BE Bop A Lula manufacturing and Printing CC v King tex Marketing (Pty) Ltd (A963/2005) [2006] ZAWCHC 72; 2006 (6) SA 379 (C) (25 August 2006)

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[2006] ZAWCHC 72
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BE Bop A Lula manufacturing and Printing CC v King tex Marketing (Pty) Ltd (A963/2005) [2006] ZAWCHC 72; 2006 (6) SA 379 (C) (25 August 2006)

IN THE HIGH COURT OF SOUTH AFRICA
(CAPE OF GOOD HOPE PROVINCIAL DIVISION)
Case No: A963/2005
In the
matter between:
BE
BOP A LULA MANUFACTURING & PRINTING CC
Appellant
and
KINGTEX
MARKETING (PTY) LTD
Respondent
JUDGMENT:
25
AUGUST 2006
VAN ZYL
J:
INTRODUCTION
[1] This is an appeal, with leave of the court
a
quo
(Traverso DJP), against the
judgment upholding the claim in convention of the respondent, as
plaintiff, against the appellant, as
defendant. There is no
cross-appeal in regard to the successful claim in reconvention of the
appellant against the respondent.
Mr S P Rosenberg SC appeared for
the appellant and Mr J Viljoen for the respondent. The court
expresses its appreciation to them
for their respective presentations
in this matter.
[2] The claim in convention was directed at payment of the amount of
R122 649,18, being the balance owing in respect of certain
T-shirts
sold and delivered by the respondent, a company doing business in
Pretoria West, to the appellant, a close corporation
with its main
place of business in Parow. According to the respondent's particulars
of claim the appellant had purchased T-shirts
from it in the amount
of R229 846,07, but had paid only R107 196,89 in respect thereof,
hence leaving the aforesaid balance payable.
[3] In its plea the appellant denied being liable to the respondent
in the amount claimed, averring that a large proportion of
the
T-shirts supplied to it by the respondent had been defective. In the
alternative it pleaded that it had tendered the aforesaid
amount of
R107 196,89 in full and final settlement of the respondent's initial
claim of R229 846,07. This constituted a plea of
compromise, which in
fact became the primary issue between the parties in the trial and,
indeed, remains so in the present appeal.
[4] The appellant's claim in reconvention, which was conditional on
the trial court's rejecting the plea of compromise, was for
payment
of the amount of R80 000,00. This constituted damages suffered by it
in that the respondent had supplied only 40 000 of
the 60 000
T-shirts it had purchased from the respondent. Inasmuch as the
appellant had an agreement with one of its customers,
namely Adidas,
in terms of which it would on-sell these garments to Adidas at a
profit of R4,00 per T-shirt, the respondent's failure
to supply the
appellant with 20 000 T-shirts had caused it to suffer a loss of
profit in the said amount of R80 000,00.
THE EVIDENCE
[5] The nub of the appellant's case in regard to the compromise issue
is that it paid the respondent a cheque dated 28 February
2002 in the
amount of R107 196,89. The cheque was signed by a member of the
appellant, one Mr B D Webster ("Webster"),
who had inserted
the words "Full and Final Settlement of Account" directly
below his signature on the front of the cheque.
The respondent
subsequently deposited the cheque, thereby accepting it in full and
final settlement of its claim.
[6] The respondent's argument to the contrary was, in essence, that
the forwarding of the cheque by the appellant to the respondent
did
not constitute an offer of compromise by the appellant in that the
appellant did not seriously intend that it be regarded as
such.
Alternatively, even if the appellant had thus intended, the deposit
of the cheque by the respondent did not constitute an
acceptance of
such offer.
[7] Much of the evidence presented to the trial court turned upon
certain correspondence between the parties. The cheque in question

was in fact accompanied by two letters, both of which were dated 19
February 2002 and were sent by Webster, on behalf of the appellant,

to the respondent.
[8] The first letter related to a "credit request" of R122
649,18 arising from the sale of "rejects" to Adidas
at half
price and from the cost of "re-examining" and repairing
faulty garments. In this regard the letter stated that
the majority
of the "rejects" had a "spirality" defect, while
the repairs related to "uneven hems"
which were "unpicked,
trimmed straight and re-hemmed".
[9] The second letter related to a "final reconciliation"
with reference to the calculation of the balance of R229 846,07

claimed by the respondent. From this amount the credit request of
R122 649,18 was deducted, leaving a final balance, according
to the
appellant, of R107 196,89. This was then the amount of the cheque
paid by the appellant to the respondent in "full
and final
settlement of account".
[10] The respondent rejected the appellant's credit request and
reconciliation in a letter dated 1 March 2002 from its attorneys
to
the appellant, the body of which reads as follows:
We address this letter to you on behalf of our client who has
approached us for advice and attention herein. Our instructions are

