COMMERCIAL LAW

1. THE LAW OF CONTRACT
What is a Contract?
A contract is a lawful agreement, made by two or more
persons within the limits of their contractual capacity,
with the serious intention of creating a legal
obligation, communicating such intention, without
vagueness, each to the other and being of the same
mind as to the subject-matter, to perform positive or
negative acts which are possible of performance
(J.T.R. Gibson, South African and Mercantile Law, 5th Ed.)
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Essential Characteristics of a
Contract
1. The agreement must be lawful
2. The agreement must be made within the limits of
the parties’ contractual capacity
3. The parties must seriously intend to contract
4. The parties must communicate their intentions to
each other
5. The agreement must not be vague
6. The parties must be of the same mind as to the
subject matter (ad idem)
7. Performance must be possible
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 Unless prohibited by statute or common Law.
a. It is prohibited by Common Law if the contract is
against public policy or contra bonos mores.
b. Agreements prohibited by Statute are void whether
expressly or impliedly prohibited.
 Prohibition by statute may refer to either form of
contract or performance to be made
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i. The form of the Contract
 The general rule is that no formal expression need to
be given to the will of parties
 By statute, some contracts are void if their creation
has not been effected with the necessary formality
i.e
a. Writing
b. Notarial execution, and
c. Registration
ii. The Performance to be made (Express or Implied)
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2. Parties’ contractual capacity
 Persons with limited contractual capacity:
i. Minors
ii. Mentally ill persons
iii. Drunk persons
iv. Prodigals
v. Insolvent persons
vi. Persons who have been convicted of a crime
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2. Parties’ contractual capacity
 Minors can get into valid unassisted contracts in
exceptional cases where there is:
1. Enrichment
2. Fraudulent Misrepresentation of Majority
3. Tacit Emancipation
4. Ratification
5. Statutory Exception
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3. Parties must seriously intend to
contract
 Agreements are void if:
i. Is of a social nature
ii. Entered into as a jest or sarcastic overstatement
iii. Agreement state that it ‘is not entrered into as a
formal or legal agreement and shall not be subject to
legal jurisdiction in such cases’.
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4. The parties must communicate
their intentions to each other
 Parties should make each other aware of their
reciprocal intentions – verbally, written or otherwise
 Every contract is made of an offer that is accepted by
the other party
i. Offer – is a proposal which expresses a person’s
willingness to become party to a contract , according
to the terms expressed, and the acceptance of which
by another person binds both of them contractually.
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Offer
a. It must be consistent with all the elements of a
contract
 If the elements of a contract (as outlined in slide 3) are
not present, acceptance of the offer will not create a
contract
 Serious intention – the offeror must make his offer
with the intention that a contract should result on the
precise terms offered
 Communication – the offer must be communicated to
the person with whom it is intended
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b. Must define all terms on which agreement is sought
 An offer must be made with the intention of
concluding there and then a final contract and must
not be merely a proposal in the course of negotiations
 If certain terms are left to be discussed at a later date,
the proposal is not a complete offer, and acceptance
does not create a contract
 Also possible for issues to be left for determination
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 Revocation and lapse of offer
 An offer can be revoked any time provided there has
been no acceptance.
 In the absence of a revocation, the offer remains valid
for a reasonable time.
 An offer can be irrevocable only if an offeror contracts
with someone to keep the offer open for a specific time
– option.
 An offer lapses on the death of an offeror or offeree,
provided there was no acceptance
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 Rejection
 Offer lapses when rejected by offeree – either by
express rejection or by making a counter-offer
 This principle doesn’t apply when acceptance is
unequivocal and offeree goes on to suggest certain
methods of perfomance.
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4. The parties must communicate their
intentions to each other
 Acceptance
 Is the express or implied signification by the offeree of his
intention to be contractually bound in terms of offer made
to him.
 An acceptance converts a valid offer into a contract if
1. The acceptance must be consistent with the essentials of
a contract
2. It must be unequivocal and in terms of the offer.
3. It must be made in the manner prescribed by the offerer
4. It must be made during the life
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5. The agreement must not be
vague
 An agreement must not be vague that its meaning cannot be
ascertained by a court.
 Incompleteness or uncertainty of a contract does not render it
void if a meaning can be determined by a court on the evidence
before it and there are 4 classes of vagueness.
1. Where performance is dependent on a condition which in fact
reserves an unlimited option to the promisor
2. Where the vague language justifies the implication that the
parties were never ad idem.
3. Where there is no concluded contract
4. Where the unspecified details of the contract are questions of
determination by evidence and the contract contains sufficient
information to enable the object to be accurately ascertained.
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vague
 Some determined cases include:
1. X was employed by his uncle and was promised ‘something
sometime’ for his services.
2. A party to a contract was entitled ‘from time to time to
withdraw moderate amounts’
3. ‘When I can afford and when it is convenient to do so’
 The golden rule is to ascertain and follow the intention of
the parties, and if the contract itself affords a definite
indication of meaning, then the effect of that meaning is
given.
 If the meaning is vague, the courts arrive at intentions of
parties.
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vague
 It is not easy to arrive at ‘intentions of the parties’ by the court and so
there are rules followed when meaning is vague and ambiguous.
i. Words are to be given their plain, ordinary, popular meaning unless
both parties intended for s different meaning.
ii. When a contract is capable of more than 1 meaning, the court will
place that construction upon which upholds it rather than make it
illegal and void
iii. A vague clause is interpreted in such a way as to bring it in harmony
with the whole contract
iv. Where a later provision qualifies an earlier one, regard is given to the
qualification
v. When ordinary rules are exhausted, recourse is contra proferentem
which is interpreting against the party that drew up the contract
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 The general rule is that a contract is void if, at the time
of inception, its performance is impossible.
 If a contract becomes impossible after it has been
entered into (supervening impossibility of
performance) the contract is terminated as soon as it
becomes impossible and there shall be no further
breach of it.
 Subjective impossibility (ie performance impossible to
a debtor but quite possible objectively) doesn’t render
the contract void eg X buys a house for $50K without
the remotest prospect of raising the money.
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 If the impossibility is within contemplation of parties
eg in cases of speculative contracts where scarcity,
running to the point of absolute disappearance of
production of the article sold, is contemplated, the
contract is terminated by the fact that performance
becomes impossible.
 Supervening impossibility must arise as a result of vis
major or casus fortuitas ie Act of God or Act of State,
otherwise if the contract supervenes as a result of
deliberate or negligent act of one of the parties, the
contract remains binding
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Void and Voidable Contracts
 A VOID contract is one in which a contract lacks at
least one of the seven elements of a contract
 On the contrary, if all the seven elements of a contract
are available, but the contract came into force through
misrepresentation, undue influence and duress, a valid
contract arises but it will be VOIDABLE at the instance
of the prejudiced party.
 Therefore, the distinction between voidable and void
contracts hinges on whether there is consensus
between the contracting parties.
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1. Definition
 A sale is a contract in which one person (the seller or
vendor) promises to deliver a thing to another (the
buyer or emptor), the latter agreeing to pay a certain
price (Treasurer General v Lippert (1883) 2 SC 172)
 Legal rights and duties of the two parties flow
immediately upon agreement – neither delivery nor
payment is necessary.
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Nature of Contract
 The essentials of a sale are (i) an agreement (ii) to deliver (iii) a particular article at (iv) a
particular price
i. The agreement is formed by offer and acceptance in the ordinary way
ii. Delivery – the parties agree that the seller is to deliver to the buyer a particular article
 A real right to a thing can be transferred through delivery, actual or constructive
 The contract gives personal rights to the buyer to enforce delivery by the seller and
does not have the effect of transferring a real right from seller to buyer.
 Until delivery, the buyer has no right in the article at all
iii. A particular article – it is essential that the parties be ad idem as to the particular
article (merx) which is the subject matter of the sale.
 The merx need not be corpreal eg debtors book and it need not be in existence at the
time of contract provided there is possibility existence in the future
 The sale of a non-existent article that will come into existence in the future is called
sale of a spes or a res sperata.
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1. Definition
iv. Price - in the absence of an express or implied price
to be paid, there is no sale.
 Implied price takes place where there is free supply of
the article and no word is said regarding the price
 Where no price is stated on articles not freely supplied,
a reasonable price is assumed
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2. Relationship Between Parties
