2 February 2008 by

Mother in law to the rescue?

Christos Costas had two substantial judgements granted against him. He decided to sell his holiday home in Cape Town. His mother in law, not wanting the family to lose the use of the property for their holidays, suggested that her daughter buy the property and that she would fund the transaction. An agreement was concluded in terms of which Costas' wife was entitled to nominate a purchaser within 30 days of the sale, and she nominated her mother’s company, Dream Supreme Properties.

It so happened that one of the judgement creditors became aware of the sale and had the property attached and sold in execution to one Tanja Kirkham prior to transfer taking place. Dream Supreme demanded on numerous occasions that the sale should not proceed and eventually brought an application to the Cape High Court to have the sale set aside.

Dream Supreme relied on the "Doctrine of Notice" saying that because the judgement creditor was aware of the prior sale, Dream Supreme had a better right to the property than Tanja Kirkham. The court dismissed the application on the basis that the agreement of sale between Christos Costas and Dream Supreme was not concluded in good faith. The court also dismissed an application for leave to appeal.

Dream Supreme persevered with their argument all the way to the Supreme Court of Appeal, but without success. The court distinguished between a situation of a normal sale with a second purchaser, and one with a judgement creditor. In the latter instance the judgement creditor merely acts in accordance with his rights to sell the property in order to satisfy the judgement debt, and thus, even if aware of a prior sale, an inference of fraud could not be automatic. The court therefore held that the Doctrine of Notice was not to be applied in situations such as these, and that to extend the application of the doctrine would allow unscrupulous debtors to fabricate personal rights, and would also discourage purchasers from taking part in sales in execution where a claim to a prior personal right had been made by a third party.

The moral of the story: your mother in law doesn't always know best.

Tim Fletcher and Giada Masina. 

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