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[1994] ZASCA 46
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Mufamadi and Others v Dorbyl Finance (Pty) Ltd. (469/92) [1994] ZASCA 46 (29 March 1994)
Case No 469/92
IN THE SUPREME COURT OF SOUTH AFRICA
(
APPELLATE
DIVISION
)
WILSON RASILINGWANI
MUFAMADI
First Appellant
JESSE NTANGANEDZENI MUTHIGE
Second
Appellant
ALPHEUS OFHANI MAKHUVHA
Third Appellant
HIGHSON
THAETSHELESANI MAKHUVHA
Fourth Appellant
and
DORBYL FINANCE (PTY) LIMITED
Respondent
Coram:
JOUBERT, HEFER, NESTADT, F H GROSSKOPF JJA et MAHOMED AJA.
Heard
Delivered
24 February 1994. 29 March 1994.
2
JUDGMENT F H GROSSKOPF JA:
The appellants were the defendants in an
action brought by the respondent as plaintiff in the Supreme Court of Venda. The
respondent's
main claim was for damages following on the principal debtor's
breach of contract. The appellants were sued as sureties and co-principal
debtors. The Court a
quo
(Le Roux CJ) gave judgment in favour of the
respondent, but granted the appellants leave to appeal to this Court. The amount
awarded
as damages was much less than the sum claimed, but there was no
cross-appeal by the respondent.
The parties reached agreement on a number of material issues at two pre-trial
conferences. In the result the matter became a stated
case for all practical
purposes. Only one witness, a director of the respondent, testified briefly at
the trial.
3
The undisputed factual background is the
following. On 10 July 1985 the respondent and Lukoto Bus Service (Pty)
Limited ("the company") entered into a written agreement, styled
"Instalment
Sale Master Agreement" ("the agreement"), in terms whereof the respondent agreed
to sell to the company buses and other
vehicles. The agreement made provision
for separate schedules being signed for every vehicle sold by the respondent to
the company.
Pursuant to the agreement the respondent sold and delivered 33
buses and other vehicles ("the goods") to the company over a period
of time.
It was a term of the agreement that ownership in the goods would not pass to
the company until receipt by the respondent of all amounts
payable by the
company in respect of the goods. The agreement further provided that in the
event of the company failing to make due
payment in terms thereof the respondent
would be entitled to cancel the agreement and obtain repossession of the goods.
The respondent
in addition had the right to claim
4 as damages the difference
between the outstanding balance
under the agreement, and the "value" of the goods as
determined in accordance with clause 14.2 of the
agreement.
The provisions of clause 14.2 are of crucial
importance in the determination of the case. The clause
reads as follows:
"14.2 Whenever it is necessary to determine the value of the Goods, or any of
them, for any purpose under this Agreement, such value
shall, at the election of
the Seller, be determined either by the valuation of an appraiser nominated by
the Seller (whose valuation
shall be final and binding on the Buyer and the
Seller), or, such value shall be deemed to be the net amount realised on a sale
of
the Goods by the Seller on such terms and conditions as the Seller deems
fit."
On 12 December 1986 the four appellants and one Nehemiah Masala Lukoto
("Lukoto") bound themselves in writing to the respondent as
sureties for and
co-principal debtors with the company for the proper payment of all amounts
owing by the company to the respondent.
5 The company breached the agreement by failing
to
make payment to the respondent of the instalments due
under the agreement,
whereupon the respondent duly
cancelled the agreement on 5 July 1990. Prior
to
cancellation, and as early as 27 June 1990, the
respondent obtained an order of the Court
a quo
for the
interim attachment of the goods. In pursuance of the
Court order the sheriff attached the goods. The sheriff
also attached five additional vehicles which had not been
sold by the respondent to the company. These five
vehicles were valued together with the other vehicles,
and they were subsequently sold by the respondent as part
of the repossessed goods. It is however common cause
between the parties that these events have no effect on
the outcome of this appeal.
The respondent, as it was entitled to do in
terms of clause 14.2 of the agreement, immediately
appointed an appraiser to determine the value of the
goods which had been repossessed from the company. It
6
was subsequently agreed by the parties at one of the pretrial conferences
that the respondent had in fact appointed an appraiser in
terms of clause 14.2
and that the appraiser had valued the goods at R214 200. In the result the
appraiser was not called as a witness
to testify at the trial, and the
appellants were accordingly not afforded the opportunity to cross-examine him.
