Is a successful bid to purchase land at a public auction legally binding immediately on the fall of the hammer?
Purchasing immovable property at or following an auction - must the contract be in writing and signed?
In terms of the Alienation of Land Act 68 of 1981, a contract for the alienation (such as the purchase and sale) of land is of no legal force unless it is in writing and signed.
The rationale (as was explained in Clemens v Simpson 1971 (3) SA 1 (A) at 7A) is the desirability for certainty and the avoidance of disputes and malpractice.
If you have strong nerves, you may decide to bid for vacant or improved land at an auction.
In those circumstances, at what point in time are you finally and irrevocably bound to the sale? When the auctioneer brings down his gavel, accepting your bid? Or later, when (and if) you sign the sale documents?
Put differently, if you make a successful bid for land at a public auction, do you have a window period within which to withdraw, by thereafter refusing to sign the sale documents?
The Alienation of Land Act creates an exception for the sale of land by public auction
The Alienation of Land Act provides expressly in section 3(1) that the rule that a contract for the alienation of land must be in writing and signed does not apply "to the sale of land by public auction".
The reason for this exception (said the court in Gibbs v Vantyi 2010 (3) SA 606 (ECP)) is that the process has been conducted in public and there is little scope for uncertainty, dispute or malpractice.
However, a sale by auction is always subject to the conditions of sale governing the particular auction, which may provide that a sale is not concluded on the fall of the auctioneer's hammer.
As was explained in Estate Francis v Land Sales (Pty) Ltd 1940 NPD 441 at 457 -
An auction is a form of competitive bargaining with the object of a contract of sale resulting, carried out in accordance with certain rules. These rules are the conditions of sale. They are framed by the seller and represent the terms upon which he is prepared to submit his property to competition. They are, so to speak, the rules of the game, and they bind all the players.
As was further explained in Shandel v Jacobs and Another 1949 (1) SA 320 (N) at 325 -
The conditions of sale are agreed upon in the first instance between the seller and the auctioneer and between these two they rest upon a contractual basis. When goods are offered for sale pursuant to them, they form the basis of the bargaining carried on between the auctioneer and the bidders.
In Gibbs v Vantyi 2010 (3) SA 606 (ECP) the conditions of sale of the particular public auction of the land in issue in that case provided that -
All offers for a higher purchase price made after the public auction but before acceptance by the seller, will be made to the auctioneer. No offers will be considered by the seller unless such offers are made to the auctioneer. The highest bidder at the auction will have the right of first refusal during the acceptance period.
The question before the court was whether, given these conditions of sale, a bid orally submitted to the auctioneer after the auction and orally accepted by the seller was binding on the parties, or whether a binding contract came into existence only if and when the contract was reduced to writing and signed by both buyer and seller.
In other words, did the exception provided for in the Alienation of Land Act in relation to a sale by public auction apply, or did the general rule apply, namely, that contracts for the acquisition and disposal of land must be in writing and signed?
The court in this case held that the process of post-auction bids, submitted in the context of this particular auction -
"was entirely different to and separate from the public auction and cannot be considered as part of the earlier process."
In particular, said the court, such post-auction negotiations could not be said to be a "public auction" as contemplated in the Alienation of Land Act.
In these circumstances, said the court, any sale of land concluded by way of the post-auction process provided for in the conditions of sale had to comply with the requirement laid down in the Alienation of Land Act that any such contract must be in writing and signed in order to be binding on the parties.
In the present case, since no written contract had been signed by the post-auction bidder and the seller, the oral acceptance of the purchaser's bid by the seller did not give rise to a binding contract.