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FORM A

FILING SHEET FOR EASTERN CAPE JUDGMENT

ECJ NO : 007/2004

PARTIES: Shoprite Checkers Ltd t/a Megasave APPELLANT

and

Hassan Khan 1^st RESPONDENT

The Sheriff of the High Court,

Humansdorp 2^nd RESPONDENT

REFERENCE NUMBERS -

• Registrar: CA520/2003

• Magistrate:

• Supreme Court of Appeal/Constitutional Court:

DATE DELIVERED:

JUDGE(S): ERASMUMS, PLASKET JJ, DAMBUZA AJ

LEGAL REPRESENTATIVES -

Appearances:

• for the State/Plaintiff(s)/Applicant(s)/Appellant(s): B PRETORIUS

• for the accused/defendant(s)/respondent(s): A BEYLEVELD

Instructing attorneys:

• Plaintiff(s)/Applicant(s)/Appellant(s): WHITESIDES

• Respondent(s): DOOSI ATTORNEYS

CASE INFORMATION -

• Nature of proceedings : FULL BENCH APPEAL

• Topic: CONDITIONS OF SALES IN EXECUTION

• Keywords: Execution – sales in execution in terms of Rule 46 of Uniform Rules of Court – validity of suspensive condition in conditions of sale and in contract of sale – general principles in rules applicable to question – interpretation and applicability of subrule (12) – severability of condition – invalidity of whole contract if invalid conditions not severable - competency of court to enforce contract not containing all conditions of sale prepared in terms of subrule (8)(a)

IN THE HIGH COURT OF SOUTH AFRICA

(EASTERN CAPE DIVISION)

CASE NO: CA520/2003

DATE DELIVERED: 8/7/04

In the matter between:

SHOPRITE CHECKERS LTD t/a MEGASAVE APPELLANT

and

HASSAN KHAN (in his capacity as father

and guardian of Zaheer Ebrahim Khan) FIRST RESPONDENT

THE SHERIFF OF THE HIGH COURT,

HUMANSDORP SECOND RESPONDENT

Quoram: Erasmus J, Plasket J and Dambuza AJ

Sale in Execution in terms of rule 46 of the High Court Rules – Validity of condition of sale to effect that the sale was subject to the consent of the judgment creditor – The relevant clause of the conditions of sale held to be in conflict with rule 46 and consequently invalid.

______________________________________________________________

________________________________________________________________________________________JUDGMENT__________________________

PLASKET J:

[A] INTRODUCTION

[1] In this appeal, the issue to be decided is whether certain conditions, attached to a sale in execution by the appellant and settled by the second respondent, are in conflict with the provisions of rule 46 of the High Court rules and whether, as a result, the appellant was entitled to withhold its consent to the sale to the first respondent, who had been the highest bidder.

[2] In the court below, Mhlantla J found that the conditions of sale that had been challenged by the first respondent (as the applicant in the court below) were, indeed, in conflict with rule 46 and invalid to that extent. She accordingly ordered the second respondent in this appeal (the first respondent in the court below) ‘to take such steps as are necessary and/or requisite to give effect to the transfer and registration into the name of the applicant, of the immovable property described as erf 838, Paradise Beach, in the Kouga Municipality, Division of Humansdorp, Eastern Province; such transfer to take place against the performance by the applicant of his obligations in terms of the agreement of sale held in execution dated 18 January 2002’. The usual costs order was also issued. It is against this order that the appellant now appeals.

[B] THE FACTS

[3] The relevant facts are strait-forward. On 18 July 2001, the appellant took default judgment against the owners of the property that is the subject matter of this dispute. A warrant of execution was later issued. One of the parties against whom the default judgment was taken and against whom the warrant of execution was issued was the first respondent, albeit in his personal capacity.

[4] A sale of execution was then arranged, at which the property would be sold in accordance with rule 46. At the sale in execution, a dispute arose about certain of its terms. A dispute of fact exists as to the precise contours of the dispute. The sale then proceeded and the first respondent was the highest bidder. His bid was for R12 000.00. This appears to be substantially less than the value of the property: indeed, part of the dispute prior to the sale in execution concerned an informal reserve price of R70 000.00 that was not part of the written conditions of sale but which the second respondent announced. It was agreed, however, that the sale would proceed without reserve to the highest bidder at the fall of the hammer.

[5] Subsequent to the first respondent’s successful bid, he completed the necessary documentation. A few days later, however, he received a letter from the appellant’s Port Elizabeth attorneys (acting on the instructions of attorneys from Bloemfontein) stating that the appellant had ‘rejected your offer to purchase the abovementioned property’. Reference was made to the Bloemfontein firm’s instructions, which were attached. In those instructions, the Bloemfontein firm stated that the appellant was ‘not prepared to accept the offer of R12 000.00’, that ‘in terms of the Conditions of Sale, paragraph 20 thereof, our client must consent to the sale within 14 days after the auction’ and that the Port Elizabeth firm was to ‘notify the purchaser that our client is not prepared to accept the offer’. Correspondence passed between the first respondent’s attorneys and the appellant’s attorneys but the matter remained unresolved. In due course, the first respondent launched his successful application that the appellant now appeals against.