There was therefore
no evidence to suggest that the appraiser had not acted
bona fide
in all respects.
The parties further agreed at one of the pretrial conferences that the
repossessed goods (which had been valued at R214 200 on 5 August
1990) were
subsequently sold to Lukoto on 30 August 1990 for a cash price of Rl 000 000. On
26 November 1990 there was a new sale
of the same goods to Lukoto. The cash
price was then increased to Rl 186 539, due mainly to the addition of a sum of
R150 000 for
future insurance premiums. The question whether the appellants
would have been entitled eventually to a credit of Rl 000 000 or Rl
7 186 539
when computing the respondent's damages, remained
one of the ancillary issues which the trial Court had to
determine.
It
was further common cause that the total balance outstanding at the time of
cancellation of the agreement was Rl 366 018. According
to the respondent's
calculations its damages amounted to Rl 151 818, being the difference between
the amount of Rl 366 018 and the
appraiser's valuation of R214 200. The
respondent contended that once it had elected to appoint an appraiser to
determine the value
of the goods it was entitled but also bound in terms of
clause 14.2 to use the appraiser's valuation of R214 200 in the computation
of
its damages. The appellants on the other hand maintained that they were entitled
to a credit of at least Rl 000 000, being the
cash price at which the goods were
sold to Lukoto.
The principal issue which the Court
a quo
had to determine, was
whether clause 14.2 of the agreement
8
was contrary to public policy and therefore void. The
learned trial Judge held that the clause was indeed
contrary to public policy and unenforceable.
The Court
a quo
further considered the
ancillary issue mentioned above and decided that the
appellants were entitled to a credit of Rl 000 000, being
the cash price of the goods agreed upon at the time of
the first Lukoto sale on 30 August 1990. The learned
trial Judge concluded as follows:
"(I)t seems to me that the parties considered a price of Rl million to be the
fair market value of the goods. In this wa, Plaintiff
[Respondent in the present
proceedings] obtained a value for the repossessed goods and this is the sum
which in my view should be
deducted from the total sum owing as at the
date of cancellation Thus, the sum due by
them should be reduced by Rl 000 000,00 which leaves R366 018,15."
The Court
a cnio
accordingly ordered the appellants,
jointly and severally, to pay the respondent damages in
the sum of R366 018,15, together with interest thereon at
the agreed rate of 2% per month compounded monthly, from
9 5 July 1990
(being the date of cancellation of the
agreement) to date of payment.
The appellants appealed against this order of
the Court
a quo
. They contended that the Court
a quo
erred
in accepting the price of Rl 000 000 for which the
goods had been sold to Lukoto as constituting proof of
the actual market value of the goods, and in using this
amount to determine the respondent's damages. They
contended that there should have been absolution. The
appellants further maintained, in the alternative, that
interest on damages should only be awarded from date of
judgment, and not from date of cancellation of the
agreement.
Shortly before the appeal the respondent
conceded that it was only entitled to interest as from 24
March 1992, being the date on which judgment was
delivered in the Court
a quo
. I express no opinion on
the correctness or otherwise of this concession. The
respondent also tendered the wasted costs incurred to
10 date thereof (26
January 1994) in respect of the
appellants' supplementary heads of argument. Those heads
dealt specifically with the question of interest. The
appellants applied for condonation of the late filing of
these supplementary heads of argument, and for an order
that the costs of that application be costs in the
appeal. The respondent did not, however, tender to pay
the costs of the application for condonation.
Apart from the order for the payment of damages and interest thereon, the
Court
a quo
also ordered the appellants to pay the respondent an agreed
sum of R21 098,47 in respect of certain additional claims. Although the
appellants were granted leave to appeal against the whole of the judgment of the
Court
a quo
this aspect was never raised on appeal. There was in any
event no suggestion that the appellants did not owe this money. This order
must
therefore stand.
As I have said, there was no cross-appeal. The respondent submitted,
nevertheless, that the Court
a quo
11
erred in holding that clause 14.2 was void. If this argument were to be
upheld the appellants' appeal must fail. If clause 14.2 were
in fact valid the
appellants would be liable for damages far in excess of the amount actually
awarded. On the basis of clause 14.2
the respondent is entitled to damages in
the amount of Rl 151 818. While the respondent, in the absence of a
cross-appeal, must abide
the decision of the Court a
quo
, it cannot be
prevented from arguing that clause 14.2 is indeed valid, and that the appeal
should fail inasmuch as the appellants
would then at least not be entitled to
challenge the amount of damages actually awarded.
