BBA124 Business Law Module

8/13/2019 BBA124 Business Law Module

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MODULE DESCRIPTOR

Module Name: BUSINESS LAW

Module Code: BBA140

Aims

To introduce students to the basic principles and practice of modern legal systems. To beable to understand the legal requirements of modern business.

Learning Objectives.

On completion of this module a student should:

Understand the social necessity of law. Have a broad understanding of the domestic court system and related infrastructure. Be able to distinguish between civil and criminal case law. Be familiar with relevant legal language and terminology. illustrations, using diagrams and examples.Content.

1. General Principles of the Domestic Legal System, Sources of Law, Definitions ofCriminal Law and Civil Law, Court Structure, The Legal Profession (the roles ofSolicitors & Barristers), Precedent.

2. Contract Law: Definition of a contract, Classification, Offer & Acceptance,Consideration, Intention, Capacity, Remedies, Useful Cases, Citations, Contents of aContract Terms: Express & implied, Appropriate Case Law, Sale of Goods ExclusionClauses, Misrepresentation, Mistake, Restraint of Trade, Discharge of contract (Breach,Anticipatory, Agreement, Frustration, Illegality).

3. The Tort of Negligence - General Principles, Useful Cases, Duty of care, Defences inTort.

4. Law of Business Organisations: The Concepts of Limited Company, Partnership andSole Trading, Unincorporated associations. The Relevance of Legislation in BusinessOrganisation: The relevant Companies and Business Names Acts.


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Assessment.

3-hour examination. Candidates must answer 5 out of eight questions. Candidates will be expected to show that they can apply their knowledge of economictheory and principles to the economy of the UK or their own country. Credit will be given for appropriate illustrations, using diagrams and examples.

Reading.

1. Principles of Contract Law by Richard Stone, published by Cavendish Publishing.2. English Legal System by Elliot & Quinn, published by Longman.3. Law of Tort by John Cooke published by Longman.


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BUSINESS LAW

Essential Reading

Testbooks

Christie R.H., (1993) The law of Contract in South Africa, Butterworths, Durban

Swanepoel JPA (1995) Introduction to Mercantile Law, Eighth Edition, Juta & Co(Ltd)

Purchasing and Sale

1.0 What this Unit is about

In this Unit we now look at a special type of contract. This is a contract which hasown essential

requirements. This is very common type of contract which we all enter intowithout much thought.

2.1 What you will Learn

When you come to the end of the Unit, you should be able to:

* Objective

- Define a contract of sale

- Distinguish between things which can and cannot be bought orsold;

- Discuss requirements for ownership to pass from seller to buyer;

- Explain the concept of risk in contract of sale;

- Discuss the various methods by which delivery may be effected;

- Explain the duties of the buyer and seller;

- Describe some special types of sale for example Cost Insuranceand Freight,


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Free on Board and Sale on Approval.

3.2 Essential Elements of a contract of Sale

We must remember that a contract of sale is a contract just like any other contract, thus it

must meet all the essentialelements of a contract which have already been considered in Unit 2; that is, theagreement must be legal, parties musthave contractual capacity, terms must not be vague, it must be enforced etc.

further, the contract must meet those essentials peculiar to a contract of sale. These are:

- Agreement must be one of sale. The courts will always look at thetransaction and call it what

it amounts to despite what the parties decide to call it.

- For example, contract of sale must be distinguished from gift or free offersor donations.They must also be distinguished from exchange or barter.

- There must be an agreement on the article which is known as the thing/ orsubject matter

of the sale. This is important because some things cannot be sold and thesale of others is

restricted or subject to regulations.

- In a contract of sale a price must be paid for the things or the parties musthave agreed that

the price will be paid in the future. Thus an agreement to sell for free isnot a sale.

Activity 3A

*Objective

- Give a list of things which cannot be sold and reasons whythey

cannot be sold.

- Also give a list of things which are sold subject toregulations and

name the regulations in each case.

3.3 Things which cannot be sold

- The right to inheritance to a person who is still alive cannot be


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- What are the exceptions to the nemo dat quad non dabet

rule?

3.4 The Price/Pretium

There must be agreement as to the price. The price is important as itdistinguishes a contract

of sale and gifts or donations or exchange. There can be a valid agreementto sell at a price to

be determined by a third party who agrees. If the third party does notagree, then there is no

sale.

The price must be current money not in goods. However, where the valueof goods is

insignificant, the court may still call it a contract of sale.

3.4.1 Passing of Risk and Ownership Risk

You should be able to understand the aspect of risk. This has no relation tothe aspect of

ownership. Risk refers to the issue of who bears the loss due to accidentaldeteriorate,

damage or loss to the thing after the conclusion of the contract but beforedelivery.

This issue of risk does not arise before the contract is concluded. It alsodoes not arise

after delivery. It is important to note that the issue of risk also entailsbenefits accruing to the

at the same time. For example, if A buys a cow from B and there isagreement on the

cow to be bought and the price, if the cow calves before delivery andpayment of the purchase

price , the calf belongs to the buyer. The general rule is that risk passes tothe buyer as soon

as the contract is concluded, or is Perfecta. This rule has nothing to dowith the issue of

Ownership.

There are exceptions to the general rule. These are as follows:

- The parties are free to agree to the contract i.e. to vary general rule

- Where the seller has delayed delivery- he is at loss and would nothave occurred


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had he delivered timeously.

- Where the seller is negligent in the business sense.

- Where the sale is one of unascertained goods. Risk would only

pass when the goods have been ascertained i.e. there has been counting, weighing andmeasuring the goods

Before risk passes. For example, if A buys bags of maize from B,and before delivery

B's entire stock is destroyed by fire, then risk has not passed to Abecause the goods

have not been ascertained, weighed, counted or measured.

- Where the contract is subject to a suspensive condition. This isbecause there is only

Contractual relationship before the condition is satisfied. Theobligations are suspended.

- If the contract is void for one reason or another. Because avalid contract does not give

rise to any obligations.

Activity 3C

* Objective

- Advise X in each case:

a) X contracts for the supply of new carpet from Z (Pvt)Ltd which has been

specifically ordered for him from a manufacturer. Beforedelivery, Z's

premises are destroyed by fire and the carpet is lost.

b) As in (a) except the carpet was manufactured by Z (Pvt)Ltd and had not

been selected from the bulk of carpets earmarked for thecustomers.

3.4.2 Ownership

Ownership is a bundle of rights which include among others the right ofuse of the

right of enjoyment, possession or the right to alienate the ite, Ownership isa real right which


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can be claimed against the whole world. A person may have a right ofownership without actual

possession of the item. Conversely, a person may have possession withoutownership.

For ownership to pass, certain requirements must be met. These are asfollows:

- The seller must be owner. The nemo dat quad babet principle. Thismeans one

cannot pass a greater right than he actually has.

- The thing must be capable of being owned. If not, then ownershipcannot be passed.

For example, air cannot be owned.

- The seller must intend to apses ownership while the buyer mustintend to receive ownership.

- The purchase price must have been paid or credit must have be engiven. There is a

presumption that sales are for cash unless the seller is taken to havewaived or given

up his right to receive cash. Thus, in a credit sale ownership passesto the purchaser.

Thus in Hire-Purchase transactions, ownership of goods does notpass to the purchaser

until the payment of the last instalment.

- The seller must have delivered the thing to the buyer. As a generalrule, delivery entails

the seller putting the goods at the disposition of the buyer. Thusdelivery ordinarily takes

place at the seller's place of business. We must note that at law, theseller is not obliged

to deliver the goods to the buyer's place. Delivery is ordinarilysubject to agreement between

the parties.

There are however, a number of recognised ways of delivery:

3.4.3 Actual delivery

This is from hand to hand physical delivery otherwise known as manu demanu delivery


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3.4.4 Delivery with a short hand

Known as Brevi manu delivery. the buyer already possesses the merx hebuys because of a

previous transaction: for example he had borrowed the computer. When he

buys it the sellerdoes not have to redeliver.

3.4.5 Delivery with a long hand

Here the goods are bulky to be moved, or the movement of such goodsmay be for the time

being prohibited. The seller merely points at the goods which shall then betaken to belong to the

buyer. The is delivery longa manu

3.4.6 Symbolic delivery

The seller delivers something other than the goods. What is delivered heremust give the

buyer exclusive control of the goods e.g. keys to house or bills of lading togoods still at sea.