Obligations of a Seller
 After conclusion of a sale, the seller is obliged to
a. To care for the subject-matter of the sale pending delivery
b. To deliver the article to the buyer
i. The duty to take care of the thing sold
 The seller is responsible for any loss caused to the thing
sold by his negligence but not for accidental damage
caused quite independently of any negligence on his
part.
 The risk of accidental loss (periculum rei venditae) is
carried by the buyer from the moment the contract is
concluded, but the seller remains responsible for the care
of the thing until delivery
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2. Relationship Between Parties
The Passing of Risk
 Risk of accidental damage to the thing passes to the buyer immediately
the contract of sale comes into existence unless there has been express
agreement varying the rule.
 Even if the article is totally destroyed before delivery and the buyer can
never become the owner of it, he must pay the purchase price.
 Eg. A buys a cow from B and the cow is struck by lightning and killed
before delivery.
 If the loss is caused by willful or negligent action of a 3rd party, risk is
borne by the buyer
 The buyer can recover compensation from the 3rd party only if he has
taken a cession of action from the seller
 The 3rd party remains liable to the seller
 Whilst risk passes to the buyer, the profits and losses which may arise
or accrue from the property passes to him
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2. Relationship between parties
When Risk does not pass
 The rule does not apply where:
i. There has been express or implied agreement
varying the rule
ii. The sale is subject to suspensive conditions
iii. The goods have to be counted, weighed, or measured
in order to fix the purchase price or to appropriate
them to the contract
iv. There is default on the part of the seller to make
delivery
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a. Express or Implied Agreement
b. Sale subject to a Suspensive Condition
 Where there is supposed to be an uncertain future event, the
contractual relationship occurs as soon as there is an agreement, but
the relationship of buyer and seller develops upon fulfillment of the
condition
 The risk therefore remains with the seller beg J sold and delivered a
horse for $1K, to be paid in $100 installments. The agreement was
subject to a suspensive condition that ownership would only pass
upon full payment. After 1st installment, the horse died
 Once conditions are fulfilled, obligations of buyer and seller resume
as if there have never been a condition and are deemed to have been
acquired at the time of the original agreement
 Risk is deemed to have passed not on fulfillment of condition but on
agreement
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 Effect is that – if the article sold is completely
destroyed before fulfillment of condition, the sale
becomes a nullity and sell is not entitled to his price
 If the article is damaged before fulfillment of the
condition, the risk is the seller’s if condition is never
fulfilled but it is buyer’s if fulfillment takes place
 If buyer designedly prevents fulfillment of a condition,
doctrine of fictional fulfillment will apply and
condition will be deemed to have been fulfilled.
 Risk is the buyer’s
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c. Sales of articles requiring Counting , weighing and Measuring
 This can be sales ad mensuram –requiring counting eg to fix a price for
example A buys from B heap of coal at Rx per ton, but the exact quanity
is unknown and weighing is necessary to arrive at the purchase price
OR
 Fungibles – requiring counting etc in order to separate the material
bought from the larger quantity of the same material eg A buys from B
20 bags of coal at x cents/ton/bag, but the bags require counting out
before it is known which of them are subject-matter of the contract.
 This distinction doesn’t matter as passing of risk is the same in both
cases
 The risk remains with the seller until counting, weighing and
measuring is complete
 Sometimes bilateral appropriation is required
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d. Default by seller in making delivery
 Where the seller is in default of delivery (mora), the
risk, which had passed to the buyer immediately on
the conclusion of the contract, returns to the seller
 The seller does not bear the full risk, there’s a
presumption that any damage caused to the article
after default is due to the negligence of the seller,
unless he can prove that damage could have occurred
even after delivery
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ii. The duty to deliver
 The seller doesn’t undertake to make the buyer the owner
of the article but undertakes to him the vacua possessio
(free possession)
 In most cases, the buyer becomes the owner, and even if he
doesn’t, he’s protected against ‘implied warranty against
eviction’
How Delivery is effected
 Delivery of immovable property takes place on registration
whilst there’s actual and constructive delivery in
immovable assets.
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 Actual delivery (traditio) is the actual physical
handing over of a thing by one person to another de
manu in manum (from hand to hand) or at least the
placing of the thing within the effective control of the
receiver
 Constructive delivery (or fictitious delivery) is a
process the law accepts as being equivalent to the
actual deliveryalthough no physical handing over takes
place.
 There are different types of Constructive delivery
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i. Symbolic delivery – is the delivery not of the thing itself but of
some particular article which enables the buyer to exercise
control over the thing sold eg bill of lading or key to a
warehouse where buyer’s things are kept.
ii. Delivery with the long hand (traditio longa manu) - is the
means of effecting delivery where actual delivery is difficult
because of the size of the article.
 The procedure is that the seller points out the article to the
buyer in such a way that the buyer can exercise full control
over it whenever he pleases eg cattle for lobola
 Requirements for delivery is that 1st , there must be intention
to resort to that form of delivery, 2nd, there must be pointing
out in presence and placing at the disposal of buyer and 3rd,
identification must be clear
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iii. Delivery with the short hand (Traditio brevi manu) – no
physical handing over occurs and the thing s already in
possession of the buyer.
iv. Constitutum possessorium – converse of the traditio brevi manu.
 Two parties sell to each other but the product is retained by the
seller for whatever reason after the tow have agreed on delivery
VACUA POSSESIO
 Entails something more than the mere physical detention of the
thing concerned.
 It entails a free and undisturbed possession, not in contest when
delivered.
 It is possible for a person to sell property of which he is not the
owner and without the owner’s authority.
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Implied Warranty against Eviction
 The seller undertakes that the buyer will not be disturbed, whether by
the seller himself or by a 3rd party, in his vacua possessio, as a result of
any defect in his title.
 The seller should be able to defend the buyer should there be any
threat to the buyer’s possession.
 Even if the buyer surrenders the article to a 3rd party, the seller is still
liable, provided he can prove incontestable title of the person to whom
he has surrendered.
 X sold 3 cattle to Y, who upon being informed by Z that the cattle had
been stolen from him, handed them over to Z. He goes on to claim his
purchase price from X.
 Procedurally , the buyer is supposed to inform the seller, and to put up
a virilis defensio (ie proper and competent defense reasonably
regarded) in the case that the seller doesn’t respond
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When the Warranty against Eviction is not implied
 Not every sale has implied warranty against eviction
1. If the parties expressly agree that the seller will not be
responsible in the event of the buyer’s eviction
 The seller should have acted ‘bona fide’ coz if he was aware
that a 3rd person had indisputable title to the merx and
remained silent, then the sale is voidable on misrepresentation
known as ‘fraudlent non-disclosure’
 Any sale that is ‘voetstoots’ will not assist the seller
2. If the buyer is aware that the article belongs to a 3rd party
3. If the cause of deprivation of possession arises after the sale
and the seller is not at fault coz risk passed to buyer on
conclusion of contract eg land reform after sale
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Delivery and Ownership
 Whilst the buyer’s vacua possessio is protected by the warranty
against eviction, is the seller is not the true owner, the buyer will
always at the mercy of the latter
 The true owner to recover possession from anyone in whose
possession his property is found is known as the right to
vindication
 Title which is impregnable achieved through ownership
 Ownership is the state where a person is entitled to do with the
thing anything he wishes for his own benefit, provided he
remains within the law.
 From a buyer’s viewpoint, he becomes an owner so that no one
can have better title than him, and eviction becomes impossible
 Ownership is transferred to the buyer on delivery
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 Ownership passes when:
i. The seller should be owner of the article at the time of delivery
ii. He should intend to pass ownership on delivery
iii. The buyer should intend to acquire ownership at the time he accepts
delivery
iv. If the sale is a cash sale of movable, purchase price should be fully
paid
The Implied Warranty against Latent defects
 It is the duty of the seller to make delivery of the thing sold without
any defects
 If defect is ‘patent’ ie one easily discernible by the buyer at the time
of delivery, buyer can reject or accept article.
 If acceptance is made, buyer has waived his remedy
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 Where the defect is ‘latent’, ie one that is not apparent to the ordinary
man, the buyer has unique remedies whether or not the seller was
aware of the defect at the time of the sale
 The complex rules for seller’s responsibility for latent defects in the
article sold is incorporated into every contract of sale as a term implied
by law.
 Traditionally, the action available to the buyer was the ordinary action
for the breach of terms of a sale (actio ex empto), where delivery was
not considered to have been in accordance with the sale when an article
latent defects in cases:
i. Where the seller was fraudulent
ii. Where the seller gave express assurance that the article sold was free
of any defects.
 Through the years, the Aediles created remedies for latently
defective slaves and animals – aedilition remedies.
40

