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In the case of Maria Luisa Palma Codevilla v Paula Jane Kennedy-Smith NO and Others (494/2023) [2024] ZASCA 136, the case dealt with an appeal to the Supreme Court of Appeal (SCA). The appeal examines whether an agreement for the purchase and sale of immovable property can be revived after the lapse of a suspensive condition.  

Read the judgment here: 

https://www.saflii.org/za/cases/ZASCA/2024/136.html 

The case involves an Offer to Purchase (OTP) made on February 4, 2020, for a property in Cape Town. In terms of clause 7, the OTP was subject to mortgage approval, which clause provided as follows: 

Confirmation of approval in writing is to be given by no later than 14/02/2020 whereupon this suspensive condition shall be deemed to have been fulfilled, failing which the aforesaid date shall be extended for a further thirty (30) days with the written consent of the Seller. 

The first addendum 

The deposit was paid on 10 February 2020. On 11 February 2020, prior to the date set out in paragraph 7 of the OTP, the seller and the purchasers entered into an Addendum to the OTP in terms of which it was agreed that the date provided for the approval of the mortgage loan shall be extended to 19 February 2020 (“the first addendum”). The remaining terms of the agreement remained in full force and effect. 

The purchasers’ experienced delays in securing the necessary finance for the remaining purchase price and as such, the appellant agreed to provide the purchasers with the balance of the purchase price to secure the acquisition of the property. However, the appellant was unable to obtain the necessary funds/bank guarantee for payment of the purchase price in due time as such, the OTP, as amended by the first addendum, lapsed.  

The second addendum 

The appellant asked for more time to provide the necessary funds, and the seller agreed to finalise a second addendum to the OTP. The transferring attorneys, DM Inc,  advised that the sale could only proceed through a formal, written addendum. This led to the creation of the second addendum, which was signed on 20 February 2020. Among other changes, the addendum modified the terms regarding mortgage bond approval and stipulated that the bank guarantee for the cash portion of the purchase price must be submitted by 09:00 on 25 February 2020. 

The mortgage bond approvals were obtained, and the appellant made payment of the sum of R1 950,000 into DM Inc’s trust account on 21 February 2020. 

In May 2020, the purchasers, struggling financially due to the COVID-19 pandemic, were unable to fulfill their financial obligations and attempted to cancel the agreement. They asked Standard Bank, which had approved their mortgage loan, to revoke the approval. The appellant, who had taken over the purchasers’ claim, then sought to recover the amount she had paid to the seller. 

The appellant sought legal advice, which concluded that the agreement had lapsed due to the non-satisfaction of the suspensive condition in the first addendum on 19 February 2020, and, therefore, was not capable of being revived by the second addendum. The appellant then demanded repayment of R1 950,000. However, the seller disagreed, insisting that the contract was still valid and demanded specific performance. DM Inc., representing the seller, argued that the second addendum clearly reflected the intention to proceed with the sale, with amended financing terms, and that the suspensive conditions had been fulfilled. Specifically, the purchasers had provided R1 950,000 in cash instead of a bank guarantee, and mortgage bond approval had been granted on 24 February 2020.  

On 24 June 2020, DM Inc. demanded that the purchasers remedy their breach of the agreement, which involved withdrawing the Standard Bank mortgage bond and expressing an intention not to proceed with the sale. On 8 July 2020, DM Inc. formally canceled the agreement, citing the purchasers’ failure to remedy the breach. 

Suspensive conditions  

A suspensive condition in an agreement of sale relating to mortgage bond approval is a clause that makes the validity of the sale contingent upon the buyer obtaining approval for a mortgage bond from a financial institution. In other words, the sale does not become fully binding or enforceable until the purchaser successfully secures the necessary financing from the bank or lender. 

If the purchaser is unable to obtain mortgage bond approval within the specified time frame, the suspensive condition is not fulfilled, and the agreement may be considered void or may lapse. The seller may not be required to proceed with the sale unless the condition is satisfied, or the parties agree to extend or waive the condition. 

Typically, such a clause protects the purchaser by ensuring they are not legally bound to complete the purchase if they cannot obtain the necessary funds, while also protecting the seller by specifying the requirement for financing to be in place before the sale is finalised. 

