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[2008] ZASCA 16
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De Villiers v McKay NO and Another (231/07) [2008] ZASCA 16; [2008] 3 All SA 1 (SCA); 2008 (4) SA 161 (SCA) (27 March 2008)
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THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
Case number: 231/07
Reportable
In
the matter between :
IZAK
ADRIAAN JOHAN DE VILLIERS ... APPELLANT
and
DAVID
LAWRENCE CORNELIUS McKAY NO ... FIRST RESPONDENT
MARLENE
McKAY NO ... SECOND RESPONDENT
CORAM : MPATI DP, NAVSA, CLOETE, PONNAN
et
CACHALIA JJA
HEARD : 10 MARCH 2008
DELIVERED : 27 MARCH 2008
Summary: Contract: ‘entire agreement’
clause; provisions of another contract
must be left out of account because even if factually
relevant this are not
legally relevant.
Neutral citation: This judgment may be referred to as
De Villiers v McKay NO
(231/07)
[2008] ZASCA 16
(27 March 2008).
_________________________________________________________
JUDGMENT
CLOETE JA
/
CLOETE JA
:
[1] It is common cause in this appeal that the appellant
entered into a written contract (‘the contract’) with the
West
Coast Trust (‘the WCT’) represented by the first
respondent, who was one of the trustees and duly authorised to
conclude
the contract by his wife, the second respondent and the
other trustee. In terms of the contract in its ultimate form the WCT
sold
to the appellant, who purchased, inter alia the WCT’s
entire right, title and interest in and to The Sixteen Mile Beach
Development
Trust (‘the Development Trust’) for a
purchase price of R1m. It was anticipated at the time that the
Development Trust
would develop a township on land owned by it. The
purchase price was duly paid.
[2] Before the contract, already signed by the first
respondent, was given to the appellant for signature, the appellant
at the
first respondent’s insistence handed to a third party a
written undertaking (‘the undertaking’) which he had
signed and in terms of which he undertook to ‘procure that the
company which develops Sixteen Mile Beach transfers to you
(or your
nominee)’ plots in the intended development. The appellant, who
was the only witness who testified at the trial,
said that the
undertaking was embodied in a document separate from the contract at
the first respondent’s express request,
communicated through
the third party. The appellant also said explicitly in his evidence
in chief, and more than once in cross-examination,
that had the
undertaking not been furnished by him, the contract with the WCT
would not have been handed to him for signature.
The undertaking was
not signed by the first respondent or anyone else.
[3] At the time that the contract was signed, the
Development Trust was indebted to the WCT in certain amounts. The
Development
Trust was subsequently sequestrated. The respondents as
trustees of the WCT recovered from the Development Trust’s
trustees
in insolvency an amount of R2 481 700,30 being the
total of dividends in respect of the debts owed by the Development
Trust to the WCT; and the respondents have refused to remit the
dividends to the appellant. The respondents’ defence to the
appellant’s claim for payment of the total is that the
obligation to transfer stands in the Sixteen Mile Beach Development
has become incapable of performance because the property on which
that development was to have taken place, was sold on the insolvency
of the Development Trust to a third party over whom the appellant has
no control. It was common cause at the trial, and remained
common
cause on appeal, that this sale rendered performance of the
appellant’s obligation in terms of the undertaking to
transfer
stands to the first respondent or his nominee, impossible. The
learned judge in the court
a quo
(Thring J) held
1
that the undertaking was a prior agreement which had induced the
conclusion of the contract (to which he referred as ‘the
main
agreement’); that:
‘
The supervening impossibility of performance of
the undertaking consequently put an end, not only to the undertaking,
but also to
the main agreement’;
and
‘
It follows that there must be restitution, not
only of what the parties have received, respectively, under the
undertaking, but
also of what they have received under the main
agreement: the position is the same as it would have been had a
condition precedent
governing the main agreement failed.’
[4] It is not necessary to deal with the legal validity
of the novel approach followed by the learned judge in the court
a
quo
because that approach was not competent
in view of the provisions of clause 9 of the contract. That clause
provides:
‘
This agreement contains all the conditions of the
agreement between the parties and no amendment shall be valid unless
it is in
writing and signed by both parties hereto.’
