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[2003] ZASCA 52
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Nedcor Investment Bank v Pretoria Belgrave Hotel (Pty) Ltd (344/2002) [2003] ZASCA 52; 2003 (5) SA 189 (SCA) (27 May 2003)
THE
SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
CASE NO
: 344/2002
In the matter between :
NEDCOR INVESTMENT BANK
Appellant
and
PRETORIA BELGRAVE HOTEL (PTY) LTD
Respondent
___________________________________________________________________________
Before: VIVIER, LEWIS JJA & SHONGWE AJA
Heard: 2 MAY 2003
Delivered:
27 MAY 2003
Summary: Effect of insolvency on executory contract where seller
had performed in full and immovable property registered in company's
name before liquidation.
___________________________________________________________________________
J U D G M E N T
___________________________________________________________________________
VIVIER JA
VIVIER JA
[1] On 13 March 1998 Pretoria Belgrave Hotel (Pty) Ltd
('Belgrave') entered into a written agreement with Waterton Lakes
Manufacturing
(Pty) Ltd ('the company') in terms of which Belgrave
sold to the company its hotel business, inclusive of its immovable
property
known as the remaining extent of Erf 3178 Pretoria, all
movables and the hotel liquor licence as a going concern for the
amount of
R1 450 000,00. The purchase price was payable by
a deposit of R1 050 000,00 secured by a first bond on the
immovable
property in favour of Syfrets Bank Limited and the balance
of R400 000,00 on 31 December 1999 secured by a second bond in
favour
of Belgrave.
[2] Pursuant to the sale the deposit was paid, the
movables were delivered and the immovable property was registered in
the name of
the company on 6 July 1998. The two bonds were registered
and the company was given possession of the business.
[3] On 2 February 1999 Nedcor
Investment Bank Limited ('Nedcor'), having taken over the business of
Syfrets Bank Limited, lodged an
application for the winding-up of the
company with the Registrar of the Court
a quo
. On 1 March
2000 the company was placed under final liquidation. At the first
meeting of creditors held on 2 June 2000 Belgrave
submitted a claim
for the amount of R415 737,70 in respect of the outstanding
balance of the purchase price and interest. The
claim was duly
admitted. In a letter dated 5 June 2000 the liquidator notified
creditors that the assets vesting in the insolvent
estate would be
sold by public auction. In the event the whole property was sold for
the amount of R450 000,00 plus R15 000,00
for the liquor
licence.
[4] Belgrave subsequently brought an application in the
Transvaal Provincial Division against the liquidator as first
respondent,
the Master as second respondent and Nedcor as third
respondent for an order that its claim for the balance of the
purchase price
be paid as part of the costs of administration. The
application was opposed by the liquidator and Nedcor. The matter came
before
Roos J who granted the application and ordered costs to be
costs in the administration. Nedcor was subsequently granted leave to
appeal to this Court. The liquidator and the Master have taken no
part in this appeal and abide the Court's judgment.
[5] The issue in the appeal is accordingly whether
Belgrave's claim for the balance of the purchase price lies against
the liquidator
as an expense incurred in the estate's administration
or whether Belgrave is to be regarded as a secured creditor ranking
after Nedcor's
first mortgage bond.
[6] The legal principles applicable
to the effect of insolvency on executory contracts such as the
present, that is those in which
one or the other, or all the
obligations undertaken remain unfulfilled, are clear and appear from
decisions such as
Bryant and Flanagan (Pty) Ltd v Muller and
Another NNO
1977 (1) SA 800
(N) at 804F-805G, which was confirmed
on appeal in
Muller and Another NNO v Bryant & Flanagan (Pty)
Ltd
1978 (2) SA 807
(A), and
Du Plessis and Another NNO v
Rolfes Ltd
[1996] ZASCA 45
;
1997 (2) SA 354
(A). A trustee in insolvency, and
thus a liquidator of a company in liquidation, is invested with a
discretion whether to abide
by or terminate an executory contract not
specifically provided for in the Insolvency Act which had been
concluded by the company
in liquidation before its liquidation. Such
an agreement does not terminate automatically on the company being
placed in liquidation.
The liquidator must make his election within
a reasonable time. Should he elect to abide by the agreement the
liquidator steps
into the shoes of the company in liquidation and is
obliged to the other party to the agreement to whatever
counter-prestation is
required of the company in terms of the
agreement. Once the liquidator has accepted the benefits of the
contract, he cannot limit
the other party to a concurrent claim
against the free residue of the estate for anything reciprocally due
to it. The other party's
claim then lies against the trustee who must
meet it as an expense incurred in the estate's administration since
his decision to
abide by the contract is reached for the purpose of
his administration of the estate.
[7] In the present case the
liquidator's position as at the institution of
concursus
creditorum
when the application for the winding-up of the company
was presented to the Court, was essentially different from that faced
by a
liquidator in the usual kind of executory contracts, such as
building contracts, where the liquidator has an election whether to
continue to demand future performance or to terminate the contract.
In the present case the immovable property had been registered
in the
company's name and the movables delivered to the company prior to the
concursus
. The property had vested in the company before the
concursus
. It had become part of the insolvent estate and had
to be dealt with accordingly. The liquor licence was incidental to,
and followed
the fate of the other assets. There was no further
obligation on the part of Belgrave that had to be performed.
Regarding the company's
obligation to pay the balance of the purchase
price, it could be argued that the passing of the second bond
constituted full performance
of its obligations but it is not
necessary to decide this point. In any event the delivery and
transfer of the merx was not, in terms
of the contract of sale,
dependent on any reciprocal obligation on the part of the company to
pay the outstanding balance of the
purchase price. It was thus not
necessary for the liquidator to pay such balance before selling the
property. The balance of the
purchase price was not yet due at the
time of the
concursus
and no right to cancel had accrued at
concursus
. The liquidator could clearly not cancel the sale
and insist on returning the merx and refuse to admit Belgrave as a
creditor (cf
Ex parte Liquidators of Parity Insurance Co Ltd
1966 (1) SA 463
(W) at 471 E-F). It was her duty as liquidator to
realize the assets in the estate for the benefit of creditors. In
doing so she
was not making an election to abide by the contract.
[8] It follows that the claim in respect of the balance
of the purchase price was not an expense in the administration.
[9] In the result the appeal succeeds
with cost. The order of the Court
a quo
is replaced with an
order dismissing the application with costs.
________________
VIVIER JA
LEWIS
JA)
SHONGWE
AJA) CONCUR