Lewis v Oneanate (Pty) Ltd and Another

• Jurisdiction: South Africa
• Citation: 1992 (4) SA 811 (A)

Lewis v Oneanate (Pty) Ltd and Another
1992 (4) SA 811 (A)

1992 (4) SA p811

Citation	1992 (4) SA 811 (A)
Court	Appellate Division
Judge	Corbett CJ, E M Grosskopf JA, Nestadt JA, Eksteen JA and Nicholas AJA
Heard	August 31, 1992
Judgment	September 28, 1992

Flynote : Sleutelwoorde

Company — Shares — Granting of financial assistance for purchase of its own shares in contravention of s 38(1) of Companies Act 61 of 1973 — What amounts to — B (Pty) Ltd owner of portion 1 of a certain farm and O (Pty) Ltd owner of portion 2 thereof — O (Pty) Ltd holding all shares in B (Pty) Ltd — Purchaser purchasing O (Pty) Ltd's shares in B (Pty) Ltd — C Prior to sale of shares, O (Pty) Ltd transferring portion 2 to B (Pty) Ltd free of consideration — As security for balance of purchase price of shares, B (Pty) Ltd passing mortgage bond in favour of O (Pty) Ltd over portion 2 — As bond registered simul ac semel and pari passu with D registration of transfer of portion 2 from O (Pty) Ltd to B (Pty) Ltd, B (Pty) Ltd's ownership of portion 2 at all times subject to bond — Bond not binding any of assets held by B (Pty) Ltd immediately prior to passing of bond — B (Pty) Ltd's financial position not altered by transaction — B (Pty) Ltd not exposed to possible risk in consequence of said transaction — Accordingly no financial assistance as contemplated by s 38 E granted by B (Pty) Ltd.

Sale — Of land — The contract — Formalities — Alienation of Land Act 68 of 1981 — Whether Act applicable to transaction — Agreement providing for sale of shares and loan claims of company owning farming property — Such not amounting to alienation of the property for purposes of s 2(1) of F Act.

Contract — Validity of — Contract providing that terms other than those set out therein may be subsequently agreed on by parties — Existence of outstanding matters not yet agreed upon not necessarily meaning that contract not binding.

G Words and phrases — 'Etc' — Meaning of in phrase 'purchase price for the property, farms and commercial operations, tools, equipment and appurtenances etc' in clause of agreement providing for sale of shares and loan claims of company owning farming property.

Headnote : Kopnota

H The appellant had entered into an agreement with one L, who controlled the two respondent companies. The agreement was contained in a letter sent by the appellant to L in January 1990, the contents of which were subsequently 'confirmed' by L. The respondent companies owned, respectively, portions 1 and 2 of a certain farm. The first respondent also held all the shares in the second respondent. In essence the agreement provided for (1) the transfer of the first respondent's portion of the farm (portion 2) to the second respondent (free of consideration) and (2) the purchase by the appellant of the first respondent's shares and loan account in the second respondent. The appellant would in this way, I upon acquiring the shares, obtain 'total ownership and control' of the entire farm and its operations. The purchase price of the shares was R10 500 000, of which R7 000 000 was to be paid in cash and the balance over 'three to five years'. The said balance was to be secured by a mortgage bond passed by the second respondent in favour of the first respondent. In February 1990 the appellant advised L by telefax that 'there is not and J never was a final deal'. The respondents thereupon issued summons out of a

1992 (4) SA p812

A Provincial Division, claiming an order on the appellant to perform his obligations in terms of the agreement. The appellant excepted to the claim on the following grounds: (1) the passing of the mortgage bond by the second respondent in favour of the first respondent constituted a contravention of s 38(1) of the Companies Act 61 of 1973; (2) the agreement was void for vagueness, inter alia because the description therein of 'the property, farms, commercial operations, tools, equipment and appurtenances etc' was inadequate as it was impossible to ascertain B what was encompassed by the word 'etc'; and (3) it was clear from the agreement that the parties 'had not reached agreement on all the material terms of the agreement'. Although not specifically alleged, it was also argued (4) that the agreement did not comply with s 2(1) of the Alienation of Land Act 68 of 1981 in that it did not set out the terms in such a manner that their force and effect could be ascertained without reference to evidence of oral consensus between the parties. The Court a quo dismissed the exception with costs but granted leave to appeal. On appeal, C

Held, as to (1), that if, as would happen in the ordinary course, the bond was to be registered simul ac semel and pari passu with the registration of the transfer of portion 2 from the first to the second respondent, there would be no moment in time when the second respondent would own the property unburdened by the bond: the property would be acquired by the second respondent subject to the bond.

