Causal or abstract?

While case law authoritatively modifies and redefines the established trite principles and procedures of Deeds Registration Law from time to time, the Registrar of Deeds is still duty bound and behoved with that sterling task of rendering an unfettered and adroit deeds registration service that ensures security of title.

Inherent in this task are the indispensable variables of an impeccable system of deeds examination that ensures that every transaction fully complies with relevant legal principles whereby non-compliance culminates in the rejection of a particular transaction. The one key critical aspect and as such the pivot of the Registrars' duty to register a deed is the concept of a valid causa, in other words the cause of transfer as the essence of a real agreement between the two parties exchanging property in a transaction.

The court case in issue namely Legator McKenna v Shea (143/2008) (2008) ZASCA 144 (27 November 2008) virtually swings the concept of a valid causa into an aspect of controversial dimensions by triggering the long-standing debate around the feasibility of the abstract theory of transfer as compared to the causal theory of transfer.

For the sake of clarity and as a keynote for a better comprehension of the impact of the said case on Deeds Law Practice, the basic semantics of the Abstract Theory and the Causal Theory are now briefly discussed:

Abstract theory: according to this theory the legal ground giving rise to delivery plays no essential role in the transfer of property and as such it is irrelevant whether the causa is defective or faulty. All that is required is a serious intention to pass and receive ownership.

The transaction must contain an obligation-creating agreement.

The said agreement comprises the reason for passing of ownership and the real agreement in which consensus for transfer is achieved. Whether or not the causa is defective, ownership passes if the real agreement is essentially valid.

Causal theory: according to this theory a valid underlying transaction known as the iusta causa is a pre-requisite for the passing of transfer. Simply put, the causal theory lays down that if the causa of the transfer of ownership is defective, ownership will not pass, notwithstanding that there has been delivery in the case of movables or registration in the case of immovable property with the non-palatable result that a registered deed of transfer is cancelled and retransfer to the real owner takes place.

With these two antagonistic theories of transfer of ownership in mind let us analyse the given court case:

FACTS
On 8 March 2002 McKenna was appointed as curator to the estate of Ms. Shea as the latter had suffered brain injuries in a motor car accident which rendered her incapable of managing her own affairs. Note that the said appointment was not given in the form of letters of authority/curatorship yet.

For Deeds Registration purposes we will confine our interest to the only fixed asset she owned at the time, a house in Durban.

On 22 April 2002
McKenna sold the house to the Erskiness family. (Note that he still was not in possession of the requisite letters of appointment).

What was the urgency then?
He claimed that he had discovered that Ms. Shea was afflicted by numerous pressing debts that could only be defrayed by a sale of the house forthwith.

On 3 June 2002
The Master of the High Court issued him with the letters of curatorship in terms of section 72(1)(d) of the Administration of Estates Act 66 of 1965. (Note that although the letters were issued, the consent to transact was still pending).

On 17 July 2002
The Master accordingly granted him the consent to sell.

On 27 July 2002
Registration of the house in the name of the Erskiness family took place in Pietermaritzburg.

On 10 March 2003
The Durban High Court declared Ms. Shea capable of managing her own affairs based on her impressive convalescence (recovery).

Slightly more than a year later she instituted an action in the Durban High Court for the return of her house. This Action was granted by the said court based on the following reasons:

The sale agreement between McKenna and the Erskiness family was invalid because McKenna did not have the actual letters of curatorship when he concluded the sale although he was appointed as curator bonis. This is manifestly in line with the Causal theory of transfer, i.e. a defective causa amounts to an invalid transaction and therefore no transfer should take place.

At face value McKenna did basically commit a criminal offence by doing so. Consider the following sections of the Administration of Estates Act 66 of 1965:

"71. Certain persons not to administer property as tutor or curator without letters of tutorship or curatorship"

(1) No person who has been nominated, appointed or assumed as provided in section seventy-two shall take care of or administer any property belonging to the minor or other person concerned, or carry on any business or undertaking of the minor or other person, unless he is authorised to do so under letters of tutorship, as the case may be, granted or signed and sealed under this act, or under an endorsement made under the said section"

"102 Penalties"
(1) any person who ...
(g) contravenes or fails to comply with the provision of section 71 shall be guilty of an offence and liable on conviction to a fine or to imprisonment for a period not exceeding twelve months.
It is a foregone conclusion that the Registrar of Deeds was accessory to McKenna's actions by registering this questionable transaction.

The Durban High Court accordingly ordered inter alia the cancellation of the Erskiness family's deed of transfer and the transfer of the house back to Ms. Shea against the return of the purchase price. Note for interest sake that that purchase price had been raised by virtue of a mortgage bond by the Erskiness family and that also had to suffer the same fate. Talk of deeds registration nightmare.

