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Execution sales

27 October 2011

Where land is subject to a usufruct and the bare dominium owner wants to register a mortgage bond over such property, the financial institution concerned will, more often than not, request the usufructuary to waive preference of the usufruct in favour of the bond in order, that should the property be sold in execution or by the trustee of an insolvent estate, that the transfer may be effected free from such usufruct.

In the case of Moll and another v Nedcor Bank Ltd and others [2004] 2 ALL SA 451 (T) the court was once again approached to decide whether the transfer of property pursuant to a sale in execution can take place free of, or subject to, the usufruct, where a waiver of the usufruct was contained in the power of attorney of a subsequently registered mortgage bond.

In the said case the first respondent relied on a procuration signed by the applicants for contending that they waived all benefits in respect of the usufruct. It was argued that the wording of the procuration indicated that they waived certain of their rights in respect of the usufruct, but not all the rights regarding the usufruct were waived. What is significant is that the clear indication in the procuration is that a sale of the property and subsequent transfer could or might be free of the usufruct. The first respondent was thus not compelled to sell the property free of the usufruct.

The power of attorney contained a mandate given by applicants to the first respondent’s conveyancer who registered a mortgage bond in favour of first respondent and the waiver provided that applicants could not exercise their rights contrary to the mortgage bond. It further provided that in case of a sale-in-execution, the mortgagee would have the right to transfer the property free of any right of usufruct. It is clear that the first respondent as the judgment creditor was not compelled to sell the property free from the usufruct, but it merely possessed the right to sell free from the usufruct.

To establish whether the property was to be sold free from the usufruct or not depends on a proper construction of the agreement which was concluded at the sale-in-execution.

The conditions of sale-in-execution were subject to a usual non-variation clause:

        “These conditions of sale contain the entire conditions of sale and no variation thereof shall be of any force or effect unless reduced to writing and signed by the purchaser and the Sheriff.

The written conditions of sale are conclusive evidence of the contents of the agreement and no evidence relating to any oral communications between the parties is permissible to amend a written content of the agreement (see Van Tonder v Van der Merwe 1993 (2) SA 552 (W) at 555 A).

Further, clause 14 of the conditions of sale reads as follows:

       “The property is sold as represented by the title deeds and diagram (if any), the Sheriff not holding himself liable for any deficiency that may be found to exist and renouncing all excess. The property is sold ‘voetstoots’ and without warranty of representation having been made by any party, and subject to the conditions specified in the deed of transfer.

The agreement between second and fourth respondents was that the property was sold subject to all the conditions contained in the deed of transfer. One of the conditions was that the usufruct is in favour of applicants. The written conditions of sale stand as the sole memorial of the agreement between second and fourth respondents. Neither the second nor the fourth respondents chose to deliver any affidavits to deny the averments in the founding affidavit. The first respondent’s deponent was not present at the auction and was not in a position to rebut the contents of the sale agreement. There was no evidence that any other agreement was concluded between the parties, than in terms of the conditions of sale.

If a mortgage bond was registered prior to a lease then the legal position is that property attached-in-execution must be put up for sale subject to the lease. If the highest bid is insufficient to cover the mortgage debt then the mortgagee can insist that the property should be sold free of the lease. In the present matter, clause 12 of the conditions of sale provides for such an eventuality. Applicants’ counsel rightly submitted that, although the mortgage bond was registered after the usufruct, that the waiver of certain rights by the applicants put the first respondent in a similar position as that of a mortgagee where the mortgage bond was registered before a lease. The waiver by the applicants was to the extent that they would not exercise their rights contrary to the rights of first respondent as the mortgagee. In view of the fact  that an acceptable price for the property was secured, notwithstanding the fact that the sale was subject to the usufruct, first respondent could not complain that there was any interference with the rights in terms of the mortgage bond.

The principle in cases of a prior mortgage bond and a subsequent lease is also applicable in case of other real rights (see Timm v Kay 1954 (4) SA 585 (T)).

The judge found that proper construction of the sale took place and that the land had to be transferred subject to the usufruct.

CONCLUSION
Practitioners cannot merely rely on the waiver of preference of the usufruct in favour of the bond to transfer land free from a usufruct. The terms of the deed of sale will dictate whether the property must be sold and transferred subject to or free from the usufruct.

The registrar of deeds will not have any insight into the conditions of sale and will therefore not request any proof as to whether the land must be transferred subject to or free from the usufruct.

This onus thus rests solely on the transferring attorney/conveyancer.

Allen West
Deeds Training
Pretoria

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