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[2013] ZAWCHC 65
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Retmil Financial Services (Pty) Ltd v Sanlam Life Insurance Comapany Ltd and Others (18779/12) [2013] ZAWCHC 65; [2013] 3 All SA 337 (WCC) (30 April 2013)
REPORTABLE
REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT OF
SOUTH AFRICA
(WESTERN CAPE HIGH
COURT, CAPE TOWN)
CASE NO: 18779/12
In the matter between:
RETMIL FINANCIAL
SERVICES (PTY) LTD
........................................................
Applicant
and
SANLAM LIFE INSURANCE
COMPANY LTD
.........................................
First
Respondent
DEWALD PRETORIUS N.O.
................................................................
Second
Respondent
(as nominee of Old Mutual
Trust Ltd)
THE MASTER OF THE HIGH
COURT, KIMBERLEY
.............................
Third
Respondent
OLD MUTUAL TRUST LTD
n..................................................................
Fourth
Respondent
SLABBERT AUTO BODY
REPAIRS CC
..................................................
Fifth
Respondent
Date of hearing: 14
February 2013
JUDGMENT DELIVERED ON
30 APRIL 2013
DAVIS AJ
:
[1] This case brings into
sharp focus the uncertain correlation between the interest retained
by the cedent and the interest gained
by the cessionary under a
cession
insecuritatem
debiti.
1
The
disputeis whether the cessionary of a life policy over the life of
the cedent, which was ceded to it
insecuritatem
debiti
as
collateral for a debt owed by a third party,may demand the immediate
payment of the proceeds of the policyin circumstances where:
1.1.
the life policy, ie the principal debt, has fallen due for payment by
virtue of the death of the cedent;
1.2.
the cession has not yet ‘matured’, i.e., where the debt
for which the security was effected (‘the secured
debt’)
is not yet due; and
1.3.
the insurer has offered payment of less than the full value of the
life policy, and the executor of the cedent’s estate,
who
disputes the reduced payment, wishes to defer payment on the policy
pending the outcome of the insurer’s internal payment
review
process.
[2] The relevant facts
are, for the most part,common cause, the issues between the parties
being of a legal nature.
[3] The applicant
(‘Retmil’) is a duly registered credit provider in terms
of the
National Credit Act 34 of 2005
. On 17 August 2011 Retmil
entered into a loan agreement with the fifth respondent, Slabbert
Auto Body Repairs CC (‘the Close
Corporation’), in terms
whereof it loaned the Close Corporation an amount of R877 253.00,
repayable by way of thirty
six monthly instalments in an amount of
R31 108.60 (‘the loan’).
[4] Mr. J.J. Slabbert, a
member of the Close Corporation who held 96% of the members’
interest in the Close Corporation, provided
security for the loan. He
bound himself as surety and co-principal debtor in favour of
Retmilfor the due fulfilment of the Close
Corporation’s
obligations under the loan and effected a cession
in
securitatem debiti
in
favour of Retmil of his right, title and interest in Sanlam Policy
Number 4291809XI over his life (‘the policy’).
It is not
clear from the papers what the full value of the policy was, but it
appears to have been an amount of R 1 500 000.00.
2
The
insurer under the policy is the first respondent (‘Sanlam’).
[5] Mr. J. J. Slabbert,
whom I shall hereinafter refer to as ‘the deceased’, died
on 23 June 2012. The second respondent
(‘the Executor’)
was appointed as the executor of his estate.
[6] After the death of
the deceased, the Close Corporation continued to pay the monthly
instalments due in respect of the loan.
The Close Corporation has at
all material times been up to date with such payments and has not
defaulted. At the time when this
application was launched, the loan
still had a period of approximately twenty three months to run, which
is roughly two-thirds
of the loan period.
[7] The policy was not
listed as an asset in the deceased estate in the inventory which the
Executor lodged with the third respondent
(‘the Master’).
It does not appear from the papers whether or not the Executor was
aware of the existence of the policy
when the inventory was compiled.
[8] Following the death
of the deceased, Retmil notifiedSanlam that he had died and requested
payment of the proceeds of the policy
(‘the proceeds’).
[9] On 24 August 2012,
Sanlam notified Retmil that it was prepared to recognise the claim on
the policy, but that it was offering
a reduced amount of R 831 538.00
and notfull payment under the policy, because of alleged
non-disclosures by the deceased
when the policy was taken out. An
opportunity of 90 days was afforded to make written representations
to Sanlam regarding this
decision, in the event of it being disputed.
[10] Because the payment
offered was for less than the full value of the policy, Retmil was
advised by its attorneyto inform the
Executor of the situation.
