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[1996] ZASCA 8
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Kursan and Another v Eastern Province Building Society (257/94) [1996] ZASCA 8; 1996 (3) SA 17 (SCA); (12 March 1996)
IN THE SUPREME COURT OF
SOUTH AFRICA
(APPELLATE DIVISION
)
CASE NO. 257/94
SHARON LYNN KURSAN
1st APPELLANT
DAVID SHELDON HORWITZ
2nd APPELLANT
VERSUS
EASTERN
PROVINCE
BUILDING
SOCIETY
RESPONDENT
CORAM
: HEFER, E M GROSSKOPF, VAN DEN HEEVER,
MARAIS et SCHUTZ JJA
DATE HEARD
: 16 NOVEMBER 1995
DATE DELIVERED
: 12 MARCH 1996
SCHUTZ JA
2
JUDGMENT
SCHUTZ JA
:
This case is concerned with the extent of the security conferred
upon the respondent (the Eastern Province Building Society - "the Society") by a first mortgage bond passed over two
East London
properties owned by Valab (Pty) Ltd ("Valab"), now in liquidation.
More exactly the question is whether a limit on the extent of the security
expressed in the bond applies to interest or is confined to capital and
certain expenses. The answer to this question depends upon the
construction of the bond. It is not in issue that in certain circumstances
3
interest is secured wholly or to an extent. As already stated, the issue is
whether there is a limit to that security. If there is then in some
circumstances the interest or a part of it will not be secured.
The appellants stand in the shoes of a second bondholder. If the
Society's contention that interest is fully secured be correct, then it will
be entitled to the full net proceeds of the sale of the block of flats on the
properties, and the appellants will get nothing. On the other hand, if
their construction of the first bond be correct they will receive that part
of those proceeds which exceeds the overall secured limit for which they contend. It is unnecessary to set out the history of the
matter, save to
state that the Eastern Cape Division found in favour of the Society, but
granted leave to appeal to this Court.
4
The first three clauses of the bond read in part:
"1. Whereas the EASTERN PROVINCE BUILDING SOCIETY has agreed to lend to the Mortgagor/s the sum of SIX HUNDRED AND FORTY THOUSAND
RAND (R640 000,00) subject to the terms,
conditions and provisions of this Bond and under the
security thereof, and whereas the said Society may in its
discretion from time to time make further advances to or
payments to or on behalf of the Mortgagor/s subject to the
terms, conditions and provisions of this Bond and under the
security thereof, the Mortgagor/s is/are indebted to the
EASTERN PROVINCE BUILDING SOCIETY its order,
successors or assigns (hereinafter referred to as the Society)
in the sums of:
(i) SIX HUNDRED AND FORTY THOUSAND RAND (R640 000,00)
(hereinafter referred to as the Capital) being the
amount which the Society has agreed to lend to
the Mortgagor/s and which amount is to be
advanced to the Mortgagor/s or his/her/its/their
nominee/s after registration of this Bond under
the security thereof and subject to the terms, conditions and provisions of this Bond and the
5
Society's letter to the Mortgagor/s advising the
Mortgagor/s of the terms and conditions of
approval of the loan application by the
Mortgagor/s; and
(ii) ONE HUNDRED AND TWENTY
EIGHT THOUSAND RAND (R128 000,00)
(hereinafter referred to as the additional sum).
2. This Bond shall be a continuing covering
security to the aggregate amount of the Capital and the additional sum
for all and any sums of money which shall
now or may in the future be owing to or claimable by the
Society from whatsoever cause arising, for money lent and
advanced or which may hereafter be lent and advanced by
the Society and for future debts generally including any
payments made by the Society under the provisions of this
Bond, and generally any indebtedness to the Society from
whatsoever cause arising. The Society may advance further
sums or may readvance to the Mortgagor/s under security
hereof such sums or portions thereof as may have been
previously repaid. This Bond further secures and affords preference for the costs of preserving and realising the
property hereby mortgaged and of fire and other insurance
premiums, cost of notice or bank exchange, owed by or
claimable from the Mortgagor/s by the Society.
6
3. All amounts owing to the Society under this
Bond shall bear interest from the date advances or any other
payments are made at the relevant rate stipulated in this
clause reckoned monthly in advance on the amount
outstanding at the commencement of each month. At the
commencement of each month any arrear interest shall be
capitalised and shall thereupon form portion of the amount
outstanding at the commencement of such month. Any
interest due in terms hereof shall be secured under this Bond.
The relevant rates of interest shall be the
following...". (My emphasis).
