“Rouwkoop” and non-refundable deposits

Published on August 24, 2022

Most Deeds of Sale contain breach clauses that in the event of a contractual breach by the Purchaser that is not rectified within a certain number of days, the Seller can cancel the agreement and retain all monies as part of the purchase price as “rouwkoop” or liquidated damages. Offers to Purchase of Properties often contain clauses of non-refundable deposits.

The question is whether any such agreed “rouwkoop” and/or non-refundable deposit can be retained irrespective of the quantum thereof?

IMW Attorneys recently had a matter in which the parties agreed that from a purchase price of R2 million an amount of R1 million was payable as deposit with the balance to be paid in 4 monthly instalments of R250,000-00 each. The Deed of Sale contained a breach clause entitling the Seller to retain all monies already paid in the event of default by the Purchaser. The question was whether this was still applicable when the Purchaser had already paid R1,750,000-00 of the purchase price?

The provisions of the Conventional Penalties Act (15 of 1962) (“the Act”) are applicable in the above circumstances. In terms of Section 1 (A) of the Act, any contract containing a penalty stipulation shall be subject to the provisions of the Act. Section 3 of the Act states:

If upon the fearing of a claim for a penalty. it appears to a court that such penalty is out of proportion to the prejudice suffered by the creditor by reason of the act or omission in respect of which the penalty was stipulated, the court may reduce the penalty to such extent as it may consider equitable under the circumstances: Provided that in determining the extent of such prejudice the Court shall take into consideration not only the creditor’s proprietary interest, but any other rightful interest that may be effected by the act or omission in question.

In practical terms the above places the onus on the Purchaser to prima facie show which prejudice the Seller had suffered and if and to what extent the agreed penalty should be reduced. The Seller may rebut the Purchaser’s prima facie case by producing contradicting evidence.

The following principles are of importance in considering the amount of a penalty:

• The Supreme Court of Appeal stated that the court can mero motu reduce the penalty if it is out of proportion to the prejudice which the creditors suffered. National Sorghum Breweries v International Liquor Distributors (2000) ZASCA 159:2001 (2) SA 232 (SCA)
• The Supreme Court of Appeal held that the actual prejudice suffered by the creditor must be proved by the debtor in Steinbura v Lazant 2006 (5) SA J2 {SCA}.
• In Absa Technology Finance Solutions (Pty) Ktd v Hattingh t/a Savings Supermarket(5580/06) (2009) SAGPPHC 37 (29 April 2009) the court said “Once the court has determined what it considers to be the extent of the creditor’s prejudice, it must compare that with the penalty in order to ascertain whether or not it is out proportion to A court will normally intervene if the penalty deviates markedly from the prejudice”.
• In Van Staden v SA Central lands and Mines 1969 (4) SA J49 (w) AT 352 the Court states that “everything that can reasonably/y be considered the harm or hurt a creditor and his property, his person, his reputation his work, his his convenience. his mind, or in any way whether interferes with his rightful interest as a result of the oct or omission of the debtor, must if it is brought to the notice of Court, be taken into account by the court deciding whether the penalty is out of proportion to the prejudice suffered by the editor as a result of the act or omission of the debtor”.
• The seller’s damages will often only be liquidated once the property is The Seller will only have a claim if the property is resold for less that the previously agreed purchase price. The Purchaser may run the risk of the Conveyancer holding the monies already paid until the property is resold.

However, a subsequent agreement between the parties or a court order ordering the Conveyancer to act otherwise may indicate otherwise,

• The Seller can obviously not deliberately resell the property at a lower price as the Seller has a common law obligation to mitigate his/her damages.
• In the matter of Astfin North (Pty) Ltd Digital Direct CC, the High Court found that an agreed penalty was not out of proportion to the prejudice suffered since there was no reason justifying any departure from the contractual penalty term.

COMMENT

Estate Agents should be very careful not to create an expectation with Sellers that they will be entitled to moneys already paid or non-refundable deposits if Purchasers are in breach. The Conveyancer cannot be expected to pay monies to either party in the absence of an agreement or a Court Order.

The paying of Estate Agent’s commission in the above circumstances may be less problematic if the Deed of Sale and/or Option are worded correctly. (The agreement must provide when the commission is payable and must describe the amount of commission payable).

C.M. Weiss
Practicing Consultant