Brief Summary

Property Law — Cancellation of title deeds — Applicants sought to cancel title deeds following a sale in execution declared null and void — Applicants contended that they had discharged their debt to the first respondent and that subsequent transfers to bona fide purchasers were invalid — Legal issue centered on whether the transfers could be set aside despite the bona fide status of the purchasers — Court held that the sale in execution being declared a nullity necessitated the cancellation of the subsequent transfers, restoring the applicants' ownership of the property.

Comprehensive Summary

Summary of Judgment

Introduction

The proceedings took the form of a motion application brought in the High Court of South Africa, Gauteng Local Division, Johannesburg. The application was brought in terms of section 6(1) of the Deeds Registries Act 47 of 1937, seeking the cancellation of registered deeds of transfer (and the rights flowing from them) and the restoration of title to immovable property previously registered in the applicants’ names.

The parties were Delphin Louisa Thwala and Godfrey Thwala as the first and second applicants, and First National Bank Limited as the first respondent (the judgment creditor and mortgagee). The second respondent (Lucas Molobele) and third respondent (Rachel Pinkie Bodibe) were subsequent registered owners following a sale in execution, while the fourth respondent (Standard Bank of South Africa Limited) held a registered mortgage bond as a consequence of the third respondent’s financing. The Registrar of Deeds, Johannesburg was cited as the fifth respondent because the relief sought required official cancellation and re-registration in the deeds registry.

Procedurally, although the first respondent delivered a notice of intention to oppose, it did not file an answering affidavit. The application was opposed by the second and third respondents. A significant feature of the background was a prior order of the High Court dated 12 December 2013, in terms of which the sale in execution of the property was declared null and void and set aside. The present application was directed at undoing the deeds registry consequences of the impugned sale and subsequent transfers.

The general subject-matter of the dispute concerned the consequences in property law and execution procedure of an invalid sale in execution, and whether subsequent registered owners who were accepted to be bona fide purchasers could nevertheless be deprived of registered title, with the applicants seeking restoration of ownership through statutory mechanisms in the Deeds Registries Act.

Material Facts

The applicants were married and lived on the property with their children, treating it as their only home. They had resided there since about 2000. They purchased the property with finance obtained from the first respondent.

On 25 January 2001, the applicants obtained a loan of R54 000 from the first respondent to purchase the property, and a mortgage bond was registered over it. It was common cause that from May 2002 the applicants fell into arrears, and the first respondent issued summons on 25 November 2002. On 16 July 2003, default judgment was granted in favour of the first respondent for the capital amount, interest, and costs. It was common cause that the property was not declared executable in the default judgment at the time it was granted, although there was an “amendment or correction” effected in 2013 that resulted in the property being declared specially executable, which the court noted it would address in the context of the later proceedings.

A scheduled sale in execution set for 23 October 2003 was cancelled at the applicants’ request. The applicants asserted that they made payments from October 2003 until 29 April 2010 and contended that they ultimately paid all amounts outstanding on the judgment debt, including interest and legal costs, thereby discharging their indebtedness in full. They further alleged that the first respondent incorrectly applied payments to an “open bond account” rather than reducing the judgment debt, with the effect (on their version) that additional, extraneous amounts were levied. The judgment treated certain financial facts as undisputed in the manner described below, while not engaging in detailed accounting beyond what was necessary for the dispositive issue.

On 29 April 2010, approximately seven years after default judgment, the property was sold at auction to the second respondent for R112 000. The court recorded as undisputed that by the date of the sale the applicants had satisfied the judgment debt and that their bond account reflected a credit balance of R584.67 at the date of the sale. This factual finding was pivotal to the conclusion that there was no lawful basis to proceed with execution at that time.

After the sale to the second respondent, the property was subsequently sold by the second respondent to the third respondent for R320 000. The third respondent obtained financing from the fourth respondent, and a bond was registered over the property in the amount of R288 000.

The applicants were later served with eviction proceedings issued from the Johannesburg Magistrates’ Court under case number 1745/2011. Thereafter they approached the High Court and obtained an order on 12 December 2013 declaring the sale in execution null and void and setting it aside. The applicants relied on that 2013 order as the legal foundation for contending that the transfers and real rights flowing from the sale were without lawful basis.

