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[2015] ZAGPPHC 269
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Purglas (Pty) Ltd and Others v Saltus Poles CC (11073/2012) [2015] ZAGPPHC 269 (8 May 2015)
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IN THE HIGH COURT
OF SOUTH AFRICA
[GAUTENG
DIVISION, PRETORIA]
CASE NO:
11073/2012
DATE: 8 MAY 2015
In the matter
between:-
PURGLAS
(PTY)
LTD
...............................................................................................................
First
Plaintiff
GARTH
LIONEL
HATTON
.................................................................................................
Second
Plaintiff
CUNNINGHAM
JOHN
ALAN
................................................................................................
Third
Plaintiff
and
SALTUS
POLES
CC
.......................................................................................................................
Defendant
JUDGMENT
SKOSANA AJ
[1] In this matter
the plaintiffs have claimed against the defendant on contractual
basis. Originally there were 3 claims in this
action. Claim 2 has
been abandoned. In claim 1 the first plaintiff claims from the
defendant an amount of R425 000-00 based on
breach of a contract of
sale of the plaintiffs business. In claim 3, the second plaintiff
claims from the defendant an amount of
R129 692-03 on the basis of a
breach of contract for services rendered by the second plaintiff to
the defendant.
[2] For claim 1, the
agreement was concluded in writing between the first plaintiff and
the defendant during August 2009.
[3] The parties have
formally agreed before me that the terms of the contract are common
cause and that the defendant did not comply
with paragraph 5 of the
agreement by paying the purchase price of the business of the first
plaintiff in accordance therewith (claim
1) or paying the monies due
to the second plaintiff for services rendered (claim 3).
[4] The parties
initially argued the case without leading any evidence and requested
me to make a ruling or judgment.
[5] When we resumed,
I posed questions to both parties. First, to the plaintiffs’
counsel, I asked whether or not it was necessary
for the plaintiffs
to plead fictional fulfilment of the suspensive condition in
replication to the defendant’s plea. The
plaintiffs’
counsel retorted that in terms of the Rules everything alleged in the
plea must be regarded as having been denied
by the plaintiffs and
therefore the plaintiffs have effectively denied that the suspensive
condition was not fulfilled.
[6] I have my
reservations as to the correctness of this approach, especially since
the plaintiffs need to prove, as it will appear
later herein, that
the defendant’s failure to comply with the suspensive condition
was deliberate. Nevertheless, for the
purposes of this case I accept
that the issues were joined and thus the plaintiffs’ reliance
on fictional fulfilment may
be subsumed under the deemed denial in
terms of Rule 25 of the Uniform Rules. No objection came forth from
the defendant in this
regard either during argument or when the
evidence of the second plaintiff was led.
[7] To the
defendant’s counsel, I asked if he prefers to amend the plea to
include fraudulent misrepresentation. The defendant’s
counsel
immediately applied for such amendment and since there was no
objection from the plaintiffs, it was granted. Consequently,
paragraph 10.2.3 of the defendant’s plea now reads:
“
10.2.3
The representations as aforesaid were false and were made
fraudulently, alternatively negligently in that:
10.2.3.1
The business could not produce
a
monthly turnover
of approximately R300 000-00;
10.2.3.2 The
stock appeared to be redundant and would not be sold within a period
of 6 months; and
10.2.3.3 The
business would not generate sufficient cash to repay the purchase
price within a year after delivery”.
[8] The parties then
decided to lead evidence. The aim of the evidence was respectively to
answer the following questions:
[a] Whether or not
the defendant’s non-compliance with the terms of the contract
as contained in clause 5 thereof, was deliberate
and aimed at
frustrating the plaintiffs. In this regard, the onus of proof rested
on the plaintiff;
[b] Whether or not
the plaintiffs had, prior to the conclusion of the contract,
fraudulently misrepresented facts to the defendant
regarding the
subject matter of the sale so as to render the subsequent contract
voidable. The onus to prove this fraudulent misrepresentation
rested
on the defendant.
[9] The plaintiff
led the evidence of Mr Hatton who testified as follows:
[9.1] He is a
Director of the first plaintiff: Negotiations for the sale of the
business of the first plaintiff started in 2006
with Mr Venter, the
sole member of the defendant.
