top of page

Interpretation of Agreements for the Sale and Purchase of Land; and Building Contracts


For numerous years now, residential estates have been established wherein prospective homeowners are invited to purchase vacant stands (erven), and are required to contract with a particular developer for the erection/building of a home on that vacant stand. These agreements of sale and purchase, generally comprise of: a “Deed of Sale of Land”; and a “Building Contract”.

Residential estates can comprise anywhere from five to hundreds of homes/units, with the issues arising from the signature of the various contracts and the building of the various units in phases, increasing exponentially by the number of units being sold and built. One such example is the matter of Michael Geoffrey Bray (Plaintiff) v Grand Aviation (Pty) Ltd (Defendant) and De Wet Reitz Attorneys (Third Party/Conveyancing Attorneys, no relief was sought against the firm and it played no role in the trial) (Gauteng Local Division, Johannesburg being the Court a quo and Court of Appeal).

Background

The matter began as a motion proceeding in November 2007 when the plaintiff launched an application for an order compelling the defendant to comply with the provisions of a sale agreement which he alleged was concluded between the parties. The sale agreement comprised of two components: the sale of an erf in a residential estate being developed by the defendant and the construction of a dwelling on the erf.

In terms of the agreement of sale, the plaintiff paid the purchase price for the erf, transfer took place and the land was registered in the plaintiff’s name. This occurred despite the fact that the sale agreement was never signed by the defendant. In his application, the plaintiff effectively sought an order for specific performance compelling the defendant to build the dwelling on the erf in terms of the sale agreement. The defendant opposed the application on the basis that, not having been signed by it, the sale agreement was invalid for lack of compliance with section 2(1) of the Alienation of Land Act 68 of 1981 (“the Act”), and counterclaimed for the return of the land. In the alternative, the defendant contended that it had validly cancelled the sale agreement.

There were a number of disputes of fact between the parties on the papers and on 4 April 2008, the Court referred the matter to trial.

At trial, the Court a quo had to resolve the issues raised by the parties pertaining to the agreement of sale. The agreement of sale was a standard form purchase comprising a “Deed of Sale”; Annexure “A” (essentially a building contract); Annexure “B” (schedule of building specifications); Annexure “C” (specifies the electric fittings to be installed in the dwelling) and a document titled “House Rules”.

The Court found that although the agreement of sale was far from a model of clarity in certain important respects, it was also clear that separate and distinct performances were required in respect of the various components of the agreement. Therefore, although the sale of land and the construction of the dwelling are both contained in the same agreement and are linked in a practical sense, juristically they are separate agreements with independent sets of reciprocal rights and obligations. The agreement of sale accordingly comprises two notionally divisible contracts: one for the sale of land, which is largely contained in the Deed of Sale and one for the construction of the dwelling on the land. Furthermore, separate prices were fixed for the sale of the land and the construction of the dwelling respectively.

The plaintiff testified that he signed the sale agreement for a “Unit Type E” dwelling. It was common cause that the defendant provided the plaintiff with its building plan for the type E unit and that this plan formed part of the plaintiff’s application for his bond and building loan.

It was only after the plaintiff had instituted proceedings against the defendant for specific performance, that the defendant realised that it had not signed the agreement and then contended that it was invalid for lack of compliance with the Act. The defendant’s CEO who testified on its behalf, could not explain how this had happened. He conceded that the defendant was at all material times under the impression that it had signed the agreement and that a valid and binding agreement of sale had been concluded with the plaintiff. This, as will become evident below, is borne out by the defendant’s conduct.

The plaintiff applied and was granted a mortgage bond over the erf and a building loan for the construction of the dwelling in the amount of R639 450.00 (R410 540.00 for the construction and an amount of R 229 000.00 for guarantees/payment of the erf). The erf was subsequently registered in the plaintiff’s name and the mortgage bond registered over the property in the amount of R639 450.00 and the R229 000.00 was duly paid to the seller.