The haunting question that Deeds Examiners always ask at a time like this is "who passed that deed?" In this case referring to the examiners who passed the deed of transfer from the curator to the Erskiness family.

The reason for the foregoing witch hunt being the fact that a careful comparison of the power of attorney and the causa of the deed of transfer as far as the date of transaction and issue of letters of authority are concerned would have unearthed the following shocking revelation:

Sale date: 22 April 2002
Letters of Curatorship: 03 June 2002
Masters consent to sale: 17 July 2002

Accordingly the relevant examiner was expected to have rejected the deed based on the following query:

"Seeing that the letters of authority were issued later than the sale, under what authority then did the curator sell the property? This is a contravention of Section 71(1) Act 66 of 1965".

Notice also that the consent was given by the Master way after the sale but one would not pay any serious attention to that based on two reasons namely:

(a)Section 80 Act 66 of 1965 states that the Master may "at any time authorise any alienation of property belonging to a minor or a person for administration…."

(b)The said consent was not supposed to have come from the Master anyway as the purchase price/valuation was R540 000,00 but should have come from the High Court.

Such is the important role played by the Registrar of Deeds in the conveyance of property.
So far we have illustrated how events were swayed in favour of Ms. Shea thanks to the application of the causal theory of transfer. She now could have her property returned.

Before we introduce the following dramatic turn in the course of the above proceedings, let us direct our focus to the role of the deeds examiner once again just to gain some leverage and keep the momentum.

One of the cardinal basics of examination is to ensure that the transferor has the locus standi to transfer to the extent that the power of attorney must disclose the relevant instrument of authorisation in respect of those acting in a representative capacity. Quite frankly, a deeds controller might practically not be in a position to deliver a flawless application of either theory to the deeds on his desk as such theories are often addressed by a court action, however, it is inherent in simple examination basics that property should not be transferred by persons lacking locus standi to do so.

A little reflection on RCR 21 of 2003 will ring a bell on a medley of cases where the abstract theory versus causal theory debate ensued. In Simplex (Pty) Ltd v Van der Merwe and Others NNO 1996 (1) SA 111 (W) the court had to consider the validity of an agreement of sale concluded by a trustee prior to issue of letters of trusteeship in utter contravention of section 6(1) of the Trust Property Control Act, whereby the decision was that such agreement was void.

You will also recall that in the subsequent case of Van der Merwe v Van der Merwe en Andere 2000 (2) SA 516 C the court followed the Simplex ruling by embracing the causal theory of transfer.

And finally if your reminiscence serves you well still within the ambit of RCR 21 of 2003 you will recall that the judgment in Kriel v Terblanche NO and Others 2002 (6) SA 132 NC, the abstract theory was upheld to the effect that regardless of whether the trustee had letters or not at time of sale such sale is valid.

The above conflicting cases led to the ruling in RCR 21 of 2003 that the Kriel decision (abstract theory) be followed, however, should there by any infringements to the Trust Property Control Act prior to registration, the deeds will be rejected. A similar ruling might have to be considered with regard to the case at hand.

With that lucrative idea in mind let us finalise the case analysis with the dramatic twist in proceedings that ensued after the Durban High Court ordered the return of the house of Ms. Shea.

McKenna appealed the Durban High Court decision and based his contention on the abstract theory. The Appeal Court held that McKenna had not entered into a valid agreement with the Erskiness family because he had made the sale subject to a suspensive condition that it was subject to approval by the Master but, however, failed to make that a condition of sale in terms of the Alienation of Land Act 68 of 1981 and also because the Erskiness family had not expressly accepted the condition. Thus the appeal found that the absence of such express acceptance rendered their agreement invalid. The appeal then gave the following ruling:

"If both parties to an invalid or purported invalid agreement have performed in full, neither party can recover where the lawful purpose of their transaction, common to them both, has been achieved."

The effect of this rule in the given scenario is that Ms. Shea could not claim her house back as all that the parties intended in the transaction had been achieved. Thus the court introduced a ruling that went beyond the periphery or either theory and upheld McKenna's appeal.

Suddenly the reality strikes home to a Deeds Controller that they must rivet their potential in the application of the Deeds Office Practice and Procedure as theories are manifestly the domain of the courts.

I conclude this analysis with the same words that mark the introduction of this article:

"While case law authoritatively modifies and redefines the established trite principles and procedures of Deeds Registration Law from time to time, the Registrar of Deeds is still duty bound and behoved with that sterling task of rendering an unfettered and adroit deeds registration service that ensures security of title."

In Jones Conveyancing reference is made to a certain court ruling that likened a Registrar of Deeds to a judex or semi-judge before whom transfer takes place. How best can the accolades in this comparison be manifested and attained if the abstract theory is gratuitously followed by examiners?
Wiseman Bhuqa
Deeds Training
PRETORIA

Republished with permission from SA Deeds Journal