In the present proceedings, the second and third respondents opposed the application on the basis that they were bona fide purchasers, contending that their titles could only be disturbed upon proof of mala fides. At the hearing, counsel for the applicants conceded that the second and third respondents were bona fide purchasers.

Legal Issues

The central legal question was whether, given that the sale in execution had been declared null and void and set aside by the 2013 High Court order, the applicants were entitled to relief under section 6(1) and 6(2) of the Deeds Registries Act 47 of 1937 to cancel the subsequent registered transfers (and the bond registered pursuant to the later transfer) and to have the property re-registered in their names, notwithstanding the bona fide status of the subsequent purchasers.

Closely linked to this was the question whether the presence of registration of transfer to bona fide purchasers insulated the subsequent transfers from attack, or whether the case fell within principles recognising that a nullity in the sale in execution prevents valid title from passing, even to successors in title.

A further issue raised in argument was whether the applicants were barred from the relief sought because they had not rescinded the original default judgment, with reliance placed on Gundwana v Steko Development and Others 2011 (3) SA 608 (CC). This required the court to characterise the dispute as one concerning the application of legal principles to largely common cause facts, particularly where the court treated the satisfaction of the debt and the absence of a lawful cause for execution as undisputed.

Court’s Reasoning

The court approached the matter from the premise that section 6(1) of the Deeds Registries Act prohibits a registrar from cancelling a deed of transfer (or other deed conferring title) except on order of court, and that section 6(2) provides that upon such cancellation the prior deed is revived to the extent of the cancellation and the registrar must cancel the endorsement evidencing registration of the cancelled deed. The statutory framework therefore supplied the procedural mechanism for restoring the register if the applicants established that the existing registrations lacked lawful foundation.

On the consequences of an invalid execution process for bona fide purchasers, the court considered the contest between the applicants’ argument that cancellation necessarily followed from the 2013 order and the opposing submission that a perfected transfer to bona fide purchasers cannot be impugned absent proof of bad faith. The court engaged with authority addressing when an owner may recover from a bona fide purchaser following an invalid execution sale, including the discussion in Vosal Investments (Pty) Ltd v City of Johannesburg 2010 (1) SA 595 (GSJ) and the principle that an invalid exercise of public power cannot serve as a lawful basis for transferring ownership.

The court placed material reliance on Menqa and Another v Markom and Others 2008 (2) SA 120 (SCA). It extracted from Menqa the proposition that where there was no sale in execution or where the purported sale was a nullity, it could not pass title to the purchaser nor to successors-in-title, and the original owner would be entitled to recover the property by rei vindicatio. The court treated this as directly applicable to a situation where the sale in execution had been set aside as a nullity and where, crucially, the sale lacked lawful cause at the time it occurred.

The second and third respondents relied on Knox v Mofokeng and Others (2011/33437) [2012] ZAGPJHC 23; 2013 (4) SA 46 (GSJ), contending that where transfer has already been registered to a bona fide purchaser, the judgment debtor is not entitled to recover possession unless it can be established that the judgment and/or sale in execution constituted a nullity. The court regarded the last portion of the identified scenario in Knox as supportive of the applicants’ position, because the court found that this was precisely a case of nullity given the absence of a debt to satisfy at the time of sale.

The court’s key factual application was anchored in what it described as undisputed: when the first respondent decided to execute, this occurred some seven years after default judgment, and by the time of the sale the applicants had satisfied the judgment debt, with a credit balance on the bond account. On this footing, the court reasoned that there was no lawful cause for execution at the time of the sale, and therefore the first respondent had no remaining right to proceed with a sale in execution for satisfaction of a debt that no longer existed. From this, the court concluded that the sale was properly characterised as invalid and that the subsequent transfers were “equally null and void” because the foundational act (the sale) could not sustain title passing down the chain.

In support of the proposition that lack of authority or non-compliance in execution may result in no transfer of ownership despite purported sale and registration, the court drew an analogy to Campbell v Botha and Others [2008] ZASCA 126; 2009 (1) SA 238 (SCA). In Campbell, non-compliance with execution requirements meant the sheriff lacked authority to sell and transfer, and the owner did not lose ownership pursuant to that purported sale. The court considered the reasoning comparable, while noting a factual difference: Campbell concerned a judgment declared null and void, whereas here the judgment’s validity was not under attack, but execution occurred after the debt had been satisfied. The court stated that in circumstances where the judgment creditor acted as it did, the bona fide purchaser principle did not arise in the manner contended for by the opposing respondents.

As to the submission that failure to rescind the default judgment precluded relief, the court considered the reliance on Gundwana v Steko Development and Others 2011 (3) SA 608 (CC) but distinguished it. The court’s distinction rested on the temporal and substantive position at the moment of execution: in Gundwana, the concern was execution years later in circumstances involving ongoing payments and the need for proper judicial oversight; in the present matter, when the sheriff proceeded with sale, there was no longer a debt to be satisfied. On this reasoning, the absence of rescission did not defeat the applicants’ claim, because the impugned act was execution without lawful cause.

Although counsel for the applicants indicated they were not advancing constitutional issues, the court noted contextual factors concerning the applicants’ occupation of the property as their only home with their children and the fact that they had paid for it in full. The court concluded that there was no legal justification to allow deprivation of their home to stand where the registrations followed invalid sales.

Having found that the applicants never lost ownership pursuant to the sale, the court held that the deeds registry records should be corrected through cancellation of the intervening title deeds and bond and restoration of registration in the applicants’ names under section 6(2).

On costs, the court accepted that the applicants did not seek a costs order against the second and third respondents even if successful. Although the second and third respondents sought costs against the first respondent, the court declined to make such an order, noting that while the first respondent filed a notice to oppose it did not pursue opposition and it was not apparent from the record whether notice of set down had been served. The court considered it appropriate that each party bear its own costs.

Outcome and Relief

The court granted relief directing the Registrar of Deeds, Johannesburg to cancel the relevant title deeds and to cancel the rights accorded by them to the second and third respondents, as well as to cancel the bond-related title deed conferring rights on the fourth respondent. The court further ordered the Registrar to register title in the names of the applicants in terms of section 6(2) of the Deeds Registries Act 47 of 1937.

The court ordered that each party is to bear his or her own costs.

Cases Cited

Vosal Investments (Pty) Ltd v City of Johannesburg 2010 (1) SA 595 (GSJ).

Menqa and Another v Markom and Others 2008 (2) SA 120 (SCA).

Knox v Mofokeng and Others (2011/33437) [2012] ZAGPJHC 23; 2013 (4) SA 46 (GSJ).

Campbell v Botha and Others [2008] ZASCA 126; 2009 (1) SA 238 (SCA).

Gundwana v Steko Development and Others 2011 (3) SA 608 (CC).

Legislation Cited

Deeds Registries Act 47 of 1937 (section 6(1) and section 6(2)).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that, on the facts treated as undisputed, the applicants had satisfied the judgment debt by the time the sale in execution occurred and there was thus no lawful cause for execution. Because the sale in execution had been declared null and void and set aside (by the 2013 order) and because execution in the absence of a debt could not pass valid title, the applicants never lost ownership of the property pursuant to the sale.

It followed that the subsequent transfers to the second and third respondents, and the bond-related registration benefiting the fourth respondent, had to be cancelled under section 6(1), with the prior title revived and re-registered in the applicants’ names under section 6(2). The court made no adverse costs order against the opposing purchasers and directed that each party bear its own costs.

LEGAL PRINCIPLES

A registrar may not cancel a deed of transfer (or other deed conferring title to land or a real right in land other than a mortgage bond) without a court order, and upon cancellation the prior deed is revived to the extent of the cancellation in terms of section 6(1) and section 6(2) of the Deeds Registries Act 47 of 1937.

Where a purported sale in execution is a nullity, it cannot serve to pass title to a purchaser or to successors-in-title, and the original owner is entitled to recover the property by rei vindicatio, notwithstanding subsequent registration of transfer.

Execution against immovable property must have a lawful cause connected to the satisfaction of an enforceable debt; where the judgment debt has been satisfied by the time execution occurs, the judgment creditor has no remaining right to execute, and the resulting sale and subsequent transfers lack a lawful foundation.

In evaluating whether a judgment debtor may recover property from a bona fide purchaser after transfer, the determinative inquiry (on the authorities discussed) includes whether the sale in execution constituted a nullity, rather than focusing solely on purchaser bad faith.

Thwala and Another v First National Bank Limited and Others (2015/19201) [2016] ZAGPJHC 13 (5 February 2016)