The evidence further led was that various correspondence were sent to the plaintiff from the defendant’s agents pertaining to the commencement of phase three units and the plaintiff and defendant’s agent were in contact regarding the alterations that the plaintiff wanted made to his type E unit. The defendant’s agent sent the plaintiff an e-mail attaching a “revised quote and floor plan” which incorporated the alterations sought by the plaintiff. The defendant’s quote for the alterations came to a total of R79 590.00. There were however two items that had not been quoted. These were “kitchen customisation” and “additional paving.” The words “to quote” were inserted alongside these items. The quote provided further as follows: “It is hereby agreed that the purchaser will provide the funds required for this quote within 7 days prior to commencement of the building of the unit. Should this not occur, the original standard unit will be built on the property, with the purchaser liable for payment thereof.” Evidently, the plaintiff did not do so and a further e-mail was sent by the defendant in which it stated that if signed quotes are not provide by 30 June 2005, the developer reserves the right to disregard your request for alterations and build a standard unit in terms of your signed purchase agreement.

The plaintiff testified that after receiving the above e-mail, he signed the quote, initialled the altered floor plan and e-mailed both back to the defendant’s agent on 30 June 2005. The plaintiff conceded that he could not produce an e-mail which reflected his transmission of these documents, but maintained that he had done so. Importantly, it was not put to the plaintiff in cross examination by the defendant that he had not done so. The defendant’s CEO, was eventually forced to concede that he simply did not know whether the plaintiff had done so or not. The Court accept the plaintiff’s evidence that he signed the quote and the revised floor plan and e-mailed them back to the defendant’s agent on 30 June 2005.

On 30 May 2006, the plaintiff received an e-mail from the defendant which attached detailed plans of the plaintiff’s unit, incorporating the alterations he sought. The e-mail asked the plaintiff to check the plans and advise whether they were in order. The plaintiff testified that he responded thereto on the same day and advised that the plans looked good but that he still needed to go through them in detail. The plaintiff testified that he also requested a revised quote for the alterations. The plaintiff subsequently received an e-mail from the defendant attaching the revised quote for the alterations. The revised quote was incorporated into an Addendum to the Deed of Sale which the plaintiff was requested to sign. The only difference between the initial quote and the revised quote was that the revised quote included as a new item 24 a “modification fee” in the amount of R110 000.00. This took the total quote up from R79 590.00 to R189 590.00.

What this modification fee was for was the subject of a dispute between the parties. It was common cause that the defendant sought to impose the modification fee not only on the plaintiff but also on other purchasers in phase 3 of the development. The plaintiff testified that he was told by the defendant’s CEO that the fee was imposed in order to cover the increased building costs which had arisen as a result of the delay in the development, which was vehemently denied by the defendant’s CEO who testified that the modification fee was for the “basket of finishes” to be applied to the plaintiff’s unit (as well as other units in phase 3 of the development) and that the plaintiff had been informed of this. The Court accept the plaintiff’s version.

The plaintiff testified that he regarded the modification fee as unacceptable, was not prepared to pay it and told the defendant so. The plaintiff testified that he could not recall precisely who he had communicated his attitude to, however that this communication must have been oral as there was nothing in writing records an objection by the plaintiff to the modification fee. The defendant disputed this and referred to what was claimed as a file note which was contended established both that the plaintiff had been sent the addendum much earlier than he claimed and that the plaintiff was happy to pay the modification fee. It was not put to the plaintiff that he had been prepared to pay the modification fee and that he had communicated this to the defendant. Counsel for the defendant, argued that it was not necessary to put this to the plaintiff because the note, which had been attached to the defendant’s answering affidavit had not been disputed by the plaintiff in reply.