The appellants place particular stress upon the phrase "to the
aggregate amount of the Capital and the additional sum" in clause 2, as
further supplemented in that clause by the twice used phrase "from
whatsoever cause arising". It should be said at once that if these phrases
are read so as to pervade the whole bond and to extend to clause 3, and
not so as to govern only the matter dealt with in clause 2, then the
7
appellants must succeed. They further argue that the reason for the
securing of interest being mentioned at all in clause 3 is that there may still be a doubt in our law whether it is secured without
special mention
to that effect.
The Society's argument, on the other hand, is that clause 2 is not
intended to deal with interest, so that the phrases relied upon by the
appellants are irrelevant to the issue. The very failure to mention the
important matter of interest, while expenses of comparatively little
significance are mentioned, is argued, with substance, to be a strong
indication. Interest, the Society argues, is dealt with in clause 3, and the
securing and the extent of the securing thereof in the general sentence: "Any interest due in terms hereof shall be secured under
this Bond." Nor
8
is there a limiting phrase such as, "but subject to the limit contained in
clause 2." In answer to this last argument the appellants counter by
pointing out that neither in clause 2 nor 3 are there words indicating that
the wide general expressions in clause 2 are not intended to extend to
clause 3.
The Society further relies on the hypothecation clause which
commences:
"As security for the due payment of the Capital,
additional sum and interest and all other sums of money
claimable in terms of this Bond, or that may at any time be
or become due and owing to the Society, arising from any
cause whatsoever, and for the due performance of the
conditions of this Bond, the Appearer q.q. binds as a first
mortgage bond ..." (my emphasis).
The appellants respond to this apparently persuasive argument by
9
contending that the clause is irrelevant to the issue, which is not whether
interest is secured but whether the extent of the security for interest is
limited by clause 2.
Those are the main arguments advanced on either side.
When interpreting these clauses of the bond it is necessary to have
regard to
s 51
of the
Deeds Registries Act 47 of 1937
, which provides
that in respect of a debt incurred after registration, the bond will give
preference only if it is expressly stated (a) that the bond is intended to
secure future debts generally or some particular future debt described
therein, and (b) that a sum is fixed in the bond as an amount beyond
which future debts will not be secured. Costs of preserving or realizing
the security, or of fire insurance, cost of notice or bank exchange are not
10
treated as future debts for the purposes of the section.
The bond in clause 1 contemplated that there would be future
debts, at least in respect of the "additional sum" of R128 000,00, and
perhaps more. It was therefore essential, if the future sums lent or to be
disbursed were to be fully secured, that the limit contemplated by
s 51
should be expressed. That, to my mind, explains the presence of the
words "to the aggregate amount of the Capital and the additional sum"
in clause 2. By contrast no reason was advanced why security for
interest should have been limited in a completely arbitrary way. It is
not necessary to ransack the bond to find what other future debts may
have been subject to the limit. The preponderating item was capital
advanced or re-advanced. As regards the last sentence of clause 2, with
11
the exception of insurance other than fire insurance, the items listed are
those exempted from categorisation as future debts under
s 51.
Clause 2 and indeed the bond generally bears the marks of drafting and redrafting over the centuries, the redrafting often being a
response
to the latest case: without anyone having sat down to work out the effect of the constant accretions upon the whole or the other parts:
and without
the numerous repetitions being addressed . If a comb is taken through
the 32 numbered clauses of the bond instances can be found which
indicate that the words in issue in clause 2 do not constitute the
definitive and entire dragnet clause defining how much and what is
secured.
When interpreting clause 2 one must read it in the context of the
12
whole bond. If one does so the natural reading is, to my mind, that
clause 2 is not intended to deal with the securing of interest at all. That
is left to clause 3. And if a rule of interpretation be needed, resort may
be had to that one which says that even very general words may
sometimes be diminished by their context: Director of Education,
Transvaal
v McCagie and Others
1918 AD 616
at 623.
Furthermore:
"While it is of course true that in construing a contract the
Court must give effect to the grammatical and in ordinary
meaning of the words, and that cogent reasons would be
required for doing violence to plain words, it is likewise
settled law that a departure from such a meaning is justified
where it clearly appears from the contract that the parties
intended a different meaning ..." (per Steyn CJ in
Capnorizas v Webber Road Mansions (Pty) Ltd 1967(2) SA
425(A) at 434 A).
In concluding that clause 2 does not limit the securing of interest
13
I do not think that it is necessary to do violence to plain words, but if it
were I would do so, as the overall intent of the bond in the relevant
respect is to my mind quite clear. Whilst one does not approach the
construction of a contract with preconceptions of what it contains, I do
think that one must take into account that the Society is in the business of lending money for interest and against the security of
fixed property:
and that Valab knew as much. In those circumstances it would have
been extraordinary if the parties had intended to place a capricious limit
upon the extent to which interest was secured, when there was no legal compulsion to do so, and when the bond is replete with examples
of the
Society's interests being protected and protected again, to the limit.
