Brief Summary

Contract — Validity of contract — Nullity due to statutory prohibition — Eiser (plaintiff) sought to declare a sale agreement with Verweerder (defendant) null and void on the basis that certain clauses contravened the Subdivision of Agricultural Land Act 70 of 1970, which required ministerial consent for long-term rights on agricultural land — Verweerder contended that the particulars of claim did not disclose a valid cause of action as the agreement had been performed — Court held that the agreement was indeed null and void due to the lack of required consent, thus entitling the Eiser to restitution and cancellation of the agreement.

Comprehensive Summary

Summary of Judgment

Introduction

The matter was an exception in the Free State High Court, Bloemfontein, directed at the plaintiff’s particulars of claim on the basis that they allegedly lacked averments necessary to sustain an action and therefore disclosed no cause of action.

The parties were Johannes Cornelius Maartens (plaintiff) and Kobus van Zyl Boerdery BK (defendant), a close corporation. The dispute arose from a written agreement in terms of which the plaintiff sold a farm (and also cattle) to the defendant, coupled with a contractual arrangement intended to secure for the plaintiff a lifelong right of residence on a portion of the property.

Procedurally, the plaintiff instituted action seeking, in essence, a declarator that the sale of the immovable property had lapsed and was void (or, alternatively, cancellation), together with relief aimed at re-transfer of the property to the plaintiff against repayment of the purchase price. The defendant responded by delivering an exception contending that, even accepting the pleaded facts as correct, the pleading did not support the relief sought. The exception was argued on 2 February 2007, and judgment was delivered on 9 February 2007.

The general subject-matter concerned the legal consequences of a statutorily prohibited term (a life-long right over agricultural land without ministerial consent), the effect of that prohibition on a contract and on transfer of ownership under the abstract system, and whether the plaintiff’s pleaded case properly engaged the legal requirements for the remedies claimed.

Material Facts

It was common cause that on 16 March 2005 the parties concluded a written agreement in terms of which the plaintiff sold to the defendant the remainder of a farm (Damplaats 190, district Reddersburg, measuring 876,2736 hectares) together with certain cattle. The agreement was attached to the particulars of claim.

It was further pleaded (and treated as the basis of the dispute) that the agreement contained a clause (clause 12 and its sub-clauses) purportedly granting the plaintiff a lifelong right of residence and associated rights in respect of a portion of agricultural land as defined in the Subdivision of Agricultural Land Act 70 of 1970.

The pleaded case proceeded on the footing that the clause granting a lifelong right was in conflict with section 3(e)(ii) of Act 70 of 1970 because no written consent of the Minister had been obtained or applied for. On the plaintiff’s own pleading, the relevant clauses were therefore void. The plaintiff also pleaded that the defendant relied on the nullity of those clauses and demanded that the plaintiff vacate the property, as reflected in a letter dated 18 November 2005.

Critically for the exception, it was not in dispute (and the court accepted as common cause for purposes of the exception) that the parties had performed: the purchase price was paid, and transfer of ownership of the immovable property was registered in the defendant’s name. The court treated it as common cause that the defendant was the owner of the farm by virtue of registration.

The plaintiff pleaded that the agreement had been concluded on the shared assumption that the plaintiff would obtain a valid, enforceable lifelong right of residence, and that it was a tacit term that, failing the validity and enforceability of that right, the entire agreement would lapse and be void. In the alternative, the plaintiff pleaded a form of relief framed as cancellation and restitution, based on both parties being bona fide unaware of the invalidity and the plaintiff alleging that he would not have contracted (or would not have contracted on the same price) had he known.

The particulars of claim did not plead that the real agreement (the parties’ intention to transfer and receive ownership) was void, voidable, or otherwise defective, nor did it plead a case expressly founded on an enrichment remedy.

Legal Issues

The central legal question was whether, on the plaintiff’s pleaded facts, the particulars of claim disclosed a cause of action entitling the plaintiff to the declaratory relief, cancellation, and re-transfer sought, given that ownership had already passed to the defendant by registration.

This required determination of a question that was primarily one of law (and application of legal doctrine to pleaded facts), namely the effect of the abstract system of transfer on a claim for re-transfer where the underlying contractual causa is alleged to be void, and what must be pleaded to attack ownership already transferred.

A further issue was whether the plaintiff’s reliance on a common mistake and an alleged tacit term (that the agreement would be void if the right of residence was invalid) could sustain the specific remedies of cancellation and restitution in circumstances where the contract was pleaded to be void, not merely voidable or breached.

A related pleading issue was whether the plaintiff had, on the pleaded facts, sufficiently invoked an appropriate enrichment action (in particular, the condictio sine causa (specialis)) as the proper personal remedy to recover property transferred without a valid causa, and whether such a cause of action had been pleaded at all.