[9.2] Various offers
were considered which ranged from R1 500 000-00 and above but
eventually dropped down to R750 000-00.
[9.3] Various
aspects of the business were discussed and considered. Of importance,
is the cash flow projection spreadsheet which
was provided on behalf
of the first plaintiff to the defendant showing a cash flow
projection for the first plaintiffs business
over a period of 12
months in 2009. Mr Hatton was involved in the compilation of this
document.
[9.4] The purpose of
the projection was to demonstrate how the plaintiffs had expected the
business to run but it did not take into
account if someone else was
involved or the location of the premises of the business were
changed.
[9.5] Although the
turnover in sales was projected at R300 000-00 per month from the
tenth month onwards, the predicted costs were
high and resulted in a
continual deficit. This also appears to have been one of the reasons
for Mr Venter to have reduced his initial
offers, to the final one
being R750 000-00.
[9.6] Eventually the
agreement of sale was signed between the parties in August 2009 as
attached to the plaintiffs’ particulars
of claim. Paragraph 5
of such agreement sets out the terms for payment of the purchase
price. The defendant paid an amount of R250
000-00 as a deposit in
accordance with paragraph 5.1.1 of the agreement, albeit not in
accordance with the time stipulated in such
clause. The defendant
further paid instalments over 3 months in accordance with paragraph
5.1.2 of the agreement and thereafter
stopped the payment. The
defendant therefore did not comply with the terms set out in
paragraph 5.1.2 and 5.1.3 of the contract.
[9.7] The defendant
was in possession of the cash flow projection document when the
contract was signed in August 2009. The stock
that had been purchased
by the defendant from the first plaintiff in terms of paragraph 5.1.3
of the contract included running
material and material that could be
used to produce or manufacture other products such as sand paper,
paint and the like. No warranties
were made to the defendant
regarding the performance of the business. Mr Hatton had a meeting
with Mr Venter in December 2009 were
Mr Venter undertook to make
payment of the full amount to the plaintiffs. He also referred to
several e-mails wherein Mr Venter
had undertaken to either restart
the repayment process or to pay the outstanding amount but never did.
[9.8] In
cross-examination a number of discrepancies in the agreement were
pointed out to Mr Hatton. In particular, it was put to
Mr Hatton that
if the defendant wanted to resile from the contract he could have
done so by not making any payments at all as clause
5 which regulates
payment constituted a suspensive condition.
[9.9] It was also
put to Mr Hatton that the payment made by the defendant in terms of
clause 5.1.1 was made late and not in accordance
with such term.
[9.10]
It was further put to Mr Hatton that Mr Venter will testify that he
complained about the cash flow projection in the meeting
of December
2009. This was denied. However, Mr Hatton admitted that Mr Venter had
at some stage tendered the return of the stock
and that he had
complained about the stock being
‘
unsaleable’.
He
also admitted that the first plaintiff refused to take back the
stock.
[9.11] He conceded
that the first plaintiff had closed down shop during June 2009 due to
a previous sale agreement that did not
go well resulting in the
discharge of all the staff of the first plaintiff which was re-hired
in less than a day.
[9.12] He however
denied that Mr Venter was led to believe that the turnover of the
business was more than R300 000-00 per month
before June 2009.
[9.13] He also
admitted that the plaintiffs agreed to the defendant moving the
business from Durban to Sasolburg during June 2010.
[9.14] The expertise
of the business had gone with the relocation of the business to
Sasolburg and Mr Hatton was also in Sasolburg
for 2 weeks to ensure
the proper re-assemblement of the machinery.
[9.15] There were
pre-existing orders and a client based when the business was sold to
the defendant. He also indicated that they
accepted the lower and
final offer of R750 000-00 for the purchase of the business since
both he and Mr Alan Cunningham, as directors
of the first plaintiff
were over the age of 70 and wanted to quit.
[9.16] Various
possibilities which might have affected the profitability of the
business were put to Mr Hatton such as the development
of new
products, new methods and importation of Chinese cheaper material. Mr
Hatton persisted that the business had survived various
adverse
economic circumstances in the past and they expected it to do so
under ownership of the defendant.
[9.17] At the end of
the evidence by Mr Hatton, the plaintiffs closed their case.
