Murphy and another v Durie 2006 JOL 18301 (C): The main question was whether or not the suspensive condition relating to the bond had been fulfilled. Judgement was granted by Acting Judge Zonda on 7 September 2006 in the Cape High Court.
The facts
S (Durie) sold to P (Murphy and another) a property in Somerset West in terms of an agreement dated 5 December 2003, for R999,000. Clause 13 of the agreement reads as follows:
"This sale is subject to the purchaser obtaining in principle a mortgage bond from a Building Society or Financial Institution to finance this transaction. The Purchaser undertakes to sign all papers to permit passage of the said mortgage bond for an amount of not less that R700,000. Confirmation of such mortgage bond having been granted is to be given to (the seller's agent) by no later than 9 December 2003."
On the purchaser's version, the suspensive condition was fulfilled. On the seller's version, the suspensive condition was not fulfilled, and as a result the transaction lapsed. The purchaser obtained an interim interdict preventing the seller from transferring the property to someone else until the question of whether or not the agreement is binding has been resolved. The purchaser then launched this action, an action for transfer of the property to him.
This is what P says happened:
- Prior to the transaction the purchasers had already obtained an indication from Standard Bank that they would qualify for a bond of R1.2 million;
- After concluding the agreement, on Monday 8 December, he faxed a copy of the deed of sale to one Esther at Standard Bank;
- On 9 December he phoned Esther and was told a valuator had gone out to value the property;
- Subsequently, Esther phoned him and told him that a bond for R700,000 was approved;
- He then telephoned his own estate agent Tamara- Lee from Cluttons (she introduced him to the property) to tell her the news;
- Tamara-Lee then phoned him again, requesting him to send her written confirmation of the bond grant, as the seller's agent (Adrienne, from Richmond House Properties) required it;
- P phoned Standard Bank again, but was told that the bank's staff was at a Christmas party and that no-one was available to give written confirmation;
- P phoned Tamara-Lee to let her know;
- The next morning, that is, on 10 December (the suspensive condition stipulated due date as 9 December), Tamara-Lee phoned P confirming that she had received a letter (dated 10 December) confirming approval of the bond in principle.
Although P stated this version in his pleadings and a corroborating affidavit by Tamara-Lee was attached to the pleadings, neither Tamara-Lee nor Esther from Standard Bank testified at the hearing. This despite the plaintiff giving notice that they would be called, and despite the matter being postponed twice for Esther to be called.
This is what S says:
Counsel for S did not waste time debating the merits of the events concerning the fulfilment of the bond clause. S's view was simply that P's legal action is a claim for specific performance; as a result the onus to prove compliance with the bond clause was on the plaintiff, P. As P did not call Tamara-Lee or Esther to testify, there was no evidence that the suspensive condition was fulfilled. P's evidence about the alleged conversations were hearsay, and therefore inadmissible.
As a result, S applied for absolution from the instance.
The Court's ruling
This is what the court said:
"In my view the suspensive condition was not fulfilled in this case and therefore there is no binding contract... The deed of sale was subject to the obtaining of a bond from a bank, but not to its approval in principle. Something more than approval of a loan in principle was required in the context of clause 13. The parties must be taken by the use of their language in clause 13 to have intended that the plaintiffs were to conclude a binding agreement of loan with a bank. When one looks at letters from Standard Bank, it is clear that the loan was approved subject to compliance with certain formalities. The letters from Standard Bank do not constitute fulfilment of the suspensive condition. The obtaining of the loan in principle had to be communicated to the defendant's agent by no later than 9 December 2003. This did not take place in the matter. What was communicated was the notification that the bond was approved on 10 December 2003. This did not constitute compliance with a suspensive condition..... The suspensive condition in the present case required a loan to be "obtained in principle" as opposed to "approved" in principle. I think this distinction should be borne in mind in an assessment of the language used in clause 13.
Upon reflection
Herewith some personal observations and comments on how this case affects conveyancing practice, some of which may have merit, and some of which may not. I try to look at reported cases from the conveyancing attorney's point of view and to formulate 'lessons' from which we can learn so as to avoid similar problems in future. Colleagues' comments are invited.
Comments on the judgement
If the Court's ruling is that the purchaser (being the plaintiff and bearing the onus of proof) failed to discharge the onus of proving fulfilment of the suspensive condition by due date, I agree. However, if the Court is saying that the condition was not approved because there is generally a distinction between obtaining a mortgage loan and approval of a loan in this context, and the purchaser only received approval, he did not obtain the bond, I strongly disagree. In making these comments the Court relied on De Wet v Zeeman 1989 (2) SA 433 (NC) where, on those facts, the court distinguished between mere approval of a bond and the actual acquisition thereof.
Other conveyancers should voice their opinion, but in my view the words 'obtain' a loan/bond or 'to get approval of a loan/bond' or to 'secure' a loan from/by a bank mean one and the same thing (in the context of the wording of a typical bond clause). We all know the procedure: the purchaser or someone on his behalf applies to a bank and furnishes certain information, and the bank approves or turns down the application. The approval can be conditional, or it can be final. Once approved, the purchaser can say he obtained the loan, or he can say he 'secured the loan' or he can say the bank 'approved' his loan. In every day conveyancing practice there is no distinction between these words, in contrast to what the Court stated (obiter?) in this case. It is possible that in exceptional circumstances there would be merit in making such a distinction, but in general commercial and conveyancing practice no such artificial distinction exists.
