Brief Summary

Contracts — Pactum successorium — Appellant claimed transfer of deceased brother's shareholding in company based on agreements A and B — First respondent contended that agreements constituted invalid pacta successoria — Trial court upheld this defence, dismissing appellant's claim — Appeal focused on validity of agreements as pacta successoria — Court confirmed that relevant provisions constituted invalid contracts, affirming trial court's decision.

Comprehensive Summary

Summary of Judgment

Introduction

The proceedings were an appeal to the Supreme Court of South Africa (Appellate Division) against a judgment of the Witwatersrand Local Division. The appeal concerned the enforceability, after a shareholder’s death, of an agreement between two brothers regulating what was to happen to their respective shareholdings in a company owning immovable property.

The appellant was Gilroy Clements McAlpine. The first respondent was Penny McAlpine N O, the widow of the deceased brother and the executrix of his deceased estate. The second respondent was Stand 37 Anderbolt Extension 11 (Pty) Ltd, the company whose shares were in issue.

The procedural history was that the appellant sued in the Witwatersrand Local Division for an order compelling transfer to him of the deceased brother’s 50% shareholding in the company. The trial court (Blieden J) held that the relevant contractual provision amounted to an invalid pactum successorium and dismissed the claim, granting costs to the first respondent (but limiting the recoverable costs to what would have been claimable had the matter been decided on exception). The appellant appealed, and the only issue pursued on appeal was whether the relevant contractual arrangement was an invalid pactum successorium.

The general subject-matter of the dispute was the boundary between contract and succession in South African law: specifically, whether a contractual term providing that the survivor of two contracting parties acquires the deceased’s shares is enforceable, or whether it is invalid as a prohibited agreement regulating succession outside the law of wills.

Material Facts

Two brothers, Ian McAlpine and the appellant, entered into a written agreement on 5 May 1981 (“agreement A”). In terms of agreement A, Ian sold the appellant 50% of the issued share capital of Stand 37 Anderbolt Extension 11 (Pty) Ltd, for R55 000. The company’s only asset was immovable property described as portion 7, Pretoria Road, Vlakfontein, approximately 5 morgen in extent.

Agreement A was accompanied by a diagram depicting the property divided into two parts (ABCD and EFGH), separated by a strip intended for access roads. Under clause 3 of agreement A, the appellant’s 50% shareholding entitled him to the exclusive use for his own profit of portion ABCD, and Ian’s 50% shareholding entitled him to the exclusive use for his own profit of portion EFGH. The agreement contemplated that each brother would develop “his” portion. Agreement A also included provisions restricting dealings with the shares, including a prohibition on pledging the shareholding to third parties and a right of first refusal should either party wish to dispose of his shareholding.

On 22 May 1981, the brothers signed a second written agreement (“agreement B”) intended to “clarify” certain points in agreement A. Clause 1 of agreement B reiterated the exclusive-benefit arrangement and then added that, in the event of either party’s death, the other party would get 100% of the shares in the company, meaning that the deceased party’s shareholding would “go to” the survivor.

The sale in agreement A was implemented and the appellant took transfer of his 50% shareholding. The property was developed. In June 1988, Ian McAlpine died unexpectedly at the age of 42.

After Ian’s death, the appellant claimed transfer to himself of Ian’s 50% shareholding, relying on agreements A and B read together. The estate, through the executrix, refused to recognise the claim. The appellant sued for relief framed primarily as enforcement of the alleged contractual entitlement; in the alternative he pleaded an implied term, rectification, and a collateral oral agreement. The trial court ultimately treated the written instruments as determinative of what was intended regarding the “survivor takes all” arrangement and did not decide the rectification and oral-agreement alternatives because it considered the written clause clear.

At trial, the execution of agreement A was common cause. The existence of agreement B was initially disputed by the first respondent, but the trial court found it not to be seriously contested during the evidence. Because the original of agreement B could not be found, a photocopy was admitted; the admissibility ruling was not challenged on appeal.

Legal Issues

The central legal question was whether the provision in clause 1 of agreement B, read with agreement A, under which the deceased’s shares were to “go to” the survivor, constituted an invalid pactum successorium in South African law.