The effect of this clause is that for the purposes of
the contract, the provisions of the undertaking must be left out of
account.
Therefore, although as a matter of fact the respondents
would not have entered into the contract had the appellant not given
the
undertaking, that fact is irrelevant in law in proceedings to
enforce the terms of the contract.
[5] In my view the approach adopted by this court in
Wynns Car Care Products (Pty) Ltd v First
National Industrial Bank Ltd
2
is decisive of the appeal. There, the
appellant had hired certain computer equipment from the
respondent’s predecessor
in title, CICS, in
terms of a written agreement of hire. The agreement of hire was
expressly made conditional upon the conclusion
between the parties of
an agreement of maintenance and an agreement of computer services.
The crux of the argument advanced by
the appellant’s counsel
was that the agreement of hire was only part of a more comprehensive
transaction which was of such
a nature that it had to be inferred
that the appellant’s obligation to pay rent was intended to be
reciprocal to CICS’
obligations in terms of the other two
agreements. Hefer JA said:
3
‘
The argument fails to appreciate the clear
distinction between separate agreements which are, for practical and
commercial considerations,
linked and interdependent and those
agreements which the parties in addition wish to be reciprocal in the
legal sense. The transaction
plainly involved more than the lease of
the equipment and it is clear that the system would be inoperative
and the equipment of
no use to the appellant unless CICS performed in
terms of the maintenance agreement and the services agreement. But
that is not
the end of the matter. The transaction was a
multi-faceted one. It was for the parties to decide how they would
formalise every
aspect of their relationship. They elected to do so
in three separate and distinct agreements and, unless the terms of
the agreements
considered as a whole clearly evince the intention
that there would be reciprocity between the obligations undertaken in
each,
there is no room for an [inference] to that effect.’
The learned judge of appeal analysed provisions of the
agreement of hire, including clause 13 which provided that:
‘
This agreement is the sole rental agreement
between the parties hereto. CICS and the customer shall not be
responsible for any undertaking,
representation or warranty given
orally or otherwise which is not specified in this agreement . . . ’
and clause 10, which provided that:
‘
The customer shall not be entitled for any
reason whatsoever to withhold any payment due in terms of this
agreement nor shall it
be entitled to set-off against any rentals
payable in terms hereof, any present or future claim which the
customer may have against
CICS from whatever cause’
as well as provisions in the services agreement similar
to clause 10 of the agreement of hire. In the light of these
provisions
Hefer JA concluded that there was no reciprocity between
the appellant’s obligation to pay rentals and CICS’
obligation
to perform in terms of the maintenance agreement.
[6] In the present appeal, the conclusion of the
contract was conditional upon the furnishing of the undertaking in
the same way
that in
Wynns
the conclusion of the agreement of hire was conditional upon the
conclusion of the other two agreements. It is true that the
undertaking
did not have a provision similar in effect to clause 9 of
the contract, whereas all of the three agreements in
Wynns
,
taken together, did; but that is a distinction without a difference.
The point is that the obligations owed under the contract
in the
present matter, and those owed under the agreement of hire in
Wynns
,
were not reciprocal to other agreements (the undertaking in the
present matter and the two other agreements in Wynns) because
of what
the parties had expressly agreed.
[7] There are only two possibilities in the present
appeal. Either the obligation to procure the transfer of the plots
contained
in the undertaking was to form part of the consideration
for the WCT’s obligations owed to the appellant under the
contract,
or it was not. If it was not, the appellant’s
inability to perform this obligation is irrelevant to his obligations
under
the contract. If it was, then, in the absence of rectification
to delete clause 9, it cannot be relied upon because of the plain
provisions of that clause. In either event, the appellant’s
obligation to procure transfer of the plots was not reciprocal
to the
obligations of the respondents under the contract and it follows that
the inability of the appellant to perform that obligation
is no
answer to his claim that the respondents perform their obligations
under the contract.
