Due to the passing of the National Credit Act, the amendments to a bond clause have become a hot topic of discussion.
Usually most contracts contain a clause which makes the agreement subject to the suspensive condition of the purchaser being able to raise a loan, thus securing a mortgage bond and allowing it to be passed over the property in question by a financial institution.
The required amount is usually specified in the condition and failing to raise it could result in the contract lapsing.
Once the purchaser is able to raise a loan then the suspensive condition is fulfilled and so it is not necessary to amend the bond clause.
In the past the bond clause was deemed to have been fulfilled if the loan was granted in principle. However, this is no longer applicable as loans are not granted in principle. Rather, a quotation is given to the client who can either choose to accept or reject it.
In contracts where there are clauses such as this, it is suggested that one should replace that portion of the contract with words to the effect that the suspensive condition is considered to be fulfilled once the quotation and pre-agreement statement have been issued by a financial institution.
The National Credit Act relinquishes the purchaser's right to make use of the Consumer Protection Act and to consider the quotation for a period of 5 days before accepting or rejecting it, and therefore it validates the contractual agreement and makes it binding. As a result, many may feel doubtful of this clause.
If such a clause were inserted into a contract, it may be necessary to also include a clause in the contract which could negate the above danger.
Such a clause could specify that if any paragraph, clause, line, sentence or word is found to be illegal or unenforceable then it should be deleted from the contract and the balance of the contract will remain in full force and effect.
However, the principle of fictional fulfillment in terms of the suspensive condition can result if the person who is capable of meeting the condition chooses to frustrate the fulfillment.
The seller will probably be able to argue that the purchaser frustrated the fulfillment of the suspensive condition and that therefore the contract is valid and binding.
The possibility of not having the necessary funds for purchasing a property is a good reason why both parties to a sale agreement should refrain from making amendments to the bond clause.
However, if a contract between two parties exists with such a clause which provided that the bond clause would be deemed to be fulfilled if the loan was granted in principle, wish to amend their bond clause to retain a redeeming provision, there are various options which can be considered.
For example, they could insert a deeming provision along the lines suggested above. In such event the following words would be added in the appropriate part of the bond clause:
“The parties specifically agree that this suspensive condition shall be deemed to be fulfilled on the date that the purchaser obtains a quotation and/or pre-agreement statement from any financial institution in terms of which such financial institution offers a loan to the purchaser in an amount of not less than the amount referred to above.”
It is recommended that the severability clause referred to above also be inserted in the contract otherwise it could be inserted at the appropriate place in the bond finance clause which will read:
“The purchaser’s attention is drawn to the fact that in terms of the doctrine of fictional fulfilment, this clause will be deemed to be fulfilled if the purchaser frustrates the fulfilment of this clause in any way whatsoever.”
Another option would be to phrase the clause in terms of a resolutive condition instead of a suspensive condition.
In such event the first part of the clause will read:
“In the event that the purchaser (or the seller or the agent on the purchaser’s behalf) is not able to obtain a quotation and/or a pre-agreement statement from any financial institution in terms of which such financial institution offers to loan to the purchaser the sum of not less than R_______ plus costs (delete if not applicable) within ____ days of acceptance of this offer (which time may be extended by the agent at the agent’s sole discretion for a further period not exceeding ____ days) then this agreement will automatically terminate and be of no further force or effect. The parties specifically agree that if the agent exercises its discretion to extend the time period by which the quotation and/or pre-agreement statement from the financial institution is received, it will not be necessary for the agent to notify either the purchaser or the seller of such extension.”
The purchaser could then argue that because the agreement is not suspensive upon the purchaser obtaining the relevant finance, the fact that the clause is linked to a quotation or pre-agreed statement is no longer forcing the purchaser to give up his rights in terms of the National Credit Act in regard to the 5 day period of acceptance or his rights to accept or reject the quotation.
It is a very specific distinction which may not be questioned by a court of law.
In the end, it is essential for a person to get legal advice before altering any contract as they must assess the wording of the contract before making any amendments.
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