NBS Boland Bank Ltd v One Berg River Drive CC and Others

• Jurisdiction: South Africa

NBS Boland Bank Ltd v One Berg River Drive CC and Others
1998 (3) SA 765 (W)

1998 (3) SA p765

Citation	1998 (3) SA 765 (W)
Case No	97/19700
Court	Witwatersrand Local Division
Judge	Southwood J
Heard	March 12, 1998
Judgment	April 9, 1998
Counsel	JF Steyn for the plaintiff; ZF Joubert (with him LGF Putter) for the defendants

Flynote : Sleutelwoorde

Mortgage — Validity of — Invalidity by reason of vagueness — Clause in mortgage bond providing that interest rate variable at instance of mortgagee (creditor) — Unfettered discretion conferred — No factual determination on objectively C ascertainable criteria required — Provision conferring unilateral discretion on creditor to vary interest rate void for vagueness.

Headnote : Kopnota

The plaintiff (NBS) claimed from the first and second defendants jointly and severally the sum of R1 788 800 and interest thereon. The claims were based on mortgage bonds registered over certain fixed property that the D plaintiff sought to have declared executable. The defendants denied that they were indebted to the NBS in the amount claimed on the ground that clause 14 of the mortgage bonds, which provided that the NBS could 'at any time and from time to time increase or decrease the rate of interest . . . on all amounts owing to or claimable by the NBS in terms of this bond . . . (and) at the same time . . . increase or decrease the monthly instalments as E provided herein', was invalid and unenforceable due to vagueness. The parties were agreed that the validity of clause 14 was the only issue to be decided and that the Court had to issue a declarator as to whether or not it was enforceable. Counsel referred to NBS Bank Ltd v Badenhorst-Schnetler Bedryfsdienste BK and Another 1998 (3) SA 729 (W), in which an identically worded clause in another NBS bond had been declared to be null F and void, and Boland Bank Bpk v Steele 1994 (1) SA 259 (T), in which the Court had invoked the principle that contracts had to be interpreted in favour of their validity and had held that a similar clause was valid subject to the limitation that the powers it conferred had to be exercised in a reasonable manner. Counsel for the plaintiff, referring to several other cases, argued that the latter principle was simply the application of the requirement that G the discretion had to be exercised arbitrium boni viri. When confronted with the fact that he had not raised this argument in the pleadings, he responded that the term sought to be implied was a term implied by law which did not have to be pleaded. The Court rejected this argument, pointing out that it was necessary for the parties and the Court to know whether the alleged term was in conflict with the express provisions of the contract, and H that it was in any event in accordance with the basic principles of pleading for parties relying on implied terms to plead them. (At 773C--D/E.) The Court however accepted for the purposes of the judgment that it had not been necessary to do so.

Held, further, that two general principles were applicable: contractual obligations had to be defined or I ascertainable, and terms that conferred an unfettered right on one of the parties to determine the extent of performance of either party were void for vagueness. (At 773H/I--J.)

Held, further, that it was clear that clause 14 conferred an unfettered discretion on NBS and that it was not intended to be exercised arbitrium boni viri. This appeared from the use of the words 'at any time and from time to time', J

1998 (3) SA p766

which were not related to any objectively ascertainable criteria and from the fact that any increase was subject A only to the maximum provided for. (At 774C--D.)

Held, further, that the instant case differed from the cases relied on by counsel for NBS in that clause 14 did not require NBS to make any factual determination before it exercised its rights in terms thereof. (At 774D/E--E.) B

The Court accordingly issued a declarator that clause 14 of the mortgage bond was null and void. (At 774G/H.)

Cases Considered

Annotations

Reported cases

ABSA Bank Ltd v Standard Bank of SA Ltd 1998 (1) SA 242 (SCA): considered C

Alfred McAlpine & Son (Pty) Ltd v Transvaal Provincial Administration 1974 (3) SA 506 (A): dictum at 531E--H applied

Bellville-Inry (Edms) Bpk v Continental China (Pty) Ltd 1976 (3) SA 583 (A): distinguished

Benlou Properties (Pty) Ltd v Vector Graphics (Pty) Ltd 1993 (1) SA 179 (A): dictum at 186C--J applied D

Boland Bank Bpk v Steele 1994 (1) SA 259 (T): dictum at 276F--H criticised and not followed

Dharumpal Transport (Pty) Ltd v Dharumpal 1956 (1) SA 700 (A): distinguished

Genac Properties Jhb (Pty) Ltd v NBC Administrators CC (previously NBC Administrators (Pty) Ltd) 1992 (1) SA 566 (A): considered E

