Evrard v Ross

JurisdictionSouth Africa
JudgeLeon J
Judgment Date07 February 1977
Hearing Date02 September 1976
CourtDurban and Coast Local Division

Leon, J.:

The plaintiff has instituted proceedings against the defendant claiming payment of the sum of R5 910,60, interest G and costs. The action arises out of a written agreement between the parties.

After the particulars of the plaintiff's claim had been filed and served, but before the defendant had filed a plea, the parties, in terms of Rule 33 of the Uniform Rules of Court, agreed upon a written statement of facts in the form of a special case for the adjudication of the Court.

The special case is in these terms:

"1.

H By written agreement dated 29 September 1975 and 30 October 1975 (a copy whereof is hereto annexed marked 'A') the plaintiff sold to the defendant the entire issued share capital in and the plaintiff's loan account against Pynicky (Pty.) Ltd. (hereinafter referred to as 'the company') for a purchase price of R35 000.

2.

he effective date of the said sale was 1 November 1975.

3.

In terms of clause 3 of the said agreement the said purchase price was to be reduced by the items set out in sub-clause A thereof and

Leon J

increased by the items set out in sub - clause B thereof.

4. (a)

The total of the amounts by which the purchase price aforesaid fell to be reduced in respect of the items reflected in clause 3A of the said agreement was the sum of R19 083,40.

(b)

The total of the amounts by which the A purchase price aforesaid fell to be increased in respect of the items reflected in clause 3B of the said agreement was the sum of R0,00.

5.

The adjusted purchase price of the said shares and loan account was accordingly the sum of R15 916,60.

6.

B The defendant duly paid to the plaintiff the amount of R10000 on account of the purchase price in accordance with the provisions of clause 4 (a) of the said agreement but has not paid any further amount.

7.

In terms of clause 11 of the said agreement the defendant was obliged to pay interest on the balance of the purchase price owing C from time to time at the rate of 10 per cent per annum from 1 November 1975 to date of payment.

8.

As at the effective date:

(a)

the amount owing by the company under the mortgage bond referred to in clause 3A (d) of the said agreement was the sum of R19 012,26;

(b)

the amount owing by the company to the D plaintiff in respect of his loan account was the sum of R7 267,25.

9.

The parties are agreed that there are no surrounding circumstances which will assist in the interpretation of the said agreement.

10.

he defendant contends that the provisions of clause 13 of the agreement constitute a contravention of sec. 38 (1) of the E Companies Act, 61 of 1973, and that the agreement is accordingly void and unenforceable so that the plaintiff is unable to compel the defendant to pay any amounts alleged to be owing thereunder.

11.

he plaintiff contends that, by reason of the fact that his loan account against the company as at the effective date exceeded the amount by which the company's indebtedness under F the said mortgage bond was to be increased, the provisions of clause 13 of the said agreement do not constitute a contravention of sec. 38 of the Companies Act and that accordingly the plaintiff is entitled to recover from the defendant the balance of the purchase price owing by the defendant.

12.

In the event of this honourable Court upholding the G defendant's contentions, judgment should be entered in the action in favour of the defendant with costs.

13.

In the event of this honourable Court upholding the plaintiff's contentions, the action may have to proceed on certain disputed factual issues."

After I had heard argument in this matter I was in some doubt H as to whether all the relevant information was before the Court. This question was raised with counsel with the result that the special case was amplified in the manner set forth below.

"1.

At the request of the Court the special case dated 31 August 1976 is amplified as hereinafter set forth.

2.

There is attached hereto marked 'B' a copy of the interim financial statements of the company as at 31 October 1975, which was the day

Leon J

before the effective date.

3. (1)

According to annexure 'B':

(a)

the book value of the company's immovable property was R26 202,30 (the said book value represented A the cost of the said immovable property to the company);

(b)

the authorised share capital of the company was R4 000 divided into 4 000 shares of R1 each;

(c)

the issued share capital of the company was R50 divided into 50 shares of R1 each.

(2)

B For the purposes of the transaction between the parties, however:

(a)

it may be accepted that the parties valued the company's immovable property at R35 000;

(b)

the market value of the issued shares plus the seller's loan account in the company as at the C effective date of the deed of sale (annexure 'A') was therefore represented (subject to what is stated below about the additional loan to be secured by mortgage bond in terms of clause 13 of annexure 'A') by the nett result of the calculations required to be performed in terms of clause 3 of the deed of sale;

(c)

D on the aforesaid basis, the value of the issued share capital in the company was R15 916,60 (the figure referred to in para. 5 of the special case) less R7 267,25 (the amount owing by the company to the plaintiff in respect of his loan account - see para. 8 (b) of the special case), i.e. R9649,35.

4.

E No time had been fixed for the payment by the company to the plaintiff of the amount owing on his loan account, which was accordingly payable on demand.