Retmil’s attorney accordingly wrote to the Executor on 3
September 2012 in the following terms:
‘
Retmil is
die eienaar by wyse van Sessie van gemelde polis en hou ek
instruksies dat Retmil Sanlam se verminderde uitbetaling gaan
aanvaar
ter delging van hierdie skuld
.
Hierdie skrywe is bloot om u in kennis te stel dat gemelde aanbod vir
Retmil aanvaarbaar is aangesien dit expo facto feitelik
korrek is dat
die oorledene nie volle openbaarmaking by die aansoek van hierdie
polis gedoen het nie.
Indien
die erfgename voel dat u as eksekuteur of hulle Sanlam se bevinding
wil aanveg, dring ons kliënte aan op sekuriteit
vir die volle
uitstaande bedrag tesame met sekuriteit ten bedrae van R250 000.00
vir regskostes
.
Die rede hiervoor is eenvoudig datons kliënte nie bereid is om
’n onaanvegbare saak op hul risiko met Sanlam aan te
gaan en op
die einde van die saak ernstige finansiële verlies kan ly indien
die saak onsuksesvol is nie.
Indien
gemelde betaling en sekuriteit nie binne die eersvolgende werksdae
ontvang word nie, gaan ons voort om uitbetaling van die
polis te
versoek’
.
(Emphasis added.)
[11] On 5 September 2012
the Executor met with Retmil’s attorney. He requested that the
matter be held in abeyance until Friday
07 September 2012 to afford
him the opportunity to take instructions from the heirs as to whether
the Executor should purchase
Retmil’s claim under the policy
for R 831 538.00, being the amount offered by Sanlam. Retmil’s
attorney confirmed
the arrangement as follows in a letter to the
Executor dated 5 September 2009:
‘
Ons sal aan
u versoek voldoen om die aangeleentheid met betrekking tot die
aanvaarding van Sanlam se offer, agterweë hou tot
en met Vrydag,
om u die geleentheid te gee om moontlik die eis by ons teen die
bedrag soos aangebied deur Sanlam, te koop, waarna
ons die eis dan
aan u as die eksekuteur, en/of enige person wat die gelde betaal, sal
sedeer vir verdere hantering na eie goeddunke’.
[12] On 7 September 2012
the Executor’s attorney wrote to Retmil’s attorney
informing him that he had not been able
to obtain a copy of the
cession and requesting that same be made available urgently to enable
himto advise the Executor.Retmil’s
attorney responded in a
letter dated 10 September 2012, in which he stated that the matter
had been held in abeyance until Friday
7 September 2012 to enable the
Executor to purchase Retmil’s claim, and as that had not
happened, he regarded the matter
as concluded.
[13] On 10 September
2012, Retmil notified Sanlam in writing that it accepted the reduced
payment offered by Sanlam in respect of
the policy.There is no
indication in the papers that Retmiltook any steps to investigate the
allegations of non-disclosure, as
opposed to merely accepting
Sanlam’s word at face value.
[14] On 12 September 2012
the Executor sent an email to Sanlam in which he questioned the
validity of the cession andrequested Sanlamnot
to pay the proceeds of
the policy to Retmil, but directly to the deceased estate.The
Executor then proceeded to raise a number
of objections and queries
regarding the cession, which were notpersisted with and are not
relevant to this application.Two of the
points of dispute raised by
the Executor remain relevant, however,namely that the amount owing on
the loan is less than the amount
being offered on the policy, and
that the Close Corporation is up to date in respect of its
obligations in terms of the loan.
[15] The attitude
adoptedby Retmil appears fromthe following passages in an email
written by its attorneysto Sanlam, and copied
to the Executor’s
attorney, on 20 September 2012:
‘
Dit is
ook ons kliënt se houding dat hulle, as sessionaris, die eienaar
van die polis is, en geregtig is om die aanbod, soos
Sanlam gemaak
het, te aanvaar
,
en het hulle ditook reeds skriftelik gedoen. Die boedel is ook
skriftelik hiervan in kennis gestel, en is daar selfs aan hulle
die
geleentheid gegee om die R 831 000,00 wat die polis werd
is, aan Retmil Fiansiële Dienste te betaal, waarna
hulle met
hulle hersieningspoging oor Sanlam se berekenings, kan voortgaan.
Hulle het egeter geweier om hierdie aanbod te aanvaar.
Mnr Vosloo (aanvaar) namens die boedel
en die BK, dat die BK inderdaad gelde verskulding is aan Retmil
Finansiële Dienste.
Die feit dat die betaling tans op datum
is, hou geen regsgronde in om uitbetaling van die polis, agterweë
te hou, nie. Sy mening
dat (ons) slegs die regte in terms van die
sessie op die polis kan uitoefen, indien die Beslote Korporasie
agterstallig is met
sy lening, hou geen water nie
.