Circumstances under which seller is not responsible for latent defects
i. Where the seller expressly contracts out of liability
 An agreement with the buyer allows the goods to be sold free of
‘latent defects’ and this is achieved through selling articles
voetstoets.
 E.g Pigs sold at an auction had latent defects and were sold
voetstoets
 The liability transfers to the buyer only when the seller doesn’t know
about the defects otherwise there is fraudulent non-disclosure
 Deliberate suppression and concealing of information elating to
latent defects in an article amounts to fraud.
ii. If the latent defect did not exist at the time of the sale
 The buyer has the burden of proof as to when the defect existed
 He is assisted by the inference of ‘retrospective continuity in the
defect’ if the defect is identified soon after the sale.
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iii. Where the buyer is aware of the defect at the time of the
sale or becomes aware subsequently and expressly or
impliedly accepts the position
 He waives his rights against the seller
 The result is the same as accepting delivery on a patently
defective article
 Implied acceptance occurs where (a) the buyer continues
to use the article or exercises acts of ownership or (b)
pays the purchase price, after discovering about the
defect.
 Rejection of a defective article must come within a
reasonable time
iv. Where the aedilitian remedies have become prescribed
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3. Remedies to the buyer where
Seller defaults
 The buyer has contractual remedies where seller is in breach
 If breach is of a material term, he may elect to abide by the contract
and sue for specific performance, or cancel the contract and sue for
damages
 If breach is not material, he may sue for damages
 Actions against the seller in such circumstances is called actio ex empto
(or actio empti) where buyer can sue against any express term, or
implied warranties, either against eviction or latent defects
 A defect is an abnormal quality or attribute which destroys or
substantially impairs the utility or effectiveness of the property sold for
which it has been sold or for which it is commonly used.
 If the buyer has not paid for the article and a patently defective article
is delivered, he can reject the thing, no matter how immaterial.
 If he has paid, then aedilitian remedies come into effect
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Seller defaults
Aedilitian Remedies
 The seller’s liabilitity arises not from implied warranty against latent defects
but by operation of law from aediles’ edict.
 It is not necessary to prove that the seller had any knowledge of the defect.
 The buyer must prove that the defect existed at the time of sale, and is assisted
by presumption that defect existed if it manifest soon after the sale
a. Actio Redhibtoria occurs when the defect is so serious as to render the
property unfit for purpose for which it has been bought, or the buyer would
not have bought if he had known of the defect.
 The buyer returns the thing to the seller and claims his purchase price
 The same remedy of redhibition is available to the buyer property fails to
measure up to a dictum et promissum ie. A material statement made by the
seller to the buyer during the negotiations, bearing on quality of the res
vendita and going beyond mere praise and commendation
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Seller defaults
b. The buyer who redhibits must restore the property to the seller and if
unable to do so, is limited to quanti minoris for a reduction of price
 Actio quanti minoris involves retaining the property and claiming a
reduction in price.
 The buyer must notify the seller in reasonable time, which is now
specified in the Prescription Act (Chapter 8:11)
 An act of ownership is taken as a waiver of the right to redhibit but not
as waiver to quanti minoris.
 The relief in quanti minoris provides for damages confined to the
reduction in price, calculated on a different basis from damages on a
breach of contract.
 The reduction is the difference between price and market price of the
article in its defective state.
 Actio quanti minoris is waived by knowingly paying for a defective
article without any complaining
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Seller defaults
 There are three types of sales that do not conform to
the general rules
i. A sale in execution is voetstoets even if not
mentioned and this includes sales in insolvency
ii. A sale of an article by its trade name is not supposed
to be defective
iii. A sale of a sample requires the seller to deliver the
exact product without any latent defect
46

Definition
Agency is a contract whereby one person (the agent) is
authorised and usually required by another (the
principal) to contract or to negotiate a contract on the
latter’s behalf with a third person
(Gibson J.T.R, South African Mercantile and Company
Law, 1983, 5th Ed)
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1. Express Authority
 General rule is no formality is required in appointment
of an agent
 The parties agree on scope of authority and
remuneration (commission) to be paid.
 Authority is frequently given in writing (formal or
informal)
 Power of attorney – is a formal document in writing
setting out the scope of the agent’s authority and
signed by the principal
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2. Authority implied by Law
 In certain circumstances, in the absence of an
agreement, one person may have authority by law to
represent another e.g. in cases of people not
considered capable of handling their own affairs.
Negotiorum Gestio
 A person who undertakes the business of another
without the authority of the latter in the absence of
the latter’s absence (a negotiorum gestor), has a as a
general rule the right to recover from him
50