[10] On behalf of
the defendant oniy Mr Venter testified. His testimony is as foiiows:
[10.1] He is the
only member of the defendant and holds a Bachelor of Chemical
Engineering Degree and a Masters in Chemical Engineering.
[10.2] He met the
plaintiffs in 2004 and saw an opportunity in manufacturing poles,
which at the time very few companies were doing.
[10.3] He knew the 2
owners of the first plaintiff and knew that Mr Cunningham’s
health was deteriorating and that they had
struggled for 4 years to
sell the business. He bought the business in order to assist them or
help them out.
[10.4] However, he
had requested them to give him details of the business and in
particular the annual financial statement for the
last 3 years but
they could only give him financial statements of the business for the
financial years 2006 and 2007 and did not
give him the financial
statement for 2009.
[10.5] When he saw
the cash flow projection spreadsheet, he made his calculations of
what he could repay. He never expected that
the business will make
enough sales so he paid the first R250 000-00 out of his own pocket.
However, he expected that from the
fourth or fifth month, the R25
000-00 per month instalment would have to come from the sales on the
basis of the cash flow projection
given to him.
[10.6] Since the
business premises were moved to Sasolburg, he has increased the
product range as the Chinese fishing rods had affected
the sales. He
expected the sales to increase soon.
[10.7] As far as the
stock that he had bought from the plaintiffs is concerned, he had
attempted several methods to ensure that
the stock was sold but all
failed. This included appointing an administration manager, doing
telly marketing and telesales of the
fishing rods as well as using
road shows.
[10.8] He indicated
that the turnover per month of the business has started to increase
but was very bad for the first 2 years.
He intends to restart the
repayments after the turnover has improved. He also indicated that he
sold shares and put up an investment
of approximately R3 million to
turn the business around but up to this day the business has never
made any profit and would have
never made the turnover that was
projected to him by the plaintiffs.
[10.9] He also
tendered the stock back to the plaintiffs as 25% thereof was not
saleable and was still in the store room at Sasolburg.
[10.10] The reason
for the first payment to have been made late was because he had to
release funds from his other investment.
[10.11] He had no
intention to resile from the contract and as long as the cash
projections were valid, he was prepared to keep
on trying.
[10.12] In December
2009, he explained to the plaintiffs the problems he had with the
sales which were not as per forecasted projections
and therefore
could not pay them as per the projected cash flow. The plaintiffs did
not really listen to him and did not accept
his explanation.
[10.13] He referred
to draft financial statements of the first plaintiff for 2009 which
show a loss of about R825 000-00 for the
financial year 2009. He
insisted that if he had seen this document, he would not have
purchased the business and that he had actually
asked for this
document but it was never given to him. He only saw that document for
the first time in court.
[10.14] In
cross-examination, it was put to him that he had in this initial
testimony painted a picture that this was a charitable
transaction
wherein he was saving 2 desperate old men who were pleading with him
to buy their business. To this he indicated that
he was doing this to
help the second and third plaintiffs but the transaction had to make
business sense. He still had to do due
diligence. He insisted that he
bought the business because of the cash flow spread sheet which had
been shown to him.
[10.15] It was
further put to him that the plaintiffs did not say that their
business is turning over R300 000-00 per month but
had told him that
they had a client list and that if he conducts the business right, on
month ten he would see a turnover of R300
000-00 per month. To this
he stated that the pessimistic projection was R280 000-00 in a month
which would give him a profit of
R80 000-00. They had shown him the
annual financial statement for 2006/2007 and he assumed that the
business could still make the
amount of R300 000-00 per month.
[10.16] Being
constrained to explain what he had done with the profit of R125
000-00 per month that he alleged to have generated
through the
business, he indicated that he decided to pay the second and third
plaintiffs’ salaries with that amount rather
than to pay the
purchase price as agreed.
[10.17] When it was
put to him that the cash flow projection document shows that the
company would be in deficit with almost R600
000-00 in 6 months, he
indicated that he relied on the sales as the expenses were within his
control but he could not control the
sales. He indicated that he was
hesitant to sign the contract before getting the due diligence
documents but in any event did so.
[10.18] It was also
put to him that he had made several promises to pay but did not.
