
area and set up business there. The municipality sought to enforce the legislation and
remove Dadoo from the place.
Held - that Dadoo Limited was a company and enjoyed legal personality separate from
its members. A company could not be said to be white or Asiatic. The race / colour and
creed of the owners did not have any effect on the legal personality of the company.

2
[1916] 2 AC 207
3
supra.

153
(iii) Fiction theory – the company is a fictitious person created to enable it to transact
business. It exists in the contemplation of the law.
(iv) Juristic reality - the company is a separate legal person because the courts
recognize it as such.
(v) Organic Theory – A company has different organs through which it transacts
business.
NB The underlying theme of these theories is that once properly incorporated, a
company becomes a separate legal person distinct from its members.

Gumede V Bandhla Vhukani Bakithi

Facts – A law in South Africa provided that natives could only sue each other in the
native courts. A native was suing a wholly – owned native company in the magistrates
court. The court had to decide on the issue of jurisdiction.

Held – Once properly incorporated, a company becomes a separate legal person apart
from its members. A company cannot be said to be native or alien.

Lee V Lee Air Farming

Facts – Mr Lee owned nearly all the shares in Lee Air Farming Ltd. He was employed
by the company as a chief pilot. He died in a flying accident whilst at work. The widow
was claiming support under the workman compensation Act.

Held – Mr Lee was an employee of the company although he owned the majority of the
shares in it. Once a company is incorporated, it becomes a separate legal person distinct
from its members.

Lifting the Corporate Veil

This refers to situations where the law ignores the corporate personality status given on
the company. This comes in two forms namely (1) Judicial and (2) Statutory evasion.

JUDICIAL EVASION
Courts have not seen the concept of corporate personality as a hard and fast rule. They
have given the following exceptions:-

(1) The courts will not apply the principle of corporate personality if it is abused by one
of the parties.

Gilford Motors V Horne

Facts – Horne had an employment contract with Gilford Motors which had a restraint of
trade clause to the effect that the ex-employee would not solicit the employer’s clients
after leaving employment. However, Horne left employment and formed a company
where he solicited the ex-employer’s clients. He was then sued for breach of the
employment contract. In opposing this claim, Horne argued that a company was a
separate legal entity which had no contract with the ex-employers.

Held – There was abuse of the principle of separate legal personality. The court lifted

154
the corporate veil and saw Horne busy breaching the contract.

Leepman V Jonnes
Facts – Jonnes sold a house to Leepman. Soon after prices skyrocketed or increased and
he regretted the sale. In order to avoid delivery, Jonnes incorporated a company which
he owned many shares, sold the house to the company and effected delivery. When sued
for specific performance, he argued that he could no longer deliver because the house had
been sold to an innocent third party. He could pay for damages instead.

Held – The court rejected the argument and treated the company as a sham and façade.
Jonnes had built the hut around himself to avoid delivery through abusing the principle of
corporate personality. As such, he had to deliver.

Cattle Breeders Farm V Veldman

Facts – Mr and Mrs Veldman lived in a company house. They no longer loved each
other, Mr Veldman was the majority shareholder in the company and also director. The
company wanted to evict Mrs Veldman from the matrimonial home because the property
was now required by the Company for use by its director (Mr Veldman). The court
ignored the corporate personality principle.

Held – The courts lifted the corporate veil because Mr Veldman used the corporate
personality to avoid his duty to provide a matrimonial home to his divorced wife.

Note – From these cases, it is apparent that courts lift the corporate Veil whenever it is
abused. Courts always take into account the principle of justice, fairness and equity in
reaching their decisions.

(2) Courts also lift the Corporate veil where the principle of corporate personality runs
contrary to state interests. This supports the concession theory.
(See Daimler V Continental Tyre Company supra)

(3) Courts may also apply the agency construction to lift the corporate veil by holding
that a wholly owned subsidiary would be acting as an agent of the holding company.

DHN Food V London Borough Of Tower Hamlet

Facts – there were 2 companies – one holding the other a subsidiary.
The subsidiary was wholly-owned but using land which belonged to the holding
company.
The municipality wanted to compulsorily acquire land but it was supposed to compensate
the owner of the land if he disturbed him in business.
The question was whether the holding company was disturbed in business.
Held - The holding company was entitled to compensation since the subsidiary company
was acting as its agent.

