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1984
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[1984] ZASCA 53
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Sommer v Wilding (258/82) [1984] ZASCA 53; [1984] 4 ALL SA 356 (AD) ; 1984 (3) SA 647 (A) (22 May 1984)
(258/82) J vd M
IN THE SUPREME COURT OF SOUTH AFRICA
(APPELLATE DIVISION)
In the matter between:
BARRY GEORGE SOMMER APPELLANT
and
JOHN WILDING RESPONDENT
CORAM: RABIE, CJ, JANSEN, TRENGOVE, VILJOEN, JJA et HEFER, AJA
HEARD: 5 MARCH 1984 DELIVERED:22 May 1984
JUDGMENT
VILJOEN, JA
In /
2.
In an action instituted by the appellant as plaintiff against the respondent
as defendant in the Durban and Coast Local Division the
respondent was absolved
from the instance, with costs. Against this order the appellant now
appeals.
In the action the appellant claimed an amount of damages alleged to
have been suffered by him as a result of the wrongful repudiation
(which he
accepted) by the respondent of an option granted by the latter to the former to
purchase fifty per cent of the issued share
capital in a Johannesburg based
company Trumatic (Proprietory) Limited (hereinafter referred to as
Trumatic).
In /
3.
In the Trial the appellant gave evidence and two ex-perts, one on each side,
were called to give evidence on the value of the shares
at the time of the
repudiation of the option, the case of the appellant being that his damages
amounted to the difference between
the price stipulated for in the option and
the value of the shares at the date of the repudiation. The respondent did not
give evidence.
The trial Court held, on the particular facts of this case, that
it was necessary for the appellant to prove that he probably would
have
exercised the option, that he failed to discharge this onus and that he could
accordingly not succeed in his action.
The /
4.
The evidence of the appellant, who lives in Natal, may be
summarised as follows: During 1979 he had a discussion with one John Robertson,
director and shareholder of a company Sutton Engineering Products (Pty) Ltd,
trading under the name of Trumatic Natal. He learned
that Trumatic Natal was the
sole distributor of a range of products which were assembled and marketed by
Trumatic. This product range
embraced vibration and compaction equipment,
trowels, grinders, and other equipment used in the building industry. As a
result of
this discussion he met the respondent in Johannesburg in August 1979.
The
appellant, /
5.
appellant, who was at the time contemplating joining Robertson
in his business, told the respondent that Trumatic Natal was considering
extending its activities to embrace the sale of products assembled by Trumatic
throughout South Africa and possibly internationally.
The respondent was
interested because, as he explained to the appellant, although he had of
necessity to attend to the marketing
and sales side of his business he did not
really enjoy that particular branch of Trumatic's activities and would prefer to
concentrate
on the assembly side of the products and on the development and
manufacture of an engine to be called the Trumatic
engine./
6.
engine. He undertook to consider the proposal
and
said he would communicate with the appellant the following
week when he
would be in Durban.
They duly met in Durban the next week when the respondent told him that he
was not interested in giving Trumatic Natal the right to
distribute the products
of Trumatic throughout South Africa as he would thereby be putting the entire
sales operation of his business
in their hands. The respondent told him that he
felt it was prudent to give Trumatic Natal the distribution rights in the Cape
where
sales were not good and where there was some scope for promoting the
sale /
7.
sale of Trumatic products. The idea of promoting
international sales, the respondent told him, appealed to him., It was
eventually
agreed that, for the purposes of distribution of Trumatic's products,
a new company would be floated in which Trumatic would hold
50% of the shares
and the appellant the other 50%. Together they instructed an attorney, one
Wartski from Durban, to draw up the
agreement. They further discussed overseas
markets, the pros and cons of exhibiting the products on trade exhibitions and
the best
way to penetrate the overseas market. After the discussions the
appellant approached the South African
and /
8.
and Foreign Trade Organisation (SAFTO) for information about
ways and means to enter the overseas market. He was advised to join SAFTO
as a
member. He did so in the name of Trumatic Sales. All correspondence by SAFTO was
to be addressed to him but, as a matter of
courtesy, he arranged for copies to
be sent to Trumatic Johannesburg. He also made enquiries about trade fairs to be
held overseas
and reported to the respondent the results of his enquiries.
Certain preliminary arrangements were made by the two of them to travel
overseas' to attend a trade fair. This was all done in accordance with the
spirit of the proposed agreement, he said.
In /.
9:
In August 1979 he took the draft distribution agreement which
Wartski had drafted with him to Johannesburg and had another discussion
with the
respondent. At this meeting the respondent expressed some concern about the
working margin the new company would enjoy,
ie, the margin between the price
Trumatic would charge the new company for the products and the price at which
the new company would
be able to sell the products on the open market. The
respondent expressed the view that possibly the only way to overcome this
problem
was to do away with the middle man and he suggested that the appellant
should take shares in
Trumatic./
10.