The respondent has urged us to find that the provisions of clause 14.2 of the
agreement were not contrary to public policy and therefore
invalid and
unenforceable. The legal principles governing such an inquiry have been set out
fully in
Sasfin (Pty) Ltd v Beukes
1989(1) SA 1(A) at 7I-9G. In the
subsequent case of
Botha (now Griessel) and Another v Finanscredit
(Pty)
12
Ltd
1989(3) SA 773(A) Hoexter JA had to deal with a
similar problem and remarked as follows at 782J-783B:
"In such an investigation (see the remarks of Smalberger JA at 9A-G of the
Sasfin
case) there must be borne in mind: (a) that, while public policy
generally favours the utmost freedom of contract, it nevertheless
properly takes
into account the necessity for doing simple justice between man and man; and (b)
that a court's power to declare contracts
contrary to public policy should be
exercised sparingly and only in cases in which the impropriety of the
transaction and the element
of public harm are
manifest."
In considering the provisions of clause
14.2 it should be borne in mind that it is "the tendency of the proposed
transaction, not
its actually proved result" which determines whether it is
contrary to public policy (per Innes CJ in
Eastwood v Shepstone
1902 TS
294
at 302;
Sasfin's
case
supra
at 8I-9A, 14F;
Botha's
case
supra
at 783C).
The Court
a quo
found that the main problem with clause 14.2 was that
it placed the respondent as seller in a position where it could virtually
determine
13
arbitrarily how much damages it wished to extract from
the company
as the defaulting buyer, without reference to
the usual objective standards
laid down by the law in
such cases. The learned trial Judge further
remarked:
"It is the Seller who has the election whether to use the valuation of the
appraiser or the measure provided by a sale, whichever
proves to be the most
advantageous for him. He can even dictate the terms of the sale without
reference to the unfortunate Buyer
who must eventually foot the bill. If the
valuation by the appraiser is not to his liking, he can simply manipulate the
purchase
price of the goods to increase his claim for damages: or he can 'elect'
to abide by a ridiculously low valuation and line his own
pocket by selling at
the market value to a willing and able buyer, thus making a handsome double
profit. On any
test, it seems to me indisputable
that
this provision contravenes all the tenets of simple justice between man and
man, business morality and 'social and economic expedience'.
In my view the
defendants are correct in their submission that it offends against public policy
and that it should be declared void
and unenforceable."
The provisions of clause 14.2 are set out
above. I respectfully disagree with the adverse
interpretation thereof by the Court
a quo
. In my opinion
14
these provisions do not afford the seller the
untrammelled powers of
manipulation contemplated by the Court
a quo
. The seller is obliged in
terms of the clause to make an election as to how the value of the goods should
be determined, either by
the valuation of an appraiser or by the sale of the
goods, in which event the value is deemed to be the net amount realised on such
sale. Once the seller has made his election he will be bound by it. Should he
elect to appoint an appraiser he will be bound by his
valuation, whatever the
amount thereof may be, and he will be obliged to calculate his damages on that
basis. Clause 14.2 specifically
stipulates that the valuation "shall be final
and binding on the buyer and the seller". In my opinion the clause does not
afford
the seller the right to obtain both a valuation and a price which a buyer
is willing to pay, and only then to make an election. I
am of the view that it
would in any event always be open to the buyer to show collusion between the
seller and the appraiser, if
such
15 be the case, or fraud or
mala
fides
on the part of either
or both of them. Should the seller on the other hand
elect to determine the value of the goods by means of the
price realised on the sale of the goods, he will be bound
by that price. Although the seller has the right to
prescribe the terms and conditions of such a sale, the
clause clearly contemplates a
bona fide
sale concluded
between the seller and the buyer at arm's length.
In my judgment clause 14.2, properly construed,
is not
contra bonos mores
or contrary to public policy.
In the result, and for the reasons set out above, the
appeal against the award of damages must fail. The following order is
made:
1.
The appeal is dismissed,
save that interest on the sum of R366 018,15 is to run from 24 March 1992
instead of 5 July 1990.
2.
The appellants are
to pay the costs of the appeal, which will include the costs of the application
for condonation. However, the costs
of the
appellants'
16
supplementary heads of argument
are to be paid by the respondent.
F H GROSSKOPF JA
JOUBERT JA) HEFER JA) NESTADT JA) MAHOMED AJA) Concur