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[2016] ZAGPJHC 373
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Unlocked Properties 4 (Pty) Limited v A Commercial Properties CC (18549/2015) [2016] ZAGPJHC 373 (29 July 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
REPORTABLE
Case
No: 18549/2015
In
the matter between:
UNLOCKED
PROPERTIES 4 (PTY)
LIMITED
Applicant
and
A
COMMERCIAL PROPERTIES
CC
Respondent
Case
Summary: Contract – Impossibility of performance –
legal rules relating to impossibility of performance
of obligations –
requirement that impossibility must be absolute - contractual
undertaking to transfer property – seller’s
alleged
impossibility to perform such obligation peculiar to itself and not
absolute.
Specific
Performance - seller failed to establish that an order of specific
performance will be a mere
brutum fulmen
and Pyrrhic victory
for the purchaser – order granted.
JUDGMENT
MEYER,
J
[1]
The applicant, Unlocked Properties 4 (Pty) Limited (the purchaser),
claims specific performance by the respondent, A Commercial
Properties CC (the seller), of the obligation to transfer an
immovable property to it, which obligation arose from a written
agreement
of sale that was concluded between them on 7 November 2014
(the contract). The immovable property is situated on the main
road in Florida, Roodepoort (the property). It comprises 29
units; 22 flats and 7 small shops. The agreed purchase
consideration is R 4,5 million.
[2]
The contract was subject to two suspensive conditions; the one has
been duly fulfilled and the other one waived. It is
common
cause that the purchaser has duly complied with all its obligations
in terms of the contract, including the provision of
a guarantee from
a bank for payment of the full purchase price plus value added tax
against transfer of the property into its name.
[3]
A mortgage bond is registered over the property in favour of Albaraka
Bank Limited (the bank), securing an indebtedness which
the seller
owes to the bank. At the time of deposing to its answering
affidavit in these proceedings, the outstanding indebtedness
was the
sum of R4 920 016.07. There is thus a shortfall of R420 016. 07
between the purchase price payable in terms of the
contract and the
seller’s outstanding indebtedness to the bank (the shortfall
amount). The sole member of the seller
states in its answering
affidavit that the seller ‘does not have the financial means to
provide a guarantee sufficient to
make up the shortfall or to provide
the said Albaraka Bank Limited with a guarantee sufficient to enable
the cancellation of the
bond and transfer of the property.’
[4]
The seller informed the purchaser that the contract was accordingly
cancelled. Once the seller had attempted to achieve a cancellation
of
the contract, the purchaser informed the seller’s sole member
that ‘it might consider a loan to you to fulfil your
obligation
to both the Bank and to the purchaser’, to which he replied as
follows:
‘
Thank you for your generous
gesture, but I have to decline.
In order for me to deliver all the
requested confirmations, and cover any and all other costs that would
be attached to the sale
of the said property, I have no option to
revise the sale amount to R8.5 million.’
[5]
The purchaser considered the seller’s unilateral cancellation a
repudiation, which it refused to accept, and it demanded
specific
performance from the seller of its obligation to transfer the
property into its name. The seller did not heed the
demand and
hence the present application.
[6]
The seller relies on the contractual defence of impossibility of
performance. ‘The legal rules relating to initial
and
supervening impossibility of performance, with their consequence, in
certain circumstances, of the voidness of an agreement
or the
extinction of the obligations created by an agreement, relate to the
initial or supervening impossibility of performance
of
the
obligations
purported to be created or created by the
agreement.’ (
Per
Cilliers AJ in
Rosebank Mall
(Pty) Ltd and another v Cradock heights (Pty) Ltd
2004 (2) SA 353
(W), para 64.) In
MV Snow Crystal Transnet Ltd t/a National
Ports Authority v Owner of MV Snow Crystal
[2008] ZASCA 27
;
2008 (4) SA 111
(SCA),
para 28, Scott JA said the following about the defence:
‘
As a general rule impossibility
of performance brought about by
vis
major
or
casus
fortuitous
will excuse
performance of a contract. But it will not always do so.