Trumatic. The appellant readily accepted this
suggestion because he saw in it quite a few benefits for himself. In furtherance
of
this proposition, during dinner that night, they discussed many things. It
was contemplated that the appellant would join the company
in a full-time
capacity and take charge of the sales promotion side of Trumatic. They discussed
ia the profitability of Trumatic,
the percentage shares he would take up and at
what price. They also discussed such matters as the salary to be paid to each
and other
benefits each' would enjoy including the use of a company car. It was
agreed that the appellant would be a full partner
in /
11.
in every respect and the respondent offered him 50%
of the shares of Trumatic at R200 000. They discussed
directorships. He would become a director, they agreed,
but the desirability of bringing in other directors to
strengthen the management of the business was also
mooted and discussed in
considerable detail. It was
eventually agreed between them that when back in Durban
the appellant would settle the wording in which an
option for the purchase of 50% of the shares was to
be couched and to remit it to the respondent by telex.
It was further agreed that, in the meantime, the respondent
would cause
the necessary resolution for the sale of the
shares /
12.
shares to be passed at a shareholders' meeting
and that he would return the option, duly completed,, to the appellant together
with
the latest financial statement of Trumatic.
On 23 August 1979 the respondent received the following telex from the
appellant:-
"Minutes of a meeting of the shareholder of Trumatic (Pty) Ltd. Held at C/T
4th Street and 4th Avenue, Booysens Reserve, Johannesburg
on the 23rd August,
1979.
RESOLVED
That the shareholder grant to Barry George Sommer or his nominee an option to
purchase 50 percent of the issued share capital and
the shareholder's claims
against the company on loan account for the sum of R200 000, which option shall
remain open for acceptance
until 28th September,1980.
CONFIRMED "
The /
13.
The option, duly confirmed and signed by the
respondent, was, as drafted, subject to one amendment, returned to the
appellant. The
amendment was the substitution of an amount of R300 000 for R200
000. Upon enquiry by the appellant why the respondent increased
the amount of
R200 000 to R300 000 the respondent replied that the figure of R200 000 had
merely been a negotiable figure. The option,
as amended, was accepted by the
appellant.
The appellant testified that he firmly' intended to exercise the option as
soon as possible. The only reason why he stipulated for
a year's option
was /
14.
was because he had a service agreement with the company by
whom he was then employed. This agreement only expired on 30 June 1980.
Before
leaving that company he wanted to have the transfer of his interests to Trumatic
all "tidy". He did not have a particular
date in mind when he was going to
exercise the option, but it certainly was going to be in that current year
(1979), he said.
On 6 September 1979 the appellant wrote to the respondent that it was his
intention to exercise the option before its expiry date
in the name of a nominee
and he also requested the respondent to agree to an extension of the option
to /
15.
to embrace 80 per cent of the shareholding in
Trumatic The letter reads as follows:-
"Dear John,
I would like to refer again to the
option you have granted me or my nominee to purchase 50 percent of the issued
share capital of
Trumatic (Pty) Limited, and the shareholder's claim. It is my
intention to exercise the option before its expiry date, in the name
of a
nominee. I was thinking of floating a company to be known as Trumatic Holdings
(Pty) Limited as the nominee, but would obviously
require your consent to the
use of that name. Would you be so kind as to advise me if the consent would be
forthcoming.
I have been, without success, endeavouring to contact you to discuss further,
the extension of the option to embrace 80 percent of
the shareholding and loan
account. Apparently your accountant considers the figure too low,
but /
16.
but the sum of R480 000,00 is in accordance with my present option of R300
000,00 for 50 percent. I look forward to an amicable discussion
with yourself
and or your accountant, when convenient to you, on the question of the further
30 percent, and wonder if you would
be so kind as to deal with this aspect when
replying.
It is with sincerity that I ask you not to view our association as a possible
impediment to your own progress or as a desire on our
part to interfere in the
day to day running of the business. There is no doubt in my mind that my
associates and myself will be able
to make a very positive contribution to the
growth and strength of the company without trying to change what has proved to
be a formula
for success.
As soon as I hear from Charles Schnaid regarding the information we requested
from Ireland, I will contact you and arrange a meeting
to discuss our
strategy."
The /
17.
The reference to Ireland related to
investigations made by the appellant to establish a branch business overseas. On
11 September
1979 the respondent replied as follows:-
"Dear Barry,
I have had long discussions with my
auditor who also acts as my financial advisor. He advises me against the selling
of Trumatic shares
for a mere sum of R300 000,00 and I feel that the figure of
R480 000,00 for 80% is far too low a figure. With me relinquishing all
the
reigns of Trumatic. For as you must realize that a mere 20% of any private
company is basically not worth the paper it is written
on.
Therefore I feel that at this stage further
negotiations on this matter seem somewhat pointless.