3.4.7 Attornment

Goods are delivered to a third party who acts as agent of the buyer

3.4.8 Constitutum possessorium

The seller keeps the goods on behalf of the buyer. the courts do not favourthis type

of delivery as it may tempt and lead to fraud.

3.4.9 Regsitration

Ownership in unmovable property is passed by registration according tothe provisions of

the Deed Registries Act . Thus the purchaser of a house who has paid cashwithout having

the house registered in his name would not become the owner.

Activity 3D

*Objective

- Explain whether ownership has passed in each of


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the following

a) Gift is paying lobola to his father-in law. He takeshim to his cattle

kraal and points out six beasts which he says are for

the payment. However, there is a regulation preventing themovement of animals

From one area to another and the father -in-lawcannot take the

animals. Three of them are struck by lightning anddie before they

are possessed by father in law.

b) Gilbert borrowed a mountain bike from Mike. Mikehas migrated to

Malawi and has no intention of coming back toZambia. The twohave agreed that Gilbert buys the bike for $2 000.00

Mike has notpaid .

c) Betty has bought rice from Satisfy (Pvt) Ltd acompany registered

in Poland an overseas country. Betty has receivedthe bills of

lading which he sells to Joe. When the rice arrivesby sea, it is

found to be musty and unfit for human consuption.

3.5 Duties of the seller

We now look at what the seller is legally obliged to do. These duties do not ariseout of agreement with

the buyer, but out of the law. This means the the duties are implied by the law.The duties are as follows:

Duty to deliver the goods. By any method of delivery already considered. Wherethe seller delays he

will be in mora and risk may revert back to him.

- To keep the goods in safe custody until delivery. If the seller is negligentin the business sense,

then he may become liable to the buyer. if the buyer delays taking thegoods, then the seller

would be liable only for willful acts or gross negligence.


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- Duty to guarantee undisturbed possession of the goods. (vaccua posessio).

Remember theseller does not guarantee that he is owner. He only guarantees that no one

with a greater title

will disturb the buyer. However, the buyer has (loci standi) the right totake his own legalaction where his possession is disturbed by those without any title.

- Duty to guarantee against latent defects. Latent defects are those which arenot obvious to

the naked eye. The buyer does not have to carry out a cruel examination ofthe subject matter

or to employ an expert to do the examination. the seller does not have toguarantee against

patent defects. These are obvious defects such as a table with one of the

legs shorter thanthe rest.

- The duty would be excluded or not apply there the sale is vetstoots i.e.marx is sold as it stand.

this fact has to be brought to the attention of the buyer

3.6 Remedies to the Buyer

Where the goods are defective the buyer has some remedies at law. we shouldremember that these

remedies are for latent defects only. These are not obvious to the naked eye. Theremedies are as follows.

3.6.1 Action Redhibitoria (Rescission)

The defect must be material and not trivial. The test of materiality is an objectiveone not merely that this

particular buyer, due to his whims, considers the defect to be so material. Thedefect must be latent. In

this action the buyer must prove that the defect is of such a mature as to make themerx unfit for the

purposes for which it was bought. also that had he known of the defect he wouldnot have bought

the item. We must be careful not to allow the buyer who is wise after the event, tobe his own judge.

Buyer returns the merx and gets his purchse price. This is also the case where themerx perished due

to the inherent defect. For example, if animals bought die of an unknown disease


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which existed at thetime of the sale, the buyer should take back the horns and get his purchased price.

If more than ignite, id bought i.e major item and accessories - a defect in themajor item would entitle the

buyer to action redhibitoria whereas a defect in the accessory may not.

If the items are bought as a unit, then defect in one entitles rescission of the entireunit.

Note: This action is different from the one where the buyer claims that thewrong goods have been

delivered. This would amount to breach of contract.

3.6.2 Actio Quanti Minoris

The buyer retains the merx and claims a reduction in the purchase price. In thiscase the buyer maystill Merx anyway, or he/she may no longer be in a position to return the Merx.

The remedy is thediferef\nce between the price paid and the market value of the item in its defective

state.This may de deducted from the cost of repairs.

- Where the merx is defective, the seller does not have a legal right to ask tobe allowed to

repair it. An exception is where the nature of the contract and goods wouldallow such

repairs, e.g supply of artificial teeth. A supplier may be allowed to adjustthem where they

protrude. Similarly, a supplier of suits to fit would be allowed to alterthem

- Where the buyer suffers damage to his own materials as a result of thedefective merx,

this would amount to consequential losses. Ordinarily, the seller is notliable for consequential

Damages.

the exceptions are:

- If he warranted that the Merx is free of defects. Then the seller's liability isbase on breach of

warranty. Acto empto.

- If seller knew of the existance of the defect and deliberately concealed it


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there is fraud.

- If the seller is a manufacturer or dealer who professes to have expertknowledge of the

merx he is selling

Both Actio Redhibitoria and Actio Quanti Minoris are known as AedilitionRemedies

Activity 3E

*Objective

- Explain situations when the buyer may not be entitles to aedilitionremedies

3.7 Obligatyions of the Buyer

The buyer also has obligation which arise from the law. He is obliged to do thefollowing

- To pay the purchased price. This is the most important of the buyer'sduties. For

example, the buyer must pay the purchased price.

- The buyer is obliged to accept delivery. Where the buyer has delayedaccepting

delivery, then the seller's duty of care is reduced. He will be liable only forgross

negligence.

- Duty to reimburse the seller for necessary expenses.

3.8 Some Special Types of Sale

3.8.1 F.O.R. (Free on Rail)

It may be free on rail sender's station or buyer's station. In the former, which ismore common,

the seller's duty is to pack the goods and deliver them to the nearest railwaystation and load

them on trucks destined for the buyer's station. The railways then because theagent of the

buyer. However, if it is F.O.R buyer's station, then the obligations of the selleronly end when


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the goods are at the buyer's station. This means the railways become the seller'sagent. The

former is a more expensive ccontract.

3.8.2 F.O.B (Free on Board )

The seller delivers the goods to the harbour and puts them on board a ship. Thesame rules as

in F.O.R apply.

3.8.3. C.I.F. (Cost, Insurance and Freight)

The seller must pack the goods, deliver them to the docks, load then on a shipproceeding to the buyer's

port. He must pay for them to the port of destination. He must get the requirementdocuments; i.e contract

of carriage, bill of lading, document of title and receipts. The documents must besent expeditiously to thebuyer. They must also include the policy of insurance.

As the bill of lading is a document of title, delivery of it to the buyer is symbolicdelivery of the goods.

Ownership passes to the purchase on delivery of the bill of lading. The risk passesto the purchaser

as soon as the goods are on the ship properly insured.

3.8.4 Sale on Approval

This is sale which is conditional upon the merx being approved by the buyer. Thisis a suspensive

condition. If the approval is not given, then the obligation does not flow.

3.9 Summary

In this Unit you learnt that a contract of sale is a special contract. This contractmust have all the

essential of a valid contract plus those essential; peculiar to contracts of sale

- We looked at why some things are incapable of being sold and also why atlaw sale of

stolen property is valid. however, we noted that the seller of stolenproperty cannot pass a

greater right in the property then he actually had.

- We looked at what happens if the property is accidentally destroyed ordamaged after the


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conclusion of sale but before delivery. This is the concept of risk.

- We also looked at the legal requirements for ownership to pass to thepurchase. We noted that

ownership would not pass to the purchaser unless the buyer has intention

to receive ownershipand seller also intends to pass it.

- The Unit looked at common law duties of the parties. These duties do notarise out of agreement

of the parties but out of the law.

3.10 Explanatory Terms

Merx: Subject matter of contract of sale

Nemo dat non babet: One cannot pass a greater right than one actually has

Vindicatio right: The right of owner to get back his property from any otherwho has no right

Spei: Hope

Risk: Liability for accidental loss or deterioration of subject matter afterconclusion of contract but

Before delivery. It also entails the concept of benefit accruing to thesubject matter at the same time.