2. Authority implied by law
 Negotiorum gestor can recover from the principal the
necessary and useful expenses given that his actions
are utiliter coeptum, reasonable in the circumstances.
 This relationship is not necessarily agency but creates
obligations to parties that is analogous to those arising
in agency.
 The negotiorum gestor is not entitled to a
remuneration and is delictually liable if he causes loss
to the principal by negligence.
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3. Authority implied on facts
 Where there is no express authority, authority can be
inferred from the conduct of the principal (eg p247)
 The conduct of parties must be such that according to
the rules of common sense it admits of no other
interpretation but that the parties intended the
relationship of principal and agent to exist between
them.
52

3. Authority implied on facts
 Where an agent has been authorised to do a particular
act, he may have implied authority in addition to
perform acts which are not strictly within his
authority.
 Burden of proof on the person who seeks to bind the
principal who must show that the relationship was
such as to justify his assuming that the agent had
extended authority.
53

4. Ostensible Authority (Estoppel)
 Where there is no authority, a 3rd party may none the
less hold the principal liable on contracts entered into
by the 3rd party and the ostensible agent of the
principal, if the principal’s conduct is such that it
amounts to a representation that the ostensible agent
has authority from him and the 3rd party is induced to
contract on the strength of such conduct.
54

4. Ostensible Authority (Estoppel)
 A person who seeks to set up agency by estoppel must
establish:
a. That there was a representation by the principal
b. That the representation was such that it could
reasonably be expected to mislead
c. That he acted on the faith of the representation
d. That he was prejudiced by doing so
55

5. Ratification
 Where no authority exists, an act performed by a
person professedly as an agent of a principal can be
affirmed by the latter.
 Conditions for ratification are
i. The person making the contract must profess to be
acting on behalf of the principal
ii. The professed principal must be ascertainable and
act must be made in his name
iii. The act must not be illegal
iv. The principal must have been in existence
56

Enrichment
 If a principal is enriched as a result of a purported
contract entered into on his behalf by a person
professing to have authority to do so and he fails to
ratify the unauthorised act, the principal will be
enriched to the extent to which he has been enriched.
 He is not liable to the contract but fulfills the doctrine
of unjust enrichment
57

Types of agents
a. Auctioneers
An auctioneer is an agent authorised by the principal
to sell property on his behalf at a sale by public
auction
 Once the sale is complete, he may become the agent
of the buyer to record the transaction in writing
 The sale is subject to ‘conditions of sale’ and both the
seller and buyer are taken to have assented to these
terms
 Seller not bound by any warranty given by auctioneer
in variance to ‘conditions of sale’.
58

Types of agents
a. Brokers
A broker is an agent appointed by the buyer or the
seller to negotiate a contract of sale on his behalf
 His function is simply to negotiate and he has no
power to bind the parties
59

Types of Agents
a. Factors
A factor is an agent to whom goods are consigned by
the principal with authority to sell on the principal’s
behalf
 Goods are sent ‘on consignment’ to the factor, who
sells them in his own name.
60

Types of Factors
a. Del Dredee Agents
A del credee agent is an agent authorised to sell
goods on behalf of a principal who guarantees the
payment of the purchase price by the buyer
 In return for his guarantee he receives an additional
commission, known as del credere commission
61

Estate Agents
a. Estate Agents
an estate agent is an agent authorised to negotiate the
sale or purchase of immovable property
 An estate agent has no authority to conclude a contract
of sale but merely authority to negotiate
 The principal and agent may make any agreement they
please as to the event on which commission will
become payable.
62

Duties of an agent
 The duties of an agent are
i. To perform his mandate
ii. Honestly
iii. Carefully
iv. In accordance with his principal’s instructions and
v. To account to his principal
63

Duties of an agent
a. Performance
 The agent’s duty is to perform his mandate fully, and
faithfully, or he forfeits his commission and is liable
to damages
 If agent performs his duties with different expected
results, he still gets his commission
b. Honesty
 An agent has a fiduciary duty to the principal and is
supposed to act in ‘utmost good faith’ in the interest
of the principal and not for his own benefit
64

Duties of an agent
 When acting in ‘utmost good faith’, the agent must
i. Not make a secret profit out of the authorised
transaction
ii. Not allow his own interest to conflict with the
interest of his principal
iii. Not delegate his authority
iv. Not disclose information of his principal’s private
affairs which has come to his knowledge in the
course of his agency
65

Duties of an agent
c. Care, Skill and Diligence
 An agent must use such care, skill and diligence as is
reasonably necessary for the performance of his
mandate
d. Obedience to Principal’s instructions
 An agent must act exactly in accordance with the
authority , express or implied, given him by
principal.
66

Duties of an agent
e. Duty to account to the principal
 An agent must give his principal full and accurate
information of what he has done in carrying out a
mandate, and full and accurate information of any
contract concluded by him on the principal’s behalf.
 As a result, he must:
i. Render a full and true account of his dealings
ii. Permit his principal to inspect all books and records
relating to the agent’s transactions on his behalf.
67

Duties of a Principal
 The duties of a principal are to:
a. Pay the agent his remuneration
b. To reimburse him for expenses properly incurred,
and
c. To indemnify him for all the losses he has suffered as
a result of the execution of his mandate
68

Duties of the Principal
a. Payment of remuneration
 Where the parties have expressly or impliedly agreed
on the payment of remuneration and the agent has
substantially performed his mandate, the principal
iis obliged to pay (Karol v Fidel 1948, Metro-Goldwyn-
Mayer v Herman 1938)
 The mere fact that a broker was the effective means
of a sale being concluded is not sufficient to entitle
him to claim commission.
69

Duties of the Principal
 Where there is no express or implied amount of
remuneration, the amount is decided on the ordinary
rules governing implication of terms into a contract,
otherwise a customary rate is applied
 Where there is no customary amount, the courts
awards an arbitrary amount taking into account the
time and labour expended, the value of his services
and nature of his occupation
70

b. Reimbursement
 Agent is supposed to be reimbursed any cost incurred
during the execution of his mandate, but is not
entitled to any expense incurred as a result of his
negligence, default or breach of duty
71

c. Indemnity
 Whilst performing an authorised act, the agent must
be indemnified against loss or liability duly incurred
in the execution his mandate
 Agent can also set-off if he owes the principal whilst
a commission has to be paid to him
72

The Principal and third parties
 Where an agent has acted within the scope of his
authority, or where his previously unauthorised act has
been ratified by the principal, the principal is liable to
any third party with whom the agent has contracted
and no contractual liability to the third party attaches.
 If the actions of the agents can be seperated between
authorised and unauthorised, then the agent becomes
liable for unauthorised acts
73

The principal and third parties
 If the contract between the agent and third party is
void, then it is also void to the principal
 Delictual liability of a principal arises:
i. Where the delictual act was actually authorised by
the principal
ii. If the agent is a servant and not independent
contractor and the act done within cope of his
employment.
 Enrichment
74