[C] RULE 46

[6] Rule 46 of the High Court rules regulates sales in execution of immovable property. I do not intend setting out the entire rule, since it contains 16 subsections and some of them are not relevant. Instead, I shall summarise the import of those sub-rules that are less important rules for present purposes and focus on those that are more important.¹

[7] Rule 46(2) provides that immovable property must be attached by ‘the sheriff of the district in which the property is situate or by the sheriff of the district in which the office of the registrar of deeds or other officer charged with the registration of such property is situate’ and the attachment must be effected in accordance with a writ that is substantially in compliance with that contained in form 20 of the First Schedule to the rules. Rule 46(3) provides that attachment is effected by written notice by the sheriff and that this notice must be served on the owner, the appropriate registrar of deeds or other official who may be empowered to register that property, and any occupier (if it is occupied by a person other than the owner). Any sale in execution must, as a general rule be held in the district in which the property is situate and be conducted by the sheriff for that district.²

[8] After he or she has received instructions to sell a property in execution, a sheriff must ‘ascertain and record what bonds or other encumbrances are registered against the property together with the names and addresses of the persons in whose favour such bonds and encumbrances are so registered and shall thereupon notify the execution creditor accordingly’.³ Rule 46(5) then provides:

‘No immovable property which is subject to any claim preferent to that of the execution creditor shall be sold in execution unless-

(a) the execution creditor has caused notice, in writing, of the intended sale to be served by registered post upon the preferent creditor, if his address is known and, if the property is rateable, upon the local authority concerned calling upon them to stipulate within ten days of a date to be stated a reasonable reserve price or to agree in writing to a sale without reserve; and has provided proof to the sheriff that the preferent creditor has so stipulated or agreed, or

(b) the sheriff is satisfied that it is impossible to notify any preferent creditor, in terms of this rule, of the proposed sale, or such creditor, having been notified, has failed or neglected to stipulate a reserve price or to agree in writing to a sale without reserve as provided for in paragraph (a) of this subrule within the time stated in such notice.’

[9] The sheriff determines the date and place of the sale in execution. The date must, as a general rule, be at least a month after the attachment.⁴ The execution creditor is then required, after consultation with the sheriff, to prepare a notice of sale that contains certain specified information.⁵ The notice must be published, by the execution creditor, in a newspaper that circulates in the district in which the property is situated, and in the Government Gazette.⁶

[10] Rule 46(8) provides for conditions of sale to be drafted by the execution creditor and to be settled by the sheriff. It states:

‘(a) The conditions of sale shall, not less than 20 days prior to the date of the sale, be prepared by the execution creditor as near as may be in accordance with Form 21 of the First Schedule, and the said conditions shall be submitted to the sheriff to settle them. The execution creditor shall thereafter supply the sheriff with two copies of the conditions of sale, one of which shall lie for inspection by interested parties at his office.

(b) Any interested party may, not less than 10 days prior to the date of the sale, upon twenty-four hours' notice to the execution creditor and the bondholders apply to the magistrate of the district in which the property is to be sold for any modification of the conditions of sale and the magistrate may make such order thereon, including an order as to costs, as to him may seem meet.’

[11] Rule 46(10) provides that ‘[i]mmovable property attached in execution shall be sold by the sheriff by public auction’ and rule 46(12) provides that, subject to rule 46(5), ‘the sale shall be without reserve and upon the conditions stipulated under subrule (8), and the property shall be sold to the highest bidder’.

[12] If a purchaser fails to perform his or her obligations in terms of the conditions of sale, the sale may be cancelled summarily by a judge, on the basis of a report made by the sheriff and after notice has been given to the purchaser.⁷ The sheriff must, however, give transfer to the purchaser ‘against payment of the purchase money and upon performance of the conditions of sale’.⁸ Finally, when payment has been received by the sheriff and transfer has been effected, he or she must prepare a plan for the distribution of the proceeds of the sale to creditors, forward this to the Registrar of the relevant High Court, and allow for objections to it. Finally, when objections have been resolved, or if there are none, payment can be made to the creditors.⁹

[D] THE CONDITIONS OF SALE IN THIS CASE

[13] Acting in terms of rule 46(8), the appellant drafted conditions of sale. They were settled by the sheriff as required by that rule. They were not challenged, before the sale in execution, by the first respondent or anyone else, in terms of the procedure set out in rule 46(8)(b). They were signed by the first respondent and the second respondent in the presence of the appellant’s legal representative after the auction.

[14] Clause 1 of the conditions of sale states that the sale of the property ‘shall be subject to the terms and conditions of the High Court Act and the Rules made thereunder and the property shall, subject to the aforegoing, be sold to the highest bidder’. Clause 2 regulates the cancellation of the sale, prior to its commencement, in certain circumstances. Clause 3 deals with disputes about bids, mistakes made by the sheriff or auctioneer and the requirement that any bidder must furnish satisfactory proof of his or her ability to pay the required deposit.

[15] Clause 4.1 places an obligation on the purchaser to sign the conditions of sale immediately after the sale, clause 4.2 requires prospective purchasers acting in a representative capacity to lodge powers of attorney with the sheriff before the sale commences and clause 4.3 requires prospective purchasers married in community of property to warrant that they have the consent of their spouses. Clause 5.1 requires the successful bidder to pay the auctioneer’s commission and value added tax, clause 5.2 sets out the payments in respect of the property, other than the purchase price, that the purchaser is obliged to make, clause 6 provides that the sale is subject to any existing tenancy, and for deviations from this provision and clause 7 provides that the property is sold voetstoets and that no warranties are given by the plaintiff, the sheriff or the auctioneer.

[16] Clause 8 deals with the manner in which the purchase price is to be paid, clause 9 places the responsibility to insure the property after signature of the conditions of sale on the purchaser and clause 10 deals with transfer. Clause 11 deals with liability for the payment of value added tax and provides that the sheriff or the plaintiff are not obliged to furnish an Electrical Installations Certificate of Compliance. Clause 12 deals with the manner of serving any notice on the purchaser and clause 13 restates rule 46(11) and spells out the consequences of a cancellation of the sale in such circumstances. Clause 15 sets out the consequences for the parties in the event of the judgment, writ of execution or sale in execution being set aside ‘for whatever reason other than the fault of the purchaser’. Clause 14 provides:

‘Should the plaintiff fail to advise the sheriff to the contrary within three (3) days of signing hereof, the plaintiff shall be deemed to have accepted the benefits herein confirmed upon it.’