to place the following facts on record:
Our client sold garments to yourselves of which the total amount due
and owing amounts to R229 846,07.
On the 19
th
of February 2002 our client received a letter requesting a credit
request with which our client disagrees and places in dispute.
On the 28
th
February 2002 our client received a cheque from yourselves in favour
of our client in the amount of R107 196,89, furthermore
with the
wording thereon "in full and final settlement of the account".
Our instructions now are to inform you as follows:
Our client does not accept this payment in full and final settlement
and if you do not agree with our client's claim of R229
846,07 you
must arrange for stop payment on the said cheque.
Should you put stop payment on the said cheque our client will then
proceed with his action against yourselves for the full amount

outstanding and owing of R229 846,07.
Should you however not put stop payment to this cheque our client
will pay this amount into our trust account pending the outcome
of
the dispute regarding the balance owing and payable to our client.
We reiterate that the payment is not received in full and final
settlement of your outstanding account with our client and that
you
have ample time if you disagree with the amount of our client's claim
to reverse this situation.
We await your reply herein.
[11] In a letter dated 4 March 2002 the appellant's Mr Webster
replied thus:
Your fax sent at 16.12h 01/03/2002 was received at 8.15h 04/03/2002.
As Kingtex are aware, we close at 15.15h on Fridays. My cheque
i.f.o.
Kingtex Marketing, for R107 196,89, was issued on 19/02/2002 and
dated 28/02/2002. This cheque was deposited and went through
my bank
account on 28/02/2002, and my bank informs me that it is now too late
to stop payment.
I therefore accept that by depositing the cheque, your client
accepted the condition of it being in full and final settlement.
My credit request to Kingtex was not just a bogus claim, but an
actual breakdown of my direct costs incurred in salvaging their

inferior quality. Mr Wang was fully aware that we were incurring
these costs, to reduce his damages, and that we would be claiming

back these costs on completion of these orders.
If your client wishes to pursue this matter further, I intend to put
in a counterclaim for loss of profit on 20 000 units short
delivered,
and for late delivery costs.
[12] Mr Shao-Un Wang, a director of the respondent, testified that
the cheque in question had been received and deposited in the

respondent's account on 28 February 2002 without his knowledge. On
becoming aware of it the following day, he had immediately instructed

his attorney to write the letter dated 1 March 2002, in terms of
which he made it clear that he did not accept the cheque in full
and
final settlement. He confirmed that he had required the appellant to
stop payment of the cheque, failing which it would be
placed in the
trust account of his attorneys pending finalisation of the matter. It
would appear that his attorneys had subsequently
appropriated a
portion of the amount deposited in their trust account for the
payment of legal fees in another matter.
[13] In his evidence on behalf of the appellant, Mr Webster confirmed
the contents of his letter of 4 March 2002, more particularly
that he
had endorsed the cheque in question to the effect that it was in full
and final settlement of the respondent's account.
In this regard he
testified that, arising from the defective merchandise, he had
claimed a credit from the respondent in the amount
of R122 649,18.
This he had deducted from the amount of R229 846,07, leaving a
balance of R107 196,89. On 19 February 2002 he had
sent the
respondent a cheque in this amount, post-dated to 28 February 2002,
together with the aforesaid letters dated 19 February
2002. The
cheque was post-dated because the money was due only at the end of
the month.
[14] On receipt of the respondent's letter dated 1 March 2002, Mr
Webster further testified, he telephoned his bank to establish

whether it was still physically possible to stop the cheque. His bank
informed him that it could not be done because the cheque
had been
put through "special clearance" on 28 February 2002. He had
then immediately written his aforesaid letter dated
4 March 2002 to
the respondent. Of some significance in this regard was the following
testimony:
Would I be correct in assuming that if the bank manager would have
indicated to you that it was possible to stop payment of the
cheque
we wouldn't be arguing about the principle, full and final settlement
today. --- Possibly. I only asked the bank a question
based on the
fact that the lawyers instructed me to stop the payment.
You were requested to stop payment … --- Yes, but the request came
through too late.
You attempted to stop the cheque? --- I found out if it was feasible.
Had it been possible at that stage we wouldn't have been arguing the
principle today? --- Correct, I would have stopped it and
then I
would have had to put my counterclaim in before the money was spoken
about further.
[15] In her judgment Traverso DJP held that, although the deposit of
the cheque would normally be regarded as acceptance of an
offer of
compromise, the evidence was to the contrary. With reference to the
letter dated 1 March 2002 and to Mr Webster's attempt
to stop the
cheque, the learned judge held that it was clear that he had
exhibited no intention of holding the respondent to the
cheque.
MAIN SUBMISSIONS ON BEHALF OF THE PARTIES
[16] Mr Rosenberg's main submission on behalf of the appellant was
that Mr Webster's enquiry relating to the possibility of stopping
the
cheque did not derogate from the fact that the appellant's offer of
compromise had already been accepted by virtue of the deposit
of the
cheque. The respondent was not entitled to accept the cheque subject
to the condition that it would be held in trust. In
any event it had
not only failed to reimburse the appellant with the amount of the
cheque, but had also appropriated a portion
of it. This confirmed its
acceptance of the offer of compromise.
[17] Mr Viljoen, in turn, argued that Mr Webster had not made an
offer to compromise with the serious intention of binding the