For these reasons I agree with the construction put forward on
14
behalf of the Society.
The appeal is dismissed with costs.
W P SCHUTZ
JUDGE OF APPEAL
HEFER JA )
)CONCUR EM GROSSKOPF JA)
CG
CASE NUMBER: 257/94
IN THE SUPR
EME COURT OF
SOUTH AFRICA
(
APPELLATE DIVISION)
In the matter between:
SHARON LYNN KURSAN
1st Appellant
DAVID SHELDON HORWITZ
2nd Appellant
and
EASTERN
PROVINCE
BUILDING
SOCIETY Respondent
CORAM:
HEFER, E M GROSSKOPF, VAN DEN HEEVER,
MARAIS et SCHUTZ JJA
HEARD ON:
16 NOVEMBER 1995
DELIVERED ON:
12 MARCH 1996
JUDGMENT
VAN DEN HEEVER JA
2
I agree that the appeal fails, and add to the reasons advanced by
my colleague Schutz JA, some possibly unnecessary detail, as follows.
The bond consists of a printed form which tries to cater for a wide
variety of eventualities, leaving spaces for special provisions to be
inserted and incorporating by reference the terms and conditions of the "Letter of Advice Granting a Loan" which has a similar
format. It is an
untidy document containing matter unnecessary by reason of statutory
provisions or what had been already said elsewhere. The draftsmen were
singleminded in their purpose: to protect to the hilt the interests of the Society, the very lifeblood of which is interest on capital
advanced to or
paid on behalf of clients. In their zeal, words were used which, in more
than one instance, cannot possibly be read literally. As examples: in
terms of clause 5 the mortgagor purports to renounce "all benefits of the
exceptions hereinafter specifically referred to and all other exceptions
which might or could be pleaded in bar to the validity of the said debt
or any part thereof or for any indebtedness or claim under the Bond with
3
the meaning and effect of which exceptions the Appearer declared the
Mortgagor to be perfectly acquainted. In particular the Mortgagor/s
renounce/s all benefits of the legal exceptions" which are then listed.
Surely the mortgagor could not be held to be "perfectly acquainted" with
and have renounced defences even the money-lender could not call to
mind! And clause 7, taken literally, duplicates insurance against the
same risks, once by the mortgagor, again by the Society, both at the
expense of the former. Reference to the "Letter" makes it clear that that
liability is not intended to be cumulative but in the alternative.
The untidiness of the document is exacerbated by the fact that no-
one bothered to delete phrases or clauses in the printed document which
undoubtedly have no bearing whatever on the relationship between the
parties to the particular transaction to be secured by the bond.
I cannot agree that clause 12 of the bond is of any particular
significance in favour of interpreting the limitation in clause 1 of the
bond as being applicable to interest as well as further capital
4
disbursements perhaps to be made to or for the mortgagor. I do not
understand the suggestion to be that, were there no limitation at all
provided in the bond in respect of future debts, interest on what I may
refer to as the primary capital debt would not be secured unless the
amount to which interest may run were limited. In a contract such as the
one in issue, the primary capital amount would be exceeded constantly
since for the first five years only interest was payable, no redemption on
the capital of the loan is provided for. The relevant section of the
Deeds
Registries Act was
passed against the background of the generally
accepted view that when a real right of security is created in favour of
the creditor, the security extends automatically to interest charged as
compensation for the extension of credit. Cf e.g. JOHANNESBURG MUNICIPALITY v COHEN'S TRUSTEES
1909 TS 811
at 818; and see
LAWSA Vol 17 para 401 and cases referred to in notes 2-4; De Wet &
van Wyk, KONTRAKTEREG EN HANDELSREG 5 ed Vol 1 pp 409-
5
410. Whether that relates to interest on the initial capital advance or
advances or disbursements subsequently made appears to me to be
irrelevant.