Dit is juis
vir sekuriteit vir hierdie lening … dat die sessie geneem is
op die lewensversekeringspolis op wyle Mnr J J Slabbert
se lewe, en
word Remill Finansiële Dienste nou daadwerklik benadeel
.
Wat betref die siening dat die bedrag
van die polis R 831 000.00 meer is as die uistaande bedrag,
wens ons te bevestig
dat die leeningsooreenkoms voorsiening maak vir
regskostes en bevestig ons dat die surplus indien enige, op die
verbandlening ten
behoewe van die boedel, inbetaal sal word ….’
(Emphasis added.)
[16] The Executor’s
position, in turn, is evident from the following paragraphs of his
attorney’s response to the aforesaid
letter, written on 21
September 2012:
‘
5. Ons
benadruk weereens dat ’n hof nie op hierdie stadium genader
hoef te word nie en sal sodanige regskostes heeltemaal
onnodig wees.
Daar is geen benadeling vir Retmilnie.
Die
hersiening van die uitbetaling, indien op hersiening geneem, moet sy
normale loop hê waarna Sanlam die nodige uitbetaling
kan maak
aan die party(e) geregtig op die opbrengs daarvan
.
6.
Die
sessionaris is nie eienaar van die polis nie. Die sessie waarop
(Retmil) steun is ‘n sydelingse sessie vir uitstaande
skuld en
nie ‘n uit en uit sessie nie. Mnr.J J Slabbert was die
eienaar van die polis en vanwee sy afsterwe val dit
in die bestek van
sy boedel en sy ekskuteur as verteenwoordiger
.
7. Ons kan met
respek nie met (Retmil) saamstem dat (hulle) in terme van die
leningsooreenkoms se inhoud nou geregtig is op (hulle)
regskostes
nie. Ons ontvang graag bewys van ‘n hofbewel welke (hulle)
geregtig maak op (hulle) kostes alternatiewelik ‘n
afskrif van
kostes deur (hulle) getakseer asook welke klousules in die ooreenkoms
(hulle) geregtik maak op regskostes welke (hulle),
na bewering, tot
datum opgeloop het.
8. Ons benadruk
weer, indien die sessie van 2011 geldig is en gegee is vir die skuld
van die BK dan is (
Retmil)
slegs geregtig op die totale uitstaande balans van die lening
verskuldig deur die BK aan (Retmil) en die balans betaalbaar
aan die
boedel
.
…
Ons benadruk weereens dat ons nie die
Hof gaan nader om u te stop om die geld aan Retmil uit te betaal nie,
indien u sou voortgaan
is dit op u risiko … Ons behou al ons
kliënt se regte voor in, tot en ten aansien van die Sanlam Polis
en stel u in
kennis dat enige gelde verkeerdelik deur Sanlam
uitbetaal …verhaal gaan word … vanaf Sanlam….’
(Emphasis
added.)
[17] Faced thus with the
threat of future litigation by the Executor if it paid out on the
policy, Sanlam adopted the stance that
it could not paythe proceeds
to Retmil without a Court Order authorising it to do so.Retmil
accordingly launched the present application
for an Order authorising
Sanlam immediately to pay the proceeds of the policy to Retmil, and
directing the Executor to bear the
costs of the application. Sanlam
does not oppose the relief sought, but the Executor does.
[18] In his answering
affidavit the Executor took issue with the entitlement of Retmil to
accept a lower payment than the full value
of the policy, alleging
that Retmil’s conduct was reckless and not in the interests of
the cedent. He disagreed with Retmil’s
conclusion that Sanlam
had an unanswerable case regarding non-disclosureand stated that he
had already successfully persuaded Sanlam
to increase its offer of
payment from R 831 538.00 to R 1 108 718.00 –
an improvement of the order of
R 277 000.00.
[19] The Executor
contends that the policy forms an asset in the deceased estate, and
that he is therefore entitled and duty bound,
in his representative
capacity as Executor, to challenge Sanlam’s decision to make a
reduced payment, inasmuch as he is obliged
to protect the interests
of the cedent.His attitude is that payment of the policy proceeds
should be held in abeyance until such
time as Sanlam’s internal
payment review process has been completed.He argues, further, that
Retmil is not entitledto insist
on immediate payment of the proceeds
in circumstances where the Close Corporation has not defaulted on the
loan and is up to date
with all payments.
[20] The third respondent
(‘the Master’), who has no objection to the relief
sought,gave a report in which he stated
that:
‘
Die feit dat
die polis aldus gesedeer is, beteken geensins dat hulle
[sic]
as
boedelbates verdwyn nie. Die eksekuteur kan die gewaarborgte skuld
vereffen, kansellasie van die sessie daarna verkry en selfvan
die
versekeringsmaatskappy vorder wat kragtens die polis uitbetaaalbaar
is of hy kan wag dat die sessionaris self ingevolge die
sessie van
die versekeraars vorder, neem wat hom toekom en die balans aan die
boedel uitbetaal.’