[17] Clause 16 deals with a purchaser appointing a nominee, clause 17 provides that when the purchaser is a company, corporation or partnership, or if the purchaser is a nominee or a trustee, the person who signs the conditions of sale shall be deemed to have bound himself or herself as surety and co-principal debtor. Clause 18 provides for joint and several liability in the event of there being more than one purchaser and clause 19 provides for the domicilium citandi et executandi of the purchaser. Clause 21 allows for the insertion of the purchase price. Finally, clause 20 states:

‘The sale is subject to the consent of the first bond holder within fourteen (14) days after the auction.’

[18] It will be recalled that the appellant purported to withhold its consent to the sale, placing reliance expressly on clause 20 of the conditions of sale. It was argued by Mr Beyleveld, who appeared for the first respondent, that clauses 14 and 20 of the conditions of sale are in conflict with the provisions of rule 46 and are invalid on that account. Mr Pretorius, who appeared for the appellant, argued on the other hand that there was no conflict between the provisions of the rule and the conditions of sale, and that the conditions of sale, having been drafted and settled in accordance with the procedure set out in the rules were unimpeachable as a result.

[E] CLAUSES 14 AND 20 OF THE CONDITIONS OF SALE

(a) General Introductory Remarks

[19] In his founding affidavit, the first respondent stated that in his submission, clauses 14 and 20 of the conditions of sale were conditions which ‘may not be lawfully included in the conditions of sale, not being permissible in terms of rule 46(12) of the rules of this Honourable Court’. In this, perhaps cryptic manner, he raised the attack on the validity of the conditions: his case is that because of a conflict between clauses 14 and 20 of the conditions of sale, on the one hand, and rule 46(12), on the other, the conditions are invalid. The conflict arises from the fact that rule 46(12) states, in essence, that except as provided for in rule 46(5), a sale in execution shall be a sale without reserve and to the highest bidder.

[20] The second respondent chose not to deal with the issue of the validity of clauses 14 and 20, except to point out (in a letter to the first respondent) that they are mutually contradictory, a point also made by the first respondent in his founding affidavit. The appellant, on the other hand, defended the validity of the clauses: Ms Carla Cross, who deposed to the answering affidavit on behalf of the appellant, stated:

‘Insofar as legal argument is expressed in the paragraph, I further wish to draw the Honourable Court’s attention to the fact that in terms of rule 46(8)(a) the second respondent, as the execution creditor, prepared the conditions of sale as appears in ‘Annexure “HK1”’ and that there is nothing in rule 46 of the rules prohibiting the execution creditor from including conditions such as clauses 14 and 20 in the conditions of sale. This is the prerogative of the execution creditor and indeed the execution debtor and, for that matter, the persons present at the sale in execution cannot challenge the authority of the judgment creditor to include conditions such as clauses 14 and 20 as conditions of the execution sale. Full legal argument in this regard will be addressed to this Honourable Court.’

(Mr Pretorius, who appeared for the appellant, duly argued that, as the proper procedures had been followed in preparing the conditions of sale, they were unimpeachable.)

[21] In his reply, the first respondent took issue with the submission made in the answering affidavit as to the validity of clauses 14 and 20 of the conditions of sale. He stated:

‘The execution creditor’s obligation to prepare the conditions of sale does not give it the prerogative of bending the rules of this Honourable Court, and selling on conditions which could well be appropriate in sales in other circumstances, but which is not consistent with the objectives of a sale in execution. It is respectfully submitted that the “authority” of the judgment creditor in this regard is non-existent.’

[22] In her judgment in the court below, Mhlantla J arrived at the conclusion that clauses 14 and 20 of the conditions of sale were indeed invalid. She held in this regard that they were ‘inconsistent and in conflict with clause 1 of the conditions of sale, which embraces the relevant Uniform Rules of the High Court’ and that the clauses ‘should never have been inserted therein and are contrary to rule 46 and are thus declared invalid. Indeed, there would be no need to conduct a sale in execution if it were to be subject to the ex post facto consent of the creditor. It is clear from the rules that only a judge has a right to cancel a sale in execution in terms of rule 46(11)’.

[23] From the above, it appears to me that the invalidity of clauses 14 and 20 of the conditions of sale was raised squarely by the first respondent in his founding affidavit, dealt with by the appellant in the answering affidavit and decided upon by the court below.

[24] I should add that I take the view that the fact that the sheriff is required to settle the conditions of sale does not, in itself, render them valid. Settling has no effect, one way or another, on the issue of validity: it cannot and does not insulate otherwise invalid conditions from being challenged and set aside, but serves instead as a procedural precondition of a valid sale in execution that is intended to be a safeguard against inappropriate, unfair or invalid conditions being inserted by the judgment creditor. Put differently, the sheriff has no lawful authority to sanction and render valid a condition that is in conflict with the rules or another law. Secondly, I take the view that the remedy provided by rule 46(8)(b), for an aggrieved person to apply to a magistrate, at least ten days prior to the date of the sale, for the ‘modification’ of the conditions of sale is not an exclusive remedy. The High Court retains jurisdiction to set aside an invalid condition of sale after the event for the simple reason that such jurisdiction has not been ousted expressly or impliedly by a constitutionally valid legal provision.

(b) Sales in Execution and the Rules

[25] The rules of the High Court are subordinate legislation having the force of law.¹⁰ As a general rule, the rules are not peremptory in the sense that non-compliance can usually be condoned by a court.¹¹The reason for this is that the rules are intended to assist courts in the proper administration of justice and the attainment of justice: they are not an end in themselves.¹²

[26] Rules 45 and 46 regulate the process of execution, that process ‘by which practical effect is given to the terms of a court order’.¹³ These rules, unlike many of the other rules, are ‘generally speaking peremptory in nature in the sense that non-compliance may effect the validity of the ultimate sale of assets’.¹⁴

[27] The purpose of rule 46 in particular is to regulate the process of execution against immovable property in such a way, in the first instance, that the legitimate interests of the judgment creditor and the judgment debtor are safeguarded.¹⁵ As the process involves ‘a public act’¹⁶ and is conducted by a public official – the sheriff – who acts not as an agent of either the judgment creditor or the judgment debtor but as an ‘executive of the law’¹⁷ the rule also serves the wider purpose of furthering the public interest: the public interest in the execution process is obvious from the fact that it involves the effective completion of the judicial process and, in effect, the vindication of the fundamental right of access to court.¹⁸

[28] These features distinguish sales in execution as contemplated by rule 46 from other instances of purchase and sale of immovable property by means of auction. The principle of freedom of contract,¹⁹ and particularly the freedom of the parties to a contract freely to determine its terms, largely unrestrained in the latter instance, plays a subservient, and mooted, role to the provisions of rule 46 in the former instance.²⁰ In Messenger of the Magistrate’s Court, Durban v Pillay²¹ Van Den Heever JA held that ‘[p]roceedings in execution are inroads upon the rights and property of the individual in which the messenger carries out his duties sub hasta, “met den sterken arm”’ and that as a matter of statutory interpretation in instances like this, it makes sense to require strict compliance with the rules.

