Albert v Papenfus

• Jurisdiction: South Africa
• Judge: Munnik J
• Judgment Date: 23 April 1964
• Citation: 1964 (2) SA 713 (E)
• Hearing Date: 09 May 1963
• Court: Eastern Cape Division

Munnik, J.:

The delay in delivering this judgment is regretted, but was largely due to circumstances beyond my control, namely a motor

Munnik J

accident in which I was involved and my subsequent convalescence from the injuries sustained therein.

The plaintiff's claim against the defendant for provisional sentence is based upon a deed of suretyship signed by her on 1st August, 1961.

A In terms of the deed of suretyship the defendant bound herself as surety and co-principal debtor for the due performance by the Windsor Hotel (Pty.), Ltd. (to which I shall hereinafter refer as the 'Company') of its obligations in terms of a mortgage bond passed by it over its fixed property in favour of the plaintiff. It is common cause that the B defendant duly signed the deed of suretyship and that the Company having gone into liquidation defaulted under the bond, but the defendant's defence is that the circumstances under which the bond was passed constituted a contravention of sec. 86 bis (2) of the Companies Act with the result that the bond was invalid and therefore the defendant's liability on the deed of suretyship arising was by the same token unenforceable.

C The plaintiff's answer to this was that there was no contravention of sec. 86 bis (2) and even if there was it did not render the transaction void or any obligations arising therefrom unenforceable, but merely subjected the Company to prosecution and a penal sanction.

D The first point to decide is whether on the papers before me it has been shown on the probabilities that the transaction is one falling within the ambit of sec. 86 bis (2).

Sec. 86 bis (2) reads as follows:

'No company shall give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase E made by any person of any shares in the company to which it is a subsidiary . . .'

There are certain provisos not relevant to the present matter.

A breach of this sub-section is made an offence and renders the company liable to a fine.

The defendant's invocation of sec. 86 bis (2) proceeds from her F allegation that the amount of R90,000 in respect of which the mortgage bond in question was passed did not represent a true liability of the Company to the plaintiff, but was in fact a fictitious entry in the books of the Company to cover the purchase price payable by defendant in regard to the shares acquired by her from the plaintiff in terms of the deed of sale.

G At first sight there would appear to be a dispute of fact on the papers before me, but a careful reading of the affidavits and the annexed correspondence has satisfied me that the relevant facts at least are common cause. I advisedly use the phrase 'relevant facts' because it is clear to me that certain disputes as to whether offers and counter-offers were accepted at certain stages and whether the defendant H felt herself co-erced into signing the agreement are entirely irrelevant to the present enquiry since it is common cause that an agreement of sale was entered into and the deed of suretyship sued upon entered into in pursuance thereof and the defendant's defence is not one of duress.

To obviate any difficulty that may arise I shall however accept for the purposes of this judgment the plaintiff's version of the negotiations between the parties in so far as it is relevant to a decision in the matter.

Munnik J

At all times relevant hereto the issued share capital of the Company was 7,000 shares of £1 each, of which 6,998 were held by plaintiff, one by his wife and one by defendant.

The sole asset of the Company was the Windsor Hotel in East London. A Prior to the incorporation of the Company the plaintiff had been owner of the hotel and had managed it as such. After the Company was formed the plaintiff became the managing director and majority shareholder thereof (as set out above) and this is the position which obtained at the time the deed of sale previously referred to was concluded.

B In February, 1961, there were discussions between the plaintiff and the defendant about the purchase or lease of the hotel by the defendant, but according to the plaintiff these discussions did not result in 'a formal proposition.'

On 7th June, 1961, a further discussion took place summarised as follows by the plaintiff in para. 6 (iii) (c) of his answering affidavit:

C 'The defendant) asked what was the least I would be prepared to accept on a 'walk in walk out-voetstoots' basis with no comebacks on either side. To this, I replied that my wife and I were prepared to hand over at any time as above, providing we had a secure income of R600 per month for our total shares in the Windsor Hotel. The sum of R600 per month in arrear was to be calculated on a secured amount of R90,000 at 8 D per cent per annum. This offer was there and then accepted and it was then agreed that a meeting of our attorneys and auditors would be summoned as soon as possible to draw up the legal documents and reduce the sale to writing.'

This meeting was held on 12th June, 1961, and the defendant immediately took up the attitude that no final agreement of sale had been concluded. Plaintiff's version of what happened at the meeting (held on 12th June, E 1961) is set out in his affidavit, para. 6 (iii) (d) of which reads as follows:

'At this meeting I made it clear to all present that a sale had been concluded, but the defendant's attorney stated that his instructions from the defendant were that a sale had not been effected and that any offer was only intended to be considered after the meeting and after discussion with Mr. McConnachie. I denied that this was the case and reiterated that a firm offer had been made and accepted. At this meeting F the auditors for the Company explained that the R90,000 could be secured by opening a goodwill account in the books and that a mortgage bond securing that amount could be passed in my favour. My attorney asked if he was sure this could be done without contravening the Companies Act and the auditors replied that they were confident it would be in order, but that they would look it up and make absolutely sure.'

Thereafter there was a barrage of letters between the plaintiff's and G defendant's attorneys to some of which I shall refer in so far as they have a bearing on the point in issue: On 13th June the plaintiff's attorneys, after setting out the plaintiff's contention that a sale had already been concluded prior to the meeting on 12th June and the defendant's counter-contention that there had only been an offer which H was intended to be considered after the meeting (of the 12th June) and further discussion with the defendant's attorneys, went on to say:

'Our clients emphatically deny that this is the position, and the only matter which required consideration was the capital amount which would be owed by vour clients to ours to provide the income of £300 per month which your clients had undertaken to pay. Mr. Papenfus, as a matter of fact, indicated that a bond of £45,000 would increase the total cost...