5 (a)

It is the plaintiff's contention that clause 13 of annexure 'A' did not constitute a contravention of sec. 38 of the Companies Act because:

(i)

F it could be implemented without rendering the company poorer because set-off would operate as between the company and the defendant if the additional amount raised by increasing the company's mortgage liability were paid by the company to the defendant, with the result that the plaintiff's loan account would, upon cession G to the defendant, immediately fall to be reduced by the said amount and the value of the equity in the company would accordingly be unaffected;

(ii)

the transaction was real and not fictitious;

(iii)

the transaction accorded with the H ordinary course of sound business methods.

(b)

It is the defendant's contention that:

(i)

reduction of the loan account as aforesaid would not give effect to the terms of the deed of sale and if the deed of sale were implemented according to its terms the value of the equity in the company would be reduced by the amount of the additional loan raised in terms of clause 13;

(ii)

in any event, if the additional loan were raised not to pay

Leon J

off the seller's loan account, but in effect to pay off the loan account in the hands of the purchaser (i.e. the defendant) the transaction would not amount to a normal business transaction in terms of which the company raised a loan to discharge its liability on loan account to a retiring A member, but to financial assistance to the purchaser and would therefore nevertheless constitute a contravention of sec. 38 of the Companies Act.

(c)

The plaintiff disputes both the defendant's aforegoing B contentions.

6.

It is agreed that both parties will submit further written argument to this honourable Court on the aforegoing contentions of the respective parties."

Further written argument was submitted in support of the rival C contentions.

Sec. 38 (1) of Act 61 of 1973 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 purchase of or in connection with a purchase or subscription made or to be made by any person of or for any shares of the company, or where the company is a subsidiary company, of its holding company".

The provisions of sub-sec. (2) are not relevant to the present D enquiry. Sub-sec. (3) provides that

"any company which contravenes the provisions of this section, and every director or officer of such company, shall be guilty of an offence."

Sec. 38 (1) of the Act is substantially similar to its E predecessor, sec. 86 bis (2) of Act 46 of 1926, as amended.

It was common cause between counsel that, if there has been an infringement of sec. 38, the agreement infringing it will be void and unenforceable. Formerly the position was not altogether clear because of the decisions in Victor Battery Co. Ltd. v Curry's Ltd., (1946) 1 All E.R. 519 (Ch.), and Crispette & Candy Co. Ltd. v Michaelis, N.O. and Michaelis, N.O., 1948 (1) SA 404 (W) at pp. 406 - 7. But it is now F clear in our law that an infringement of sec. 86 bis (2) of the former Act (and hence sec. 38 of the present legislation) invalidates the transaction. (See e.g. Albert v Papenfus, 1964 (2) SA 713 (E) at p. 721; Goss v E. C. Goss & Co. (Pty.) Ltd. and Others, 1970 (1) SA 602 (D) at p. 608; Jacobson and Another v Liquidator of M. Bulkin & Co. Ltd., 1976 (3) SA 781 (T) G at p. 789C; UDC Bank Ltd. v Lipschitz, N.O., 1977 (1) SA 275 (W)).

The question for decision therefore is whether the agreement in the present case infringes sec. 38 of the Act. If it does, it is illegal and unenforceable and judgment must be entered in the action in favour of the defendant with costs. If it does not, the plaintiff is entitled to costs necessarily incurred in H the preparation and drafting of the stated case and the costs of the hearing, and it will be necessary to make the further order contemplated in para. 13 of the stated case.

The equivalent section in England is sec. 54 of the 1948 Companies Act. It was first introduced in 1929 so as to deal with a mischief...

