South African courts have adopted the abstract theory, which means that the validity of transferring ownership is not affected by whether the original transaction is valid.
In the case of Legator McKenna Inc. v Shea [2009] 2 All SA 45 (SCA), McKenna, an attorney, was appointed as the curator of Mrs Shea’s estate because she was unable to manage her own affairs. Due to debts accruing in Mrs Shea’s estate, Mr McKenna elected to sell her immovable property to pay the debts.
Mr McKenna instructed an estate agent to sell the property whereafter purchasers signed an offer to purchase the relevant property. Mr McKenna counter-signed the OTP without first having obtained his issued letter of curatorship and inserted the phrase “subject to the approval of the Master of the High Court” in the OTP. The property was registered in the names of the purchasers in the Pietermaritzburg Deeds Office and the property was considered transferred.
Mrs Shea was later declared capable of managing her own affairs whereafter she brought a High Court application for the transfer of her property to be set aside on the basis that Mr McKenna did not have the required authority in terms of section 71 of the Administration of Estates Act, 66 of 1965 (“the Act”). Section 71 states that no person may deal with another person’s property without and until a letter of curatorship has been obtained.
The High Court found in favour of Mrs Shea on the basis that the agreement between the purchasers and Mr McKenna was illegal and invalid as Mr McKenna had not yet received his letter of curatorship. The Court further stated that due to the aforementioned, the sale constituted a contravention of section 71(1) of the Act and was entitled to the return of her property.
The SCA held that the jurisprudential basis for the return of the property to Mrs Shea is dependent on whether ownership passed notwithstanding the invalidity of the underlying sale.
The SCA in para 15 of the judgment stated that there is no problem making the sale of a property conditional upon a provision contained in the statute. Thus, McKenna stating that the sale of the property is subject to obtaining consent from the Master of the High Court as envisioned in section 71 of the Act was valid. The problem was that the purchasers never formally and in writing accepted Mr McKenna’s insertion of the condition which made the sale invalid.
However, the SCA relied on the abstract theory adopted in South African law and para 22 stated that the requirements for passing ownership in terms of the abstract theory are twofold in that firstly, delivery needs to take place which is by registration of transfer in the Deeds Office. Secondly, the latter needs to be coupled with a so-called real agreement which essential elements are an intention on the part of the transferor to transfer ownership and the intention of the transferee to become the owner of the property.
The SCA further held that although the abstract theory does not require a valid underlying contract, ownership will not pass despite registration of transfer if there is a defect in the real agreement.
The SCA further in para 28 referred to the rule in the matter of Wilken v Kohler 1913 AD 135 which determines that where both parties have performed in accordance with the provisions of an agreement, albeit unenforceable, the purpose of the transaction has been achieved and there is no reason to interfere with the existing state of affairs.
The SCA therefore found that there was no defect in the real agreement concluded between the purchasers and Mr McKenna, and as the transfer was already registered in the Deeds Office, the court found that ownership of Mrs Shea’s property has passed on to the purchasers. The SCA consequently set aside the order of the High Court and dismissed Mrs Shea’s claim to set aside the transfer, with costs.
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