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[2019] ZAECPEHC 54
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Kretzman v Kretzmann and Another (2644/2018) [2019] ZAECPEHC 54; 2020 (1) SA 162 (ECP) (27 August 2019)
IN
THE HIGH COURT OF SOUTH AFRICA
EASTERN
CAPE LOCAL DIVISION, PORT ELIZABETH
Case
No.: 2644/2018
Date
Heard: 1 August 2019
Date Delivered: 27 August
2019
REPORTABLE
In
the matter between:
ERROL
KENNETH KRETZMANN
Excipient
(Defendant in the action)
and
LESLIE
ANDRE KRETZMANN
First Respondent
(First
Plaintiff in the action)
PETRA
KRETZMANN
Second
Respondent
(Second
Plaintiff in the action)
JUDGMENT
EKSTEEN
J
:
[1]
This is an exception which raises the question of
the application of s 2(1) of the Alienation of Land Act 68 of
1981 (the
Act) to an agreement of option for the sale of immovable
property. I shall refer to the parties herein as in the action.
[2]
In their Particulars of Claim the plaintiffs
alleged that during 2013 they attempted to purchase a property being
Plot No. 8 of
the farm 23 Kragga Kamma Road, Port Elizabeth.
Notwithstanding the signature of an agreement of sale they were
unable to
raise a bond to enable them to purchase the property.
In the circumstances they alleged that they concluded an oral
agreement
with the defendant in terms of which the defendant
undertook to raise the capital and to purchase the property in his
own name,
but for their benefit, which he duly did. The
property was accordingly registered in the name of the defendant.
The
particulars of the plaintiffs’ claim recorded:
“
6.
After being unable to raise the necessary finance to purchase the
property as aforesaid,
on or about 31 August 2013, and at Port
Elizabeth, the Plaintiffs, acting personally, entered into an oral
option agreement with
the Defendant, acting personally, the material
express, alternatively implied, alternatively tacit terms of which
were
inter alia
as
follows:
6.1
…
6.2
The Defendant gave to the Plaintiffs an option to purchase the
property, for a period of
5 years from the date of transfer into his
name, by entering into a written agreement of sale with him for its
purchase, for a
price consideration equal to the amount owing on the
associated mortgage bond at the exercise of the option.
6.3
The Plaintiffs undertook to pay:
6.3.1 the
transfer and conveyancing costs of the property;
6.3.2 to the
sellers, occupational rental should they take occupation prior to the
property’s transfer into the
Defendant’s name;
6.3.3
building insurance for the property;
6.3.4 the
property’s municipal rates; and
6.3.5 the
Defendant’s mortgage bond payments.
7.
…
8.
…
9.
The transfer of the property into the Defendant’s name was
registered on
17 January 2014.
10.
In compliance with all their obligations in terms of the oral
agreement, the Plaintiffs
paid:
10.1 …
11.
On or about 13 July 2018, and at Port Elizabeth, and whilst it was in
full force and effect,
the Plaintiffs, acting personally, duly
exercised their option as aforesaid by providing, via email, and in
person, to the Defendant,
a signed agreement of sale for the property
reflecting a purchase price of R2 550 000,00, being the
amount owing by the
Defendant to Investec Private Bank in respect of
the property at the exercise of the option.”
[3]
The plaintiffs’ case as pleaded, is
therefore founded on an oral agreement in terms of which the
defendant granted them an
option for a period of five years to
purchase the property on certain terms which were orally agreed upon
by them. On the
strength of the agreement they purported to
exercise the option by the delivery of a signed deed of sale. (The
alleged “Deed
of Sale” is annexed to the Particulars of
Claim. It is, more correctly, an offer to purchase, signed by
the plaintiffs
which was rejected by the defendant.)
[4]
The defendant, in taking exception, alleged that
the Particulars of Claim lack averments necessary to sustain a cause
of action,
inter alia
,
because:
‘
1.