[21] Retmil did not annex
a copy of the policy to the application. It appears, however from the
letter written to Retmil by Sanlam
on 24 August 2012, that the policy
was taken out with effect from 1 June 2009, ie prior to the
conclusion of the loan.
The issues
[22] The difficulty in
this case is that, the deceased having died, the time for payment on
the policy has arisen, whereas the loan
is not yet due and payable.
[23] An additional
difficulty lies in the fact that Sanlam is offering, and Retmil has
purported to accept, payment of less than
the full value of the
policy, which potentially prejudices the interests of the deceased
estate
qua
cedent. Retmil insists on immediate payment of the
reduced amount offered on the policy, whereas the Executor wants to
defer payment
and attempt to negotiate for an increased offer. In
short, Retmil and the Executor are at loggerheads over who is
rightfully entitled
to deal with the policy, and Sanlam is
invidiously caught in the middle.
[24] In my view this case
turns on the answers to the following questions:
22.1. first, whether or
not Retmil was entitled to demand immediate payment of the proceeds
in order to discharge the loan,notwithstanding
the fact that the loan
was not yet due;
22.2. second, whether or
not Retmil was entitled to accept Sanlam’s reduced payment
offer on the policy; and
22.3. third, whether or
not the Executor is entitled, despite the cession, to deal with
Sanlam in an attempt to secure an increased
payment on the policy.
The nature and effect
of a cession
in securitatem debiti
Counsel for Retmil and
the Executor were
ad idem
that the cession in this case was
one
in securitatem debiti
and not an out-and-out cession.
[26] It is helpful, as a
starting point, to refer to therelevant principles governing cession
in
securitatem debiti
.
Our courts have repeatedly held that a cession
in
securitatem debiti
is
analogous to a pledge.
3
The
cedent, as creditor of a right, cedes his right or claim to the
cessionary, as security for a debt owed to the latter.Nienaber
summarises the general position regarding cession
in
securitatem debiti
as
follows:
4
‘
Such a
cession … is concluded on the understanding that the right
will be retained by the cessionary until, and will revert
to the
cedent together with all fruits and advantages which the right may
have accumulated, when the debt so secured has been redeemed.
In the
interim the cedent, having divested him or herself of the right, no
longer has the
locus
standi
to deal with or enforce it, while the cessionary, although the only
party entitled to performance, may not as a rule exercise all
the
powers of a
dominus:
he or she ought not to recover performancenor alienate the debt, but
is only permitted to act on the claim if the cedent defaults,
unless
the parties have agreed, either expressly or tacitly, that he or she
may or must do so in the meantime.’
[27] As in the case of a
pledge,
the
cedent as security-giver is not
wholly
divested
of an interest in the asset which he surrenders to the cessionary as
security-receiver. He retains what has been variously
described as
‘the bare dominium’ and ‘a reversionary interest’
in the ceded right.
5
Ownership
of the ceded right is not transferred to the cessionary but remains
with the cedent, entitling him to the reversion of
the ceded right on
settlement of the secured indebtedness.
6
On
the insolvency or death of the cedent, the bare dominium or
reversionary interest in the ceded right forms part of the estate
of
the cedent.
7
[28] Until such time as
the secured debt has been paid, only the cessionary has
locus
standi
to
enforce the ceded right.
8
While a cession
in
securitatem debiti
is
in force, only the cessionary may receive payment on the ceded
claim.
9
[29] However, by virtue
of the reversionary interest, which is an interest in the debtor’s
satisfaction of the ceded claim,
10
the
cedent also enjoys
locus
standi
to
protect his interest in the right by appropriate means, even if he
cannot for the time being enforce the right.
11
[30] During the currency
of the cession
in
securitatem debiti
the
cessionary, like the pledgee, is under a duty to exercise due
diligence with regard to the right and to protect the interests
of
the cedent, on pain of liability for damages sustained by the cedent
should he fail to do so. He must deal with the ceded right
as a
bonus
paterfamilias.
12
[31] Against this
backdrop, I turn now to deal with the three questions posed above.
Was Retmil entitled to
demand immediate payment of the proceeds of the policy in order to
discharge the loan
?
[32] I consider it
important to distinguish between the right to
receive
payment of the proceeds
and the right to
appropriate
the proceeds received, as
opposed to preserving them intact.Retmil’s case is based on the
assumption that,
on
the death of the deceased,
it
became entitled not only to receive payment of the proceeds, but also
to use the proceedsto settle the loan. In my view this
assumption is
flawed. The proceeds became payableon the death of the deceased, and
Retmil, as cessionary, is the party entitled
to receive such
payment.
