Cornelissen, NO v Universal Caravan Sales (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Holmes JA, Jansen JA, Diemont AJA, Miller AJA and Kotzé AJA
• Judgment Date: 30 March 1971
• Citation: 1971 (3) SA 158 (A)
• Hearing Date: 05 March 1971
• Court: Appellate Division

Holmes, J.A.:

I respectfully beg leave to differ from the H conclusion of the majority.

A buyer fraudulently induces a seller to sell to him on credit goods costing more than R2,000 and to deliver the goods, by falsely representing that the price will duly be paid, intending that this misrepresentation will be acted upon; whereas the buyer well knows that he is unable to pay his debts and is in insolvent circumstances. Shortly after delivery of the goods the buyer's estate is sequestrated. The seller, on

Holmes JA

discovering the fraudulent misrepresentation, repudiates the sale. Can the defrauded unpaid seller recover the goods from the trustee of the buyer's insolvent estate, or is he restricted to the cold comfort of a dividend from a concurrent claim in the insolvency?

A There can be no doubt whatever how every businessman who sells goods would answer the question. But does the law walk so insensibly apart from mercantile concepts of justice that it answers the question differently? This depends upon an objective consideration of the terms of the Insolvency Act and any relevant common law which it does not displace.

B As to the latter, it has been well recognised for a century that the Insolvency Acts in this country have not ousted the relevant common law unless the latter is inconsistent with the statute; see the Privy Council case of Thurburn and Another v Steward and Another, decided in 1871, C and reported in L.R. 3. P.C. 478, in relation to the 1843 Cape Insolvency Ordinance. See also Scharff's Trustee v Scharff, 1915 T.P.D. 463 at p. 476, in which it was said, in relation to the Transvaal insolvency Law, 13 of 1895,

"there are numerous authorities that the provisions of the Roman and Roman-Dutch law as to the revocation of acts done in fraud of creditors have not been superseded by the Insolvency Law".

See, too, Fenhalls v Ebrahim, 1956 (4) SA 723 (D), in which D it was held that the common law Actio Pauliana, for the setting aside of an alienation in fraud of creditors, is not excluded by the Insolvency Act, 24 of 1936.

In any branch of the law, and whether common or statutory, fraud is regarded as an odorous concept. The Romans described it as

E "any craft, deceit or contrivance employed with a view to circumvent, deceive, or ensnare another";

see Digest, 4.3.1.2., referred to by DE VILLIERS, C.J., in Tait v Wicht and Others, 7 S.C. 158 at p. 165. The law has consistently set its face against it. Thus a fraudulently induced sale is voidable at common law, with the remedy of F rescission and damages and a personal action against the buyer for recovery of the property. In certain cases fraud vitiates consensus and renders the sale void, leaving the seller with the remedy of vindicating the property as owner. Criminal law exposes an alleged defrauder to prosecution and even renders him liable to arrest without warrant; see sec. 23 (b) of Act 56 of 1955.

G The common law relating to insolvency also reflects an abhorrence of fraud. In the case of a fraudulently induced sale on credit, the seller is entitled to withhold delivery where the purchaser becomes insolvent between the date of sale and the date fixed for payment. That was the opinion of the French writers Pothier, Domat and Troplong, and it was approved by H this Court in Ullman Bros. v Kroonstad Produce Co., 1923 AD 449 at p. 458. Troplong bases the remedy on deception and justice. He says, as quoted by Mackeurtan on Sale, 3rd ed., p. 260 -

"Justice demands that, when the appearance of solvency which gave rise to the trust of the seller is shown to have been deceptive at the time of sale, the Courts should come to the help of the party of whose good faith advantage has been taken."

After delivery, according to the common law, a defrauded unpaid seller on credit could recover the goods on the buyer's insolvency, if

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the buyer was contemplating bankruptcy at the time of the sale and deceived the seller. That is the very situation in the instant case. Van der Keessel, a distinguished Dutch jurist and professor of law at the University of Leyden from 1770 to 1815, puts it in a nutshell in his Select Theses, 204 (Lorenz A translation) -

"A person who, knowing himself to be insolvent, has fraudulently purchased anything from another, and has shortly after made cession to the Court, though credit may have been given him for the price, is bound to restore the thing to the seller claiming it."