respondent. If this had been his intention, he would simply have
rejected Mr Wang's request to stop payment of the cheque. Instead
he
had approached his bank in order to establish whether the cheque
could be stopped. Had it been possible, that would have been
the end
of the matter. And even if there had been an offer, Mr Viljoen
submitted, Mr Wang, who had at all relevant times represented
the
respondent and been in control of its accounts, could not accept an
offer of which he bore no knowledge. When he did acquire
such
knowledge he acted without delay, making it quite clear, in the
letter of 1 March 2002, that he did not accept the cheque
in full and
final settlement of the appellant's indebtedness to the respondent.
THE RELEVANT LEGAL PRINCIPLES
[18] The institution of compromise (
transactio
)
has been a part of our common law since Roman times, where it was
dealt with in
D
2.15 and
C
2.4 under the title
De transactionibus
.
It was an agreement in terms of which the parties to an obligation
settled a dispute arising from such obligation. The dispute
had to
relate to a doubtful issue in respect of which the outcome of
litigation was uncertain or not yet finalised. See
D
2.15.1:
Qui
transigit, quasi de re dubia et lite incerta neque finita transigit
.
[19] Once
consensus
had been reached on the settlement of
the dispute, the original obligation would be discharged and a new
obligation, based on the
terms of the settlement, would come into
existence. It could thus be regarded as a form of novation (
novatio
).
That there was in fact a great similarity between
transactio
and
novatio
appears from Roman-Dutch sources such as Voet
46.2.3, where it is said that the
principles applicable to the one apply also to the other. On the
difference between compromise
and novation in Roman-Dutch law see
Wessels
Law of Contract in South Africa
(edited by A A Roberts, 1937) ("Wessels
Contract
")
par 2458 and 2471. It should be noted in this regard that De Groot
Inleidinge
3.4.2
renders the Latin
transactio
as
dading
.
Van Leeuwen
Roomsch Hollandsch Recht
2.5.23, on the other hand, deals with
the topic under the rubric
Van verdrag
en overkomst
. Vinnius and Noodt,
however, retain the Latin term in their treatises on compromise,
entitled respectively
De transactionibus
and
De pactis et transactionibus
.
[20] In the sphere of contract the ordinary
principles relating to the determination of contractual
consensus
will apply in establishing whether or not an offer of compromise has
been made and accepted. See
Kei Brick &
Tile Co (Pty) Ltd v A M Construction
1996
(1) SA 150
(E) at 159D-E;
Absa Bank Ltd
v Van de Vyver
2002 (4) SA 397
(SCA)
par [17] at 404J-405A. This will generally be the case when an offer
has been accepted with a view to creating reciprocal
obligations in
respect of which both parties unequivocally demonstrate their
intention to be bound. I shall return to this later
(see par [27]
below).
[21] Among the important questions to be
considered when establishing whether an agreement of compromise has
been concluded is,
firstly, whether or not a disputed and uncertain
prior claim is in existence. If there is indeed such a claim, the
next question
is whether the parties have abated or receded from
their original stance, in the sense that they have made some or other
sacrifice,
forfeiture or concession with a view to compromising the
original claim and the defence thereto. See Voet 2.15.1; Wessels
Contract
par
2459; R H Christie
The Law of Contract
in South Africa
(5
th
edition, 2006) ("Christie
Contract
)
456. This approach appears from a number of early cases such as
Meyer
v Low
(1832) 2 Menzies 8
,
Van
Schalkwyk v Pienaar's Trustees
(1898)
15 SC 288
at 296 and
Cachalia v Harberer
& Co
1905 TS 457
at 462. It has
also been considered in several more recent cases. See
Dennis
Peters Investments (Pty) Ltd v Ollerenshaw and Others
1977
(1) SA 197
(W) at 202F-G;
Gollach &
Gomperts (1967) (Pty) Ltd v Universal Mills & Produce Co (Pty)
Ltd and Others
1978 (1) SA 914
(A) at
921A-D;
Trust Bank van Afrika Bpk v
Ungerer
1981 (2) SA 223
(T) at 225F;
Tauber v Von Abo
1984
(4) SA 482
(E) at 485F-486B.
[22] A useful definition of compromise, which
takes cognisance of this approach, appears in
Karson
v Minister of Public Works
1996 (1) SA
887
(E) at 893F-H (
per
Leach
J):
It is well settled that the agreement of
compromise, also known as
transactio
,
is an agreement between the parties to an obligation, the terms of
which are in dispute, or between the parties to a lawsuit,
the issue
of which is uncertain, settling the matter in dispute, each party
receding from his previous position and conceding something,
either
by diminishing his claim or increasing his liability … It is thus
the very essence of a compromise that the parties thereto,
by mutual
assent, agree to the settlement of previously disputed or uncertain
obligations …
[23] The effect of a compromise is to put an end
to the disputed and uncertain prior claim in the same way as if the
matter were
finally adjudicated upon (
res
judicata
). See
D
2.15.9.1;
C
2.4.20; Voet 2.15.21; Wessels
Contract
par 2470;
Cachalia
v Harberer & Co
(
supra
)
at 464;
Mothle v Mathole
1951
(1) SA 785
(T) at 789A-C;
Van Zyl v
Niemann
1964 (4) SA 661
(A) at
669H-670A;
Dennis Peters Investments
(Pty) Ltd v Ollerenshaw and Others
(
supra
)
at 202E-F;
Jonathan v Haggie Rand Wire
Ltd and Another
1978 (2) SA 34
(N) at
38F-H.
[24] In this regard it must be borne in mind that
compromises are to be strictly interpreted in that they exclude
anything which
was probably not contemplated by the parties at the
time they reached the compromise. See De Groot
Inleidinge
3.4.7 and Schorer's note thereto, as
referred to in Wessels
Contract
par
2460. The party alleging a compromise bears the
onus
of proving it. See
The
Torch Moderne Binnehuis Vervaardiging Venn. (Edm.) Bpk v Husserl
1946
CPD 548
at 550;
Marendaz v Marendaz
1953
(4) SA 218
(C) at 226H-227A;
Tauber v
Von Abo
1984 (4) SA 482
(E) at 485F.
Inasmuch as it constitutes a form of novation involving the waiver or
diminishing of claimed rights, it requires clear
and unambiguous
proof.
[25] In determining whether or not a compromise
has been effected, the court will have regard to the substance rather
than the form
in which it is couched or the description given to it
by the parties. This accords with the principle that, in construing
contracts,
one must look at the intention of the parties rather than
at the words used by them. See
D
50.16.209:
In conventionibus
contrahentium voluntatem potius quam verba spectari placuit
(also rendered as
non quod dictum est
sed quod factum est inspicitur
-
"regard is not had to what has been said but to what has been
done"). It is likewise in line with the well-known legal
maxim
that greater weight is attached to what is done than to what is
purportedly done:
plus valet quod agitur
quam quod simulate concipitur
. See
C
4.22.2;
C
4.29.17;
Zandberg v Van Zyl
1910
AD 302
at 309;
National Employers'
General Insurance Co Ltd v Springbok Timber & Hardware Co (Pty)
Ltd
1969 (3) SA 444
(W) at 447A.
[26] A difficulty which has arisen in this regard
is that the concepts of "compromise" and "tender"
have been
terminologically confused. See D Zeffertt "Payments
'In Full Settlement'" in SALJ 89 (1972) 35-48, where the learned
author considers relevant cases and submits that the effect of the
words "in full settlement" may constitute either an
offer
of compromise of a disputed claim, or a payment purporting to settle
an account in full. He explains the distinction thus
(at
37):
It will be submitted that if the offer is one of
compromise, its acceptance by an alleged creditor will extinguish his
claim, whether
the claim is liquidated or unliquidated. If it is a
payment, the creditor may, with impunity, retain what has been paid;
he may
take the words 'in full settlement' [as]
pro
non scripto
and sue for the balance.
[27] In discussing this submission Zeffertt quite
correctly emphasises (at 38) that an offer to compromise must,
objectively construed,
be intended to create binding legal relations
and must have appeared so to the offeree. For the offer to be
effective it would,
in the usual case, be subject to the condition
that, if it should be accepted, the dispute would be settled and the
claim in question
extinguished. Although the offeror may designate
the mode of acceptance, the acceptance of the offer should be clear
and unambiguous,
be it by words or conduct. This would depend on the
facts of each case, which should be considered carefully,
particularly where
the debtor makes an offer of settlement in respect
of a liability which he partially admits. Zeffertt points this out
with great
clarity in his conclusion (at
48):
There is no magic formula which the law provides to resolve all
practical difficulties which arise where the debtor admits partial