The Agent and third parties
 When an agent contracts on behalf of his principal
with a third party, no contractual liability or right of
agreement can attach to the agent, if he has acted
within his authority.
a. Agent acts without authority or exceeds his authority
 Liability on ‘Warranty of authority’
b. Agency acts within authority and discloses his
principal
c. Agent acts within Authority but doesn’t disclose his
principal
75

Termination of agent’s authority
 Relationship between the principal and agent may be
terminated by mutual consent, or by the unilateral
action of either of the parties – revocation by the
principal or renunciation by the agent
 In normal circumstances, agency comes to an end on
due performance by agent and principal of their
reciprocal obligations
 Otherwise the authority of the agent may come to an
end on the expiry of any period which may have been
fixed for the duration of the authority and on the
death of either agent or principal.
76

Renunciation by the agent
 An agent may renounce his authority any time
provided he does so on just grounds
 According to Voet (17.1.17, Gane’s translation) just
grounds are ‘deadly enmities, bad health, absence in
the interests of the commonwealth and other like
reasons’
 Without good reasons, the agent is liable to the
principal for damages
77

Revocation by the Principal
 The general rule is that a principal has the power and
right to revoke the agency without incurring liability in
damages to the agency unless there is express or
implied term entitling the agent to damages.
 This is so even if the agency is said to be ‘irrevocable’
 Where the agent has commenced perfomance in terms
of his authority, he is entitled to such damages as he
can prove on the principal’s revocation
78

Irrevocable agency
 Where the agent’s authority is ‘ coupled with an
interest’ (where is is a ‘procurator in rem suam’ (ie.
Where authority is given to the agent, not for the
benefit of the principal, but for the agent’s own
benefit)) and the parties agree that the authority shall
be irrevocable, then, and only then shall authority be
irrevocable
79

Definition
 Is a contract between two persons, the landlord (or
lessor) and the tenant (or lessee), for the letting by the
former and the hiring by the latter of specified
immovable property, in terms of which the landlord
grants the use and occupation of the property to the
tenant for a period in return for a specified sum of
money (or a share in the fruits of the property)
 Characteristics that provides presence or absence of
lease are a) the specified immovable property, b)the
period, c)the specified sum of money or rent
81

Essential characteristics
a. Parties must be ad idem as to the particular property which is
the subject-matter of the contract.
 ordinary contractual rules of voidness for vagueness apply
b. For a period
 The parties should not intend for the property to be let
permanently but for a period, on the length of which they
must agree, impliedly or expressly
 The length of the period can be left to the will of parties
c. For a specified Rent
 It is essential that the tenant pay, in return for his use and
occupation of the property, either specified amont of money or
share in the fruits of the company
 The ordinary rules of a contract apply in the formation of a
lease contract
82

Relations between parties
 Immediately upon the conclusion of a contract of lease the
landlord and tenant acquire certain personal rights as against
each other and the corresponding duties
a. The landlord’s duties include:
i. To deliver the property which is the subject-matter of the lease
to the tenant at the time agreed upon;
ii. Not to interfere with the tenant’s use of the property and to
protect him from interference by others
iii. To maintain the property in a proper condition in order that
the tenant may have proper use of it
iv. To compensate the tenant for damage caused as a result of
material defects in the property
v. To abide by such special terms of the lease as there may be
83

Relations between parties
b. The tenant is required:
 To pay the rent as agreed
 Not to use the property for any other purpose than that
for which it was let
 To ensure that the property is not misused
 To return the property undamaged at the end of the
lease
 To abide by such special terms of the lease as there
may be
84

Duties of the Landlord
i. Delivery of the leased property
 The landlord’s primary duty is to deliver to the tenant the use
and occupation of the leased property
 The property must give the tenant free and undisturbed
possession and it must be in a property state of repair, both
internally and externally
ii. Maintenance
 Besides delivering, the landlord is required to maintain the
property both internally and externally in ‘good and tenable
repair and condition’
 He must maintain it in a condition reasonably fit for the
purpose for which it was let
 All repairs must be executed by the lessor although he may
expressly agree that the tenant be responsible for repairs
85

 Clear and express language is required before a court is
satisfied that the tenant has deprived himself of the
common law right, but this does not remove the lessor
from his obligation to deliver the house in a
satisfactory state of repair.
 A tenant may waive his right by conduct which
indicates that he is willing to take occupation with the
associated defects
86

iii. Warranty against interference
 The landlord impliedly warrants that the tenant will
not be disturbed in his possession by either himself or
a third party
 He does not, however, warrant the tenant will not be
disturbed by a 3rd party who has no legal rights to the
property
87

Duties of the tenant
i. Payment of rent
 The tenant must pay rent in the manner agreed
 If there is no express agreement as to manner of
payment, the tenant pays on or before due date at
any convenient place where he may lawfully perform
his contract
 Due date, where its not express, is said to be in
arrear
 Rent shall be in money unless agreed that it should
be fruits of property
88

Duties of the tenant
ii. No misuse of property
 A tenant is required to ensure that the property is not
misused and is used only for the purpose for which it
was let
 If there is no express agreement on the property’s use,
then a term is implied in the contract that the property
is to be used for the same purpose as before the lease
89

Duties of the Tenant
iii. The tenant must return the property undamaged at
the conclusion of the lease
 It must be in the same condition as the beginning of
the lease
 The tenant is exempted only if the property is
destroyed or stolen and the destruction and theft is
not attributable to the tenant.
 Tenant has to justify why damage or theft is not
attributable to himself or a person under his control if
he restores the leased premises in a damaged state
90

Remedies of the parties
 A party has remedies on breach of contract if there is non-
fulfillment of by either party
 If the breach is material, the party has an option to abide
by the contract, sue for specific performance, and claim for
such damages as he has suffered, or he may treat the
contract as cancelled and sue for damages
a. Tenant
i. Where the landlord is in breach of his duty to deliver the
breach is material and the tenant may treat the contract
as cancelled and sue for damages, or claim specific
performance and damages.
91

Remedies of the Parties
 Where the landlord delivers but the delivery is
incomplete in the sense that the property is not in a
proper state of repair, it is a matter of fact of whether
the breach is material.
 If it is, the tenant may cancel the lease and claim
damages
 If it is not, the tenant may claim damages ie.
proportionate deduction of rent
 The tenant may also, after notifying the lessor, effect
the repairs himself and deduct the necessary cost from
the rent –specific performance
92