Held, further, that it could not be said in these circumstances that the D second respondent was rendering financial assistance in contravention of s 38: the bond would not bind any of the assets held by the second respondent immediately prior to its registration; unless the amount of the mortgage debt exceeded the realisable value of portion 2, the second respondent's financial position would in no way be altered by the transaction, nor would it be exposed to any possible risk in consequence of such transaction; and although the simultaneous registration would no doubt facilitate the purchase of the shares by the appellant, it was the E first respondent who would in fact be giving the financial assistance by transferring portion 2 to the second respondent free of any consideration, but subject to the mortgage bond.

Held, accordingly, that ground (1) of the exception had to be dismissed.

Lipschitz NO v UDC Bank Ltd 1979 (1) SA 789 (A) applied.

Held, further, as to the alleged vagueness of the contract, that the fact that the agreement was generally inelegant, clumsy in expression and F confused in thought and language, was not a ground per se for holding it to be ineffective.

Held, further, as to (2) above, that the 'tools, equipment and appurtenances' belonged to the class of items used in the 'commercial operations' or 'farming operations' conducted on the farm, and that the function of 'etc' was to serve as a catch-all, so as to include all items of that class, and their identity was readily ascertainable by reference to the facts.

Held, further, as to (3) above, that the agreement as a whole was G reasonably capable of the interpretation that the structure as set out therein was the structure upon which the parties had agreed but that the parties were free to subsequently agree on terms other than those set out in the agreement.

Held, further, that the fact that agreement was reached on some points but not on other material matters could well mean that no binding contract had yet been concluded; however, it was quite possible that a trial Court could hold that in the instant case a binding contract had indeed been H concluded in that it fell within the dictum of Corbett CJ in CGEE Alsthom Equipments et Enterprises Electriques, South African Division v GKN Sankey (Pty) Ltd 1987 (1) SA 81 (A) at 92C-E, 'the parties (having intend(ed)) by their agreement to conclude a binding contract, while agreeing . . . to leave outstanding matters to future negotiation with a view to a comprehensive contract'.

Held, accordingly, that the exception had to fail on this ground also.

Held, further, as to (4) above, that the agreement provided for a sale of I shares and loan claims, and not for an alienation of land; that the words 'the farm and property owned by (the first respondent) will be transferred to (the second respondent)' amounted to no more than a statement that the first respondent would procure the transfer of the property to the second respondent, and not to an alienation of the farm.

Held, accordingly, that the exception was rightly dismissed by the Court a quo. Appeal dismissed.

The decision in the Cape Provincial Division in Oneanate (Pty) Ltd and J Another v Lewis confirmed.

1992 (4) SA p813

Case Information

Appeal from a decision in the Cape Provincial Division (Foxcroft J and Kühn J). The facts appear from the A judgment of Nicholas AJA.

P B Hodes SC (with him R P Hoffman) for the appellants referred to the following authorities: Cairns' Executors v Gaarn 1912 AD 181 at 186; Ferreira v Ntshingila 1990 (4) SA 271 (A) at 281D-F; Louw v WP Koöperasie Bpk 1991 (3) SA 593 (A) at 596C-597C; Cilliers and Benade Corporate Law B at 258; Lipschitz NO v UDC Bank Ltd 1979 (1) SA 789 (A); Henochsberg on the Companies Act 4th ed at 62; Gradwell (Pty) Ltd v Rostra Printers Ltd and Another 1959 (4) SA 419 (A); Jacobson and Another v Liquidator of M Bulkin & Co Ltd 1976 (3) SA 781 (T) at 789H-in fine; Evrard v Ross 1977 (2) SA 311 (D) at 317F-H; Karoo Auctions (Pty) Ltd v Hersman 1951 (2) SA 33 (E) C ; S v Hepker and Another 1973 (1) SA 472 (W) at 480A; Bay Loan Investment (Pty) Ltd v Bay View (Pty) Ltd 1972 (2) SA 313 (C); Union Government (Minister of Finance) v Van Soelen 1916 AD 92 at 101; Mulder v Van Eyk 1984 (4) SA 204 (SE) at 205H-in fine; Wilken v Kohler 1913 AD 135 at 142; Estate Du Toit v Coronation Syndicate Ltd and Others 1929 AD 219 at 224; Neethling v Klopper en Andere 1967 (4) SA 459 (A) at 464; Meyer v D Kirner 1974 (4) SA 90 (N) at 97B; King v Potgieter 1950 (3) SA 7 (T) at 14B-F; Raven Estates v Miller 1984 (1) SA 251 (W) at 255C-F; Van Leeuwen Pipe and Tube (Pty) Ltd v Mulroy and Another 1985 (3) SA 396 (D) at 400F-H.

J J Gauntlett SC (with him O L Rogers) for the respondents referred to E the following authorities: Amalgamated Footwear & Leather Industries v...