13
It
does not follow, however,that Retmil is therefore alsoentitled,
without more, to use the proceeds to discharge the loan prematurely.
[33] It is not in dispute
that the Close Corporation is continuing to service the monthly
instalments due under the loan, and that
it is up to date with its
payments, the last of which will fall due on 31 August 2014.Retmildid
not allege in its papers that the
Close Corporation has committed a
breach of the loan resulting in acceleration of the indebtedness
under the loan. It must therefore
be accepted, for purposes of this
application, that Retmil is not entitled to call up the full balance
owing on the loan.
14
[34] The general rule is
that a cessionary
in
securitatem debiti
is
only permitted to enforce the ceded claim if the debtor defaults in
respect of the secured debt.
15
The
question which arises, however, is what the rights of the cessionary
are whenthere has been no default in respect of the secured
debt, but
the principal or ceded debt has fallen due for payment.
[35] Nienaber JA
considered this very question in
Development
Bank of Southern Africa Ltd v Van Rensburg
(‘Development
Bank’), where he stated the following:
16
‘
The …
issue of when and to what extent a cessionary … will have a
right to
collect
the debt, even if the cedent is not in default, is a factual and not
a legal issue; it is governed by the terms, express and tacit,
of the
obligationary agreement between the cedent and the cessionary
….
Only the cessionary has the standing
to enforce the principal debt and he may as a ruledo so … only
if and when the cedent
defaults on the secured debt. The primary
purpose of the exercise, after all, is for the cession to serve as a
form of collateral
security: for the cessionary to retain, to restore
and not to redeem the principal debt.…
Even so, there is a potential problem
when the cedent is not in breach but the principal debtor is. So,
too, when the principal
debt falls due during the subsistence of the
security and it becomes imperative for someone to take action, for
instance to avert
prescription.
In those circumstances the terms of
the obligationary agreement, express and tacit, will have to provide
the answer
whether it is permissible for the cessionary forthwith
to institute proceedings against the debtor and thereafter to account
to
the cedent for the proceeds so recovered. It is accordingly not
accurate to assert that, for as long as the cedent is not in default
of his obligations towards the cessionary, the latter is invariably
precluded from taking action pursuant to the cession.’
(Emphasis added.)
[36] The papers before me
are silent regarding the contents of the obligationary agreement
between Retmil and the deceased. It seems
that this agreement was
likely tacitly concluded, as the only express reference to the
cession is that found in the loan document,
17
where the cession is
simply listed as one of the securities provided, and the cession
itself, which was effected by way of a
pro
forma
Sanlam
cession document.
[37] I consider that, in
order to make out a case for its alleged entitlement, on the death of
the deceased, immediately to apply
the proceeds todischarge the loan
notwithstanding an absence of default on the part of the Close
Corporation,it was incumbent upon
Retmil to showthat it was
authorised to do so, whether expressly or tacitly, in terms of the
obligationary agreement which gave
rise to the cession. This it has
not done.Retmil has not alleged, much less proved, an express or
tacit term entitling it to discharge
the loan forthwith on the death
of the deceased.
[38] I might add,
en
passant
,
that had Retmil relied on such a tacit term,I consider it unlikely
that it would have succeeded.One can readily infer that the
parties
would have intended that Retmil should be entitled to do all things
necessaryto preserve its security under the policy,
18
for the parties could not
have intended that the security, and indeed an asset in the cedent’s
estate, should be lost due
to failure to comply with any requirements
laid down in the policy for due lodgement of a claim.It is also easy
to envisage that
they would have intended that Retmil should be
entitled to receive payment of the proceeds and retain them in trust
as security,
to be returned, together with accrued interest,on the
expiry and discharge of the loan, since this would be in keeping with
the
nature and purpose of a cession
in
securitatem debiti
.
It is more difficult to infer, however, that the parties would have
agreed that Retmil should be entitled to use the proceeds
for the
immediate discharge of the loaninstead of allowing the loan to run
for its full period, duly serviced by the Close Corporation.
I
consider it unlikely that the deceased would have consented to the
forfeiture of an asset which would otherwise be returnable
to the
estate on discharge of the loan, for the benefit of the deceased’s
chosen heirs.It is significant, in this regard,
that the loan did not
contain a stipulation that the full balance owing under the loan
would become due and payable immediately
on the death of the
deceased.
[39] Returning, then, to
the distinction between the right to receive payment and the right to
appropriate the proceeds, I consider
that Retmil, as cessionary, is
entitled to receive the full proceeds, subject to a duty to account
and pay any surplus to the Executor.
19
It
has the right to receive payment of the value of the policy, not to
consent to a lesser payment.
20
And
in the absence of any agreement authorising it to do so, Retmil would
not be entitled to deal with the proceeds in any way.