 A tenant may waive his rights by conduct which
indicates that he is prepared to accept the property in
its defective form
 In certain circumstances (similar to actio ex empto -
letent defect) a tenant has the right to consequential
damages directly attributable to the defect
 The landlord then is liable to compensate a tenant for
damage caused to the latter’s property on the leased
premises, provided he has actual or implied
knowledge of its existence.
93

ii. Where the landlord fails to maintain the property in
proper repair, the tenant has the same remedies as i. above
iii. Where the landlord is in breach of his warranty against
interference by his own act, the tenant may protect his
rights by means of an interdict
 This remedy is additional to his ordinary rights on the
contract
 The position is the same where the tenant is being
interfered by a 3rd party who has rights to the premises
 The landlord is not liable to interference by a 3rd party who
has no rights to the premises
94

b. Landlord
i. Non-payment of rent by tenant
 Where there is no forfeiture clause in the contract,
the landlord cannot do anything (criticised)
 Where a tenant is in breach of duty to pay, landlord
may demand payment and give notice that if
demand is not fulfilled within reasonable time,
contract will be cancelled
 Landlords usually insert forfeiture clause in lease
that he can eject tenant if some conditions arte not
met
95

 Mere delay in enforcing the right to enforce the
forfeiture clause or acceptance of rent after breach
does not imply a waiver bur may provide strong
evidence that the landlord has abandoned his right.
 An example is when the landlord continuously receives
a late payment of rent.
 The clause is established when the landlord does any
unequivocal acts that is consistent with the
continuance of the contract
96

 Whether or not there is a forfeiture clause, the
landlord can be assisted by the landlord’s tacit
hypothec, which is, a security for arrear rent over
movables which are on the leased premise when its
assistance is invoked.
 When goods are removed from the premises, the
landlord’s tacit hypothec is lost although it can be re-
established whilst goods are in transit. (quick pursuit)
97

ii. Where the tenant misuses the property, the landlord
has the ordinary contractual remedies
 If the misuse is material, he may cancel the lease and
eject the tenant, with or without damages
 If misuse is not material, he is confined to an action of
damages if there are any
98

iii. Where the tenant fails to return the property at the
conclusion of the lease, the landlord may eject him by
the due process of law, for the tenant is in unlawful
possession of the property (trespasser)
 If the landlord is not the owner of the property, then
he must prove that he has a right eject the tenant.
 Damages as might reasonably be said to follow from
the wrongful conduct of the tenant are claimed.
99

 The landlord may waive his rights and allow the tenant
to stay – tacit relocation
 A new lease upon the terms and conditions of the old
lease is implied from the conduct
 The original lease is terminated
100

Relations between the parties and
third parties
1. The Landlord and 3rd parties – assignment, Cession
and Sublease
 Assignment - all the tenant’s rights and obligations are
transferred to a 3rd party who takes the place of the tenant.
 The original lease is terminated and the new lease is
created between landlord and assignee
 Cession – the 3rd party becomes entitled to those rights as
ceded to him but the tenant remains liable for the
obligations (rent payment)
 Sublease – 3rd party obtains rights of occupation but
obligations remain with the tenant
 In cession, 3rd party acquires rights against the landlord,
whilst in sublease, 3rd party acquires rights against tenant.
101

third parties
2. The tenant and 3rd parties
 This party concerned with substitution of 3rd party for old
landlord
 On death of the landlord, the lease remains in force and
the landlord’s estate becomes new landlord
 Where ownership is transferred from the landlord by
operation of the provisions of a statute (eg expropriation)
the new owner is not bound by the lease.
 When the landlord sells the property, the general rule is
that the buyer is bound by the lease – huur gaat voor
koop.
102

third parties
 By statute, a lease of ten years or more is not effective
against a landlord’s successors in title unless the lease
is registered or the successors have knowledge of the
lease at the time they become successors
 If lease has shorter periods, the buyer is not bound by
the lease unless he had notice of it at the time of sale
103

Termination of Leases
 Leases are terminated in the manner that contracts are
terminated
 The most usual way is through performance where the
landlord gives tenant occupation until the end of the
lease period and the tenant completes by having paid
his rentals until the expiry of the lease
104

1. Introduction
 Insolvency – this is an inability of an individual to pay
debts when and if they fall due
 Cash Flow insolvency and Balance Sheet insolvency
 A creditor can
i. first use court machinery to compel the debtor to
pay his dues
ii. Sue out of writ of execution (command to sherriff to
attach property)
iii. Apply for the sequestration of the debtor
106

1. Introduction
 Sequestration – is a legal process by which you are
declared insolvent by Order in the High Court in
terms whereof certain of your assets are handed over to
a trustee, after which a Trustee (appointed by the
Master of the High Court) must according to the rules
of Insolvency Act, sell your assets.
 The proceeds of the sale of your assets are divided
amongst creditors in a manner which is prescribed in
the Insolvency Act.
107

2. The petition for sequestration of
estate
a. Voluntary Surrender
The High Court can be petitioned for the surrender of
the estate of a debtor by:
 an insolvent debtor or his agent or
 The person in whom is vested the administration of the
estate of:
i. a deceased insolvent debtor
ii. An insolvent debtor who is incapable of handling his
own affairs (S3.(1)
 All members of a partnership other than special partners
mentioned in referred to in Special Limited Liabilities
partnerships resident in Zimbabwe (S3.(2))
108

estate
 The petition shall be served on the Master of High Court prior to
hearing and will include a statement of debtor’s affairs in a
prescribed form.
 There is initially a grant of provisional sequestration if the court
is satisfied, prima facie,
i. There are available assets of the estate sufficient to defray all
such costs of sequestration as are payable out of free residue
ii. The estate of the debtor is insolvent
 The Master of High Court can refuse to accept if he is of
opinion that the petition is being done to defeat claim of
creditor
 A final order of sequestration is granted if a ‘rule nisi’ has been
published and the court is satisfied that the above conditions
really apply on the return date
109

estate
b. Compulsory Sequestration
The High Court can be petitioned for the sequestration
of a debtor by:
i. A creditor who has a liquidated claim for not less than
100USD
ii. Two or more creditors who have liquidated claims in the
aggregate for not less than 200USD
iii. The agent of any creditor or creditors referred above
(S12.(1))
 A liquidated claim is a claim the amount of which is
ascertained or which can clearly and promptly be
established, and it can be accrued but not yet due by the
date of hearing (S12.(2))
110

estate
 If security is lodged sufficient to cover the cost of the
petition, the High court will grant a provisional order,
provided, prima facie:
i. The debtor has committed an act of insolvency or is
insolvent; and
ii. There is reason to believe that it will be to the
advantage of creditors of the debtor if his estate if
sequestrated, and
iii. The petitioner has a claim against the debtor
111

estate
 The petition has to include:
i. Amount, cause and nature of claim
ii. Whether or not the petitioner holds any security for
his claim
iii. The alleged act of insolvency or the allegation that
the debtor is insolvent
iv. Affidavit confirming the petition
112

estate
 A provisional sequestration is granted by the High Court, if
prima facie –
i. A debtor has committed an act of insolvency or is
insolvent
ii. There’s belief that it would be to the advantage of the
creditors if the debtor is sequestrated
iii. The petitioner has a claim against the debtor to the
extent referred to in S12.(1)
 A rule nisi is granted calling upon the debtor to appear
upon a mentioned date to show cause why his estate
should not be sequestrated.
113

estate
 On the return date of the rule nisi, a final order of
sequestration is given after satisfaction of conditions
mentioned in S13 .
 If the High court is not satisfied, the Master
i. may dismiss the petition and set aside the
provisional sequestration
ii. Postpone the hearing for any reasonable time and
- further proof of any of the matters set out in the
petition
114