[29] At common law, the essential features of sales in execution, were their public nature and openness and fairness embodied in the sale by auction to the highest bidder. This appears clearly from the passage from Van Der Linden’s Institutes of Holland²² cited with approval by Thirion J in Germishuizen v Kingsburgh Town Council and others:²³

‘In the High Court the execution upon immovable property is accompanied by very many forms and ceremonies. When the attachment has been made in the presence of schepenen, notice thereof is given both to the execution debtor and the lower court. Then the process-server issues proclamations on four Sundays and market days. When the day fixed for the sale has arrived, he lights a wax candle, puts the property up for sale under certain conditions of sale which are read out in public, and knocks it down to a person who is the highest bidder at the time the wax candle is burnt out.’

[30] The essential features of sales in execution in terms of rule 46 are much the same. They are these. (a) Sales in execution are sales by public auction.²⁴ (b) Property that is sold at such an auction is sold to the highest bidder.²⁵ (c) The public at large is given notice of such sales and ‘invited’ to attend and participate, by way of advertisements published a reasonable time before the sale and which adequately describe the property to be sold and which give notice of the time and place of the sale.²⁶ (d) Sales in execution are sales without reserve, except in the circumstances contemplated by rule 46(5).²⁷ These rules are designed to enhance openness and fairness.

[31] It is against these essential features that rule 46(8) must be interpreted and understood. It entitles a judgment creditor to formulate conditions of sale that are ‘as near as may be in accordance with Form 21 of the First Schedule’. Clearly, those conditions of sale are subservient to and subject to the peremptory provisions of rule 46. The proposition that a judgment creditor can suspend or vary the operation of a provision of rule 46 by his or her own unilateral act merely has to be stated to be rejected.

[32] Form 21 contains, in clause 1, a provision that the property to be sold is to be sold ‘to the highest bidder without reserve/ with a reserve price of … ‘. This provision gives contractual content to the provisions of rule 46(12) that ‘[s]ubject to the provisions of subrule (5), the sale shall be without reserve and upon the conditions stipulated under subrule (8), and the property shall be sold to the highest bidder’. This and a number of other provisions of form 21 incorporate aspects of rule 46 into the conditions of sale. For the rest, the conditions set out in form 21 appear to fall broadly into two further categories. They are: first, those that are of an administrative or procedural nature, such as clause 2 which requires the bids to be in rands and provides that no bid of less than a rand may be accepted; and secondly, those that regulate rights, obligations and consequences after the sale, such as clause 5 which requires the signing of the conditions of sale as soon as possible after the sale.

[33] There are no clauses in form 21 that can be said to either be in conflict with the essential features of rule 46 or which contemplate the suspension of any of its provisions or a deviation from them. There are certainly no provisions in form 21 that resemble clauses 14 and 20 of the conditions of sale in this case.

(c) Conclusion on the Validity of Clauses 14 and 20 of the Conditions of Sale.

[34] It is not necessary to decide on the validity of clause 14 of the conditions of sale. Its validity is academic because the appellant did not seek to rely on it to avoid the sale but relied, instead, on clause 20. In addition, it informed the second respondent of its decision on 26 January 2002 – the date on which he received the relevant letter from the appellant – which was more than three days (whether court days or ordinary days) after the sale in execution on 18 January 2002. Clause 14 could, therefore, not have applied.

[35] The validity of clause 20 is not academic. It was relied on expressly by the appellant and its validity was, as I have shown above, squarely placed in issue by the first respondent. Its validity is central to the dispute.

[36] In my view, clause 20 is in conflict with rule 46 for three reasons. First, it purported to allow the appellant to prevent the sale of the property by public auction to the highest bidder by, in effect, purporting to vest in the appellant the power of veto. Secondly, it purported to allow the appellant to determine its own, undeclared, reserve price, despite the fact that rule 46(12) prescribed that the sale was to be one without reserve. Thirdly, it purported to entitle the appellant to choose the purchaser of the property despite the public nature of a sale in execution and, in so doing, purported to sanction the possibility of arbitrariness or worse on the part of the appellant. Clause 20, for these reasons, undermines the openness and spirit of fair dealing that are essential features of rule 46 and which values the rule is intended to promote.

[37] It cannot be said that clause 20 is a condition of sale that is contemplated by rule 46. Being in conflict with the rule, it is invalid. It could not validly have been relied upon by the appellant to avoid the sale of the property to the first respondent. That being so, the first respondent was entitled to the relief that was granted by Mhlantla J in the court below.

[F] THE ORDER

[38] In the result, the order issued in the court below is confirmed and the appeal is dismissed with costs.

______________________

C. PLASKET

JUDGE OF THE HIGH COURT

I agree.

_________________________

N. DAMBUZA

ACTING JUDGE OF THE HIGH COURT

ERASMUS J:

INTRODUCTION

[1] The appellant was the judgment creditor at the execution sale which is under consideration in this appeal. The appellant was involved in the sale in the further capacity of preferent creditor, it being the holder of a covering bond registered over the immovable property which was the subject of the sale. The first respondent, acting in his capacity of guardian of his minor son, purchased the property at the sale. (I refer to first respondent as ‘the respondent’, and to the second respondent as ‘ the sheriff’. I refer to the said immovable property as ‘the property’.)

