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Reitz

26 July 2007

Judgment delivered on 18 April 2007. Per Dlodlo, J.

Of interest in this case is the following exposition clarifying the difference in the meaning of guarantee, undertakings, pre-approval of bond, approval in principle and actual bond granted by the financial institution.

" [9] … Indeed there is a marked difference between obtaining bond approval and delivering undertakings acceptable to the seller's conveyancer which is what Clause 1.2 of the Agreement of Sale required.

[10] The pre-approval of a bond application is a mere indication to the interested parties, for example sellers/estate agents etc that the financial institution concerned would probably grant the Applicant a loan against security of a property to be mortgaged for the amount of the pre-approval. Pre-approval hardly legally bind the financial institution in any manner towards anybody. Similarly the granting of a bond in principle is done by a financial institution on information furnished by the purchaser and contained in the Deed of Sale. It is normal that a Deed of Sale contains a term that the purchaser (or some other party on his behalf) has to furnish a guarantee or an undertaking acceptable to the seller or his transferring attorney, for the purchase price (or part thereof) within a stipulated time period. The latter is exactly what Clause 1.2 of the Agreement of Sale (as amended) between the parties represents in the instant matter. The intended guarantee is usually issued by the financial institution granting the loan and the undertaking is usually issued by the conveyancer acting on behalf of the financial institution.

[11] The conveyancer only issues such undertaking once it is assured by its client (the financial institution) that it will receive the proceeds of the loan (or part thereof) in order to be able to pay the seller, otherwise he will not be in funds to pay the seller. The financial institution will only issue a guarantee after it has satisfied itself that all conditions precedent to final approval of the application has been met or will be met. At this stage the financial institution no longer places reliance on information supplied by the purchaser. Some requirements are set internally by each financial institution. The guarantee is a written undertaking to pay to the seller's conveyancing attorney a specified amount of money on the happening of registration of the bond simultaneously with registration of transfer of the property subject to certain terms and conditions, the main whereof is (usually) that the guarantee may be revoked under certain circumstances provided that the beneficiary is advised of withdrawal before registration. An undertaking (to pay the proceeds of a bond to the seller of a property) is issued by the attorneys attending to the registration of mortgaged bond on being assured that they will be placed in funds and this takes the form of an original written document handed to the seller's conveyancing attorneys. The document is substantially similar to the guarantee. Upon receipt of this written undertaking the transferring attorneys will be in a position to proceed with the registration of a transfer and the bond attorneys will simultaneously register a bond against the property."

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