UNIVERSITY Of ZIMBABWE
FACULTY OF LAW
NAME LUBALETHU EUGENIA FRANCISCA MHLANGA
REG NUMBER R178164M
PROGRAM LAW OF CONTRACT
LECTURER DR INNOCENT MAJA
DUE DATE 25 SEPTEMBER 2017
QUESTION Ernest consults you for legal advice .Advice Ernest.
Ernest enters into two contracts with two different parties ,one being Sbanga and the other being Ntobeko . The contract which Ernest enters into with Sbanga is the one which will help Ernest to perform in his legally binding agreement with Ntobeko . Sbanga and Ernest come up with a legally binding agreement which consists of terms , which include that Ernest will collect and take delivery of the machine at his own cost , and that the agreed selling price is $5000 among other terms that founded the contract. In this contract which is a contract of sale , both Ernest and Sbanga have a reciprocal obligation so that the other party Ernest can fulfill his obligation to perform towards his other contract with Ntobeko . In this case Sbanga sells Ernest a machine which is below the production capacity which he initially needs bringing what one may term misrepresentation. This misrepresentation by Sbanga leads to Ernest not being able to perform causing him to be in breach of capacity which entitles him to damages for breach of contract though Sbanga may argue otherwise as some of the charges he can not account for under the damages which he may have to give as remedies to Ernest . Hence this pierce of writing serves to make Ernest aware of the effects of misrepresentation which arguably was committed by Sbanga and advice him of the different legal channels he can pursue in suing for the breach of contract by Sbanga and also his breach in the legally binding contract that Ntobeko has cancelled and is claiming for damages as he suffered a loss.
Misrepresentation is giving a false or a misleading account of events. In a more detailed definition according to Dr Innocent Maja in his book The Law of Contract In Zimbabwe 2015 page 96 , CITATION Maj15 l 1033 (Maja 2015)” misrepresentation is when one of the parties is induced to enter into a contract by words or conduct that creates false impression . These false impressions are created before the parties enter into the contract which she or he would not have entered into the contract had the actual facts been known. These words are not part of the terms of the contract .”
Using this definition in this case one may argue that Sbanga knowing that Ernest had a contract with Ntobeko that needed a certain production capacity he lied about the production capacity of the machine which he was selling so that he would be able to secure the contract. He wanted to secure the contract because he knew he had competition from his competitor John who was selling the same machine at a cheaper price. Thus this section shall deal with the elements of misrepresentation which include, the fact that there must a false presentation, the misrepresentation must be made by a party which is involved directly in the contract just to mention but a few . Also to be dealt with is the type of misrepresentation and the remedies which Ernest may be entitled to if established that there is a basis of misrepresentation.
ELEMENTS OF MISREPRESENTATION
It can be argued that there must be a false or misleading presentation of facts .In this case “Sbanga warrants that the machine has a certain production capacity .Ernest requires this capacity to be able to carry out his obligations in terms of a contract which he has with Ntobeko.” After Ernest has collected the machine it is disccoved that the machine’s production capacity is below that which Sbanga specified. This presentation of false information by Sbanga to his customer Ernest successfully brings in the factor of misrepresentation which may enable Ernest to claim for remedies .
For there to be misrepresentation once can argue that the false misrepresentation must relate to a fact not to an opinion or the law .In this instance the facts state that Sbanga gave Ernest the wrong information about the production capacity. Sbanga gave his buyer in this case being Ernest a machine production capacity which was above what the real production capability of the machine was ,thus leading one to draw to the judgement of misrepresentation . Sbanga uses the term “certain production capacity” which is the same capacity that Ernest needs this is rather a bit too coincidental and if one adds one plus one it will sum up to a misrepresentation .Though Sbanga may argue that it was a mistake the argument will not hold much value as in the facts it is stated that Sbanga knew about the contract between Ntobeko and Ernest hence it will be baseless in this case. Another case which can be used is Smith v Land ; House Property Corporation where in the facts the words “most desirable tenant ” are used to describe a tenant who doesn’t pay rent and is the opposite of the description as he is very undesirable which means that the seller created a situation of misrepresentation . This then reveals that misrepresentation must relate to the facts not an opinion or the law just like in this case of Ernest and Sbanga what caused the misrepresentation was a fact which Sbanga told Ernest.