[2] The appeal turns on the validity of clause 20 of the conditions of sale: ‘The sale is subject to the consent of the First Bond Holder within 14 (fourteen) days after the auction’. The validity of clause 14, although not in direct issue, becomes involved in the debate. It provides: ‘Should the Plaintiff fail to advise the Sheriff to the contrary within three (3) days of signing hereof, the Plaintiff shall be deemed to have accepted the benefits herein confirmed (sic) upon it.’ (Presumably ‘confirmed’ should be ‘conferred’.) The appellant in his capacity as judgment creditor failed to advise the sheriff timeously in terms of clause 14 that it rejected the sale. However, appellant in its capacity of bondholder withheld its consent to the sale in terms of clause 20. Despite demand by the respondent, the appellant and the sheriff refused to give effect to the transfer of the property in terms of the sale in execution. The respondent thereupon brought application by way of notice of motion in the court a quo for an order directing the sheriff to take such steps ‘as are necessary’ to give effect to the transfer and registration of the property. The application succeeded but the Judge (Mhlanthla J) granted the appellant leave to appeal to this court.

[3] In his founding affidavit, the respondent contends that at the sale the sheriff publicly deleted clauses 20 and 14 from the conditions of sale. This is denied by the legal representative of the appellant who attended the sale (a Ms. Cross), as well as by the sheriff. They dispute the factual basis of respondent’s contention. On the principles expounded in Plascon-Evans Paints Ltd vs Van Riebeeck Paints (Pty) Ltd 1984(3) SA 623 (A) 634E-635C, an application on motion must be decided on the basis of what is common cause and where there is dispute, on the version of the responding party. Furthermore, rule 46 prescribes that the property shall be sold upon the conditions of sale prepared by the execution creditor (subrule (12) read with subrule (8)(a)). The sheriff therefore does not have the power to alter those conditions at the sale (Van Winsen, Cilliers and Loots Herbstein and Van Winsen, The Civil Practice of the Supreme Court of South Africa ed Dendy 4^th ed 794 fn 309). It follows that the appeal must be decided on the basis that clause 20 formed part of the conditions of sale upon which the auction was conducted and the sale was concluded.

[4] The application succeeded on a question of law. In her judgment, the learned Judge a quo declared that the application of clause 20 (as well as clause 14) would have the effect of changing the sale in execution into a private sale. She found that it was not the legislature’s intention that an execution creditor insert clauses in the conditions of sale contrary to the rules. She held that clause 20 (also 14) is in conflict with the conditions of sale which are embraced by the Uniform Rules of Court. Her Ladyship accordingly declared the two clauses to be invalid and held that the respondent was therefore entitled to its order on the remaining terms of the sale. My Brother (Plasket J) upholds the finding that clause 20 is invalid for being in conflict with the rules and holds that it therefore cannot validly be relied upon by the appellant to avoid the sale of the property to the respondent.

[5] As I see it, the court a quo said to the contracting parties: ‘You entered into a contract of sale at a sale in execution. The contract contained a suspensive condition which was never fulfilled. That condition is however invalid because it arose from a clause in the conditions of sale in conflict with the rules of court which regulate sales in execution. We therefore strike out the offending condition and so present you with a valid perfected agreement of sale.’ With respect, I cannot go along with the propositions of law which underlie that order. I hold that no enforceable contract of sale arose at or out of the execution sale, in that:

(a) clause 20, which constitutes a suspensive condition which was not fulfilled, is valid (paras [6] to [25]);

(b) if clause 20 is invalid, then the contract of sale is invalid, the clause not being severable from the contract (paras [26] to [30]); and

(c) in any event, the court a quo did not have the power to enforce the contract without the suspensive condition being part thereof (para [31]).

THE VALIDITY OF CLAUSE 20

[6] Rule 46 of the Uniform Rules of Court regulates the execution process in regard to immovables. It is common cause, or not in dispute, that the conditions of sale which contained clause 20 were in order procedurally in terms of rule 46, that is prepared by the execution creditor in terms of subrule (8)(a); settled by the sheriff in terms of subrule (8)(a); the fact that they could be inspected at the office of the sheriff stated in the notice of sale (subrule (7)(b)); and the notice of sale duly published in a newspaper and the Government Gazette (subrule (7)(a)).

[7] The nature and effect of clause 20 is under challenge by the respondent, not the fact of its presence in the conditions of sale. I therefore need not set out my reasons for holding that Form 21 to the Supreme Court Act 59 of 1959 which relates to the ‘CONDITIONS OF SALE IN EXECUTION OF IMMOVABLE PROPERTY’, is neither exclusive nor immutable.

[8] It is important to note that we are here not concerned with the validity of clauses 20 and 14 as part of the conditions of sale regulating the judicial sale, but with their enforceability in the setting of the contract emerging from the sale in execution. The former question is relevant only to the extent that it impacts upon the latter (see paras [18] to [25]). At the fall of the hammer, the conditions of sale undergo a radical change in status: they (or certain of them) metamorphosize into terms and conditions of the contract (Nicolau vs Navarone Investments (Pty) Ltd 1971 (3) SA 883 (WLD) 884 H). The enforceability of those conditions must therefore be decided on the principles that govern the validity of terms and conditions of a contract.

[9] Clause 20 is clearly a suspensive condition, clause 14 resolutive. Such conditions in commercial agreements are well-established mechanisms recognised by law whereby contracting parties protect their interests. The court is referred to no authority to the effect that they are unenforceable in a sale entered into at a judicial auction. The passage from Van Der Linden’s Institutes of Holland 3.9.11 and 12 referred to by Plasket J (at para 29) states that the process-server puts up the property for sale ‘under certain conditions of sale’. Nowhere in the work does the learned writer state that suspensive or resolutive conditions were excluded from such sales conditions. It is further to be noted that according to him the final knockdown when the wax candle was burnt out did not establish finality. The sale was followed by elaborate further process leading to the registrar of the High Court drawing up a deed of proclamation, i.e. an invitation to one and all to make a higher bid than the price already bid. The execution sale was merely provisional; the actual sale took place at the Rolls of the court. In effect therefore, the contract entered into at the judicial auction was subject to a negative condition precedent.

