Court shocker: Lazy lawyer's costly property error

Lawyer's failure to listen to conditions of sale proves costly; buyer walks off with bargain

Lawyers can play an integral role in the selling of distressed properties. They often attend auctions on behalf of the bank to protect their client's interest and make sure that reasonable value is received for sale in execution properties. Lawyers don't always get it right and in this case their negligence cost the owner and/or bank money and resulted in one lucky buyer walking off with a bargain.

The auction in question took place in Port Alfred in 2008 (Glenn Leaver McCreath v Marthinus Johannes Wolmarans). The case was contested recently in court.

A lawyer acting on behalf of his client tried to have a sale set aside due to an allegedly "bona fide error" he made. What was his error? He didn't know the particular conditions of that sale and couldn't be bothered to listen when they were read out.

The sale in execution concerned a property in Port Alfred. A default judgment had been obtained by the bank for payment for the amount of about R330 000 in respect of arrear bond installments. In terms of the default judgment the property was declared executable and subsequently attached.

The auction was advertised in a local Port Alfred newspaper and held at the Magistrate's Court in Port Alfred in August 2008. Glen McCreath, saw the advertisement and arrived in time to hear the conditions of sale being read out. The only other parties present were a Mr Marais, the attorney, who was instructed by the Bank's attorneys in Port Elizabeth to attend, and one other bidder.

Marais claims he did not hear the conditions being read out (part of which stated, "The property is to be sold by the Sheriff to the highest bidder without reserve but not for less than R100)" as he was talking to McCreath at the time. McCreath eventually won the bidding, buying the property for R50 000.

McCreath was aware that the judgment debt was in the vicinity of R290 000 and said that he assumed that in the event of the bidding not reaching that amount, Marais would bid on the bank's behalf, thereby buying back the property as envisaged in the conditions of sale. Marais did not bid and McCreath got himself a bargain.

Marais contested that there was no sale but an agreement was signed by the buyer and Marthinus Johannes Wolmarans, the owner of the property. McCreath was clearly chuffed by his purchase and Marais left red-faced, trying to rectify his negligence. McCreath paid his deposit and other upfront expenses and proceeded with the purchase.

Three days later Wolmarans wrote a letter to the McCreath canceling the sale, and stating the reasons as follows: "Mr Grant Marais, in his capacity as representative of Pagdens Attorneys, made a bona fide error in the execution of the sale inasmuch as he was under the mistaken belief that a reserve price was applicable to the sale in execution, when in actual fact the property would be sold to the highest bidder in terms of the Conditions of Sale".

McCreath rejected the cancellation and advised he would pursue legal action should the cancellation go ahead. The Bank's attorneys confirmed the cancellation, citing the attorney's bona fide error in support of their case. The bank claimed this reasonable or excusable mistake (iustus error) was a valid ground for having cancelled the agreement.

Mr Vienings, a bank attorneys, said that it is usual practice for the attorney representing a judgment creditor, to bid up to the reserve price, as the judgment creditor is obviously intent on receiving the best price to diminish the debt owed to the bank. Whilst banks are not in the business of buying the kind of property under consideration, he said, they would be prepared to do so in circumstances where the value of the security would not be achieved at the sale in execution, or otherwise. Someone should have told Marais.

According to the judgment, the error undoubtedly resulted from Mr Marais' inexperience. He was ignorant of the provisions of the applicable rule and misunderstood the letter of instruction stipulating a reserve price. He failed to appraise himself of the conditions of sale and moreover allowed himself to become distracted when they were read out in his presence by the Sheriff.

The judge ruled that "the conditions of sale are ultimately the execution creditor's responsibility". "The bank's attorneys who instructed Mr Marais prepared the conditions of sale in question. Moreover, clause 1 of the conditions of sale virtually repeats the provisions of Rule 46(2) word for word in the sense that both provide that the relevant immovable property "shall" be sold "to the highest bidder" and "without reserve".

He stated: "The true nature of his error (Marais) was the belief that there indeed was a reserve price. It is hardly open to an attorney representing an execution creditor, to rely on his ignorance of the relevant law and conditions of sale as a ground for cancellation of the resultant agreement on the basis of a iustus error."

The judge ruled in favour of the purchaser and set aside the application to cancel the sale. "It is declared that the Conditions of Sale in Execution of Immovable Property signed by the applicant and the first respondent on 8 August 2008 constitutes a valid agreement of sale in favour of the applicant (purchaser) relating to erf 6431, Port Alfred."

The bank was instructed to proceed with the sale and to sign all necessary documentation. It was also instructed to pay McCreath the costs of the application.

The moral of the story? Do not blindly trust your bank or lawyer to protect your interests when it comes to selling a distressed property and negligence is not the same as a bona fide error when it comes to correcting an expensive financial mistake.

Article from: www.realestateweb.co.za