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Mo Fo Property Investments CC v Casa Di Paglia CC and Others (32641/07) [2010] ZAGPPHC 622 (16 June 2010)

75 Reportability
Contract Law
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Brief Summary

Contract — Sale of immovable property — Suspensive condition — Applicant sought declaration that deed of sale with first respondent was valid despite alleged non-compliance with suspensive condition regarding loan approval — First respondent contended that sale was invalid due to incorrect identification of seller and lack of authority of signatory — Court held that the omission of "CC" did not invalidate the contract as all members of the close corporation consented to the sale, and rectification of the deed was warranted to reflect the correct seller — Loan approval received within stipulated time was sufficient to satisfy the suspensive condition, and the applicant's acceptance of the loan terms was binding, thus validating the sale.

Comprehensive Summary

Summary of Judgment


1. Introduction


This matter concerned motion proceedings in the High Court of South Africa (Transvaal Provincial Division), in which the applicant sought a declaratory order that a deed of sale of immovable property concluded between it and the first respondent was of full force and effect, together with consequential relief.


The applicant was Mo Fo Property Investments CC. The first respondent was Casa Di Paglia CC (referred to in the judgment for convenience as “the respondent”). The second respondent was Korzia Vivienne, and the third respondent was the Registrar of Deeds, Pretoria. No substantive relief was sought against the second or third respondents.


Procedurally, the dispute was ventilated on affidavit. The respondent delivered an answering affidavit raising two principal defences, and during argument an amended notice of motion was handed up to include a prayer for rectification of the accepted offer to purchase to reflect the seller’s name correctly.


The general subject-matter of the dispute was the validity and enforceability of a sale of land, specifically whether the deed of sale was invalid due to an alleged defect in the identification/authority of the seller, and whether the sale remained subject to (or had failed for want of compliance with) a suspensive condition requiring the purchaser to obtain approval of loan finance.


2. Material Facts


The parties concluded a deed of sale of immovable property which contained a typical suspensive condition (clause 13) providing that the sale was subject to the purchaser obtaining approval of a loan secured by a first mortgage bond over the property for not less than R4 050 000, at an interest rate and on terms stipulated by the financial institution. The clause required that the loan be approved within 21 days of acceptance of the offer to purchase, with an automatic extension of 14 days subject to conditions not material to the decision.


When the offer to purchase was initially submitted to the respondent, the space for the seller’s name was left blank because the purchaser did not know the correct name of the owner. One of the respondent’s two members inserted the seller’s name into the offer. The respondent also amended the purchase price (and initialled the amendment) and inserted additional clauses not relevant to the outcome. The amended offer was returned to the applicant, which initialled the amendments, thereby accepting the counter-offer. It was common cause on the papers that the respondent inadvertently omitted the letters “CC” after the seller’s name when it was inserted.


The respondent’s first defence was that, because of the omission of “CC”, the deed of sale reflected a contract with a non-existent entity, and was therefore invalid. In addition, it contended that the person who signed on its behalf lacked written authority, with the result that the requirements of section 2 of the Alienation of Land Act 68 of 1981 had not been met.


The respondent’s second defence was that the suspensive condition in clause 13 had not been fulfilled. It was common cause that the applicant received a letter from the relevant financial institution, Imperial Bank, within the contractual time period; however, the parties disputed the meaning and effect of that letter.


The letter stated that the applicant’s application for a “facility” had been approved. It recorded an amount of R4 421 357.97, described as finance for the purchase of land and installation of infrastructure for 19 residential full stands. The letter contained detailed terms and conditions over several pages. It included a provision that the proposal remained valid until a stated date, after which it would become null and void, and it requested the recipient to indicate acceptance by initialling each page and completing an acceptance section.


The respondent argued, first, that the loan was effectively granted only for R2 050 000 (not the minimum R4 050 000) because the letter contemplated that the bank would pay R2 050 000 to the seller against transfer, and that the purchaser would pay the balance of R2 000 000, with further payments after bond registration in accordance with an annexure. Secondly, the respondent argued that the suspensive condition failed because the applicant allegedly did not communicate its acceptance of the facility to the bank before the expiry date.