[10.19] Finally it
was put to him that there is a conflict between his testimony in
court, his affidavit which he made in his application
for rescission
of judgment and the plea filed on behalf of the defendant. He
insisted that because he did not make payment, the
contract is
suspended and therefore he is absolved, though still in possession of
the business.
[10.20] In
re-examination, he testified that the actual sales were quite lower
than the projected ones. Although he worked hard
to turn the business
around, he still could not pay as agreed with the plaintiffs.
[11] After this
witness, the defendant also closed its case.
[12]
In argument the plaintiffs’ counsel, Mr Shapiro, submitted in
the main that the court ought to interpret the contract
as a normal
commercial contract and in particular not to regard clause 5 of the
agreement as a suspensive condition. He acknowledged
that such an
approach would require that clause 5.2 of the agreement be regarded
as
pro non
scripto.
Clause
5.2 of the agreement reads:
“
5.2
In the event of any of the above conditions not being fulfilled
timeously, this sale agreement shall be of no force or effect”.
[13] He contended
that, if clause 5 of the agreement is regarded as a suspensive
condition, the agreement is rendered absurd as
such an approach
creates a direct conflict between this clause and several clauses of
the agreement including clause 6.1 which
reflects a purchase price of
R750 000-00, clause 11.1 which makes the purchaser liable for breach
of contract if it fails to make
any payment timeously and in full and
then entitles the first plaintiff to claim specific performance,
among other remedies.
[14] He further
submits that the conduct of the parties demonstrates that they did
not regard clause 5 as a suspensive condition
and that the first time
reliance was placed on this alleged suspensive condition was when the
plea was filed. Otherwise the parties
have acted as if the agreement
was binding. In other words, in the minds of the parties the
agreement did not lapsed even when
the first payment was made out of
time.
[15] Further, the
conduct of the plaintiffs is such that they regarded the agreement as
binding and final in that, immediately after
the signing of such
agreement, they discharged their staff and allowed the premises of
the business to be moved from Durban to
Sasolburg. Clause 12 of the
contract which requires the purchaser to ensure the assets of the
business from the effective date,
also shows that clause 5 could not
have been regarded as a suspensive condition.
[16] To this, Mr
Roos on behalf of the defendant counter argued that the plaintiffs
relied on the contract as it stands and not
with any amendments. The
plaintiffs have not amended their particulars of claim with a view to
incorporate different intentions
of the parties to the agreement. He
further contended that the interpretation of an agreement requires
that one starts with the
ordinary meaning of the words. He then
submits that clause 5.2 of the agreement is not ambiguous and
therefore requires no interpretation.
[17] In the
alternative, Mr Shapiro, relied on the fictional fulfilment of the
suspensive condition, that is, if the court finds
that clause 5
constitutes a suspensive condition. He insisted that the non-feasance
by the defendant was deliberate viewing it
from his evidence whereby
he painted a picture of a young man trying to do a good deed by
assisting two old people but later altered
his version to the effect
that this was a mere commercial interaction.
[18] Mr Venter had
conceded that he was never told that the business made a turnover of
R300 000-00 per month and that the cash
flow projection spread sheet
was a straight line and did not cover the issues such as moving the
premises of the company. He therefore
submitted that no false
representation was made to the defendant.
[19] Mr Venter, the
argument continued, also conceded that he never expected the business
to pay for itself in a year but could
not explain what is stated in
the plea filed on behalf of the defendant, it is also clear that he
acted deliberately in not making
payment as he decided consciously to
rather pay the third plaintiff. He also decided to use the money to
invest rather than pay
the plaintiffs. He had a choice and he could
not explain why the funds were not used to discharge his obligation
towards the first
and second plaintiffs. It is clear from his
evidence that he committed to a debt of about R2 million after he had
purchased the
business from the first plaintiff at R750 000-00.
[20] It is clear
that the defence of the defendant was cynical and designed to
obstruct the implementation of the contract.
[21] He then
submitted that the evidence of Mr Venter should be rejected and that
of Mr Hatton be accepted as true. As regards claim
3, it was
submitted that the evidence adduced on behalf of the plaintiffs
stands independently of any issue about the lapsing of
the agreement
and it was not challenged by the defendant and therefore that the
second plaintiff should succeed in claim 3 with
costs, even if claim
1 fails.
