Butler v Du Preez

Butler v Du Preez 2006 JOL 16522 - a decision heard in the High Court in the South Eastern Cape relates to the all important question of when the transfer attorney may call for guarantees from the purchaser, in the instance where the agreement does not specify the due date.

As most conveyancers know, the Appellate division case of Hammer v Klein 1951 (2) SA 101 laid down the (highly unsatisfactory, from the transferring attorney's point of view) rule that the purchaser's obligation to furnish the guarantee for the purchase price (in cases where no due date for guarantee is stipulated) only arises on the date on which the seller will be able to lodge the transfer documents at the deeds office. The decision in the Hammer case has since been applied and discussed in a number of cases, amongst which the most recent is the Ronlou Property Development case, heard in the Cape High Court last year.

The facts in Butler v Du Preez are briefly as follows:
Butler bought a property from Du Preez for R950 000. In terms of the agreement, the purchase price was payable by means of a deposit of R30 000 and for the balance Butler had to deliver "such bank or other guarantee as shall be approved by the seller or his conveyancers and which shall be paid in cash on registration of transfer." No due date for guarantees was stipulated.

Read the case for the detail and finer nuances, but what happened in summary is that the transfer attorneys requested a guarantee for the outstanding balance of the purchase price at a time when the seller had not yet signed transfer documents, and neither a transfer duty receipt nor a rates clearance certificate had yet been obtained. In other words, the request for guarantees was made before the documents were finalised and before the transaction was technically ready to be lodged.

When the purchaser failed to get the guarantees issued on the date stipulated in the demand (there was a scramble to secure the funds, so it seems), the seller issued a notice of cancellation of the agreement. The next day, FNB issued a guarantee for a large portion of the purchase price (R760 000) and a few days later an attorney's undertaking for the balance (R160 000) was also received. (The purchaser paid transfer duty and costs before the transferring attorney requested the guarantee.)

When the seller refused to proceed with the transfer, Butler took the matter to court, asking for an order to declare the cancellation invalid and the agreement to be in force.

This is the court's conclusion as reported in the judgement:
"… the facts show that at the time the demand for the guarantee for R160 000 was made, the defendant (the seller) had every intention to effect transfer to the plaintiff. They further show that preparations towards lodging of transfer documents with the Registrar of Deeds reached an advanced stage and that the outstanding matters were of a formal nature, would not have required any significant time period or effort to complete and would not have prevented the timeous lodging of the transfer documents. In view of the communications between the defendant's attorneys and the plaintiff it must have been clear to the plaintiff that the defendant was as anxious and ready to do what was necessary to lodge the transfer documents. I am, therefore, of the view that the defendant's demand for the guarantee was valid." As a result, the agreement was held to have been effectively cancelled, and Butler's case was dismissed.

(The judge was really saying that to determine if a matter is ready to be lodged [so that the transfer attorney can call for a guarantee], one must not look merely at whether the documents are actually ready for lodgement, one must look at the intention of the parties at the time; they were anxious to proceed and ready to do what was necessary to lodge the documents.)

Although a South Eastern Cape case, I think it has important consequences for all conveyancers. Here are my views:
I say firstly, with respect, that I think Hammer's case and all those other cases by necessity following this Appellate decision case do not take into account the practicalities of real conveyancing. Would you want to pay transfer duty and obtain rates clearances and get documents signed if you were not sure that the purchaser could (and would) manage to come up with the funds by the time you are ready to lodge? In my view, the due date for guarantee should be much earlier than the date of being ready to lodge. But because it is hard to pinpoint a definite earlier 'triggering event', perhaps reasonable notice should be given, for example 14 days or more. This, I think, is what Hammer's case should have done. The appellate judges were, with respect, clearly not conveyancers.

The effect of the decision in Butler's case is to my mind a far more appropriate and common sense solution to the problem, but it does leave the door open to some uncertainties. And, I am not sure that it really adheres to the principles of Hammer (which means it will probably be appealed?). Although the judge in Butler's case takes pains to explain that he does not think Hammer's decision was intended to be rigid, the fact remains that if the Hammer judge had to pronounce on the facts in the Butler case, he probably would have decided in the plaintiff, Butler's, favour.

Lizelle Kilbourn
Igqwetha Training Academy (Pty) Ltd