The dispute was primarily one of law, turning on classification and validity: whether the contractual arrangement was of a type that the law treats as an impermissible contractual regulation of succession, and (in the majority’s analysis) whether the right purportedly created by the agreement vested inter vivos or only upon death, as understood through the “vesting test”.

Although the minority judgment emphasised that the inquiry should be framed as a matter of the parties’ intention (including whether they acted animo testandi) and treated that inquiry as having a factual dimension, the appeal as decided by the majority turned on the legal characterisation of the clause by applying established doctrinal tests to undisputed facts.

Court’s Reasoning

The majority judgment (Corbett CJ, with Howie, Olivier and Scott JJA concurring) approached the matter from the starting point that, save in a recognised exception (such as when embodied in an antenuptial contract), a pactum successorium is invalid because it conflicts with the general rule that estates devolve by will or intestacy, and because such agreements are objectionable insofar as they fetter freedom of testation and may circumvent testamentary formalities. The majority treated Borman en De Vos NNO en 'n Ander v Potgietersrusse Tabakkorporasie Bpk en 'n Ander 1976 (3) SA 488 (A) as the leading authority and accepted that the concept of pactum successorium is not confined to agreements that directly regulate the contents of a will, but can include agreements that, without reference to a will, nonetheless purport to bind parties to post-mortem dispositions.

In developing the scope of the concept, the majority drew on Roman-Dutch authority (particularly Voet) as indicating that the “classic” pactum successorium included an agreement by which two parties mutually agree that the survivor will acquire the property of the other, without the intermediation of wills. On this analysis, the arrangement between the brothers was, in substance, reciprocal: whichever brother survived the other would acquire the deceased brother’s shares. The majority treated it as immaterial that the arrangement concerned a single asset (shares) rather than the whole estate, because the relevant principle was that an agreement that vests rights only upon death is of the prohibited kind.

The majority then treated the decisive doctrinal instrument as the vesting test. It stated that the basic determinant of whether reciprocal promises constitute pacta successoria is whether the agreement causes the right in question to vest in the promisee only upon or after the promisor’s death (which points to a pactum successorium), or whether vesting occurs prior to death (which would indicate an inter vivos disposition even if enjoyment is postponed). The majority considered that this test had been applied in multiple decisions and treated it as the appropriate “litmus test” to distinguish between legitimate contractual arrangements and prohibited successory pacts.

Applying the vesting test, the majority characterised the “survivor takes” provision as dependent on the promisee surviving the promisor. Survivorship was treated as an uncertain future event and therefore as a suspensive condition (not a resolutive condition). In the majority’s view, where a right is conditional upon survivorship, there is a strong presumption (absent contrary indications) that the parties intended vesting to be postponed until the promisor’s death. The language of clause 1—particularly expressions such as “will get” and “will go”—was treated as reinforcing the conclusion that vesting was intended to occur only upon the death of the first-dying brother.

The majority rejected the submission that vesting occurred at the conclusion of the agreement because, eventually, one brother would necessarily outlive the other. It held that the correct approach was to view the clause as containing two alternative dispositions, each contingent on the uncertain event of survivorship as between the two brothers, such that in each case the right to the other’s shares depended on a condition that might fail. Because the right to acquire the deceased’s shares would vest only on death and only if the condition of survivorship was met, the provision was treated as a contractual post-mortem disposition and thus as an invalid pactum successorium.

The minority judgment (Nienaber JA) agreed that classic pacta successoria are unenforceable for reasons relating to freedom of testation and testamentary formalities, but differed on how the category should be identified and applied. The minority emphasised that the decisive inquiry should be the parties’ intention—whether they intended, by agreement, to regulate succession (whether they acted animo testandi)—rather than applying vesting as an exclusive diagnostic criterion. On that approach, Nienaber JA considered the agreement to be part of a broader commercial arrangement regulating co-ownership through a company and intended to exclude strangers and manage foreseeable contingencies; it was not, in his view, aimed at controlling succession in the testamentary sense. The minority would therefore have upheld the appeal.