[22] As regards the
alternative argument, Mr Roos persisted that the nonfeasance by the
defendant was not deliberate. The defendant
testified that he was not
in a position to make payments due to the false representations made
by the plaintiffs. He had to choose
between paying salaries or the
first plaintiff. His hopes to receive payment did not materialize.
[23] The financial
statements for 2009 were not given to Mr Venter though he had
requested them and when they surface in court,
they show that the
company ran at a loss of over R800 000-00.
[24] He pointed out
that Mr Venter was not a party to the agreement and therefore could
not be criticized for not complying with
the terms of the agreement
and he had not signed any suretyship for the defendant.
[25] He submitted
that the defendant had undertaken to sell the stock on behalf of the
plaintiffs. He further submitted that the
conduct of the parties, on
which the plaintiffs seek to rely, is excluded by clause 4.2 of the
agreement and therefore clause 5.2
of the agreement cannot be ignored
or substituted by such conduct.
[26] As regards
clause 3, he submitted that such claim was left in the hand of the
court.
[27]
CLAUSE 5:
SUSPENSIVE CONDITION OR NOT
Clause 5 of the
agreement provides:
“
5
Suspensive conditions
5.1 This sale is
subject to the fulfilment of the suspensive conditions that:
5.1.1 On or
before the Effective Date the Purchaser shall have paid to the Seller
a first instalment of R250 000-00, directly into
its bank account,
the details of which follow;
5.1.2 The second
instalment of R250 000-00 payable in eleven (11) monthly instalments
to include interest due at the specified rate
at no more than R25
000- 00 per month from the effective date must be made directly into
the Seller’s bank account, the details
of which follow;
5.1.3 Subsequent
monthly payments to the value of the stock of R250 000-00 as agreed.
This stock will be sold on behalf of the Sellers
over 6 months and
paid to the Seller directly into its bank account, the details of
which follow;
Account holder:
PURGLAS (PTY) Ltd
Bank: Standard
Bank
Branch: Gale
Place
Branch code:
42526
Account No: [...]
[5.2] In the
event of any of the above conditions not being fulfilled timeously,
this sale agreement shall be of no force or effect.
”
[28] There is no
doubt that the contract was inelegantly drafted. It seems to me that
the contract was drafted between the parties
without involving
legally trained persons.
[29]
I agree with counsel for the plaintiffs that the conduct of the
parties was not
stricto
sensu
in
line with the terms of the agreement but nevertheless reflected an
understanding by both parties that the agreement was regarded
as a
normal commercial agreement. The very first instalment was paid out
of time when regard is had to clause 5.1.1 which required
such
instalment to have been paid on or before the effective date, being
the date on which the agreement was signed on 11 August
2009.
Nonetheless, none of the parties took issue with the validity of the
contract at any time before the plea was filed. This
is despite the
fact that the defendant only made 3 instalment payments of R25 000-00
per month, the last of which was in 2010 and
nothing seems to have
been paid in respect of the stock. The stock related payment of R250
000-00 had to be made to the first plaintiff
in full over 6 months as
required by paragraphs 5.1.3 and 6.2 of the contract.
[30] Although the
defendant argues that the agreement lapsed because of non-payment as
contemplated in clause 5 of the contract,
the parties continued to
treat the agreement as valid way beyond the date of non-payment. Mr
Venter in his evidence repeated more
than once that he was prepared
to make good the bad once he was able to bring a turnaround in the
business and once the business
was able to be profitable.
[31] Interpretation
of a contract is a matter of law and not of fact.
[32]
In
KPMG Chartered
Accountant (SA) v Securefin Ltd & Another 2009(4) SA 399
(SCA)
at
para [39], Harms DP stated as follows:
“
[39]
First, the integration (or parol evidence) rule remains part of our
law. However, it is frequently ignored by practitioners
and seldom
enforced by trial courts. If a document was intended to provide a
complete memorial of a jural act, extrinsic evidence
may not
contradict, add to or modify its meaning (Johnson v Leal
1980 (3) SA
927
(A) at 943B). Second, interpretation is a matter of law and not
of fact and, accordingly, interpretation is
a
matter
for the court and not for witnesses (or, as said in common-iaw
jurisprudence, it is not a jury question: Hodge M Malek (ed)
Phipson
on Evidence (16 ed 2005) paras 33 - 64). Third, the rules about
admissibility of evidence in this regard do not depend
on the nature
of the document, whether statute, contract or patent (Johnson
& Johnson (Pty) Ltd v Kimberly-Clark Corporation
and
Kimberly-Clark of South Africa (Pty) Ltd 1985 BP 126 (A) ([1985]
ZASCA 132 (at
www.saflii.org.za
)).
