More on undertakings

Undertakings to bridging finance companies
The claims statistics show that the number claims based on undertakings given by attorneys practices has not declined. Instead, we still experience a steady influx of such claims.

In view of the above we have decided to publish some case studies in this and future bulletins, to alert attorneys and conveyancers to the types of undertakings and wording of bridging finance documents which should not to be signed.

Case Study 1
Firm X applied for bridging finance on behalf of a client (in this case the seller of an immovable property) from a bridging company that firm X does a lot of business with.

Below are some extracts from the bridging finance documents signed by the conveyancer:

The conveyancing attorneys (firm X,) acknowledge that the monies received from Bridging Company Y are monies entrusted to it in trust as envisaged by Section 26 of the Attorneys Act 53 of 1979 and are hereby instructed and authorized by the seller to apply for financing of these funds from Bridging Company Y, which monies will be refunded by the seller and/or conveyancing attorney to Bridging Company Y, together with an interest fee…. on transfer of the property.

It is important to note that the conveyancer has "acknowledged" that liability arises in terms of entrustment as envisaged in Section 26 of Act 53 of 1979. It would seem that this statement may he incorrect and that such a deposit may well not be an entrustment as envisaged by Section 26.

A further clause reads as follows:
Cancellation of sale of above property:
If the transaction is cancelled for any reason whatsoever, the amount due plus interest fees become payable and must be repaid by the client and/or conveyancing attorney within 30 days.

The undertaking by the conveyancer:
I, the conveyancing attorney, certify that all the above information and documentation in our possession... is true and correct. I bind myself and my firm to the above authorization and undertaking of the property seller. I undertake to pay to Bridging Company Y the loan amount plus interest fee... on registration or cancellation.

The transaction was subsequently cancelled and the bridging company tried to recover from the seller, without any success.

Bridging company Y then sued firm X based on their signed undertaking. Given the wide wording of the undertaking, liability could not he disputed, even though the transaction did not proceed and this circumstance was beyond the conveyancer's control.

Conveyancers should under no circumstances accept liability in the event that a transaction is cancelled when sighing an undertaking.

In most matters the bridging company provides you with a standard undertaking, but you should insist on drafting your own undertaking. protecting yourself and your firm.

H Strydom Legal Adviser