21
It
would, in my view, be obliged to hold the proceeds in trust as
security for the due performance of the Close Corporation’s
obligations under the loan, and to return them, withaccrued
interest,to the Executor on the expiry and discharge of the loan.
22
This caters for the
interests of both the cessionary and the cedent, since the cessionary
is fully secured while the cedent’s
asset remains intact.
23
[40] It therefore
follows, in my view, that Retmil was not entitled to demand immediate
payment of the proceeds for the purposes
of settling the loan.
Was Retmil entitled to
accept Sanlam’s offer of reduced payment on the policy
?
[41] The cessionary must
act as a
bonus
paterfamilias
in
relation to the ceded right. Until the secured debt falls due, he may
not deal with the ceded right unless he is empowered -
expressly or
tacitly - to do so.
24
He
may not, for instance, compromise or novate the claimor release the
debtor.
25
Retmil
has not shownthat it was authorised to deal with the policy before
the loan fell due. I consider that it was not entitled,
on that basis
alone, to accepting Sanlam’s offer of reduced payment on the
policy. It was also precluded from doing so, in
my view, by virtue of
the fact that it failed to have due regard to the interests of the
cedent.
[42] It is apposite to
refer to the matter of
Vassen
v Garrett,
26
the
facts whereof are similar to those in the present case. The cedent
was indebted to the cessionary in terms of a mortgage loan
and had
ceded to the cessionary, as collateral security, the rights under an
insurance policy over the mortgaged buildings.
The
buildings were destroyed in a fire, and the insurer offered the
cessionary a reduced payment on the policy, which he accepted
without
any regard to the cedent. The Court found that the cessionary was not
entitled to compromise with the insurer in disregard
of the cedent’s
rights. Kotze JP made the following pertinent comments in this
regard:
27
‘
The pledgee
cannot deal with the pledge or security in disregard of the pledgor’s
rights, and, if he does so, he will be liable
for any loss which the
pledgor may have sustained through his conduct. …
When Ward
(the insurer’s
representative)
informed the defendant
(cessionary)
that
he must either accept £150 as an act of grace, or he would
receive nothing at all, the defendant’s plain duty
as holder of
the security was to have informed the plaintiff
(cedent)
, and
to have studied her interests as well as his own. Instead of
communicating with her, the defendant wholly ignored her and
herrights under the policy. He compromised with the company and
accepted £150for a security worth
ex facie
£400,
and he delivered up that security in order that it might be cancelled
by the company upon the bare statement by Ward
that there had been a
material misdescription by the assured without reference to the
plaintiff in the matter at all. This the
defendant was not entitled
to do. He acted in total disregard of the plaintiff’s rights.
Had he communicated with her, she
might have taken steps to satisfy
the defendant’s claim in full, and so have protected herself by
redeeming the policy and
suing the company for the £400. The
defendant’s conduct therefore amounts to
culpa
, for
which he is liable to the plaintiff, who, through his act, has
entirely lost her rights under the policy.’
[43] In this case Retmil
acted correctly by informing the Executor that Sanlam was offering a
reduced payment on the policy. But
instead of tendering to return the
security to the Executor against payment only of the remaining
balance of the loan, Retmil demanded
that the Executor pay to it the
full R 831 538.00 which Sanlam had offered in respect of the policy,
notwithstanding that this
amount substantially exceeded outstanding
balance on the loan. In my view it was not entitled so to do.
[44] The cedent is
entitled, at any time while the cession is in place, to redeem the
asset by paying the cessionary the amount
required to satisfy the
secured debt.
28
The Executor,
qua
representative
of the cedent, was therefore entitled to redeem the policy by paying
only the outstanding balance on the loan, together
with any
outstanding interest and costs legitimately covered by terms of the
loan. Retmil could not, in my view, hold the Executor
to ransom by
demanding, as a pre-condition for the release of the security,
payment of a greater amount than that which was required
to discharge
the loan.Inso doing it effectively frustrated the cedent’s
right to redeem the security.
[45] Furthermore, Retmil
failed, in my view, to afford the Executor a reasonable opportunity
to peruse the cession, take advice
and investigate the matter, before
it went ahead and informed Sanlam that it was accepting the reduced
offer of payment. No urgency
or justification whatsoever was shown
for the short period of time – a mere three days –
afforded to the Executor to
consider the position and act
accordingly. To my mind this conduct shows a highhanded disregard for
the rights of the cedent.
[46] In addition, it
would appear that Retmil, assured of an amount sufficient to satisfy
the loan, was content to compromise the
claim on the strength merely
of Sanlam’s say-so, regardless of the cedent’s interests
and without giving the Executor
a fair opportunity to take steps to
protect those interests. This was not the conduct of a
bonus
paterfamilias.
[47] It follows that, in
my view,Retmil was not entitledto accept Sanlam’s offer of
reduced payment on the policy.