Arguably false misrepresentation must have been made by a party to a contract or his agent not a third party .In this case the contract of sale is between Ernest and Sbanga . As the elements of misrepresentation state that one of these two parties should be the one who commits the false presentation , of which in this instance Sbanga does that . Hence which means misrepresentation is one of the issues. According to R.H Christie in his book The law of Contract in South Africa page 314in Karabus Motors (1959) Ltd v Van Eck 1962 1 SA 451 (C) 453 Watermeyer J said
‘It is a general rule of our law that if the fraud which induces a contract does not proceed from one of the parties , but from an independent third person , it will have no effect upon the contract . The fraud must be the fraud of one of the parties of a third party acting in collusion with , or as the agent of ,one of the parties”
In this case Ntobeko can not claim damages from Sbanga but Ernest can claim due to the misrepresentation that Sbanga made in the contract of sale with Ernest because he incurred intended to induce a contract .
In some instances another element of misrepresentation, is that the false representation must have been intended to induce a contract. In simplier terms meaning to succeed in persuading someone to do something . In this situation Sbanga gives false information about the production capacity of the machine because he wants to make sure that Ernest does not buy the machine from John who is also selling the very same machine . Hence Sbanga knows the production capacity that Ernest needs to fulfil his obligation towards Ntobeko and arguably uses this information to successfully convince him to buy the machine , then Ernest after collecting the machine realizes that it has a lower production capacity than the level he initially needs bringing into play the issue of misrepresentation . Unlike in the case of Stephen Chikamhi v Banabas Kamangira 2015 ZLR HH where the buyer Stephen had the opportunity to have the vehicle tested and know that it had a faulty engine but still bought and then later claimed misrepresentation and wanted damages he lost the case . It is the opposite in Ernest”s case which gives him the base to claim damages for misrepresentation .
On another level it can be said that misrepresentation must have induced the contract . Basically the innocent party wouldn’t have entered the contract had the truth been out in the open . Since Ernest wanted a certain production capacity , which was confirmed by the seller to be that of the machine which he was selling , Ernest then agreed to the contract . Chances are very very high like a red flag , that had the buyer in this case being Ernest known the truth the contract would not have come into form between him and Sbanga to buy the machine.Thus proving that this misrepresentation induced the contract . Just like in the case of Cephas v The State 2015 ZLR HH where the defendant sold land which did not belong to him and claimed that it was his . This intention to sell from Cephas ho was pretending that the land was his created a contract on the basis of misrepresentation as he was selling a land that wasn’t his and he was arrested for fraud .
It can also be argued that misrepresentation must be material . According to Dr Maja in The Law of contract in Zimbabwe 2015 page 97 ,”This means that misrepresentation must be capable of inducing a reasonable person to enter into a contract “This point or element does apply to the issue at hand of Sbanga and Ernest as the false information that Sbanga gave, that the machine had the certain production capacity that was needed for the contract with Ntobeko was false . Even though it was false information it was capable of inducing a normal and reasonable person like Ernest to enter into a contract . Sbanga also violated The Consumer Protection Bill 2014 Part 3 Section 13and 14 which gives Ernest the right to consumer education and the right to information in plain and understandable language . Of which in this case Sbanga gave Ernest the wrong consumer information which violated his rights drawing the smell of the basis of misrepresentation.
In the contract between these two parties , Sbanga and Ernest , one after considering all the elements of misrepresentation and finds the they then go on to establish the type of misrepresentation found in this case . This type of misrepresentation committed by Sbanga falls under a group called Fraudulent Misrepresentation or Intentional Misrepresentation. According to RH Christie in his book, The Law of Contract in South Africa Fourth edition page 339 “fraud is proved when it is shown that a false representation has been made 1) knowingly or 2) without belief in its truth or 3) reckless , careless whether it be or false”.According to Section 136 of the Criminal Law (Codification and reform) Act defines fraud in the following terms
Any person who makes a misrepresentation –
Intending to deceive another person or realizing that there is a real risk or possibility of deceiving another person ;and
Intending to cause another person to act upon the misrepresentation to his or her prejudice , or realizing that there is a real risk or possibility that another person may act upon the misrepresentation to his or her prejudice ;shall be guilty of fraud if the misrepresentation causes actual prejudice to another person or is potentially prejudice to another person , and be liable to –
a fine not exceeding level fourteen or not exceeding twice the value of any property obtained by him or her as a result of the crime, whichever is the greater;or
imprisonment for a period not exceeding thirty-five years ;or both.
