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1985
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[1985] ZASCA 76
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Nine Hundred Umgeni Road (Pty) Ltd v Bali (92/85) [1985] ZASCA 76; [1986] 1 All SA 289 (A) (12 September 1985)
IN THE
SUPREME COURT OF SOUTH AFRICA
(
APPELLATE
DIVISION
)
In the
matter between
NINE
HUNDRED UMGENI ROAD (PTY) LTD
APPELLANT
and
K B A
BALI
RESPONDENT
CORAM
:
JANSEN, KOTZé VILJOEN, GROSSKOPF, JJA et NICHOLAS, AJA
HEARD: 15
MAY 1985
DELIVERED
: 12 SEPTEMBER 1985
JUDGMENT
VILJOEN,
JA
In the
magistrate's court, Durban, the
appellant,
as the plaintiff, succeeded in an action
in which/
2.
in which
it sued the respondent for payment of the sum of Rl 590, interest a
tem
pore morae
and costs on the attorney and client scale, as
provided for by the agreement to be referred to in more detail
presently. The
amount of Rl 590 was alleged to be due to the
appellant in respect of arrear rental for the month July, 1979, in
terms of a written
agreement of lease which existed between the
parties. An appeal to the Natal Provincial Division of the
Supreme Court succeeded
with costs, and the judgment of the
magistrate was altered to read: "The plaintiff's claim is
dismissed with costs." Against
the latter judgment the
appellant now appeals, leave having been
granted.
In/
3.
In terms
of the lease referred to the
appellant,
as the lessor, let to the respondent,
"in
his capacity as trustee for a company to be
formed
('the lessee')" certain premises in Durban
"for
the purpose of (a) workshop and (b) motor
showroom."
The lease was to commence on 1 July 1978.
The rental
for the first year, ie from 1 July 1978
to 30 June
1979, was Rl 500 per month and that for
the second
year, 1 July 1979, to 30 June 1980, was
Rl 590 per
month.
The lease
was signed by the respondent
"for
and on behalf of the lessee" on 5 June 1978
and by a
director of the appellant, one Sweeney,
on behalf
of the appellant, on 6 July 1978. The
company/
4. company
contemplated by the respondent. Optima
Motors
(Proprietary) Limited, (hereinafter referred
to as the
company), was incorporated on 27 June 1978.
It is
common cause that the premises were made
available
and that the lease commenced on 1 July 1978.
The
agreement sued upon is a contract
for the
benefit of a third party. Three issues
were
debated in this Court (as in the Court a quo).
They were,
firstly, whether, as a matter of fact,
there was
an acceptance by the company of the
benefit
stipulated in its favour; secondly, whether,
as a
matter of law and, thirdly, as a matter of
construction
of the contract, the respondent was
personally
liable. As a first step towards success
it was/
5. it was
crucial to the appellant's case to persuade
this Court
(as it endeavoured to convince the
Court a
quo) that the company had not accepted
because,
as was conceded by counsel for the
appellant,
if the company had accepted the respondent
fell out
of the contract completely. The evidence
on the
point is not harmonious. I shall, however,
assume
without deciding that the company did not
accept the
benefit of the stipulation.
It was
submitted on behalf of the
appellant
that the respondent contracted with the
appellant
as "principal" and that consequently he
was,
prima
facie
, unless as a matter of interpretation
of the
contract the parties intended otherwise,
personally/
6.
personally
liable for the performance of the
obligations and entitled to the
rights of the
lessee
flowing from the contract. For this proposition counsel relied upon
certain d
icta
in a number of decided cases. The first case he
relied upon is
McCullogh v Fernwood Estate Ltd
1920 AD 204.
In
that case Innes CJ pointed out that the trustee who contracts for a
company to be formed acts not as agent but in his own name
and on his
own responsibility for the benefit of another. The contract in
question contained a clause holding the trustee personally
liable to
the contract if the company did not adopt on a certain date. There
was nothing said in that case which
supports/
7.
supports the proposition submitted on behalf of
the
appellant.
Reliance
was also placed on the decision in the matter of Ackerma
nn,
N
0 v Burland and
Mil
unsky
1944 WLD 172.
It was there
decided that the consequence of making a contract for a company to be
formed, is that the so-called trustee is acting
as principal and
that, therefore, if he wishes to bring an action on the contract or
to set it aside before the company is formed
he must sue in his
personal capacity and not in his capacity as trustee for the company.
What the
plaintiff claimed in that case
was the
return of certain documents which comprised
a banker's
guarantee and certain bills and
promissory/....
8.
promissory
notes which he had delivered in terms
of a
clause in the contract. He also claimed that the contract be set
aside and for damages for fraudulent misrepresentation. He alleged
in
his declaration that he (personally) had parted with the documents
and (personally) suffered damages by reason of a fraud which
had
induced him to enter into the contract and deliver the documents. On
these facts the Court found that he should plainly be suing
in his
personal capacity. This case,
likewise,
does not assist the appellant.
In
Semer
v Retief and Berman
1948(1) SA
182 (C),
another case to which we were referred,
Ogilvie
Thomson AJ said at 194:
"Once/
9.
"Once
it be conceded that to contract as trustee in circumstances like
these is to contract qua principal, it, in my
view,
follows that - subject always to the particular terms of the contract
in question - the trustee will in his personal capacity
have rights
and be subject to obligations in regard to that contract."
This,
clearly, cannot be construed to
mean that
the trustee acquires the rights and incurs the obligations of the
third party under the contract.