Statutory Evasion
The Companies Act lifts the corporate veil as follows:-

155
*Section 32 – imposes personal liability on a member who knowingly allows a company
to carry on business for a period of more than 6 months without members.
*Section 58 and 59 – imposes civil and criminal liability for misstatements contained in
the prospectus.
*Section 124 – imposes liability on directors who fail to properly hold statutory meetings.
*Section 126 – directors are liable for failing to hold an extra-ordinary general meeting.
*Section 186 – directors are liable for failing to disclose interests which they have in
company contracts.
*Section 318 – directors are liable for fraudulent conduct of the company business.

NB In all these sections, individual members are being made liable for the company’s
affairs. These are jointly and severally liable with the company. Hence the lifting of the
corporate veil.

Limitation of liability
- If a company can lawfully call itself “Ltd”, it means that it’s limited by shares.
- This should expressly be provided for in the memorandum.
- This means that in the case of winding-up due to insolvency, no shareholder is liable to
lose more than the capital he has already paid in respect of his shares if they are fully paid
up, or the amount still owing thereon if they are not fully paid up. (If not fully paid up,
its capital and amounts still owing on the shares).

The whole basis of the protection afforded by the limitation of liability is

contractual.
The word “Ltd” must be part of the name of the company (Section 9(1)) and must
be prominently displayed on the outside of its offices, and on its notepaper (S90(1)).
Any person giving credit to the company therefore, has notice that if anything goes
wrong, he will be confined to the assets of the company in order to obtain his money.
In companies limited by guarantee, the liability of members is limited to the amount
each member has respectively undertaken to contribute to the assets of the company
in the event of its being wound up.
*The Memorandum of such a company must also state that the liability of the members is
limited.

Exception (S28 of the Companies Act)

“If at any time the numbers of a company is reduced below 2 and the company carries
on business for more than 6 months while the number is so reduced, any person who is a
member of the company during the time that it so carries on business after those 6 months
and is cognizant of the fact that it’s carrying on business with fewer than 2 members,
shall be personally liable for the payment of the whole debts of the company contracted
during that time”.

CAPITAL
Can be raised either through shares or debentures.

SHARES

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Are bundles of rights which are measured in monetary terms in the first instance and
interest in the second but also consisting of a series of mutual covenants entered into by
all shareholders (Borland Trustees V Steel Brothers).

TYPES OF SHARES
1. Ordinary shares
They form the bulk of shares in the company.

Advantages
In most cases, they are in the majority and shareholders participate in decision making.
Disadvantages
- They do not have a priority of payment of dividends.
- They rank after preference shares.
- This may mean that ordinary shareholders may fail to get anything if the dividend has
been consumed by preference shareholders.

2. Preference shares
They entitle the shareholders to a certain percentage in terms of payment of dividends.
The shareholders are also entitled to be preferred in that payment.

3. Cumulative preference shares

If a dividend is not declared this year, this dividend becomes cumulative to be paid when
the next dividend is declared.

4. Participatory preference shares

Shareholders participate in the sharing of profits when dividends are declared.

5. Redeemable shares
To redeem is to buy back.
Those types of shares are those that a company reserves to buy back at a later stage.

Debenture
Is an acknowledgement of debt by the company to the shareholders or creditors.

Differences between shares and debentures

- A debenture holder is a creditor of the company whilst a shareholder is a member who
is entitled to attend meetings.
- The rights of a debenture holder pertain largely to a receipt of interest calculated at a
predetermined rate and which is payable at fixed times. This is despite making profits.
With shares, a dividend has to be declared when profits are made.
- On winding up, debenture holders get first preference over shareholders because they
are the secured creditors of the company.
*Once capital is raised, it has to be maintained throughout the company’s trading period.
It should not be unlawfully reduced except in accordance with the provisions of the
Companies Act.

157
DIRECTORS
They are quasi – trustees of the assets of the company
They manage the company.

Duties to the company

1) Fiduciary Duties
Secret profits and benefits from office – generally
- A director must account to the company for any personal profit he may make in the
course of his dealing with the company’s property.
*The rationale for this is that there has been a conflict of interest.
- A director is supposed to negotiate for the company’s benefit. He can not obtain a
contract for himself in the course of employment.
- He should also account for any gifts received (either of money or shares) from
promotions, or persons selling property to it or commission received from persons who
supply goods to the company.
***Nkala and Nyapadi4 – A person possesses fiduciary duties when he is in a position of
trust, or occupying a position of power and confidence with respect to another person,
such that he is obliged by law to act solely in the interest of that person whose rights he is
to protect.

NB Strictly speaking, directors cannot be trustees because the legal ownership of the
property they administer is not vested in them but in the company.
The position of trust emanates from the agency-principal relationship between them and
companies.
- R V Milne and Erleigh5, Centlivres CJ summed up the position in these words:
“It is, of course, clear that the duty of all agents, including directors of companies, is to
conduct the affairs of their principals in the interests of the principals and not their own
benefit”.