Fourth, to the extent that evidence may be admissible to
contextualise the document (since 'context is everything') to
establish
its factual matrix or purpose or for purposes of
identification, 'one must use it as conservatively as possible'
(Delmas Milling
Co Ltd v Du Plessis
1955 (3) SA 447
(A) at 455B - C).
The time has arrived for us to accept that there is no merit in
trying to distinguish between'background circumstances'
and
'surrounding circumstances'.
The
distinction is artificial and, in addition, both terms are vague and
confusing. Consequently, everything tends to be admitted.
The terms
'context' or ’factual matrix' ought to suffice. (See Van der
Westhuizen v Arnold
2002 (6) SA 453
(SCA) ([2002]
4 All SA 331)
paras
22 and 23, and Masstores (Pty) Ltd v Murray & Roberts
Construction (Pty) Ltd and Another
[2008] ZASCA 94
;
2008 (6) SA 654
(S
CA)
para 7.)”
[33] It is clear
from the above that the plaintiffs did not have to plead or prove the
interpretation that they now contend for
as such is a matter of law
and for the court.
[34] Over and above
the conduct of the parties which consistently showed that they
regarded the contract as valid and binding despite
the provisions of
clause 5 thereof (at least up to the time of the filing of the plea
in April 2013), the interpretation of clause
5 of the contract as a
suspensive condition is in conflict with the provisions of clause
11.1 thereof. Clause 11.1 thereof holds
the defendant in breach of
the contract if it fails to make any payment timeously and in full or
any party breaching any of the
other obligations under the agreement.
This clause also entitles the agreed parties to claim, among other
remedies, specific performance.
Clause 11.2 of the contract also
holds the defendant liable to pay interest on any overdue amount.
[35] It is
impossible to phantom how these latter provisions of the contract
would and could be enforced if failure to pay in accordance
with
clause 5 of the contract was regarded as optional for the defendant
and that should the defendant opt not to comply therewith,
the
agreement lapses.
[36] Not only does
the defendant’s conduct reflect that the parties regarded the
agreement as a normal commercial contract
of sale, but also the
conduct of the plaintiffs fortifies the same. The plaintiffs agreed
for the defendant take over the ownership
of the business and to move
its premises from Durban to Sasolburg. The plaintiff’s also
relieved its staff from employment
and released its stock of the
business to the defendant.
[37] It is also
clear that the stock was sold to the defendant, as clause 6.1 of the
agreement states that the purchase price is
R750 000-00. This amount
includes the R250 000-00 for the purchase of the stock. The defendant
was therefore not selling the stock
on behalf of the plaintiffs.
[38] Although the
contract contains an exclusionary clause in clause 14.2 thereof, the
implementation of clause 5 thereof as a suspensive
condition renders
the whole agreement absurd and commercially unsound. Extrinsic
evidence of the conduct of the parties subsequent
to the conclusion
of the agreement is therefore admissible.
[39] It is therefore
my view that it could never have been the intention of the parties as
reflected by their subsequent conduct
that clause 5 of the agreement
would be regarded as a suspensive condition, and that by non-feasance
thereof the contract would
lapse.
[40] Even if I am
wrong in my reasoning above, the alternative argument by the
plaintiffs still supports my conclusion. If clause
5 of the contract
constitutes a suspensive condition and the non-compliance therewith
would result in the contract lapsing as expressly
stated in clause
5.2 thereof, it must still be established whether or not the
non-fulfilment of such condition was not due to the
deliberate action
or calculated inaction on the part of the defendant.
[41] First, it is
clear from the wording of the agreement that the fulfilment of this
condition depended entirely on the actions
of the defendant and it
was for its sole benefit. The defendant’s failure to fulfil
this condition can therefore only lead
to the lapse of the contract
it if it was not due to deliberate or designed inaction on its part.