Was the Executor
entitled to enter into a dispute with Sanlam regarding the payment
?
[48] Although the cedent
in
securitatem
debiti
has
divested himself of the ceded right,he is not wholly divested of an
interest in the asset, for he retains the so-called reversionary
interest. Thereversionary interest forms part of the cedent’s
estate, has value,
29
and can be protected by
legal means (such as an interdict) even although the cedent cannot
for the time being enforce the ceded
right.
30
As Nienaber JA observed
in
Development
Bank:
31
‘
It is that
reversionary interest that vests in the cedent’s trustee upon
his insolvency, to be administered “in the
interests of all the
creditors and with due regard to the special position of the pledgee”
…; that can itself be attached
or ceded; that invests him with
the
locus
standi
to sue or be sued or apply for the debtor’s sequestration; and
may conceivably entitle the cedent, in an appropriate case
and
notwithstanding the cession, to perfect in order to protect the ceded
security.’
[49] I consider that the
Executor was entitled, and indeed duty bound, when faced with the
prospect of a reduced payment on the
policy, to intervene and protect
the reversionary interest of the cedent by engaging with Sanlam in
the internal payment review
process.
[50] In my view there can
be no prejudice to Retmil as a result of the Executor entering into
negotiations with Sanlam, since his
attempt to secure a higher
paymentcan only serve to increase the value of the security.Nor can
Retmil be prejudiced by deferral
of payment on the policy for as long
as the loan continues to be duly serviced by the Close Corporation.
[51] Retmil’s
argument that it is being prejudiced by the Executor’s conduct
appears to stem from its fear that, if
he takes the payment on
review, Sanlam will reject the claim on the policy entirely, as
Momentum Insurance did in regard to another
of the deceased’s
life policies, so that it will loose its security. It seems to me
that these fears are unfounded in circumstances
where the Executor
has already successfully persuaded Sanlam to increase its offer on
the policy. In any event, I consider that
the deceased could not, by
means of the cession, confer greater rights on Retmil than he himself
enjoyed under the policy. If Sanlam
is indeed justified in rejecting
the claim on the policy by virtue of non-disclosure, it follows that
the deceased enjoyed no rights
under the policy and that Retmil
acquired no rights under the cession in the first place.
[52] In my judgment, the
Executor was fully justified in taking up the cudgels on behalf of
the estate, and insisting on the deferral
of payment on the policy
until such time as the payment review process has run its course.
[53] There
is an aspect which I should mention for the sake of completeness.
During the hearing the question arose whether the Executor
was
entitled to claim and administer the proceeds of the policy on the
basis of the decision in
National
Bank of South Africa Ltd v Cohen’s Trustee.
32
In
that case it was held that the trustee of an insolvent estate was
entitled to claim and administer for the benefit of the estate,
proceeds of a fire insurance policy which had been ceded as security
for a debt, subject to the preferent claim of the cessionary.
[54] Now
while the trustee of an insolvent estate and an executor of a
deceased estate occupy a similar position in many respects,
the
essential difference between an insolvent and a deceased estate lies
in the existence of a
concursus
creditorum
in
the case of the former. The decision in
National
Bank v Cohen’s Trustee
must
be understood in the context of the common law rules relating to
pledge and the special position which pertains on insolvency.
Under
the common law, a trustee of an insolvent estate may require that all
pledges be delivered to him, subject to the pledgee’s
right of
preference.
33
On death of a pledgor, on
the other hand, his Executor must redeem the pledge.
34
There is no indication in
this case that the deceased’s estate is insolvent, and the rule
in
National
Bank v Cohen’s Trustee
therefore
does not, in my view, find application in this case.
Conclusion
[55] To sum up: I
conclude, in all the circumstances and for the reasons given, that:
55.1.
Retmil is not entitled to demand payment of the proceeds in the
absence of default on the loan;
55.2.
Retmil is not entitled to compromise the claim under the policy;
55.3.
The Executor is entitled, by virtue of the reversionary interest in
the policy which vests in the estate, to take appropriate
steps to
protect that interest by disputing the reduced offer of payment on
the policy and engaging with Sanlam in the claims review
process in
an attempt to secure an increased offer of payment.
[56] It follows that, in
my judgement, Retmil is not entitled to the relief sought.
[57] In the result the
application is dismissed, with costs.
_______________________
D.M. DAVIS, AJ
Acting Judge of the High
Court
FOR
APPLICANT:
Adv. SJ Reinders
INSTRUCTED
BY:
Van Wyk & Preller Ingelyf
FOR
RESPONDENT:
Adv. JH Loots
INSTRUCTED
BY:
Chris Vosloo Prokureurs
1
See
P M Nienaber ‘Cession’ 2
LAWSA
Part 2 (2 ed), para 53, and the
discussion at footnote 14.