Hillas & Co v Arcos Ltd [1932] All ER Rep 494 (HL): considered

Kriel v Hochstetter House (Edms) Bpk 1988 (1) SA 220 (T): considered

Lobo Properties (Pty) Ltd v Express Lift Co (SA) (Pty) Ltd 1961 (1) SA 704 (C): considered

Moe Bros v White 1925 AD 71: distinguished F

Murray & Roberts Construction Ltd v Finat Properties (Pty) Ltd 1991 (1) SA 508 (A) dictum at 514D--H applied

NBS Bank v Badenhorst-Schnetler Bedryfsdientse BK 1998 (3) SA 729 (W) approved and applied

Nedbank Ltd v Capital Refrigerated Truck Bodies (Pty) Ltd and Others 1988 (4) SA 73 (N): considered G

Patel v Adam 1977 (2) SA 653 (A): considered

Proud Investments (Pty) Ltd v Lanchem International (Pty) Ltd 1991 (3) SA 738 (A): considered

Soteriou v Retco Poyntons (Pty) Ltd 1985 (2) SA 922 (A): considered

Standard Bank of SA Ltd v ABSA Bank Ltd and Another 1995 (2) SA 740 (T): considered

Westinghouse Brake & Equipment (Pty) Ltd v Bilger Engineering (Pty) Ltd 1986 (2) SA 555 (A): dictum at H 574D--E applied.

Case Information

Civil trial in an action on mortgage bonds in which the parties had agreed that the only issue to be decided was whether a clause in the mortgage bonds was enforceable or not. The facts appear from the reasons for I judgment.

J F Steyn for the plaintiff.

Z F Joubert SC (with him L G F Putter) for the defendants.

Cur adv vult.

Postea (April 9). J

1998 (3) SA p767

Judgment

Southwood J:

The plaintiff claims payment from the first and second defendants jointly and severally of the sum A of R1 788 800, interest thereon at the rate of 23,25% per annum compounded monthly from 30 June 1997 to date of payment and ancillary relief. The plaintiff's claims against the first defendant are based on two mortgage bonds registered over the fixed property which the plaintiff seeks to have declared executable. The plaintiff's B claim against the second defendant is based on a deed of suretyship. In its summons the plaintiff claimed the same amount from the third defendant also in terms of a deed of suretyship. I was informed from the Bar that the plaintiff has withdrawn its claim against the third defendant. In their plea the defendants admit the registration of C the two mortgage bonds and the existence of the deed of suretyship but deny that the defendants are indebted to the plaintiff in the amount claimed and that the first defendant is in breach of any of the terms of the two mortgage bonds. The plea does not admit that any amount is in arrears or contain a tender to pay that amount. The D principal defence raised in the plea is that clause 14 of the mortgage bonds is invalid and accordingly that the plaintiff is not entitled to claim interest at a rate of 23,25% per annum.

At the pre-trial conference the parties agreed to narrow down the issues to be tried. The relevant agreement is contained in paras 8 and 9 of the pre-trial minute and reads as follows: E

'8.

The parties have agreed that:

8.1

The legality and enforceability of clause 14 of the bond agreements; and

8.2

the enforceability of the certificate referred to in clause 7 of the bond agreements be decided separately.

9.

The parties agreed that: F

9.1

In the event of the Court finding that clause 14 of the agreement to be enforceable

9.1.1

the defendants will pay the amount as set out in the particulars of claim plus interest as claimed, less any payments made by the defendants to plaintiff subsequent thereto. G

9.1.2

Should the defendants appeal against such judgment, the defendants shall be entitled to tender payment of the full amount and should the Court of Appeal find in favour of defendants, the plaintiff shall repay to defendants the difference between the amount claimed H on the summons plus interest and the lesser amount calculated at the interest rate originally agreed upon. Such amount would include interest calculated from date of payment to date of repayment at a rate equal to such rate as would be determined on s 78(2) of the Attorneys Act trust account. I

9.2

In the event of the Court finding clause 14 of the bond agreements to be unenforceable:

9.1.2

The defendants will pay to the plaintiff such amount that may be found to be due and owing, calculated at J

1998 (3) SA p768

Southwood J

the rates of interest as stated in the relevant bonds on the capital amounts of each bond. A

9.2.2

Should the plaintiff appeal against such judgment, the defendants will be entitled to pay the lesser amounts to plaintiff for which the defendants accept liability and submit alternative B security in respect of the balance between the higher amount claimed by the plaintiff and such lesser amount as paid by the defendants in the form of money deposited into an attorney's trust account in terms of s 78(2) of the Attorneys Act.

9.2.3

Such alternative security...