In each case it is necessary to ‘look to
the nature of the
contract, the relationship of the parties, the circumstances of the
case, and the nature of the impossibility
invoked by the defendant,
to see whether the general rule ought, in the particular
circumstances of the case, to be applied’.
The rule will
not avail a defendant if the impossibility is self-created; nor will
it avail the defendant if the impossibility
is due to his or her
fault. Save possibly in circumstances where a plaintiff seeks
specific performance, the onus of proving
impossibility will lie upon
the defendant.’
(Footnotes
omitted.)
[7]
The impossibility must be absolute or objective as opposed to
relative or subjective. Subjective impossibility to receive
or
to make performance does not terminate the contract or extinguish the
obligation. (See
Unibank Savings and Loans Ltd (formerly
Community Bank) v ABSA Bank Ltd
2000 (4) SA 191
(W), at 198B-C.)
[8]
In
Scoin Trading (Pty) Ltd v Bernstein NO
2011 (2) SA 118
(SCA), para 22, Pillay JA, said this:
‘
The law does not regard mere
personal incapability to perform as constituting impossibility. [WA
Ramsden
Supervening
Impossibility of Performance in the South African law of Contract
(1985) at 17.] The
payment of the debt is not rendered impossible by the death of the
deceased – as performance of a
personal nature, like singing in
an opera, would have been.’
[9]
LAWSA
Vol 5(1) First Reissue para 160 states:
‘
The contract is void on the
ground of impossibility of performance only if the impossibility is
absolute (objective). This
means, in principle, that it must
not be possible for anyone to make that performance. If the
impossibility is peculiar to
a particular contracting party because
of his personal situation, that is if the impossibility is merely
relative (subjective),
the contract is valid and the party who finds
it impossible to render performance will be held liable for breach of
contract. [
D
45
1 137 5 and see
Frye’s
(Pty) Ltd v Ries
1957 3 SA
575
(A)]’
[10]
RH Christie
The Law of Contract in South Africa
3
rd
Ed at 101 illustrates the principle that the impossibility must be
absolute, thus:
‘
If I promise to do something
which, in general, can be done, but which I cannot do, I am liable on
the contract. [
D
45
1 137 5.]’
[11]
In
Frye’s (Pty) Ltd v Ries
1957 (3) SA 575
(A), at
581A-C, Hoexter JA said the following:
‘
There can be no doubt that
neither a sale nor a lease is void merely because the seller or
lessor is not the owner of the property
sold or leased. (See
Transvaal Mortgage, Loan and
Finance Co. Ltd v Aronson,
1904
T.S. 864
at p. 866 and
Tabha
v Moodley
,
1957 (1) SA 659
at p. 660 (N)).
Voet
deals as follows with the
sale of another’s property in 18.1.14. (
Gane’s
translation):
“
Furthermore it matters little
whether things are one’s own or belong to others, insofar as
the seller is put under obligation
to buy up such property in the
other person’s hands and to make it good, unless he prefers to
have judgment given against
him for damages if he has knowingly sold
the property of another . . . ‘
[12]
One further example of mere relative or subjective impossibility is
to be found in
Unibank Savings and Loans
(supra), at 198D-E).
There Flemming DJP held:
‘
Impossibility is furthermore
not implicit in a change of financial strength or in commercial
circumstances which cause compliance
with the contractual obligations
to be difficult, expensive or unaffordable.’
[13]
The fact that the property is burdened with a limited real right of
security in favour of the bank, ‘matters little’.
Because of its accessory character, a mortgage is extinguished by
discharge of the principal debt. The seller is under an
obligation to discharge his debt owed to the bank in order for
transfer of the property to pass to the purchaser free from the
burden. The impossibility on which the seller relies is
peculiar to itself because of its personal financial situation and
incapability of securing payment of the full debt owed to the bank,
and not absolute. Such obligation can, in general, be
performed. The seller’s personal incapability does not
render the contract void. The defence of impossibility
of
performance has not been established.