However /
17.(a)
However I must hasten to add that bearing in
mind that I still owe the company a somewhat large amount because of the Income
Tax position
I found myself in and which I discussed with yourself.
At the same time the ground you have laid, I will make sure is not
wasted.
Assuring you of my close friendship at all times. Best regards."
This letter elicited a lengthy response dated 21 September 1979 from the
appellant, as follows:-
"Dear John,
Thank you for your letter of the 11th
September 1979. If, by your second paragraph, you mean negotiations relating to
a possible extension
of the option from 50% to 80% are somewhat pointless, I am
inclined to agree.
However, /
18.
However, I must make it clear once again that the option relating to the 50%
is a concluded deal at R300 000,00 and will be excercised
in due course by me or
my nominee.
I am surprised at your reference to a 'mere R300 000,00'. You will no doubt
recollect that the first amount asked by yourself was
R200 000,00 which, in the
written option, you increased to R300 000,00, and when questioned about the
difference claimed that the
figure of R200 000,00 had been negotiable.
You may have forgotten the circumstances surrounding your granting of the
option, which I do not consider it necessary now to detail
the sequence of
events leading up to the grant, but I feel I must emphasise again that not only
was it you yourself who set the purchase
price of R300 000,00, but it was you
who suggested that I buy into Trumatic (Pty) Limited in the first place.
Let me please remind you further that not only is the option in writing, but
also when you
telephoned /..
19.
telephoned me at the Towers Hotel, and told me your adviser told you not to
sell the other 30%, you quite clearly affirmed, (though
it was not necessary to
do so) the 50% deal at R300 000,00 because (as you said), of the much needed
management expertise 1 would
introduce into Trumatic. Of course as the deal had
already been concluded, this did not really carry the matter any further. The
conversation ended by my asking you to please keep me informed of developments
relating to the exhibition, which you agreed to do.
Your remark about the ground I have laid
prompts me to remind you of the
following,
which I have no intention of seeing wasted.
Firstly, all the
dealings with Howarth Schnaid,
Horwitz & Partners regarding the,format
ion of
a company overseas, and the questions relating
to taxation and the
employment of our staff
in Ireland. Secondly, the enquiries
and
arrangements I made in regard to the Interbuild
Trade Fair in the
United Kingdom, and our plans
that you and I should travel together to
attend
the exhibition. Thirdly, the lengthy dis
cussions /
20.
cussions I have had with the South African Foreign Trade Organisation to
learn as much as possible about incentives to exporters and
potential markets,
etc. Fourthly, the time, effort and expense I have already incurred in Trumatic
matters, including the distribution
agreement drawn up by Wartski Greenberg.
From what I have already said, you must gather that nothing your auditor now
advises you can alter the position. It appears to me
that the real difficulty
lies in the fact that he has, presumably, told you that you will be required to
pay back the loan account.
Incidentally, the only discussion you have had with
me on the Income Tax position was at dinner at the Towers Hotel where you said
that as we were going into business together, I would find out about it anyhow,
and proceeded to explain that the company was caught
for back taxes and about
± R250 000,00 was paid by the company. You mentioned further that as a
result of this, the development
of the Trumatic engine was delayed. The taxation
position is reflected on page 11 of the
Balance /
21.
Balance Sheet you sent me in the course of the deal. I feel I
must say that as you or your companies borrowed a large sum of money,
(possibly
interest free) as at February 1977, amounting to R372 587,00, you can hardly
object to Trumatic being repaid. I would be
prepared to consider an extension of
time within which you pay back any amount in excess of R300 000,00 depending of
course on what
that sum now is.
1 would like to conclude by saying that 1 too am most anxious to continue a
close friendship, even more so as we are to be associated
in Trumatic's
business, for the good of the company, as well as our own."
The reaction of the respondent was to "cancel the option" by letter dated 1
October 1979:-
"Dear Barry,
I acknowledge receipt of your letter
dated the 21st September 1979, and I will hereby
answer /
22.
answer your letter paragraph by paragraph, so that you do not misunderstand
my cancelling, of the option to purchase 50% (fifty percent)
of Trumatic (Pty)
Ltd.
Although my reading of your letter of the
21st instant tells me that you did get the
message of the cancellation of any further
negotiations.
My letter of the 11th September was as stated pointless to negotiate further,
and also meant to cancel the option to purchase any
percentage of Trumatic (Pty)
Ltd. Although the option was given the option has forthwith been withdrawn.
I do not remember saying this or that, as what I recall is that you were
doing all the talking and I consider this all hearsay.
The ground you have laid has simply caused me a great deal of trouble, as no
one authorised
you /
23.
you to see Howarth, Schnaid, Horwitz & Partners. I have gone along simply
to keep you from embarrassment. This also applies to
you where SAFTO is
concerned. Nobody authorised you to apply to SAFTO on behalf of Trumatic and
certainly no authorisation was given
to you to charge the account to Trumatic.