[8] Rectification of the contract to delete clause 9 was
indeed sought by the respondents. But there was no evidence to
support
it. The plaintiff stoutly maintained in the face of repeated
cross-examination on the point that the obligation to procure the
stands contained in the undertaking was not part of, or additional
to, the consideration due from him in terms of the contract.
If that
evidence is accepted, there is no room for rectification. If it is
not, there is no evidence that can be relied upon by
the respondents
to discharge the onus on them to prove the common continuing
intention of the parties for which they contend.
[9] Counsel representing the respondents adduced a
separate and distinct argument which did not depend on rectification
and which,
as I understood it, depended upon the proposition that the
undertaking was a separate agreement enforceable in its own terms. If
that is so, the obligations which it imposed on the appellant were
not reciprocal to the obligations imposed in the contract; and
the
fact that a claim against the appellant based on the undertaking is
worthless, is irrelevant ─ as Hefer JA said in the
Wynns
matter:
4
‘
That a claim against CICS cannot be fruitfully
pursued (it is alleged in the plea that CICS has stopped trading
after transferring
all its assets to another company) is irrelevant
since the validity of clause 10 cannot be adjudicated upon in the
light of an
unforeseen subsequent eventuality.’
[10] The appellant’s counsel asked for the costs
of two counsel in the event of success. That application was not
opposed
and was in my view warranted.
[11] I make the following order:
1. The appeal succeeds with costs, including the costs
of two counsel.
2. The order of the court
a quo
is set aside and the following order substituted:
‘
The defendants are ordered to pay to the
plaintiff:
(1) the sum of R2 481 700,30 together with
interest thereon calculated at the rate of 15,5% per annum from date
of service
of the summons on them to date of payment; and
(2) the plaintiff’s costs of suit, including the
costs of two counsel where two counsel were employed.’
______________
T D CLOETE
JUDGE OF APPEAL
Concur: Mpati DP
Cachalia JA
NAVSA JA:
[12] I have had the privilege of reading the judgment of
my colleague Cloete JA. I agree with his conclusion and the
order
suggested by him. I am constrained, however, to add the remarks
set out hereafter.
[13] I agree that the effect of clause 9 of the contract
is as set out in para 4 of my colleague’s judgment. The person
who
negotiated the contract on behalf of the third party was an
attorney who, acting on the instructions of the former, made certain
alterations to it but retained clause 9 in the form recorded in para
4 above. Thus, it is no accident that the claim for rectification
by
the respondents was pursued only half-heartedly, with neither the
attorney nor the third party testifying in the court below.
In the
ordinary course that would have been the end of the matter.
[14] The court below, mindful of the appellant’s
concession that the contract would not have come into being had the
undertaking
not been given, sought to come to the rescue of the
respondents by resorting to the mechanism of a ‘prior inducing
contract’.
The undertaking addressed by the appellant to the
attorney refers to an oral agreement reached earlier.
[15] The problem with the approach
followed by Thring J in the court below is that this court in
Du
Plessis v Nel
1952
(1) SA 513
(A) emphatically stated that, if the terms of the prior
inducing contract contradict, alter, add to or vary the written
contract
evidence to prove them will not be admitted.
5
In the present case the undertaking, if admitted on the basis
advanced by the respondents, has the effect of adding to the purchase
consideration ─ increasing it by the number of plots to be made
available. The court below was therefore, in the circumstances
of
this case,
precl
uded
from having regard to the provisions of the undertaking.
[16] It is necessary to record that the undertaking was
addressed to the attorney acting on behalf of the third party after
its
terms had been discussed with him and as explained by my
colleague was not signed by the third party.
[17] The respondents, in persisting
before us with the contention that the contract and the undertaking
could be married, compounded
the error by the court below. Of course
it is open to parties to an agreement to stipulate that one of them
undertakes an obligation
in respect of a third party. The contract
itself does not provide for this and, as pointed out above, the terms
of the undertaking
cannot be used in relation to the obligations of
the parties spelt out in the contract.