The Plaintiff’s case is premised on an “oral option
agreement” in
terms of which it is alleged that the Defendant
gave the Plaintiffs an option, for a period of five years from the
date of transfer
of the property in question, to purchase the
property on certain conditions;
2.
Section 2(1), read with the definition of “alienate”, of
the Alienation
of Land Act, 68 of 1981 (“the Act”)
provides as follows:
“
No alienation
of land after the commencement of this section shall … be of
any force of effect unless it is contained in
a deed of alienation
signed by the parties thereto or by their agents acting on their
written authority.”
3.
…
4.
In the circumstances the alleged agreement falls foul of section 2(1)
of the
Act and does not disclose a cause of action, in that it was
not reduced to writing and signed by the parties.’
[5]
The sole issue which arises at this stage is
whether the agreement contended for is required by law to be in
writing for it to be
enforceable. Their contention that the
oral agreement is binding and enforceable is based squarely upon the
recent decision
in
Mokone v Tassos Properties
CC and Another
2017 (5) SA 456
(CC). In
Mokone
the
Constitutional Court was required to decide whether a right of
pre-emption in respect of the sale of land had to be in writing.
Madlanga J, writing for the majority, formulated the question before
it thus:
“…
whether
a
pactum
de
contrahendo
(loosely, a contract whose
aim is to conclude another contract) that could lead to a sale of
land — like the right of
pre-emption — must comply with
the formalities contained in
s 2(1)
of the
Alienation of
Land Act.”
[6
]
In a footnote he
explained that his rough translation of the Latin phrase
pactum
de contrahendo
should not be understood to suggest that it is obligatory that the
other contract to which the pact relates be concluded. He
referred, by way of example, to an option and noted that in such a
case the envisaged sale may or may never take place. Reliant
on
this footnote Mr
Bands,
who appears for
the plaintiffs, argued that it was the intention of the
Constitutional Court to deal with all types of contracts
which have
as their aim the conclusion of another contract. This, it was
argued, renders the agreement pleaded valid and
enforceable.
The submission requires closer scrutiny of the nature of the
agreements in issue.
[7]
Mokone
was concerned only with the
right of pre-emption. A right of pre-emption is a
pactum
de contrahendo
of a particular kind. It is a preferent conditional right to
purchase which affords the grantee the right to purchase upon
the
fulfilment of the condition. Usually the condition is that if
the grantor decides, desires or proposes to sell he shall
offer the
property to the grantee first. A right of pre-emption does not
compel the grantor to sell: it only requires
him to give the
grantee preference in the event that he does sell and thus prevents
him from selling to a third party during the
existence of the right.
(Graham Glover
:
Kerr’s Law of Sale and Lease
(4
th
ed) p. 551; G B Bradfield
:
Christie’s Law of Contract in South Africa (
7
th
ed
)
p.
67; Van der Merwe, Van Huyssteen, Reinecke and Lubbe:
Contract
General Principles
(4
th
ed) p. 72-73.) In
Soteriou
v Retco Poyntons (Pty) Ltd
1985 (2) SA 922
(AD) at 932E Nicholas JA explained:
“
In
the case of a right of pre-emption, there is no offer at the time of
the grant, and the grantor is not obliged to make an offer
unless and
until he wishes to sell the property.”
(See
also
Hirschowitz v Moolman and Others
1983 (4) SA 1
(TPD) at 6D-E.)
[8]
In such a case there
is therefore no offer which, upon its acceptance, could result in the
sale of the property. The alienation
only arises when the offer
is made (and accepted) which, in turn, will only occur if and when
the offeror decides to sell.
