Petzer, Du Toit & Ramulifho

THE VALIDITY OF TIME RESTRAINTS ON THE ACCEPTANCE OF OFFERS TO PURCHASE AND SUSPENSIVE CONDITIONS

Does a valid Agreement of Sale exist where the seller only accepts an offer to purchase AFTER it has lapsed? Does a valid Agreement of Sale exist where the buyer fails to obtain the necessary bond approval timeously?

These two questions are briefly answered with reference to a judgement handed down on 8 March 2007 by Judge BM Griesel in the Cape High Court. The case considered by Judge Griesel was that of EP Manna v JM Lotter (CPD 9708/04).

1. FACTUAL BACKGROUND

The seller, who permanently resides in Wales, mandated an estate agent during October 2003 to find a buyer for her property in Sedgefield. In due course, the agent procured a written offer from the present buyer to purchase the property for a price of R485 000-00. The offer to purchase was signed by the buyer in Pretoria on 6 November 2003 and was returned by fax to the agent in Sedgefield, where the seller's husband signed it on the same date. (It is common cause, however, that he was not a party to the transaction and that his signature is irrelevant.) After filling in various details which had until then been left blank in the offer, such as the identity of the seller and the name of the seller's conveyancers, the agent faxed the document to the respondent in Wales, who signed and returned it to the agent on 12 November 2003.

One of the blank items completed by the agent was the expiry date in clause 10, which reads as follows (the underlined portion having been filled in by the agent in manuscript):

"10. VALIDITY & ENTIRE CONTRACT

This offer is irrevocable and expires at noon on the 8th November 2003 and on acceptance shall become a binding Agreement of Sale irrespective of whether the Purchaser has been notified of such acceptance or not….."

Notwithstanding the fact that the offer was only "accepted" by the seller on 12 November, i.e. after it had lapsed, both parties initially believed that a valid and binding agreement had been concluded. When called upon by the conveyancers to sign the necessary transfer documents, however, the seller failed to respond to their repeated efforts to make contact with her and also failed to sign the documents that had been sent to her by the conveyancers. (Not without some justification, the buyer attributes the seller's apparent change in attitude to what is colloquially known as "seller's remorse" in a rapidly escalating property market.)

Matters eventually came to a head when the buyer applied to the Cape High Court to compel the seller to sign the necessary transfer documents. In her answering affidavit the seller for the first time adopted the attitude that the deed of sale was void for two reasons: (1) she had accepted the offer only after it had lapsed; and (2) the suspensive condition regarding the buyer's obligation to obtain bond finance for the transaction had not been fulfilled (he only managed to obtain a 75% bond).

2. DISCUSSION OF MERITS

2.1 Lapse of offer

The argument on behalf of the seller was based on the proposition that "an offer lapses if it is not accepted within the prescribed time". Judge Griesel held however that this proposition is stated too widely and is potentially misleading. Judge Griesel further held that it correctly summarizes the position where the offeror elects to reject the late "acceptance" of an offer. However, the late acceptance of an offer cannot bind the offeror: it is trite law that, in order to bind the offeror, an acceptance must be made before the expiry of the offer.

The present case however was different: the offeror has elected to accept the late "acceptance" and sought to bind the offeree. The question for determination was thus whether the offeree can avoid the agreement by relying on her own late "acceptance" of the offer.

As there appeared to be no precedents in South African case law, the Court took cognizance of the views expressed by the authors Christie, Khan, Kerr and De Wet and Van Dyk, as well as the foreign authorities they relied on in their publications in Germany, Italy, USA and Holland. In most instances the favourite argument was that late acceptance amounts to a “counter offer”. However in this instance the immediate problem was that, due to the strict requirements laid down by section 2(1) of the Alienation of Land Act 68 of 1981, such a “counter offer’ would require a written acceptance – mere acceptance by conduct was insufficient.

