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Bond Clauses

Murphy and another v Durie 2006 JOL 18301 (C) [7 September 2006]

When has a loan been “obtained” by a Purchaser? Does the word “obtained” mean the same as “granted”? Does the word “granted” mean the same as “granted in principle”?

Most sales of residential properties are subject to the suspensive condition that the purchaser “obtains a loan from a bank”. These conditions are often referred to as bond clauses or mortgage bond clauses as the loans are secured by a mortgage bond which is registered over the property when the property is transferred into the Purchaser’s name.

If one reads through the bond clauses which are contained in the deeds of sale used by estate agents and attorneys in respect of the sale of property then the wording will, to the untrained eye, appear to be similar in most of these contracts. However, there have been a number of court cases over the years which have revolved around the interpretation of the wording contained in these bond clauses.

In the Cape High Court case of Murphy and another v Durie, the Judge had to interpret the meaning of a bond clause which read “this sale is subject to the purchaser obtaining in principle a mortgage bond… by no later than 9 December 2003”.

The Seller claimed that the suspensive condition relating to the obtaining of the bond had not been timeously fulfilled. In other words the Seller claimed that the Purchaser had not “obtained in principle a mortgage bond” by the 9th of December, that the sale had therefore lapsed and that he (the Seller) was accordingly entitled to sell the property to another person. The Purchaser claimed that the bond had been “obtained” in time and that the agreement was therefore binding.

After considering the wording and the facts relating to the case, the Judge ultimately decided that the suspensive condition had not been fulfilled. This case once again highlighted the importance of ensuring that the wording contained in the bond clause in a deed of sale is clear and unambiguous. It is also important that the parties understand what will be required in order for the suspensive condition to be fulfilled. For example the words “subject to the approval of a loan in principle” have a very different meaning (and therefore a very different practical effect) to the words “subject to the purchaser obtaining a loan”.

For more information on suspensive conditions click here.


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