Court’s Reasoning

The court began by reaffirming the established approach to exceptions. In deciding an exception that a pleading discloses no cause of action, the court must accept the facts alleged by the plaintiff as correct, decide the matter on the pleading as it stands, and the excipient must show that on every reasonable interpretation no cause of action is disclosed. The court relied on Dilworth v Reichard 2002 (4) All SA 677 (W) for this formulation.

Turning to the substance, the court emphasised that it was common cause that ownership had been transferred and registered in the defendant’s name, and that South African law applies the abstract system of transfer. Under this system, the court distinguished between the obligatory agreement (the contract of sale creating obligations) and the real agreement (the intention to transfer and receive ownership), which are independent juristic acts. The invalidity of the underlying obligatory agreement does not, without more, necessarily invalidate the real agreement or undo transfer already effected.

The plaintiff’s particulars of claim proceeded from the premise that the underlying agreement was void because clause 12 offended section 3(e)(ii) of the Subdivision of Agricultural Land Act 70 of 1970, and the court accepted (for purposes of the exception) that the contract was indeed hit by the statutory prohibition. Referring to Geue and Another v Van Der Lith and Another [2003] ZASCA 118; 2004 (3) SA 333 (SCA), the court noted that prohibited agreements under section 3(e) have been treated as visited with invalidity.

However, the court held that this did not complete the plaintiff’s pleaded case. Once ownership had passed under the abstract system, a plaintiff seeking re-transfer must, to disclose a cause of action on the pleaded theory, also attack the real agreement (or otherwise plead a competent personal remedy). The court stated that the plaintiff would have to allege, for example, that it was the legislature’s intention not only to render the underlying obligatory agreement void, but also to render the real agreement (and thus the transfer) a nullity. The court did not consider it necessary, at exception stage, to decide whether the statute in fact had that wider effect; rather, it held that the plaintiff’s failure to plead any attack on the real agreement was fatal to the pleaded cause of action.

The plaintiff’s counsel argued that parties who perform under a void contract are entitled to claim restitution. The court distinguished the authorities relied on, including C.D. Development Co. (East Rand) (Pty) Ltd v Novick 1979 (2) SA 546 (C) and Patel v Adams 1979 (2) SA 653 (A), on the basis that those matters did not concern the consequences of a void obligatory agreement after transfer of ownership had already occurred. In the present case, the defendant was already the registered owner notwithstanding the voidity of the underlying contract, and therefore the plaintiff’s reliance on those cases did not cure the pleading deficiency.

On the plaintiff’s alternative reliance on common mistake and a tacit term that the agreement would be void if the right of residence was invalid, the court accepted that the right of residence was treated by the parties as material, and that both parties were unaware of the statutory requirement of ministerial consent. The court accepted, for purposes of the exception, that the matter involved a common mistake, and it referred to authority recognising that common mistake may relate to fact or law (including Wills Farber Enthoven (Pty) Ltd v Receiver of Revenue [1991] ZASCA 163; 1992 (4) SA 202 (A), and the discussion of common mistake in Wilson Bayly Holmes (Pty) Ltd v Maeyane and Others 1995 (4) SA 340 (TPD) with reference to Dickinson Motors (Pty) Ltd v Oberholzer 1952 (1) SA 443 (A)).

Nevertheless, the court held that even if the contract was void for common mistake, this still addressed only the validity of the obligatory agreement, not the real agreement. The same core defect remained: the pleading did not allege that the real agreement was vitiated, and therefore it did not provide a legal basis to reverse transfer of ownership.

The court then addressed the plaintiff’s formulation of remedies as cancellation and restitution. It held that where the contract is void, there is no room for cancellation in the contractual sense, and restitution (as claimed in that contractual framing) presupposes a valid and binding contract (particularly in the context of rescission for breach). Citing Edelstein v Edelstein NO and Others 1952 (3) SA 1 (AD) (and relying also on the cited commentary), the court treated the plaintiff’s reliance on cancellation/restitution as misconceived on the pleaded basis of voidity.

Finally, the court indicated that the plaintiff was not without a remedy. It noted that the proper route, given the abstract system and a transfer made without a valid causa, may lie in a personal enrichment action, with the court identifying the condictio sine causa (specialis) as potentially applicable on the pleaded facts. However, the court held that the plaintiff had not pleaded the necessary averments to found such an enrichment claim (with reference to Govender v Standard Bank of South Africa Ltd 1984 (4) SA 392 (CPD)), and thus the particulars of claim still failed to disclose a cause of action.

As to the procedural consequence of a successful exception, the defendant sought dismissal of the summons and particulars as a final order. The court, guided by Group Five Building Ltd v Government of the Republic of South Africa 1993 (2) SA 593 (AD) and Trope and Others v South African Reserve Bank [1993] ZASCA 54; 1993 (3) SA 264 (AD), held that the appropriate course was to strike out the defective particulars and grant the plaintiff leave to amend, rather than making a final order terminating the action.