CASES
- Industrial Dvt consultants V Cooley [1972] 2 All ER 162.
Facts – the Defendant was an architect of considerable distinction and attainment in his
own sphere. He was appointed Managing Director of the Plaintiff’s construction
company to help the company obtain contracts in the public sector. He negotiated to
obtain for the company 4 contracts tentatively planned by the Eastern Gas Board. The
Board firmly indicated that it was not prepared to award the contracts to the company, but
the company was determined to pursue negotiations. Later, the Gas Board decided to go
ahead with the work in a modified form and to undertake a new project. It approached
the Defendant privately in respect of one of the contract provided he properly obtained
his release from the company. He was also given firm details of the other contracts. The
Defendant did not inform the company of these talks, but obtained his release from his
position as Managing Director by stating falsely that he was ill. He told the Gas Board
that he was very interested, not only in the contracts offered to him, but also in the others.

4
in their book entitled “Company Law in Zimbabwe.”
5
1951 (1) SA 791 @ 828D

158
Whilst still Managing Director of the company he submitted detailed proposals for
undertaking the work. One week after his release as Managing Director he obtained the
contracts. The company sought to make the Defendant account for the profits from the
contract on the basis of his breach of fiduciary duty. The Defendant denied any fiduciary
duty as the contracts had not been obtained by virtue of his position as the Managing
Director. The Gas Board had approached him, not qua Managing Director of the Plaintiff
Company, but in his own capacity, and consequently he was under no duty to pass the
information on to the company.

Held – that the Defendant should account. The Defendant had one capacity, that of
Managing Director.
He was under a fiduciary duty to pass on information acquired in his dealings with the
Gas Board which was of concern to the Plaintiff. Further, in pursuing this contract for
himself, he had allowed his duty to the company and his own interest to conflict.
Roskill J held:- “Therefore it can not be said that it is anything like certain that the
Plaintiffs would ever got the contract … on the other hand, there was always the
possibility of Plaintiffs persuading the Eastern Gas Board to change their minds and
ironically enough, it would have been the Defendant’s duty to try and persuade them to
change their minds.
It is a curious position under which he should now say that Plaintiffs suffered no loss
because he would never have succeeded in persuading them to change their minds”.

1. Regal (Hastings) Ltd V Gulliver6

Held:by the house of Lords – that directors were liable to account to the company once it
was established:-
*That what the directors did was so related to the affairs of the company that it could
properly be said to have been done in the course of their management and in utilization of
their opportunities and special knowledge as directors and.
*That what they did resulted in a profit to themselves.
NB However, a director may take advantage of a corporate opportunity on his own
account if his company has considered the same proposition and rejected it in good faith.

Pesso Silver Mines V Cropper7

Facts – Pesso Company was offered an option on mineral claims. The Board of
Directors sat, considered the opportunity and turned it down on reasonable grounds.
Subsequently, three Directors acquired the claims personally and they made a profit.
After a change in the company management, the new management sought to make the
Directors account for the profits they made.

Held – that the Directors did not take a corporate opportunity and therefore they were not
obliged to account.

Master this – Nkala and Nyapadi convincingly contend that it’s not possible for a
director to contract out of his fiduciary duty.

6
[1942] 1 ALLER 378.
7
[1967] 30 mlr 450

159
Directors are not allowed to make secret profits.
Directors should exercise their independent discretion and make decisions according to
the best interests of the company as his principal to the exclusion of the interests of any
such nominator, employer etc.

2. Duty of care and skill

Directors should not act negligently in managing the company’s affairs. The degree of
skill is that of a reasonable person of their knowledge and skill and experience

In re City Equitable Insurance Company

Held – (i) A director is not bound to give continuous attention to the business of the
company. Neither is he obliged to attend all meeting though he ought to attend when
reasonably necessary.
(ii) He is not obliged to see to the security and efficiency of the company personally.
(iii) the test for negligence is subjective.

Re Brazillian Rubber
Facts – Directors agreed to be directors of a Company where they had no knowledge of
the business itself. The court found that one of the directors was ignorant in business
generally. The other director was of an advanced age. The company made huge loses
through speculation of directors. The liquidator argued that the directors were liable.
*The court used the subjective test of negligence and found the directors not liable.