J J F HEFER JA
on behalf of L VAN DEN HEEVER JA
CASE NO. 257/94
IN THE SUPREME COURT OF
SOUTH AFRICA
(APPELLATE DIVISION)
In the matter between:
SHARON LYNN KURZAN
1st Appellant
DAVID SHELDON HORWITZ
2nd Appellant
and
EASTERN
PROVINCE
BUILDING
SOCIETY Respondent
CORAM
: HEFER, E M GROSSKOPF, VAN DEN HEEVER,
MARAIS et SCHUTZ JJA
HEARD
: 16 November 1995
DELIVERED
: 12 March 1996
JUDGMENT
MARAIS JA/
2
MARAIS JA/
I find myself in respectful disagreement with the majority
of the court in this matter. This being a minority judgment I shall
state as tersely as I can why I am unpersuaded that the limitation
provision does not apply to interest. It is trite that when a dispute
arises as to the interpretation of a written contract one approaches the
question without attributing a priori to the parties any particular
intention. Their intention must be found in the document. That does
not mean of course that it must be examined as narrowly as if it were
a fly entombed in amber but there are limits to what extraneous factors
one may have regard in ascertaining what was intended. Truisms
about the commercial importance of interest to a moneylender are in
my respectful view of little help. The fact that interest is dealt with
3
in this bond in a clause devoted to it alone (clause 3) and that it is
said in that clause to be secured does not, in my view, lend any
support to respondent's interpretation of the bond. The elaborate
provisions which it contains relating to the payment of interest, such
as the payment of "availability" interest pending the date upon which
the loan was actually paid out to the borrower, the rates of interest
payable, and the capitalization of unpaid arrear interest, were peculiar
to the subject of interest, and the fact that the interest was dealt with
in a separate clause, as any draftsman would deal with it, cannot be
invested with interpretational significance. Nor can the fact that the
interest is said in that clause to be secured. Given the well-known
controversy as to whether or not interest needs to be specifically stated
to be secured before it is secured by a bond, the making of a clear and
unambiguous statement that it is to be secured in the very clause
4
which is devoted to interest is to be expected. Moreover, the dispute
in this case is not whether interest was to be secured by the bond; it
is quite plain that it was. The question is to what extent it was to be
secured: wholly or (potentially) only partially. Again I consider that
a specific reference in that clause to the securing of interest begs the
question. There are other clauses in which other classes of debt are
specifically said to be secured even although they had already been
included as secured by reason of the wide sweep of the language used
in clause 2. See, for example, clause 12 which deals with life insurance premiums paid by the mortgagee. It provides that the
"amount so paid shall be portion of the indebtedness secured under the
bond and shall bear interest as stipulated herein -----
". Any amounts
so paid would surely be part of the "future debts -----
including any
payments made by the Society under this bond" referred to in clause
5
2 and therefore subject to the ceiling. The point is simply this: the
fact that a particular class of debt is specifically and separately said in
some other clause to be secured does not necessarily mean that it is
not subject to the ceiling for which clause 2 provides. I shall return
again to clause 12 which seems to me to be of considerable
significance. Finally, on this particular score, the notional distinction
between interest and capital is blurred by clause 3 itself for it provides
for the capitalization of unpaid arrear interest. Arrear interest is
thereby merged with outstanding capital and outstanding capital is
obviously subject to the ceiling.
The opening words of clause 2 ("This Bond shall be a
continuing covering security to (my emphasis) the aggregate amount
of the Capital and the additional sum
") amount to nothing more
than a quantification of the ceiling of the security provided by the
6
bond. They alone do not recite that the capital and the additional sum
or indeed anything else are or is secured by the bond; it is the rest of
the clause which has to be read to see what debts are being secured,
and whatever they prove to be, they are all subject to the ceiling set
forth in the opening words. The rest of clause 2 plainly includes the
capital and the additional sum but it equally plainly includes
disbursements made on behalf of the mortgagor and any indebtedness
from whatever cause arising. Re-advances and further advances are
specifically covered and are equally affected by the ceiling because
they represent "money hereafter lent and advanced" and "future debts
generally". I can see no linguistic justification for excising interest
from the category of debts to which clause 2 relates. The clause is not
prefaced by the kind of qualification commonly and usually employed
by draftsmen when it is intended to except from the ambit of an
7
apparently all inclusive provision something with which it is intended
to deal in a subsequent provision. Clause 2 is not prefaced by words
such as "Subject to the provisions of clause 3" or a similar
qualificatory expression. Nor is clause 3 prefaced by words such as
"Notwithstanding anything to the contrary elsewhere in this bond".
The hypothecation clause takes the matter no further. It
is entirely silent on the question of a ceiling, yet a ceiling there
undoubtedly was. It also merely repeats what had been said before, namely, what types of debts were to be secured by the bond. It
did
not purport to say to what extent they would be secured by the bond.
Any suggested difficulty in the computation of a sum
which would be sufficient to secure interest fully strikes me as more
apparent than real. Firstly, similar difficulty (if difficulty it be) attends
the estimation of what future amounts might be lent or advanced to,
8
or laid out on behalf of, the mortgagor yet it proved possible to set a
ceiling. Secondly, the accrual of unpaid interest is to a very large
extent something over which the mortgagee has considerable control.
