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[2011] ZASCA 81
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Sim Road Investments CC v Morgan Air Cargo (Pty) Ltd (024/10) [2011] ZASCA 81 (27 May 2011)
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THE SUPREME COURT
OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no: 024/10
In
the matter between:
SIM ROAD
INVESTMENTS CC
...................................................................
Appellant
and
MORGAN AIR CARGO
(PTY) LIMITED
...............................................
Respondent
Neutral
citation:
Sim Road Investments CC v Morgan Air Cargo (Pty) Ltd
(024/10)
[2010] ZASCA 081
(27 May 2011)
Coram:
Harms DP, Lewis, Bosielo, Seriti JJA and Petse AJA
Heard: 05 May
2011
Delivered: 27 May
2011
Summary:
Sale
of land – induced by fraudulent misrepresentation –
effect thereof.
ORDER
On appeal from
:
North Gauteng High Court (Pretoria) (Murphy J sitting as a court of
first instance).
The appeal is
dismissed with costs.
__________________________________________________________________
JUDGMENT
__________________________________________________________________
BOSIELO JA (Harms
DP, Lewis, Seriti JJA and Petse AJA concurring):
[1] The appellant,
Sim Road Investments CC (Sim Road), was the owner of an agricultural
holding known as plot (hoewe) 35 Pomona
Estates, Pomona, Kempton
Park. The respondent, Morgan Air Cargo (Pty) Ltd (Morgan Air),
purchased the property at an auction on
17 May 2006 which was
conducted by a firm of auctioneers (Venditor). Morgan Air paid at the
fall of the hammer R200 000 as
a deposit and R182 400 as
the auctioneer’s commission. Morgan Air subsequently instituted
action against Sim Road for
cancellation (or for confirmation of a
cancellation) of the agreement and for repayment of the amounts paid
to Sim Road and to
Venditor. Morgan Air based its claim on fraudulent
misrepresentation and, in the alternative, on mistake. The court
below (Murphy
J) gave judgment in favour of Morgan Air for the
amounts claimed against the defendants respectively. Aggrieved by the
judgment,
Sim Road appealed to this court with the leave of the court
below. The auctioneer, however, did not appeal.
[2] The facts of
this matter have been set out in detail in the judgment of the court
below. Consequently this judgment is confined
to the evidence germane
to this judgment.
[3] Sim Road
mandated Venditor to sell the property by auction. Pursuant to this
Venditor published advertisements in both the Rapport
and Beeld
newspapers for the sale of the property. The relevant part of the
advertisements reads as follows:
‘
KOMMERSIëLE
EIENDOM
–
POMONA
(2.2 HEKTAAR) Ligging: Hoewe 35, Pomona, Kempton Park. Verbeterings:
Rondawel/Kantoor met afkortings – onvoltooid.
Omhein met beton
pallisade met 10 m skuifhek. Hierdie puik 2,2-hektaar-eindom is geleë
in ʼn baie gesogte gebied –
bestem vir ligte industrie.
Dienste beskikbaar. Voorwaardes: Deposito 10% + BTW. Koperskommissie
8% (plus BTW).’
1
[4] It is important
to note at this early stage that the advertisement was false in two
material respects. The property was not
a commercial property –
it was agricultural and the title deed stated specifically that it
could be used for agricultural,
horticultural or for breeding or
keeping domestic animals, poultry or bees. The property was also not
earmarked for light industrial
use.
[5] Mr Morgan, who
is one of the directors of Morgan Air, testified that Morgan Air
carries on the business of chartering aircrafts
for reward. In order
to provide a better service to its customers it required property
close to O R Tambo International Airport
where it could build a
warehouse. It already owned property near the airport. But as this
property was zoned as agricultural land
Morgan Air could not build
any warehouse on it. When Morgan saw the advertisement in the Rapport
newspaper, he became interested
in it because it was advertised as
commercial property destined for light industry. As he knew the owner
of Venditor, he telephoned
him for confirmation of the auction sale.
[6] On 17 May 2006,
Morgan, together with one Van Vuuren, attended the auction. Before
the auction took place Morgan spoke to the
auctioneer, Mr Koop
Steyger. He told him that he intended to buy the property so that he
could build a warehouse for his customers.
He explained to Steyger
that he had another property nearby which was not commercial
property. Steyger did not tell Morgan that
the property to be
auctioned was agricultural and not commercial nor that it was not
earmarked for light industrial use.
