Absa Bank Ltd v Kernsig 17 (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Cloete JA, Cachalia JA, Shongwe JA, Majiedt JA and Seriti JA
• Judgment Date: 31 May 2011
• Citation: 2011 (4) SA 492 (SCA)
• Docket Number: 386/2010
• Hearing Date: 04 May 2011
• Counsel: RS van Riet SC (with P de B Vivier) for the appellant. NJ Treurnicht SC for the respondent.
• Court: Supreme Court of Appeal

Seriti JA (Cloete JA, Cachalia JA, Shongwe JA and Majiedt JA concurring): H

[1] The respondent (Kernsig) approached the Western Cape High Court, Cape Town, by way of motion proceedings, seeking an order cancelling six covering mortgage bonds registered against the title deed of its immovable property (Karoovlakte farm) in favour of the appellant (Absa). The court of first instance (Meer J) dismissed the application with costs. With leave of the court of first instance, Kernsig appealed to I the full bench of the Western Cape High Court (the court a quo).

[2] The court a quo (Fourie J; Traverso AJP and Yekiso J concurring) reversed the decision of the court of first instance and granted the order sought by Kernsig. The matter is before this court after this court granted Absa special leave to appeal. J

Seriti JA (Cloete JA, Cachalia JA, Shongwe JA and Majiedt JA concurring)

A [3] Messrs PJ Greyling and JA Greyling are the sole directors and shareholders of Kernsig. Kernsig owns an immovable property known as Karoovlakte farm situated in the district of Klawer, Western Cape. PJ Greyling and JA Greyling formed a partnership known as Karoovlakte Boerdery (the partnership), and the partnership conducted farming B activities on Karoovlakte farm which they leased from Kernsig.

[4] Absa, through its Vredendal branch, was the banker of the partnership. Absa granted the partnership an overdraft facility on the partnership's cheque account and short-term loans. As security for the facilities granted to the partnership, six covering mortgage bonds were registered C against the title deed of Karoovlakte farm in favour of Absa. The total amount secured by the mortgage bonds was R1,11 million. As I have said, the bonds were covering bonds and each provided:

'Voortdurende Dekkingsverband

Hierdie verband sal van krag bly as 'n voortdurende dekkende sekuriteit D vir die hoofsom — die rente daarop en die bykomende bedrag, ondanks enige tussentydse skuldvereffening en, ondanks enige tussentydse skuldvereffening, sal hierdie verband van volle krag en effek bly as 'n voortdurende sekuriteits- en dekkingsverband vir enige en elke bedrag wat die Verbandgewer nou of hierna aan die Bank verskuldig mag wees voortspruitend uit welke oorsaak ookal tot die bedrag van die hoofsom, E die rente daarop en die bykomende bedrag.'

[5] Mr Johan Brand (Brand), the relationship manager of the Vredendal branch, was not happy about the manner in which the Greylings were conducting the two accounts. The limit of the overdraft facility was F frequently exceeded and the loan repayments were not made timeously.

[6] Attorney Visser (Visser), Kernsig's attorney of record, and a sister of PJ Greyling, was known to Brand, as her law practice operated an account at the Vredendal branch of Absa. Visser and PJ Greyling discussed the possible sale of Karoovlakte farm with Brand over several G months.

[7] On 6 September 2005 the Greylings entered into a written sale agreement of Karoovlakte farm with Mr Lionel Patrick Barnard and his wife Christine Barnard (the Barnards). The transaction was structured in such a manner that the Barnards would buy the Greylings' entire shareholding in Kernsig and, as part payment of the purchase price, take H over the partnership's financial obligations towards Absa.

[8] Brand, as a result of his discussions with Visser and the Greylings, was aware of the fact that it was a term of the sale agreement that the Barnards would, in the name of Kernsig, take over the financial obligations I of the partnership towards Absa. That entailed that the debts of the partnership would be consolidated and be paid by Kernsig, with the proceeds of a loan that Kernsig would obtain from Absa. The Barnards, in their own names, would not have qualified for a loan.

[9] The 6 September 2005 agreement of the sale of Kernsig was replaced by an almost identical sales agreement dated 30 November 2005. Clause 3 J thereof reads as follows:

Seriti JA (Cloete JA, Cachalia JA, Shongwe JA and Majiedt JA concurring)

'3.

Koopprys A

Die koopsom is die bedrag van R2 000 000.00 (twee miljoen rand) betaalbaar deur die koper aan die verkoper as volg:

3.1

'n Bedrag van R150 000.00 (een honderd en vyftig duisend rand) reeds betaal;

3.2

Die oorname van alle skulde van die maatskappy insluitend B die Landbou kredietlening ten bedrae van R57 750.00, asook die verbande wat oor die eiendom van die maatskappy geregistreer is in naam van Karoovlakte Boerdery. In totaliteit die bedrag van R1 137 750.00.

3.3

Die balans van die koopsom naamlik R712 250.00 word in 12 jaarlikse paaiemente afbetaal waarvan die eerste betaling op 1 Augustus 2006 sal geskied en daarna jaarliks voor of op C die einde van Julie. . . . .'

[10] The shares of Kernsig were not transferred into the name of the Barnards and in order for Kernsig to apply for a loan, Brand required the Greylings to give authority to Barnard to apply for the loan in the name of Kernsig. Barnard applied on behalf of Kernsig for a loan of R1,1 million D and same was approved or granted on 8 December 2005. The covering mortgage bonds already registered against the title deed of Karoovlakte farm, referred to earlier, served as security for the...