[10] I can find no decided case that suggests or even considers the proposition. The question is not addressed in any of the standard text books which I have consulted, namely AJ Kerr The Principles of the Law Of Contract 5^th ed; RH Christie The Law of Contract 4^th ed; De Wet and Yeats Kontraktereg en Handelsregs 4^th ed; Van Der Merwe, Van Huyssteen, Reinecke and Lubbe Contract General Principles 2^nd ; G.R.J. Hackwill Mackeurtan, Sale of Goods in South Africa.

[11] It would seem therefore that the question of the enforceability of clauses 20 and 14 in the contract will have to be decided on general principles. In Sasfin (Pty) Ltd vs Beukes 1989(1) SA 1 (A), the Court of Appeal had to decide whether certain provisions in a cession in securitatem debiti were valid. Smalberger JA who spoke for the majority of the court considered fully the principles relating to the validity of contracts (7I-9G). I repeat verbatim certain of the learned Judge’s comments relevant to the present question as well as portions of dicta from authority referred to by him with approval, but leaving out the references for the sake of brevity and clarity; as follows.

‘Our common law does not recognise contracts that are contrary to public policy. That concept is an expression of vague import, and what the requirements of public policy are must needs often be a difficult and contentious matter. An agreement is contrary to public policy if it is opposed to the interests of the State or of justice, or of the public. Agreements which are clearly inimical to the interests of the community, whether they are contrary to law or morality, or run counter to social or economic expedience, will accordingly, not be enforced. Writers generally classify illegal or unenforceable contracts into contracts that are contra bonos mores and those contrary to public policy. Some include an additional classification, viz those contrary to the common law. These classifications are interchangeable, for in a sense all illegalities may be said to be immoral and all immorality and illegality contrary to public policy. These classifications may not be of importance in principle, for where a court refuses to enforce a contract it ultimately so decides on the basis of public policy. It is nonetheless convenient to deal with unenforceable contracts under these various heads. Although no court should shrink from the duty of declaring a contract invalid when the occasion so demands, the power to declare contracts contrary to public policy should be exercised sparingly and only in the clearest of cases, lest uncertainty as to the validity of contracts result from an arbitrary and indiscriminate use of the power. In grappling with this often difficult problem it must be borne in mind that public policy generally favours the utmost freedom of contract, and requires that commercial transactions should not be unduly trammelled by restrictions on that freedom.’

The sanctity of contract, it seems, is of prime importance when it comes to the striking out of conditions from a contract.

[12] G.R.J. Hackwill Mackeurtan, Sale of Goods in South Africa (para [9]) describes the mechanics of an auction: ‘Where the sale is without reserve, the putting up of the article is the offer; each bid is an acceptance. ‘The agreement of sale thus concluded is subject to a condition that if a higher bid be not made within a reasonable time, the sale shall be effective. The condition is negative and suspensive, failing if a higher bid be made, and being fulfilled if no higher bid is forthcoming’. In this manner the highest bid at a sale in execution establishes consensus ad idem on a contract of sale constituted of the terms and conditions contained in the conditions of sale and the highest bid. The same applies to sales in execution.

[13] The contract is between the sheriff and the bidder. This is made clear in the judgment of the Full Bench of the Transvaal Provincial Division (per Eloff JP) in Sedibe and another vs United Building Society 1993(3) SA 671 (T) . The purchaser of immovable property in a sale in execution had become unable to obtain vacua possessio. He thereupon instituted proceedings for cancellation of the sale and restitutio in integrum against the execution creditor (who was also the mortgagee of property) and the sheriff of the magistrate’s court. The application was dismissed in the court a quo on the basis (so the court held) that the sheriff had acted at the sale in execution solely as the agent of the judgment debtor who had not been joined in the application. The subsequent appeal to the Full Bench was successful. In his judgment, Eloff JP subscribed to the several decisions where it was held that in performing his functions, the messenger or sheriff does not act as an agent of anybody but as an executive of the law (776B). That principle, so he held, applies with equal force where the sheriff disposes of property in pursuance of a sale in execution. He explained: ‘When, as part of the process, (the sheriff) commits himself to contractual terms, he does so suo nomine by virtue of his statutory authority; he becomes bound to the terms of the contract in his own name and he may enforce it on his own’. This reasoning led the court to the conclusion that the obligation to guarantee vacua possession, was that of the sheriff (see too Syfrets Bank Ltd and others vs Sheriff of the Supreme Court, Durban Central, and another 1997(1) SA 764 (DCLD) 773 E-F).

[14] In the execution process, the right to sell is taken out of the hands of the judgment debtor by the court and placed in the hands of the sheriff. However, as is illustrated in the Sedibe case (para [13]), this does not in any way detract from the fact that the essential basis of the contract arising from a sale in execution is consensual; as is the case in all agreements (Saambou-Nasionale Bouvereniging vs Friedman 1979(3) SA 978 (A) 993F.) Consensus is an absolute concept not capable of gradation, attenuation or qualification. This holds true also in the case of judicial sales. For a court therefore to declare invalid any of the terms and conditions of a sale arising at a sale in execution would constitute interference in the parties’ consensus, justifiable only on the limited grounds spelt out in Sasfin (Pty) Ltd vs Beukes (para [11]).