Perfecta: Concluded in all respects

Vaccua possessio: Free undisturbed possession

Latent defect: A defect not obvious to the eye

Actio Redhibitoria : Action for rescission

Actio Quanti Minoris: Action for reduction of price

Essential Reading

Textbooks

Swanepoel J.PA (1995) Introduction to Mercantile Law. Butterworths, Durban

Christie R.H. (1993) The Law of Contract in South Africa. Butterworths, Durban


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Willie, (1991) Principles of South African Law, eighth Edition, Juta & Co. (Ltd)

Agency Law


In this Unit we look at creation of contract through an agent. Ordinarily thecontracting people

Negotiate directly and conclude their contract. It is also common for people to actthrough others

so as to conclude binding contracts. We look at the three sided transaction- that isthe giving of

the authority or mandate to the agent, the negotiation between the agent and thethird party andthe resultant relation between the principal and the third party.


When you have finished this Unit you should be able to

* Define an agent;

* Explain how an agency situation is created;

* Describe right and duties of agents and principals

* Explain how the relationship between agent and principal is terminated.

4.2 The Need for an Agent

Many business transaction are carried out through agent. The law may require thatsuch transactions

be carried out by that special type of agent. For example, the registration ofimmovable property may

only be done through a special lawyer/legal practitioner.

It may also happen that the party has limited contractual capacity and for hiscontracts to be valid his

legal agent must either assist or act on his behalf. Examples would be trusteesacting on behalf of the

insolvent, the guardian on behalf of a minor, a curator on behalf of a mentallydeficient person etc.


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Contract

Mandate

Agent Negotiation Third Party

Thus the agent must have contractual capacity so as to enter into the contract withthe principal

But as far as third parties are concerned and their relationship with the Principal,any person

of adequate understanding may act and bind the principal. The agent is a mereinstrument of the

principal, he falls out of the picture after the conclusion of the contract betweenthe Principal and the

Third Party.

4.4 Creation of Agency

4.4.1 By express agreement

This must be clear. Whether the authority to act is given orally or in writing.Where express

authority is given, the agent is not permitted to exceed the four corners of themandate.

4.4.2 Implied agreement

This is inferred from the circumstances. The test is whether a reasonable man,when assessing

the conduct of the parties, would consider that the parties have agreed to act on abasis which

can be characterized as an agency. The existence o a special relationship; e.g.employ and

employee, partner and co-partner, may assist bin deciding whether there isimplied authority.

4.4.3 Ratification

Important points with ratification are:

- The agent acted without authority.

- He represented to the third party that he was acting on behalf of theprinciple

- The Principal then adopts the transaction so as to cloth it with


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retrospectiveauthority.

- The Principal must adopt the whole transaction and not onlyadvantageous parts of it

One ratification has taken place, the effect is to place the parties in the positionthey would have

been in had the agent originally had authority.

4.4.4 Estoppel/Ostensible Authority

Where a person, by words or conduct, represents (or permits it to be represented)that another

person professing to bind him has authority to do so, he will not be permitted todeny the agency

against a third party who acts on the faith of the representation as to prejudicehimself. In thiscase the principal is bound by what the agent does when there is no express,

implied authorityand no ratification. In fact, in estoppel the principal would be denying the

existence ofauthority and is prevented or estopped from denying its existence. Note: The

representationmust come from the principal and not the agent.

4.4.5 Usual Authority

This is a result position. Where one is employed in such a position where peopleemployed in

such position usually do certain acts, he will bind his principal if he dose a similaract. For

example, one employed as a director may bind his company if he does thingsdirectors ordinarily do.

Even if his power is limited by the articles of association

4.4.6. Negotiorum Gestio/Agent of Necessity

These are acts done without authority. The courts do not look favorably tounauthorized

interferences in other people's affairs. As a result there are very limited.

They act justifiable on behalf of another in cases of emergency.

There should be no prohibition. The intention must be to benefit the other party.they are then allowed


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to cover their expenses. The party they act for is not a principal as such but iscalled the dominus.

The situation should be such that it is impossible or impractical to communicatewith the dominus.

Examples would be feeding uncollected animals or taking care of perishables.

Activity 4A

*Objective

- Distinguish between agency by estoppel and ratification

- A is owner of farm managed by B. A had previously expressly

forbidden B to buy any further supplies of cattle feed on credit without A'sconsent. Despite

these instructions B purchased more cattle feed on credit from J,who had

supplied previous orders and had been paid by A. Further, A seesJ's delivery

van supplying the cattle feed but does nothing.

- A now refuses to pay on grounds that the purchases wereunauthorized

- Advise A

4.5 Right and Duties Between Agent and Principal

- The duty to perform the mandate. The agent must do what he is mandatedto do. If he

does not then he is not entitled to any commission or he may be liable tothe principal

for any loss arising out of breach of contract. The court have decided thatin some

cases substantial performance by the agent would be enough to entitle theagent to

commission.

The Agent must follow the principal's instructions fully except where theinstructions are

illegal. He must not exceed his authority.


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- The agent must exercise reasonable care, skill and diligence in theperformance of his

mandate.

- Duty to act in good faith. This is an important duty. The relationship

between the principaland agent is a fiduciary one. It is one of utmost good faith. The agentbinds himself to act

in the interest of the principal. He must act honestly, loyally and single-mindedly in the

principal's interest. This duty includes the following:

- The agent must not make a secret profit in pursing the principal'smandate. if he

does, then the profit belongs to the principal. For example, an Stateagent who

buys the principal's house and resells it for a profit breaches hisduty.

The agent should not be bribed.

- He should not allow his interests to conflict with those of theprincipal. In case

of risk of conflict, the agent must make full disclosure and obtainprincipals

informed consent

- The agent should not abuse confidential information

The duty not to delegate authority. The concept of delegatus non potest delegaremeans that a

delegate must not sub-delegate. There are however exceptions to this rule. Forexample, where

it is trade, business usage or Ministerial duties not involving the exercise of theagent's discretion

or skill the agent may validly sub-delegate.

Duty to account. he must keep proper account of money received or spent onbehalf of the

principal and must allow the principal access to these books.

4.6 Principal's Duties to the Agent

The principal also has common law duties owed to his agent. Some ofthem are as follows.


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- The duty to remunerate the agent for services. Commission is paid

accordingto agreement. It is only paid after substantial performance at the

value of the

service to the principal, time pended by agent, his expertise and theprevailing marketrates. So as to determine what commission is to be paid.

- The duty to indemnify and reinburse the agent where the agent hasincurred liabilities

or made patents on behalf of the principal, he is entitled toindemnification and

reimbursement for payments made. These must be necessaryexpenses and payments

The agent should have been acting within the scope of his

authority;

- Where the agent has performed his mandate, he falls out of thepicture. The only

parties who remain are the principal and the third party. However,the agent may

not disclose the existence of the the third party discovers that theagent was actually

acting for another person, he may choose to hold the undisclosedprincipal to the

contract.

4.7 Termination of Agency

The agency situation is terminated in several way including the following

- By acts of the parties;Express revocation of authority by the principal or express renunciation by

the agent

- Death of either party, insanity or insolvency of either party;

- Supervening illegality e.g the principal is declared an enemy alien;

- Where appointment is for a specific time , then expiration of the time;

- Having completed the assignment as tasked.

Activity 4B


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*Objective

- Consider each of the following situations and give the principle oflaw

involved:

A. X was appointed by Y to find a buyer for Y's car. X without Y'sagreement

purchased new mag-wheels for the car and also intructed B to re-paint it.

He has now sold the care and demanded refund for the mag-wheelsand

New paint-work.

B. S is a cattle rancher. T's horses have strayed into his farm. S doesnot make

any effort to contact T. He buys stock fees and feeds and watersthe horsesfor three weeks. When one of the horses show3s signs of illness, S

hires aVeterinary Surgeon to attend to is. He now claims his expenses

from T.

C. G is appointed to do certain work by E. He has substantiallycarried out the

work, but has to appoint F to do part of the work as F is moreskilled than

him in this field. F has presented E with an exorbitant figure as hisprice.

E is refusing to pay.

4.8 Summary

In this Unit we conclude that an agent concludes a juristic act on behalf of theprincipal.

The result is that he creates legal this between the principal and third party,

- We noted the right and obligations which arise from the agent'snegotiation accrue

to the principal only.

