In the recent judgment of Riverspray Lifestyle Estate (Pty) Ltd v Auby, the Court held that the agreement of sale between the parties was void because the bond was not obtained within the period stipulated in the agreement. However, of specific interest was the reminder that where parties to an agreement include a provision that the seller may extend the bond due date at his own volition, for any period of time, without notice or permission from the purchaser, such provision was void: allowing one party only to exclusively determine whether an obligation was complied with renders the term void for vagueness. 

The facts were briefly that Auby entered into an agreement with Riverspray Lifestyle Estates in terms of which he bought a unit in a sectional title scheme which would be known as Riverspray.  The scheme was still to be erected. The purchase price was R675 000 and a deposit of R15 000 was payable within three days of signature of the agreement by the purchaser.

The agreement provided, amongst other things, that: “This agreement is subject to the purchaser obtaining mortgage bond finance from a financial institution in the amount of R735 000… Such bond to be approved in principle within 21 … days of signature of this agreement by the purchaser, or in any extended period which the seller at its absolute discretion may allow without permission of the purchaser”. A further clause provided that: “Should an amount be inserted at clause … regarding the obtainment of a mortgage bond, then the agreement shall be subject to a mortgage bond of the said amount being granted to the purchaser on normal terms and conditions as laid down by a commercial bank on security of the property or any other acceptable security”.

Auby did not get a bond within the 21 day period as stipulated. When he was advised by the bank that his bond application was unsuccessful, Riverspray’s consultants managed to secure a bond in the amount of R607 500. Because this amount was less than the bond amount in the agreement, Auby signed an addendum which acknowledged the shortfall and in which he undertook to deliver a guarantee or submit a cash payment to make up the shortfall.

Sometime later Auby resiled from the agreement, claiming that it was invalid. Riverspray thereupon approached the Court for an order directing Auby to comply with his obligations in terms of the agreement and to do the necessary to take transfer of the property in his name.

The Court found in favour of Auby, holding that:

• It was clear that the suspensive condition was not fulfilled because Auby did not manage to get a bond for R735 000 in the stipulated period and the agreement had to fail.
• In addition, the Court noted that the clauses that purported to allow the seller to extend the bond due date indefinitely and without notice to the purchaser, were void. The reason was that it was a “general principle of our law of obligations that, when it depends entirely on the will of a party to an alleged contract to determine the extent of the prestation of either party, the purported contract is void for vagueness.”

As such, no valid agreement of sale ever came into existence. Sellers and purchasers - therefore do not include any provision in an agreement that allows the other party the exclusive right to determine whether there was compliance with the provisions of the agreement, as such an agreement could be considered void.

Mortgage Bonds: Is the TIFFSKI Judgment  a bank's worst  nightmare?

A recent judgment handed down by the Supreme Court of Appeal on 30 September 2011 has laid bare the effects of non-compliance with the requirements of Section 34 of the Insolvency Act and should arguably sent shivers down every buyer, banker’s and conveyancing attorney’s spine. 

Not only was the sale and transfer of the assets of a business, which was subsequently liquidated, declared void ab initio, but so too the mortgage bonds registered in favour of the bank financing the transaction. 

A proper due diligence investigation into all relevant issues is thus of utmost importance when assisting a buyer or a bank evaluating it’s security. It proves that “possession cannot be regarded as “10 points of the law” and possession and even ownership and the security of a mortgage bond can be set aside by a ruling of a court. A bona fide buyer or bank are most likely to be un-aware of a pending liquidation or insolvency of a seller, which liquidation or sequestration can take up to six months to come to conclusion after the sale and full payment of a purchase price has taken place. 

The facts of the case can be summarised as follows:
FACTS

• Tiffindell Ski Limited (the company) concluded an agreement of sale with Tiffski Property Investment (Pty) Ltd (Tiffski) on 12 July 2007 in which it sold to Tiffski the immovable property on which it conducted a hotel and resort enterprise along with the said business enterprise (the subject matter).
• The written agreement of sale contained terms quite common in many such agreements and to the effect that possession, occupation and control would be given to Tiffski on the date of transfer, that the agreement would not be published in term of Section 34 of the Insolvency Act, that the company would continue to conduct its business pending transfer and that the agreement represented the entire agreement between the parties.
• Registration of transfer subsequently took place on 16 September 2008 simultaneous with the registration of two mortgage bonds in favour of the State Bank of India Limited (the Bank).
• The company went into liquidation on 23 October 2008 and its liquidators challenged the validity of the transfer of the subject matter and the registration of the mortgage bonds against themselves, arguing that it was void as against them on the grounds that (1) the company went into liquidation within 6[six] months from the transaction (2) the transfer was not in the ordinary course of business (3) the transfer of the business was not for the purpose of securing the payment by the company of its debts and (4) the required notice was not published as set out in Section 34 of the Act. 

COURT’S FINDINGS
Upon accepting the liquidator’s arguments, the court rejected Tiffski’s contentions that it was not a “trader” as defined in the Act, that the transaction was in the ordinary course of business, that the transfer fell outside of the 6 month window contemplated in the Act and that due to the transaction being common knowledge it was not necessary to advertise. 

It placed specific emphasis on the Bank’s role when considering the validity of the mortgage bonds and rejected the claim by the Bank that it was unaware of the company’s financial difficulties at the time it approved the disputed mortgage bonds. The Bank further contended that the bonds passed by Tiffski over the immovable property transferred from the company constituted real rights in the said property that served as its only “real security” for the monies lent. Thus any order voiding the mortgage bonds would cause it irreparable financial harm. 