liability and pays his admitted liability. In each case you must look
to the context. In each case you must look to the evidence.
You must
scrutinize the facts and then, in the light of the criteria set out
in the cases, categorize what has happened so as to
be able to decide
whether an offer of compromise has been made or payment of an amount
which the debtor merely regards as reflecting
the extent of his
indebtedness.
[28] A precursor to this approach appears from the
judgment of Innes CJ in
Burt NO v
National Bank of South Africa Ltd
1921
AD 59
at 62, where the learned Chief Justice observes:
That is a matter which must always depend upon the
declarations and conduct of the alleged acceptor, viewed in the light
of relevant
circumstances. Every case must be decided on its own
facts; the object being in each case to ascertain whether the parties
were
ad idem
.
No doubt the acts of the person concerned are a most important
element in arriving at the result. Often they are decisive; but
not
always; there may be other circumstances which preclude the usual
inferences.
See also
Steenkamp v
Union Government
1947 (1) SA 449
(C) at
457;
Andy's Electrical v Laurie Sykes
(Pty) Ltd
1979 (3) SA 341
(N) at
343F-G;
Paterson Exhibitions CC v
Knights Advertising and Marketing CC
1991
(3) SA 523
(A) at 529D;
Karson v
Minister of Public Works
1996 (1) SA
887
(E) at 895D;
Absa Bank Ltd v Van de
Vyver NO
2002 (4) SA 397
(SCA) at
402B-E.
[29] If a debtor makes an offer of compromise "in
full settlement" of the creditor's claim, and accompanies it
with a
cheque in the amount offered, the creditor will, under normal
circumstances, be regarded as having accepted the offer should he