On the affidavits, the court recorded that the papers were silent on whether the applicant did in fact provide the bank with a signed acceptance before the stated deadline.


3. Legal Issues


The court was required to determine, centrally, whether the deed of sale should be regarded as valid and enforceable, which turned on two clusters of questions.


The first cluster concerned the identity of the seller and authority to contract, namely whether the omission of “CC” after the seller’s name meant the agreement was concluded with a non-existent entity and thus invalid, and whether compliance with statutory formalities for the sale of land was defeated by the alleged absence of written authority under section 2 of the Alienation of Land Act 68 of 1981. This aspect involved primarily the application of legal requirements to largely common-cause facts, together with the discretionary/equitable remedy of rectification based on the parties’ common intention.


The second cluster concerned the interpretation and satisfaction of a suspensive condition requiring the purchaser to obtain loan approval. This involved the construction of clause 13 and the bank’s approval letter, and the application of established legal principles governing loan-approval suspensive conditions to the facts. It included an evaluative component in determining whether, properly construed, the bank’s letter constituted “approval” for at least the minimum amount, and whether the facility lapsed due to the alleged absence of communicated acceptance.


4. Court’s Reasoning


On the first defence (identity and authority), the court approached the omission of “CC” as an error capable of being resolved both by reference to statutory provisions concerning close corporations and by rectification of the written instrument to reflect the parties’ true consensus.


The court held, first, that section 46(b)(iv) of the Close Corporations legislation (as referred to in the judgment) provides that immovable property of a close corporation may be sold with the written consent of 74% of its members. On the facts, 100% of the respondent’s members signed the offer on behalf of the close corporation. The court reasoned that, in those circumstances, the close corporation itself was acting through its members and not through agents requiring separate written authorisation. This finding also disposed of the respondent’s reliance on an absence of written authority as contemplated by section 2 of the Alienation of Land Act.


Secondly, the court accepted the applicant’s submission that the matter presented a clear case for rectification, and that the amended notice of motion appropriately sought that relief. The court emphasised that the applicant did not know the correct name of the owner and accepted the inserted name in the genuine belief that it was correct, while the respondent admitted that the omission of “CC” was an error. From this, the court found that the common intention was clear and that the written document did not correctly reflect it. The rectification claim therefore succeeded, with the result that the identity point could not invalidate the agreement.


On the suspensive condition (loan approval), the court stated that the legal position regarding this type of provision is trite, namely that a clause making the sale subject to the obtaining of a loan is for the benefit of both parties and cannot be unilaterally waived by the purchaser. The court explained the respective interests: the purchaser requires assurance of finance to perform, while the seller requires certainty that the transaction will proceed and that the purchaser has made the necessary arrangements.


The court then considered reported authority on what it means to “obtain” a loan or loan approval, referring in particular to Remini v Basson 1993 SA 204 (N). The judgment discussed that case as involving a letter of approval subject to conditions (including a requirement that acceptance be signed) and a clause allowing withdrawal, and it noted that the court there treated the purchaser’s failure to sign acceptance as not decisive in circumstances where the purchaser conceded that there was nothing in the terms to which he was unwilling to agree. The judgment also recorded the approach in Remini that, even where a financier reserves a discretion to withdraw, such discretion must be exercised consistently with the arbitrium boni viri standard, or at least not unreasonably.


In applying these principles, the court drew attention to the wording of the present clause, which required only that the applicant “obtain(s) approval of a loan”, rather than clearly requiring the conclusion of a binding loan agreement. The court indicated a preference for the view that, if the conclusion of a binding loan agreement is intended as a requirement before the sale becomes binding, the deed of sale should say so clearly.


