Reselling Property at a Lower Price: Damages Incurred in Second Sale Contracts

Examining the case of Klopper N.O and Others v Marais and Another

Introduction:

Contracts for the sale of a property often contain a clause stating that on default of the purchaser, the property may be resold and, if an equivalent or higher price cannot be achieved, the purchaser will be liable for the difference – such a provision is valid.

In this case, the central question revolves around whether a seller can claim damages if they manage to sell the property at a lower price after a purchaser's breach of contract.

Facts of the case

The G & M Trust sold immovable property to a Ms Marais, and later a Mr Delport concluded an undertaking with the Trust that he would stand in for the payments that Ms Marais was responsible for. The sale agreement was later cancelled because neither Ms Marais nor Mr Delport honoured the payment obligations. The parties concluded a second sale agreement in respect of the same property for a purchase price of R750,000, but Marais and Delport again failed to comply.

The Trust appointed an estate agent to market the property for them and eventually obtained an offer from a third party in an amount of R500,000, which was accepted by the Trust.

The Trust argued that it had suffered damages in the amount of R250,000 being the amount between the price that they would have obtained had Marais performed in terms of the second sale agreement, and also in the amount of the estate agent commission which it was obliged to pay.

The judgment

The court stated the law regarding the second sale for a lower price and damages suffered:

·         When a sale agreement is cancelled due to a purchaser's default, the seller may resell the property and claim damages from the purchaser for any difference in price.

 

·         The innocent party cannot merely sit back and allow their losses to accumulate; they must take reasonable positive steps to prevent the occurrence or accumulation of losses.

 

·         Reasonable expenses incurred in carrying out the mitigation steps may be claimed as additional damage suffered.

The second sale agreement had established a purchase price of R750,000. However, the Trust could not achieve this price during the third sale, even with the assistance of an estate agent. Consequently, it was evident that the Trust had incurred damages amounting to R250,000, representing the difference between the expected sale price and the eventual sale price.

Furthermore, the Trust was justified in claiming the agent's commission as part of the damages. This was because they incurred expenses in engaging the agent to secure a buyer after the second breach and as a necessary measure to mitigate their losses.