Morley v Lambrechts (A 526-2013) [2014] ZAWCHC 124 (21 August 2014)

This case revolves around a contract for the sale of a property in South Africa. The respondent, Engela Johanna Lambrechts, a 72-year-old widow who owned a residential property in Bellville, entered into two deeds of contract with the appellant, John Morley, a retired businessman, on 10 December 2009. The property in question was Lambrechts' home, which she had inherited from her father.

The first deed was a contract of sale, in which Lambrechts sold the property to Morley for R310,500. The second deed was an agreement of lease, allowing Lambrechts to rent the property for one year after the transfer of ownership to Morley, with an option to repurchase it for R357,075. The rent was set at R3,500 per month, with nine months' rent paid in advance. The contract also stipulated that various costs, including conveyancing fees and transfer duties, would be deducted from the sale proceeds, leaving Lambrechts with a net gain of approximately R200,000.

The terms of the contract were exceptionally one-sided in favour of Morley. The true purpose of the transaction was for Lambrechts' son, who was in financial distress, to obtain a loan. The property was used as security for the loan, with the understanding that it could be repurchased once the loan was repaid. However, the complex contractual structure, orchestrated by a company called Property Rescue and facilitated by an attorney named Arno Schipper, served to benefit Morley greatly at Lambrechts' expense. The contract was structured in a way that if Lambrechts couldn't repay the loan within the specified time frame, Morley would obtain the property for a fraction of its market value.

Lambrechts argued that she had not fully understood the implications of the contracts she was signing and believed she was only pledging her property as security for her son's loan. Morley, on the other hand, claimed he was unaware of Lambrechts' misunderstanding and asserted that he had every right to enter into the contract, which appeared to be a legitimate sale and lease agreement.

The case escalated into a legal dispute when Morley sold the property to a third party after Lambrechts failed to vacate the premises following the expiry of her lease. Lambrechts sought to have the sale agreement set aside, arguing that it was based on a misunderstanding, while Morley counterclaimed for the return of the purchase price, plus interest.

The High Court found in favour of Lambrechts, setting aside the sale agreement and declaring that Lambrechts was not required to make any restitution to Morley. Morley appealed this decision, but the appeal was dismissed, with the court upholding the lower court's ruling that the contract was voidable on the grounds of lack of consensus between the parties.

Additionally, the court found the transaction to be contrary to public policy, as it effectively allowed Morley to exploit Lambrechts' desperate financial situation and obtain her property for a mere fraction of its market value. This judgment has significant implications, highlighting the need for utmost freedom of contract and reinforcing the principle that contracts offensive to public policy will not be upheld.

The judgment also addresses the costs implications, directing Lambrechts to pay 75% of Morley's costs in the High Court and 75% of his costs in the appeal. Finally, the judgment refers the conduct of Schipper and another attorney involved in the case, as well as that of Capcon Finance (Pty) Ltd t/a Propfund, to the Cape Law Society and the National Credit Regulator for further investigation.

The ratio decidendi of this case is that the contract for the sale of property between the appellant, John Morley, and the respondent, Engela Lambrechts, is void as it is contrary to public policy. The court holds that the transaction's object, effectively a loan secured against the property, is oppressive and akin to a pactum commissorium, which is illegal at common law.

Furthermore, the judgment highlights a duty on the part of parties to speak up when they reasonably should know that the other party is executing a contract under a mistake. However, this aspect of the judgment is not central to the decision, as the transaction's invalidity on public policy grounds is a sufficient reason to set aside the contract.

In terms of the costs of the case and the appellant's counterclaim, the appellant is ordered to pay 75% of the respondent's costs in the High Court related to the claim in convention, and the appellant is ordered to pay 75% of the respondent's costs in the appeal. The appellant's contingent claim in reconvention is upheld, and the respondent is ordered to repay the net amount received from the sale, R202,500, plus interest from the date of judgment.

The judgment in this case heavily relies on previous case law to establish the principles related to contracts contrary to public policy and the duty to speak up in certain circumstances.

Eastwood v Shepstone (1902 TS 294)
- The court has the power to declare contracts contrary to public policy void, but this power should be exercised sparingly.
- The 'tendency' of the contract, rather than its actual results, should be considered when evaluating its alignment with public policy.

Hugo and Others v Transvaal Loan, F and M Co (1894)
- Courts have the power to raise the issue of illegality of a contract mero motu (of their own accord) if the parties themselves have not done so.

Green v De Villiers and Others (1895)
- This case, like Hugo, emphasises that courts can and should raise the issue of illegality mero motu.

The Weston Distributing Company v Carter Brothers Products (Pty) Ltd (1945 NPD 467)
- The court should not hesitate to declare a contract void if it is clear that it is against public policy.

Yannakou v Appollo Club 1974 (1) SA 614 (A)
- The power to invalidate contracts on grounds of public policy should be exercised cautiously, and the impropriety of the transaction must be convincingly established.

Goodgold Jewellery (Pty) Ltd v Brevadau CC 1992 (4) SA 474 (W)
- Public policy generally supports freedom of contract, and commercial transactions should not be unnecessarily restricted.

Long Oak Ltd v Edworks (Pty) Ltd 1994 (3) SA 370 (SE)
- Courts should be wary of concluding that a contract is against public policy merely because it offends their individual sense of propriety.

