Invalid deed of saleContract Law


In Merifon (Pty) Ltd v Greater Letaba Municipality and another (1112/2019) [2021] ZASCA 50 (22 April 2021), the Supreme Court of Appeal addressed the question of whether a contract could be enforced when one of the parties had not complied with a requirement of the Municipal Finance Management Act 56 of 2003 (MFMA).

The Municipality had previously needed land for human settlement. Consequently, it had approached the Limpopo Government for assistance in the purchase of three farms held in the name of Merifon (Pty) Ltd. The Limpopo Government agreed to fund the purchase, which prompted the Municipality to enter into a deed of sale with the company.

Unfortunately, however, the Limpopo Government subsequently declined to fund the purchase, saying that the price of R 52 million for the farms was excessive. This scuppered the sale, leading the company to proceed with summons against the Municipality for payment of the purchase price.

The High Court found that the deed of sale was unenforceable.

On appeal, the SCA found that the purchase of the land amounted to a capital project, as envisaged by the MFMA. Consequently, the Municipality could only spend money on such a project where a budget was in place, where the municipal council had approved the project, and where the source of funding had been properly considered. That was not the situation here. Accordingly, the Municipality had not complied with section 19 of the MFMA.


The SCA held that, by reason of the Municipality’s non-compliance with section 19, the company could not seek to enforce payment of the purchase price. A court could not compel a party such as the Municipality to do so, because this would contravene the principle of legality.

The appeal was dismissed with costs.

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