Murphy and another v Durie 2006 JOL 18301 (C): The main question was whether or not the suspensive condition relating to the bond had been fulfilled.
Judgement was granted by Acting Judge Zander on 7th September 2006 in the Cape High Court.
Durie sold a property in Somerset West to Murphy and another in terms of an agreement dated 5 December, 2003 for R999,000.
Clause 13 of the agreement stipulated that the sale was subject to the purchaser (Murphy & another) obtaining in principle a mortgage bond from a Building Society or Financial Institution to finance this transaction.
The purchaser then undertook to sign all papers so as to permit passage of this said mortgage bond for an amount of not less than R700,000. Confirmation of this was to be given to the sellers agent by no later than 9 December 2003.
According to the purchaser, the suspensive condition was fulfilled. However, on the seller’s version the suspensive condition was not fulfilled, and as a result the transaction lapsed.
An interim interdict was obtained to prevent the seller from transferring the property to someone else until the question of whether or not the agreement was binding had been resolved. The purchaser then launched the action for transfer of the property to him.
The purchasers had already obtained an indication from Standard Bank that they would qualify for a bond of R1.2 million, they did however fail to meet the terms of the suspensive condition which stipulated that the due date was 9 December.
This was because, due to circumstances, the purchaser's estate agent could only confirm that she had received a letter of approval of the bond on 10 December, and could only then send the confirmation to the seller’s agent.
The two parties (estate agent and bank representative) that the purchaser supposedly communicated with however, did not testify in behalf of the purchaser, which provided a basis for the seller’s argument.
The seller did not waste time debating the merits of the events concerning the fulfilment of the bond clause.
The view was simply that the purchaser's legal action is a claim for specific performance and so, the responsibility of proving compliance with the bond clause was on the purchaser.
Because of the fact that certain parties were not called to testify, there was no evidence that the suspensive condition was fulfilled.
The purchaser evidence about the alleged conversations were hearsay and therefore invalid. The result of this the seller applied for absolution from the instance.
The court ruled that the suspensive condition was not met in this case and therefore there was no binding contract. The deed of sale was subject to obtaining a bond from the bank but not to its approval in principle.
And so, more than the approval of a loan in principle was required in the context of clause 13.
While letters from Standard Bank were clear that the loan was approved subject to compliance and certain formalities they did not constitute for fulfilment of the suspensive condition.
And because the obtaining of the loan in principle wasn't communicated to the defendant by 9 December 2003, this did not constitute compliance with a suspensive condition.
The clause in a bond agreement of sale of land can cause misery if poorly drafted or if factual disputes arise as regards its a fulfilment.
In order to eliminate such problems reasonable due date for compliance must be stipulated in the agreement, and the transfer attorney ought to monitor performance in cooperation with the estate agent.
As it is better to act before the due date, it is important to take steps to try and avoid lapsing of the contract, for example by getting the parties to agree to an extension and to do so in writing.
On fulfilment or non-fulfilment of the condition, the seller and other interested stakeholders should be notified.
If there is any doubt as to how the clause should be interpreted or if the approval by the bank is conditional, the conveyancer should apply his or her mind to the legal consequences and should take steps to minimise risks for the client and the firm.
Drafting better Bond clauses is what we do. Contact us for professional legal advice.
Subscribe to our Newsletter
Estate Agent Training
Bond & Transfer Calculator
Get the latest updates in your email box automatically.