After you applied for membership on Trumatics behalf SAFTO advised me per
telephone and
asked for Mr Somer who was employed by Trumatic, switchboard will
bear this out. This type of presumption 1 do not need let alone
the management
potential, hereby my cancelling the option to purchase.
As explained to you when I was last in Durban I have been exporting for many
years and have never found the need to consult SAFTO.
This is because all the
ground work has been done without your management potential. All this was not
necessary as no authorisation
was given, hence you proceeded blindly and I
cannot be blamed for this.
Regarding the distribution agreement you know
as /
24.
as well as I that this document does not exist as it was
cancelled before it was written, and if the document is written I certainly
have
not seen it. At the same time it was your instructions that your lawyer do the
writing up of this nonexistent nonentity. As
far as I am concerned too much has
been presumed on your behalf.
My auditor had nothing whatsoever to do with my cancelling the option to
purchase fifty per cent of Trumatic (Pty) Ltd. Your own actions
prompted the
cancellation of the option to purchase. The two Market Indicators are not needed
nor required and are hereby returned.
To conclude my answers to your letter 1 feel that this unhappy situation
cannot possibly
end in a working relationship."
What the respondent resented and caused him to retract the option was, it
appears from his
letter /
25.
letter, what he regarded as presumptuous meddling by
the appellant in the affairs of the company. He pleaded
in this vein but he never gave evidence to substantiate
the allegations
made in his plea. The learned trial
Judge, held, on the evidence of the
appellant, that
there was no justification for the cancellation, of the
option by
the respondent. The justification of the repudiation is
not in
issue in this appeal and I need say nothing more
about it.
On the issue as to whether it was necessary
for the appellant to prove that he would probably have
exercised the
option, the learned Judge said:-
"In my view, unless it can be said that it is probable that the plaintiff
would have
exercised /
26
exercised the option during its currency,
then it cannot be said that the plaintiff
has suffered any damages by reason of its
repudiation, for indeed, having regard to
the facts of the present case, if the plaintiff
would not have exercised the option, it is
difficult to see what loss he could be said
to have suffered. Certainly, any claim
for damages based upon a difference between
the market value of the shares and the option
price, (at whatever date one might care to
take for that exercise,) must necessarily
depend upon the assumption that at some stage
or another during the option period, the
plaintiff would have converted his option
into an agreement of sale and become, not
the option holder, but the purchaser of the
shares."
To resolve this issue the learned Judge analysed the evidence of the
appellant and the two experts. He described the appellant as
an extremely
good /
27.
good and honest witness and a man who appeared to him to be a person of
reasonable business acumen, including reasonable business
caution. The appellant
made it clear at various stages throughout his evidence, said the trial Judge,
that whether or not he ultimately
exercised the option would depend, inter alia,
upon the advice he would take and receive from his accountant or from his
lawyer.
A consideration of the evidence of the two experts led the learned Judge
to conclude that it was clear that while on the one hand
an accountant would
have advised him that the value of the shares he in-tended buying was greater
than the option price, such
accountant /
28.
accountant would no doubt have sounded a note of warning to the effect that
Trumatic was showing something of a "down turn" in its
profitability. The
learned Judge further considered the appellant's financial circumstances the
probable friction and lack of co-operation
be, tween him and the respondent, the
unlikelihood of the appellant and the respondent coming to terms regarding
matters such as
a service contract between the appellant
and Trumatic and the
dividend policy to be pursued by
the latter, and concluded as follows:-
"To sum up thus far, one has the situation that the plaintiff during the
option period would, on the positive side, have been
required /
29.
required to make a decision whether to invest R300 000,00 in shares which he
believed, or would have been advised, had a market value
of between R367 000,00
and R380 000,00. On the other hand he would have been faced with having to make
that decision in the absence
of a service contract, in the absence of certainty
regarding dividend policy - indeed, in the absence of any certainty that he
would
receive any monthly or annual income, at least in the near future, on his
investment. He would be 'locked in' with a person who had
already displayed some
antagonism towards him. He would be faced with a situation where the company had
shown something of a 'down
turn', the exact extent of which would not have been
readily or easily determinable during the option period. I doubt very much
whether,
in these circumstances, the plaintiff's accountant and his legal
advisers, whoever they might have been, would have advised the plaintiff
to
invest all his assets and more in such a venture. I have little doubt but that
his advisers would have
suggested /
30.
suggested his using his means to
provide himself with a much more secure and definite and less complicated source
of livelihood. Accepting,
as I do, the business acumen of the plaintiff, the
fact that he is not, to my mind, a chancer, I have little doubt but that the
plaintiff
would, as he himself said he would, have followed this advice. Put
differently, I am far from persuaded, on a balance of probability,
that the
plaintiff would ever have exercised the option. On the contrary, and although it
is unnecessary for me to go this far, I
consider it extremely unlikely that he
would have done so.
