The Land and Agricultural Development Bank of South Africa granted a loan to Panamo Properties 103 (Pty) Limited for the acquisition of agricultural property and the development of a township. The loan was invalid because developing urban property is not within the powers of the Land Bank.
The Land Bank, which acts in terms of the Land and Agricultural Development Bank Act 2002, alleged the contract was invalid. The objects of the Land Bank in section 3 of the Act do not include acquiring agricultural land to transform it into urban property. That is contrary to what the Land Bank is supposed to achieve. The agreement included a profit share arrangement on the sale of the land once it was a township. Panamo Properties contended that it was therefore contributing funds to the Land Bank to enable it to achieve its objects. But the Act only empowers the Land Bank to receive investments with the written approval of the Minister which had not been obtained.
The Land Bank is only empowered to use its funds for the purposes set out in the Act. As a public entity the Land Bank could only do those things that the Act authorises. The loan was thus in contravention of the Act and invalid. In addition, sections 66 and 68 of the Public Finance Management Act 1999 provides that where a public institution, as the Land Bank is, enters into a transaction that is not authorised by the legislation governing it, it will not be bound by the transaction. The transaction can therefore not be enforced.
Anyone doing business with a public institution must not overlook the fact that non-compliance with governing statutes can have drastic consequences. Not every contravention of a statute results in invalidity of the contravening act or contract. But if recognition of the act or contract would defeat the purpose of the statute, that act or contract will be void or unenforceable.