Eloff v Dekker
Cape High Court
Case no: 1461/2006
Judgment Date: 28 November 2007
This judgment is noted and summarised here for its re-confirmation of some frequently encountered aspects relating to suspensive clauses in sale agreements for the purchase of immovable property, specifically with regard to the alleged waiver of the rights gained/benefits of such a condition.
The recently widowed Mrs Eloff Snr and her daughter together bought a property in Gordon's Bay. The sale agreement contained a suspensive condition relating to their obtaining bond approval on a specified date (hereinafter referred to as the 'due date'). The Eloff ladies received bond approval, but for a lesser amount than stipulated in the agreement of sale. Accordingly, on due date, the suspensive clause remained unfulfilled. Mrs Eloff Snr's son thereupon cancelled the agreement on behalf of the two Eloff ladies and requested that the deposit be returned.
The seller refused to return the deposit and re-applied for a bond on behalf of the purchasers, which bond was subsequently granted. (It transpired that Mrs Eloff Snr's income was incorrectly recorded on the initial application to the bank.) The seller thereupon insisted that the transaction proceed and the Eloff ladies refused, saying that the contract had been validly cancelled.
The Seller argued that the suspensive condition was inserted in the agreement of sale for the exclusive benefit of the purchasers. He further averred that the purchasers waived this benefit by accepting the lesser bond. (Note: At the trial, evidence was led to try to establish that the Eloff ladies, when they were respectively informed by the estate agent that a bond had been granted for a lesser amount, accepted the lesser amount. I will revert to this aspect). Therefore, it was claimed, a valid and binding agreement was constituted and the purported cancellation thereof constituted breach of contract, entitling the seller to retain the deposit as rouwkoop* (* see explanatory note below) or as an estimate of damages suffered by him as a result of the breach.
On the oral evidence of the estate agent, it appeared that Mrs Eloff Jnr was advised telephonically of the lesser amount of the bond - and file notes from the estate agent's file confirmed this. The agent also noted that Mrs Eloff Jnr then accepted the lesser amount since she calculated they would be able to make up the balance from the proceeds of the estate of her late father, the finalisation of which was imminent. The agent's file notes again confirmed these details, but whereas the agent testified that she also spoke to Mrs Eloff Snr immediately thereafter on the same date, there was no file note to corroborate such conversation. Mrs Eloff Snr denied that she was advised at the time that the bond was granted for a lesser amount or that she accepted any such lesser amount.
A suspensive condition is a condition inserted in an agreement which has the effect of suspending the working of a contract. Practically, it works as follows:
- if the condition is fulfilled, there is a binding contract as from the date of signature of the contract. if the condition is not fulfilled, there is no contract whatsoever. All performance in terms of the agreement must therefore be returned so that the parties are in the position in which they were before contracting; to put it in "legalese", the status quo ante must be restored. It follows that if a purchaser paid a deposit, it must be returned to the purchaser.
- A bond clause is intended to protect the purchaser; (if the purchaser does not get the required loan, in the exact amount and on the day stated in the bond clause, the agreement lapses on due date.)
*( A 'rouwkoop' clause entitles a contractant to pay a sum of money in order to be allowed to withdraw from the contract. In essence it is the 'purchase price for freedom from the contract' payable by a purchaser. By withdrawing from a contract and paying the agreed rouwkoop amount, the purchaser is acting in accordance with the terms of the agreement and therefore his withdrawal does not amount to breach of contract. This is distinguishable from a penalty clause which would come into operation where there was breach of contract. See Van Der Merwe et al Contract: General Principles, p 318).
- The court confirmed that a bond clause in an agreement of sale for immovable property (typically a clause stating that the agreement is suspended until the purchaser obtains a loan from a bank, against security of a mortgage bond) is usually inserted in an agreement for the exclusive benefit of a purchaser.
- Such a clause can be waived (i.e., the purchaser may dispense with its protection) unilaterally by the purchaser/s (in the current matter, the Eloff ladies).
- Such waiver must take place before the due date for fulfillment of the condition.
- The Eloff ladies are co-purchasers and would be co-creditors under the mortgage bond and therefore, the benefit/right that the suspensive condition bestowed, must have been waived by both.
- On the evidence, it appears that it cannot be proved that both purchasers were advised of and accepted the lesser bond. In other words, the seller did not prove that there was a waiver of the benefit (and rights in terms of) the suspensive clause. It appears that only Mrs Eloff Jnr waived her rights but not Mrs Eloff Snr.
- The defense that the purchasers had waived the benefit cannot succeed because, on the due date that the suspensive condition was not met, the agreement fell away - and the deposit therefore had to be returned to the purchaser.
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