What is an addendum? 

An addendum to an agreement of sale is a supplementary document that is added to an existing contract to modify, clarify, or add new terms to the original agreement. It is a legally binding amendment that becomes part of the original contract once it is signed by all parties involved. 

The purpose of an Addendum can be summarised as follows:  

  • Amendment of Terms: An addendum can be used to change or update specific terms of the original agreement, such as payment terms, delivery dates, or any other contractual obligations. 
  • Clarification: It can clarify ambiguous terms or address misunderstandings that have arisen after the agreement was signed. 
  • Extending deadlines: If certain conditions, like bond approval or payment deadlines, are not met on time, an addendum can extend these deadlines to allow more time for compliance. 
  • Inclusion of New Provisions: An addendum can introduce new clauses that were not part of the original agreement, such as additional conditions, warranties, or requirements for performance. 

However, an addendum does not replace the original agreement but rather works alongside it to make necessary changes and must be signed by all parties to be legally enforceable. 

High court application  

On 31 July 2020, the appellant applied to the high court for, amongst other relief, payment of the R1 950 000 paid into DM Inc’s trust account. The high court found that the parties intended to revive the agreement, and that the second addendum effectively created a “fresh agreement” incorporating the terms of the original OTP, as amended by the first addendum. The court granted the appellant leave to appeal, and the full court subsequently dismissed the appeal on 24 January 2023.  

The full court however based its dismissal on different grounds. It ruled that a new agreement was not concluded, but that the offer had been validly extended for the 30-day period specified in clause 7 of the OTP. The first addendum had extended the period, and the second addendum, concluded within the 30 days, was a further extension of the deadline for fulfilling the suspensive condition. As such, the agreement remained valid. This argument was not raised by the seller in either the high court or the full court. The full court raised the issue of the 30-day extension mero motu (of its own accord) and the seller subsequently relied upon it for the first time in the SCA. The SCA however advised that this course of action was not permitted.  

Supreme Court of Appeal: Majority judgment  

The majority judgment penned by Schippers JA (Kgoele JA and Baartman AJA concurring) disagreed with the minority judgment’s conclusion, penned by Weiner JA (Tolmay AJA concurring), that the second addendum validly revived the OTP agreement. The core issue they determined was whether the second addendum, signed after the OTP had lapsed due to non-fulfillment of a suspensive condition, could revive the expired contract. 

Schippers JA explains that while a suspensive condition in a contract delays obligations until a certain event occurs, once the condition (in this case, mortgage bond approval) is not fulfilled by the agreed date, the agreement lapses and is no longer enforceable. The second addendum, which was signed after the OTP had lapsed, tried to extend the time for the condition to be fulfilled but could not revive the expired contract. Schippers JA stresses that once the suspensive condition was not met by the set deadline, the agreement automatically became unenforceable, and no waiver or extension after the fact could revive it. 

Schippers JA also refers to a long-standing legal principle that contracts cannot be revived after a suspensive condition has lapsed. Citing previous case law, Schippers JA reinforces that the expired OTP could not be reactivated by simply amending or extending its terms, as the law does not allow for the resurrection of lapsed agreements.  

While the full court found that the second addendum could be seen as extending the OTP’s terms, this was incorrect. Schippers JA concludes that the second addendum could not validly revive the OTP, as the agreement had already lapsed. 

Ultimately, the appeal succeeded, and the majority judgment concluded that the second addendum did not revive the OTP, as the contract had already lapsed and could not be reinstated.  

Fulfilling contractual obligations within time frames  

The SCA ultimately sets aside the decision of the high court, upheld the appeal and ordered the first and second respondents to refund the sum of R1,950,000 paid by the appellant, along with interest. Ultimately, what the majority judgment emphasizes is the necessity of fulfilling contractual conditions within specified time frames to maintain enforceability and highlighting the limits of contractual modifications after expiration. It is important to take note of the effect of suspensive conditions and the purpose they seek to serve in agreements of sale. Attorneys, sellers and purchasers should all be mindful that should the situation arise where the deadline for the fulfilment of a suspensive condition has lapsed, a new agreement should be concluded and not an addendum.