It follows that I have not been persuaded that the plaintiff has suffered any
damages in this case since he could, and would, to my
mind, only have suffered
damages, for the reasons I have already given, if it could be said that he would
have exercised the option."
The failure of the parties to agree
on /
31.
on certain vital terms of the contemplated composite agreement between them
was, as appears from the evidence and also the judgment
of the learned Judge,
canvassed in the Court a quo in the context as to whether the appellant was, in
view of so many outstanding
details of the transaction not having been agreed
upon, likely to have exercised the option. A few days before the appeal was due
to be heard counsel were requested to file further heads of argument on the
question as to whether, regard being had to the matters
upon which agreement
still had to be reached, the option would, upon the exercise thereof, have
become a legally enforceable
contract /
32.
contract as envisaged by the parties. Counsel duly complied with this request
and the matter was argued in this Court. However, due
to the failure of the
respondent to raise this matter as a substantive legal defence in the Court a
quo it was deemed desirable to
consider the appeal on the basis on which the
matter was contested in and dealt with by the Court a quo.
The first inquiry
therefore is whether the learned Judge was correct in holding that there was an
onus on the appellant in view of
the nature of the damages claimed to prove that
he probably would have exercised the option.
Attacking the decision of the learned
trial /
33.
trial Judge that the appellant had to prove that he would
probably have exercised the option, counsel for the appellant, contending
that
the appellant need not have done so, relied on the following dictum in Boyd v
Nel
1922 AD 414
at 421/2:-
"But what if during the period of the option the defendant breaks the
agreement by dis-abling himself from fulfilling it or ex-pressly
repudiates it?
Can he then be heard to say: non constat that you would have bought even if I
had not done what is complained of,
and therefore you have no action? In my
opinion he cannot (C.4.10.5). According to the terms of the agreement the
plaintiff has the
full period for considera-tion whether he should buy or no. He
is entitled to demand that the defendant should abide by the agreement,
and as
that was not done an action for damages will lie. (cf. Voet
18.1.2; /
34.
18.1.2; Carpz.
Def
. For. Pt. 2
Const. 32
def.
8;
Van Zutphen Ned. Prak. sub voce
Voorkoop No. 5)"
That the grantee not only in the case of an option, but also of other related
pacts, is entitled to damages (id quod interest) in
the event of a breach of the
pact, is fully borne out by the authorities referred to by De Villiers JA,
Voet,, Com ad Pand 18.1.2,
dealing with a pact to sell a definite thing "to no
one else but to me", says that if the other party to the
pact sells that
thing to another actio mihi competit
ad quod interest, which is translated by
Gane as "I
enjoy an action for damages due to his not having com
plied /
35.
plied with the agreement" and by Berwick as "I enjoy an
action for damages due to the non-fulfilment of the pact". Carpzovius Def
For Pt
2 Const 32 Def & deals with the jus protimeseos and uses the words: ad
interesse ei,cui ex conventione jus protimeseos
fuit acquisitum. Van Zutphen Ned
Prak sub voce Voorkoop writes that if an article which is subject to the right
of pre-emption is
sold and delivered by the grantor to a bona fide third party
such sale is valid and cannot
be /
36.
be rescinded; however, the grantee has a
personal action against the seller "om teghens den selven te ageren tot schade
en de interesse."
What has to be decided in the present case is not, however,
whether the appellant as grantee of the option concerned is, upon breach
of the
option pact, entitled to damages but whether he is entitled to damages as if the
option had been exercised. Whether he would
be so entitled was specifically left
open by De Villiers JA in Boyd v Net supra, who said at 422:-
"Whether he will be able to recover as if the option had been
exercised is another matter,
and /
32.
and need not be decided at the present stage."
The learned Judge of Appeal further refrained from deciding what the exact
measure of damages was in the event of a breach by the
grantor of an option. He
said, however, that, on the analogy of a person who in ignorance buys a res
sacra, the plaintiff would "certainly"
be entitled to claim what he would have
had if the contract had not been concluded at all. He referred to D 18.1.62.1
and I 3.23.5:
ut consequatur, quod interfuit ejus, ne deciperetur. That is the
so-called negative interesse which is nor-mally claimed in the case
of fraud or
misrepresentation in
contractual /
38.
contractual context. Cf. De Wet & Yeats Kontraktereg en
Handesreg 4th edition at 3& i f - 39:-
"Die misleier het hom nie verbind om sy ver-klaring waar te maak nie, maar
het die misleide deur die wanvoorstelling beweeg om tot
sy nadeel te handel, en
is daarom nie aanspreek-lik vir die ander se positiewe interesse nie, maar slegs
vir sy negatiewe interesse
of id quod interest non esse deceptum."
If that were the only measure of damages applicable in the instant case that
would be the end of the appellant's case because, apart
from the fact that he
claims as if on the contract of sale and not on the option, he claims the
so-called positive interesse, viz
that he should be placed in the same position
as if the contract
had /
39.
had been properly performed. Victoria Falls & Transvaal
Power Co Ltd v Consolidated Lanlaagte Mines Ltd
1915 AD 1
at 22.
