Fraud unravels all subsequent transactions

In Moseia and Others v Master of the High Court: Pretoria and Others (36201/2018) [2021] ZAGPPHC 37, the court reaffirmed the principle that fraud renders the so-called real agreement between parties defective, with the consequence that ownership of immovable property did not pass from a fraudulent transferor to bona fide transferees.

3 Mar 2021 4 min read Real Estate Alert Article

At a glance

  • Fraud renders the real agreement between parties defective, leading to the invalidity of property ownership transfer.
  • Ownership of immovable property requires a real agreement between parties and delivery of the property through registration.
  • Even if subsequent transfers are made to bona fide purchasers, fraud unravels all transactions, and a court can set aside the transfer of property.

South African law, as provided for in Legator Mckenna Inc and another v Shea and others 2010 (1) SA 35 (SCA), has adopted the abstract theory in respect of the passing of ownership of immovable and movable property. Muller, Brits, Pienaar and Boggenpoel’s Silberberg and Schoeman “The Law of Property” 6th edition (2019), highlights that there are two requirements that must be met for ownership to pass from one person to another. Firstly, there must be a real agreement between the parties and essential elements of this agreement are the intention to pass transfer and the intention to receive transfer. The transferor must be legally competent to transfer the property and can only transfer property that he or she owns. Thus, if a person sells property in his personal capacity, which he does not own, he will first have to acquire the property to pass transfer to another. Secondly, the property must be delivered to the transferee, which, in the case of immovable property, is effected by registration in the Deeds Office. Consequently, even if the underlying agreement, such as a sale agreement or agreement of donation, is defective or invalid, if the real agreement is valid and the transferor has delivered the property to the transferee by way of registration, ownership will have passed to the transferee.

In the Moseia case, the legal question was whether the real agreement was defective because of the fraud committed by the transferor. The facts were that the second respondent had misled the Master of the High Court by falsely misrepresenting that he was the son of the deceased and that she had died intestate. As a result of the misrepresentation, the Master issued letters of authority in favour of the second respondent, who subsequently transferred the deceased’s property to himself, whereafter he sold and transferred the property to the third and fourth respondent. The first applicant, who had been the nominated executrix and rightful heir in terms of the deceased’s will, became aware of the second respondent’s fraud and approached the court for an order to declare both transfers null and void.

In support of their contention that the second respondent’s transfer to them was valid, the third and fourth respondents relied on Quatermark Investments Proprietary Limited v Mkwananzi and Another 2014 (3) SA 96 SCA, where the Supreme Court of Appeal stated, “the validity of the transfer is not dependent upon the validity of the underlying transaction……”. The essential elements of the real agreement are an intention on the part of the transferor to transfer ownership and the intention of the transfer to become owner of the property. They submitted that as the executor of the deceased’s estate, the second respondent had in both transfers of the property the intention, first to himself and then later to the third and fourth respondents, to pass transfer and that the third and fourth respondents had the intention to receive transfer of the property. As such, they submitted, the two requirements for the passing of ownership were met as there was a real agreement (the intention to pass and receive transfer) and delivery, in the form of registration in the Deeds Office. The court disagreed and held with reference to Nedbank Limited v Mendelow No (686/12) [2013] ZASCA 98, that the second respondent, due to his fraud and misrepresentation in attaining letters of authority, was not the authorised executor of the estate. The court clarified that only a true representative or executrix of the deceased estate could form an intention to transfer and;

“in the result there was no real agreement to transfer and the transfer is void ab initio”.

This entailed that although the third and fourth respondents were bona fide purchasers, the transfer of the property by the second respondent to them was also void ab initio, since the second respondent had never become the owner of the property and subsequently could not have passed ownership to the third and fourth respondents. The court reiterated that “fraud unravels all subsequent transactions, even, as in this instance, a subsequent sale to bona fide purchasers” and granted the order sought by the first applicant.

The judgment follows previous case law and it serves as a reminder that fraud or misrepresentation will render the real agreement – one of the essential requirements for ownership to pass – defective. The result is that the transfer of property to bona fide purchasers can be set aside by a court order.

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