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7 practice notes
  • Lewis v Oneanate (Pty) Ltd and Another
    • South Africa
    • Invalid date
    ...Another 1959 (4) SA 419 (A); Jacobson and Another v Liquidator of M Bulkin & Co Ltd 1976 (3) SA 781 (T) at 789H-in fine; Evrard v Ross 1977 (2) SA 311 (D) at 317F-H; Karoo Auctions (Pty) Ltd v Hersman 1951 (2) SA 33 (E) C ; S v Hepker and Another 1973 (1) SA 472 (W) at 480A; Bay Loan Invest......
  • Lipschitz NO v Udc Bank Ltd
    • South Africa
    • Invalid date
    ...(Pty) Ltd H v Bay View (Pty) Ltd 1972 (2) SA 313 (C) at 317; S v Hepker 1973 (I) SA 472 (W) at 479-80. LEON J, in Evrard v Ross 1977 (2) SA 311 (D) at 317B-C, repeated in almost identical words the substance of the above extract, with citation of the same cases, to which he added Lomcord Ag......
  • Ngcobo v Van Zyl and Another
    • South Africa
    • Invalid date
    ...if it were correct to hold that her advisers were lax, nothing that the applicant did contributed to it. This is a factor to be taken 1977 (2) SA p311 Leon into consideration although it cannot be taken too far. (See Singh's case, supra at p. 260A - B.) (2) The root cause of the difficulty ......
  • Zentland Holdings (Pty) Ltd v Saambou Nasionale Bouvereniging
    • South Africa
    • Cape Provincial Division
    • 27 March 1979
    ...Miller v Muller 1965 (4) SA 458 (C); Bay Loan H Investment (Pty) Ltd v Bay View (Pty) Ltd 1972 (2) SA 313 (C) at 317A; Evrard v Ross 1977 (2) SA 311 (D) at 317B. This is an approach which has also been applied in the English Courts. See, for instance, Curtis' Furnishing Stores Ltd v Freedma......
  • Request a trial to view additional results
7 cases
  • Lewis v Oneanate (Pty) Ltd and Another
    • South Africa
    • Invalid date
    ...Another 1959 (4) SA 419 (A); Jacobson and Another v Liquidator of M Bulkin & Co Ltd 1976 (3) SA 781 (T) at 789H-in fine; Evrard v Ross 1977 (2) SA 311 (D) at 317F-H; Karoo Auctions (Pty) Ltd v Hersman 1951 (2) SA 33 (E) C ; S v Hepker and Another 1973 (1) SA 472 (W) at 480A; Bay Loan Invest......
  • Lipschitz NO v Udc Bank Ltd
    • South Africa
    • Invalid date
    ...(Pty) Ltd H v Bay View (Pty) Ltd 1972 (2) SA 313 (C) at 317; S v Hepker 1973 (I) SA 472 (W) at 479-80. LEON J, in Evrard v Ross 1977 (2) SA 311 (D) at 317B-C, repeated in almost identical words the substance of the above extract, with citation of the same cases, to which he added Lomcord Ag......
  • Ngcobo v Van Zyl and Another
    • South Africa
    • Invalid date
    ...if it were correct to hold that her advisers were lax, nothing that the applicant did contributed to it. This is a factor to be taken 1977 (2) SA p311 Leon into consideration although it cannot be taken too far. (See Singh's case, supra at p. 260A - B.) (2) The root cause of the difficulty ......
  • Zentland Holdings (Pty) Ltd v Saambou Nasionale Bouvereniging
    • South Africa
    • Cape Provincial Division
    • 27 March 1979
    ...Miller v Muller 1965 (4) SA 458 (C); Bay Loan H Investment (Pty) Ltd v Bay View (Pty) Ltd 1972 (2) SA 313 (C) at 317A; Evrard v Ross 1977 (2) SA 311 (D) at 317B. This is an approach which has also been applied in the English Courts. See, for instance, Curtis' Furnishing Stores Ltd v Freedma......
  • Request a trial to view additional results
7 provisions
  • Lewis v Oneanate (Pty) Ltd and Another
    • South Africa
    • Invalid date
    ...Another 1959 (4) SA 419 (A); Jacobson and Another v Liquidator of M Bulkin & Co Ltd 1976 (3) SA 781 (T) at 789H-in fine; Evrard v Ross 1977 (2) SA 311 (D) at 317F-H; Karoo Auctions (Pty) Ltd v Hersman 1951 (2) SA 33 (E) C ; S v Hepker and Another 1973 (1) SA 472 (W) at 480A; Bay Loan Invest......
  • Lipschitz NO v Udc Bank Ltd
    • South Africa
    • Invalid date
    ...(Pty) Ltd H v Bay View (Pty) Ltd 1972 (2) SA 313 (C) at 317; S v Hepker 1973 (I) SA 472 (W) at 479-80. LEON J, in Evrard v Ross 1977 (2) SA 311 (D) at 317B-C, repeated in almost identical words the substance of the above extract, with citation of the same cases, to which he added Lomcord Ag......
  • Ngcobo v Van Zyl and Another
    • South Africa
    • Invalid date
    ...if it were correct to hold that her advisers were lax, nothing that the applicant did contributed to it. This is a factor to be taken 1977 (2) SA p311 Leon into consideration although it cannot be taken too far. (See Singh's case, supra at p. 260A - B.) (2) The root cause of the difficulty ......
  • Zentland Holdings (Pty) Ltd v Saambou Nasionale Bouvereniging
    • South Africa
    • Cape Provincial Division
    • 27 March 1979
    ...Miller v Muller 1965 (4) SA 458 (C); Bay Loan H Investment (Pty) Ltd v Bay View (Pty) Ltd 1972 (2) SA 313 (C) at 317A; Evrard v Ross 1977 (2) SA 311 (D) at 317B. This is an approach which has also been applied in the English Courts. See, for instance, Curtis' Furnishing Stores Ltd v Freedma......
  • Request a trial to view additional results

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