It was submitted that in a matter such as this, which had commenced as an application proceeding and had thereafter been referred to trial, reliance could be placed on the fact that a matter had not been disputed on the papers and in those circumstances it was not necessary to take the matter up with the relevant witness. The Court found that this was not correct. The correct position was that where a motion proceeding has been referred to trial, the affidavits filed therein are of no probative value save for admissions contained therein. The plaintiff did not admit on affidavit that he had been prepared to pay the modification fee. The Court accept the plaintiff’s version that he was not prepared to pay the modification fee and that he communicated this to the defendant.

On 23 April 2007 the defendant addressed a letter to the plaintiff advising inter alia that the defendant wised to schedule the plaintiff’s unit into the construction program and required the plaintiff to provide it with an approved Banker’s Guarantee or other acceptable security for the full amount of the building cost from a recognised Financial Institution and provided a format of the pro-forma document attached hereto. The Banker’s Guarantee attached to the letter as a pro forma was a demand guarantee. In other words, what the defendant now sought from the plaintiff was a demand guarantee for the full amount of the building costs.

The plaintiff testified that he was surprised by this letter because, as the defendant well knew, security for the cost of the building had been in place from an early stage and progress payments would be released once construction commenced. The plaintiff testified that the defendant had always been aware of this and had never suggested that those financial arrangements were inadequate or that anything else was required. The plaintiff advised that he would respond to the defendant’s letter within 7 days. He did not do so and exactly 7 days later the plaintiff received another letter from the defendant which inter alia repeated that the defendant required an approved Banker’s Guarantee and same should be in the format of the pro-forma document attached hereto and in the event of you failing to comply, then the Deed of Sale shall thereafter immediately be cancelled.

The plaintiff did not provide a written response within 7 days and the defendant wrote a further letter to the plaintiff in terms of which it purported to cancel the agreement of sale, which provoked a flurry of e-mails from the plaintiff to the defendant in which he protested that “the bond on the property has been in place since day one, it is ready for release on submission of proof that building is proceeding.” The plaintiff also placed on record that he “did not accept the defendant’s attempted cancellation of the building contract” and requested a meeting with the defendant to discuss the matter. A meeting was eventually held between the plaintiff and Mr Prochassek on 13 June 2007. The matter could not be resolved.

Issues to be determined by the Court a quo

Issue One: Has ownership of the land been validly transferred to the plaintiff?

The court applied the abstract theory of transfer, which at least since the SCA judgment in Legator McKenna and Another v Shea and Others 2010 (1) SA 35 (SCA) has been held to apply to immovable as well as movable property in our law and the Court was satisfied that the requirements of the abstract theory of transfer of property as set out in Legator were met.

The Court also had regard to section 28(2) of the Act. Transfer of the land had been established, however the question remained whether the plaintiff had performed in full in terms of the sale agreement. The argument centered around whether the performance contemplated by the Act is confined to the obligations relating to the sale of the land or whether it includes the obligations arising out of the building portion of the agreement.

The Court found that the performance contemplated by section 28(2) of the Act was confined to the obligations in relation to the sale of the land. There was no real dispute between the parties that those obligations had been performed in full by the plaintiff and thus the requirements of section 28(2) of the Act had been met. Furthermore, delivery of the immovable property in the form of registration of transfer in the deeds office is clearly established transfer of ownership. The consequence of this was that ownership of the land has been validly transferred to the plaintiff both in terms of the abstract theory of transfer and section 28(2) of the Act. The defendant’s counter claim could therefore not succeed and falls to be dismissed.

Issue Two: Did the parties conclude a contract for the construction of a dwelling on the land and if so on what terms?

The Court found that the evidence established that the parties reached a conscious accord to conclude a contract and it was satisfied that such a contract was concluded tacitly as determined by considering the conduct of the parties in the light of the relevant circumstances. Two different tests have been endorsed by the SCA to determine whether a tacit agreement exists. The first is known as the traditional approach and was articulated by Corbett JA in Standard Bank of South Africa Ltd and Another v Ocean Commodities Inc and Others 1983 (1) SA 276 (A) at 292B and the second less stringent test formulated in Joel Melamed and Hurwitz v Cleveland Estates (Pty) Ltd; Joel Melamed v Vorner Investments (Pty) Ltd 1984 (3) SA 155 (A) at 165B-C.