[7] Morgan Air,
being the highest bidder, purchased the property for R2 million,
signed a deed of sale and paid the deposit and
auctioneer’s
commission. Morgan subsequently learned that the property was zoned
agricultural and not commercial. (He learned
also that it was not
possible to have the property rezoned, but that is of no consequence
to the matter.) As he had not intended
to buy a property zoned
agricultural, he immediately took steps to have the agreement
rescinded and demanded repayment.
[8]
Sim Road and the auctioneer did not accept the cancellation of the
contract. They relied in this regard on the terms of the
contract
signed when the property was knocked down to Morgan Air. There was
first a voetstoots clause in these terms:
2
‘
Die
eiendom word voetstoots verkoop, soos dit tans is en die afslaer nog
die verkoper gee enige waarborge ten opsigte van groottes,
sigbare of
verborge gebreke, kwaliteit of wettigheid van verbeterings of
aktiwiteite wat daarop befryf word nie. Die eiendom word
verder
verkoop onderhewig aan al die voorwaardes en serwitute teen die
titelakte geregistreer.’
Then there was a
clause in which the purchaser acknowledged that he had not been
influenced by any representations contained in
advertisements and the
like:
‘
Die
afslaer of verkoper is nie verplig om enige grense of bakens uit te
wys nie, en enige beskrywing of inligting, hetsy in advertensies,
katalogusse, brosiures of mondelings verskaf, word in goedertrou
gedoen en die koper erken dat hy nie deur enige uitdruklike of
stilswyende voorstellings tot die sluiting van hierdie kontrak beweeg
is nie.’
Lastly, there was
clause 18:
‘
Die
bepaling van hierdie document behels die gehele ooreenkoms tussen die
partye en geen voorlegging gemaak deur of namens die partye
sal
bindend wees as dit nie skriftelik tot hierdie document gevoeg en
deur die partye onderteken is nie.’
[9] In the light of
these provisions, Morgan Air could not base its claim for rescission
on an innocent or negligent misrepresentation
and instead relied in
its particulars of claim on the two alternative causes of action
mentioned. First, it said that it was not
bound by these clauses
because of a fraudulent misrepresentation. In the alternative it
relied on a unilateral iustus error brought
about by the content of
the advertisement. The court below, unwilling to find fraud, upheld
the argument that the agreement was
void because of a unilateral
mistake induced by the advertisement, and made the order for
repayment. As will appear in due course,
the order was correctly made
but for the wrong reasons. This case is not about mistake but about
fraud. But in order to come to
that conclusion it is necessary to
deal with the evidence in more detail. And I intend to deal in
conclusion with the conceptual
error committed by the court below
when dealing with mistake.
[10] Van Vuuren was
Morgan Air’s general manager at the time of the auction. His
evidence accorded with that of Morgan and
does not require any
elaboration. Mr Johan Moolman (Moolman Jnr) testified for Sim Road.
His father was the only member of the
close corporation. As his
father is visually impaired he assisted him with the auction of this
property. Essentially Moolman Jnr
said that his father had instructed
Venditor to attend to the sale of the property. The person who was
instructed is Ms Lehmacher
who worked for Venditor Auctioneers as an
agent. Moolman Snr had furnished Lehmacher with the particulars and
description of the
property. Moolman Jnr confirmed that the property
was zoned agricultural and not commercial and that they knew this at
the time.
[11] When confronted
with the advertisements which were placed by Venditor and which
described the property as commercial, Moolman
Jnr disavowed any
knowledge of such instructions. Importantly, he confirmed that he
attended the auction where he saw many posters
and flyers scattered
around describing the property in the same terms.
[12] However,
notwithstanding this observation, Moolman Jnr did not instruct
Steyger when he met him that morning at the auction
to do something
to correct this patent misrepresentation. He only shook his hand.
Moolman Jnr testified that instead he instructed
Lehmacher to correct
this error and announce to the prospective bidders that the property
was zoned agricultural and not commercial.
However, according to
Moolman Jnr, it was Steyger, the auctioneer, who announced to the
prospective bidders at the auction that
the property was agricultural
and not commercial. Not surprisingly, Moolman Jnr could not explain
why this crucial evidence was
withheld and never put by his counsel
to Morgan Air’s witnesses for their comments whilst they were
still testifying.