Otherwise the condition must
be taken to have been fictionally
complied with.
[42] I have already
referred to clause 11.1 of the contract which provides for breach by
the defendant in the event of failure to
pay timeously and in full.
This, in my view, shows that the defendant could not volitionally
decide not to pay without committing
breach of contract.
[43]
The defendant relies on false representations which allegedly led to
its failure to perform or fulfil the suspensive condition.
Such
representations were, in terms of clause 10.2 of its plea, made to
the defendant
“
During
negotiations preceding the conclusion of the agreement.
[44]
Those were therefore not representations falling within the ambit of
those which form part of the contract in terms of clause
8 thereof.
Ordinarily therefore such representations should be excluded by
clause 9 read with clause 14 of the contract. Clause
9 of the
contract is entitled “
voetstoots
”
and
emphasizes that no further warranties or representations whatsoever
were made by the seller in regard to the business except
those that
are made in terms of the agreement itself. Since the representations
relied upon by the defendant preceded the existence
of the agreement,
they are not contained and/or made in terms of the agreement.
Moreover, clause 14.2 expressly excludes any other
agreements between
the parties unless reduced to writing and signed by both parties
1
.
[45] For such
representations to have the effect of nullifying the contract
including clauses 9 and 14 thereof, they should have
been made
fraudulently.
[46] Although the
defendant, in its amended plea relied on fraudulent
misrepresentation, the evidence given on its behalf did not
support
such allegation.
[47]
In the first place, it is not clear how Mr Venter could have been
misled by the cash flow projection spreadsheet which not
only showed
the sales but also the expenses which on more than 1 month caused a
deficit. His explanation that he could control
the expenses but not
the sales is not convincing. In any event he did not elaborate as to
how he would have been able to control
such expenses to prevent such
loss. The defendant did not rely on mistake or
iustus
error
as to the subject matter of the contract.
[48]
The defendant relied in its heads of argument on the case of
Sim
Road Investment CC v Morgan Air Cargo Pty Ltd,
a
judgment of the Supreme Court of Appeal given under case no. 024/10
on 27 May 2011. That case concerned a matter where property
which had
been sold for agricultural purposes was sold on the basis of an
advertisement and therefore a representation that it
was industrial
land. The misrepresentation was found to have been fraudulent and
related to the essential attributes of the merx
which subsequently
could not be used for the purpose intended by the purchaser in that
case
2
.
The claim in that case was based on fraudulent misrepresentation.
[49]
In paragraph [23] of
Sim
Road
case
(supra) it was stated thus:
“
[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 the contract
voidable. The innocent party may elect to abide by it even when where
the other party has been fraudulent. The difference that
fraud makes
is that one cannot contract out of liability for fraudulent conduct”,
[footnotes exclude]
[50]
Further, on paragraph [25] of that case, Bosielo JA corrected Murphy
J for misapplying
Trollip
v Jordaan
3
and
concluded that the case of
Trollip
dealt
with error or mistake and not fraud. Error is not something less than
fraud but something different. In this case, if fraud
is not proved,
the exclusionary clauses 9 & 14 stand. In other words, the
false representation relied upon, even if it
is false, cannot be
taken into account as it constitutes extrinsic evidence.
[51] The defendant
did not seek the cancellation of the contract or tender the return of
the business. The contract remains extant.
In any event, it sounds
unbusinesslike that the plaintiffs would have made the representation
or undertaking or warranty regarding
the profitability of the
business in the future without taking into account the manner in
which the defendant would conduct the
business. In this case it is
clear that the relocation of the business was not part of the
consideration by the plaintiff when
they provided the cash flow
projection.
[52]
The next question is whether the plaintiffs have succeeded to prove
that the defendant deliberately failed to fulfil the suspensive
condition with the intention of avoiding its obligation under the
agreement. In this regard the onus rests on the plaintiffs
4
.
In the
Lekup
case,
the Supreme Court of Appeal found that intention and not motive is
required and negligence is not enough
5
,
to vitiate the exclusionary clauses.