Thus in this instance Sbanga conceals and lies about the true production capacity he is committing fraud as a contract comes into play between him and Ernest on faulse grounds bringing a crime into the scene . This fraud brings in a scene in which he may claim for damages or if this case goes to court Sbanga may serve in prison.
REMEDIES FOR FRAUDULANT MISREPRESENTATION
When there has been misrepresentation there are a number of remedies that Ernest can claim for because of the false presentation of facts by Sbanga . The first remedy which he can get is recission of the contract coupled with restitution. What this basically means is that Ernest has the option to either continue with the contract or claim back what he has parted with in terms of expenses and also to return whatever he got from the other party Sbanga. Of which in this instance Ernest has returned the machine to Sbanga, hence he is the one who should compensate Ernest what he has lost. What Ernest has lost includes expenses to collect the machinery though Sbanga may argue that it should not be part of claim because Ernest offered to collect the machine on his own .Other expenses include building the place to store the machine , demolishing the building to store the machine , and the money he would have gained had he carried out his duty of performance towards Ntobeko. Thus this is what Ernest can ask for as a remedy .
Another remedy for this misrepresentation is damages in delict . This remedy falls under fradulant misrepresentation . These damages are claimed from the third party if the third party was responsible for the misrepresentation . In this case in the contract between Ntobeko and Ernest , Sbanga is the third party and he is responsible for the misrepresentation. Hence the innocent party Ernest can claim for damages from him . These damages are measured so that they put the innocent party in the position that would put the innocent party in the position they would have been had it not been for the misrepresentation that occurred.
BREACH OF WARRANTY
A warranty is a term of a contract whereby a party assumes contractual contractual liability for the existence of a certain state of affairs or the occurrence of an event . There are different types of warranties which include a warranty that transfers ownership which will be effected in a certain period of time, a warranty that a party to a contract will comply with his obligations among many other examples . In this case there is a breach of warranty as Sbanga sells Ernest a faulty machine and this entitles Ernest to remedies under Breach of Warranty. The effect of a warranty is that it imposes absolute liability on the person giving such warranty . Failure to comply with a warranty amounts to breach of contract . Thus in this case Sbanga is the one in breach of this warranty and has to compensate Ernest with the remedies of breach of contract as shall be shown below . It is also important to note that Sbanga can not escape this liability based on the impossibility to perform as the other party already performed .
Another definition of breach of warranty , it involves a broken promise about a product made by a manufacture or a seller. The term also covers a failure of a statement or agreement by a seller of property which is a part of the contract of sale , when the truth of the statement is necessary to the validity of the contract . Warranties are also express or implied . An express warranty is a particular stipulated introduced into the written contract , by the agreement of parties ;an implied warranty is a guarantee imposed by the law in a sale .Even though the seller may not make any explicit promises , the buyer gets some protection.
BREACH OF CONTRACT
An unjustifiable failure to perform all or some part of a contractual duty is a breach of contract. A breach may occur when one party fails to perform in a manner specified by the contract or by the specified in the contract . A breach may also occur if one party partially performs his duties or fully performs them in a defective manner. In this case it is important to note there are two contracts and two breaches in two different contracts , one breach being that when a party failed to perform in a manner that is specified in the contract where Sbanga sold Ernest a machine with a lower production capacity than what he had confirmed to be the capacity , the second one being when one partially performs , in this case by buying the machine Ernest partially performed his obligation towards his contract with Ntobeko , but because he was sold a machine which had a lower production capacity he couldn’t complete his obligation in his legally binding agreement with Ntobeko. These two then create a scene of breach of contract.