The difference between the two tests lies in whether the inference to be drawn from the proved facts must be one that is capable of no other reasonable interpretation or whether it may be the most plausible probable conclusion. In this case, the Court was satisfied that requirements of the more stringent test were met.

The next question the Court sought to answer was whether the parties reached an agreement on the alterations to be made to the standard unit. The plaintiff did not contend that the parties reached agreement on the alterations after 30 June 2005. Nor could he. The Court was of the view that the parties did not reach agreement on the alterations to be made to the standard unit. There was however a valid and binding contract between the parties for the construction of a standard type E unit on the erf.

Issue Three: If such a contract was concluded between the parties, was it validly cancelled by the defendant?

The defendant purported to cancel the agreement on the basis that it was entitled, prior to commencing construction, to a demand guarantee for the full amount for the building costs, and that despite demand, the plaintiff failed to provide this. It submitted that it needed a demand guarantee in order for it to waive its builder’s lien in favour of the registered bondholder since financial institutions required it before they would make progress payments.

Ultimately, the plaintiff contended that the defendant had had no legal entitlement to insist on a demand guarantee and that its purported cancellation of the agreement was therefore invalid.

In order to decide the question, the Court interpreted clause 3 of the Deed of Sale and set out the correct approach to the interpretation of contracts. The Court applied the rules as set out in Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA). It was referred in argument to the unreported judgment in Sakhiwo Health Solutions (Limpopo) (Pty) Ltd v MEC of Health, Limpopo Provincial Government [2014] ZASCA 206, handed down on 28 November 2014, and Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk 2014 (2) SA 494 (SCA). Applying the principles herein to the matter at hand, the Court found fundamental difficulties with the interpretation contended for by the defendant and found them untenable and rejected same, thus it took the view that the plaintiff had provided acceptable security for the building costs in terms of the agreement, that the defendant had no entitlement to insist on a demand guarantee from the plaintiff and that the defendant’s purported cancellation of the agreement was accordingly invalid.

Issue Four: If such contract was not validly cancelled by the defendant, is the plaintiff entitled to specific performance and if so in what form?

The defendant raised a special pea to the effect that the agreement was “inchoate” because no final drawings or building plans were annexed to it. The defendant contended that the consequence of this was that the relief sought by the plaintiff was not competent in law.

The agreement does not explicitly state that final drawings or building plans are required to be attached. The reason for this seems obvious: final drawings and plans would not have been in existence at the time of the conclusion of the agreement. The only plan that was in existence at the time of the conclusion of the agreement was the defendant’s building plan for the type E unit. It was common cause that the defendant provided the plaintiff with this plan and that it formed part of the plaintiff’s application for his bond and building loan.

The parties were ad idem on the obligation to build and the defendant had conceded that if the parties failed to reach agreement on the alterations, the defendant was obliged to build a standard unit in terms of the agreement. The parties were also ad idem on what is to be built – a standard type E unit.

Accordingly, the Court dismissed the defendant’s counter-claim, granted the plaintiff’s claim and order the defendant to do all things necessary in preparation for and to effect the construction of a standard type E unit.

The defendant applied for leave to appeal the aforementioned Judgment and Order, with leave granted to the Full Bench of that Division. The Full Bench dismissed the defendant’s application.

Conclusion

In is imperative that parties to any contract ensure that the terms and conditions contained in that signed contract, expressly accord with the intention of the parties, and that the terms and condition thereof are clear and unambiguous. Thus, there is no room for misinterpretation which would ultimately be resolved by the institution of legal proceedings, alternatively arbitration, and evidence being led.


Featured Posts
Recent Posts
Archive
Search By Tags
No tags yet.
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square
bottom of page