[15] The purpose of clauses 20 and 14 in the contract of sale is clear: the immediate aim is to give the judgment creditor control over the sale; the ultimate objective is to obtain the best price for the property, or to avoid a give-away price. This accords with the purpose of execution which is to give practical effect to the order of court. The whole process, from the beginning to the final act, is driven by the judgment creditor for its benefit, not that of the purchaser. There can therefore be no objection in principle or policy to the creditor instructing the sale on (reasonable and lawful) preconditions designed to achieve the best price so as to avoid the sale of the property at an unrealistically low price. Such a measure does not run counter to social and economic expediency; in fact, it is clearly against the interests of the public that the purchaser be unduly enriched at the expense not only of the judgment creditor, but also the body of creditors and the debtor.

[16] The law affords the purchaser qualified inviolability against vindication by the owner of the property purchased at a sale in execution (see s 70 of the Magistrates’ Courts Act 32 of 1944 which codifies the common law; Sookdeyi and others vs Sahadeo and others 1952(4) SA 568 (A) 571-2). The law thereby assists the execution creditor in its endeavour to achieve the best price at the auction by encouraging bidding on the property. However, conditions such as clauses 20 and 14 could have an inhibiting effect on the bidding. The commercial decision involved in balancing the conflicting considerations in the drafting of the conditions of sale, lies with the execution creditor; the court cannot usurp that function. In the present matter, that decision is expressed in clauses 20 and 14 of the conditions of sale.

[17] Those clauses are not illegal, immoral or offensive to public policy. On the contrary, it would be inimical to principle and policy to allow a purchaser to renege from conditions in a contract unequivocally agreed by him by bidding on those conditions at a public auction. Furthermore, striking out the precondition from the contract of sale would involve the sheriff in a contract different to that offered by him at the auction; it would prejudice other potential purchasers who may have been inhibited in their bidding by the particular condition; it would compromise the certainty and finality of execution sales, both past and future.

[18] I find that on the general principles of our law there can be no objection to the content and nature of clauses 20 and 14 as conditions of a contract of sale. Respondent’s objections to these clauses in the particular circumstances of the case are directed more at the procedure whereby they came to be incorporated in the contract.

[19] The court a quo decided the application exclusively within the framework of Uniform Rules of Court, without reference to general principles. The court found clauses 20 and 14 to be in conflict with clause 1 of the conditions of sale read with subrule (12) where the essential nature of a sale in execution is defined. The subrule dictates that ‘(s)ubject to the provisions of subrule (5), the sale shall be without reserve and upon the conditions stipulated under subrule (8), and the property shall be sold to the highest bidder.’ Nothing in the subrule, or any of the other subrules of rule 46, expressly forbids the inclusion of a precondition in the conditions of sale. The objection to clause 20 is based on interpretative deduction. The essence of the objection lies in the requirement that a sale in execution shall be ‘(w)ithout reserve and upon the conditions stipulated under subrule (8).’ Purely within the provision itself, the requirement that the sale shall be ‘without reserve’, followed by the conjunction ‘and’ could appear to preclude the inclusion of a reserve price in ‘(t)he conditions stipulated in subrule (8)’.

[20] This reasoning is premised on the assumption that clauses 20 and 14 amount to the execution creditor (secretly) setting a reserve price. This is not however a necessary or only inference. Where there is a reserve price fixed in the conditions of sale, a contract arises if the highest bid equals or exceeds that price; if not, the sale in execution aborts. The device of a suspensive or resolutive condition is more flexible and complex. It affords the execution creditor in whose favour the conditions operate, the opportunity of taking stock of its position. It can, after the sale, consider the highest bid in the light of the circumstances that obtained at the sale. It could then decide to accept the highest bid despite it being less than the expected figure; or, on the other hand, it could reject the bid even if it is better than the figure it might have had in mind. It could of course have had no set figure in mind prior to the sale. On this basis, the effect of the conditions contained in clauses 20 and 14 differ materially from that of a reserve price. It follows that subrule (12) is capable of bearing the interpretation that it tolerates the inclusion of provisions such as clauses 20 and 14 in the conditions of sale.

[21] There are other considerations, outside of the subrule, that favour this more liberal interpretation. To start with, the two clauses are not offensive to principle or policy (see para [12]). Furthermore, the conditions contained in the two clauses reflect the purpose of sales in execution -which is to obtain some satisfaction of the judgment debt for the best benefit of the judgment creditor. This objective is reflected in subrule (8)(a) where it dictates that the conditions of sale shall be prepared by the execution creditor.

[22] I am in respectful disagreement with the view that the two clauses compromise the openness and fairness of the sale. Prospective purchasers at a sale in execution are on an equal footing to one another as well as in relation to the sheriff. They are under no obligation or pressure to bid. They are free to reject the conditions of sale by remaining silent, or to accept them by bidding. The right of veto inherent in the clauses may be open to abuse (like many other rights are). This circumstances does not however in itself afford grounds for their vitiation. There are other remedies available to deal with wrongful conduct. Each case must be dealt with on its own particular facts and circumstances. In the present matter, there is nothing to suggest that the appellant’s purpose is other than the legitimate protection of its commercial interests.

[23] It is I think necessary at this point to compare rule 46 with the corresponding procedure in the magistrates’ courts. Section 66(2) of Act 32 of 1944 provides that ’(n)o immovable property which is subject to any claim preferent to that of the judgment creditor shall be sold in execution unless … the proceeds of the sale are sufficient to satisfy the claim of such preferent creditor in full (para (c)); or the preferent creditor confirms the sale in writing, in which event he shall be deemed to have agreed to accept such proceeds in full settlement of his claim (para (d)).’ The provisions of s 66(2)(d) clearly constitute a suspensive condition comparable to clause 20. It is difficult to see how a provision that is a statutory prescript for an execution sale in the magistrates’ courts can be offensive to public policy in that same procedure in the High Court. What is more, rule 43(10) of the relevant magistrates’ courts’ rules is practically the same as subrule (12). It provides that ‘(t)he sale shall be by public auction without reserve and the property shall, subject to the provisions of s 66(2) of the Act and to the other conditions of sale, be sold to the highest bidder’. On the reasoning of the court a quo, the requirement that the sale shall be ‘without reserve’ would be in conflict with s 66(2)(d) of the Act. Inasmuch as the rules must give way to the Act, this would mean that the rule is invalid in that regard. I very much doubt that this can be the position. To my mind, rule 43(10) should if possible be interpreted to be in tune with s 66(2)(d) of the Act. This can be achieved on the reasoning that leads me to my finding that clauses 20 and 14 are in tune with subrule (12) (para [20]).