Ryland v Edros 1997 (2) SA 690 (C)
- The power of the court to declare a contract void on grounds of public policy should only be used in clear cases where the harm to the public is substantially incontestable.

Law Union and Rock Insurance Co Ltd v Carmichael's Executor 1917 AD 593
- Public policy supports the utmost freedom of contract, and contracts should be held sacred and enforced by the courts.

Wells v South African Alumenite Company 1927 AD 69
- The famous aphorism from this case states: "Public policy should properly take into account the doing of simple justice between man and man."

Jajbhay v Cassim 1939 AD 537
- The judgment emphasises the constitutional values and the importance of human dignity, equality, and human rights, which should guide courts in deciding cases related to public policy.

Sonap Petroleum (SA) (Pty) Ltd v Pappadogianis 1992 (3) SA 234 (A)
- This case establishes the principle that if a party realises or should realise that there is a real possibility of a mistake in the offer, they have a duty to speak up and enquire. Failure to do so can render the contract voidable.

Spindrifter (Pty) Ltd v Lester Donovan (Pty) Ltd 1986 (1) SA 303 (A)
- Provides an example of a case where a party's signature on a contract was found to be invalid due to the other party's failure to speak up about a provision that was reasonably unexpected.

Constantia Insurance Co Ltd v Compusource (Pty) Ltd 2005 (4) SA 345 (SCA)
- Another example of a case where a party's silence, in the face of a reasonable suspicion of mistake, rendered the contract voidable.

Mapenduka v Ashington 1919 AD 343
- This case law establishes the common law proscription of pactum commissorium in mortgage contracts, due to its oppressive nature to debtors.

Meyer v Hessling 1992 (3) SA 851 (NmS)
- Explains the rationale behind the common law rule on pactum commissorium.

Graf v Buechel 2003 (4) SA 378 (SCA)
- Reaffirms the principle behind the pactum commissorium rule.

Legator McKenna Inc and Another v Shea and Others 2010 (1) SA 35 (SCA)
- Clarifies the abstract theory of transfer of ownership as it applies to the alienation of immovable property, and the role of a real agreement in this process.

Air-Kel (Edms) Bpk h/a Merkel Motors v Bodenstein en 'n Ander 1980 (3) SA 917 (A)
- This case law cites the essential elements of a real agreement as "an intention on the part of the transferor to transfer ownership and the intention of the transferee to become the owner".

Dreyer and Another NNO v AXZS Industries (Pty) Ltd 2006 (5) SA 548 (SCA)
- Reaffirms the principles related to the abstract theory of transfer and the requirements for the passing of ownership.

Preller and Others v Jordaan 1956 (1) SA 483 (A)
- Provides a scenario where ownership did not pass despite registration of transfer, due to a defect in the real agreement.

Sherry v Moss (1952) and Slavin's Packaging Ltd v Anglo African Shipping Co Ltd 1989 (1) SA 337 (W)
- These cases support the principle outlined in Sonap Petroleum regarding the duty to speak up in certain circumstances.

Diedericks v Minister of Lands 1964 (1) SA 49 (N)
- Emphasises that the duty to speak up will depend on the facts of each case.

Asser, Verbinternissenrecht
- According to Asser, a contract is voidable if the other party should have enlightened the dwaler about the mistake, but failed to do so.

Hartog v Colin & Shields [1939] 3 All ER 566 (KB) and Solle v Butcher [1950] 1 KB 671
- These cases from English jurisprudence support the principle of speaking up in the face of suspected mistake.

Bredenkamp and Others v Standard Bank of South Africa Ltd 2010 (4) SA 468 (SCA)
- This case, along with Barkhuizen v Napier 2007 (5) SA 323 (CC), emphasises the role of constitutional values in deciding cases related to public policy.

Slip Knot Investments 777 (Pty) Ltd v Du Toit 2011 (4) SA 72 (SCA)
- While not directly related to the public policy issue, this case mentions that a party cannot generally cancel a contract on the grounds of misrepresentation by a third party.

National and Overseas Distributors Corporation (Pty) Ltd v Potato Board 1958 (2) SA 473 (A)
- This case also supports the principle that a party cannot rely on the misrepresentations of a third party to cancel a contract.

Sasfin (Pty) Ltd v Beukes 1989 (1) SA 1 (A)
- This authority provides a comprehensive summary of the principles related to contracts contrary to public policy.

De Beer v Keyser and Others 2002 (1) SA 827 (SCA)
- It is acknowledged that circumstances may exist where an apparently unobjectionable agreement will not be enforced because its object is contrary to public policy.

Brisley v Drotsky 2002 (4) SA 1 (SCA)
- Cameron JA's concurring judgment in this case adds a post-Constitutional perspective to the concept of public policy, rooting it in the Constitution and the values it enshrines.

Transnet Ltd. t/a Metrorail and Another v Witter 2008 (6) SA 549 (SCA)
- This case notes that courts should avoid making declarations about necessary witnesses, a point relevant to the costs decision in the present case.

It's also worth noting that the judgment makes reference to various pieces of legislation:
- Supreme Court Act 59 of 1959
- Superior Courts Act 10 of 2013
- Deeds Registries Act 47 of 1937
- National Credit Act 34 of 2005.

"Public policy generally favours the utmost freedom of contract, and requires that commercial transactions should not be unduly trammelled by restrictions on that freedom."