|The Applicant in this matter was Unlocked Properties 4 (Pty) Ltd and A Commercial Properties CC, the Respondent, who were parties to a contract for the sale of immovable property, the Applicant being (the “Purchaser”) and the Respondent being (the “Seller”). As the contract was one of sale of immovable property, there was a contractual undertaking/obligation on the part of the Seller to transfer the property into the name of the Purchaser upon the Purchaser making payment of the purchase price. However, the Seller’s ability to perform was affected by a mortgage bond registered over the property in favour of Albaraka Bank Limited (the “Bank”), securing pre-existing amounts owed by the Seller.
The agreed purchase price as between the Purchaser and the Seller of said property, comprising of 29 units, 22 flats and 7 shops, was R 4 500 000.00 (Four Million, Five Hundred Thousand Rand). However, at the time the application proceedings were instituted, the Seller’s outstanding indebtedness to the Bank was R 4 920 016.07 (Four Million, Nine Hundred and Twenty Thousand, Sixteen Rand, and Seven Cents) which indicated that there was a shortfall of R 420 016.07 (Four Hundred and Twenty Thousand, Sixteen Rand, and Seven Cents) between the purchase price paid by the Purchaser, in terms of the contract of sale, and the Seller’s indebtedness to the Bank.
It was clear from the Seller’s answering affidavit that it did not have the financial means to provide guarantees to the Bank in order to prove that it could pay/settle the shortfall amount as well as cancel the bond and transfer same into the name of the Purchaser. The Seller then informed the Purchaser that it cancelled the contract and that it had no option but to revise the property’s sale amount to R 8 500 000.00 (Eight Point Five Million Rand). The Purchaser considered the Seller’s unilateral cancellation a repudiation to which it refused to accept and demanded specific performance from the Seller to achieve transfer of the property into the name of the Purchaser.
|Subsequently, the Seller did not comply with the Purchaser’s demand and instead relied o|
|1. the contractual defence of impossibility of performance, to be excused from the performance of a contract in circumstances wherein the nature of the contract, the surrounding circumstances and the nature of the impossibility inter alia were considered by the court in making a determination, alternatively;|
2. the court’s discretion to refuse a decree of specific performance of the Seller’s contractual obligations to transfer the property to the Purchaser, on the basis that the Seller can prove that it is, in fact, unable, beyond all doubt, to render the performance, due to its alleged financial inability to pay the shortfall amount to the bank in order to sell the property to the Purchaser.
|The court held that the defence of impossibility will not succeed if the impossibility is self-created, nor due to one’s own fault. Further, impossibility will only make the contract in question void if the impossibility is absolute. It must not be possible for anyone else in the same situation to make that performance. Where the impossibility is subjective, it arises out of one’s personal situation and does not affect the validity of the contract. The party who finds it impossible to perform will be held liable on the basis of breach of contract. The court held that the fact that the mortgage bond burdened the property was of minor importance.
The court held further that the Seller relied on an impossibility which was subjective in nature. The Seller’s personal incapability was not an objective impossibility and did not render the contract void. Resultantly, the defence of impossibility of performance was unsuccessful. In relation to the Seller’s alternate defence regarding specific performance, the court held that the evidence contained in the Seller’s papers did not justify the refusal of an order of specific performance in the circumstances.
The court stated further that the Purchaser’s demand for specific performance, to which the Seller’s alleged financial inability to pay the shortfall amount to the Bank created a problem. It would be impossible for the Seller to comply with an order of specific performance in favour of the Purchaser. The court was not in a position to carry out a financial audit of the Seller’s entity in order to exercise its discretion whether or not to grant an order for specific performance in favour of the Purchaser.
In conclusion, the court held that, despite the onus on the Seller to establish that an order for specific performance would be either ineffective or a fruitless exercise in the current circumstances, the Seller failed to do so.
The Seller was thus directed to take all necessary steps to ensure that transfer of the Property passed to the Purchaser, failing which the sheriff would be authorised to proceed accordingly
A Seller’s alleged impossibility to perform its contractual obligation that is peculiar to itself and not absolute does not nullify the contract that contains the obligation to perform and that Seller’s obligations in respect of ensuring specific performance will still remain.
Written by Divina Naidoo and supervised by Jasvir Sewnarain