Acts of Insolvency
 A debtor is deemed to have an act of Insolvency if:
a. He leaves Zimbabwe, or being out of Zimbabwe
remains absent therefrom or departs from his
dwellings or otherwise absents himself with intent by
so doing to evade or delay the payment of his debts;
or
115

Acts of Insolvency
b. The court has given judgment against him and he
fails, upon the demand of the officer whose duty it is
to execute that judgment, to satisfy it, or to indicate
to that officer that disposable property sufficient to
satisfy it or if it appears from the return made by that
officer that he has not found sufficient disposable
property to satisfy the judgment; or
c. He makes or attempts to make any dispositions of
any of his property which has or would have the
effect of prejudicing his creditors or preferring one
creditor above another; or
116

Acts of Insolvency
d. He removes or attempts to remove any of his
property with intent to prejudice his creditors or
prefer one creditor above another; or
e. Except as provided in the Insolvency Act of 1996, he
agrees or offers to assign his estate for the benefit of
his creditors or any of them or makes or offers to
make any arrangement with his creditors for
releasing him wholly or partially from his debts;or
f. He gives notice to any of his creditors that he
suspended or is about to suspend payment of his
debts ; or
117

Acts of Insolvency
g. He makes default in publishing the notice required
by S152 or if his creditors have, in terms of S156,
declined the assignment of his estate; or
h. Being a trader, he gives notice in terms of S47 and is
unable to meet the liabilities of his business; or
i. A notice of assignment having been published in
terms of S152, he omits to lodge his statement of
affairs as by law required or his statement of affairs
does not fully disclose his debts or property and that
omission is material;
118

3. The Trustee and his duties
a. Appointment of trustee
 The Court or Master may appoint a provisional trustee in
respect of a sequestration order granted –
i. Before a trustee has been appointed
ii. Where a trustee ceases to be a trustee
 At a first meeting of the creditors who have proved their
claims against the estate may elect one or two trustees
(S73.(2)) through a majority vote in terms of numbers
and value
 The person elected is appointed trustee by the Master if
he is satisfied after consideration of security sufficient for
proper performance (S75.(1))
119

 If creditors meet and fail to elect a trustee and the Master
doesn’t appoint one, the Master or the insolvent, with the
consent of the Master, may petition the High Court to set
aside the sequestration.(S73.(6))
 The Master may decline to appoint the person who has
been elected if
i. He is not properly elected
ii. Is disqualified in terms of S74
iii. Fails to give security in terms of S75 within stipulated
time
iv. Should not be a trustee in the opinion of the Master
120

b. Disqualifications
 The Inslovency Act (1996) disqualifies the following people from being
elected or appointed trustees:
i. An insolvent
ii. Any person related to the insolvent by consanguinity or affinity
within the third degree
iii. A minor or any other person under legal disability
iv. Any person who does not reside in Zimbabwe
v. A person who has an interest opposed to the general interest of the
creditors of the insolvent estate
vi. A former trustee disqualified in terms of S86
vii. Any person declared in terms of S78 to be incapacitated for elections
as trustee, while any such incapacity lasts, or any person removed by
the High Court from trust on account of misconduct
121

viii. A corporate body
ix. Any person who has been convicted of theft, fraud,
forgery or uttering a forged document or perjury and has
been sentenced to serve a prison term without option for
fine or to a fine exceeding 100USD.
x. any person who at any time during the period of 12
months exactly preceding the day of sequestration acted
as a bookkeeper, accountant or auditor of the insolvent
xi. Any agent authorized specially or under the power of
attorney to vote for and on behalf of a creditors of the
insolvent estate and acting or purporting to act under
such special authority or general power of attorney
122

Duties (S83 – S98)
 Duties of a trustee are as follows:
i. Trustee takes charge of property of estate
 Soon after appointment, but not before deputy sheriff has made inventory
referred to in S21(1), take into possession or under his control all the
movable property, books and documents of the insolvent.
 Shall be granted a search warrantee by a magistrate where he belies movable
property, books and documents are concealed or unlawfully held from him.
ii. Opening of bank account
 The trustee shall open an account in the name of insolvent’s estate with a
bank in Zimbabwe, and shall notify the Master within 14 days.
 The Master, any surety and any authorized person shall have access to
information relating to the account at the same level as trusee.
 Deposited amounts not immediately required can be invested
123

iii. Record all receipts
 Trustee shall, soon after appointment, open books or other suitable
records of all moneys, goods, books, accounts and other documents
received on behalf of the insolvent estate.
 Master can direct trustee to allow any creditor who have proved his
debts access to these records at reasonable times
iv. Recovery of debts due to the estate
 Trustee shall publish in Gazette calling upon all people indebted to
the insolvent to pay within a period and at a specified place.
 The trustee shall recover from any person who fails to pay his dues
v. Extension of time for payment or compounding of debts and
arbitration
 Trustee may accept part payment by debtor as settlement for full
amount or may extend time of payment of debt
124

Cont’d
 May submit to the determination of arbitrators any dispute
concerning the insolvent estate when a creditor fails to prove a claim
with the approval of the Master and the Creditors
 May appeal against a judgment in which a creditor is said to be owed
by a creditor
vi. Subsistence support for insolvent and family
 Before second meeting of creditors, trustee may allow the insolvent
sum of money or goods out of the estate as may appear to be
necessary for him and the dependants
vii. Continuation of insolvent’s business
 A trustee may carry out the insolvent’s business when authorized by
creditors or the Master and may, unless otherwise directed by
creditors, purchase for cash only and only from the takings of that
business an goods he may require for the business.
125

viii. Trustee’s report to creditors
 The trustee will investigate the transactions of the insolvent
and report to the creditors
 The report will relate to:
a. The assets and liabilities of the insolvent estate
b. The cause of debtor’s insolvency
c. Records relating to the solvent’s affairs
d. Whether the insolvent contravened the Insolvency act or
committed any other offence
e. Any pending legal proceedings instituted by or against the
insolvent and stopped by sequestration
f. Any matters relating to uncompleted contracts for the
acquisition of immovable property and leases entered into by
insolvent
126

Cont’d
g. Any business he may have been carrying on behalf of the
estate
h. If there’s no resolution on the estate, the Master can give
directions regarding the administration and realisation of
estate.
ix. Sale of property
 The trustee will sell all the property of insolvent as
directed by creditors or Master
 Trustee may not sale any property that is subject to a
right of preference without consent of that creditor or
without guarantee against loss.
127

x. Realization of securities
 The trustee shall realize any immovable property taken
by a creditor as security for his claim.
 If a creditor in possession of immovable assets is allowed
by the Master to dispose it, the trustee is supposed to
realize the proceeds from the creditor.
xi. Obtaining legal and other advice
 A trustee may obtain legal advice or any other expert
advise on any questions of law relating to the
administration or distribution of the insolvent
 Costs associated with the legal and expert advise
considered part of sequestration
128

xi. Legal proceedings against estate
 Trustee ensures the continued proceeding of legal
proceedings against debtors.
129