Outcome and Relief

The court upheld the exception, finding that the particulars of claim did not disclose a cause of action on either the main or alternative formulation as pleaded.

The court ordered that the plaintiff’s particulars of claim be set aside/struck out, and granted the plaintiff leave to deliver amended particulars of claim within one month of the date of judgment, if so advised.

The plaintiff was ordered to pay the costs of the exception.

Cases Cited

Dilworth v Reichard 2002 (4) All SA 677 (W).

Trust Bank van Afrika Bpk v Brits and Another 1978 (4) SA 281 (A).

Mvusi v Mvusi NO and Others 1995 (4) SA 994 (Tk SC).

Kriel v Terblanche N.O en Andere 2002 (6) SA 132 (NKA).

Air-Kel (Edms) Bpk h/a Merkel Motors v Bodenstein en ’n Ander 1980 (3) SA 917 (A).

Wimbledon Lodge (Pty) Ltd v Gore NO and Others 2003 (5) SA 315 (SCA).

Geue and Another v Van Der Lith and Another [2003] ZASCA 118; 2004 (3) SA 333 (SCA).

C.D. Development Co. (East Rand) (Pty) Ltd v Novick 1979 (2) SA 546 (C).

Patel v Adams 1979 (2) SA 653 (A).

Meyer v Hessling 1992 (3) SA 851 (Nm) SC.

African Realty Trust Ltd v Holmes 1922 AD 389.

Wills Farber Enthoven (Pty) Ltd v Receiver of Revenue [1991] ZASCA 163; 1992 (4) SA 202 (A).

S v De Blom 1977 (3) SA 513.

Wilson Bayly Holmes (Pty) Ltd v Maeyane and Others 1995 (4) SA 340 (TPD).

Dickinson Motors (Pty) Ltd v Oberholzer 1952 (1) SA 443 (A).

Huddersfield Banking Co Ltd v Henry Lister & Son Ltd [1895] 2 Ch 273 (CA).

Osman v Standard Bank National Credit Corporation Limited 1985 (2) SA 378 (CPD).

Edelstein v Edelstein NO and Others 1952 (3) SA 1 (AD).

Govender v Standard Bank of South Africa Ltd 1984 (4) SA 392 (CPD).

Group Five Building Ltd v Government of the Republic of South Africa 1993 (2) SA 593 (AD).

Trope and Others v South African Reserve Bank [1993] ZASCA 54; 1993 (3) SA 264 (AD).

Legislation Cited

Subdivision of Agricultural Land Act 70 of 1970.

Mines and Works Act 27 of 1956.

Rules of Court Cited

No specific rule of court was cited in the judgment.

Held

The court held that, given the abstract system of transfer of ownership, the plaintiff’s reliance on the invalidity of the underlying contractual arrangement (including invalidity arising from statutory prohibition and/or common mistake) did not, without an pleaded attack on the real agreement, sustain a claim for re-transfer of ownership after registration had passed.

It further held that the pleaded remedies of cancellation and restitution, framed in contractual terms, were not competent on the pleaded basis that the agreement was void, and in any event did not address the necessity to plead a basis for undoing transfer already effected.

The court held that an enrichment remedy might be available in principle (including potentially the condictio sine causa (specialis)), but the plaintiff had not pleaded the necessary averments to found such a claim, and therefore the particulars of claim disclosed no cause of action.

The exception was upheld with costs, the particulars were struck out, and leave to amend was granted.

LEGAL PRINCIPLES

A court determining an exception that a pleading discloses no cause of action must accept the pleaded facts as correct, consider the pleading as it stands, and uphold the exception only if on every reasonable interpretation the pleading discloses no cause of action.

Under South African law’s abstract system of transfer, the obligatory agreement (creating duties to transfer) and the real agreement (intention to transfer and receive ownership) are distinct and independent juristic acts; invalidity of the obligatory agreement does not necessarily invalidate the real agreement or undo a completed transfer.

Where a statutory prohibition renders an underlying agreement void, a party seeking to recover property after transfer must plead an appropriate basis to challenge the real agreement or must plead a competent personal remedy, typically in enrichment, consistent with the abstract system.

A common mistake may render a contract void where the parties’ contract is conditional (expressly or tacitly) upon an assumed state of affairs; however, voidity of the underlying contract does not without more determine the validity of the real agreement or reverse transfer.

Relief framed as cancellation and restitution (in the contractual sense) presupposes an operative contractual framework and is not, on the pleaded approach in this case, a substitute for pleading the requirements of an enrichment remedy or an attack on the real agreement where ownership has already passed.

Maartens v Kobus van Zyl Boerdery BK (1973/2006) [2007] ZAFSHC 106 (9 February 2007)