- We conclude that for the principal to be bound by an act of the agent,authority has to be

established in one way or another. The agents previously unauthorised actor he is by law

prevented from refusing that the agent was his agent.


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- We concluded that for the principal to be bound by an act of the agent,

authourity has to beestablished in one way or another. The principal may also be bound

because he voluntarily

took on the agent's previously unauthorised act or he is by law preventedfrom refusing thatthe agent was his agent.

- We also looked at the special relationship between the agent and theprincipal. This

relationship is of utmost good faith based on trust and loyalty.

1.9 Explanatory Terms

Agent : A person who acts on behalf of another person

Fiduciary relationship: A relationship of trust and loyalty

Mandate: The agreement through which the agentagrees to perform

the principals instructions

Principal: The one who engages the agent

Ratification: Adoption of an act performed by another who hadnot been given

authority to act.

Estoppel: Prevented from denying

Essential Reading

Texbook

Christie R.H. (1993) The Law of Contract in South Africa. Butterworths,Durban

Swanepoel J.PA (1995) Introduction to Mercantile Law. Eighth Edition,Juta & Co (Ltd)

Willie, (1991) Principles of South African Law, Eighth Edition, Juta &Co. (Ltd)


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Employment Law

5.0 What this Unit is About

In this Unit we look at one of the most important contract in society. An

employment contractgoverns the relations between an employer and employee. we should also notethat because

of the important of this relations, the State also has an interest ,to protect. As aresult the State;

through the Labour Relations Act, regulates this relationship between theemployer and employee.

5.1 What you will Lean

When you come to the end of this Unit you should be able to :

* Discuss the nature of a contract of employment;

* Identify the differences between an employee and an independentcontractor;

* Identify the situations where an employer will be liable for wrongful actsof the employee.

This is vicarious liability.

* List duties of the employer and employee;

* Discuss situation when an employer is entitled to terminated employment.

5.2. Principles of Employment Contract

This is just an ordinary contract. One party provides his labour to another inreturn for payment.

The contract may be oral or written. The terms of the contract may be expresslyagreed by the

parties. Where these are skimpy or even non-existent, the terms would be implieddue to the employer-

employee relationship e.g the duty to obey lawful orders subject to the provisionsof the Labour

Relations Act.

It is important to establish whether the contract is one of employment proper. Thereason is that an

agreement for the provisionof services per se is not legally regarded as a contractof employment.


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Here there is an independent contractor rather than an employee.

The independent contractor is not under the control of the employer in as far aswhen he does his

work, or how he does it. It is the degree of wears company uniform or has use of

the employer'svehicles is not materials. The courts will look at the reality of the situation anddecide whether one

is an employee or employee or independent contractor. The way one has beenintegrated in the

employer's business may also be an important consideration

The relationship between employer and employee is extremely important withrespect to the aspect

of vicarious liability in the law of delict.

5.3 Vicarious Liability

An employer is liable (vicariously) for the wrongful act of his employee. But notthose of an independent

contractor. The notion is that liability is attached to one person although he maynot be the actual wrongdoer.

The rationale is that the employer is in better position to pay. That he is able tocontort how the employee

performs his work, and it is the employer who benefits from the conduct of theemployee.

For the employer to be vicariously liable, the wrongful act of the employee shouldhave been committed in

the course of his employment. The employee should largely have been doing hisduties for the benefit of

the employer. He should not have deviated from his duties in terms of time andspace. Thus the employer

will not be liable where the employee commits the act while he is now on frolic ofhis own. This is different

from doing one's duties wrongly or negligently; e.g. a recovery driver deciding toengage in a race with his

friends and thereby knocking down a pedestrian. The driver is still largely doinghis duties though in an

improper manner.

The injured party may sue either the employee or employer or both of the jointly

Activity 5A

*Objective


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- Funny was employed by Fix It (Pvt) Ltd as a driver. He was tasked

to deliversome materials to the company's customers. After delivering the

goods,

fanny decided to proceed to Chitungwiza, twenty kilometres off hisroute.While on his way he negligently drove his vehicle and injured

Speed whowas crossing the road. Is Fix It (Pvt) Ltd liable?

- What are the reasons behind the concept of vicarious liability?

5.4. Obligations of the Employer

5.4.1 Payment of Wages

The employer is obliged to pay the employee his remuneration. This is ordinarilyas agreed in their

contract. In some cases statute gives the lowest amount which an employerof a certain class

of person must pay eg. domestic workers. In this case it is illegal to pay, less thanthe statutory

minimum wage.

5.4.2 To provide work

Legally the employer is not obliged to prove the employee with work. However,where work is available,

the employer should afford the employee the opportunity to do the work he wasemployed to do.

Thus in a case where an employer prevented his employee for doing work he wasemployed to do,

but still paid him his salary the court held his to be constructive dismissal.

Where there is no work at one plant but work is available at another location, theemployer has a legitimate

right to require the employee to move to another location. This is the geographicalmobility of employees.

5.4.3 Sick Leave

The employer must provide employee with sick leave. This may be as peragreement. However,

continued absence of employee, due to sickness is a ground for dismissal.


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The company has currently had difficulties in securing contracts. As aresult is is facing financial

difficulties. Mr. F, the manager has recently had arguments with X. Thecompany has informed X

that due to lack of contracts, X would be demoted to a general worker and

his salary would bereduced. X has complained about this move but has continued working fortwo months. Now

X has faun another job. Does he have any remedies?

5.6 Termination of contract of employment

5.6.1 This is ordinarily by notice from either party

The period of notice may be as per agreement by the parties. Theemployment contract may provide

for payment of money in place of notice. Where no period of notice isstated in the agreement,common low provides that the notice period should be equivalent to the

period when salary is paide.g Fortnightly salary -then fortnight is notice. Monthly salary-month's

notice etc.

5.6.2 Summary termination of contract of employment

There are some common law grounds permitting the employer tosummarily terminates the contract

- Wilful disobedience of lawful order. This amounts to breach ofemployment contract.

The act must be deliberate.

- Drunkenness so as to be unable to perform one's duties or tointerfere with the work

Of another employees.

- Continued/Persistent absence from work without reasonableexcuse. This is misconduct

justifying dismissal

- Dismissal for incompetence. It is taken that an employee impliedlywarrants his competence.

This should amount to failure to afford the required skill

5.7 Summary


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In this Unit we noted that the relations between employer and employee isgoverned by the law of contract

and the Labour Relations Act. The contract of employment may be oral orwritten.

- That the employer is only liable vicariously for the wrongful acts of onewho is an employeeand not an independent contractor. We noted that the wrongful act should

have been committedwhile the employee was in the course of his employment for the benefit of

the employer

- the employer has common law duties to the employee, but he is not legallyobliged to provide the

employee with work.

- We learmt that there are circumstances when the employer may summarilydismiss the employeebut in all other circumstances the dismiss the employee but in all other

circumstances the dismissalhas to be after adequate notice has been given to either party.

5.8. Explanatory Terms

Employer: One who hires another to provide services to him

Employee: One who is engaged in a contract for the provision ofservices in return

for payment of wages.

Independent contractor : One engaged in contract of services. He is notclosely controlled by

the employer

Vicarious Liability: Employer's liability for the wrongful act of hisemployee.

The law of Lease


In this Unit we look at the letting and hiring of immovable property. owners ofproperty may for a


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variety of reasons not want to use their property themselves. They thereforewould grant others

the right to use and enjoy that property in return for rent. The relationshipbetween the Landlord

who is otherwise known as the Lessor and the tenant (Lessee) if governed by

principles ofcommon law.

6.1 What you will lean

When you come to the end of this Unit you should be able to:

* Define the nature of a contract of lease;

* List the essential elements of a lease;

* Describe the different types of leases and rights grated to the lessee undertype of lease;

* Distinguish between duties of the lessor and the lessee;

* Explain how the leasee is terminated.

6.2. Law of Lease. What is Lease?

This is base on the law of contract. The contract is a special one in that isconcerned with

immovable property only. It is a reciprocal agreement between the lessor and thelessee

whereby the lessee agrees to give the lessee temporary use and enjoyment of theproperty in

return for the payment of rent.