This is also the view of van Leeuwen, 4.17.3, Kotzé's B translation). He concludes by saying that

"in such a case the thing is not considered to have been delivered but rather to have been obtained by fraud".

In the instant case this finds an echo in the seller's protest, contained in a letter from their attorneys attached to the further particulars to the declaration, namely, "the goods were C obtained from our client by fraud".

I pause here to observe that it would be doing less than justice to the robustness and flexibility of the Roman-Dutch law to suppose that the foregoing relief is granted solely by reference to legalistic theorising as to whether delivery was based on justa causa and whether dominium passed. What the common law rule does sensibly and effectively, on the buyer's D insolvency, is to come to the aid of an unpaid seller induced by the fraud of a near-bankrupt buyer to sell goods to him on credit and delivery them. That relief is at least applicable on the accepted view that delivery plus intention passes ownership, leaving a defrauded seller with the remedy of rescission and a personal right of action against the buyer for E the recovery of the goods. The question in the instant case is whether that right persists against the liquidator.

I am unable to assent to the proposition that the decisive consideration in the appeal is the concession by counsel that ownership passed on delivery and before the winding up. What must first be decided by this Court is whether the Legislature in sec. 36 (4) of the Insolvency Act allows an un-paid seller a F right of recovery of goods obtained on credit by the fraud of a buyer on the brink of insolvency. That is what the common law does. If there is such a right under sec. 36 (4) it does not necessarily have to exist by way of a vindication: it can, at the least, exist as a personal right for the return of the goods. The decisive consideration in the appeal is, therefore, G the interpretation of sec. 36 (4). This nettle must be firmly grasped. In particular the word "only" must be interpreted and its meaning stated. Until this is done, the plaintiff's claim cannot be rejected. This task cannot be avoided. In ascertaining and stating the meaning of "only" you can take other sections (e.g. secs. 96 et seq ) into account, as well as H unexcluded common law. But until you have stated such meaning, you are in no position to reject the plaintiff's claim solely by reference to the pattern of the other sections.

By way of approach, there can be no doubt but that the general pattern of the Act is to divest the insolvent of his property for the benefit of his creditors. The procedure is elaborately enunciated. Against that general background, the question is whether sec. 36 (4) lets in a common

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law exception based on the insolvent's fraud. That brings me directly to a consideration of the section. It reads as follows -

"36. (1)

If a person, before the sequestration of his estate, by virtue of a contract of purchase and sale which provided for the payment of the purchase price upon delivery of the A property in question to the purchaser, received any movable property without paying the purchase price in full, the seller may, after the sequestration of the purchaser's estate, reclaim that property if within ten days after delivery thereof he has given notice in writing to the purchaser or to the trustee of the purchaser's insolvent estate or to the Master, that he reclaims the property: Provided that if the trustee disputes the seller's right to reclaim the property, the seller shall not be entitled to reclaim it, unless he institutes, within B fourteen days after after having received notice that the trustee so disputes his right, legal proceedings to enforce his right.

(2)

For the purposes of sub-sec. (1) a contract of purchase and sale shall be deemed to provide for the payment of the purchase price upon delivery of the property in question to the purchaser, unless the seller has agreed that the purchase price or any part thereof shall not be claimable before or at the time of such delivery.

(3)

C The trustee of the purchaser's insolvent estate shall not be obliged to restore any property reclaimed by the seller in terms of sub-sec. (1) unless the seller refunds to him every part of the purchase price which he has already received.

(4)

Except as in this section provided, a seller shall not be entitled to recover any property which he sold and delivered to a purchaser whose estate was sequestrated after the sale, only by reason of the fact that the purchaser failed to pay the purchase price.

(5)

D The owner of the movable property which was in the possession or custody of a person at the time of the sequestration of that person's estate, shall not be entitled to recover that property if it has, in good faith, been sold as part of the said person's insolvent estate, unless the owner has, by notice in writing, given, before the sale, to the curator bonis if one has been appointed or to the trustee of the insolvent estate, or if there is no such curator bonis or trustee, to the Master, demanded a return of the property.

(6)

E If any such property has been sold as part of the insolvent estate, the former owner of that property may recover from the trustee before the confirmation of any trustee's account in the estate in terms of sec...