Consumer Information

Author:  Maryna Botha – STBB
14 July 2017

CAN UNDULY HARSH TERMS OF SALE AGREEMENT PERMIT CANCELLATION? 
BINTA V HLASELA AND ANOTHER (1776/2016) [2017] ZAECPEHC 35 (11 JULY 2017)

It does not often happen that a sale agreement is entered into requiring the seller to pass transfer and then to wait for payment of the purchase price by way of a subsidy grant some time later. This provision in the present matter, together with undue delays by the authority issuing the subsidies and the fact that the purchaser took occupation whilst the agreement excluded the payment of occupational rental, moved the court to hold that terms of such an egregious nature justified the seller to resile from the agreement. This is an exceptional remedy in extraordinary circumstances as our law generally requires of contracting parties to perform in terms of the agreements they put their signatures to.

SUMMARY OF JUDGMENT:

 FACTS

In July 2013 Hlasela sold his immovable property to Binta for R96,000.00. The relevant terms of the deed of sale provided that:

• the purchase price was payable in cash “on receipt of the subsidy money from the Department of Human Settlements” (the Department); and • the sale was subject to the suspensive condition that Binta was granted a housing subsidy for the value of the purchase price by the Department.
The agreement expressly excluded occupational rental, despite the fact that the purchaser took occupation of the property after signing the sale agreement. After almost two years, when the subsidy was still not made available by the Department, Hlasela sought legal advice. In June 2015, the transferring attorneys assured Hlasela’s attorneys that Binta’s subsidy had been approved by the Department (already in March 2015) and that they were only awaiting the formal approval letter to enable them to proceed. Hlasela advised Binta that he no longer wished to be bound by the sale agreement. Each time however he was advised by the transferring attorney (including at a meeting that Binta chose not to attend), that Binta was not to blame for the delay and was not in breach as the delay was with the Department. Hlasela subsequently gave written notice that he was cancelling the agreement of sale due to the purchaser, Binta’s, failure “to pay the purchase price as agreed and the time for payment of the purchase price has since lapsed”. In January 2016, the approval letter was finally received – more than two and a half years after the sale agreement was concluded.

At this stage, when Hlasela was asked to sign the transfer documentation, he refused, arguing that he had validly cancelled the sale agreement due to Binta’s failure to perform in terms thereof. Binta then instituted the present action to demand transfer of the property. Amongst other things she argued that the suspensive condition had to be deemed to be fulfilled (fictional fulfillment) because it was due to Hlasela’s refusal to sign the transfer documentation that transfer could not proceed. Hlasela defended the matter and maintained that his cancellation of the agreement was valid and justified in the circumstances, as Binta did not pay the purchase price within a reasonable time. He testified that isiXhosa was his home language and the transferring attorney tried to explain the context of the agreement to him in English. He understood that Binta intended to fund the purchase of the property with a housing subsidy, it was never explained to him how long the process would take. He was under the impression that he would receive the purchase price within a short period of time. He also denied that, in these circumstances, he agreed that the purchase price would be paid only after transfer of the property had been registered and on receipt of the subsidy, as provided for in the deed of sale.

HELD

Compliance with the terms of the agreement

• In its letter of approval dated 18 January 2016, the Department informed Binta that her application for a housing subsidy had been approved subject thereto that she registered transfer of ownership into her name “before 18 April 2016, failing which the subsidy approval will be cancelled without further notice.”

• The present application was served and filed during May 2016, and the subsidy approval from the Department had therefore already lapsed. Even though Binta had, to date, not tendered payment of the purchase price, she nonetheless demanded to have the property transferred into her name. There was therefore no compliance with the agreement by Binta.

Fictional fulfillment

• Fictional fulfilment can be relied upon to prevent a party to a conditional contract from deliberately preventing the fulfilment of the conditional precedent and maintaining that he is not bound by the contract because the condition has not been fulfilled.