In
Bagradi
v Cavendish Transport Co (Pty
)
Ltd
1957
(1) SA 663
(D), another decision relied
upon by
counsel, the headnote, which accurately
reflects
the judgment, reads:
"As a
person who contracts as trustee for a company to be formed contracts
as a principal, he may at all times sue
on the
contract
as such principal, unless and
until/
10.
until the
company, after it has come into existence, creates a
vinculum
juris
between itself and the promisor by notifying its acceptance
of the benefits of the contract. When the company does that, then the
person contracting as trustee falls out of the contract altogether.
Therefore, unless and until he falls out of the contract altogether,
he may accept a repudiation by the other party to the contract and
cancel the contract as well as sue for damages. Where he sues
as a
principal his rights and liabilities are not contingent on the
non-adoption of the contract by the company; accordingly it is
not
necessary for him to aver in his declaration either that the company
has refused to accept the agreement or that it has failed
to accept
it within a reasonable time." (The words "on the contract"
were italicised by me).
Here again
the Court did not suggest that
the
trustee acquired the rights or incurred the
obligations
of the third party pending acceptance
of the/
11.
of the
benefit.
In the
matter of
Gardner v Richardt
1974(3) SA
768(C) Friedman AJ said at 770E:
"It
seems to me that the question whether and the circumstances under
which a person contracting as trustee for a company in
the course of
formation has the right to sue for specific performance of the
contract, must be answered by reference to the terms
of the
particular contract under consideration; it is essentially a question
of contraction."
I
respectfully agree.
For the
reasons stated above I agree with
the
conclusion arrived at by the Court
a quo
that
the
trustee is not personally entitled to exact or
obliged to
render the performance which is stipulated
for the
third party unless the contract so provides.
This/
12. This
brings me to the third issue. As
an
alternative to the second issue it was argued
on behalf
of the appellant that the contract does,
if not
expressly then at least by implication,
provide
for the respondent, pending the acceptance
by the
company of the benefit, to be personally liable. As I have stated
above I shall, for the purposes of this branch of the argument,
assume that the company did not accept the benefit.
In support
of his contention in this regard
counsel
sought to rely on certain clauses in the
agreement.
He pointed out that it was provided that the lease would take effect
from 1 July 1978. In terms of clause 6, he pointed
out further, the
lessee/
13.
lessee
took the premises as they stood and was
obliged to
notify the lessor of any defect within
a period
of fourteen days of taking occupation of
the
premises, failing which the premises would be
deemed to
be in a good state of repair. If, counsel
urged, the
company failed to accept the benefit
within
fourteen days after the commencement of the
lease, the
person contemplated as the lessee, obliged
to comply
with clause 6, could only have been the
respondent
in his personal capacity. Another clause
relied on
was clause 11 read with clause 29. Clause
11
provided for the premises to be let only for the
purposes
specified in the agreement and clause 29
rendered
the lease subject to and conditional upon
the lessee
obtaining the necessary trading licence
in/
14.
in order
to conduct its business from the said
premises.
This clause also required the lessee to undertake to make such
application to the relevant authorities immediately upon
signature of
the lease by the lessor. Regard being had to these two clauses,
counsel argued, the only person who could have been
contemplated to
be the lessee, at least until such time as the company obtained a
trading licence, was the respondent because it
was unlikely that the
company would have accepted the benefit unless a trading licence to
conduct the business for which it was formed
had been obtained.
Reliance was finally placed on clause 23 which entitled the lessor to
cancel the contract
upon
failure to remedy any breach of the lease
within/
15.
within 14
days after despatch of a written notice
calling
upon the lessee to do so. As, it was '
contended,
no one was indicated as the party
obliged to
comply with the terms of the agreement
prior to
acceptance of the benefit by the company,
the
parties could only have contemplated the
respondent
in his personal capacity to be the lessee.
I cannot
accede to this argument. The contract is a perfectly straightforward
one
containing
standard clauses. The description of
the lessee
as the trustee for a company to be formed
is, per
se, no indication, in my view, that prior
to the
acceptance by the company of the benefit'
stipulated
in its favour, the trustee would be
personally/
16.
personally
liable on the contract. It cannot be said, in my view, that the
parties necessarily contemplated the acceptance by the
company of the
benefit after the date of commencement of the lease and that they
inserted these clauses to take care of such contingency.
A problem
may arise if, pending the formation of the company and acceptance by
it of the benefit, performance by the lessee of the
terms
of a/
17. of a
contract which does not also provide for
the
personal liability of the trustee, falls
due. In
such a case, in order to stave off
cancellation
and preserve the benefit for the
company,
the trustee or somebody else would be
compelled
to perform but by doing so he would
not
personally incur any liability under the
contract.
If the benefit stipulated for arose
from a
synallagmatic contract the converse would
of course,
also apply. If, in terms of the contract,
the
promisor were obliged to perform from the date
of its
inception, he would have to render such
performance
either to the stipulator, or to some
other
person indicated by the latter who would
accept/
18.
accept the
performance for the benefit of the company to be formed. But that
would be done
under such
agreement as might be concluded,
either
tacitly or expressly, between the promisor
and the
stipulator. Such agreement would be superimposed upon the written
agreement constituting the benefit. Failing performance
of the
lessee's obligations pending acceptance by the company the promisor
can, in my view, do nothing but, on account of such non-performance,
resile from the contract and would not even be able successfully to
claim damages from anybody unless he had taken the precaution
to
provide, as was done in the present case, for the company's
directors/
19.
directors
personally to guarantee all the obligations of the lessee in terms of
the lease.
The appeal
is dismissed, with costs.
JUDGE OF
APPEAL
JANSEN JA
)
KOTZé
JA )
concur
GROSSKOPF
JA ) NICHOLAS AJA)