4. Effects of Insolvency on
Contracts
 The general rule is that contracts entered into by the
insolvency before sequestration remain in force, only
that the rights and obligation of insolvent is assigned
to the trustee, who is supposed to perform accordingly
 One main problem is that all the creditors are
supposed to be taken into consideration.
 Every distribution is pro rata unless there’s recognised
preference.
 Statutory proof of claims must be followed by
creditors
130

Contracts
 There are cases of contracts expresses provided by statutes:
a. Contracts to buy immovable property (S48)
 Where a person enters into a contract to acquire an
immovable property before sequestration and such
property has not been transferred, the trustee may elect
to pursue or cancel the contract. (S48.(1))
 If trustee doesn’t make a move within six weeks, the other
party may apply to a court for the cancellation or delivery
of the property.
 Such an application can be considered by a court as it
sees fit.
131

Contracts
b. Sales for Cash (S49.)
 Where a person, before sequestration, sold and delivered
for cash to the insolvent some movable property without
receiving full amounts can reclaim the property if, within
10 days after delivery goives notice to the insolvent,
trustee and Master that he reclaims his property.
 If trustee disputes the right to reclaim, the seller will
institute proceedings within 14 days of notice by trustee
 The seller must first refund all the monies paid
 If above procedures are not followed, the sales is taken as
a credit sale (S49.(4))
132

Contracts
c. Leases (S51)
 If the insolvent is the lessee in a lease contract, the
trustee will make a determination by writing to the
lessor.
 The lessor is entitled to claim against any damages
through non-performance of the lease
 If trustee does not inform the lessor of any continuance
within 3 months of appointment, it is deemed the lease
has come to an end.
 The rentals due on lease from date of sequestration shall
be included in cost of sequestration
 Determination of a lease deprives the insolvent of any
right to claim against any improvement
133

Contracts
d. Partnerships
 On sequestration, a partnership is terminated and
the partnership and the partners are simultaneously
put under sequestration (Def)
e. Hire Purchase Agreements
 The person who prior to sequestration remained the
owner of the property loses his ownership on
sequestration and can request delivery of the same
property from trustee, thus becoming a secured
creditor.
134

5. Effects of insolvency on suspect
transactions
a. Dispositions without value
 Every disposition of insolvent’s property may be set aside
by court if:
i. Disposition made 2 years before sequestration and it can
be proved that the disposition d id not leave liabilities
more than negative
ii. Disposition occurs within 2 years of sequestration and
creditor can prove that it did not leave assets less than
liabilities.
 If liabilities of an insolvent are lower than assets, relief
only applies to amount exceeding assests
135

5. Effects of Insolvency on suspect
transaction
b. Voidable preferences
 Every disposition by a debtor of property within six months
preceding:
i. The sequestration of his estate; or
ii. If he is dead and his estate is insolvent, his death; which has
the effect of prefering one of creditors above another may be
set aside by a court if liabilities exceed the assets
 The disposition is not set aside if the creditor proves that the
disposition occurred in the normal course of business
c. Undue preferences
 Every disposition of property made by a debtor when his
liabilities are more than assets with the intention of preferring
1 creditor over the others may be set aside if the debtor is
eventually sequestrated.
136

5. Effects of Insolvency on suspect
transactions
d. Collusive dealings
 Every transaction entered into by a debtor in
collusion with another person for the disposal of any
property belonging to the debtor with the effect of
preferring 1 creditor above another may be set aside
(S44.(S1))
 Any losses made from the collusive transaction will
have to be paid out by that person as a penalty ,
otherwise if it is a creditor involved, he foerfits his
benefit to the estate.
137

6. Rehabilitation
 Insolvency is terminated by rehabilitation
 Rehabilitation removes a person from sequestration
and also discharges him of all the debts that had arisen
before sequestration, provided they did not arise as a
result of fraud.
 Rehabilitation also relieves him of every disability
resulting from sequestration.
138

6. Rehabilitation
a. Application for Rehabilitation
i. An insolvent who has been granted a certificate of acceptance
of offer of composition is entitled to apply for rehabilitation
provided notice is gazetted and given to Trustee 3 weeks
before
ii. An insolvent may also apply for rehabilitation by giving 6
weeks notice to the Master and trustee if:
a. 12 months have elapsed since confirmation by the Master of the
trustee’s first account in the solvent’s estate or after a period
of 2 years from the date of the final order of sequestration,
whichever comes first
b. 3 years after the confirmation referred in a. above if his estate
has been previously sequestrated before the current one
139

6. Rehabilitation
Cont’d
c. After 5 years since date of conviction of any fraudulent act
relating to the current or previous insolvency or any offence
relating to S166, 167 or 168
 Any trustee who receives any of the notices mentioned above
will report to the Master any facts justifying H. Court refusing,
postponing or qualifying insolvent’s rehabilitation
 An insolvent can apply for rehabilitation at any time after
confirmation by the Master of plan of distribution providing
for the payment in full of all claims proved against the
insolvent.
 Where no application is made, the insolvent is regarded as
being rehabilitated after 10 years.
140

6. Rehabilitation
 An insolvent is supposed to furnish the court with deposit
US$150, 3 weeks before application for rehabilitation as payment
for costs of any opposition that may occur.
Requirements on application for rehabilitation
 An insolvent is expected to submit the following in support of
his application:
i. An affidavit stating his complete surrender of his estate and
that he hasn’t granted or promised any benefit to any person,
and that he hasn’t induced any creditor or the trustee not to
oppose his application.
ii. A statement of his assets, liabilities and earnings at the date of
application
iii. All the information relating to the activities of his current and
previous sequestration (S143.(b))
141

6. Rehabilitation
Opposition or refusal to rehabilitation
 Whether opposed or not, the High court may refuse
application for rehabilitation, postpone hearing of the
application, rehabilitate the insolvent upon such
conditions as it sees fit or order the insolvent to pay the
cost of opposition if satisfied that it was not vexatious.
 Conditions which may be impossed on the insolvent
include requiring the insolvent to consent to judgement
against him for payment of his debt or less, and any other
conditions relating to property or income which may
accrue to the insolvent
142

6. Rehabilitation
 The High Court may order that any obligation incurred
before sequestration would remain in full force
notwithstanding rehabilitation.
 A sequestrated partnership cannot be rehabilitated. (S145)
Effects of Rehabilitation
a. Rehabilitation has the effect of:
i. Putting an end to sequestration
ii. Discharging the insolvent of any debts arising before
sequestration that did not arise out of fraud
iii. Relieving the insolvent of any disability arising from
sequestration
143

6. Rehabilitation
b. Rehabilitation does not affect:
i. The rights of the trustee or creditors under a composition
ii. The powers of the Master or the duties of a trustee in
connection to a composition
iii. The rights of trustee or creditors to any part of the insolvent’s
estate which is vested in but has not been distributed by the
trustee
iv. The liability of surety for the insolvent
v. The liability of any person to pay any penalty suffer any
punishment under any provision of the Insolvency Act
 Rehabilitation shall be void where there is inducement for
anyone to refrain from opposing any application for
composition or rehabilitation, or inducement to accept an
offer of composition.
144

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