[9]
In
Hirschowitz
v Moolman and Others
1985 (3) SA 739
(AD), however, the Supreme Court of Appeal (then the
Appellate Division) held, on the facts of that case, that whereas the
right
of pre-emption in issue related to immovable property the right
of pre-emption (the
pactum
de contrahendo
)
itself was required to comply with the Formalities in Respect of
Contracts of Sale of Land, Act 71 of 1969 (the Formalities Act)(in
particular s 1(1) thereof). (The Formalities Act was the
forerunner to the Act.) Section 1(1) thereof provided:
“
No
contract for the sale of land or cession in respect of land or any
interest in land (other than a lease, mynpacht or mining claim
or
stand) shall be of any force or effect if concluded after the
commencement of this section unless it is reduced to writing and
signed by the parties thereto or by their agents acting on their
written authority.”
It
was this conclusion which was the subject of the challenge in
Mokone.
[10]
In
Mokone
the Constitutional Court referred with approval to comments by Lubbe
in “
Law of
Purchase and Sale
”
1985
Annual
Survey of South African Law
(p. 133 at 14
0I)
referring to
Hirschowitz
where he recorded:
“
This
passage is … not free from difficulty. It must, it
seems, be read as referring to the contract granting the right
of
pre-emption, for a right of pre-emption as such is not something that
can be governed by the formalities of legislation.
An action
for specific performance of a grant of pre-emption seeks an order on
the grantor to make a valid offer to the grantee.
In the
present context this means an offer complying with the prescribed
formalities, which if accepted by the grantee, in
accordance with the
statutory requirements, will result in a perfectly valid contract.
It is difficult to see how such a
procedure can undermine the
legislative object with regard to alienations of land.”
[11]
This accords with
the reasoning in
Rogers
v Phillips
1985
(3) SA 183
(E) where Kannemeyer J considered the possible impact of
the wording of both the Formalities Act and the Act on a right of
pre-emption.
The Constitutional Court, approving of the
approach adopted by Kannemeyer J referred to his judgment in the
following terms:
“
The
court proceeded to deal with the question regardless of which
Act was applicable. This is how it concluded:
'(N)either
in terms of s 1(1) of [the Formalities Act] nor in terms of s 2(1) of
[the
Alienation of Land Act] does
a right of pre-emption in respect
of land have to be in writing in order to be valid.'
[50]
This is how the court got there:
'(A) right
of pre-emption gives the pre-emptor no right to claim transfer of
land; it merely gives him a right to enter into
an agreement of sale
with the grantor should the latter wish to sell. When such an
agreement is completed then, and not before,
will he have a right to
claim transfer of land, so that it is the agreement which must be in
writing.'”
[12]
On this basis the
majority in the Constitutional Court concluded that
Hirschowitz
was wrongly
decided in this respect and that a right of pre-emption relating to
land need not be in writing for it to be binding.
[13]
An option to
purchase, however, is a different phenomenon. An option to
purchase is comprised of two distinct parts:
an offer to
purchase; and an agreement to keep that offer open, usually for
a fixed period (
Boyd
v Nel
1922 AD at
421;
Hersh
v Nel
1948 (3)
SA 686
(A) at 695;
Brandt
v Spies
1960 (4)
SA 14
(E) at 16F-17C;
Venter
v Bircholtz
1972
(1) SA 276
(A) at 283G-284B;
Wasmuth
v Jacobs
1987
(3) SA 629
(SWA) at 633D; G B Bradfield p. 66; and Glover
p. 125). The undertaking to keep the offer open (the option
agreement)
is of course a
pactum
de contrahendo
.
It is not an alienation as envisaged in the Act and is not required
to be in writing (Glover p. 66 and Van der Merwe
et
al
p. 70). The
offer, however, which the
pactum
has undertaken
to keep open, must be a firm offer which will result in a binding
contract when it is accepted (
Efroiken
v Simon
1921 CPD
367
at 370;
Finestone
v Hamburg
1907
TS 629
at 632;
Venter
v Bircholtz
;
Aris Enterprises
(Finance)(Pty) Ltd v Waterberg Koelkamers
(Pty) Ltd
1977 (2) SA 425
(A)). By virtue of the provisions of
s 2(1) of the Act an offer resulting in the sale of land can only
bring about a binding
agreement upon acceptance if it is in writing.