2
Annexure
SLA 1 to the
Answering Affidavit, Record p 107.
3
See
Development Bank of Southern Africa Ltd v Van
Rensburg
2002 (5) SA 425
(SCA) at 447
C – E, and authorities cited there.
4
2
LAWSA
Part 2 (2
ed) para 52.
5
Development
Bank of Southern Africa Ltd v Van Rensburg supra
n
3 at
447 F, 2
LAWSA
Part 2 (2 ed) para 53.
6
2
LAWSA
Part 2 (2 ed) para 55.
7
National
Bank of South Africa Ltd v Cohen’s Trustee
1911 AD 235.
8
Bank
of Lisbon and South Africa Ltd v The Master and Others
1987 (1)
SA 276
(AD) at 294 C;
Goudini Chrome (Pty) Ltd v MCC Contracts
(Pty) Ltd
[1992] ZASCA 208
;
1993 (1) SA 77
(AD) at 87 G – H;
Development
Bank of Southern Africa Ltd v Van Rensburg supra
n
3 at 447 J – 448 A.
9
National
Bank of South Africa Limited v Cohen’s Trusteesupra
n 7at
p 251;
Trautman v Imperial Fire Insurance Co
(1895) 12 SC 38
at 41;
Barclays Bank (D, C & O) and another v Riverside Dried
Fruit Co (Pty) Ltd
1949 (1) SA 937
(C) at p 945.
10
Development
Bank of Southern Africa Ltd v Van Rensburg supra
n 3 at 447 G.
11
2
LAWSA
Part 2 (2 ed) para 55.
12
Priest
v Logie’s Estate
1926 EDL 40
at p 43;
S A Breweries v
Levin
1935 AD 77
at p 84.
13
See
note 9
supra.
14
Counsel
for Retmil contended belatedly that the default clause in the loan
had been triggered due to the change in membership
of the Close
Corporation following the death of the deceased. That case was not,
however, made out on the papers, and the argument
cannot avail
Retmil in the circumstances.
15
Freeman
Cohen’s Consolidated Ltd v General Mining and Finance Corp Ltd
1906 TS 585
at 591;
Volhand and Molenaar (Pty) Ltd v Ruskin
1959 (2) SA 751
(W) at 753 F and 754 E - F;
Land- en
Landboubank van Suid-Afrika v Die Meester
1991 (2) SA 761
(A) at
771 D – E;
P G Bison v The Master
2000 (1) SA 859
(SCA)
at 864; T J Scott and S Scott
Wille’s Law of Mortgage and
Pledge in South Africa
3 ed p 151; Susan Scott
The Law of
Cession
2 ed p 241-242; 2
LAWSA
Part 2 (2 ed) para 52.
16
Supra
n 3 at 447 B and 447 J – 448 E.
17
Annexure
B to the Founding Affidavit, Record p 31
18
For
instance, by notifying Sanlam timeously of the death of the
deceased.
19
See
Kuranda v Boustred
1933
WLD 49
at 53;
Rixom v Mashonaland
Building Loan and Agency Co Ltd
1938
SR 207 at 213.
20
Infra
.
21
The
Law of Cession
supra
n
15 p 242; 2
LAWSA
Part 2 (2 ed) para 52.
22
Oertel
N.O. v Brink
1972 (3) SA 669
(WLD) at 675 A.
23
See
Leyds N.O. v Noord-Westelike Koӧperatiewe Landboumaatskappy
Bpk en andere
1985 (2) 769 (A) at 780 F – G, where the
Court recognized that the interests of the estate of the pledgor and
his creditors
should be protected as far as possible.
24
See
note 21
supra.
25
Oertel
N.O. v Brinksupra
n 22 at 675 G;
Vassen v Garrett
1911
EDL 188
at 198;
Rixom v Mashonaland
Building Loan and Agency Co Ltd supra
n
19 at 213; 2
LAWSA
Part 2 (2 ed) para 56, footnote 8;
The Law of Cession
supra
n
15 p 242
.
26
Supra
n 25.
27
At
198 – 199.
28
Vassen
v Garrett
1911
supra
n 25at 198;
Oertel N.O. v
Brinksupra
n 22 at 675 A – C.
29
Incledon
(Welkom) (Pty) Ltd v Qwaqwa Development Corporation Ltd
[1990] ZASCA 85
;
1990 (4)
SA 798
(A) at 804 J – 805 A
30
2
LAWSA
Part 2 (2 ed) para 53.
31
S
upra
n 3 at 447 G - H
32
Supra
n 7.
33
National
Bank of South Africa Ltd v Cohen’s Trustee supra
n 7 at p
250.
34
See
Katz and another v Gordon
1958 (4) SA 213
(W) at 220 A –
B.