deposit the cheque in his account. See
Neville
v Plasket
1935 TPD 115
at 120 and
Van
Breukelen en 'n Ander v Van Breukelen
1966
(2) SA 285
(A) at 290D-H. This will be the case even if the deposit
of the cheque and appropriation of the proceeds should be accompanied
by what Didcott J calls "the incantation" that it is done
"without prejudice" to any further rights the creditor
may
have. See
Andy's Electrical v Laurie
Sykes (Pty) Ltd
(
supra
)
at 343A-B.
[30] On the other hand, the facts and
circumstances of a case where an offer of compromise is attended by
payment of a cheque "in
full settlement" may indicate a
totally different situation, as Christie
Contract
457 states with eminent perspicuity:
The simple proposition that compromise is a
contract, and whether or not it has been entered into is therefore to
be tested in the
same way as with any other contract, is not quite
applicable to one very common type of case. When a debtor sends his
creditor
a cheque for less than the amount claimed, but expressly
states that it is sent in full settlement, the effect of the cases is
to favour the debtor and to decide that a compromise has been
effected if the debtor has indicated that he intends to compromise

and the creditor has cashed the cheque, even if (and this is the
important point) the creditor makes it clear in cashing the cheque
he
is not agreeing to the proposed compromise. There can be no quarrel
with this result if, in sending the cheque, the debtor has

unambiguously stated that the cheque is sent as an integral part of
his offer to compromise, and that the cashing of the cheque
will be
taken as an acceptance of that offer. It is trite that an offeror may
prescribe the method of acceptance, and this would
be a legitimate
exercise of that power. But it is equally trite that an ambiguous
offer will be construed
contra
proferentem
, and it should therefore
follow that if the debtor cannot prove that the creditor ought
reasonably to have interpreted the letter
and cheque as an offer of
compromise, the creditor is entitled to cash the cheque as a payment
on account and sue for the balance.
The reason why our present law does not conform to
this simple and satisfactory pattern is that it has been built on the
wrong foundations.
The sending of a cheque in full settlement may
raise not only the issue of whether there is an offer to compromise,
which becomes
material if the cheque is cashed, but the quite
separate issue of whether there has been a valid tender, which
becomes material
if the cheque is refused. Unfortunately the lines of
cases on these two issues have become intertwined, largely due to two
early
Appellate Division decisions, but the Supreme Court of Appeal
is successfully untying the knot.
[30] The first of these decisions was
Odendaal
v Du Plessis
1918 AD 470
, in which the
issue was whether a tender in settlement of any damages the plaintiff
might have suffered was sufficient to protect
the defendant against
liability for costs subsequently incurred. After distinguishing
between the tender of English law and the
offer (
oblatie
)
and "judicial deposit" (
consignatie
)
of Dutch law, Innes CJ held that the South African “doctrine of
tender” was not based on English law. It was in fact rooted
in
Roman-Dutch law, which required that a "tender" should be
unconditional. In this regard the learned Chief Justice
stated (at
478-479):
Tender was akin to payment, and no condition to which the creditor
had a right to object could be coupled with the one any more
than
with the other. Strictly regarded, an offer made “in settlement”
or “in full settlement” is conditioned upon the creditor