I do not,
however, read the judgment in Boyd v Nel supra as ruling out all possibility of
the positive interesse measure of damages
applying in the event of a breach of
the option pact. The word "certainly" used by De Villiers JA indicates to me
that the learned
Judge of Appeal meant that the plaintiff would be entitled, at
least, to his negative interesse.
Whatever the measure of damages might be upon the breach of an option pact,
however, the Court is
not, /
40.
not, in the instant case, directly concerned with the measure
of damages to be applied. What it is concerned with is the causal nexus
between
the breach of the option pact and the damages claimed which do not arise from
the mere breach of the option pact, but are
claimed, as the learned Judge a quo
put it, "as if the option had already been exercised and that what had been
repudiated was not
the option but the agreement of sale." Causation of damage in
contractual context is normally dealt with where only one contract
is involved
when the enquiry' is whether, regard being had to the measure of damages which
is applicable, the required causal connection
is
present /
41.
present between the breach of the contract or the wrong
committed and the loss suffered. In the instant case there are two contracts
involved, the option agreement and the contract of sale. True, the option pact
was entered into with the specific object of its being
converted, upon the
exercise thereof, into a contract of sale. But before such exercise a very
important link in the causation chain,
the exercise of the option, is missing. I
could not find any common law authority either pro or contra the proposition
that a breach
of the option pact would per se entitle the grantee to damages as
if the option had been exercised. The texts and authorities
I /
42.
I have referred to and consulted merely state that the
plaintiff is entitled to his id quod interest.
In support of his argument
that the learned Judge a quo erred in deciding that the appellant had to prove
that he would probably have
exercised the option counsel has, in addition to his
reliance on Boyd v Nel supra, referred this Court to the judgment of Murray
J in
Israel v Louverdis
1942 WLD 160
, in which case certain leased premises had
become useless to the lessee
because /
43.
because the lessor had rendered it impossible for the lessee
to have the beneficial use thereof. The lessee claimed damages for the
loss of
occupation, not only in respect of the remaining period of the lease but also in
respect of the period of renewal, for which
provision was made in the lease. The
defendant excepted and applied for the relevant objectionable allegations to be
struck out.
Murray J reasoned as follows at 167/8:-
"Although the decision in Boyd v Nel (supra) did not decide whether the
measure of damages would be the same as if the option had
actually been
exercised, it seems to me that (if there is a proper analogy between sale and
lease) the reasoning of such decision
concludes the
present /
44.
present case: the basis of the decision is that if the grantor of an option
breaks his agreement by disabling himself from fulfilling
it or expressly
repudiates it, it does not lie in his mouth to say non constat the grantee would
have purchased even if the grantor
had not done what is complained of, and
consequently the grantee has no action. It does not seem necessary to express a
definite
opinion as to what the precise measure of damages is, but Mackeurtan,
Sale of Goods (2nd edit., p. 31) deduces from the decision
in Sher v Allan
(1929
O.P.D. 137)
, a case concerned with breach of a right of pre-emption, that the
measure of damages in a breach of an option to purchase, although
not exercised,
is the difference between the option price and the market price as at the date
of the option holder's acceptance of
the breach. I see no reason to hold, at
this stage, that it is impossible for the defendant to prove at the trial (if it
is necessary
for him to prove it) that he would in all probability have
exercised the option
of /
45
of renewal, or that by being deprived of the benefit of occupation under the
lease for the remainder of the original term plus the
renewal period, he has
suffered £1,890 as general damages."
Even though Murray J did not, therefore, decide that it was unnecessary for
the plaintiff to prove at the trial that he would in all
probability have
exercised the option, he nevertheless referred, with apparent approval, to what
Mackeurtan said. In the 4th edition
of Mackeurtan's Sale of Goods in South
Africa by O'Donovan the view set out in the earlier edition is repeated at 58/9
under par
89:-
"Where an option to purchase is granted for
a /
46.
a fixed period and during that period the grantor breaks the
agreement by disabling himself from fulfilling it or by expressly repudiating
it, he is liable to the option holder in damages although the latter has not
exercised his option. In Boyd v Nel the Appellate Division
refrained from
deciding what the measure of damage would be in such a case; but on the analogy
of Sher v Allan it would be the difference
between market price and option price
as at the date of the option holder's acceptance of the breach."
As I shall presently indicate that I do not agree with this interpretation of
the judgment in Sher v Allan which, is reported in
1929 OPD 137.
There
appears to me, furthermore, to be a distinction between the facts in Boyd v Nel
and Israel v Louverdis. In the former case Boyd
incurred certain
expenses /
47.
expenses after the option had been accepted in respect of
which he suffered a loss when the exercise of the option was rendered
impossible.