[13] Lehmacher, who
was responsible for the advertisement, was called as a witness by Sim
Road. Contrary to what Moolman Jnr stated,
she testified that the
information she used in the advertisements, in particular the word
‘commercial’, emanated from
Moolman Snr. In support of
this Lehmacher referred to a contemporaneous note of her telephone
discussion with Moolman Snr on 17
April 2006 which reads:
‘
Karel.
Erf 35 Pomona. Sim Road Invest CC.
…
.very
popular area. 1-8/2.2 omhein met sementmuur. Soneer landbou /
Kommersieel. Geoogmerk ligte industry. Nie water nie –
dienste
beskikbaar….Water aansluit – Karel Jacobus Moolman
volspoed’.
Importantly she
confirmed that the advertisements which appeared in the Rapport and
Beeld newspapers were in accordance with these
instructions from
Moolman Snr.
[14] Lehmacher
testified that she had discovered soon after they had obtained the
title deed that the property was zoned agricultural
and not
commercial. This was before the auction. She conceded that
notwithstanding this crucial discovery, Venditor did not issue
another advertisement to correct this patent error. She could not
recall that Moolman Jnr told her at the auction to make a public
announcement to advise prospective bidders that the property was
agricultural and not commercial.
[15] On the
contrary, she testified that, during the course of the auction, she
scribbled a note to Steyger with a request that
he should make an
announcement to the prospective bidders that the property was zoned
agricultural and not commercial. Again, this
evidence was never put
to Morgan Air’s witnesses. Most importantly, Steyger did not
testify. (The significance of this failure
will become clear later in
the judgment.)
[16] It is clear
from the evidence that Sim Road (through Moolman Snr, its sole
member) knew that the representation was false and
that both Moolman
Jnr as well as Venditor knew it to have been false prior to the sale.
The next issue was whether Morgan was informed
before bidding that
the land was not commercial.
[17] Moolman Jnr
testified, as already mentioned, that after he discovered that the
property was wrongly described as commercial
and not agricultural, he
instructed Lehmacher at the auction to make an announcement to
correct this error. This is contradicted
by Lehmacher (who testified
rather late in the trial) that, of her own accord she asked Steyger
to make an announcement to correct
the wrong description of the
property. Whilst testifying in chief, Moolman Jnr stated that, in
responding to a question by one
of the bidders at the auction
regarding the zoning of the property, he stated that the property was
zoned agricultural. Evidently
there is a serious contradiction on
this crucial aspect between the two witnesses for Sim Road.
[18] Notwithstanding
this serious contradiction on a crucial aspect of the case, Steyger,
who had been present in court during the
trial, did not testify. This
is despite the fact that it was put to Morgan during
cross-examination by counsel for Venditor that
Steyger would testify
that before the auction started one of the bidders asked a question
regarding the zoning of the property
and Steyger replied that it was
agricultural property. One would have expected him to testify to shed
light on whether any public
announcement was made at the auction to
correct the misrepresentation and if so, by whom. No explanation was
tendered for his failure
to testify which in itself justifies the
inference that Steyger would not have confirmed that such an
announcement was made. On
the evidence presented on behalf of Sim
Road, no such announcement was made. Accordingly, the false
misrepresentation was left
to stand uncontradicted.
[19] In any event,
the probabilities are strongly in favour of Morgan Air that such
announcement was not made within earshot of
either Morgan or Van
Vuuren. Morgan testified that if he knew that the property was
agricultural and not commercial, he would not
have purchased it. This
is understandable as he could not build a warehouse on agricultural
land. Furthermore, Morgan Air already
owned nearby land which it
could not use for commercial purposes. Why then would it buy another
property zoned agricultural? The
probabilities clearly indicate, and
Morgan testified, that Morgan Air would not have bought the property
had it known that it was
zoned agricultural. It was thus induced by
the misrepresentation to enter into the contract.
[20] Murphy J
concluded that he could not find that the appellant acted with
fraudulent intent. However, he found that Morgan Air
was induced to
purchase the property by a misrepresentation made negligently by Sim
Road. He found that such a mistake was about
an essential attribute
of the merx and that it induced the respondent to purchase something
fundamentally different to what he
intended to buy. He thus concluded
that Morgan Air had reasonably made a material error allowing it to
avoid the contract.
[21]
It is true that any misrepresentation is likely to result in a
mistake made by the person induced by it to enter into a contract.
