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Kruger

16 June 2011

Neutral citation: Kruger v Property Lawyer (420/2010) [2010] ZASCA 80 (27 May 2011).
Coram: Mpati P, Brand, Lewis, Malan and Tshiqi JJA
Heard: 4 May 2011
Delivered: 27 May 2011

Summary: Bridging finance - undertaking by transferring attorney to pay against registration of transfer - construction of undertaking - undertaking to pay from proceeds of sale.

The Supreme Court of Appeal upheld an appeal by a firm of practising attorneys, who had furnished a written letter of undertaking to the respondent, a provider of bridging finance to sellers of immovable property. Bridging finance was made available to the appellant’s clients – mainly attorneys - pending transfer of certain properties in which the appellant was engaged, albeit not as the conveyancer, as attorney on behalf of the vendors. The undertaking of the appellant is addressed to the respondent and contains an irrevocable undertaking to pay an amount of R 500 000 on registration of the properties sold in the name of the purchaser.  The material part reads:

Ons onderneem hiermee onherroeplik om die bedrag van R500 000,00 (Vyfhonderd Duisend Rand) tesame met 20% (twintig persent) en 10% (“raising fee”) in die volgende rekening in te betaal op datum van registrasie van die bogemelde eiendomme in die Aktekantoor te Pretoria:

Proplaw Bridging

Absa, Brooklyn

Branch: 632 005

Account Number: 4071652511

tensy ons van regsweë verhoed word of aangestel word as agente namens die Suid Afrikaanse Inkomste Diens ooreenkomstig Art 99 van die Wet op Inkomstebelasting No. 58/1962 soos gewysig.

Two issues were raised on appeal, but only the first, the proper construction of the letter of undertaking, particularly when it constitutes an undertaking independent of the underlying transaction, that is, the bridging loan, was considered.

Because the letter of undertaking was issued pursuant to the bridging loan made by the respondent to their clients, it had to be interpreted in that context.  The real question therefore was not whether the appellant undertook to pay but what the content of the undertaking was.

The purpose of the undertaking was that the appellant as the attorney involved in the transfer of the properties would make payment to the respondent of the money lent and other charges from the proceeds received from the sale of the properties.  This was clear from the terms of the bridging request which reads as follows.

And whereas [the respondent] requires that the client in return cedes in their [favour] his right, title and interest to the proceeds in the above transaction in the amount of (requested amount plus 20 % as well as a raising fee of 10 %)

R100 000,00 (Een Honderd Duisend Rand) plus die “raising fee” van 10% R50 000.00 (Vyftig Duisend Rand).

Now therefore the [appellant] is hereby irrevocably instructed to issue a Bank Guarantee / Letter of Undertaking, in the last mentioned amount in favour of [the respondent] payable on registration of the above transaction.  Should the transaction for whatever reason be cancelled or not registered within six (6) months from signature then the amount will immediately become due and payable to [the respondent].”

The appellant’s confirmation at the end of the bridging request in so many words reads that, because all the conditions for registration and payment of the costs were met, “no reason exists why registration triggering the payment of the guarantee/undertaking should not take place on the said expected date.

It was only by virtue of his control over the proceeds of the sales that effect to the entire transaction could have been given.  However registration of transfer of the properties did not take place within the six month period envisaged in the bridging request but only thereafter while the seller in respect of some of the properties was liquidated and only a portion of the price of the other property was received by the appellant.  The latter amount - R271 244,90 less than the amount stipulated in the undertaking - was paid over to the respondent.  

The Court held that the undertaking was not to pay ‘regardless’ but to effect payment from the receipt of the proceeds of the sales, nor was it envisaged that the proceeds would vest in the appellant.  It would have been absurd for the appellant to have given an unconditional, independent undertaking in the circumstances.  In this context the undertaking amounted to no more than an undertaking to make payment from the proceeds of the sales.  The appellant had therefore discharged its obligations under the undertaking and the respondent was not entitled to claim the balance from the appellant.

Full judgement

 

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