NOTE – What can be concluded from the common law position is that the fewer a
director’s qualifications for the office are, the less time he devotes to the business, the
greater reliance he places on others and the less legal responsibility he attracts. Worse
still, our Companies Act, unlike the English Act, does not make any director unfit for
office because of glaring incompetence. This results in companies incurring great losses
because of too much relaxation on the test for negligence. There is however, great need
at law to impose stricter standards on directors to provide incentives for them to perform
their legal duties for the benefit of the company, shareholders and the general public.

Duties of directors towards shareholders

Directors do not owe any contractual or fiduciary duties to individual members of their
company unless there is an agency principal contract to this effect.
They owe them duties as a collective group.

*Percival V Wright8
Facts – certain shareholders wrote to the secretary enquiring if he knew anyone wishing
to purchase their shares. Negotiations ensued between the shareholders and the
chairman and the two other directors. The Plaintiffs subsequently discovered that the
board had been approached by a 3rd party who offered a very favourable price for the
shares. At the time Plaintiffs’ discovery, they had already sold the shares to the directors.
The Plaintiffs requested that the sale of their shares be put aside on the ground that the
8
[1902] 2 Ch 421.

160
Defendants should have disclosed the takeover to them.

Held – that the directors were not under a duty to the shareholders to disclose this
information even though they knew that the shares were more than the shareholders’
selling price. It was stressed in the judgement that there was no unfair dealing. The court
found that the directors did not approach the shareholders with the view of obtaining their
shares. Instead the shareholders approached the directors, and named the price at which
they were desirous of selling, hence there was no question of unfair dealing in this case.

Allen V Hyatt9
Facts – directors induced the shareholders to give them options for the purchase of their
shares so that the directors might negotiate a sale of the shares to another company. The
directors used the options to buy the shares themselves and then resold them at a profit to
the other company.

Held - Privy council that the directors had made themselves agents for the shareholders
and must consequently account for the profit which they had obtained.
Directors do not owe members any duties because they are not servants of the
shareholders but of the company.
Section 189 states that “In the exercise of their functions, directors may have regard to
the interests and welfare of the company’s employees, the dependants of those employees
as well as the interests of the company’s members”.

NB The use of the word ‘may’ indicates that this duty is discretionary. It is dependant on
the decision of an individual director.

Qualifications of Directors
The Companies Act does not give any qualifications for directors. However, the
following people are disqualified from being directors:-
- Unrehabilitated insolvents.
- Minors or any people under legal disability.
- Women married in community of property need written consents of their husbands.
- A body corporate eg a company cannot be the director of another company.
- A person convicted in Zimbabwe or outside for any case of commercial immorality eg
forgery, fraud, theft and uttering.
- Any person who is removed by a competent court from the office of trust on account of
his conduct.

*Directors are responsible for the management of the company. Each company should
have not less than 2 directors, one of which should be ordinarily resident in Zimbabwe.
Every company should also have a company secretary who is ordinarily resident in
Zimbabwe.

9
[1914] 30 TLR 444.

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Meetings of members
The statutory meeting
Not less than one month and not more than 3 month after it’s entitled to commence
business every public company must hold a general meeting of members, which is called
the statutory meeting (S124(1)).
The object is to enable members to review, the initial progress of the company.
Company affairs should be discussed fully (S124(7)).

Annual General Meeting

Must be held within 18 months of the company’s incorporation and thereafter within 6
months of the end of each financial year and not more than 15 months after the previous
AGM. The registrar is empowered to extend these periods on good cause shown or to
arrange a meeting (even of one person) which shall be deemed to be the AGM (S125).
21 days’ notice in writing of the meeting must be given, but short notice may be accepted
by all the members entitled to attend and vote (S127).

Issues to be discussed include “declaring a dividend, the consideration of the accounts,

balance sheets and reports of the directors and auditors, the election of directors in the
place of those retiring and the appointment of and the fixing of the remuneration of the
auditors and any special business the general nature of which has been given in the notice
convening the meeting.”

Extraordinary General Meetings

Deal with special business, the general nature of which must be given in the notice
convening the meeting. This is to enable a member to attend the meeting and to prepare
himself to deal with the special business.

S126 requires an extraordinary general meeting to be convened by the directors.

S127 requires 14 days’ notice in writing to be given (7 days in the case of private
company) and permits this notice to be waived by the holders of 95% of the shares giving
a right to attend and vote at the meeting.
*An EGM may also be requisitioned by notice to the company from members holding not
less than 5% of the paid-up capital carrying the right to vote. The requisition must state
the objects of the meeting, and within 21 days the directors must issue a notice
convening a meeting not less than 14 days (21 days if a special resolution is to be
proposed) or more than 28 days ahead.

If the directors do not act, half or more than the requisitionists may convene the meeting,
being reimbursed by deductions from the fees of the delinquent (or stubborn) directors:
S126.