But that mistake might not be iustus and therefore actionable. If,
however, the mistake is both reasonable and material, the contract
might well be void.
3
But
in this matter mistake was not the primary basis of Morgan Air’s
claim that it was entitled to claim return of the moneys
paid under
it. Its claims were made on the basis of fraudulent
misrepresentation. And the court below erred in finding that the
contract was rendered void by the unilateral mistake of Morgan Air.
[22]
It has been settled law for many decades that a material
representation renders a contract voidable at the instance of the
misrepresentee.
4
Absent
the voetstoots and exclusion clauses cited above, Morgan Air would
have been entitled to ask for rescission and restitution
even if the
misrepresentation had been innocent.
[23]
But liability for a misrepresentation made innocently and even
negligently may be excluded by parties to a contract –
hence
the conjecture that Murphy J found that the misrepresentation had
been made negligently and that it had resulted in iustus
error that
rendered the contract, including the exclusion clauses, void. As
stated, however, a misrepresentation generally renders
a contract
voidable. The innocent party may elect to abide by it even where the
other party has been fraudulent.
5
The
difference that fraud makes is that one cannot contract out of
liability for fraudulent conduct.
6
[24]
And even where a misrepresentee has been foolish or negligent in
relying on the fraudulent misrepresentation, that does not
in any way
affect the liability of the misrepresentor. In
Standard
Credit Corporation Ltd v Naicker
7
Milne
JP said it does not avail one guilty of fraud to say that the victim
was negligent in believing the misrepresentation. He
quoted from the
judgment of Jessel MR in
Redgrave
v Hurd
:
8
‘
If a
man is induced to enter into a contract by a false misrepresentation,
it is not sufficient answer for him to say “if
you had used due
diligence you would have found out that the statement was untrue”
.’
[25]
The high court, referring to the
Naicker
case,
considered that Morgan Air’s mistake had been made reasonably
in the circumstances, and that it was material since it
went to an
essential attribute of the property. The contract, it held, was thus
void. Murphy J stated that since
Trollip
v Jordaan
9
‘
our
law appears to have taken a different turn by allowing perhaps less
than fraud to avoid an exemption clause’. But that
case dealt
with mistake. Hoexter JA (for the majority) held that when an error
in corpore renders a contract void, the whole contract,
including
exemption clauses, is void. Error is not ‘something less’
than fraud. It is something different, because
in the case of fraud
the contract is voidable. Where there is a material and iustus error,
on the other hand, the contract would
be void. The other cases
discussed by the high court, which dealt with mistake, have also not
introduced any new approach.
[26] There is no
doubt that the fraudulent misrepresentation made by the Moolmans and
Lehmacher was material and that it directly
induced Morgan Air, which
was looking for a commercial property, to purchase Sim Road’s
property. The exclusion clauses in
the contract signed by Morgan had
no effect given the fraud. It follows that Morgan Air was entitled to
rescind the agreement for
the purchase of the property and to claim
the moneys that it had paid as a deposit and as auctioneer’s
commission.
[27] The appeal is
dismissed with costs.
_______________
LO
Bosielo
Judge
of Appeal
APPEARANCES:
For
Appellant: A P Bruwer
Instructed
by:
Ben
Steyn Incorporated
C/o
Koekemoer Attorneys, Pretoria,
Matsepes
Incorporated, Bloemfontein;
For
Respondent: N Davids SC
Instructed
by:
Snymans
Attorneys, Pretoria,
Horn
& van Rensburg, Bloemfontein
1
The
same typing format is not reproduced.
2
We
do not use the same typing format as used in the actual contract but
the words are verbatim.
3
Brink
v Humphries & Jewell (Pty) Ltd
2005
(2) SA 419
(SCA) para 2.
4
See
R H Christie
The Law of Contract in
South Africa
5 ed (2006) at 286ff.
5
See,
for example,
Trotman v Edwick
1951 (1) SA 443
(A) and
Ranger
v Wykerd
1977 (2) SA 976
(A).
6
Wells
v South African Alumenite Company
1927
AD 69.
7
Standard
Credit Corporation Ltd v Naicker
1987
(2) SA 49
(N) at 51B-E.
8
Redgrave
v Hurd
(1882) 51 LJ
Ch 113
at 117.
9
Trollip
v Jordaan
1961
(1) SA 238
(A).