[14]
The issue was
authoritatively articulated by O’Hagan J in this court in
Brandt
,
which was approved in the Supreme Court of Appeal in
Venter
,
where he stated at 16F-17C:
“
It
is implicit in these decisions that an option is comprised of two
distinct parts - one is an offer to sell the property, and
the other
is a contract to keep that offer open for a certain period.
Through the option the grantee acquires the right to
accept the offer
to sell at any time during the stipulated period; and if this right
is exercised a contract of purchase and sale
is immediately brought
into being. It follows that the offer must be one which is capable of
resulting in a valid contract of sale
from the fact of acceptance by
the person to whom the offer is made … it is clear that when a
party relies upon a contract
flowing from acceptance of an offer, and
the law prescribes that writing is essential to the validity of the
particular contract,
it must be shown that both the offer and the
acceptance are in writing. If the offer is not in writing there is
nothing which the
offeree can accept so as to create a
vinculum
juris
between himself and the offeror.
An undertaking to keep open an offer which is incapable of forming
the basis of a valid contract
can itself confer no right upon the
grantee - for in law there is nothing to keep open.”
[15]
Mr
Bands,
however, has referred me to footnote 58 in
Mokone
where the Constitutional Court referred with approval to the passage
in Van der Merwe
et
al
at p. 70
which records:
“
In
principle, formalities prescribed for the substantive contract ought
not to apply to option agreements relating to such a contract
. . . .
It has been stated, however, that, as a general rule,
pacta
de contrahendo
have to conform to
formalities prescribed for the substantive contract envisaged by the
parties and that therefore option
contracts to purchase land must
conform to the applicable statutory formalities [citing
Moolman
].
This view may be in keeping with a construction of preliminary
agreements known to continental systems of law, but quite apart
from
whether its application may be warranted in respect of other types
of
pactum de contrahendo
,
it is doubtful whether there is any need to apply the construction to
option contracts in South African law.”
[16]
I agree with the
learned authors. In this passage, however, where the authors
refer to “option agreements” it
is intended as reference
only to the
pactum
de contrahendo
,
not to the substantive offer to which the option agreement is
inextricably bound. This is borne out by the authors themselves
where they state at p. 69-70:
“
An
option contract must satisfy the requirements generally applicable to
contracts. Thus the option agreement may fail for
lack of
certainty where the substantive offer to which it relates is
ineffective.”
This,
they explain in footnote 193 on p. 70, maybe because the offer does
not comply with the formalities prescribed for the substantive
contract (see also G B Bradfield p. 125).
[17]
In the result,
whilst an option agreement (the
pactum
de contrahendo
)
relating to the sale of land, need not be in writing, it can only be
validly enforced if the offer to which it relates complies
with the
provisions of section 2(1) of the Act. In this case, however,
the plaintiffs’ case, as pleaded, is that both
the option
agreement and the agreement relating to the terms upon which the sale
would occur were orally concluded. An option
of that nature
relating to land cannot be validly exercised, whether orally or in
writing. The option agreement must therefore
fail.
[18]
In the result:
1.
The exception is upheld and paragraphs 6 and 11 of the plaintiffs’
Particulars
of Claim are set aside.
2.
The plaintiffs are afforded thirty (30) days to amend their
Particulars of Claim,
if so advised.
3.
The plaintiffs are ordered to pay the costs of the exception.
J
W EKSTEEN
JUDGE
OF THE HIGH COURT
Appearances:
Excipient
(Defendant
in the action):
Adv N
Mullins SC instructed by Joubert
Galpin & Searle, Port Elizabeth
For
Respondents:
(Plaintiffs
in the action): Adv D Bands instructed
by Chris Harding
Attorneys, Port
Elizabeth