Conduct of meetings
- Common law requires fair warnings to be given to members of matters to be considered
at meeting.
- There should be a quorum of 2, with an automatic adjournment of a week if the quorum
is not present.

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- The chairman of the Board should chair meetings and should have a casting vote.
*Under common law, the chairman has a duty to enable members to discuss the matters
before them fairly and reasonably – should keep order and prevent time-wasting. He
should exercise his powers in good faith and with fairness.
- Minutes of every meeting must be kept in a minute book, if signed by the chairman of
the meeting or the next meeting, are evidence of the proceedings and prima facie
evidence of their regularity (S138).

VOTING AT MEETINGS
The Act leaves it open to the articles to allocate voting rights in any way. It’s generally
by show of hands unless a poll is demanded.
*S129 provides for proxy voting. A proxy is entitled to speak as well as vote on behalf
of the member(s) appointing him and need not himself be a member. Thus it’s
sometimes convenient to appoint a lawyer, accountant or other expert.

RESOLUTIONS
- refers to decisions that are reached at meetings.
*All decisions at meetings of members are taken by ordinary resolution i.e. a simple
majority of the votes cast. On the other hand, a special resolution requires at least 75% of
the total number of votes cast at a meeting.

The Act requires a special resolution for the following purposes: alteration of the
memorandum (S16(1)), alteration or the articles (S20), change of name (S25(1)),
conversion of public into private company (S33(3)), issuing shares at a discount (S75(1)),
placing uncalled capital to reserve (S86), alteration of share capital (S87(1)), reduction of
capital (S92), investigation of company affairs (S158(a)(1)), winding up by the court at
(S206(a)), voluntary winding up (S242(b)), sale of bus or property in voluntary winding
up (S250), arrangement with creditors in voluntary winding up (S260), instructions of
liquidator in voluntary winding up (S263(1)), making provision for employer and
employees and their dependants on cessation or transfer of the company business (S287).

SPECIAL
21 days notice should be given, specifying the terms of the resolution and the intention to
propose it as a special resolution. The holders of not less than 25% of the votes of the
company must be present in person or by proxy, the resolution must be passed by not less
than a 75% majority of the members present (S133(1)). The resolution must be
transmitted of the registrar for registration within 1 month (S136).
A resolution requiring special notice is required for the removal of a director before
expiration of his term of office (S175) or for replacing an auditor (S151) or for any other
purpose specified in the articles (S135(1)). 28 day’s notice must be given to the
company, which must then give 21 days’ notice of the resolution and send a copy to any
person whose status will be affected by the resolution (S135).

WINDING UP
Is a process by which a company’s existence is brought to an end and may take the form
of winding up by the court or voluntary winding up.

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Grounds for winding up by the court
S206 sets up grounds on which a company may be wound up by the court namely:
- If the company has by special resolution resolved that it be wound up by the court.
- If default is made in lodging the statutory report or in holding a statutory meeting.
- If the company does not commence its business within a year from its incorporation or
suspends its business for a whole year.
- If the company ceases of have any members.
- If 75% of the paid-up share capital of the company has been lost or has become useless
for the business of the company.
- If the company is unable to pay its debts.
- If the court is of the opinion that it is just and equitable that the company should be
wound up e.g. where the main objects have become impossible to achieve and where the
company is commercially insolvent and winding up is the only means by which credit
can obtain payment.

Ebrahimi V West bourne Gallaries

Facts – Ebrahimi and Mr Nazar carried out a partnership business where they had equal
shares. They converted this partnership into a private company and were appointed its
first directors. Soon Mr Nazar’s son was admitted into the company through a donation
of shares by both parties. However, the father and son colluded to kick out Ebrahimi
from the company using a general resolution. Mr Ebrahimi then petitioned the court to
make a winding up order.

Held- Winding up was ordered on just and equitable grounds because Mr Nazar and his
son had oppressed Ebrahimi.

Who may apply for winding up by the court

S207(1) provides that an application for winding up by the court may be made by the
company, a creditor, a contributory or the minster.S207(2) adds the master of the High
Court to the list if the application is to convert a voluntary winding up into winding up by
the court.
*Contributory – a person liable to contribute to the assets of a company in winding up
(S202).

Procedure
The applicant must proceed by way of petition (S207) which must comply with
companies (winding up) rules S1841 of 1972 rule 5. It should be served on the company
and the court should grant an order allowing the company ample time to prepare and
present its case. Upon presentation of evidence, the court will consider the matter and
decide whether or not to grant a winding up order.
Winding up is deemed to commence at the time of presentation of the petition (S210(2))
which means when it is filed with the registrar of the High Court.

