As published in Business Day’s September 2024 Business Law and Tax Supplement.
A recent Supreme Court of Appeal judgment highlights the unpleasant long-term consequences which can arise when families do business together without carefully thinking through what they are doing and without properly documenting their transaction.
In this case, an elderly couple decided to sell their home to their son-in-law, who, at the time of the transaction, was considered to be very much part of the family and who was indeed treated as their own son.
The son-in-law persuaded his parents-in-law to enter into an Agreement of Sale in terms of which, on the face of it, the purchase price for their property was R4 500 000 although, on the version for the son-in-law (this was denied by his parents-in-law), the amount had been inflated by R1 000 000 so as to enable the son-in-law to raise a bond of effectively 100% of the ‘value’ of the property. He duly secured a loan from Absa Bank for the sum of R3 375 000, thereby committing (on his version) an act of fraud on Absa.
Upon transfer of the property, the Absa loan amount was paid to the parents-in-law, who kept R1 000 000, and then loaned the son-in-law the sum of R2 500 000. The loan was, according to the parents-in-law, made on the basis that they would be entitled to remain in occupation of the home, rent free, until, firstly, the full loan (R2 500 000) had been repaid in agreed monthly instalments, and, secondly, until the full repayment to them of the further outstanding R1 000 000 had been made (making up the R4 500 000 stated purchase price in the Agreement of Sale). Sadly, one imagines influenced by the closeness of the relationships between the parties, the details of the loan and the repayments thereof were never documented.
Suffice to say, long before final payment of the loan amounts, the relationship between the son-in-law and the parents-in-law broke down and the son-in-law, allegedly upon advice from his attorneys that the oral loan agreement was unlawful in terms of the National Credit Act, 2005, ceased to make payments. He also sought to sell the property and accordingly notified his parents-in-law that they should vacate the property by a stated date, which they refused to do.
Three court cases later (the High Court, an appeal to the Full Bench of the High Court, then a further appeal to the Supreme Court of Appeal), the Supreme Court of Appeal held that the parents-in-law had, prior to the hearing of the Full Bench of the High Court, cancelled the oral loan agreement, thus entitling the parents-in-law to a claim for damage suffered by them, but losing them the right to remain in occupation of the property.
The Supreme Court of Appeal then considered, in light of the cancellation of the oral agreement by the parents-in-law, whether, as required by the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act, 1998 (“PIE Act”), the eviction of the parents-in-law would be “just and equitable”. Circumstances which it considered included, inter alia, that the parents-in-law were elderly, the husband was unwell, and that they had been rendered (mainly, no doubt, in consequence of this disastrous transaction), relatively speaking, impecunious.
An offer was then made by the son-in-law that, in the event of an order of eviction being granted by the Supreme Court of Appeal, the son-in-law would accept an Order of Court which included, inter alia, the provision by him of appropriate rented accommodation for his parents-in-law for a period of one year. The Supreme Court of Appeal concluded that the offer by the son-in-law dealt adequately with the issue of “just and equitable”, and on that basis ordered the eviction of the couple.
All in all, a most unsatisfactory result for the parents-in-law who were then not only obliged within a three month period to vacate the premises in which they lived, but were also placed in a position where they would still have to recover the damage suffered by them, no doubt by way of a further court action against the son-in-law. This damage suffered would effectively have been the amount still outstanding to them in respect of the purchase price for the sale of their property, which sale the Full Bench of the High Court had already declared void ab initio by reason of it being tainted by the son-in-law’s fraud. Notwithstanding the legal complexities of such an action for a claim of damage, one wonders whether the parents-in-law would have had the financial capacity, let alone the energy, to take on such an action bearing in mind the no doubt considerable legal costs already incurred by them to date.
Much of the above, if not all of the above, could have been avoided if a detailed loan agreement had been entered into between the parties and signed by all concerned. The cost of that exercise would have been of little consequence when compared to the stress, time and money which flowed from the missing loan document.