[53] In the present
case it has already been found that the representations that the
defendant seeks to rely on are excluded by
the terms of the
agreement. Those are the representations that the defendant sought to
put up as a reason for not complying with
the suspensive condition or
not paying the debt. Absent such representation, the defendant has no
reason for its failure to pay.
Put differently, the defendant could
not rightfully produce evidence showing its reasons for failure to
fulfil the condition as
such evidence is admissible.
[54]
The defendant in this case had a choice but only decided to use the
funds at its disposal for other purposes other than discharging
its
obligation towards the first plaintiff. In my view,
dolus
in
the sense described in the
Lekup
case
(supra)
6
has
been established and therefore the doctrine of fictional fulfilment
applies. The contract continued notwithstanding the non-compliance,
the business was transferred to the defendant and actually the
defendant relocated the premises of the business. In the
circumstances,
it is difficult to see this in any other way than that
the defendant had the intention to frustrate the contract in order to
relieve
himself of the obligation to pay.
[55]
Further, in this case there was at least a moral, if not legal, duty
on the defendant to fulfill its obligations to pay especially
when
regard is had to the extent to which the plaintiffs had already
complied with their obligations in terms of the contract.
In
Bark
NNO v Boesch
1959 (2) SA 377
(T)
at
384-5,Williamson J stated thus:
“
It
seems to me that, if from the nature of a contract it can be implied
that a moral or legal duty rests on a debtor not to effect
the
fulfilment of a resolutive condition which can relieve him of his
obligation, deliberately to act in breach of that duty with
the
intention of ridding himself of his obligation constitutes dolus
exactly equivalent to the dolus adumbrated in the passages
quoted
above”.
[56] The statement
quoted above applies equally, if not stronger, to a suspensive
condition. In the present case, there is no doubt
that the suspensive
condition operated for the sole benefit of the defendant and
therefore his deliberate non-compliance therewith
ought not to be
applied to benefit it.
[57] It is therefore
my view that the first plaintiff has succeeded to prove claim 1
either on the basis of the argument in respect
of the interpretation
of the contract or on the basis of fictional fulfilment of the
suspensive condition.
[58] As regards
claim 3, such claim was essentially conceded to by the defendant and
no reliance could be placed on clause 5 of
the contract in respect of
this claim.
[59] The defence
that this court lacks jurisdiction as raised earlier on behalf of the
defendant, is unfounded and must fail on
the basis that it has not
been pleaded as part of the defendant’s case. Nothing further
needs be said in this regard.
[60] The second
plaintiff therefore succeeds in claim 3.
[61] The parties
have agreed that I need only to make a determination in regard to the
above issues, the rest is common cause between
the parties.
[62] Consequently, I
make the following order:
[1] The first
plaintiff succeeds in claim 1 against the defendant and the defendant
is therefore ordered to pay R556 951-37 to the
defendant as well as
interest thereon at the rate of 11,5% per annum from 01 September
2011 to date of payment.
[2]
The second plaintiff succeeds in claim 3 against the defendant and
the defendant is ordered to pay R129 692-03 to the second
plaintiff
as well as interest thereon at the rate of 11,5% per annum
a
temporae morae
to
date of final payment.
[3] The defendant is
ordered to pay the costs of suit.
DT SKOSANA
Acting Judge of
the High Court
Acting on behalf of
the Plaintiffs: Redfern & Findlay Attorneys
c/o
Van
Zyl Le Roux
1
st
Floor,
Block 3 Monument Office Park
71 Steenbok Avenue
Monument Park
Pretoria
Tel: (012) 435 9444
Fax: (012)435 9555
Adv WN Shapiro
Acting on behalf of
the Defendant: CA Schoeman Attorneys
c/o Pierre Krynauw
Attorneys
Soetdoring building
Ground Floor
7 Protea & Lupin
Avenue
Doringkloof
Pretoria
Tel: (012) 667 4155
Fax: (012) 667 4153
Adv JM Roos
1
See
KPMG case (supra) at para [39].
2
At
para
[16], [19], [21]& [26]
3
Trolly
v Jordaan
1961 (1) SA 238
(A)
4
Lekup
Property Co NO 4 v Wright
2012 (5) SA 246
(SCA) at paras [12] and
[24]
5
Lekup
case (supra) at para [8] & [9]
6
Lekup
case (supra) paras [l0]-[11]