The Bank sought to rely on a number of court decisions for the proposition that the validity of a mortgage bond duly registered in the Deeds Office is not dependent on the validity of the antecedent contract, a contention that the court also rejected. According to the court in this instance, it is trite that no legal consequence flow from a void jural act. The court stated that “As Tiffski did not acquire ownership of the company’s immovable property – on account of the voidness of the transfer – it must logically flow that Tiffski could not in turn grant any rights, let alone real rights, in the immovable property to the Bank”.

The court then further slammed the Bank saying that it should have insisted on publication of a notice in terms of Section 34 and this being expressly excluded in the agreement of sale must have been done with the Bank’s approval or acquiescence. It was the opinion of the court that to uphold any argument advanced by the Bank in its defense would “defeat the very purpose which the Legislature wished to achieve in enacting Section 34 (1) and benefit the Bank at the expense of the company’s creditors. The Bank must accordingly be taken to have consciously assumed the risk of the transfer of the company’s business to Tiffski falling foul of the legislative requirements and nevertheless agreed to advance moneys to Tiffski fully aware of the risk in doing so. 

CONCLUSION
In future, any bank or money lending institution should do well to take head of the court’s hardline approach applied in this case and as the usual remedies relied on in cases of this nature fell on deaf ears in favour of the rights of the company’s numerous creditors. It could in fact signal the start of a growing trend to protect creditors and restrict lending even further, warning any bank to tighten its mechanisms for due diligence, information control and mortgage bond approval criteria even further. 

Conveyancing attorneys who attend to the registration of mortgage bonds must also be aware of the risks associated with the registration of a mortgage bond when a court rules the security void, due to non compliance of legal requirements.

With special thanks to Daan Steenkamp.

Should you consider depositing your bonus into your bond account?  The answer is undoubtedly yes!

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An onerous title deed condition that isn’t discovered in time could delay or prevent the progress of a property development – with serious cost implications. Alternatively, such an omission could be costly when buying or selling property.

Given this truism, the purpose of this article is to sensitise the reader to some pitfalls when dealing with title deeds.

The deeds registration offices had a system whereby deeds were lodged in duplicate and the Deeds Office would endorse changes of ownership, caveats, interdicts, mortgage bonds, and servitudes against the title deeds. They would keep one copy for records purposes and the other copy would be given back to the client.

It was not practice, nor prescribed in any Act, that conditions be carried forward from deed to deed. In the Deeds Registries in the former Cape Province the so-called pivot deed system had existed prior to 1937. The pivot deed system is unique to the Cape Town deeds registry.  In terms of this system, no conditions were carried forward in a title deed. The title deed conditions would simply state:

“Subject to the conditions as contained in Deed of Transfer No … [with reference to the prior
title deed]”.

When searching the above pivot deed, one would find that these deeds in turn make reference to earlier title deeds.

It is only since 1937 that title deed conditions have been carried forward in each new title deed. Thus, to determine all the possible conditions against and in favour of a property, proper research must be done and all previous title deeds must be checked, from the day when the first Government Grant or Crown Grant was issued up to 1937.

The practical way would be to employ a conveyancing attorney, skilled in these matters, to conduct the research and prepare a Conveyancer’s Certificate to certify that

* the Conveyancer did a search behind the pivot deed and
* found no onerous conditions relevant to the proposed nature of the transaction or development, etc.

Developments since the 1980s

The Deeds Registration offices introduced a micro filming system, and since then all title deeds lodged are microfilmed. In addition, a scanning system was introduced in 2007/ 2008. Thus, Deeds Office records are now kept on both microfilm and in digital format, while the original title deeds are sent back to the attorneys for delivery to the new owner or bank(s). Title deeds are endorsed with changes in ownership, mortgage bonds and all other propertyrelated transactions. This of course depends on the instruction the deeds office had received on lodgement from the conveyancing firm.

The Deeds Offices continually update their records and one can obtain a “Deeds Office printout” to view the most current information listed against the property, viz.:

• Interdicts and caveats (examples are court orders, insolvency and rehabilitation notices, sequestration orders, liquidation orders, notices from the Surveyor General’s office, and expropriation notices).

• Sectional title information, such as 

•  Exclusive use areas. 
•  Rights of further extension reserved by the developer (section 25).
•  Servitudes on common property.

• Notarial servitudes

• Mortgage bonds

It is, however, also important to note that updated information pertaining to property transactions can take, from date of registration, as long as 5-8 working days to appear on the system of the Deeds Offices. Sectional-title transactions can take up to 10 days and other transactions that involve cross-writing in title deeds filed in counter cover can take up to three weeks.

(Cross-writing is the updating of all relevant and related information in documents filed at Deeds Registration offices. The counter-cover system applies where 20 or more properties are held under one title deed, and where the client requests the Deeds Office to keep the original title deed in its records.)

Some advice

In sum, to protect one’s interests, it is a good idea to appoint a conveyancing attorney to conduct a search at the Deeds Office and peruse or verify the following information that might be applicable to the subject property:

• Conditions in the current title deed

• Conditions behind the pivot deed

• Information on the Deeds Office printouts, such as:  

•   Caveats.  
    Servitudes. 
    Interdicts.

And, lastly, if you are a developer, remember to appoint a town planner to assist with the restrictions imposed by the local authority and, if applicable, zoning requirements.