abandoning the balance of his claim. The offer is made upon terms
that he shall admit its sufficiency; it can only be accepted
on such
admission; and it is therefore conditional. But regarded in the light
of Roman-Dutch law the condition is inherent in the
very nature of
the tender, and is sanctioned by the procedure of the Courts. It is
not, therefore, a condition to which the creditor
can object, and it
does not destroy the validity or operative effect of the tender.
…Where the obligation is denied, tender is
in essence an offer of
compromise. …And in such a case … a stipulation that the offer is
in full settlement would ordinarily
be implied.
[31] In the second early case emanating from the
Appellate Division, namely
Harris v
Pieters
1920 AD 644
, the question was
whether a creditor who had cashed a cheque sent in full settlement
could sue for the balance. The trial court
relied on
Odendaal
v Du Plessis
(
supra
)
in finding for the creditor. On appeal, however, Innes CJ
distinguished the
Odendaal
decision
and stated (at 649-650):
Whether a tender or a payment is intended is a matter to be settled
upon the facts of each case. And, in considering these facts,
it may
be well to bear in mind that the words “in full settlement” (or
any similar expression) are more likely to be used as
a mere
assertion of the debtor’s contention, and not as a condition of
acceptance in cases where the money is placed in the hands
of the
creditor than in cases where it is not. If the evidence shows only a
tender, the rights of the parties will depend upon
the principles
already discussed. But if payment is intended, then further
considerations arise. For payment must be made in the
exact terms and
to the exact extent of the relative obligation. The debtor cannot
vary the amount of his payment, nor can he engraft
upon it any
condition not contained in the contract or implied by law. When money
is delivered to the creditor in payment of a
liability which the
debtor admits, accompanied by the statement that it is paid in full
settlement, he is not bound to accept it
as such. He may, of course,
waive his rights and do so. But he is entitled to reject the
condition. On the assumption that the
debtor intends to pay the
liability, which he admits, and delivers the money with that
intention, the condition which he seeks
to attach is wholly
inoperative save with the creditor’s assent. And if the creditor
withholds his assent and repudiates the
condition, he may in my
opinion retain the money and sue for the balance. For the position is
this: The obligation is discharged
to the extent of the payment; the
debtor who pays cannot compel the creditor to donate his claim for
the balance. And if the creditor
refuses to do this, his right to
that claim remains unaffected by the receipt of the money … The
test in all these cases, therefore,
is this: Was there a tender
accompanied by money or cheque, or was there payment with an attempt
to annex a condition? In the former
case, if the tender is refused
the money should be returned; in the latter, if the condition is
rejected the money can be retained
and the balance claimed. The
result of the test must depend upon the intention of the parties in
each case as shown by their statements
and conduct.
[32] In his concurring judgment De Villiers JA adopted a somewhat
different approach when he stated (at 654-655):
Now the phrase “in full settlement” is
ambiguous and may mean one of two things. A debtor, in offering a sum
in full settlement
may intend to tender the amount unconditionally,
only adding the words “in full settlement” by way of emphasising
his contention
that the amount tendered covers the whole of his
liability. In that case the offer is made
animo
solvendi
. Or he may intend to offer the
amount on condition that the creditor by accepting it should forgo
his claim for the balance. In
the latter case the offer is made for
the purpose of entering into a new contract with the creditor,
animo
contrahendi
therefore. If this is clear
from the terms of the offer and the creditor accepts the offer on
those terms he cannot, of course,
proceed. But I agree with the view
that in cases of doubt the construction should be against the debtor,
for he had it in his power
to make his meaning clear.
[33] In the case of
Burt
NO v National Bank of South Africa Ltd
(par
[28] above) Solomon JA, in his concurring judgment, criticised this
dictum
and
observed as follows (at 67) on the question of whether or not the
words “in full settlement” were ambiguous:
It is true that in the later case of
Harris
v Pieters
it was stated in one of the
judgments that the words “in full settlement” are ambiguous and
do not necessarily imply the condition
stated above. In my opinion,
however, those words are perfectly plain and can have only one
meaning. The tender is made for the
purpose of settling the action,
and neither the person who makes the offer nor the person who accepts
it can possibly have any
misconception as to its meaning. If,
therefore, a plaintiff unreservedly accepts an offer made in those
terms, he must be taken
to accept it, with the condition attached
that he shall abandon the balance of his claim, and in these
circumstances it is, to
my mind, inconceivable that he can both
retain the money and at the same time be allowed to sue for the
balance of the claim.
[34] According to Christie
Contract
458 three possibilities emerge from
Harris v Pieters
,
namely an offer of compromise with denial of liability, a tender with
admission of liability and payment with admission of liability.
This
"scheme of things", he suggests, "bristles with
difficulties". In practice the only concern is whether
the
debtor intends an offer of compromise, with or without an attendant
admission of liability, or makes a payment by cheque, which
the
creditor may cash without forfeiting his right to sue for the balance
owing. There is no question of a tender or of any condition
attaching
to the offer or the payment. This only leads to a situation, the
learned author opines (at 459), which "falls below
the standard
of clarity in exposition at which the law ought to aim".
[35] The Appellate Division gave renewed
consideration to this situation in
Paterson
Exhibitions CC c Knights Advertising and Marketing CC
1991
(3) SA 523
(A). In that case the respondent successfully sued the
appellant for provisional sentence on five post-dated cheques which,
on
presentation, had been dishonoured by non-payment. They had been
sent under cover of a letter in which the appellant disputed the

amount claimed by the respondent, but sought to settle the matter
"amicably and speedily". It hence enclosed a cheque,
which
was immediately payable, and the five post-dated cheques, which
together totalled the full amount claimed by the respondent,
stating
that it was "in full and final settlement" of the
respondent's alleged claim. The respondent accepted and deposited
the
initial cheque "without prejudice", but refused to accept
the post-dated cheques "as a basis of settlement".
Corbett
CJ considered the relevant authorities and formulated the general
principle applicable to cases such as this in the following
terms (at
529B-D):
[W]here a creditor to whom a tender or an offer of compromise
(accompanied by a tender of payment) is made accepts the same, he

