27 May 2015 by Real Estate Alert

Revocation of an instruction to a conveyancer

In Stupel & Berman v Rodel Financial Services, the Supreme Court of Appeal (SCA) determined the nature of a client's instruction to a conveyancer to pay funds to a third party on the client's behalf and whether such instruction is capable of revocation.

Stupel & Berman Incorporated (Stupel & Berman) was appointed by Amber Falcon Properties 3 (Pty) Ltd (Amber Falcon) to act as conveyancer in the registration and transfer of an immovable property which was sold to Cross Atlantic Properties 186 (Pty) Ltd (Cross Atlantic). Prior to the registration and transfer of the property into the name of Cross Atlantic, Amber Falcon obtained two bridging finance loans from Rodel Financial Services (Pty) Ltd (Rodel) in the form of discounting agreements. Each of the discounting agreements comprised of two parts, namely terms and conditions, and a schedule.

In terms of the discounting agreements, Amber Falcon agreed to cede the proceeds of the sale agreement concluded with Cross Atlantic to Rodel against payment of the loans. Although the schedules to each of the discounting agreements were signed by Stupel & Berman, it was not a party to, nor was it aware of the terms and conditions agreed upon by Amber Falcon and Rodel. However, the schedules of each of the discounting agreements, which were signed by Stupel & Berman, contained an undertaking by it to "pay to Rodel from the proceeds of the above amount within 72 hours of registration of transfer/receipt of the funds, unless prevented by interdict or operation of law".

Prior to registration and transfer of the property into the name of Cross Atlantic, the sale agreement entered into between Amber Falcon and Cross Atlantic was cancelled. Amber Falcon informed Rodel that the property would be remarketed and auctioned at a higher price, and that the proceeds of the sale would secure the advances provided by it. However, Cross Atlantic obtained an interdict against the disposal of the property by Amber Falcon and in terms of a settlement agreement between Amber Falcon and Cross Atlantic, it was agreed that the sale would proceed. Upon reaching settlement with Cross Atlantic, Amber Falcon informed Rodel that the sale would not be effected in the near future and therefore offered to settle its debt to Rodel for an amount which would be substantially less than the proceeds which Rodel was owed in terms of the discounting agreements.

Rodel proceeded to cancel the discounting agreements with Amber Falcon and demanded repayment of its advance with costs and interest. Amber Falcon accepted the cancellation and on its instruction, Stupel & Berman withdrew its undertaking to Rodel. Accordingly, upon registration and transfer of the property into the name of Cross Atlantic, Stupel & Berman transferred the proceeds of the sale directly to Amber Falcon.

Rodel, after an unsuccessful attempt to execute the judgment obtained by it against Amber Falcon, pursued a claim against Stupel & Berman for the cession of the proceeds of the sale. Rodel contended that it stood in the position of an adjectus solutionis causa. According to South African law, the existence of an adjectus solutionis causais created by way of an agreement between a debtor and a creditor. In terms of such agreement, the debtor will be entitled to pay a third party the same amount which it owes to the creditor in order to discharge its debt to the creditor. According to Rodel, the discounting agreements constituted tripartite agreements in terms of which Stupel & Berman, as debtor to Amber Falcon, was obliged to transfer the proceeds of the sale to Rodel in order to discharge its debt to Amber Falcon. Our law provides that once an adjectus solutionis causais nominated to be paid, the creditor (Amber Falcon for the purposes of Rodel's argument) cannot unilaterally change or revoke the instruction given by it to the debtor (Stupel & Berman for the purposes of Rodel's argument). However, the SCA determined that no tripartite agreement existed between the parties, but rather that the undertaking given to Rodel by Stupel & Berman comprised of a stand-alone agreement to which Amber Falcon was not a party, therefore rendering Rodel's argument erroneous. Furthermore, the SCA noted that the election to render performance to an adjectus solutionis causais at the discretion of the debtor and that the third party would not have a claim against the debtor as a result of his failure to perform. Accordingly, even if Rodel was an adjectus solutionis causa(which the SCA found it was not), its claim against Stupel & Berman would be unfounded in our law.

The SCA further stated that Stupel & Berman had not contracted with Rodel in its personal capacity but rather that it was acting in terms of its mandate as the agent of Amber Falcon. The SCA considered whether Rodel had a claim against Stupel & Berman in terms of the law of agency. The general rule in terms of our law of agency is that the principal is fully entitled to amend or revoke a mandate given to an agent. The exception to this rule applies when the agent is authorised to act for his own benefit. In such circumstances, the principal cannot revoke a mandate that is either coupled with an interest of the agent or which forms part of a security afforded to the agent. Rodel argued that Stupel & Berman stood to benefit from the mandate in the form of conveyancing fees paid to Stupel & Berman to execute the registration and transfer of the property into Cross Atlantic's name, and that Amber Falcon was therefore not entitled to revoke the mandate. However, the SCA distinguished between Stupel & Berman's mandate to execute the registration and transfer, and the firm's mandate to transfer the proceeds of the sale to Rodel, the latter of which bestowed no benefit to Stupel & Berman. The SCA further explained that even if such exception did apply, the appropriate remedy would be the payment of damages and not specific performance.

The SCA noted that Rodel's interests would have been best served had it either interdicted Stupel & Berman from giving effect to the revocation of mandate at the outset or instituted interpleader proceedings.

This decision of the SCA has provided clarity regarding the distinction between an adjectus solutionis causaand an agent. In addition, the judgment reiterates that the conveyancer, as agent, can only transfer funds upon the instruction of its principle.

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