Effect of winding up order

Its immediate effect is to freeze the company’s affairs in a number of respects - legal

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proceedings, attachments and executions are stayed, disposition of property, share
transfers and alterations in the status of members may no longer be made, the company’s
property is deemed to be in the custody or control of the master until a liquidator or
provisional liquidator is appointed, the powers and duties of the directors also cease etc.

Liquidator
His 1st duty is to recover and reduce into possession all the company’s property and open
a bank account (S224). He should take into account directions given by meetings of
creditors or contributories. He should identify creditors and contributories and how much
they are owed by and owe the company respectively.
In the event of a company being unable to pay its debts, creditors may proceed against
sureties of a company being wound up, without 1st excusing the company.

The process of liquidation

That liquidation should ascertain the total of the company’s liabilities from the proofs of
creditor’s claims (S220). He should sell company’s assets with the authority of a joint
meeting of creditors and contributories with leave of the court keeping a proper account
of all transactions.
*He can calculate the shortfall, and name the contributories that are able to compensate
the shortfall, if any.
*He can open a liquidator’s account. He will then prepare the necessary documents and
hand them over to the master. The master then applies to the court for dissolution.

Voluntary winding up
*Is by special resolution which should be advertised and sent to the master. Winding up
commences from the passing of the resolution, when the company is required to cease
business except in so far as may be necessary for its beneficial winding up (S245).
*If, before the special resolution, the directors give security for payment of the
company’s debts or furnish the master with the prescribed proof that the company has no
liabilities, the winding up becomes a member’s voluntary winding up. Otherwise it’s the
creditors’ voluntary winding up (S246).
*Since directors have no interest in a members’ voluntary winding up, the liquidator is
appointed, empowered, remunerated and if necessary replaced (S249) by the company in
a general meeting.
*In a creditors’ voluntary winding up, the special resolution must be followed by a
creditors’ meeting organised by the company to receive a statement of the company’s
affairs and to nominated a liquidator.
*The liquidator must give notice of his appointment to the master. Calling meeting
between the company and creditors every six months or whenever necessary.
On application by a creditor or contributory (S265) or by the liquidator the court may
convert the voluntary winding up into a winding up by the court.

There appear to be 3 circumstances in which a creditor can proceed against a company in

voluntary liquidation. These are:-
- Where the action was instituted prior to liquidation.
- Where the claim arose from expenses incurred in winding-up.

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- Where despite the presentation of a claim of the liquidator, he refuses to make a
decision upon it.

CHAPTER 15

INSOLVENCY

Is governed by the Insolvency Act [Chapter 6.04]. As was mentioned in Chapter 2, an

insolvent is a person who accrues more liabilities than what his assets can pay for.

Early Rome saw a debtor who was unable to pay his debts surrendering himself to his
creditor, hoping for slavery rather than death1. But today, due to the advent of human
rights, a person now retains his freedom but hands over his property in accordance to the
Insolvency Act [hereinafter referred to as the Act.

1
Scott – The Civil Law vol 1, pages 63-4

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 ***In a nutshell, the Act provides that a debtor who cannot pay his debts may be ordered
by the High Court (either on his application or that of the creditor) to hand over his
property to a trustee for sale and distribution among his creditors. The debtor is relieved
of liability for his debts, but remains under certain legal disabilities unless he successfully
applies to court for rehabilitation.

SEQUESTRATION AND ATTACHMENT OF PROPERTY

The Act applies to every debtor except a company or other association which may be
wound up under the Companies Act. According to section 2 of the Act, the Act applies to
individuals, partnerships or associations of not more than 7 members, trusts which are
capable of owning property and clubs which do not carry on business for profit 2.

FORMS OF INSOLVENCY
(1) Voluntary surrender – this ensues when the debtor or his agent surrenders his estate
for sequestration (see Section 3). Usually, this is done by way of petition to the Master of
the High Court [s 3(4)]. Ex Parte Marais3 convincingly held that the information in the
petition must include “…the nature of the business, the cause of insolvency and other
matters connected with the estate, as well as the financial position of the applicant apart
from the business and the prospect of obtaining remunerative employment. It was
important to state whether he was now in a salaried position or not and whether he had
other sources of income.” It should also include a statement of the debtor’s affairs.

The petition must satisfy the court on the following 4 matters:

- That the estate contains sufficient free residue (i.e assets over which no creditor has a
particular right of preference) to meet the costs of sequestration [s 4 (1)(a)].
- That the estate is insolvent [s 4(1)(b)] – ie that it has more liabilities than assets.
- That the surrender will be for the benefit of creditors generally.
- That the debtor has made a full and honest disclosure of all relevant facts4.