Those damages would flow directly from the breach of the option
pact. It may be that included in the amount of damages claimed in
Boyd v Nel
were amounts for loss of profit but they were not specified as such. De Villiers
JA regarded the damages, at the exception
stage, as general damages. In the
Louverdis case it seems to me that at least a certain amount of damages in
respect of the period
after renewal was clearly included in the total amount
claimed. In this respect the reliance by Murray J on Boyd v Nel supra is not
completely /
48.
completely warranted.
In Sher v Allan supra to which
Murray J referred in Israel v Louverdis supra the facts are not stated fully.
What may be gleaned,
however, in so far as it is necessary to determine the
facts for the purposes of the instant case, is the following:- In terms of
a
clause in the agreement between the parties the lessee was given the first
option (or choice, or opportunity) to purchase the property,
should the lessor
desire to sell; should he not decide to purchase within fourteen days after
getting written notice, the seller
could sell to a third party. The owner
sold /
49.
sold to a third party without giving the lessee notice. It was held by
McGregor AJP that the lessee, the plaintiff in the case, was
entitled to damages
computed on the basis of the difference between the price for which the property
was actually sold to the third
party and offers which were subsequently received
for the property. These data the Court used to determine the market value. It
appears,
however, that there were previous negotiations between the parties when
an offer was made and rejected and that the Court assumed,
for purposes of
computing the damages, that the plaintiff would have made or repeated his offer.
This case is,
therefore, /
50.
therefore, no authority for the view expressed by
Mackeurtan.
I have come to the conclusion that the necessary causal nexus has, in the
absence of proof that the appellant would probably have
exercised the option,
not been established and that the learned Judge was right in coming to the
conclusion that one cannot, either
as a matter of logic or as a matter of law,
treat the; claim as if the option had been exercised.
This being my conclusion it might well have been necessary for the appellant,
in view of the requirement of a proper cause of action
to be framed, to have
alleged in his particulars of claim that he would have exercised the option.
In /
51.
In my view, however, the fact that he did not do so,
does
not affect the matter. An exception might have been
taken by the respondent, but if it succeeded, the appellant
could simply
have amended his particulars of claim.
The appellant was not prejudiced
because this issue was
pertinently raised in the course of the trial and
was
fully canvassed in evidence.
This brings me to counsel's alternative argument that if the trial Judge
correctly required the appellant to discharge an onus of
proving that he would
during the option period have exercised the option, he had discharged this onus.
Counsel contended that the
judgment of the trial Judge is permeated with
considerations based upon the absence of co-operation between the parties
pending the
exercise of the option when the approach should have been to assume
that the admitted
good /
52.
good relationship would have continued
especially in the absence of the respondent testifying otherwise. In my view no
evidence from
the respondent could have made the worsening relationship between
the parties any clearer than the terms of the letters referred
to. Trumatic was
a one man company. The respondent had always acted as he liked. He even borrowed
from the company when he liked.
Even though he initially might have considered
it a good idea to have a "partner", as he saw it, he appears soon to have sensed
that
the introduction of someone of the calibre of the appellant into the
company might result in a complete upheaval of his, until that
stage, placid
private as well as business life. It is clear that he felt his position
as /
53.
as sole controller of the affairs of the company
threatened. He obviously feared, particularly in view of the 80% offer following
so soon in the wake of the 50% option, that he and his company were in danger of
completely being swallowed up. That this was so
is well illustrated by certain
extracts from his letters referred to above. He wrote in the following terms
:-"With me relinquishing
all the reigns of Trumatic" and: "For as you must
realize that a mere 20% of any private company is basically not worth the paper
it is written on." At that stage already he felt that further negotiations, even
in respect of the 50% share purchase, were pointless.
In spite of this remark in
his letter
he /
54
he was still, although half-heartedly, it must be assumed,
prepared to give effect to their arrangement. That is why he wrote that
he would
make sure the ground that the appellant had laid would not be wasted and why he
assured the appellant of his close friendship
at all times. The appellant's
letter of 21 September 1979 did nothing, it seems, to assuage the fears of the
respondent. In uncompromising
and relentless language he made it clear that he
was holding the respondent to their arrangement and that he insisted upon the
loan
being repaid to Trumatic by the respondent. This letter prompted the
respondent, in his letter dated 1 October 1979, to "cancel"
the option, a step
which he must tentatively
have /
55
have considered to take even when he wrote his letter of 11 September
1979. It now appeared that the respondent, although he wrote
in his letter of 11
September that the ground the appellant had laid, would not be wasted, that the
laying of this ground, of which
the respondent was reminded in detail by the
appellant in his letter of 2 1 September, caused the respondent considerable
concern.
He regarded the appellant's activities as presumptuous. He wrote that
his auditor had nothing to do with the cancellation but that
it was the
appellant's own actions that: prompted the cancellation of the option to
purchase.