Turning to the respondent’s argument that the loan was only for R2 050 000, the court analysed the bank’s letter and held that, on its express terms, the facility amount was R4 421 357.97, which exceeded the contractual minimum of R4 050 000. The court acknowledged that the letter provided for payment mechanics (including a payment of R2 050 000 to the seller against transfer and further payments after bond registration), and that there must have been additional arrangements between the applicant and the bank, but concluded that these arrangements did not alter the essential point: the bank approved a facility exceeding the minimum amount, and how the applicant deployed its own contribution (whether toward the purchase price or development) was not material to whether the minimum “approval” requirement was met.


As to the further contention that the applicant failed to indicate acceptance to the bank before the expiry date, the court noted that the affidavits were silent on whether the applicant did so. The court held, however, that the applicant’s conduct demonstrated satisfaction with the bank’s terms and that the purchaser could not later rely on its own failure to communicate acceptance as a basis to escape liability under the sale. Beyond that, the court construed paragraph 11 of the bank letter and the “acceptance” language as not making the facility’s survival dependent on receipt of the signed acceptance before the deadline; rather, the bank’s request to sign and return was treated as a polite request and not a condition that, on a proper construction, automatically rendered the facility void if not complied with. In that sense, while the bank might withhold payment until acceptance was signed, the court was not persuaded that the facility could be treated as cancelled merely because acceptance was not returned before the stated date.


On that basis, the court concluded that there was nothing before it to indicate that the agreement was not of full force and effect, and therefore the declaratory relief should be granted.


5. Outcome and Relief


The court granted the application. It declared that the agreement between the applicant and the first respondent (annexure “C” to the founding affidavit) was of full force and effect.


In addition, the court granted further relief in terms of prayers 2, 4, and 6 of the notice of motion (as referenced in the order), without setting out the content of those prayers in the reported judgment text.


The court ordered that the first respondent pay the costs of the application.


Cases Cited


Remini v Basson 1993 SA 204 (N)


Legislation Cited


Alienation of Land Act 68 of 1981 (section 2)


Close Corporations Act (section 46(b)(iv))


Rules of Court Cited


No rules of court were cited in the judgment.


Held


The court held that the omission of the letters “CC” after the seller’s name in the accepted offer to purchase was an admitted error and that the evidence established a clear common intention inconsistent with the written description, justifying rectification so that the document correctly reflected the respondent’s identity.


The court further held that the respondent’s two members, constituting 100% of the membership, signed the agreement and thereby satisfied the statutory requirement (as referred to in section 46(b)(iv)) relating to alienation of a close corporation’s immovable property, with the consequence that the respondent’s challenge based on authority and section 2 of the Alienation of Land Act could not succeed on the facts.


On the suspensive condition, the court held that the purchaser obtained approval of loan finance within the stipulated period because the bank’s letter approved a facility exceeding the contractual minimum of R4 050 000, and the letter’s payment structure did not detract from the existence of such approval. The court also held that it was not shown that the facility lapsed due to non-communication of acceptance, and that, properly construed, the letter did not make the facility’s continued validity dependent on receipt of the acceptance by the expiry date.


LEGAL PRINCIPLES


A written deed of sale that inaccurately records the parties’ true agreement may be rectified where the evidence establishes a common intention and that the written document fails to reflect that intention due to error.


A suspensive condition requiring the purchaser to obtain loan finance is generally for the benefit of both parties and is not treated as a condition that the purchaser may unilaterally waive.


Where a deed of sale requires the purchaser to obtain approval of a loan, the fulfilment of the suspensive condition depends on whether the purchaser obtained the requisite approval within the stipulated time, properly construed on the language of the sale and the financier’s approval communication, rather than on extraneous disputes about how the facility will be disbursed.


In assessing financier communications and reserved discretions, the judgment (with reference to authority) accepted that a financier’s right to resile or withdraw is not to be understood as unlimited in effect, but must be capable of being assessed against a standard akin to arbitrium boni viri, or at least a requirement of non-unreasonableness, on the approach discussed in the cited case.