*If the court is prima facie satisfied on all these, it may grant a provisional order of
sequestration and issue a rule nisi calling on interested parties to show cause why the
provisional order should not be made final [s 4(1)].

The petitioner must publish the rule nisi in the Government Gazette and a circulating
newspaper [s 5] and on the return day the court may (if satisfied on all points including
publication) grant a final order of sequestration [s 6]. This procedure is not rigid. In Ex
Parte Spence5, the court held that any irregularity in procedure may, in the court’s
discretion, be condoned is there could be no prejudice of any interested party.

2
see Ex parte Milton 1959 (1) R &N 377 / 1959 (3) SA 347 and Ex Parte Matabeleland Club 1962 R
&N 4
3
1939 SR 25
4
Ex Parte Berman 1972 (1) RLR 230.
5
1959 (3) SA 933.

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(2) Compulsory Sequestration – occurs when a creditor(s) petition the High court to
sequestrate the debtor’s estate owing to either non-payment of debts or that the debtor’s
estate is insolvent or that he is ‘commercially insolvent’ in the sense that he cannot pay
his debts without selling his assets. The procedure is akin to that of voluntary surrender.
However, the creditor should satisfy the court that sequestration will be to the advantage
of creditors.

The provisional trustee.

Should be appointed by the High Court upon being petitioned by a creditor who feels it
desirable that the debtor’s estate should be placed under immediate control.

Effect of sequestration
- It imposes legal disability on the debtor. R v Etberg6 held that the status of insolvency
stops at international boarders and a person who is insolvent or bankrupt in any foreign
country will not be regarded as insolvent in Zimbabwe.
- The insolvent is deprived of ownership of all his property, which vests in the trustee [ss
23 & 39].
- The insolvent is also deprived of the power of acquiring ownership of property [s 23
(2)(b)], but he may retain his clothes and bedding and such furniture and tools as the
Master may decide to leave him. However, the High Court has special jurisdiction at
times to order the insolvent to pass ownership to a 3rd party who acquires property from
him in good faith and for value.
- The insolvent is also disqualifies from holding positions of trust like that of a Company
director.
- The insolvent’s contractual capacity is unaffected. However, if the contracts affect
estate property, the insolvent must get the consent of the trustee.
- The debtor’s existing contracts at the time of sequestration can be terminated. However,
the trustee has the discretion to either abide by the contracts (which involves performance
of the insolvent’s obligations) or to terminate them.

Procedure up to the 2nd meeting of creditors.

The 1st meeting of creditors – one of the reasons why notice of every order of
sequestration must be given to the Master is to enable him to call the 1st meeting of
creditors of the insolvent, which he does by notice in the Government Gazette. The object
of the meeting is to enable creditors to prove their claims and elect a trustee [s 53(1)]. It
will be presided by the Master or hs deputy [s 52]. The insolvent is obliged to attend the
1st meeting unless excused [s 67(1)] and may be subjected to examination.
Election of a trustee – no professional qualification is required but the candidate must
not be:
- Himself an insolvent
- A minor or other person under legal disability
- Resident outside Zimbabwe.
- A body corporate.
- Have been once convicted of a commercially immoral crime etc.

6
1932 AD 142.

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He is elected by the creditors present at the 1st meeting. If they do not, then the Master
may appoint one. If the trustee is appointed by the creditors, he does not take office until
he has given security to the satisfaction of the Master and received from him a certificate
of appointment. He must then advertise his appointment together with address in the
Government Gazette, calling upon debtors of the insolvent to pay their debts to him
[sections 75 and 91]. The insolvent’s property vests in him. He also opens a bank account
and safeguards the insolvent’s books of account.

Duties of the trustee

- Taking necessary steps to recover debts owed to the insolvent.
- Paying off creditors (with the permission of the Master) using the proceeds of the
insolvent’s estate.
- To uphold some of the insolvent’s contracts.
- Performing legal transactions on behalf of the insolvent.

Impeachable transactions
Refer to the power given to the trustee to set aside certain transactions carried out by the
insolvent before he was sequestrated. Such transactions include:
(a) Disposition without value – is any transfer or abandonment of the insolvent’s rights
to property not made for value, such as a gift7.
(b) A voidable preference – is any disposition of his property made by the insolvent less
than 6 months before sequestration which has the effect of preferring one creditor (in a
surety) above another.
(c) An undue preference – is a disposition of his property made by the insolvent at any
time when his liabilities exceeded his assets, with the intention of preferring one creditor
above another.
(d) A collusive dealing – is a transaction entered into by the insolvent before
sequestration in collusion with another person for the disposal of any property belonging
to the insolvent which had the effect of prejudicing his creditors or of preferring one
creditor above another.