Outcome and Relief

The Appellate Division (majority) dismissed the appeal and held that the provision relied upon by the appellant was, in law, an invalid pactum successorium, with the consequence that the appellant could not compel transfer of the deceased brother’s shares from the estate.

The appeal was dismissed with costs.

Cases Cited

Borman en De Vos NNO en 'n Ander v Potgietersrusse Tabakkorporasie Bpk en 'n Ander 1976 (3) SA 488 (A); Nieuwenhuis v Schoeman's Estate 1927 EDL 266; James v James' Estate 1941 EDL 67; Van Jaarsveld v Van Jaarsveld's Estate 1938 TPD 343; Ahrend and Others v Winter 1950 (2) SA 682 (T); Ladies' Christian Home and Others v S.A. Association 1915 CPD 467; Ex parte Executors Estate Everard 1938 TPD 190; Ex parte Calderwood NO: In re Estate Wixley 1981 (3) SA 727 (Z); Commissioner for Inland Revenue v Estate Hulett 1990 (2) SA 786 (A); Keeve and Another v Keeve N O 1952 (1) SA 619 (O); Erasmus v Havenga 1979 (3) SA 1253 (T); Jubelius v Griesel N O en Andere 1988 (2) SA 610 (C); Varkevisser v Estate Varkevisser and Another 1959 (4) SA 196 (SR); Jewish Colonial Trust Ltd v Estate Nathan 1940 AD 163; Durban City Council v Association of Building Societies 1942 AD 27; In re Allen Trust 1941 NPD 147; Commissioner for Inland Revenue v Smollan's Estate 1955 (3) SA 266 (A); Wynn N O and Westminster Bank Ltd N O v Oppenheimer and Others 1938 TPD 359; Salzer v Salzer 1919 EDL 221; Grobbelaar v Grobbelaar 1959 (4) SA 719 (A); Schauer No v Schauer 1967 (3) SA 615 (W); Narshi v Ranchod No and Another 1984 (3) SA 926 (C); Costain and Partners v Godden NO 1960 (4) SA 456 (SR); D'Angelo v Bona 1976 (1) SA 463 (O); Boyd v Nel 1922 AD 414.

Legislation Cited

No legislation was cited in the judgment.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The majority held that the reciprocal arrangement in clause 1 of agreement B, providing that upon the death of one brother the surviving brother would acquire the deceased’s shareholding in the company, constituted a pactum successorium and was therefore invalid and unenforceable in South African law.

On the majority’s application of the vesting test, the survivor’s right to the deceased’s shares did not vest at the time of contracting but was contingent upon survivorship and would vest only upon the death of the first-dying brother; this feature aligned the agreement with a prohibited contractual post-mortem disposition.

A minority would have upheld the agreement on the basis that the decisive criterion should be the parties’ intention (whether the agreement was made animo testandi to regulate succession), and it considered the clause to be part of a commercial co-ownership arrangement rather than a succession-regulating pact.

LEGAL PRINCIPLES

A pactum successorium is generally invalid in South African law because it conflicts with the principle that estates devolve ex testamento or ab intestato, and because it may restrict freedom of testation and evade testamentary formalities, subject to recognised exceptions (such as incorporation in an antenuptial contract).

In determining whether an agreement constitutes a pactum successorium, the majority applied the vesting test as the primary criterion: if, on proper construction, the right to the promised benefit vests in the promisee only upon or after the promisor’s death, the agreement is likely to be a prohibited pactum successorium; if vesting occurs before death (even if enjoyment is postponed), the agreement is not of that prohibited kind.

A contractual entitlement dependent on survivorship is ordinarily treated as subject to a suspensive condition (an uncertain future event). In the absence of contrary indicators, such survivorship language supports the inference that the parties intended vesting to be postponed until death, pointing toward a pactum successorium where the agreement purports to effect a post-mortem devolution of an asset.

The minority articulated a contrasting principle: that the decisive inquiry should be the parties’ intention to regulate succession (animus testandi), with vesting and revocability serving at most as interpretive aids rather than as determinative criteria.

McAlpine v McApline NO and Another (299/95) [1996] ZASCA 127; 1997 (1) SA 736 (SCA); [1997] 1 All SA 264 (A); (12 November 1996)