cannot thereafter sue for the alleged balance of his claim; and …
where there has been such acceptance it does not assist the
creditor
to show that he purported to attach conditions or qualifications to
his acceptance, such as that it was without prejudice
to his rights
to sue for the balance. Usually such acceptance may be inferred from
the retention of the money which accompanies
the tender or offer, but
in every case it must be a question of fact depending on all the
circumstances …
In the instant matter, however, the learned Chief Justice held (at
529D-E) that, despite the respondent's deposit of the one cheque
and
retention of the post-dated cheques, it had unequivocally rejected
the appellant's offer of compromise. The respondent should
in fact
have returned the post-dated cheques inasmuch as it "could not
reject the offer yet retain the tendered performance,
as it purported
to do" (at 528G).
[36] The most recent case on the topic emanating
from the Supreme Court of Appeal was
Absa
Bank Ltd v Van de Vyver NO
2002 (4) SA
397
(SCA). In this matter the executrix of her deceased husband's
estate sent a bank, to which the estate was indebted, a cheque in

full and final settlement of its claim. The bank rejected the offer
of settlement but nevertheless deposited the cheque and appropriated

the proceeds. The trial court held that the bank, in so doing, had
accepted an offer of compromise and was hence non-suited.
[37] On appeal the Supreme Court of Appeal pointed
out (
per
Howie
JA par [9] at 402B-F) that retention of a payment offered in full
settlement of a claim would usually be sufficient to constitute

acceptance of the offer, notwithstanding the creditor's efforts to
qualify the acceptance. Whether there has indeed been such
acceptance, however, "must always be a question of fact
depending on all the circumstances". With reference to the cases

of
Odendaal v Du Plessis
(
supra
)
and
Harris v Pieters
(
supra
),
Howie JA emphasised (par [11] at 403B-C) that a clear distinction
should be drawn between tender in the procedural sense and
tender as
a contractual offer of compromise.
[38] In the
Harris
case, Howie JA observed (par [12] at
403D-E), this distinction was not "entirely clearly maintained".
The judgment of
Innes CJ did show, however, that the expression "in
full settlement" is not ambiguous as such, but its effect may
differ
depending on the context in which it is used. In this regard
the learned Judge of Appeal stated (par [16] at 404G-I):
It is not inherently ambiguous because it always serves to do no
more, legally speaking, than import the condition that on acceptance

the creditor has no further claim to any balance of the debt. But, as
a matter of language, and with regard to the two different
situations
in which it is employed, it is a question of fact whether the payment
made is intended to effect a compromise or to
pay an admitted
liability. In the former situation the condition is binding if the
offer is accepted. If the offer is rejected
the money should be
returned. In the case of a payment of an admitted liability the
condition is not binding. The creditor may
keep the money and sue for
the balance.
[39] This led Howie JA to conclude (par [17] at 404J-405A) that the
term "tender" should be confined to its procedural
context.
Outside that context one is "squarely in the realm of contract"
which is concerned simply with the contractual
principles of offer
and acceptance. This could be explained thus (par [18] at 405B-C):
Sending one's creditor a cheque 'in full settlement' coupled with a
denial of liability would almost certainly signify an offer
of
compromise. But there may be an offer of compromise if there is
simply no admission of liability accompanying the payment. And
one
may have to do with an offer of compromise even if there is an
admission of liability. In the latter instance the line between
an
offer of compromise and payment of an admitted liability would
naturally be finer than in the other two cases.
[40] In this regard the learned Judge of Appeal
cautioned (par [19] at 405D) that debtors who fail to make clear
their intention
of achieving a compromise "run the risk of
having their words interpreted against them". This was a
reference to the
contra proferentem
principle in terms of which an ambiguous offer would be construed
against the party making the offer. See
Andy's
Electrical v Laurie Sykes (Pty) Ltd
(
supra
)
at 345A-B;
Kei Brick & Tile Co (Pty)
Ltd v A M Construction
(
supra
)
at 157G;
Karson v Minister of Public
Works
(
supra
)
at 896C-D.
[41] When these authorities are considered, the following principles
would appear to emerge:
A tender which is not made for purely procedural reasons is usually
intended as a contractual offer of compromise, in which event
the
ordinary contractual principles relating to offer and acceptance
will be applicable. Despite a measure of terminological
confusion
arising from the application of both Roman-Dutch and English legal
sources at an early stage of South African legal
development, the
distinction between procedural and contractual "tender"
should be clear from the relevant facts and
circumstances of each
case.
In considering whether a tender constitutes an offer of compromise
the court must determine the true intention of the parties,
and not
be misled by what the one or the other of the parties may, by the
use of particular terminology, purport to intend.
The court must be satisfied that the parties have
achieved
consensus
on all the relevant contractual requirements and have unequivocally
intended to settle the dispute or disputes existing between
them.
More particularly it must be satisfied that the debtor has made an
offer of settlement and that the creditor has accepted
it. The party
alleging a compromise bears the
onus
of
proving it.
Inasmuch as the offer may be conditional or be
accompanied by an admission, or partial admission, of liability, it
must be determined
whether the offer to pay is intended as an offer
of compromise or as an offer to pay what the debtor believes he owes
the creditor.
In other words, was it made with the intention of
making payment (
animo solvendi
),
or with the intention of concluding an agreement of compromise
(
animo contrahendi
)?
An agreement of compromise will have the effect
of discharging the existing obligations of the debtor and the
creditor's claim
will be regard as finally adjudicated upon (
res
judicata
). In its place a new
agreement with reciprocal rights and obligation will, by way of
novation (
novatio
),
come into existence.
In determining whether or not an agreement of compromise has been
concluded, consideration will be given to whether the parties
have
made concessions or retractions concerning their respective claims
and defences.
When a debtor offers to make payment "in
full and final settlement" of a creditor's claim, he may impose
conditions
as to the mode of acceptance, such as that the payment,
or cheque, as the case may be, should be returned if the offer is
not
accepted. Should the offer be ambiguous, however, it will be
construed against the debtor (
contra
proferentem
).
If a cheque, which has been offered as payment in full and final
settlement of a disputed claim, should be deposited and the
proceeds
thereof appropriated, it will generally be regarded that the offer
has been accepted, even if such acceptance has been
done without
prejudice. This is not a rule of thumb, however, since the facts and
circumstances of the particular case may indicate
that there has not
been acceptance.
APPLICATION OF THE LAW TO THE FACTS
[42] When the legal principles set forth above are applied to the
facts in the present matter, a clear picture emerges. What started