• Thus, our law states that a condition is deemed to be fulfilled as against a person who would, subject to its fulfilment, be bound by an obligation, and who has designedly prevented its fulfilment, unless the nature of the contract or the circumstances show an absence of dolus. Dolus in this context has a wide meaning and was not limited to fraud or a lack of good faith, but included any deliberate and calculated actions which prevented the fulfilment of the condition.

• In order to successfully invoke the doctrine of fictional fulfillment, a claimant must show that there was: (a) non–fulfilment of the condition; (b) the other party breached his duty with an intention to frustrate the fulfilment, and (c) there was a causal link between (a) and (b).

• In the present matter it was not shown that Hlasela cancelled the agreement with the intention to frustrate Binta from obtaining transfer of the property. In the absence of evidence to the contrary, it had to be accepted that Hlasela did not understand the exact nature of the terms of the contract when it was explained to him in English. It was hardly plausible that Hlasela would agree to a contract which obliged him to wait an indefinite period for payment of the purchase price, while the purchaser (Binta) lived in his house without paying any rental and the value of the property increased. It also has to be accepted, for a similar lack of evidence to the contrary, that Hlasela did not realize that the purchase price would only be paid after registration of the transfer, a most unusual term in any agreement of sale of a property.

• The terms of the agreement in question were clearly skewed in favour of the purchaser and Hlasela now found himself in the very precarious position (as a result of the egregious terms of the deed of sale) where it was expected of him to transfer his property into the name of a purchaser without any reciprocal performance on her part, such as paying for it.

• Hlasela’s cancellation of the contract did not constitute mala fides (bad faith) in these circumstances. Hlasela’s cancellation was calculated to protect his own interests which, given the facts, were entirely justified. Consequently the doctrine of fictional fulfillment found no application to the facts of the present matter.

Unduly harsh contract terms

• The terms and consequences of the contract in question, despite being lawfully concluded, could be considered as not binding on the basis that they were unduly harsh, unfair and contrary to public policy. (This is an issue that Hlasela did not plead, and which the Court raised mero motu, i.e. of its own accord, and asked both parties to make representations on.)

• A court, generally, has no discretion to refuse the enforcement of a term contained in a lawfully concluded agreement and the principle of pacta sunt servanda (agreements must be complied with) will generally be accepted by the courts as the governing principle in the determination of the contractual obligations between parties. Courts faced with the question whether or not to enforce a term breached by one of the parties in this context, are concerned with assessing the effect of the order enforcing an agreement in the light of the dictates of public policy. It is trite that an agreement is contrary to public policy if it is opposed to the interests of the state, or of justice or of the public.

• A contract can stipulate a performance which in itself is not illegal or immoral, but is one which the courts would not enforce on the grounds of expedience, because the performance will detrimentally affect the interests of the community. Public policy does not require the courts to penalize the party seeking enforcement, by declining to do so, because at the time when the agreement was concluded, it may have been worded in such a way, that it was impossible to predict with any accuracy whether or not it would be reasonable to enforce it when the event of its enforcement arrives.

• This was evidenced in the present case when the egregious nature of the terms came to light only after years had passed. If there was expeditious performance by the Department and Binta, in accordance with time periods stipulated in the agreement, unfairness would not have been an issue.

• Courts will decline to enforce a contractual term that is unduly harsh or unfair or oppressive, and the onus is upon the party seeking to avoid the enforcement of a clause to demonstrate the harshness or unfairness of its terms.

• The flaws in the deed of sale in the present matter which rendered its terms egregious were: (i) the fact that the agreement contains no time limits or dates for performance; (ii) that occupational rental is specifically excluded; (iii) that payment of the purchase price will be made only after registration of transfer of the property into the applicant’s name – a most imprudent term for any seller of immovable property to agree to. And (iv) since the subsidy took almost three years to be approved and has now lapsed, the enforcement of the contract had become untenable, four years after its conclusion.

For all the reasons set out above, the application was dismissed.
     

The Judgment can be viewed here: