Jan Abraham Du Plessis NO and Another v Goldco Motor & Cycle Supplies (Pty) Ltd

The appellants were trustees of the Prosperitas Trust which owned immovable property in Welkom. In March 2005, the trust entered into a lease agreement with the respondent (Goldco) for premises to be constructed on the property. The lease contained an option clause (clause 5) granting Goldco the right to purchase the premises for R4,000,000 plus VAT, escalating at 10% per annum from 1 April 2005. Exercise of the option required: (a) opening of a sectional title register within 24 months of the lease; (b) exercise by signing a written contract to be prepared by the trust's attorneys (Rossouw & Vennote) within 24 months; and (c) the contract would be prepared after the approved sectional plan was delivered by the land surveyors. Cooper (Goldco's chairperson) repeatedly advised Rossouw that Goldco wished to exercise the option before the 24-month deadline. The sectional plan was approved in August 2005 and delivered to Rossouw. Despite this, Rossouw never prepared the written contract. The trust subsequently refused to sell at the agreed price. Goldco applied to the Free State High Court for an order compelling performance at the escalated price of R4,840,000 plus VAT.

• Whether clause 5 constituted a valid option or merely an agreement to agree
• Whether the description of the premises was sufficiently certain to comply with section 2(1) of the Alienation of Land Act 68 of 1981
• Whether Rossouw acted as agent of the trust or of Goldco
• Whether the doctrine of fictional fulfilment applied where the trust's agent deliberately frustrated Goldco's exercise of the option in the prescribed mode
• What relief should be granted where an option has been deemed to be exercised

Appeal dismissed with costs. The order of the high court was altered to: (a) The option for purchase of Shop 1, Prosperitas Gebou, 133D Jan Hofmeyr Road, Welkom, for R4,840,000 plus 14% VAT in terms of clause 5 of the lease dated 10 March 2005 is deemed to have been exercised; (b) The appellants are ordered to take all necessary steps to transfer the property to Goldco against payment of R4,840,000 plus VAT; (c) The appellants are ordered, jointly and severally, to pay the costs of the application.

Where a party or its agent deliberately frustrates the exercise of a contractual right (such as an option) in the prescribed mode, the doctrine of fictional fulfilment applies and the right is deemed to have been exercised. This principle derives from the equitable rule that no one may take advantage of their own wrong. The prescribed mode of exercise is effectively dispensed with as a result of the frustrating party's conduct. An option is valid and enforceable if it contains all essential terms (parties, merx, pretium), even if exercise requires signature of a further written contract, provided that contract would not contain additional material terms to be negotiated. In such cases the written contract is merely a prescribed mode of acceptance, not a condition precedent requiring further agreement. A party cannot escape contractual obligations by making it impossible for the other party to perform or exercise rights in the stipulated manner.

Lewis JA noted (obiter) that typically an option should reflect all material terms of the contract, not just the essentialia, but did not find it necessary to determine what additional terms the contemplated written contract would contain since the prescribed mode was being dispensed with due to frustration. The court observed that had Goldco sued to compel performance before expiry of the option period, the court would undoubtedly have compelled the trust to ensure compliance. Navsa JA observed that the correspondence preceding the lease was superseded by the lease itself and should not be used to interpret an otherwise clear and unambiguous option clause. The dissenting judgment by Griesel AJA (obiter in light of the majority decision) expressed the view that the option clause's ineptitude and lack of guidelines for the further contract's content, combined with background circumstances suggesting additional material terms were contemplated, rendered it an unenforceable agreement to agree.

This case is significant for: (1) Clarifying that an option requiring a further written contract is not necessarily an agreement to agree if all essential terms are present; the written contract may be merely a prescribed mode of acceptance. (2) Extending the doctrine of fictional fulfilment beyond true conditions to cases where a party deliberately frustrates the other's performance or exercise of a contractual right. The principle derives from the equitable maxim that no one may take advantage of their own wrong. (3) Establishing that where the prescribed mode of exercising an option is frustrated by the grantor, the mode is dispensed with and the option is deemed exercised on its existing terms. (4) Confirming that objective evidence may be used to identify property for purposes of the Alienation of Land Act, provided it does not relate to negotiations or breach the parol evidence rule. (5) The case demonstrates the application of agency principles in contractual performance and the attribution of an agent's deliberate failure to perform to the principal.