A contract of lease does not confer ownership of the property on the lessee. Thisdistinguishes

a contract of lease from a contract of sale. The lessee is only granted a right of useand enjoyment.

This means that the lessee should not consume the subject matter of the lease. Heshould be able,

at the end of the period, to restore the subject matter in the same condition inwhich it was. Fair or

reasonable wear and tear is expected. The deterioration should be as a result ofnormal use.

As a result, if by its use, the subject matter would be consument or the lesseewould not be in


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a position to restore it to the lessor, then a lease cannot be created over suchproperty.

6.3 Essential Elements

All essential elements of a contract have to be satisfied. In addition:

- The lessor must give and the lessee must receive the temporary use andenjoyment

of the property;

- There must be agreement on the property let;

- There must be agreement on the rent to be paid.

A lease is a reciprocal contract. it confers rights and imposes obligations on both

parties.These rights and obligations are a matter of terms by the parties.

Like other contracts, lease must be legal. For example, a lease of a place to beused as

a brothel is illegal. Such a lease would be vaid and unenforceable. Thus if thelease is

illegal, the court will refuse to en force a claim for rent.

6.4. Formalities

Writing is not a legal requirement for a contract of lease. An oral lease is asbinding as a written one. The Parties may agree that the lease be in writing.this may be intended as a record of the agreement.

Activity 6A

* Objective

- Peter and John are best of friends. Peter is a businessmanand John is an accountant. The two have a written agreementthat John would stay in one of Peter's houses. In return , Johnwould be responsible for doing all of Peter's business books.This is to last as long as both parties are alive. What is the legal

relationshipsbetween Peter and John?

6.5 Duration

The lessee is only temporary use and enjoyment of the subject matter. Parties may


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agree on the duration.Basically, there are two types of leases:

6.5.1 Lease in Longum Tempus (Long Lease)

This is a lease of period of more that ten years or for the lifetime of the lessee.This lease givesreal right to the property. To obtain this right over successors of the lessor, the

lease must bein written and registered in the Deeds Registry. Where there is such registration

the lessee'sright will prevail where the property has been alienated or where the lessor goes

insolvent.The registration serves as notice upon the successors and creditors of the lessor.

Every successorto the landlord takes the property subject to the lease. The new owner is not

entitled to terminate thelease be fore the period fixed expires. He simply steps into the shoes of the oldand must honour

all the obligation thereunder

6.5.2 Short Lease

This runs for a period of less than ten years. This lease in practice does not haveto be registered.

It may be a periodic lease which runs from month to month. The contract of leasegives the lessee

a personal right only. Under the general law, the lessee has no right to remain inoccupation against

successors in title to0 the property unless the successor has agreed to be bound bythe lease.

The Lessee has some protection under the rule huur gaat voor koop which meanshire goes before sale.

This provides some security of tenure for the lessee. To benefit from thisprotection, the lessee must

be in occupation of the property let. Again, if a purchase of leased propertyknown at the time of purchase

that the property is subject to a lease then he is bound by the lease even if it is notregistered.

6.6 Requirements for Rent

Rent is essential element of a lease. An agreement where A simply permits B tooccupy property

without rent being paid is not a lease. Similarly, if the parties fail to agree on therent there is no lease.


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Rent must be not in services. But it seems possible that rent can be partly inmoney and partly in service.

Activity 6B

* Objective

- What advice would you give Sarah in the following situations.

A. When Sarah moved into the house she is leasing from Musungu,the house

was leaking and the window panes were broken. She notifiedMuzungu

of the situation but he did not do anything. Now rain-water hasdamaged her property.

B. Sarah's new neighbor has brought onto his premises vicious godswhich continuouslybark at night so as to make it difficult for Sarah to find any sleep.

The Dog alsowander through the leased property upsetting rubbish bins and

making the propertydirty.

6.7 Implied Duties of the Lessor

- To deliver to the tenant use and occupation of the property let.

- Guarantee the tenant undisturbed use and enjoyment.

- To make necessary repairs to the property.

- To pay taxes levied on the property

- To Guarantee against defects in the property.

- On termination of the lease, to compensate the tenant for improvements.

6.71 Delivery of Use and Occupation

Delivery here means the property is put at the disposal of the lessor at the dateagreed. In the case

of a building, the lessor hands over the keys to the building. Thus thebuilding must be vacant at the

time of delivery . The lessee should be able to enjoy the full use of the


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property for the purpose forwhich it was let. For example the lessee of a shop was entitled to have access to

an adjourningyears (Owned by the lessor) top offload goods from vehicle at the rear entrance

to the shop.

(Wireless & General v Arjoy Investment 1971 (4) SA 174). But the lessee wasnot entitles topark his vehicles in the lessor's yard as this was not a normal or necessary

incident of dueenjoyment of the shop.

If the property is leased for a specific purpose, e.g a butchery, then the lessor mustdeliver the property

in a condition reasonably fir for the purpose for which it is let

6.7.2 Failure to deliver

The lease has the ordinary remedies. he may seek an order for specificperformance by the landlord.

The order for specific performance is only made if the landlord is able to makesuch delivery.

The lease may rasile/withdraw from the contract and sue for damages.

6.7.3 Guarantee the tenant undisturbed use and enjoyment

Every landlord undertakes that he will not disturb the tenant in his enjoyment ofuse of the

property leased. He also warrants that no person with a superior title will disturbthe

lessee's use and enjoyment of the property let.

Note: The landlord does not warrant that he is owner of the property. The lease isvalid even where the landlord is not owner. Thus the lessor is not entitled to enterpremiums let by him without the lessee's consent.

Unless such is for a legitimate purpose; for example, to inspect the premises butnot to take any fruit

Remedies if the lessee's use and enjoyment is disturbed he may:

- Claim immediate reinstatement; i.e to have his use and joyment restored tohim, or

- He may accept the deprivation as repudiation of the lease and cancel the


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contract, or

- In addition he may recover damages for any loss he has sustained.

He is also free from payment of rent for the period he is deprived of use and

enjoyment.

If the lessee is disturbed by another with a greater titles, he may not seekreinstatement, but

he has an action for damages against the landlord unless when taking the lease, hewas aware

of the defect in the lardlord's title.

A lessee who is threatened with disturbance must inform the lessor so that theletter can

come to his defence.

A lessor does not warrant the lessee against disturbance by third parties withouttitle. As a result,

a lessee disturbed by a squatter has no claim against the lessor nor can he claimcancellation of lease.

6.7.4 To make necessary repairs

A lessor is obliged to maintain the premises in a condition reasonably fit for thepurpose for which it

was let. He must repair doors, windows, the roof and other parts of the premises.He must also repair

structural defect which substantially interfere with the structural alterations orimprovements. If

damage is caused by the tenant's negligence the lessor has no duty to repair these.

If repairs are urgently necessary, and the landlord cannot affect them while thetenant is in occupation,

he may require the tenant to vacate the premises without becoming liable fordamages for breach of

contract. The purpose must be to effect repairs. The landlord may not under theguise of making

repair the tenant to vacate the premises so that he makes a major alteration. Such a'repair' is not

reasonable or necessary. The lessee is not to pay rent during the period he isdeprived of beneficial

occupation. The landlord takes the risk of the premises depreciating throughproper use. It is the duty

of the lessee to give notice to the lessor of the existence of a defect and afford hima reasonable


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opportunity to remedy the defect. If the lessor fails to maintain the premises in aproper condition,

the lesser may effect the neccessary repairs himself and deduct the cost from therent. He may

only effect repairs after prior demand and notice to the landlord. He must also

have given him areasonable opportunity to effect the repairs. The tenant is restricted to effectingnecessary

repairs but should not make structural improvement or alterations unless if the onlt

way of repairing is replacement; e.g a leaking roof which may need newmaterials.

The tenant can claim damages for loss caused by the existence of defects on theleased

premises. The damage should flow from the breach of the lessor's obligation to

maintain thepremises. But the lessor must have had knowledge of the defect. The burden ofroof is on

the tenant or if his trade or profession makes him an expert in matters related tobuildings.

The landlord's liability for damages caused as a result of defect in the lasedproperty may be

excluded by agreement.

E.g. a lardlord was made liable for damage to the tenant's property caused as aresult of

rain water coming through the roof where the landlord had notice of the fact thatthe roof

leaked and failed to repair.

