Brief Summary

Contract — Validity of agreement — Ejectment — Ejectment proceedings initiated by the defendant on the basis of the plaintiff's alleged failure to obtain necessary ministerial consent for a lifelong right of residence in terms of the Land Subdivision Act 70 of 1970 — Plaintiff contending that the agreement is void due to the absence of such consent, thus entitling him to restitution — Court finding that the underlying agreement was indeed void and that the plaintiff had a valid claim for restitution despite the defendant's ownership of the property — Ejectment order denied.

Comprehensive Summary

Summary of Judgment

Introduction

The proceedings were an exception raised by the defendant to the plaintiff’s particulars of claim on the basis that they 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.

Procedurally, the matter came before the Free State High Court (Orange Free State Provincial Division) as an interlocutory challenge to the adequacy of the pleadings. The defendant excepted to both the plaintiff’s main cause of action and the alternative cause of action. The question was accordingly whether, accepting the pleaded facts as correct, the particulars of claim were legally sufficient.

The dispute arose from a written agreement of sale under which the plaintiff sold a farm (agricultural land) and cattle to the defendant, coupled with a contractual clause granting the plaintiff a lifelong right of residence over a portion of the farm. The general subject-matter concerned the consequences of (i) the statutory invalidity of contractual provisions purporting to grant such a right without ministerial consent under the Subdivision of Agricultural Land Act 70 of 1970, and (ii) the interaction between that invalidity and the abstract system of transfer of ownership in South African law.

Material Facts

The pleaded facts accepted as material to the exception included that, on 16 March 2005, the parties concluded a written agreement in terms of which the plaintiff sold to the defendant the remainder of the farm Damplaats 190, district Reddersburg, measuring 876,2736 hectares, together with certain cattle. A copy of the agreement was annexed to the particulars of claim.

In terms of clause 12 of the agreement, the plaintiff was granted a lifelong right of residence and associated rights in respect of a portion of the property described as a portion of agricultural land as defined in the Subdivision of Agricultural Land Act 70 of 1970.

It was pleaded, and treated as not in dispute for purposes of the exception, that the parties performed under the agreement: transfer of the property to the defendant took place and the purchase price was paid by the defendant to the plaintiff. The court specifically recorded as undisputed that ownership had been transferred and that the defendant was the registered owner.

The plaintiff pleaded that clause 12.1 read with clauses 12.2 and 12.3 was in conflict with section 3(e)(ii) of the Subdivision of Agricultural Land Act 70 of 1970 because no ministerial consent had been obtained or requested, and that these clauses were therefore void. The plaintiff also pleaded that the defendant relied on that alleged invalidity and demanded that the plaintiff vacate the property, evidenced by a letter of 18 November 2005.

In the plaintiff’s main case, it was pleaded that the agreement was concluded on the assumption that the plaintiff would acquire an enforceable lifelong right of residence, and that it was a tacit term that if the plaintiff did not validly obtain such a right, the entire agreement would lapse and be void. On that basis the plaintiff sought a declarator that the sale of the immovable property had lapsed and was void, alternatively cancellation and re-transfer of the farm against repayment of the purchase price.

In the alternative case, the plaintiff pleaded that both parties were bona fide unaware of the invalidity of the clause and laboured under a common mistake; that the clause was material; and that the plaintiff would not have concluded the agreement (or would not have sold at the agreed price) if aware that the lifelong right could not validly be obtained. On that basis the plaintiff claimed cancellation and restitution.

The court treated as central that, while the particulars attacked the validity of the obligational contract (the underlying agreement of sale insofar as it purported to create the residence right), the plaintiff did not plead that the ensuing real agreement (the intention to transfer and receive ownership) was void or vitiated, nor did the plaintiff plead an enrichment cause of action directed at recovering property already transferred.

Legal Issues

The central legal question was whether the plaintiff’s particulars of claim, on every reasonable interpretation, disclosed a cause of action entitling the plaintiff to the relief sought (a declarator of invalidity of the sale of the immovable property and re-transfer, alternatively cancellation and restitution), notwithstanding that transfer had already occurred.

That question involved a mixed inquiry into law and the application of law to pleaded facts. It required the court to determine (i) the legal consequences of statutory invalidity under section 3(e)(ii) of Act 70 of 1970 for the underlying agreement, and (ii) how those consequences interact with the abstract system governing transfer of ownership in South African law, under which the validity of the real agreement is not automatically dependent on the validity of the preceding obligational agreement.

A further issue was whether the plaintiff’s reliance on common mistake and/or a tacit term about lapse of the agreement could sustain a claim framed as cancellation and restitution, given the court’s understanding that restitution in that sense presupposes a valid and binding contract capable of cancellation, and given that the pleadings did not allege vitiation of the real agreement.

Court’s Reasoning

The court first restated the approach to exceptions. The pleaded facts must be taken as correct, and the pleading must be assessed as it stands, without reference to extraneous facts or documents beyond the pleading. The excipient bears the burden to show that on every reasonable interpretation, the pleading discloses no cause of action.

Turning to the substantive law, the court emphasised that it was common cause that ownership had been transferred to the defendant and that the defendant was the owner. The court then applied the abstract system of transfer recognised in South African law, which requires a distinction between (i) the obligational (verbintenisskeppende) agreement that creates duties to transfer, and (ii) the real agreement (saaklike ooreenkoms) reflecting the intention to transfer and receive ownership, coupled with delivery/registration. Under this system, the invalidity of the obligational agreement does not necessarily invalidate the real agreement or undo the transfer.

