Consumer Information

Author:  Maryna Botha – STBB
24 January 2020

WITHDRAWING AN IRREVOCABLE OFFER BEFORE ACCEPTANCE – AUCTION WOES
W & A Le Roux Slaghuis (Pty) Ltd and Another v Van Niekerk (A554/17) [2019] ZAGPPHC 577 (4 December 2019)

In a judgment that creates some precedent for auction sales, the Court dealt with the following questions: (i) Can an auctioneer, as agent of the seller, be held personally liable for obligations of his principal?; (ii) can the purchaser who makes an irrevocable offer withdraw this whilst it is still open for acceptance; and (iii) can an option agreement can be repudiated before it comes into existence? The questions were addressed against the scenario where the auctioneer, after accepting the buyer’s bid, accidentally sold off fixtures on the property to a subsequent bidder

SUMMARY OF JUDGMENT:

FACTS
In May 2015, Van’s Afslaers (Auctioneers) Gauteng CC (“the Auctioneers”) auctioned a property of their client’s, W & A Le Roux Slaghuis (Pty) Ltd (“W & A Le Roux”) at a public auction. The successful bid went to one Van Niekerk at a price of R3,3 million.
In terms of the Agreement and Conditions of Sale, the Auctioneers were at all times acting on the instructions of the property owner, W & A Le Roux.
The relevant premises were described as Lot 1, consisting of “a double storey building with offices, butchery with cold room and freezer rooms, storage rooms, bakery, cell phone tower with rental income, staff changing/restrooms, parking for customers and more.” In the relevant brochure, the following further details were provided: “Well established butchery, ideal opportunity to purchase a fully operational and equipped butchery and bakery.”
On the same day (14 May 2015), Van Niekerk signed the “Agreement and Conditions of Sale” document and paid the auctioneers R612,150-00 in respect of a deposit and the auctioneer’s commission. Clause 2.1 of the Agreement and Conditions of Sale stated that: “The property will be sold without reserve, to the highest bidder (herein referred to as the Purchaser), but subject to confirmation by the Seller … . This document constitutes an Offer to Purchase by the Purchaser, and the Purchaser is unconditionally and irrevocably bound to this offer for a period of 14 calendar days … and the Offer is open for Acceptance by the Seller at any time during this period.”
Having attended to the aforementioned, Van Niekerk left the auction to continue with his daily activities. He did not attend the next stage of the auction during which certain loose assets were auctioned. However, four days later, it came to his attention that the freezer and cool rooms, forming part of Lot 1, were almost fully demolished and that someone was busy removing parts of the cool rooms and freezer room, as well as the rails and hooks by which animal carcases were hooked and transported. These, according to Van Niekerk, were specialised equipment which were permanently fixed to the roof of the building above to the ceiling by means of special equipment. He immediately informed Harding (who was the auctioneer on behalf of W & A Le Roux) that he, Mr Harding, had wrongly auctioned off the fixtures in the cool rooms and the freezer room that formed parts of Lot 1, on the day.
On Monday 19 May 2015, Van Niekerk’s attorneys wrote to the auctioneers and informed them, amongst other things, that: the cool rooms and freezer room were part of Lot 1 in respect of which Van Niekerk had put in a bid; that the deposit of R612,150-00 was paid after signing the “standard” Agreement and Conditions of Sale; he was unaware whether the agreement was accepted by the Seller; the removal of the freezer and cool rooms not only caused damage but also constituted repudiation of the agreement as Lot 1 no longer constituted the merx (thing sold) that he had bid on; and that, in the circumstances, he was no longer prepared to continue with the transaction and that the deposit of R612,150-00 had to be returned.
The Auctioneers responded on 28 May 2015 and stated that the offer of R3,3 million was accepted; the fixed property was restored to the position in which it was when Van Niekerk had made the bid; the auctioneers were not prepared to pay back the deposit but that they would retain the deposit as damages or the deposit will be kept in trust until their damages have been determined. (It transpired that Harding had erroneously auctioned off the fixtures in the freezer room and had paid for certain repairs to these rooms from his own pocket, when the error became known. The repairs did not however fully restore the rooms in the state they were at the time of the auction, with all the fittings.)
In response, Van Niekerk claimed that the auctioneers had repudiated the agreement by the removal/demolishing of the cool rooms and freezer room; they had been informed on 19 May 2015 already that Van Niekerk was not continuing with the transaction in view of the Auctioneers’ conduct; he had cancelled the agreement on the strength of their repudiation; and the deposit therefore had to be returned.
Then, on 7 August 2015, the auctioneers informed Van Niekerk that they had accepted the repudiation and cancellation of the agreement and would proceed to arrange a further auction of Lot 1. They still refused to refund the deposit. Van Niekerk maintained that it had to be returned as he was entitled to cancel the bid he had made.
The matter proceeded to trial and the Court granted an order in favour of Van Niekerk. The Auctioneers and the seller thereafter appealed.