[14]
In the alternative the seller argues that this is a fitting case to
refuse specific performance. In
Farmers’ Co-operative
Society (Reg) v Berry
1912 AD 343
, at 350, Innes CJ, said the
following:
‘
Prima facie
every
party to a binding agreement who is ready to carry out his own
obligation under it has a right to demand from the other party,
so
far as it is possible, a performance of his undertaking in terms of
the contract. As remarked by KOTZE, C.J., in
Thompson
v Pullinger
(1 O.R., at p.
301), the right of the plaintiff to the specific performance of a
contract where the defendant is in a position to
do so is beyond all
doubt. It is true that Courts will exercise a discretion in
determining whether or not decrees of specific
performance should be
made. They will not of course, be issued where it is impossible
for the defendant to comply with them.
And there are many cases
in which justice between the parties can be fully and conveniently
done by an award of damages.
But that is a different thing from
saying that a defendant who has broken his undertaking has the option
to purge his default by
the payment of money. For in the words
of
Storey
(
Equity
Jurisprudence
, Sec.
717(a)), it is against conscience that a party should have a right of
election whether he would perform his contract or only
pay damages
for the breach of it. The election is rather with the injured
party, subject to the discretion of the Court.’
[15]
It is for the seller to prove facts upon which this court can
exercise the discretion in its favour to refuse a decree of specific
performance of its contractual obligation to transfer the property to
the purchaser. (See
Tamarillo (Pty) Ltd v BN Aitken (Pty)
Ltd
1982 (1) SA 398
(A)). The impediment to specific
performance on which the seller relies is its alleged financial
inability to pay the shortfall
amount to the bank. It would,
according to the seller, be impossible for it to comply with an order
of specific performance.
[16]
The seller is a property holding entity. The property is the
only immovable property it owns. Its only income is
derived
from letting the 29 units. The average monthly rental,
according to the sole member of the seller, is ‘around’
R4 000 for a flat and ‘about’ R5 000 for a shop. He
states further that the seller ‘does not have finalised
audit
statements as yet’ and that ‘its finances are summarised
in annexure “MAA2”’ to the answering
affidavit.
The summary is terse and does not make a sufficient disclosure of the
seller’s assets and liabilities and
income and expenditure to
enable this court to make a proper assessment thereof in the exercise
of its discretion whether or not
to grant specific performance.
It is trite that affidavits in motion proceedings constitute both
pleadings and evidence.
The answering affidavit lacks such
facts as would be necessary for determining whether the seller would
indeed not be able to give
effect to an order of specific
performance. Its allegation that it would not, is ‘an
inference, a “secondary
fact”, with the primary facts on
which it depends omitted.’ (See
Radebe and others v
Eastern Transvaal Development Board
1988 (2) SA 785
(A), at
793C-F.)
[17]
The seller has failed to establish that an order of specific
performance will necessarily be ineffective or a mere
brutum
fulmen
- an exercise in futility - (see
City of
Johannesburg v Changing Tides 74 (Pty) Ltd and others
2012 (6) SA
294
(SCA), para 46;
Boundary Financing Ltd v Protea Property
Holdings (Pty) Ltd
2009 (3) SA 447
(SCA), paras 19-20) and a
Pyrrhic victory for the purchaser (see
Ncube v Department of Home
Affairs and others
2010 (6) SA 166
(ECG), at 169G-H).
[18]
In the result the following order is made:
(a) The respondent is
directed to take all the necessary steps to pass transfer of the
property, described as Erf 59 Florida City,
Roodepoort, Johannesburg,
SS Gafco Court Sections 1 – 29, Province of Gauteng
collectively 1921 square metres in extent and
situated at Gafco
Court, Goldman Road Florida, Roodepoort, to the applicant.
(b) If the respondent
fails within 14 days of this court’s order to take the
necessary steps, the sheriff is authorised to
take such steps on its
behalf.
P.A.
MEYER
JUDGE
OF THE HIGH COURT
Date
of hearing: 23 February 2016
Date
of judgment: 29 July 2016
Counsel
for applicant E Rudolph
Instructed
by: Witz, Calicchio, Isakow & Shapiro Attorneys, Hyde Park,
Johannesburg
Counsel
for respondent: IC Bremridge
Instructed
by: Fairbridges Wertheim Becker, Johannesburg