The court accepted that the underlying agreement was hit by the prohibition in section 3(e)(ii) of the Subdivision of Agricultural Land Act 70 of 1970, because it purported to grant a right over a portion of agricultural land for the natural life of the holder without ministerial consent. On the authority of Geue and Another v Van Der Lith and Another [2003] ZASCA 118; 2004 (3) SA 333 (SCA), the court treated prohibited agreements under section 3(e) as visited with invalidity, and accordingly regarded the obligational agreement (at least to the extent implicated) as void.

However, the court reasoned that the plaintiff’s pleading was defective because it sought relief effectively aimed at reversing the already completed transfer, while failing to plead any basis on which the real agreement (and thus the passing of ownership) could be attacked. The court pointed out that, to disclose a proper cause of action for the return of transferred ownership on these pleaded facts, the plaintiff would need to allege (and ultimately establish) that the real agreement was void or vitiated, potentially by showing that the legislature intended not only to invalidate the underlying contract but also to taint the real agreement. The court considered it unnecessary, for purposes of the exception, to decide whether the legislature did in fact intend that result, because the plaintiff had not pleaded such an attack on the real agreement at all.

The court rejected the plaintiff’s reliance on authorities invoked to support restitution following performance under a void agreement, distinguishing them on the basis that those matters did not concern a case where ownership had already passed under the abstract system. In those cases, transfer had not yet occurred, whereas in the present matter the defendant was already the owner despite the invalidity of the underlying obligational agreement.

On the plaintiff’s alternative reliance on common mistake, the court accepted (for purposes of the exception) that both parties were unaware of the statutory requirement and acted under a mistaken assumption that the lifelong residence right would be valid and enforceable, and that this assumption was material to the transaction. The court referred to principles that an agreement founded on a common mistake regarding a vital assumed state of affairs may be treated as invalid where the parties’ consensus is conditional upon that state of affairs.

Nonetheless, the court concluded that even if the obligational contract was void on the basis of common mistake (or the statutory prohibition), that conclusion did not automatically undo the transfer already effected, because the abstract system still requires a separate inquiry into whether the real agreement is invalid. The particulars again failed because they did not allege that the real agreement was vitiated by the mistake.

The court further reasoned that the plaintiff’s framing of the relief as cancellation and restitution was not aligned with its own pleaded foundation. Where a contract is void ab initio due to common mistake, the court considered that there can be no cancellation in the contractual sense, and it described restitution (as sought in the pleadings) as presupposing a valid and enforceable contract. The dispute was not one of breach with a guilty or innocent party, but one in which both parties laboured under a common mistake.

Although the court found the particulars disclosed no cause of action as pleaded, it noted that the plaintiff was not without a remedy. It indicated that the plaintiff might be able to proceed by (i) properly pleading the invalidity of the real agreement, or (ii) pursuing an enrichment remedy, suggesting that on the facts the potentially appropriate action could be the condictio sine causa (specialis). However, the court held that the plaintiff had not pleaded the necessary averments to found such a condictio, nor had the plaintiff attacked the real agreement in either the main or alternative case.

Finally, on the appropriate order after upholding an exception, the court declined to grant a final order dismissing the action. It applied authority indicating that the ordinary practice where an exception is upheld for failure to disclose a cause of action is to set aside the defective pleading and grant leave to amend, rather than terminating the proceedings with potentially drastic consequences such as prescription.

Outcome and Relief

The court upheld the exception with costs. It ordered that the plaintiff’s particulars of claim be set aside (struck out), and granted the plaintiff leave, if so advised, to file amended particulars of claim within one month of the date of judgment.

Costs of the exception were awarded against the plaintiff.

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 (TkSC).

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) 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) ([1895–9] All ER Rep 868).

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

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

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

Group Five Building Ltd v Government of the RSA 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, section 3(e)(i) and section 3(e)(ii).

Mines and Works Act 27 of 1956 (referred to in the statutory quotation incorporated in the judgment).

Rules of Court Cited

No rules of court were expressly cited in the judgment.

Held

The court found that the plaintiff’s particulars of claim did not disclose a cause of action because they relied on the invalidity of the underlying obligational agreement (arising from the statutory prohibition and/or common mistake) without pleading a basis to invalidate or set aside the real agreement underpinning the transfer of ownership, and without properly pleading an enrichment claim capable of supporting recovery of ownership already transferred under the abstract system.

The exception was upheld against both the main and alternative causes of action. The plaintiff’s particulars were set aside, with leave granted to amend within one month, and the plaintiff was ordered to pay the costs of the exception.

LEGAL PRINCIPLES

The judgment applied the principle governing exceptions that the pleading must be assessed on the facts alleged by the plaintiff taken as correct, and an exception succeeds only where, on every reasonable interpretation, the pleading discloses no cause of action.

It applied the South African abstract system of transfer of ownership, emphasising the separation between the obligational agreement and the real agreement, and the consequence that invalidity of the former does not necessarily invalidate the latter or undo a completed transfer.

It applied the interpretation that agreements prohibited by section 3(e) of the Subdivision of Agricultural Land Act 70 of 1970 are visited with invalidity, while also recognising that the further question whether the statutory invalidity extends to vitiate the real agreement depends on legislative intention and must be properly pleaded if relied upon.

It applied the doctrine of common mistake in the sense that a contract may be void where both parties proceed on a shared, unfounded assumption treated (expressly or tacitly) as a condition for the contract’s operation, while also holding that such invalidity of the underlying contract does not necessarily undo transfer already effected under the abstract system absent pleaded vitiation of the real agreement.

It accepted that, where ownership has already passed despite a defective underlying causa, the appropriate remedy may lie in the law of unjustified enrichment, potentially by way of a condictio sine causa (specialis), but only where the claim is properly pleaded with the necessary averments.

Maartens v Kobus Van Zyl Boerdery BK (1973/2006) [2007] ZAFSHC 25 (15 March 2007)