In the present matter the buyer never formally accepted the “counter offer” in writing. The reason for this was that the buyer only became aware of the seller’s alleged “counter offer” in her answering affidavit (having remained silent after signing the offer two years earlier) and as such he was never aware that he “should’ have formally accepted it in writing. Nevertheless, the Court rejected this theory in any event because in its view this scenario specifically illustrated the artificiality of such a construction.

Another view expressed by the learned authors and which was accepted by the Court, was that the best way to approach this type of scenario would be to regard the expiry date as a stipulation that was inserted solely for the benefit of the buyer, which benefit he could elect to waive - in the same way that he can waive the benefit of the traditional "bond clause". On this basis, it was held that the offeror – but not the offeree – has an election to accept or reject an irregular "acceptance" of his offer. Obviously such election will have to be exercised and communicated to the offeree within a reasonable time, depending on the circumstances.

This attitude on the part of the buyer finds support in the provisions of clause 10 of the agreement, in terms whereof the buyer waived the right to be informed of acceptance of his offer. This appears to indicate that the expiry date stipulated in clause 10 was not regarded by the buyer as being material, as long as acceptance took place "within the next few days", as he put it. On the evidence, it is clear that this is what happened and, when the buyer was informed shortly after 12 November 2003 of the acceptance of the offer, he did not bother for one moment to enquire as to exactly when the offer had been accepted, but instead elected immediately to proceed with the transaction, regardless of the time of acceptance.

In the circumstances, Judge Griesel was satisfied that the buyer's election to treat the acceptance of the offer as effectual was legally sound and binding on the seller.

2.2 Failure to obtain bond approval

The seller also relied on the alleged non-fulfillment of the suspensive condition providing for the approval of a bond for the full purchase price from a bank, building society or financial institution.

Clause 7.1 of the agreement contained the usual "bond clause", making provision for the agreement to be "subject to the suspensive condition that the purchaser obtains approval to the granting of a loan against security of the property for an amount of not less than R485 000-00 from a bank, building society or financial institution within 21 days of acceptance of this offer". If the loan was not approved within the stipulated period, "the period of approval shall automatically be extended for a period of 14 (fourteen) days" (in terms of clause 7.3).

It is common cause that the buyer's bank only approved finance in respect of 75% of the purchase price and not the full purchase price, as provided for in clause 7.1. It is settled law, however, that a bond clause like the one in question is for the exclusive benefit of the purchaser and is capable of unilateral waiver by him, provided that such waiver takes place before the date for fulfillment of the condition.

In this case the buyer immediately, upon receipt of the bank’s approval of the 75% loan, informed the conveyancer thereof and confirmed that he would make alternative arrangements for the balance and wished to proceed with the transaction, whereafter he signed all the necessary transfer documents and paid the required conveyancer’s costs. The buyer thus undoubtedly indicated his waiver of the benefit.

Against this background the seller argued that any alleged waiver by the buyer had not been communicated to her. This argument is without substance as it loses sight of the fact that the conveyancer appointed to attend to transfer of the property was in fact the seller's agent. The conveyancer – and hence the seller – was at all relevant times kept fully informed by the buyer of his election to waive the benefit of the suspensive condition.

2.3 Summary

Judge Griesel thus concluded that he was satisfied that the agreement between the parties was valid and enforceable. The seller was thus ordered to sign all documents and take all steps necessary to effect the registration of transfer of the property into the name of the buyer against payment by the buyer of the purchase price and transfer costs. Should the seller have failed to comply with the said order within 10 (ten) days from date of the order, the Sheriff of the court was authorized and directed to take such steps in her stead.

The above judgement deserves careful consideration with regard to the failure of sellers and buyers to comply with conditions precedent in Offers to Purchase and Agreements of Sale. Each condition should be considered in its specific set of circumstances and the beneficiary of each condition should be established prior to deciding that the non-compliance thereof constitutes an invalid agreement.

The only "golden rule" should perhaps be that "there are no golden rules" and each set of circumstances should be considered carefully and with reference to the facts in hand.