(Salomon v Dedlow 1912 TPD 971).

6.7.5 Payment of Taxes

The lessor is the owner of the property let. In the absence of legislation oragreement to the

contrary, the lessor should pay all taxes, rates or charges imposed by the State ormunicipality or

any taking authority on the property. On the other hand, the lessee must pay taxwhich is imposed

upon the produce fruits of the property.

Activity 6C


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*Objective

- Simba has recently been promoted at his company. he believes thatthe house he is

staying in does not reflect his new social and economic status. The

house which Simba is staying in belongs to John. Simba would like John to dothe following

1. Demolish and reconstruct the front view including extending thebedroom.

2. Repaint the house

3. Erect a durawall around the property and remove the fence whichis there.

4. Repair the door because most of the doors are falling of theasbestos and

developed cracks which allowed water in.

* In each case advise Simba whether he is entitled to the request orwhether

he is entitled to the request or whether he may carry out the repairshimself

and recover from the landlord.

6.8 Duties of the Lessee

6.8.1 Payment of rent

This is the most important duty of the tenant. A lessee is under anobligation to

pay the lessor rent for the right to use and enjoy the property let.Rent must be paid

in time. If there is no agreement on the time, rent is payable on theexpiration of a

lease or if the lease is periodic, on the expiration of the period i.eend of month or week

as the case may be. it must be paid at the agreed place to the personagreed.

6.8.2 Failure to pay rent

If the lessee fails to pay rent, the lessor is entitled to claim paymentas rent becomes due.


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He may also claim damages suffered.

The lessor may cancel the lease. The lessee should vacate thepremises otherwise

there is unjust enrichment. The ladlord may also request for an

order for the lessee's ejectment or eviction.

6.8.3 Lessor's tacit hypothec rent

As soon as the rent is in arrears the lessor obtains a tacit hypothecfor the amount

of rent due to him. This right is to retain possession of certainmovable goods of the

tenant until the rent is paid.

The hypothec attaches to all things brought or carried on to theproperty- animals,tools, whatever their nature. He may also attach goods belonging to

third parties.The onus is on him to prove his ownership in the possessor. Also,

by permittingthe property to be on hired premises and by failing to notify the

lessor of hisownership, an owner leads the lessor to believe that the property is

the lessee's.For example, a third party's animal which is allowed to graze

indefinitely upona farm by the lessee, is subject to the lessor's hypothec.

However, a vehicle supplied to an employee by his employer to besaved solely

in the course of his employment is not subject to lessor's hypothecbecause there

is no permanence contemplated.

The hypothec comes into operation only when the rent is owing .The landlord

can only exercise the hypothec if the movables are at leasedpremises . He

cannot use this right if the goods have been removed. The landlordcan then

apply to court for attachment of these goods.

The lessee is entitled to a refund of the rent if he is deprived of the


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use andenjoyment of the property let to him either the lessor's default or

throughvis major or casus fortuitus. Thids is supervening impossibility

which extinguishes

the contract is a superior power or force which cannot be resistedor controlled.Casus fortuitus means an exceptional occurrence not reasonable

foreseen

6.8.4. Duty to use and care for the property

It is the duty of the tenant to take care of the property let and use itfor the purpose

for which it was let. Thus a place let for use as a dwelling house

cannot be used as a workshop; causing damage to the property amounts to improperuse. The lessee must

use the property let with the degree of care expected of reasonableman in the use

of his own property. He should not make structural alteration of theproperty so as to

charge the character of such property.

A lessor would be entitled to an interdict restraining a lessee fromusing premises for

puposes for which they were not let, or for using them improperly.

6.8.5 Duty to restore the property

Upon termination of the lease, the lessee must restore the propertyto the lessor.

The property must be restored in the same condition in which itwas delivered to

him-subject to reasonable wear and tear.

The fact that the premises are in damaged condition upontermination of a lese

does not entitle a lessor to refuse to redelivery of them. Heremerely has a claim

for damages i.e the reasonable cost of repairs for the property. Inaddition to his

claim for damages to the premises, the lessor may have a claim forloss of rent

during the period he is unable to let them because of their damaged


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condition.

6.8.6 Subletting

This is where the lessee lets property which is hired. The lessee

becomes a sort of lessor and creates another lessee. The lease between the originallessor and

lessee remain bound to each other. This means that a sublease doesnot create

a contractual relationship between the sub lessee and the originallessor. The

lessor cannot claim rent from the sub lessee. Payment of rent underthe original

lease remains the responsibilty of the lessee.

Activity 6D

* Objective

- Explain the legal relationship created between the sub lessee andthe lessor where

the leased property has been sub-let.

6.9 Termination

6.91 Expiration of time

If time is given the lease terminates upon expiration of time. No notice oftermination is needed.

6.92. Notice

A periodic lease is terminable by either party giving the other notice oftermination.

6.9.3 Mutual Cancellation

Mutual agreement to cancel, Or when there is breach which entitles the innocentparty to cancel. The

other party may make an election to accept cancellation.

6.9.4 Repudiation

A party indicates an intention not to be bound by the contract. This repudiationmay also be inferred


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from conduct: e.g the lessee vacating the premises and returning the keys.Remember repudiation

is form of breach and the innocent party has remedies.

6.9.5 Extinction of Lessor's title

A lessee derives his right to occupy and enjoy the property let from the lessor.Thus where the

lessor's right in the property terminates, the lease comes to an end except wherethe lessee is

protected by the rule huur gaat voor koop.

6.9.6 Merger

One cannot be his own creditor. Where the lessee acquires by sale or inheritance,the property

let. this results in termination of the lease.

6.9.7 Destruction of the subject matter

This is total destruction without fault of either party. If destruction is due tolessee's fault, the

lease is not terminated and the lessee remains liable for rent for the unexpiredperiod of lease.

He must also pay the lessor the value of the property destroyed.

6.9.8 Death

This does not terminate a lease. The estate of the deceased party is bound exceptwhere the

contract provides that the lease will terminate on death of either party.

6.10 Summary

In this Unit we noted that a contract lease can only be effected on immovableproperty such as

building. We also learnt that the lessee should, at the end of the lease, be in aposition to hand

back the subject matter of the lease to the lessor.

- The lessee on only granted the right to use but not to consume the subjectmatter.

- We looked at how the lessee is protected when the leased property is sold.We noted

that the lessee should not simply be evicted by new owner of the property.


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- We concluded that both the lessee and the lessor have rights and duties

which arise ourof the law and not by agreement of the parties. For example the lessee's

right to undisturbed

use and enjoyment of the leased property and the lessor's entitlement topayment of rent at theagreed time.

6.11 Explanation Terms

Lessor: One who makes available to another, the use andenjoyment of property .

Lessee: The one who uses another's property in return for payment

of rent.

Long lease: A lease for period often years or more or for a periodadding up to

more then years or for the whole like of the lessee.

Short lease: Lease for less than ten years

Huur gaat voor koop: Hire goes before sell. A maxim which protects a less seewhere the lease

is not registered i.e a short leas.

Sub-letting: Lessee lets another person to use part of the leasedproperty.

Tacit Hypothec: A right a retain possession of lessee's property bythe lessor

until payment of rent arrears.

Assignments and Tutorial Questions

In this Unit we shall discuss methods of answering business law questions. We shall lookat how businesslaw students are expected to apply the principles of law to answer given questions.

7.1 What you will Lean

By the end of this Unit, you should be able to know

* What you are expected to know when answering question


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* That there are three different types of sugqestions;

* That problem type questions are more complex and require you to beanalytical and

argumentative;

* That you should identify the legal issue arising from problem questions

* That you should always answer the questions asked or comply with theinstruction

given

7.2. Introduction

Questions in most law subject are normally in three forms

- Straight forward essay questions

- Problem type questions

- There may also be an option for multiple choice questions

This Unit contains these three forms of questions. There are twenty simplifiedproblem questions,

twenty straight forward essay questions and twenty multiple choice typequestions.

The objective is to discover whether you have understood well the basic conceptsin each topic

covered. You should then be in a position to explain, analyze or discuss issuesgive. It is

important to remember that in law, one should always support an argument withreference to legal principle,

cases or statutes.

