Immovable property was sold on auction by Amber Falcon to Cross Atlantic Properties for the purchase price of R7.2 million. Amber Falcon appointed the Appellants, Stupel & Berman (“S & B”), to act as the conveyancer in the registration of transfer of the property. Pending the transfer, Amber Falcon obtained bridging finance loans from the Respondent, Rodel Financial Services (“Rodel”) in the form of two discounting agreements, each including an “Undertaking by Conveyancer” section, which agreements were signed by Amber Falcon, S & B and Rodel. S & B undertook to attend to the transfer, having received irrevocable instructions from Amber Falcon whereby S & B would pay the loan amount to Rodel upon transfer of the property, unless prevented by interdict or operation of law. The undertaking in each agreement constituted a cession by Amber Falcon its right, interest and title to the nett proceeds of the sale to Rodel.
Amber Falcon subsequently cancelled the sale agreement with Cross Atlantic in order to place the property on auction again in the hope of receiving a higher price. Rodel was notified of these events and assured that the discount agreements were well-secured. Cross Atlantic however, was not satisfied with this arrangement and launched an urgent application to interdict the disposal of the property. The interdict was granted with the result that the property was to be transferred as originally agreed. S & B and Amber Falcon each notified Rodel in this regard, however each gave contradictory versions. S & B indicated that the interdict had been successful and so upon settlement agreements, the property would be sold to Cross Atlantic as originally agreed. Amber Falcon on the other hand, indicated that the interdict was still in place, thus the sale was held ‘in limbo’ for up to 12 months. This left Amber Falcon in a precarious situation therefore, they offered Rodel a settlement which was well below the loan amounts. Rodel therefore cancelled the discount agreements and demanded payment of the amounts owing in terms of the agreements.
Amber Falcon accepted the cancellation and instructed S & B to withdraw all undertakings in favour of Rodel, thereby revoking its irrevocable instructions. S& B therefore notified Rodel of the revocation of their mandate and withdrew its undertaking. The issue before the SCA was whether the Appellant, acting as an agent, was obliged to withdraw or revoke the irrevocable undertakings on which the Respondent based their claim.
The court a quo identified that the undertaking constituted a tripartite agreement between Amber Falcon, S & B and Rodel. The court indicated that S & B was the debtor, Amber Falcon the creditor and Rodel an adjectus solutionis causa (adjectus). An adjectus is “an entity, other than the creditor, to whom, by agreement between the debtor and the creditor, the debtor is entitled to pay what is due to the creditor and so discharge its obligations”. On this tripartite construction, the court a quo found that S & B was not entitled to withdraw its undertakings to Rodel.
The SCA rejected the finding in the court a quo, holding that Rodel cannot be seen to be an adjectus because S & B were never in the position of a debtor and nor was Amber Falcon a creditor. It was a principal – agent relationship between S & B and Amber Falcon. Accordingly, S & B pursued the undertakings in the capacity of an agent, on the instructions of a principal. The court held that the law of agency provides that those undertakings/instructions can be terminated or withdrawn by the principal (Amber Falcon) and the agent (S & B) cannot be compelled to carry out their mandate.
The SCA confirmed that S & B were appointed by Amber Falcon for the purposes of transferring the property to the purchaser and paying the nett proceeds of the purchase price to Rodel. It was further accepted that even though these instructions were irrevocable, the agreement unequivocally provided that the parties had contemplated that Amber Falcon would be able to terminate the mandate of its agent. Thus, Amber Falcon was entitled to withdraw S & B’s mandate and S & B were obliged to act upon such termination. As such, the undertaking in favour of Rodel no longer lapsed due to the termination of the agent’s contractual mandate.
In essence, if it is accepted that an adjectus has been contractually nominated then a creditor may not unilaterally alter the instructions given to the debtor. The debtor may also insist on paying the adjectus.
The general rule of the law of agency is that instructions given to an agent are revocable at the instance of the principal, even though the instructions may be stipulated as being irrevocable. The circumstances of a particular case will determine whether undertakings are truly irrevocable. Furthermore, a third party will never obtain a right to bind an agent to a mandate which was revoked by a principal, hence a mandate may only be regarded as irrevocable by the agent for their own benefit.