Consumer Information

Author:  Maryna Botha – STBB
27 January 2017

LAPSED OFFER AS BASIS FOR NEW SALE:  THINK TWICE     
JUBI PROPERTIES (PTY) LTD V BOYCE (12286/2016) [2016] ZAGPJHC 338 (7 DECEMBER 2016)

An interesting conundrum arose in this matter. The seller and buyer renegotiated an agreement after the buyer’s first offer lapsed. The later agreement was based in main on the provisions of the lapsed offer but, in an attempt to avoid complication, they backdated the agreement so that it fell within the initial offer’s acceptance period. Problems did however arise and the court was asked to determine when the due dates for compliance with conditions arose: was ten days calculated from the date in the initial offer, or from the date of the subsequent agreement?

SUMMARY OF JUDGMENT:

FACTS

On 9 December 2014, Jubi Properties (Pty) Ltd (Jubi) submitted a written offer to purchase (the Offer) a property owned by Boyce. The Offer was irrevocable until 17h00 on 12 December, whereafter it would lapse.

The Offer was not accepted in the stipulated time.

At the request of Boyce, the parties met again on 14 December (2014) and they negotiated and agreed upon certain changes to the Offer. These terms were reduced to a handwritten document which they referred to as the ‘heads of agreement’.

They initially intended to draft a fresh agreement, but at the meeting elected instead to utilise the two documents (the Offer and heads of agreement) as their agreement. No further written agreement was thus drawn up.

Notwithstanding reaching agreement on the 14th, they decided at the meeting also to back-date the agreement to 12 December 2014. (The reason why it was backdated, according to Jubi, was due to the parties’ common concern at the time that if the agreement reflected acceptance on 14 December, Jubi would be accepting a lapsed offer. So, in order to avoid any confusion, they backdated it. Boyce averred that the agreement was backdated because they intended that their rights and obligations operate from that date.)

The material terms of the agreement relevant to the application were the following:

a) The purchaser was identified as ‘Jubi Properties and/or a nominee’;
b) The Offer contained a suspensive condition that Jubi would furnish Boyce with a letter of satisfaction regarding its due diligence inspection within 10 days, failing which the agreement would lapse;
c) A non-refundable deposit of R400 000 was payable within 48 hours after the due diligence acceptance letter.

The due diligence was completed by 24 December (2014) and Jubi advised Boyce of the satisfaction of the due diligence requirement. Thereafter the parties gave effect to the agreement on the basis that it had been rendered unconditional, by paying the deposit and so forth.

At some stage Jubi mentioned that it sought to exercise its right to appoint a nominee and chose a third party company to be the purchaser. Due to the fact that double transfer duty would be payable as a result, it sought to cancel the agreement and to enter into a new agreement. Nothing followed from this and Jubi remained the intended transferee.

The seller was in some financial difficulty and sought to expedite the transaction. Jubi assisted her to some extent by providing a loan, but relations soured and ultimately, in March 2016, Boyce’s attorneys advised Jubi that the agreement had lapsed due to nonfulfilment of the suspensive condition, or had been cancelled pursuant to Jubi’s alleged repudiation of the agreement, which repudiation Boyce accepted. (The lapse of the agreement allegedly arose from failure to comply with the due diligence within ten days after 12 December 2014, the agreement date and the date, so Boyce argued, on which the parties intended their rights and obligations in terms of the agreement to arise. As the letter of satisfaction was furnished only on 24 December, the provision was not complied with and the agreement lapsed. The repudiation, Boyce further argued, related to Jubi’s (alleged) statement that it did not have sufficient funds, evidenced by it seeking to avoid the levy of double transfer duty on the transaction.)

Clause 12 of the (lapsed) Offer provided that the purchaser ‘requests 10 days due diligence on the property’ and provided for ‘a letter of satisfaction on due diligence’ to be issued to the seller ‘within 10 days.’ If no letter was delivered, the due diligence would be deemed to have failed and the Offer ‘would fail too.’ The (lapsed) Offer did not specify a date upon which the ten day period commenced, although the heads of agreement referred to the due diligence being performed ‘within ten days of the signature’.

Two issues arose for determination:

1) Whether or not the agreement lapsed for lack of fulfilment of the suspensive condition; and
2) Whether or not Jubi repudiated the agreement.

HELD

Date of the agreement

• The critical issue for determination was the date upon which the ten day period for the performance of the due diligence and delivery of the letter of satisfaction commenced, against the background that the parties backdated the agreement.

• The Offer provided expressly that it would lapse if not accepted by 17h00 on 12 December 2014. The Offer was not accepted as required and hence it lapsed automatically.

• Thereafter, on 14 December 2014, an agreement was negotiated. This was done with reference to the content of the (lapsed) Offer and to a further written manuscript, the heads of agreement.

• It is trite that in order for an agreement to come into existence, there must be an unequivocal acceptance of the offer: A contract is made at the time and place where consensus is reached. Thus, it was on 14 December 2014 that both parties knew what the other intended by way of performance, and each consented to the other’s intention in respect of the sale and purchase of the property. It was on that day that the parties reached agreement and the contract was established.

• The fact that the parties chose to utilise the terms of the Offer that had lapsed in establishing their agreement on 14 December 2014, was irrelevant to the fact that the agreement came into existence on the 14th.

When did the ten day period commence?

• As a general proposition, and absent a specific contractual provision, a term of a contract cannot come into existence or commence operation prior to the establishment of the contract. Accordingly, the ten day period commenced with effect from 14 December 2014.

• There was further no evidence to indicate that the parties intended the rights and obligations comprising the agreement to flow from 12 December 2014, as argued by Boyce. Such an argument in any event did not take account of the fact that the ten day period was a stipulation for the benefit of Jubi, who was the only party that could waive or reduce that period. Accordingly, in order to succeed with with the argument, Boyce had to show that Jubi was aware of the benefit of two days that he was allegedly waiving on 14 December 2014, and that he understood and assented thereto, which Boyce failed to do.

In the circumstances it was clear that the agreement was constituted on 14 December 2014, although dated 12 December 2014. The ten day period referred to in the (lapsed) Offer and the heads of agreement thus incepted with effect from 14 December 2014.

CONCLUSION:
There consequently was fulfillment of the suspensive condition.

The Judgment can be viewed here: