MATANHIRE & ANOR v CHAPENDAMA & ANOR Chapendama v Matanhire & Anor 2014 (2) ZLR 15 (H)

Flynote

Contract — breach — remedies — cancellation — when court may order cancellation — breach must be serious — cancellation will not be ordered for a trivial breach

Headnote

The plaintiffs sold their Marondera property to the first defendant in terms of a written deed of sale drawn up by a firm of legal practitioners and signed by the parties. The purchase price for the property was US$65 000. The defendant paid a deposit of $10 000 and then, after securing a mortgage, paid a further $50 000. The defendant paid the remaining US$5 000, but most not directly to the plaintiffs: part was paid to the Zimbabwe Revenue Authority for the capital gains tax; part was paid to the local authority for outstanding rates as assessed by that local authority; and a smaller part was paid to a firm of lawyers as their bond cancellation fee and collection commission for the release of the title deed which they had been holding. The balance was paid into the second plaintiff's bank account. The property was transferred to the defendant but the plaintiffs refused to vacate.

The plaintiffs claimed that the defendant had breached the contract and sought cancellation. They claimed that she had purported to manage their affairs by herself purporting to meet their capital gains tax and rates obligations. They said the payment to the lawyers, for the bond cancellation, had been a duplication because they themselves had already paid that amount. They claimed that by paying directly to the revenue authority and by collecting the capital gains tax clearance certificate herself, she had prejudiced them in respect of their entitlement to apply for a roll-over of the purchase proceeds for the purposes of purchasing another property that the second plaintiff was buying from a third party. They also said that by paying for the outstanding rates, the defendant had prejudiced them in their entitlement to a discount on those rates.

The defendant, for her part, sought the eviction of the plaintiffs and holding over damages. She had retrieved the duplicated payment from the lawyers and paid it to the plaintiffs.

Held, that the nub of the matter was whether by paying the outstanding $5 000, not directly to the sellers, but to those bodies to which the sellers had direct monetary obligations, the defendant had discharged her own obligations in terms of the deed of sale. In other words, by paying the plaintiffs' creditors for the conveyance of the property, had she discharged her own obligations to them as her creditors for the balance of the purchase price? Generally speaking, the debtor's payment to his creditor's creditor does not discharge him from his obligation — but there are exceptions. If the creditor benefits from the debtor's payment to his own creditor then the debtor is discharged.

Held, further, that in terms of the Capital Gains Tax Act, and subject to the exemptions therein, the seller of an immovable property is obliged to pay capital gains tax on the capital gain received by him on the sale of his property during the year of assessment. The conveyancer of the property is obliged to withhold the capital gains tax from the purchase price and remit it to the revenue authority within three days of the date that he pays out the purchase price to the seller or transfers the property. The conveyancer becomes personally liable for the capital gains tax if he fails to withhold and remit it. In terms of s 30A of the Act, no transfer of land will be registered in the deeds office unless the capital gains tax has been paid. The plaintiffs' claim to a right to a roll-over of the purchase proceeds was a subterfuge. The time for them to have indicated their intention to apply for a roll-over was on the submission of the capital gains tax return and during the interview with the revenue authority. On both instances they had not done so.

Held, further, that ultimately, the plaintiffs' claim was that they, and not the defendant, should have remitted the capital gains tax but that was no ground to repudiate the sale. Where there has been a breach of contract by reason of malperformance, rescission of the contract is more burdensome than specific performance. It is a more radical remedy. The court must strike a balance between the competing interests. Ultimately it makes a value judgment. It must decide whether the breach is so serious that it is fair to allow the innocent party to cancel the contract and undo all its consequences. Here, the sum involved was a mere 5 per cent of the purchase price. Even if the defendant had not been entitled to pay the tax directly to the revenue authority and was thereby guilty of malperformance, the breach would not have been one going to the root of the contract. It would not have been one so serious as to warrant rescission. At best, the plaintiffs would have to be content with a claim for damages; but in casu the defendant's payments were proper and were made in discharge of her obligations to the plaintiffs.

Held, accordingly, that the defendant was entitled to the relief she sought.