The First and Second Applicants, were the owners of a property situated in Chiltern Hills, Kwazulu Natal (“the Property”). On 22 June 2016 the Applicants entered into an agreement with the First and Second Respondent (hereinafter the Respondents) for the purchase and sale of the Property. Clause 1.5 of the contract of sale required the Respondents to obtain a loan secured by way of mortgage bond over the Property for 100% of the purchase price within 21 days of signing the agreement. Clause 5.4 further stipulated that in the event of the Respondents being unable to obtain the loan against security of a mortgage bond within the stipulated 21 days, the agreement would be null and void and of no force or effect.
On 28 June 2016 an amount of R130 000.00 was paid into the account of the conveyancing attorney by the First Respondent, in cash and on 30 June 2016 First National Bank furnished a written confirmation of the loan for R1 70 000.00 to the First Respondent to be used towards the purchase price of the property, against security of the mortgage bond registered over it. On the same day the conveyancing attorney sent an email addressed to the Respondents and the Second Applicant confirming that the final security for the loan had been received. The conveyancing attorney then requested documentation from the Applicants as to facilitate the transfer. This documentation was never provided.
The Applicants subsequently came to the conclusion that the Respondents had breached the agreement due to the fact that they had failed to obtain a loan for 100% of the property price. The Property was marketed and on 17 May 2017, the Applicants accepted an offer in the amount of R1 400 000.00. The offer was subject to the new purchaser having access to the Property within 7 days of the sale. When the new purchaser attempted to view the property, the Respondents refused to grant him and the Applicants access.
The Applicants brought an urgent application asserting their right as the Property owners and contending that substantial prejudice would be suffered should the new purchaser not be granted access to the property. A rule nisi was issued pending finalisation or discharge of the rule.
In response, the Respondents brought a counterclaim seeking declaratory relief that the agreement concluded between themselves and the Applicants continues to be valid and of full force and effect.
The Court distinguished that the question which arises from the matter and requires deliberation is whether the First Respondent discharged her contractual obligation, this being irrespective that the First Respondent had secured the full amount of the purchase price of the property, although in a manner contrary to the requirements set out in the contract and in circumstances where the variance would attract no prejudice to the seller.
The court contemplated the argument of the Appellants that the First Respondent’s securing of the remaining 10% of the purchase price by means of a cash deposit into the conveyancing attorneys trust account amounted to impermissible variation. The court advised that to adopt such an approach would amount to an absurdity. The Court referred to Kovacs Investments 724 (Pty) Ltd v Marais 2009 (6) SA 560 (SCA) whereby an agreement required the purchaser to obtain a loan from the Land Bank and the purchaser obtained a bank guarantee for the stipulated amount instead. The court in the matter rejected the argument that the agreement had lapsed due to the purchaser failing to secure a loan in the manner stipulated in the agreement and noted that this would amount to absurdity.
In light of the above principles, the Court stated that they were satisfied that the Respondents had discharged their obligations timeously in terms of the contract and that no basis in law exists that would allow the grant of the relief sought by the Applicants to declare the contract null and void and of no force or effect. The Respondents’ counter order was granted and the rule nisi in the main application was ordered to be discharged.
The case highlights that, in the instance that the purchaser of a property is unable to obtain a mortgage bond for the specified percentage required by the contract of sale, that the alternate payment which renders the purchase price met within the stipulated period will not be deemed as a variation of the contract terms and the agreement will remain valid and enforceable.
Written by Lauren Squier and supervised by Refilwe Letaba, 21 May 2018