Gradwell (Pty) Ltd v Rostra Printers Ltd and Another

• Jurisdiction: South Africa
• Judge: Schreiner JA, Hoexter JA, Beyers JA, Van Blerk JA and Ramsbottom JA
• Judgment Date: 25 September 1959
• Hearing Date: 03 September 1959
• Court: Appellate Division

Schreiner, J.A.:

In the early part of 1956 the appellant company acted as agent in the negotiation of a contract between the two respondents, F whereby the first respondent sold to the second respondent (a) all the issued shares of a company called Printing House Limited, and (b) the loan indebtedness of the latter to the first respondent. I shall call the appellant company Gradwell, the first respondent Rostra, the second respondent Crowden and Printing House Limited the company. In terms of the contract Gradwell was entitled to commission from Rostra and was to G be paid £1,000 out of the purchase price by Crowden. Gradwell received that sum but was to hold it in trust until the contract was carried out. After the contract had been entered into Crowden claimed that it was invalid and cited Gradwell and Rostra as respondents in an application before the Witwatersrand Local Division for an order declaring the H contract to be of no force and effect and directing Gradwell to repay the £1,000. Rostra did not oppose the proceedings but Gradwell did. RUMPFF, J., dismissed the application with costs but an appeal to the Transvaal Provincial Division was allowed. The latter Court made a declaration that the contract was of no force and effect and that the £1,000 was to be repaid to Crowden. From this order Gradwell now appeals, having obtained leave from the Transvaal Provincial Division.

Schreiner JA

Crowden claims that the contract was invalid because it infringed sec. 86 bis (2) of the Companies Act (Act 46 of 1926, as amended). The first portion of the sub-section reads -

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

There follow three provisos which exclude from the sub-section's prohibition the lending of money in the ordinary course of its business by 'n company which ordinarily lends money, and the provision or loan of money by a company for the acquisition of its shares by its employees.

B Sub-sec. (3) subjects a company that contravenes the section to a fine not exceeding £100.

The terms of the contract appear from an offer contained in a letter, dated the 12th March, 1956, from Crowden to Rostra, the offer being C accepted by Rostra in a letter dated the 23rd March, 1956. Crowden begins the letter of the 12th March, 1956, by offering to purchase from Rostra the total issued share capital of the company and Rostra's claim against the company upon the terms that follow. For present purposes the important terms are these -

'1. You warrant and/or undertake that as at the effective date, as hereinafter defined: -

..........

(d)

D Save for union and provincial taxes the company's only liabilities and obligations will be: -

(i)

A first mortgage bond in favour of the United Building Society; and

(ii)

the loan account owing to yourselves and which will be acquired by us on the acceptance of this offer.

2. The purchase consideration payable by us to you for the said shares and the said loan account is the sum of £42,500 less the amount owing at E the effective date under the aforesaid mortgage bond in favour of the United Building Society, and the said purchase price shall be payable:

(a)

As to the sum of £1,000 in cash on the acceptance of this offer, which amount shall be paid to Messrs. B. T. Gradwell (Pty.) Ltd., who shall hold the same in trust pending the transfer of the shares and the loan account to us and the completion of the other formalities as hereinafter provided;

(b)

for the balance of the purchase price a banker's or an approved building society guarantee shall be furnished to you within 45 F days from date of acceptance of this offer, which guarantee shall be expressed to be payable against the delivery to us of the books and documents as set out in clause 3 hereof.

3. Immediately after delivery to you . . . of the guarantee . . . you shall deliver to us: -

..........

(b)

All books and records of the company. . . .

..........

(d)

G Share certificates in respect of the total issued share capital in the company. . . .

(e)

A cession in our favour of the loan account owing by the company to yourselves.

..........

7. The effective date shall be...