I do agree, though, that the words "in principle" are significant. Obtaining approval of a mortgage loan in principle is something less certain than obtaining approval of a mortgage loan. "In principle" seems to suggest that the bank gave the application a hasty overview, and made a preliminary decision to approve, subject to later review.
If a bond condition in an agreement requires approval of a mortgage loan 'on the usual terms and conditions of the institution', would the clause be fulfilled if the bank indicates approval "in principle?" I am not sure: it seems to me that the phrases "in principle" and "usual terms and conditions" will need to be examined in more depth. Perhaps colleagues will give their views?
The defence: an afterthought?
The facts in the case seem to indicate that the question of non-fulfilment of the bond condition only arose after the parties had a difference of opinion about other aspects of the transaction, notably unauthorised improvements for which building plans were required. When he discovered that certain improvements made by a previous owner were not indicated on the building plans, the purchaser reported the non-compliance to the building authorities. He insisted that amended plans be provided by the seller and approved by the local authority. The purchaser refused to take 'possession' or to provide a guarantee until this had been done.
The reliance by the seller on the non-fulfilment of the suspensive condition seems to me to have been a 'technical' tactic, rather than an initial issue of central importance. And it is precisely this ability of a suspensive condition to become an exit door to a reluctant party that makes the neglecting of the due dates for fulfilment a dangerous practice. It is trite law that an agreement lapses in the case of non-fulfilment of a condition by due date; it cannot be revived by belated compliance.
Improved wording required
The wisdom of hindsight is always easy, but I will still offer it: Many of the difficulties revealed in this matter can be avoided in similar situations by using well-worded bond clauses in agreements of sale. For example, by making 'notice of approval by the bank in writing' a prerequisite, there can be no debate afterwards as to whether oral discussions constituted compliance or not. There are many pitfalls to be avoided in the drafting of a bond clause and special effort should be made by conveyancers and commercial attorneys when drafting them.
Realistic time for compliance
The agreement was signed on a Friday 5 December and the bond (or rather, the loan to be secured by a bond) was supposed to be approved by Tuesday 9 December. Granted, we do not know the full facts but four days (two of them weekend days) seem to be an unrealistic period for obtaining a mortgage loan. Is it any wonder the purchaser was found not to have complied in time? Unless there is a good reason to do otherwise, one would expect the agent to recommend and the parties to agree to a reasonable period for bond grant.
About file notes and evidence about fulfilment of suspensive conditions
It is uncertain why in this case no direct evidence about the crucial conversation between the bank and the purchaser/purchaser's agent was offered.
In addition, no mention is made of any file notes made by the conveyancing secretary or the transfer attorney on the file. It would be interesting to see what, if any, had been recorded on the file concerning due date for the bond, and the alleged events. Ideally there should be evidence on the file (file notes or correspondence) proving efforts on the part of the conveyancer or paralegal to establish whether and when the bond had been approved. The seller should then be notified of the status and evidence of this notification provided; especially if the loan was not approved/secured/obtained by due date.
Ideally then, there should have been a letter in this file by the conveyancer/paralegal addressed to the purchaser (and the agent and seller should have been copied) dated 9 December 2003 stating "I confirm your advising me that the required loan/bond for R700, 000 has been/has not been granted." Transfer attorneys who do not have a standard practice of monitoring compliance with conditions in every transfer and who do not inform their sellers of non-compliance, risk opening themselves to negligence claims from a variety of sources.
What if oral approval was obtained?
Let us assume for purposes of argument that someone at Standard Bank telephonically communicated the approval/obtaining of a loan of R700,000 to the purchaser or the purchaser's agent on 9 December. No one else was informed. Would the suspensive condition be fulfilled?
I think not, but the reason for non-compliance would not be the lack of written confirmation - this particular bond clause does not require written confirmation - the reason would be that the confirmation was not 'given to Richmond House Properties (the seller's agent).' Would it have been sufficient if the purchaser had phoned the seller's agent on 9 December and communicated the bank's approval of the loan? On the wording of the clause, I think it would...
On the discrepancy between the alleged oral approval and Standard Bank's letter: it is in theory possible that Standard Bank did approve the loan orally on 9/12 but that the date of 10/12 was reflected on the paper work due to the bank only processing it on that day (remember the Christmas party). If the significance of the date was not realised, I think it is possible that such a thing could happen. The mere fact that the paper work reflected the date of 10/12 instead of 9/12 would then, to my mind, not necessarily render the suspensive clause unfulfilled.
Of course all of the above is, in the absence of evidence, mere speculation. In this case, as in many other conveyancing matters, the precise facts are crucial.
Conclusion
The bond clause in an agreement of sale of land can cause misery if poorly drafted or if factual disputes arise as regards its fulfilment. To eliminate problems a reasonable due date for compliance must be stipulated in the agreement, and the transfer attorney ought to monitor fulfilment in cooperation with the estate agent. It is better to act before the due date; take timeous steps to try and avoid lapsing of the contract, for example by getting the parties to agree to an extension in writing. On fulfilment or non-fulfilment of the condition, the seller and other interested stakeholders should be notified. If there is any doubt as to how the clause should be interpreted or if the approval by the bank is conditional, the conveyancer should apply his or her mind to the legal consequences and should take steps to minimise risks for the client and the firm.
Lizelle Kilbourn
Igqwetha Training Academy (Pty) Ltd
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