Consumer Information

Author:  Maryna Botha
15 October 2021

Case buyer and seller disputing whether the sale was subject to a condition to get a bond
McGrane v Cape Royale The Residence (Pty) Ltd (831/2020) [2021] ZASCA 139 (6 October 2021)

We all know that when a dispute between a seller and buyer arises in the context of the sale of property, the party seeking to escape the contract will very painstakingly comb through the transaction to find a way out. This is a case in point. The sale agreement had provisions to the effect that, were the purchaser to require bond financing, approval had to be submitted by a certain date. The purchaser had intended to pay cash and did subsequently pay the full amount to the conveyancers. Nonetheless, and due to a dispute between the parties, the purchaser told its attorneys not to pass transfer. The Court came to the assistance of the buyer.

SUMMARY of the Judgment

FACTS

In November 2006, McGrane bought a unit in the yet-to-be-built sectional title development named Cape Royale. The Seller was Cape Royale The Residence (Pty) Ltd (‘Cape Royale’) and was represented by one Phelan. McGrane signed the agreement on 1 July 2006 and Cape Royal’s representative signed it on 20 November 2006.

In terms of the agreement, the purchase price was R1,298,960.00 and a deposit of R324,740.00 was payable on signature, and the balance of R974,200.00 on registration of the transfer. Transfer to the purchaser was to be effected ‘as soon as possible after the opening of the sectional title register . . .’.

As mentioned, when the agreement was concluded, the unit had not yet been constructed. In the end, after construction, the floor area of the property decreased. Thus, in October 2007, the parties concluded a written addendum to the agreement in respect of the floor area, and reducing the purchase price. The addendum did not change anything in the original agreement except for the purchase price.

The relationship between the parties became strained at a later stage. According to McGrane this occurred as a result of Cape Royale having instructed its attorneys not to proceed with the process of transferring the property, despite the fact that he had already at that time paid the full purchase price.

The payment of the full deposit and the purchase price were at issue between the parties. In January 2013, McGrane instituted an action in which he sought an order directing Cape Royal to comply with the terms of the agreement by taking all the necessary steps to transfer ownership of the property to him.

Cape Royal however argued that the agreement was subject to a condition precedent that McGrane obtain a loan of R649,480.00 within 21 days from the date of acceptance. This clause had not been fulfilled as there was no such loan secured within the stipulated time period, thereby rendering the agreement null and void. Furthermore, McGrane had paid a deposit of only R151,300.00 instead of R324,740.00, and was in breach.

At the heart of the dispute between the parties, are clauses 5.1 and 5.2 of the agreement. The parties differ in the interpretation of these clauses. They provide:

‘5.1 In the event of the Purchaser requiring a mortgage loan to finance the acquisition of the Unit and Exclusive Use Area, this sale shall be subject to the condition precedent that the Purchaser obtains approval in principle from a recognised financial institution for such a loan … within 21 (twenty-one) days of signature hereof by the Purchaser ….

5.2 In the event that the condition precedent is not fulfilled within the time period provided for in clause 5.1 above, the Seller may in its sole discretion extend this period for 7 (seven) days at a time until the Seller, in its absolute discretion, notifies the Purchaser of the termination of such time period.’

McGrane did not deny that the condition precedent was embodied in the agreement, however, his testimony was that it was not applicable to him as he did not require the mortgage loan. He had enough money to pay the full purchase price and Phelan was aware of this. He therefore did not even apply for the loan. According to his testimony, he stated emphatically to Phelan when they concluded the agreement that he will pay the purchase price in cash, which he did.

Furthermore, he testified that he was never given notice that he was in breach of any condition of the agreement and to remedy same. He was also never given notice regarding the cancellation or termination of the agreement by Cape Royal as a result of the non-fulfilment of the condition precedent or payment of the full deposit.

In fact, on two occasions account reconciliations were furnished to McGrane, both which reflected the payment of the full purchase price, and a surplus of some R28,000 owing to him. There were also emails where receipt of the full purchase price was acknowledged and in which Phelan stated therein that the transfer of the unit would take place in September. It was during these email exchanges that Phelan indicated to McGrane that he would receive the “Rental Pool income” upon transfer. This surprised McGrane, as the agreement did not include a Rental Pool agreement. The latter was unilaterally introduced by Cape Royal. The disagreement between the parties was sparked by McGrane’s refusal to sign the Rental Pool agreement, when Cape Royal insisted that it was required before transfer could be effected.

The Western Cape High Court found in favour of Cape Royale, agreeing that the agreement was subject to a condition which had not been fulfilled, and the agreement was held to have no legal force. The present matter deals with the appeal to the Supreme Court of Appeal.

HELD

  • The primary issue is whether the agreement, properly interpreted, was subject to a condition precedent which was not fulfilled.
  • Our courts’ approach to interpretation of contracts is settled: When interpreting a contract an ‘insensible or unbusinesslike result’ or a result undermining the apparent purpose of the document must be avoided. It is also well established that the mere use of the word ‘condition’ does not always translate into the condition in question being a suspensive condition.
  • In the present instance, it is significant that the clause 5.1 is prefixed by the words ‘[i]n the event of the Purchaser requiring a mortgage loan to finance the acquisition of the Unit . . . this sale shall be subject to the condition precedent …”. (Our indentation)
  • From the language of the text, the structural and grammatical construction thereof, including the punctuation of the whole clause, it is self-sufficiently clear that the parties did not expressly provide that McGrane, as purchaser, was obliged to obtain the mortgage loan. This is certainly not what clause 5.1 says.
  • The words ‘[i]n the event of the Purchaser requiring a mortgage loan’, cannot be wished away and render McGrane’s interpretation untenable. The clause was clear. The finding of the High Court was therefore incorrect.

CONCLUSION
The appeal succeeded

The Judgment can be viewed here: