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[2007] ZASCA 61
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Citibank NA v Thandroyen Fruit Wholesalers CC and Others (287/06) [2007] ZASCA 61; [2007] SCA 61 (RSA) ; 2007 (6) SA 110 (SCA) (28 May 2007)
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THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
Case no: 287/06
In the matter
between:
CITIBANK NA
............................... Appellant
and
THANDROYEN FRUIT
WHOLESALERS CC ............................... 1
st
Respondent
R & N FRESH
PRODUCE CC ............................... 2
nd
Respondent
ISIVANDE (PTY) LTD
............................... 3
rd
Respondent
RONNIE THANDROYEN
............................... 4
th
Respondent
LOGARANI THANDROYEN ...............................
5
th
Respondent
Coram : SCOTT,
NUGENT, HEHER, MAYA JJA
et
HANCKE AJA
Date
of Hearing : 10 MAY 2007
Date
of delivery : 28 May 2007
Summary: Confession to judgment in terms of Rule
31(1) must be founded on cause of action contained in summons or
notice of motion
– severability of provision in agreement
relating to procedure for obtaining judgment in event of a breach ─
provision
permitting creditor to sell property of debtor and keep any
amount in excess of agreed amount by which debt is to be deducted or
bear the loss of any shortfall, not contrary to public policy.
Neutral Citation: This judgment may be referred to as
Citibank NA v Thandroyen Fruit
Wholesalers CC
[2007] SCA 61 RSA.
JUDGMENT
________________________________________________________________
SCOTT JA/…
SCOTT
JA:
[1] On 7
th
February 2005 the appellant, to which I shall
refer as the Bank, sought and was granted judgment by Nicholson J in
the High Court,
Durban, against the first, second, fourth and fifth
respondents in terms of a confession to judgment as contemplated in
Rule 31(1).
The respondents (including the third respondent)
subsequently applied for the rescission of the judgment together with
certain ancillary
relief. The Bank opposed the rescission and filed a
counter-application in terms of which (as amended) it sought, first,
that the
judgment be varied by the substitution of a lesser amount
and, second, in the event of the judgment being rescinded, that a
fresh
judgment be granted in the same (lesser) amount. The matter
came before Balton J who granted the application for rescission of
judgment
and dismissed the counter-application, with costs. The Bank
appeals with the leave of the court
a quo
.
[2] Before dealing with the issues raised in this court, it is
necessary to sketch the events forming the background to the dispute.
The facts are largely common cause.
[3] Some time prior to 4 December 2003 the first, second and third
respondents applied in the High Court, Durban, for an order
interdicting
the Bank from instituting liquidation proceedings
against them. The matter was settled and on 4 December 2003 a written
agreement
of settlement was entered into between the Bank and all
five respondents. The fourth respondent is Mr Ronnie Thandroyen who
is a
member of the first and second respondents. The latter are close
corporations which carry on, or formerly carried on, business in
the
fresh produce trade. The fifth respondent is Ms Logarani Thandroyen
who is a director of the third respondent which is a private
company.
[4] The terms of the agreement which are material for present
purposes were the following:
(a) The first, second, fourth and fifth respondents (but not the
third respondent) acknowledged that they were jointly and severally
liable to the Bank in the sum of R2 175 000.
(b) The Bank was authorised to sell certain immovable property
belonging to the fourth and fifth respondents. Pending transfer of
the property into the purchaser’s name, and as from 31 January
2004, the Bank was to pay the necessary rates and taxes and
other
levies imposed on the property. The Bank was also to pay all the
costs of marketing the property.
(c) Upon registration of transfer of the property into the name of
the purchaser, or upon the expiry of 38 months from the signing
of
the agreement, whichever was the sooner, the debt was to be reduced
by the sum of R1 100 000.
(d) Any amount realised from the sale in excess of the sum of
R1 100 000 would be for the benefit of the Bank and any
shortfall would be borne by the Bank.
(e) The capital of the debt was repayable by way of instalments of:
(i) R20 000 on 31 December 2003;
(ii) R20 000 on 31 January 2004;
R150 000 on or before 29 February 2004;
R25 000 per month thereafter.
All payments were to be paid into a specified account of the Bank.
(f) The first, second, fourth and fifth respondents were all to sign
a ‘consent’ to judgment (in terms of Rule 31(1))
in
respect of their joint and several liability to the Bank for the
capital amount. The Bank would be entitled to take judgment in
terms
of the consent in the event of their remaining in default ‘after
receiving five court days’ written notice to cure
the breach’.
(g) The Bank was to seek judgment only for the balance owing as at
the date of lodging the consent, notwithstanding the amount specified
in the consent.
(h) In order for the Bank to obtain judgment by consent against the
fourth and fifth respondents, they consented to being joined
in the
interdict proceedings.
[5] In pursuance of the agreement, the first, second, fourth and
fifth respondents signed the consent to judgment in the sum of
R2 175 000
plus interest calculated from the date of
payment and costs of suit. The consent also made provision for the
fourth and fifth respondents
to be joined in the interdict
proceedings. Some 10 months after the conclusion of the agreement,
the property was sold and the capital
debt was reduced by R1 100 000
as provided for in the agreement. In the event, the property realised
R1 400 000 and the excess of
R300 000 accrued to the Bank.
[6] The Bank received no payments. On 6 December 2004 it caused
written notice to be given to the first, second, fourth and fifth
respondents informing them that they were in arrears with their
repayments and giving them five court days within which to remedy
their breach, failing which judgment would be taken in terms of the
consent. The respondents’ attorneys responded by insisting
that
the instalments had been paid by electronic transfer and forwarded to
the Bank certain computer print-outs to substantiate their
contention. They also called on the Bank to check its records. The
Bank advised that it had done so and called on the respondents
to
provide confirmation from their Bank that the transfers had not been
returned. This was not forthcoming. After two months and
the exchange
of much correspondence the Bank finally lost patience and on 7
February 2005 took judgment in terms of the consent.
It subsequently
transpired that the transfers had indeed been returned and this, it
was said, had not been noticed by the third respondent
which,
although not liable, had been the party effecting the transfers. The
reason for the returns was said to be an incorrect clearing
code on
the part of the third respondent’s bankers. Although initially
in dispute, it was common cause in this court that the
respondents’
failure to pay amounted to a breach of the settlement agreement. For
the sake of completeness, it should be mentioned
that the Bank sought
and obtained judgment in the full amount of R2 175 000
notwithstanding the sale of the property. The warrant
of attachment
issued in pursuance of the judgment was, however, for an amount which
took into account the deduction of R1 100 000.
[7] On 17 February 2005 the respondents launched an application as a
matter of urgency for the rescission of the judgment granted
on 7
February 2005 and for a stay of the warrant of execution pending the
finalisation of the application for the rescission. The
Bank agreed
to the stay but resisted the rescission of judgment. As previously
indicated, the Bank filed a counter-application in
which, as
subsequently amended, it sought (a) a variation of the amount for
which judgment had been granted and (b), in the event
of the
rescission being granted, a fresh judgment based on the
acknowledgment of debt contained in the settlement agreement. The
amount for which judgment was sought was the sum of R1 049 960 which
took into account the deduction of R1 100 000 for the property
as
well as two subsequent payments.
[8] The court
a quo
, as I have said, granted the rescission
and dismissed the counter-application. Although the Bank sought and
obtained leave to appeal
against both orders, counsel for the Bank in
their heads of argument filed in December 2006 conceded that the
rescission had been
correctly granted. The concession was well made.
Rule 31(1) provides that a defendant may confess in whole or in part
‘the
claim contained in the summons’. In terms of s 1 of
the Supreme Court Act 59 of 1959 ‘civil summons’ is
defined
as including,
inter alia
, a notice of motion. But in
motion proceedings the confession, in order to comply with Rule
31(1), must be to the claim contained
in the notice of motion. If the
claim is founded not on the relief claimed in the summons or notice
of motion but on a settlement
agreement, Rule 31(1) cannot be
applied. The position is different if the settlement provides that
its breach entitles the plaintiff
or applicant to take judgment in
terms of the original cause of action contained in the summons or
notice of motion. See
Barbour v Herf
1986 (2) SA 414
(N). But
in the present case, the judgment sought was founded on the cause of
action contained in the settlement agreement,
viz
the
acknowledgment of debt, not the cause of action contained in the
interdict proceedings.
[9] I turn to the counter-application. In rejecting it, Balton J said
the following:
‘
The
[Bank] seeks judgment against the first, second, fourth and fifth
applicants for an amount of R1 049 960. This in effect entails
an
amendment and or variation to the judgment granted by Nicholson J.
The judgment cannot be rectified since the jurisdictional basis
for
the existence of the judgment in terms of Rule 31(1) does not exist.
The judgment therefore falls to be set aside and cannot
be amended.
The [Bank] would be entitled to institute the necessary proceedings
to recover any amount due to it against the applicants
concerned.’
It would seem from this passage that the learned judge misunderstood
what the Bank was claiming. The notice of motion makes it clear
that
the variation to the judgment was sought only in the event of the
rescission not being granted. The claim for a fresh judgment
based on
the acknowledgment of debt in the settlement agreement was
conditional on the rescission being granted. It was not dependant
on
the rectification of the judgment granted by Nicholson J.
[10] In this court counsel for the respondents did not attempt to
rely on the reasoning of the court
a quo
but instead sought to
justify the dismissal of the counter-claim on two further grounds.
The first related to the question of severability.
He pointed out
that the conditional relief claimed was premised on the finding that
the settlement agreement was invalid at least
to the extent that it
entitled the Bank to seek judgment on the basis of the consent signed
by the respondents. He submitted that
the Bank was accordingly
obliged to make out a case in its counter-application that the
unenforceable provisions of the agreement
were severable from the
remaining provisions and that the Bank had failed to do so. He
submitted further that the invalid provisions
were in any event not
severable, particularly as the right to place the respondents
in
mora
was conjoined with the invalid right to obtain judgment on
the strength of the consent.
[11] In
Sasfin (Pty) Ltd v Beukes
1989 (1) SA 1
(A) at 16B
Smalberger JA, quoting with approval Botha J in
Vogel NO v
Volkersz
1977 (1) SA 537
(T) at 548F, formulated the inquiry into
the question of severability as follows:
‘
The
“fundamental and governing principle” with regard to
severability is “to have regard to the probable intention
of
the parties as it appears in, or can be inferred from, the terms of
the contract as a whole”.’
It is true that there is no express reference to the question of
severability in the counter-application. But what the Bank was
claiming
was judgment by way of a procedure other than in terms of
Rule 31(1). It was therefore implicit in the relief sought that the
Bank
was relying on the severability of the provisions relating to
judgment by consent. Moreover, the settlement agreement, from which
the probable intention of the parties must be inferred, was before
the court, as were the circumstances in which the agreement came
to
be concluded. In my view, there is accordingly no merit in the
contention that the Bank was obliged to allege more in its papers
before being entitled to argue the severability issue.
[12] As to the severability of the so-called invalid provisions, it
must be borne in mind that these provisions concern no more than
the
procedure which the Bank was entitled to adopt when seeking judgment
in the event of a breach. Had it been legally possible for
the Bank
to obtain judgment by consent it would not have been precluded, had
it so wished, from instituting action by way of a simple
summons and
obtaining judgment by default in terms of Rule 31(5). The only
consequence would have been to render it liable for the
additional
costs incurred. In this regard, Beyers JA in
Montesse Township and
Investment Corporation (Pty) Ltd v Gouws NO
1965 (4) SA 373
(A)
at 380
in fine
said the following:
‘
I
am not aware of any general proposition that a plaintiff who has two
or more remedies at his disposal must elect at a given point
of time
which of them he intends to pursue, and that, having elected one, he
is taken to have abandoned all others. Such a situation
might well
arise where the choice lies between two inconsistent remedies and the
plaintiff commits himself unequivocally to one or
other of them.’
(See also
Total South Africa (Pty) Ltd v Bekker NO
[1991] ZASCA 183
;
1992 (1) SA
617
(A) at 626 I-J.) Counsel for the respondents argued, however,
that the provision was of fundamental importance to the Bank as it
enabled the Bank to take judgment without the prospect of lengthy
litigation. I
pause to observe that given the acknowledgment of debt contained in
the agreement it is difficult to suppose what would have given
rise
to such litigation. Counsel made no suggestion as to the defence that
could have been raised nor, I might add, did the respondents
seek to
rely on it. But, be that as it may, I am unpersuaded that there is
merit in counsel’s contention. It strikes me as
highly
improbable that the Bank when confronted with the offer of a written
acknowledgment of debt would have declined to accept
it unless it
could obtain judgment by consent in the event of a breach. It follows
that in my view the provisions in question are
severable from the
remainder of the agreement and the first ground advanced in support
of the court
a quo’s
decision must therefore fail.
[13] The second ground advanced by counsel for the respondents to
justify the dismissal of the counterclaim was that the provisions
in
the settlement agreement authorising the Bank to sell the property
owned by the fourth and fifth respondents and to reduce the
debt by
R1 100 000, regardless of what the property realised, had the effect
of rendering the settlement agreement unenforceable.
In elaboration,
he submitted that although the provisions did not strictly speaking
constitute a
pactum commissorium
or permit a
parate
executie
their similarity to both was enough to categorise them
as contrary to public policy. A
pactum commissorium
, shortly
stated, is an agreement in terms of which property pledged or
mortgaged may be kept by the creditor in the event of a future
default by the debtor, regardless of the amount of the debt or the
value of the property. Such an agreement is prohibited by law
and is
void. See
Graf v Buechel
2003 (4) SA 378
(SCA) paras 9-13. An
agreement permitting
parate executie
(immediate execution)
without recourse to the court, or, after default, to the debtor in
the case of immovable property, is similarly
void :
Iscor Housing
Utility Co v Chief Registrar of Deeds
1971 (1) SA 613
(T),
Bock
v Duburoro Investments (Pty) Ltd
2004 (2) SA 242
(SCA) para 7. In
my view, none of the features of a
pactum commissorium or parate
executie
which render them void are to be found in the provisions
of the settlement agreement which counsel contends are contrary to
public
policy. The parties agreed at the time of entering into the
settlement agreement that the Bank would sell the property and the
debt
would be reduced by a specified amount or, failing a sale within
a specified period, the debt would in any event be reduced by that
amount. Although the agreement was not one of sale of the property by
the respondents to the Bank, its effect was similar. Once the
parties
had agreed upon the amount by which the existing debt was to be
reduced it was up to the Bank to find a buyer. The Bank was
responsible for the costs of marketing the property and for all
rates, taxes and other levies imposed on the property pending its
sale. Had the property not realised the agreed amount, the Bank would
have borne the loss. In the event, it succeeded in selling
the
property for more than the agreed amount. The result would have been
no different had the respondents sold the property to the
Bank and
the Bank, in turn, had resold it.
[14] The respondents’ real complaint is that the Bank made a
profit of R300 000. But, as pointed out by Innes CJ in
Eastwood v
Shepstone
1902 TS 294
at 302, when determining whether a contract
is contrary to public policy or not:
‘
What
we have to look to is the tendency of the proposed transaction, not
its actually proved result.’
(See also
Sasfin (Pty) Ltd v Beukes, supra,
at 8J-9A.) In the
present case the Bank could just as well have lost on the agreement
had it been unable to sell the property for
as much as
R1 100 000. In that event the respondents would hardly have
complained. In the
Sasfin
case Smalberger JA at 9B emphasized
that no court should shrink from the duty of declaring a contract
contrary to public policy when
the occasion so demands. By the same
token, he warned, however, that the power to declare contracts
contrary to public policy should
be ‘exercised sparingly and
only in the clearest of cases’. The present is manifestly not
such a case.
[15] It follows that the appeal against the dismissal of the
counter-application must succeed. This brings me to the question of
costs. As previously indicated, counsel for the Bank conceded in
their heads of argument that the rescission of the judgment given
in
terms of Rule 31(1) was correctly granted. Nonetheless, by succeeding
in its counter-application the Bank achieved substantial
success and
is entitled to its costs of appeal, including the costs of the
application for leave to appeal. As far as the costs in
the court
below are concerned, the order as to costs of the main application
will remain undisturbed, but the appellant is entitled
to the costs
of the counter-application.
[16] The following order is made:
(a)(i) The appeal against the order of the court
a quo
in
respect of the main application is dismissed.
(ii) The appeal against the order of the court
a quo
in
respect of the counter-application is upheld.
The respondents are ordered to pay the appellant’s costs of
appeal jointly and severally (including the costs of the application
for leave to appeal), such costs to include the costs of two
counsel.
The order of the court
a quo
in respect of the
counter-application is set aside and the following order is
substituted:
Thandroyen Fruit Wholesalers CC, R & N Fresh Produce CC,
Logarani and Ronnie Thandroyen are directed jointly and severally
to pay Citibank NA the sum of
R1 049 960.
Thandroyen Fruit Wholesalers CC, R & N Fresh Produce CC,
Logarani and Ronnie Thandroyen are directed jointly and severally
to pay Citibank NA interest on the sum of R1 049 960 at the rate of
15,5% per annum calculated from the date of judgment (26
August
2005) to the date of payment in full.
The applicants in the main application are directed to
pay the costs of the respondent’s counter-application.
_________________
D G SCOTT
JUDGE OF APPEAL
AGREE:
NUGENT JA
HEHER JA
MAYA JA
HANCKE AJA