Legal Articles

In this matter, the seller and the buyers each interpreted the obligations imposed by the bond clause differently.

In the case of Phepeng and Another v Estate Late Ame Combrinck and Others of 23 March 2017, we are given the answer to this question.

Mr and Mrs Phepeng (buyer’s) bought a property that was in a deceased estate, through the agency of a Mrs Strydom (seller), the daughter of the deceased and executor in the estate.

Bond clause - A Suspensive Condition

The offer made was subject to a suspensive condition that the buyer’s secure a bond for the purchase price within 30 days of the acceptance of the offer on or before 10 November 2016.

ABSA bank approved them for financing by sending them a letter, offering the required loan. The buyers then assumed that the condition was fulfilled on 3 November 2016 and so they notified Ms Strydom in writing of ABSA's offer.

On 10 november 2016 they then notified the bond originator of their acceptance of the offer from ABSA bank and made the purchaser aware that they would follow up on this acceptance the following day.

The buyers had secured the loan for the purchase price, but they also decided to approach Mr Phepeng’s employer, ESKOM, to try and see if the employer was able to make an offer that would allow for better terms with regards to interest than what ABSA had already offered.

The buyers thus asked Ms Strydom to give them a longer period within which to ascertain the requested offer.

However, Ms Strydom was unwilling to extend the time frames stating that the contract of sale had become invalid due to the suspensive condition not being met within the given period of time.

As a result the property had been sold to a new buyer at an increased purchase price.

The seller and other parties involved (bond originator and estate agents) had the view that the contract had lapsed after the 30-day period as the sellers did not this provide a letter of offer, a quotation and pre-agreement from ABSA as was specified in the clause of the agreement.

The buyers then approached the court so as to obtain an interdict that would prevent the transfer of property to the new buyer.

This was granted however the seller argued that the court should not grant the request for a final interdict as the Phepeng’s had failed to meet the requirements necessary for a final interdict.

Suspensive Condition fulfillment

The question arose as to whether or not the sale agreement was valid by the early fulfillment of the suspensive condition contained in the clause of the offer to purchase.

The contract was considered invalid until the condition was fulfilled, and so the contract did not become enforceable as a condition was not yet met.

However, the bond originator advised the seller that a bond had been secured within the necessary time frame as required in the suspensive condition which also indicated that the buyers were negotiating further for a better interest rate.

On 16 November the buyers had informed the seller again that the loan had been approved of, but that they wanted to secure said offer from the Employer of Mr Phepeng as was mentioned.

This request was declined and Ms Strydom indicated that there were other buyers who had made better offers of which she then accepted one.

The buyers confirmation on 10 November 2016 that they would accept the ABSA loan offer in order to comply with a suspensive condition showed their belief that they had met the requirements set by the suspensive condition and had also secured their purchase.

It is worth noting that that the wording of the condition didn’t require the loan offer, quotation and pre-agreement to be supplied to the seller.

Bond Clause for protection of the buyer

This is because the suspensive condition is included for the protection of the buyers who must obtain financing for their purchase.

It was at the buyers discretion to consider the condition as having been fulfilled with regards to the loan and they could also accept a lesser amount offered by a financial institution.

It would thus be incorrect to state that the purchaser was not allowed to accept a loan offer without providing further documentation to the seller or other parties involved.

The sale agreement didn’t require that the seller be party to any loan negotiations at all.

The suspensive condition as was previously stated was included for the protection of the buyers who were happy to accept the letter of offer from the bank.

This was sufficient proof of the banks willingness to make the funds available and so the condition was effectively complied with.

The buyers waived any further documentation from the bank as a condition precedent. The buyers didn’t have to supply any documentation regarding the loan to the seller and other involved parties.

In this case the suspensive condition was fulfilled by the acceptance of the loan offer on 10 November 2016 with effect of the contract being made valid.

A bond clause offers standard protection to the buyer and is suspensive, it must be drafted precisely to avoid any room for argument

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