HELD
Whether an auctioneer who acts as an agent can be held personally liable for the obligations of his principal

  • The centerpiece of the Auctioneers’ appeal was that they could not be held jointly liable with the seller as they acted only as an agent for the seller.
  • This argument could not be sustained because:
    o   it was clear that the Auctioneers had repudiated the agreement by auctioning off parts of Lot 1 that were sold to Van Niekerk;
    o   indeed, they also signed the “Conditions and Agreement of Sale” document with Van Niekerk and accepted the deposit from him;
    o   they never advised Van Niekerk that the deposit had been paid to the seller, nor did they advise Van Niekerk of any acceptance by the
    seller of the offer. Seeing that the offer was withdrawn before it could be accepted by the seller, the only person(s) that Van Niekerk could
    claim a refund from for the money were the Auctioneers. Van Niekerk therefore could only claim against them; and
    o   further, it was apparent that Harding had attempted to rectify the repudiation by fixing the damage to the property that was sold, clearly
    indicating that they are a party to the agreement.
  • A contract had come into being between the auctioneer and Van Niekerk. It must be remembered that a sale by public auction entails the conclusion of three contracts, namely, one between the seller and the auctioneer (as principal and agent, respectively), one between the purchaser and the seller, and one between the purchaser and the auctioneer.
  • Clause 3.3 of the present Agreement stated that: “The person signing this contract will nevertheless be held personally liable for the fulfilment of all the terms hereof, even though he acts on behalf of the principal or spouse.”
  • The auctioneer was such a person who had, in terms of clause 3.3 of the Agreement, signed the Agreement and thereby had waived any right not to be held personally responsible for any conduct performed on behalf of the principal.
  • Accordingly, the Court a quo was correct in finding that the Auctioneers were jointly liable with their principal to refund the deposit.  Whether a party who makes an irrevocable offer may withdraw the offer whilst it is still open for acceptance
  • The genesis of this question is the provisions of clause 2.1 of the “Agreement” document which state, inter alia, that: “This document constitutes an offer to purchase by the Purchaser, and the Purchaser is unconditionally and irrevocably bound to this offer for a period of 14 calendar days and the offer is open for acceptance by the Seller at any time during this period” and the fact that Van Niekerk on 19 May gave notice that he was withdrawing his offer.
  • The Auctioneers argued that by the time the alleged repudiation took place, Van Niekerk’s offer had not been accepted and therefore no binding agreement that was capable of being repudiated had come into being.
  • This is incorrect as the Auctioneers appear not to appreciate that there was an agreement in existence already.
  • The phrase “the offer is open for acceptance by the Seller at any time during this period” can only mean that the offer remains open for as long as the seller acts in accordance with the agreement. This means:

    o  that the offer which has by now evolved into an option, an agreement on its own, will hold steadfast provided that the seller does nothingto change the character of the merx;
    o   that there is an implied duty imposed on the seller to preserve the merx;
    o   that a violation of the terms of the option or any conduct by the seller which results in the damage to the merx or change in the character of the merx may constitute a repudiation of the option by the seller, which entitles the purchaser to withdraw his offer whether or not the offer
    was said to be irrevocable.

  • The fact that an offer is said to be irrevocable does not make it irrevocable simply because it is said to be irrevocable. Whether or not an offer is irrevocable will depend on the conduct of the parties. An innocent party is entitled to withdraw the offer on any of the recognised grounds on which an agreement may be repudiated, even if it is said to be irrevocable.Whether an agreement can be repudiated before it comes into existence
  • An option is comprised of two distinct parts: one is an offer to sell the property; and the other is to keep that offer open for a certain period. It simply is an agreement between the giver and the holder of an option by which the giver has bound himself to sell a certain thing to the holder at a certain price if the holder shall require him to do so within the time fixed by the option; by this agreement the giver grants a holder who acquires a right to buy.
  • Through the option the grantee acquires the right to accept the offer to sell at any time during the stipulated period; and if this right is exercised a contract of purchase and sale is immediately brought into being.
  • The grant by an owner of property of an option to purchase the property amounts in law to an offer to the grantee of an option to sell the property to him and the agreement to keep that offer open for a certain period. The grantee acquires the right to accept the offer at any time during the stipulated period and, if he does so, a contract of purchase and sale comes about.”
  • The legal consequences of an option are firstly that an offeror may not withdraw the offer until the date of its acceptance has expired, unless he has valid grounds to revoke it. Such an option places the offeror under an obligation to preserve the commodity intact, in the same conditions it was when the offeror inspected it and decided to make an offer to purchase it, until the offer is accepted. Before the offeree accepts the offer, he is tacitly bound by the terms of the option not to do or suffer to do anything to the merx or harm or destroy or damage it. If he should destroy it or damage it in any manner whatsoever, it changes the character of the commodity. The offeror may regard that as a repudiation of the option and he may, on that basis only, be entitled to revoke the offer, even if it was agreed that the offer was irrevocable. In the same measures, if the offer is accepted before the expiry of the time agreed upon, a contract is concluded.
  • If an offer is open for an expressed period of time such an option is in itself a contract for which legal results flow before it is turned by acceptance in a contract of some other description.
  • Accordingly, when the Court a quo referred to the agreement that was susceptible to repudiation, and when the Court a quo referred to the agreement that had created rights and obligations, it referred to the option. And as it is clear that an option is a contract on its own, it can be repudiated. Also, when Van Niekerk complained that the Auctioneers have repudiated an agreement, he referred to the option and not the agreement of sale for that had not been concluded yet.

CONCLUSION
The appeal was accordingly dismissed..

The Judgment can be viewed here. The Judgment