7.3. Problem Questions

Most of you are familiar with essay and multiple choice questions. Problemquestions are exercises

where one is given a fictional factual situation. This may cover a number of legalaspects of any topic.

The question may then require that you discuss the legal issues arising out of thegiven facts. or they

may requre that you discuss the legal issues arising out of the given facts, or theymay require you to


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give advice to a party. You may also be required to discuss remedies available, ifany. You should

appreciate the substantive law involved and apply the law to the facts so as tocome to a conclusion

which is the solution to the problem.

7.3.1 How to approach problem questions

- The First step is to analyze the fact. This is isolating important facts whichwill help

you in identifying the issues. Take the facts as given, do not make yourown

- From the important facts, identify the issues. You must note that there maybe more than one legal issue in a problem question.

- Apply the law to the issue. You have to find the relevant law to each issueandapply the law so as to arrive at a conclusion.

- Summarize your va rious conclusions in such a way that you answer thequestions

7.4. Multiple Choice

1. The Zambian legislative consists of :

A. House of Assemble and the Executive President

B. House of Assemble, Senate and President

C. The Judiciary, House of Assemble, Senate and the President

2. The term privity of contract means

A. Terms of contract are standard

B . Parties are free to choose their contractual partners

C. A void contract is not enforceable

3. The head of the Judiciary in Zambia is

A. The President

B. The Chief Justice


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C. The Attorney-General

4. Consensus ad idem means

A. The parties are at one, there is agreement

B. The parties are at cross-purposes

C. The contract is voidable

5. Merger in the law of contract means

A. The coincidence of capacities so as to extinguish obligations

B. Agreement by novation

C. Acquisition of property which was unoccupied

6. A negotiorum gesto is

A. A lessee who has sub-let property

B. An agent of necessity

C. An agent required by the court

7. An independent contractor is

A. One not under control of the employer as to what he does and how he doesit.

B. One who is under the control of the employer as to what he does and howhe does it.

C. One who is vicariously liable for the acts of his worker.

8. A suspensive condition

A. Suspends the operation of the contract until the materialization of theevent

B. Terminates the contract

C. Makes a contract voidable at the option of the innocent party.


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9.. Unascertained goods are :

A. Goods which do not exist

B. Goods which need counting, Weghing or measuring

C. Goods incapable of being owned

10. One of the following is not a lessor's duty.

A. To Protect the lessee's possessions from strangers

B. Not to disturb the use and enjoyment of the property

C. To delivery usr and enjoyment of the leased premises.

11. In a sale vetstoots means

A. The merx is sold as it is, with all its defects

B. The seller must guarantee against latent defects

C. The Sale is subject to a condition

12. The nemo dat quod non babet doctrine means

A. One cannot sell stolen property

B. One connnot pass a greater right in the property that he actually has.

C The owner of stolen property can recover his property from anyone whohas it.

13. Duress vitiates the following

A. Intention to enter into the contract

B. Capacity to contract

C. Legality of the contract.

14. Which statement is correct

A. The supreme Court is bound by its own decision


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B The supreme Court is not bound by its own decisions

C. Is only a Court of appeal

15. A misrepresentation makes a contract

A. Void

B. Voidable

C Illegal

16. Which statement is correct about a Primary Court

A. It is president over by a judge

B. It can hear both both civil and criminal cases

C. It can only apply customary law

17. An agent is merely to facilitate conduct between the principal and the third party. Hemust himself.

A. Have contractual capacity

B. Does not need have contractual capacity

C. Be solvent

18. The golden rule of interpretation means

A. If a words is ambiguous, it is interpreted against its maker

B Words are given their ordinary everyday meaning

C Contracts are interpreted so as to give them efficiency

19. Delivery longa manu means :

A. The buyer already has the goods, the seller does not have to re-deliver

B. The seller delivers to the buyer's agent

C. The seller merely point at the goods thus putting them at the disposal ofthe buyer


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20. Actio redhibitoria entails

A. Cancellation of the contract and putting the parties to status quo

B. Reduction of the purchased price

C. Giving damages for consequential losses

Essential Reading

Testbooks

Christie R.H., (1993) The law of Contract in South Africa, Butterworths, Durban

Swanepoel JPA (1995) Introduction to Mercantile Law, Eighth Edition, Juta & Co(Ltd)

Purchasing and Sale


In this Unit we now look at a special type of contract. This is a contract which hasown essential

requirements. This is very common type of contract which we all enter intowithout much thought.



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Whenyou come to the end of the Unit, you should be abkle to:

* Objective

- Define a contract of sale

- Distinguish between things which can and cannot be bought orsold;

- Discuss requirements for ownership to pass from seller to buyer;

- Explain the concept of risk in contract of sale;

- Discuss the various methods by which delivery may be effected;

- Explain the duties of the buyer and seller;

- Describe some special types of sale for exmple Cost Insurance andFreight,

Free on Board and Sale on Approval.

3.2 Essential Elemenets of a contract of Sale

We must remember that a contract of sale is a contract just like any other contract, thus itmust meet all the essentialelements of a contract which have already been condered in Unit 2; that is, the agreementmust be legal, parties musthave contractual capacity, terms must not be vague, it must be enforced etc.

further, the contract must meet those essntmials peculiar to a contract of sale. These are:

- Agreement must be one of sale. The courts will awalys look at thetransation and call it what

it amounts to despite what the parties decide to calle it.

- For example, contract of sale must be distinguished from gift or free offersor donations.

They must also be distingushed from excharge or barter.

- There must be an agreement on the article which is known as thething/merx or subject matter

of the sale. This is important because some things cannot be sold and thesale of others is

restricted or subject to requlations.

- In a contract of sale a price must be paid for the things or the parties must


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have agreed thatthe price will be paid in the future. Thus an agreement to sell for free is

not a sale.

Activity 3A

*Objective

- Give a list of things which cannot be sold and reasons whythey

cannot be sold.

- Also give a list of things which are sold subject torequlations and

name the requlations in each case.

3.3 Things which cannot be sold

- The right to inheritance to a person who is still alive cacnnot besold. But a right to

inheritance to deceased person can be sold .

- Stolen property and property belonging to third parties can bevalidly bought and sold.

The reasons is that in Zambian Law of purchase and sale thecontract of sale is kept

seperate from passing of ownership. The sale of stolen property isvalid, but the seller

cannot pass ownership. This is because one cannot pass a greaterright in the property

than one actually has. This is expressed by the concept nemo datquod non babet.

The thief has no right in the property therefore the true owner has aright to recover the

goods from whoeever may be in possession. This is known sa thevindicatio right.

Where the thing bought has been recovered by the true owner, thebuyer can only

recover the purchase price from the seller where he is still avalable.Note that the

buyer should not prematurely surrender the goods, lest hesurrenders to another thief.

The buyer should afford the seller a reasonable opportunity tocome to his protection.

If a buyer purchased goods with knowledge that they were stolenor where he ought


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to have known from the surrounding circumstance that they werestolen then he is an

accomplice after the act and has no remedies.

Not only tangible things can be sold-those which can be toughed e.g the

book, but intangible canbe sold e.g goodwill, trade marks and patents.

Note only existing goods can be sold. These are goods already in theposession of the seller.

Non-existent or future goods capable of coming into existence may bebought and sold.

For example, afuture harvest or carch of fish. these are goods which needto be counted,

weighed or measured to the buyer's specifications.

Activity 3B

* Objective

- What are the exceptions to the nemo dat quad non dabetrule?

3.4 The Price/Pretium

There must be agreement as to the price. The price is important as itdistinguishes a contract

of sale and gifts or donations or exchange. There can be a valid agreementto sell at a price to

be dfetermined by a third party who agrees. If the third party does notagree, then there is no

sale.

The price must be current money not in goods. However, where the valueof goods is

insignificant, the court may stll call it a contract of sale.

3.4.1 Passing of Risk and Ownership Risk

You should be able to understand the aspect of risk. This has no relation tothe aspect of

ownership. Risk refers to the issue of who bears the loss due to accidentialderetioration,

damage or loss to theMerx/thing after the conclusion of the contract butbefore delivery.