REMEDIES FOR BREACH OF CONTRACT
Remedies when an innocent party decides to cancel the contract;
The cancellation remedy aims at ending the contract .Cancellation is an extraordinary remedy and can be claimed only in special circumstances . Cancellation can have a two way impact , the first one being that a brings an end to the contract and all the obligations that it came with and the other form of cancellation restores all obligation to perform that were made in the contract .There are soe requirements that are needed for a cancellation which are the right to cancel, the ability to restore performance and the exercise of the right to cancel. Hence in the next few paragraphs the requirements for cancellation shall be dealt with in depth applying them to the two contracts at hand also shall deal with the issue of damages as the advice being given to Ernest contines.
The first element of cancellation that shall be dealt with is the exercise of the right to cancel . Both parties have to be notified about the intention to cancel a contract though the Unileteral Justice Act page 335 does not require agreement from the defaulting party and there is no need for the consultation of a court during the cancellation process. In the first contract between Sbanga and Ernest , E is the one with right to cancel the contract with Sbanga and he definitely does practice his right as he cancels the contract . In the second contract between Ntobeko and Ernest , Ntobeko has the right to cancel the contract as Ernest is failing to complete his obligation thus compelling Ntobeko to claim for damages . Hence both are exercising their rights . Of importance to note is that if the innocent party decides to continue with the contract then the right to cancel is lost but of which in this case both innocent parties have chosen to cancel the contract unlike in the case of Stephen Chikamhi v Barnabas Kamangira 2014 ZLR HH where the plaintiff wants to cancel a contract after he already went ahead with knowing that the engine was faulty but wants to cancel the contract and cry fowl play which has no base .
The second element that should be at play when cancelling the contract is the ability to restore performance received. In the cancellation of a contract , one will be undoing all that has happened hence the obligation to return all performance that was done by the other party is required . The one seeking cancellation should be able to return performance to the other , though cancellation can still take place without the innocent party returning performance if he wasn’t enriched by the performance of the other party. In the case of Sbanga and Ernest , the innocent party being Ernest has returned the machine to the seller hence now Sbanga has to compensate the innocent party for the expenses incurred as performance when he collected the machine and returned it back $650 , built special housing for the machine and bought an ancillary plant $1500 , the expenses he will incur when demolishing the special building$300 and the market value of the plant $400 and also for the $1000 profit that he would have made had he been able to perform his obligation towards Ntobeko..In the second contract which is between Ernest and Ntobeko there has been a cancellation even though the innocent party isn’t returning performance because Ntobeko had not received any enriching performance from Ernest . This is also what is giving him the bases to claim damages for $1000 and he also cancels the contract as Ernest fails to fulfil his obligation towards their contract . Hence both parties are justified to cancel the contracts and to also claim for for the losses incurred in the form of damages .
The third and final point which gives the basis to cancellation of a contract is the right to cancel. The mere fact that a party has breached does not justify cancellation of a contract . Cancellation is allowed where the other party is in morn ;has repudiated the contract; has committed a breach going to the root of the contract ;or where there is a forfeiture clause. In this instance the fact that the breach committed by Sbanga ended up affecting his other work causes him to end up having to cancel the contract because it is really of no value to him in any way .
In a nutshell this assignment serves as an advice to Ernest on what took place in the contracts which he was legally bound in .The ain issues that are raised from these contracts are the issues of misrepresentation and the issue of breach of warranty leading to breach of contract , all these issues are very hot matters . Hence the different remedies and measures that Ernest can take to help himself and there are also the different situations that he can find himself if he takes certain routes in his reaction to both matters.
BIBLIOGRAPHY l 1033
Christie, Rh. The Law of Contract in South Africa. Vol. 4th edition. South Africa, 1981.
Consumer Protection Bill . Zimbabwe, 2014.
Legislator, The. Criminal Codification Act. Zimbabwe, 2005.
Maja, innocent. The Law Of Contract In Zimbabwe. 2015.
Rh Christie. Business Law in Zimbabwe. Zimbabwe, 1998.
State, The. Unileteral Justice Act. July 2015.
Zimbabwe, Government of. The Consumer Protection Bill. Zimbabwe, 2014.