Why the Wording of a Bond Clause Decides the Sale

One never realises how crucially important the drafting and wording of a bond clause is until a factual dispute arises about whether that clause was fulfilled.

Murphy and another v Durie

Murphy and another v Durie 2006 JOL 18301 (C) turned on a single question: had the suspensive condition relating to the bond been fulfilled? The parties read the clause differently, and the wording was dissected by the Judge.

The sale was subject to the purchaser obtaining, in principle, a mortgage bond from a building society or financial institution by no later than 9 December 2003.

What happened on that date is worth setting out carefully:

• On 9 December 2003 the purchasers received a pre-quotation or indication from the bank that they would qualify for the bond, and that a valuator had been sent to the property.
• On the same day the bank contacted the purchaser telephonically to confirm that the bond had been formally approved.
• The purchaser relayed this to the estate agent, who requested written confirmation.
• When the purchaser contacted the bank again, its staff were at a Christmas party and unable to send the confirmation that day.
• The written confirmation of approval was only received on 10 December 2003.

What the court found

The purchaser could not corroborate his version: neither he nor the agent testified that the bond had been approved on 9 December, and all the communication that day had been oral.

The Judge found that the suspensive condition was not fulfilled, and that there was accordingly no binding contract between the parties.

The reasoning turned on the words themselves. The deed of sale was subject to the obtaining of a bond from a bank — not to its approval in principle. Read against the correspondence, the bank’s letters showed a loan approved subject to specific formalities. Those letters did not amount to fulfilment of the suspensive condition, and the notification that the bond had been approved came on 10 December, a day after the deadline.

Why this matters when you sign

A deed of sale is not a formality to be initialled on the bonnet of a car. The bond clause decides whether the transaction exists at all, and a difference that reads as pedantic on the page — “obtaining a bond” against “approval in principle” — is the difference between a sale and no sale.

These factual disputes are avoidable. A well-worded bond clause states exactly what the parties intend, sets an unambiguous deadline, says what form the confirmation must take, and leaves no room for an alternative interpretation.

If you are buying or selling, have the clause read before you sign it, not after a dispute arises about what it meant.