This issue of risk does not arise before the contract is concluded. It also


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does noy ariseafter delivery. It is important to note that the issueof risk also entails

benefits accruing to themerx at the same time. For example, if A buys a cow from B and there is

agreement on the

cow to be bought and the price, if the cow calves before delivery andpayment of the purchaseprice , the calf belongs to the buyer. The general rule is that risk passes to

the buyer as soonas the contract is concluded, or is Perfecta. This rule has nothing to do

with the issue ofownership.

There are exceptions to the general rule. These are as follows:

- The parties are free to agree to the contract i.e. to vary general rule

- Where the seller has delayed delivery- he is in mora if the losswould not have occurred

had he delivered timeoussly.

- Where the seller is negligent in the business sense.

- where the sale is one of unascertained goods. Risk would only passwhen the goods

have been ascertained i.e there has been counting, weighing andmeasuring the goods

before risk passes. For example, if A buys bags of maize from B,and before delivery

B's entire stock is destroyed by fire, then risk has not passed to Abecause the goods

have not been ascertained, weighed, counted or measured.

- Where the contract is subject to a suspensive condition. This isbecause there is only

contractual relationship before the conditio is satisfied. Theobligations are suspended.

- If the contract is void for one reason or another. Becuase a vaidcontract does not give

rise to anyt obligations.

Activity 3C

* Objective


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- Advise X in each case:

a) X contracts for the supply of new carpet from Z (Pvt)Ltd which has been

specifically ordered for him from a manufacturer. Before

delivery, Z's premises are destroyed by fire and the carpet is lost.

b) As in (a) except the carpet was manufactured by Z (Pvt)Ltd and had not

been selected from the bulk of carpets earmarked for thecustomers.

3.4.2 Ownership

Ownership is a bundle of rights which include among others the riht of use

of the Merx, theright of enjoyment, possession or the right to alienate the ite,. Ownershipis a real right which

can be claimed against the whole world. A person may have a right ofownership without actual

possession of thr item. Conversely,a person may have possession withoutowership.

For ownership to pass, certain requirements must be met. These are asfollows:

- The seller must be owner. The nemo dat quad babet principle. Thismeans one

nannot pass a greater right than he actually has.

- The thing must be capable of being owned. If not , then ownershipcannot be passsed.

For example, air cannot be owned.

- The seller must intend to apss ownership while the buyer mustintend to receive ownership.

- The purcahse proice must have been paid or credit must have be engiven. There is a

presumption that sales are for cash unless the seller is taken to havewaived or given

up his right to receive cash. Thus, in a credit sale ownership passesto the purchaser.

Thus in Hire-Purchase transactions, ownership of goods does notpass to the purchaser


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until the payment of the last instalment.

- The seller must have delivered the thing to thr buyer. As a generalrule, delivery entails

the seller putting the goods at the disposition of the buyer. Thus

delivery ordinarily takesplace at the seller's place of business. We must note that at law, theseller is not obliged

to deliver the goods to the buyer's place. Delivery is ordinarilysubject to agreement between

the parties.

There are however, anumber of recognised ways of delivery:

3.4.3 Actual delivery

This is from hand to mhand physical delivery otherwis known as manu demanu delivery

3.4.4 Delivery with a short hand

Known as Brevi manu delivery. the buyer already possesses the merx hebuys because of a

previous transaction: for example he had borrowed the computer. When hebuys it the seller

does not have re redeliver.

3.4.5 Delivery with a long hand

Here the goods are bulky to be moved, or the movement of such goodsmay be for the time

being prohibited. The seller merely points at the goods which shall then betaken to belong to the

buyer. The is delivery longa manu

3.4.6 Symbolic delivery

The seller delivers something other than the goods. What is delivered heremust give the

buyer exclusive control of the goods e.g keys to house or bills of lading togoods still at sea.

3.4.7 Attornment

Goods are delivered to a third party who acts as agent of the buyer


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3.4.8 Constitutum possessorium

The seller keeps the goods on behalf of the buyer. the courts do not favourthis type

of delivery as it may tempt and lead to fraud.

3.4.9 Regsitration

Ownership in ummovable property is passed by registration according tothe provisions of

the Deed Registries Act . Thus the purchaser of a house who has paid cashwithout having

the house registered in his name would not become the owner.

Activity 3D

*Objective

- Explain whether ownership has passed in each ofthe following

a) Gift is paying lobola to his father-in law. He takeshim to his ca ttle

kraal and points out six beasts which he says are forthe payment.

However, there is a requlation preventing themovement of animals

from one area to another and the father -in-lawcannot take the

animals. Three of them are struck by lightning anddie before they

are possessed by father in law.

b) Gilbert borrowed a mountain bike from Mike. Mikehas migrated to

Malawi and has no intention of coming back toZambia. The two

have agreed that Gilbert buys the bike for $2 000.00Mike has not

paid .

c) Betty has brough rice from Satisfy (Pvt) Ltd acompany registered

in Zoland an overseas country. Betty has receivedthe bills of

lading which he sells to Joe. When the rice arrives


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by sea, it isfound to be musty and unfit for human consuption.

3.5 Duties of the seller

We now look at what the seller is legally obliged to do. These duties do not ariseout of agreement withthe buyer, but out of the law. This means the the duties are implied by the law.

The duties are as follows:

Duty to deliver the goods. By any me thod of delivery already considered. Wherethe seller delays he

will be in mora and risk may revert back to him.

- To kepp the goods in safe custody until delivery. If the seller is negligentin the business sense,

then he may become liable to the buyer. if the buyer delays taking thegoods, then the sellerwould be liable only for wilful acts or gross negligence.

- Duty to guarantee undisturbed possesseion of the goods. (vaccuaposessio). Remember the

seller does not quarantee that he is owner. He only guarantees that no onewith a greater title

will disturb the buyer. Howwever, the buyer has (loci standi) the right totake his own legal

action where his possession is disturbed by those without any title.

- Duty to guarantee against latent defects. Latent defects are those which arenot obvious to

the naked eye. The buyer does not have to carry out a cruel examination ofthe subject matter

or to employ an expert to do the examination. the seller does not have toguarantee against

patent defects. These are obvious defects such as a table with one of thelegs shorter than

the rest.

- The duty would be excluded or not apply there the sale is wetstoots i.emarx is sold as it stand.

this fact has to be brouygh to the attention of the buyer

3.6 Remedies to the Buyer

Where the goods are defectjive the buyer has some remedies at law. we shouldremember that these


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remedies are for latent defects only. These are not obvious to the naked eye. Theremedies are as follows.

3.6.1 Actio Redhibitoria (Rescission)

The defect must be material and not trivial. The test of materiality is an objectiveone not merely that thisparticular buyer, due to his whims, considers the defect to be so material. The

defect must be latent. Inthis action the buyer must prove that the defect is of such a mature as to make the

merx unfit for thepurposes for which it was bought. also that had he known of the defect he would

not have boughtthe item. We must be careful not to allow the buyer who is wise after the event, to

be his own judge.

Buyer returns the merx and gets his purchse price. This is also the case where themerx perished dueto the inherent defect. For example, if animals bought die of an unknown disease

which existed at thetime of the sale, the buyer should take back the horns and get his purchased price.

If more than ine ite, id bought i.e major item and accessories - a defect in themajor item would entitle the

buyer to actio redhibitoria whereas a defect in the accessory may not.

If the items are bought as a unit, then defect in one entitles rescission of the entireunit.

Note: This action is different from the one where the buyer claims that thewrong goods have been

delivered. This would amount to breach of contract.

3.6.2 Actio Quanti Minoris

The buyer retains the merx and claims a reduction in the purchase price. In thiscase the buyer may

still Merx anyway, or he/she may no longer be in a position to return the Merx.The remedy is the

diferef\nce between the price paid and the market value of the item in its defectivestate.

This may de deducted from the cost of repairs.

- Where the mer is defective, the seller does not have a legal right to ask tobe allowed to

repair it. An exception is where the nature of the contract and goods would


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allow suchrepairs, e.g supply of artificial teeth. A supplier may be allowed to adjust

them where theyprotrude. Similarly, a supplier of suits to fit would be allowed to alter

them

- Where the buyer suffers damage to his own materials as a result of thedefective merx,

this would amount to consequential losses. Ordinarily, the sel

Documents

BBA124 Business Law Module