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RECENT CASE LAW
When is a guarantee for payment of the purchase price a guarantee?
In Koumantarakis Group CC v Mystic River Investment 45 (Pty Ltd) the Supreme Court of Appeal considered the meaning of a clause in an agreement of sale of immovable property in terms of which the buyer had to furnish to the seller a bank guarantee “to the satisfaction of the seller” for payment of the purchase price.
The Pocket Oxford Dictionary, 5th edition, defines a guarantee as being a “thing serving as security for fulfillment of conditions”. Guarantees furnished by banks however are hardly ever irrevocable and the Banks usually reserve to themselves the right to withdraw the guarantee. What kind of security is that, you might well ask. In this case the bank guarantee furnished provided that "should any new or previously undisclosed fact emerge which may prejudice the Bank’s security or any circumstances arise to prevent or unduly delay registration of the abovementioned transaction/s we reserve the right to withdraw herefrom by giving you written notice to that effect, whereupon the said sum will no longer be held at your disposal."
The seller was not satisfied with this. It wanted an irrevocable guarantee, one that would satisfy it beyond any question that payment would actually be forthcoming on registration. Its counsel described the guarantee given by the buyer as “replete with loopholes, dangers, doubts and uncertainties”. It was argued that the seller had been quite entitled to reject the guarantee.
In a judgment delivered on 14 May 2008, the full Court disagreed. It held that the seller was not entitled to insist upon an “irrevocable” guarantee, and that what had been furnished was enough to comply with the buyer’s contractual obligations.
Obtaining a real and certain guarantee for payment of the price is often of much importance in property transactions. The case of Koumantarakis again demonstrates the necessity to consult fully with your attorney before concluding an agreement of sale. This is the best way to be sure that your interests are protected.
Our property law department advises on all aspects of property law including property development, sub-divisions, re-zoning and sectional title developments.Should you wish to speak to a conveyancer about any property-related concern you may have, please feel free to contact Juna Phillips at (021) 441 9800 or at j.phillips@bissets.com.
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