The letters reflect a rapid deterioration of the relationship. When
the letter of cancellation was written there was hardly anything
left of the
cordiality /
56
cordiality which marked their relationship at the
start. The respondent became firmly convinced that they would never work
amicably
together. He wrote in his letter of 1 October 1979: "....I feel that
this unhappy situation cannot possibly end in a working relationship."
1 do not
therefore agree with counsel that it must be assured that the good relationship
would have continued. In any event, submitted
counsel, a lack of co-operation on
the part of the respondent might have indicated to the appellant that the option
was, as the appellant
put it in his evidence,a "good deal" and would, therefore,
have encouraged its exercise. This might have been a good argument if
it was
clear to the appellant that the only reason for the cancellation was the belief,
on the part of the respondent, that the shares
were worth
more /
57
worth more than R300 000. Although this belief appears to
some extent to have caused the respondent to cancel the option, it is evident
from the correspondence that this was not the main reason. The change in
respondent's attitude is clearly reflected in his letters.
The appellant must
have realised that the prospect of their working cordially together had waned
drastically. The fact that he did
not exercise the option but elected instead to
sue for damages is some indication, in my view, that that was his state of mind.
This
view is fortified by the fact that the appellant must have realised that
the respondent still held the whip hand. Much had still
to be agreed on between
the parties, the most important of which was that an employment contract
would
have /
58
have had to be entered into between Trumatic, as represented
by the respondent, and the appellant.
Another factor which the learned trial
Judge correctly, in my view, took into account as rendering the exercise of the
option by the
appellant unlikely, is the particular nature of his rights should
the option be exercised. They were such that, if it turned out
that the two of
them could not collaborate satisfactorily, a sale or a cession of his equity
would not be easy to effect. As the
learned trial Judge pointed out, the'
appellant made it clear that he regarded the option as one personal to himself,
or his nominee
in the sense
that /
59.
that he was entitled to nominate a company of
which he
in turn would be the sole beneficial holder and which
would own
his interests in Trumatic. That the option
was not intended to be freely
cedable seems, said the
learned Judge, to receive some support from the
pro
visions of Trumatic's articles of association which
contain an
absolute prohibition against the transfer of
shares in the company by a
shareholder to another per
son who is not already a shareholder unless the
directors agree
thereto in writing. The articles do not, the learned
Judge
points out, as is often the case in private com
panies, contain provisions
whereby the remaining share
holders /
60.
holders can be compelled to purchase the shares of any
shareholder who wishes to sell, nor do they grant them any right of
pre-emption.
In the Court a quo counsel for the
appellant argued,a submission which was repeated in this
Court, that the
plaintiff had indicated in his evidence
that it was probable that he would have exercised the
option prior to the end of 1979 — even before the 1979
figures became available. It was submitted that if
the Judge accepted the evidence of the plaintiff as
that of an honest person, he should have accepted what the
plaintiff said in this regard and found, on the strength
of /
61.
of that evidence alone, that the plaintiff would
probably
have exercised the option. Dealing with this submission in his
judgment, the learned Judge referred to certain extracts from the evidence
and
expressed the view:-
"It is, I think fairly obvious from the answers
given by the plaintiff .... that a great deal of water had to flow under the
bridge before the plaintiff would have been in a position
finally to decide
whether or not to exercise
the option."
The learned Judge expressed the view that it was extremely unlikely that the
plaintiff would have contemplated exercising or, even
if he had contemplated
it, /
62.
it, would in fact have exercised the option before the end of
1979. He referred in fair detail to the evidence of the two experts
and the
circumstances surrounding the activities of the company generally and concluded
as follows:-
"What is clear is that, while on the one hand an accountant would have
advised him that the value c the shares he intended buying
was greater than the
option price, such accountant would also no doubt have sounded a note of warning
to the effect that the company
was showing something of a 'down turn' in its
profitibility."
I agree with this finding. Apart from the factors
referred to by the learned Judge there is the further
consideration that
there was no urgency about the
matter./
61.
matter. The appellant had specifically made provision for a
long option period and his evidence that the only reason why he in fact
stipulated for a year's option was because his service agreement with the other
company expired only in June 1980 and that he wanted
to have "this all tidy"
before he in fact left the other company is inconsistent with an intention to
exercise the option within
that current year (1979). It was contemplated that he
would join Trumatic in Johannesburg in a full-time capacity if he did exercise
the option
and /
65.
You needed time? I needed a certain
amount of time, obviously.
Both to acquire money and to have a more
careful look at Trumatic? No, I didn't need
it to acquire the money, but I needed to have
a look at Trumatic because I only had one balance
sheet to work on.''
Regard being had to all the factors taken into account by the learned trial
Judge, his judgment that the appellant would probably
not have exercised the
option is, in my view, correct.
The appeal is dismissed, with costs,
including the costs consequent upon the employment of - two counsel.
JUDGE OF APPEAL