The 2nd meeting.

Here, the trustee must give a report of all the transactions carried out. The report should
include:
- All matters relevant to sequestration
- The assets and liabilities
- The cause of the debtor’s insolvency
- The books relating to the debtor’s affairs
- Whether the insolvent appears to have contravened the Act or has committed any other
offence, with full particulars
- Whether he has made a subsistence allowance to the insolvent under section 93 and why
- Whether he had carried on the insolvent’s business, with a list of purchases and the
trading results.
- Whether any legal proceedings were suspended by the sequestration and are pending or
threatened.
7
see Huizenga v Zwinoira 1987 (2) ZLR 276.

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- Whether the contract to buy immovable property or any lease was affected by
sequestration, and what action he has taken.
- Any matter in regard to the administration or realization of the estate requiring the
directions of the creditors.

The object of this meeting is not only to give the fullest information to the creditors but to
enable them to give instructions to the trustee on items (f) to (j). Creditors may vote on
any matter concerning the administration of the estate, but not on matters concerning its
distribution. The insolvent should attend either the 1 st or 2nd meeting or both meetings,
failure of which attracts a criminal offence. The insolvent should be examined especially
on the 2nd meeting.

Procedure after the 2nd meeting.

Composition – the insolvent may submit to the trustee an offer of composition anytime
after the 1st meeting, the object of which is to prevent the normal sale of all the
insolvent’s assets and distribution of the proceeds among creditors. The offer can come in
the following forms:
*A scheme whereby the insolvent is allowed to continue his business under the trustee’s
supervision and a committee of creditors in exchange for regular monthly payments to be
paid to the trustee for distribution.
*Cash payment (provided by the insolvent’s friends and relatives) in return of all the
insolvent’s assets to him.

Sale of goods – where no composition has been agreed, the trustee’s primary duty after
the 2nd meeting is to proceed as rapidly as possible with the selling of the estate’s
property and the distribution of the proceeds.
The Trustee’s accounts – must be produced within 6 months of appointment [s 118]
unless the Master grants him an extension [s 119]. Sections 121-124 provide that the
nature of the accounts include:
*A liquidation account – showing the trustee’s receipts and disbursements.
*A trading account – showing opening and closing stock, daily totals of receipts and
payments and trading result.
*A plan of distribution – showing the amounts awarded to secured, preferent and
concurrent creditors or a plan of distribution showing the amount each creditor is liable to
contribute.

REHABILITATION
Is a process whereby an insolvent applies to return to normal. The application to the High
Court for rehabilitation may be made in 5 circumstances namely:
- If the insolvent has obtained a certificate from the Master that his creditors have
accepted a composition [s 141(1)].
- If 12 months have elapsed since the confirmation of the trustee’s 1st account or 2 years
from the final sequestration order, whichever is the earlier [s 141(2)(a)].
- If the insolvent has been sequestrated on a previous occasion and 3 years have elapsed
from the confirmation of the trustee’s 1st account, unless the insolvent has been convicted
of a fraudulent act in relation to the existing or any previous insolvency [s 141(2)(b)].

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- If the insolvent has been convicted of a fraudulent act in relation to his existing or any
previous insolvency and 5 years have elapsed from the date of conviction [s 141(2)(c)].
- At any time after confirmation of a plan of distribution providing for payment in full of
all proved claims, with interest, and the costs of sequestration [s 141(4)].

A partnership cannot be rehabilitated but individual partners can [s 145]. The effect of a
rehabilitation order is to put an end to sequestration, to discharge all the insolvent’s pre-
sequestration debts which did not arise out of any fraud on his part and to relieve the
insolvent of every disability resulting from the sequestration.

Rehabilitation does not affect rights and duties relating to a composition or to property
not yet distributed, nor the liability of a surety for the insolvent nor any liability to pay a
penalty or suffer punishment under the Act [s 146].

ASSIGNMENT
A debtor who wishes to obtain the advantages of insolvency without the corresponding
disadvantages may agree with his creditors to hand over his estate to a person (called the
assignee) to be administered for the benefit of the creditors through a contract known as a
deed of assignment.

The debtor must publish the notice and registration of the assignment in the Government
Gazette and local newspaper. It should be signed by at least ¾ of the majority of
creditors. The Master of the High Court supervises whatever the parties agree to in the
Deed of Assignment.

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