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[2010] ZAGPPHC 622
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Mo Fo Property Investments CC v Casa Di Paglia CC and Others (32641/07) [2010] ZAGPPHC 622 (16 June 2010)

IN
THE HIGH COURT OF SOUTH AFRICA
(Transvaal
Provincial Division)
In the matter
between:
MO FO PROPERTY
INVESTMENTS
CC
.....................................................................................
Applicant
and
CASA DI PAGLIA
CC
..........................................................................................................
First
Respondent
KORZIA
VIVIENNE
........................................................................................................
Second
Respondent
THE REGISTRAR OF
DEEDS,
PRETORIA
...................................................................
Third
Respondent
JUDGMENT
PRELLER
J:
The applicant
applies for an order declaring a certain deed of sale of an immovable
property that was concluded between it and the
first respondent to be
of full force and effect and for certain consequential relief. No
relief is claimed against the second and
third respondents and for
the sake of convenience I shall hereinafter refer to the first
respondent simply as the respondent.
The
deed of sale contains in clause 13 thereof the usual suspensive
condition that the sale shall be subject to the suspensive condition

that the purchaser
“
....obtains
approval of a loan upon the security of a first mortgage bond to be
registered over the property for a sum of not less
than R 4 050
000...... at such rate of interest and on such terms as are
stipulated by the said financial institution.”
The
loan was to be approved within21 days of acceptance of the offer to
purchase, which period would be automatically extended for
a further
period of 14 days, subject to certain conditions that are not
relevant for present purposes. A letter informing the applicant
that
its application for a loan had been approved was received by the
applicant within the period stipulated in clause 13. The
contents of
the letter will be considered more fully later in this judgment.
The respondent
raised the following defences in its answering affidavit:
1. The identity of
the seller and the authority of the signatory on its behalf. It
appears that in the offer to purchase (which
was accepted) the
letters "CC" have been omitted after the name of the
seller. The respondent contended that the deed
of sale had thus been
concluded with a non-existent entity. Furthermore it was contended
that the signatory who purportedly represented
the respondent at the
time had not been authorised in writing to conclude the contract on
behalf of the respondent and that the
requirements of Section 2 of
the Alienation of Land Act,68 of 1981 had not been complied with.
2. That the
suspensive condition in clause 13 had not been met. There were two
legs to this argument, which will be considered in
more detail later.
When the offer to
purchase was submitted to the respondent, the name of the seller, of
which the proposed purchase had no certainty,
was left blank for the
addressee to be inserted. That name w as indeed inserted by one of
the two members of the respondent, the
purchase price offered by the
applicant was amended and initialled by both, and certain
‘"additional clauses" were
inserted which are of no
further relevance. The offer was returned to the applicant who
initialled the amendments, thereby accepting
the counter offer.
In its answering
affidavit the respondent concedes that it inadvertently omitted the
letters “CC" when the name was inserted,
but nevertheless
contended that the offer was not acceptcd by the respondent, but by a
non-existent entity'.
There are two
answers to this argument: In the first place Sec 46(b)(iv) of the
Close Corporations Act provides that immovable property
of the close
corporation can be sold with the consent in w-riting of 74% of its
members. In this case 100% of them signed the offer
on behalf of the
close corporation, and it was in fact the close corporation itself
that was acting and not its agents. That also
disposed of the need
for any written authorisation.
Secondly Mr
Carstensen on behalf of the applicant submitted that this was as
clear a case for rectification as one can hope to come
across, and
accordingly applied for the accepted offer to be rectified so as to
reflect the name of the seller (the respondent)
correctly. And
amended notice of motion was handed up which included a prayer to
this effect.
There can be no
doubt that the applicant, w ho did not know the correct name of the
owner of the property in which it was interested,