[24] But even if clause 20 constitutes an irregularity in the conditions of sale, it does not follow that the purchaser is therefore entitled to the remedy of striking out the corresponding condition from the contract of sale. There are other remedies available to a party unhappy with a condition of sale. Any interested party may in terms of subrule (8)(b) apply for modification of the offending provision, or have the court review the administrative action of the sheriff in settling the conditions in terms of subrule (8)(a). I make no finding on the precise nature and ambit of these remedies; nor on their merits in the present circumstances. Their existence does however suggest that irregularities in the conditions of sale can and therefore should be remedied by modification prior to the sale in execution, not by the purchaser assailing the conditions of the contract to which it agreed when bidding at the sale.

[25] The respondent is furthermore in a dilemma: a material irregularity in the execution process would be fatal to the validity of the sale in execution and render the resulting agreement of sale a nullity, in which case the respondent could not enforce any part thereof; whereas a minor irregularity which does not affect the validity of the sale in execution would not impact on the validity of the ensuing contract of sale. There is in the present circumstances no basis in law for the suggestion that the alleged irregularity in the conditions of sale invalidate a portion only of the contract arising at the sale. This brings me to the question of severability.

SEVERABILITY/DIVISIBILITY

[26] Following its finding that clause 20 is invalid, the court a quo, with respect, before enforcing the remaining terms of the contract should have considered the question whether the ‘invalid’ condition was severable. For if clause 20 is void and invalid (which on my finding it is not), the question arises whether that portion of the sales agreement is severable and the remainder enforceable as in Du Plooy vs Sasol Bedryf (Edms) Beperk 1988(1) SA 438 (A).

[27] In Sasfin (Pty) Ltd vs Beukes (para [11]), Smalberger JA found that a number of provisions in the deed of cession there under consideration were contrary to public policy. This brought him to the question of severability (at 15I-J). As starting point, the learned Judge of Appeal referred to the comment by Botha J (as he then was) in Vogel NO vs Volkerz 1977(1) SA 537 (T) 598F to the effect that the ‘(f)undamental and governing principle’ with regard to severability is ‘(t)o have regard to the probable intention of the parties as it appears in, or can be inferred from, the terms of the contract as a whole’. Smalberger JA then examined the particular circumstances of the case and concluded that the offending provisions were not severable (17B-H). He found that ‘(m)ost, if not all, of the clauses which offend against public policy are fundamental to the nature and scope of the security which Sasfin obviously required. They contain provisions which are material, important and essential to achieve Sasfin’s ends; they go to the principal purpose of the contract, and are not merely subsidiary or collateral thereto’. Severing the offending clauses, he found, would therefore offend against the well-established principle that a court will not make a new contract for the parties. The principles expounded by Smalberger JA are of obvious application in the present matter.

[28] It is clear from the judgment of the learned Judge of Appeal that the effect of the invalid clause on the agreement is of decisive importance to its severability. The presence of a truly suspensive condition in a sales agreement (such as clause 20) has a material effect on the rights and obligations arising from that agreement. RH Christie The Law of Contract 4^th ed (para [9]) 161/2 describes by way of examples how such an agreement differs from one without a suspensive condition:

‘The differences between the contract of sale before the fulfilment of the condition precedent and the emptio perfecta after its fulfilment remain. Thus the date on which payment of transfer duty is due may be affected, as may the running of prescription, the question of whether a prohibited or criminal sale has been committed or the question whether conditions of establishment of a township have been contravened. More particularly, in a sale subject to a suspensive condition, delivery of the merx before the fulfilment of the condition does not pass ownership to the buyer, so the seller can vindicate from a third party, the buyer cannot pledge the merx, it does not pass to his trustee in insolvency, the risk remains with the seller, and the merx will not be subject to the lien of the buyer’s landlord if the seller takes reasonable steps to protect his ownership. Although he does not yet have ownership the buyer may, however, let the merx out on hire, provided he does not thereby prejudice the enforcement of the seller’s rights. The seller who has not delivered may not dispose of the merx to a third party.’

[28] Clearly, clause 20 is fundamental to the very nature of the contract entered into by the sheriff and the respondent. It is most certainly not merely subsidiary or collateral thereto. It is an integral and inseparable part thereof. It cannot be severed from the rest of the agreement without profoundly changing the essential nature of that agreement. It follows that the order of the court a quo creates and enforces an agreement materially different from that reached at the sale, in other words, the court would do what no court can do – make a new contract for the parties.

[29] For these reasons, I find that clause 20 if invalid is not severable from the remainder of the agreement. The consequence of this finding is set out by Smalberger JA in the Sasfin matter (para [11]) at 18G-H: ‘It is a well-recognized principle of our law that a contract which contains illegal terms is devoid of legal effect unless the offending terms are severable.’ In the present matter, the conditions in question not being severable, would if invalid drag down the whole of the contract. On that basis, the court a quo should have dismissed the application, for it is axiomatic that a court cannot enforce an invalid contract.

COMPETENCY

[30] The condition precedent contained in clause 20 was incorporated in the contract of sale for the benefit of the execution creditor who was also the bondholder. It inserted the clause in the conditions of sale deliberately and with definite purpose. The sheriff had no option but to put up the property for sale on the basis of the conditions of sale containing that clause (see para [3]). He lacked the necessary authority to enter into an agreement which did not contain that condition; the court a quo lacked the competency to order the sheriff into a contract which he did not have the power himself to enter into.

CONCLUSION

[31] In the result, the appeal succeeds with costs. The order of the court a quo is set aside for the following order:

‘The application is dismissed with costs’.

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A.R. ERASMUS

JUDGE OF THE HIGH COURT

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