[18] If the respondents had proved the rectification
claimed, then of course they would have had a remedy. Alternatively,
if the
third party had proceeded against the appellant, relying on
the terms of the undertaking, he might, subject to the validity of
those terms insofar as they comply with the legislative provisions
regulating the transfer of land, have been successful. It is
therefore not correct, as contended for on behalf of the respondents,
that they were without remedy.
[19] The facts in
Wynns
,
referred to by my brother Cloete JA, are not wholly comparable. In
Wynns
this court, very early in the judgment, reminded itself that the
exceptio non
adimpleti contractus
,
which essentially was the appellant’s defence, presupposes the
existence of mutual obligations which the parties intended
to be
performed reciprocally, the one being the intended exchange for the
other.
[20] In
Wynns
the appellant had entered into a lease agreement in terms of which it
leased computer equipment from a company. That agreement,
in specific
terms, was conditional upon the conclusion of two other agreements
entered into at the same time. The suspensive condition
was fulfilled
and three self-contained and self-regulating agreements came into
being. In terms of the two other agreements the
company had
respectively agreed to maintain the computers and to provide computer
services. The appellant had failed to pay the
rental under the lease
agreement for one month and contended that since the company had not
maintained the computers nor provided
the services in terms of the
services agreement the appellant was entitled to withhold rental due
in terms of the lease agreement.
This court rightly held that the
parties had elected to formalise the relationship in three separate
and distinct agreements and
since there was no reciprocity between
the obligations undertaken in each the abovementioned contention
advanced by the appellant
was fallacious.
[21] Furthermore, in
Wynns
,
as recorded by my colleague Cloete JA, the lease agreement
specifically recorded that there had been no inducement or influence
to enter into that agreement.
[22] In addition, in
Wynns
,
clause 10 of the lease agreement recorded the following:
‘
The customer shall not be
entitled for any reason whatsoever to withhold any payment due in
terms of this agreement nor shall it
be entitled to set-off against
any rentals payable in terms hereof, any present or future claim
which the customer may have against
[the company] from whatever
cause.’
6
[23] The services agreement contained a similar
provision:
‘
Under no circumstances shall
the customer have the right to set-off against any amounts owing by
it under the agreement any amount
which it alleges is due to it by
[the company] from any cause whatsoever and the customer shall not
have the right to withhold
payment of any amount due to [the company]
for any reason whatsoever.’
7
[24] Hefer JA, after considering the provisions referred
to in the preceding paragraphs, said the following:
‘
These two provisions remove
any doubt which may otherwise have existed as to the parties’
intention. Their effect is plainly
that there is no reciprocity
between appellant’s obligation to pay the rentals and [the
company’s] obligation to perform
in terms of the maintenance
agreeme
nt.’
8
That is the ratio for the decision.
[25] To sum up. In
Wynns
there were three
written
agreements signed by the same parties. In the present case there was
an undertaking to a third party following on an oral agreement
─
the undertaking was not signed by both parties. In
Wynns
the first written
agreement was, in specific terms, conditional upon the other
agreements being signed and the condition was fulfilled.
There is no
such condition in the present case. In
Wynns
each relevant agreement had a clause insulating each agreement
against intrusion by the other.
[26] In the present case, absent rectification, clause 9
is a bar against merging the undertaking and the contract. That
should
be the end of the matter. There is no reciprocity and for the
reasons stated above there is no room for the admission of a prior
inducing contract.
[26] For these reasons I concur in the conclusion
reached by Cloete JA and the order proposed by him.
_________________
M S NAVSA
JUDGE OF APPEAL
1
[2007] JOL 19403
(C).
2
[1991] ZASCA 34
;
1991 (2) SA 754
(A).
3
At 758A-D.
4
At 759J-760A.
5
See in this regard the discussion in R H Christie
The Law of Contract in South Africa
5 ed (2006) at p 198-199. At p 199 the following appears:
‘
[I]nsisting
that the prior oral contract be not inconsistent with the written
contract in order to qualify to be proved by evidence,
the Appellate
Division in
Du Plessis v Nel
was confirming the long line of South African cases in which the law
has been similarly expressed and applied.’
6
At 758H-J.
7
At 758J-759A.
8
At 759A-B.