accepted the name
inserted by the two members in the genuine belief that it was
correct. The respondent admitted in the answering
affidavit filed on
its behalf that the letters “CC” were omitted in error.
The common intention is accordingly clear,
as is the fact that the
clear intention of the parties was not correctly reflected in the
document. In my view the application
for rectification must succeed.
It was common cause
that the letter from the financial institution concerned (Imperial
Bank) w
r
as received by the applicant within the stipulated
time period., but the exact meaning and import thereof was disputed.
The legal position
of this type of provision is trite: it has repeatedly been held that
a provision making the sale subject to the
granting (or “obtaining")
of a loan is for the benefit of both parties and cannot be
unilaterally waived by the purchaser.
The interest of the latter is
clear - he would find himself in an invidious position indeed if he
were bound to purchase a property
for which he cannot pay without the
financial assistance of a banking institution. He needs to know that
the necessary financing
will be available before he proceeds with the
transaction. The benefit for the seller lies in the fact that he
would have certainty
that the sale concerned will go through and that
he will not need to look for another purchaser. His need is less
pressing than
that of the purchaser, and he needs to know no more
than that his purchaser has been able to make the necessary
arrangements and
is proceeding with the transaction. The conduct of
the purchaser in the present case was such that he could not possibly
at a later
stage have turned around and relied on his own failure to
communicate to the bank his acceptance of the terms in the letter as
an excuse to escape liability in terms of the deed of sale.
The
exact meaning of the requirement that the purchaser must obtain a
loan has been the subject of many reported judgments. In this
regard
I was referred to the judgment in
Remini
v. Basson,
1993
SA 204
(N),
which
is a judgment of the full court of that division.
In
that case the relevant clause of the agreement provided that the sale
was subject to the suspensive condition that the purchaser
“....
is able to raise a
loan .... at prevailing building society rates and terms with Saambou
Building Society
.....”.
The building society wrote to the purchaser, informing him that his
application for a loan had been approved subject
to certain
conditions which seem to have been accepted as falling within the
ambit of the
"prevailing
.... terms"
of
the society. Paragraph 11.1 of that letter contained the provision
that the society could at any time withdraw from the loan
agreement
if any of the information in the application should turn out to be
incorrect, if the conditions in the letter were not
complied with, or
“.....
om
watter rede ookal, sonder enige opgawe van redes.”
Interestingly
enough, the purchaser was in terms of the letter required to sign an
acceptance of the terms and conditions thereof,
which he failed to
do. The court held that his failure w as of no consequence due to his
concession that there was nothing in the
letter to which he was not
prepared to agree. Likewise, in the present case, every indication is
that the applicant was prepared
to, and in fact did, accept all the
conditions in the letter.
McLaren
J, who delivered the judgment on behalf of the court came to the
conclusion that the terms of the agreement required the
conclusion of
a binding loan agreement between the building society and the
purchaser for the suspensive condition to be fulfilled.
It should
also be kept in mind that the term in the present deed only requires
the applicant to
"obtain(s)
approval of a loan”.
I
shall revert to this aspect shortly. As to the apparent free choice
of the building society to resile from the loan agreement
for
whatever reason, he found that the building society could only cancel
the loan for a reason that could be tested against the
standard of
the
arbitrium boni
viri
.or
at least was not unreasonable. I am respectfully in full agreement
with that view.
The
learned judge also found that the common law principle that the
purchaser’s acceptance of the loan has to be communicated
to
the bank before a binding loan agreement comes into existence,
applied in view of the facts of the case. Because of the incidence
of
the onus in the case, however, he found that the purchaser (the
applicant
a quo
for
an order that the agreement had lapsed
a
quo)
had
not shown that the acceptance of the loan had not been communicated
to the building society in time and that the agreement had