off as an alternative plea became the main string to the appellant's
bow. In order to persuade the trial court that the plea of
compromise
should be upheld, the appellant had to prove that its tender of the
cheque in question was intended as an offer of compromise
and, if so,
that such offer was accepted by the respondent. The trial court was
not so persuaded and it is now for this court to
consider whether it
should have been.
[43] At the outset it must be remembered that the cheque bearing the
inscription "full and final settlement of account"
was sent
to the respondent under cover of two letters, both dated 19 February
2002. These letters, as mentioned above (par [8]
and [9]), dealt with
a "credit request" and a "final reconciliation"
respectively. Neither of them mentions
a word about an offer of
compromise or settlement of the dispute between the parties, and
neither stipulates any condition as to
the mode of acceptance
required of the respondent. They simply demonstrate how the appellant
has calculated the amount of the cheque,
namely by deducting the
amount of the credit claimed from the balance owing in terms of its
account with the respondent.
[44] From this it would appear that the
appellant's intention in sending these letters was to inform the
respondent as to what it
believed was the amount in fact owing to the
respondent. The cheque was hence tendered with a view to making
payment of this amount
(
animo solvendi
),
and not with the purpose of making a contractual offer of compromise
(
animo contrahendi
),
which would give rise to the conclusion of a new contract should the
offer be accepted by the respondent. The inscription on
the cheque,
to the effect that it was being paid in full and final settlement of
the respondent's account, was, in my view, simply
intended as
confirmation of what the appellant believed it owed the respondent.
[45] Even if the tender of the cheque should be regarded as an offer
of compromise, the appellant faces insurmountable difficulties
on the
issue as to whether or not the offer was accepted. It is true that
the respondent deposited the cheque and later arranged
for it to be
transferred to its attorney's trust account. On the other hand, when
it received the cheque and the accompanying letters,
it responded, in
the letter dated 1 March 2002 (par [10] above), by expressly and
unequivocally rejecting the cheque as payment
in full and final
settlement of the appellant's indebtedness. It confirmed this
rejection by inviting the appellant to arrange
that payment on the
cheque be stopped. This is simply not compatible with acceptance of
any offer of compromise.
[46] That the appellant did not regard the payment of the cheque as
an offer of compromise is supported by the fact that, when
it was
requested by the respondent to stop the cheque, it attempted to
accede to this request. As appears from Mr Webster's testimony
(par
[14] above), had it succeeded in stopping the cheque, it would
clearly not have placed any further reliance on the payment
thereof
as being in full and final settlement of its indebtedness to the
respondent. It was only on being informed that the payment
could not
be stopped that it made the allegation, in its letter of 4 March 2002
(par [11] above), that the respondent had, by depositing
the cheque,
"accepted the condition of it being in full and final
settlement".
[47] It may well be that the respondent should have repaid the amount
of the cheque rather than arrange for it to be deposited
in the said
trust account. On the other hand the appellant at no stage objected
to the proceeds of the cheque being placed in a
trust account, nor
did it demand that the amount of the cheque be repaid. It appears
from these considerations that, even if the
payment of the cheque
should be construed as an offer of compromise, the respondent clearly
did not accept such offer. It follows
that I am in respectful
agreement with Traverso DJP that the appellant failed to prove that
the parties concluded an agreement
of compromise
CONCLUSION
[48] In the event the appeal must be dismissed with costs.
D H VAN ZYL
Judge of the High Court
I agree.
B WAGLAY
Judge of the High Court
I agree.
T NDITA
Judge of the High Court