Supreme court decision reinforces hard and fast rules of property sale
A recent Supreme Court of Appeal decision should be sending a warning signal to all who believe that in a property purchase agreement they may be able to avoid the primary obligation of paying the full amount within the stipulated period, says Tony Clarke, MD of Rawson Properties. In the case referred to the appellants, a married couple, the registered owners of a KZN commercial property, had signed an agreement with the respondent in terms of which he would purchase the property from them and be given immediate occupation of it.

The appellants alleged that the respondent failed to pay the full purchase price (R500,000) within the stipulated period (24 months from the date of signing). This, they claimed, entitled them to cancel the sale agreement. However the Durban Court refused this cancellation application on the grounds that the agreement had apparently been revived "by both parties' conduct". The reasons for this decision were complicated. The respondent had agreed to settle certain of the appellants' debts (at the stage they were under severe financial strain) and to take over the full municipal rates and taxes on the building they had agreed to purchase. The respondent apparently agreed to pay monthly instalments of at least R20,000.

Although the court decision does not give full details here, it appears that many payments were made and that a few months after the cancellation period a sum of R428,912 had, in fact, been handed over, albeit not within the contract period.

The appellants alleged that by not paying in full within the stipulated period the respondent was in breach of the contract, which could accordingly be cancelled.

The respondent claimed, however, to have continued to make payments after the notice of cancellation. These, it seems, totalled R75,000 and were supplemented by a further payment of R30,000 to help the appellants' daughter to buy a home.

The respondent claimed that by accepting these payments the appellants had effectively revived the sale agreement and set aside its cancellation order. He also claimed that the appellants' letter placing him "in mora" did not mention the breach of contract and that this amounted to a waiving of the appellants' right to cancel the sale. This view was upheld in the original court decision by the Durban Court, but has now been reversed by the Supreme Court of Appeal.

The Supreme Court of Appeal, for its part, pointed out that precedents from previous cases of this kind relying on verbal agreements had led the courts to stipulate that "a fresh meeting and concurrence of minds" were necessary in these cases: both parties, ruled the Supreme Court of Appeal, must have met and agreed on the new deal - and it could find no evidence that this had in fact happened. Furthermore, a lengthy eight month delay by the respondent in filing his original answering affidavit to the appellants' final demand and threat of cancellation had definitely weakened his case.

The Supreme Court of Appeal therefore accepted that the respondent, in failing to meet the full terms of the original contract, had breached this contract and that this was just cause for a cancellation of the sale agreement - no matter what sums had already been paid over. The original ruling accepting the respondent's arguments was, therefore, overthrown and the respondent was ordered to pay the appellants' full legal costs and to vacate the property.

Clarke said that it was not clear from the court record whether the respondent would be able to recover some or all of the substantial sums already paid out - quite possibly, he said, they would be forfeited in terms of the original agreement. The case, he commented, serves as a dire warning that hard and fast sales agreements cannot be easily avoided or fudged and that the court, in the final analysis, will stick to the letter of the law, no matter how ameliorating subsequent verbal agreements or circumstances may prove to be.

"One can understand the Durban Court's original decision in view of the vast sums already paid out and the separate though related debts that had apparently been met by the purchaser, but the maxim of the law that the sanctity of the original contract has always to be maintained has been upheld. By not meeting his obligations within the agreed time, the respondent made himself vulnerable and may have to pay very dearly for this."

Sellers and purchasers of residential property, added Clarke, are unlikely to find themselves in quite such complicated deals as that which pertained in this case, but they must accept that in view of this and other recent court decisions any failure to meet obligations is likely to prove very expensive, money paid in being forfeited.

Furthermore it is of utmost importance that any change in, or revival of, an agreement after the expiration of an obligation not met, must be put in writing and signed by all parties.

Article by: www.rawsonproperties.com