accordingly not lapsed.
Thirion J agreed
with the finding of McLaren J, but added that he wished to guard
himself against assenting to the proposition that
the wording of the
agreement required that a loan agreement had to be actually concluded
before the suspensive condition was fulfilled.
If I may say so with
due deference to the j udgments which seem to hold the contrary view,
I have always preferred the view that
if the actual conclusion of a
binding loan agreement is required before the sale becomes final and
binding, the deed of sale should
say so clearly.
The third member of
the court. Levinsohn J, is merely reported as having concurred. On my
understanding of the judgment this means
that he concurred with the
qualification expressed by Thirion J. The effect thereof is that the
majority of the court did not require
the actual conclusion of a
binding loan agreement for the suspensive condition to be fulfilled.
On behalf of the
respondent Mr Vetten argued firstly that the suspensive condition had
not been met. since it appeared from the
letter from the bank that
the loan was only granted for an amount of R 2 050 000 and not for
the stipulated sum of R 4 050 000.
The letter to the
applicant commences as follows:
'Dear sir/madam
FACILITY WITH
IMPERIAL BANK(“IBL”)
We have pleasure
in advising that your application for a facility has been approved on
the terms and conditions set out below.
1.
Facility
:
1.1.................
1.2 Amount: R4
421 357.97
1.3 Purpose of
finance: To finance the purchase of land and installation of
infrastructure for 19 residential full stands.”
This is followed by
ten numbered paragraphs of terms, conditions and other requirements
which are divided into many numbered sub-paragraphs
and are spread
over more than two long pages of fine print. Paragraph 11 reads as
follows:
“
11.
Acceptance:
This proposal
remains valid until 22 March 2007 where after it will become null and
void.”
In the next
subparagraph (which, unlike the rest of the document, is not numbered
separately) the bank sets out it right to resile
from the agreement
in the event of a breach of its terms or changed circumstances. The
next paragraph, still not numbered, reads:
“
Please
indicate your acceptance of the terms and conditions of the facility
by initialling each page and completing section 11 below.
Kindly
forward this letter to IBL’s offices before the expiry date.
Should you
require any further explanation with (sic) the contents of this
letter, kindly communicate with the writer.
Yours faithfully.
…
.....”
As will be noted,
the amount granted is well in excess of the amount of R 4 050 000
stipulated in clause 13. No explanation for
the higher amount appears
from the affidavits, but that there must have been some other
negotiations between the applicant and
the bank is apparent from
inter alia clause 8 of the letter. This clause provides that the bank
will pay R 2 050 000 to the seller
against transfer and that the
purchaser will pay the balance of R 2 000 000. After registration of
the bond the bank will pay the
balance of the facility in accordance
with annexure "A”. The contents of the annexure is not
explained, but it seems
as if the balance would be paid by way of
progress payments and the payment of professional fees as the
proposed development progressed.
I do not know why the applicant
arranged with the bank that the payments would be made in this
manner. It may well be that the
bank wished the applicant to first
make his contribution to the purchase price and then to advance the
balance of the loan as the
work progressed. However, the fact remains
that in terms of the express wording of the initial paragraph of the
letter and according
to the arrangement set out in the latter part
thereof, the bank would advance an amount in excess of the stipulated
amount to the
applicant. Whether the applicant used the amount of its
contribution to pay part of the purchase price or to finance the
development
of the residential stands is of no consequence.
The second leg of
the objection against the granting of the loan was that the applicant
had failed to indicate to the bank its acceptance
of the loan before
the expiry date thereof. Unfortunately the affidavits, lengthy as
they are, are silent on this issue.
I
have
already indicated that the applicant had made it clear by its conduct
that it was satisfied with the terms offered by the bank
and that it
could not at a later stage rely on its own failure to inform the bank
of its acceptance as a reason for resiling from
the sale. It seems to
me that the applicant has an even stronger argument based on the
wording of paragraph 11 of the letter. Unlike
most of the other
requirements set out in the letter and which could clearly be used by
the bank as a reason for refusing to pay
out the money if they are
not complied with, the provision that the applicant should indicate
his acceptance is couched in the
form of nothing more than a polite
request. The bank may well have withheld payment until such time as
the acceptance is signed,
but could never have cancelled the
agreement unless the acceptance was received before the stated
deadline. The express wording
of clause 11 does not make the survival
of the facility dependant on the receipt of the acceptance before the
stated deadline and
I do not think that any proper construction of
its meaning could lead to that conclusion either.
My conclusion is
therefore that there is nothing before me to indicate that the
agreement is not of full force and effect.
I make the following
order:
1. The agreement
between the applicant and the first respondent, annexure “C”
to the founding affidavit, is declared
to be of full force and
effect;
Orders are made
in terms of prayers 2, 4, and 6 of the Notice of Motion;
The first
respondent us to pay the costs of the application
F G PRELLER
JUDGE OF THE HIGH
COURT

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