If the interest arrears are in danger of exceeding the ceiling of security
available, the mortgagee can call up the bond. It is true that there may
be delays in obtaining payment caused by factors beyond the
mortgagee's control but they are likely to be the exception rather than
the rule. In any event, there is no statutory restriction upon the
amount which the mortgagee may select as the ceiling and it should
not prove difficult to set a realistic and relatively safe ceiling.
I think that the incorporation by reference in the bond of
the letter from the Society advising that the bond would be granted
throws little light on the question. The letter in its turn incorporated
whatever was to be in the bond. It recited that the bond had been
9
approved "subject to the rules of the Society, on the terms and
conditions appearing on the face and reverse of this letter and in the
Bond/s to be registered/already registered". Reference to both
documents is therefore necessary to determine what the terms and
conditions are and neither document can be interpreted in isolation as
if it were itself a definitive and exhaustive exposition of those terms
and conditions.
In my view there is insufficient justification for assuming
that the bond has been the subject of frequent redrafting and that
redrafting has occurred casuistically and without any attention being
given to its impact upon the bond as a whole. The instances of
clauses which "indicate that the words in issue in clause 2 do not
constitute the definitive and entire dragnet clause defining how much
and what is secured" to which reference is made in the judgment of
10
the majority are only significant if they are inconsistent with the
ordinary meaning of clause 2 and I am unable to locate any that are.
It is of course so that it is not clause 2 in isolation which falls to be
interpreted but the entire bond insofar as it relates to the securing of
interest.
I am unpersuaded that contextual considerations entitle
me to depart from the plain and ordinary meaning of the language
used in the bond. As was emphasised in Capnorizas's case (cited in
the majority judgment), such a departure is justified only "where it
clearly appears from the contract
(my emphasis) that the parties
intended a different meaning". To my mind, it does not clearly appear
that such is the case.
Indeed clause 12 is, in my view, clear evidence that
interest was intended to be governed by the ceiling. This particular
11
class of future debt is one for which
section 51
of the Act required a
ceiling to be provided if the debt was to be effectively secured.
Unless one regards this kind of debt as being included in the broad
sweep of clause 2, no ceiling will have been provided for it and it will
not be secured. But it was obviously intended to be secured because
clause 12 expressly says so. One should not lightly conclude that the
parties failed to achieve their stated object when the language of
clause 2 is so apt to accomplish their purpose. And if they did
accomplish their purpose, as I think they did, I fail to see how it can
be successfully maintained that the ceiling was intended to apply only
to the premiums advanced and not to the interest on the premiums.
Together they undoubtedly constitute a future debt.
Neither
of them
existed at the time of the passing of the bond. Whatever the position
may be where an existing debt bears interest and assuming (without
12
deciding) that the interest which may accrue in respect of such a debt
is not "a debt incurred after the registration of (the) bond" within the
meaning of
sec 51
(1), that certainly cannot be said of the interest
which will fall to be paid on a debt which does not yet exist and can
only be incurred after the registration of the bond. It is as much a
future debt as the principal debt is a future debt and it cannot exist
independently of the principal debt. This shows, conclusively to my
mind, that interest was intended to be governed by the ceiling on this
bond for, if it was not, the parties would have failed to achieve the
object which they set out to achieve in clause 12, namely, to secure
both the premiums and the interest. It is settled law that where the
language of a contract permits it, an interpretation which accords with
applicable statutory provisions, rather than one which falls foul of
them, is to be preferred.
13
Once it is clear that interest payable in respect of future
debts is governed by the ceiling despite the fact that provision is made
for the securing of such interest in a separate clause distinct from
clause 2, what justification is there for saying that interest on other
specified or unspecified future debts is not governed by such ceiling?
Indeed, as I have pointed out, the interest payable upon such future
debts is as much a future debt as the principal debt itself. Unless a
ceiling is provided for the interest as well as the principal debt, the
requirements of
sec 51
(1) (b) cannot be said to have been met. If that
is so, then by parity of reasoning, the parties must not be taken to
have failed to provide a ceiling for such interest and so frustrated their
own objective. And if that be so, what warrant exists for saying that
the ceiling in clause 2 was intended to apply to one class of interest
only, namely, that accruing on future debts, but not to that accruing on
14
a debt existing at the time of the passing of the bond? Surely none. The conclusion that the ceiling applies to all interest is, I
think,
inexorable. I would allow the appeal with costs.
R M MARAIS