Roman Catholic Church (Klerksdorp Diocese) v Southern Life Association Ltd

• Jurisdiction: South Africa
• Citation: 1992 (2) SA 807 (A)

Roman Catholic Church (Klerksdorp Diocese) v Southern Life Association Ltd
1992 (2) SA 807 (A)

1992 (2) SA p807

Citation	1992 (2) SA 807 (A)
Court	Appellate Division
Judge	Hoexter JA, Hefer JA, Smalberger JA, Milne JA and F H Grosskopf JA
Heard	February 27, 1992
Judgment	March 30, 1992

Flynote : Sleutelwoorde

G Set-off — Requirements of — Mutuality of claims — Loan by insurer to insured in terms of an insurance policy — Loan a 'first charge' against proceeds of policy — Insured subsequently placed in liquidation — Insurer not entitled to rely on its right of set-off in terms of loan H agreement as there was no mutuality of claims as at date of liquidation because neither the loan nor the policy had become due and payable.

Cession — Cession in securitatem debiti — When operative — Insurance policy issued to company (insured) providing for right to loan on payment of first annual premium — Insured obtaining loan on payment of I first annual premium — Loan agreement providing that loan a 'first charge' against proceeds of policy — Policy providing that any indebtedness to insurer in respect of policy a 'first charge' against proceeds of policy and insured 'deemed to have ceded . . . the policy as J security

1992 (2) SA p808

A to the (insurer) for such loan' — Insured thereafter ceding its rights under the policy to appellant as security for repayment of loan by appellant to insured — Insured subsequently placed in liquidation — At date of liquidation none of events upon which loan by insurer would become due and payable had taken place and policy not then due and payable — No mutuality of claims by insurer and insured established entitling insurer to rely on its right of set-off under loan agreement B providing for loan to be a 'first charge' against proceeds of policy — Liquidator of insured surrendering policy — Such resulting in loan under policy becoming due and payable — As insurer not entitled to rely on its right of set-off, it had to fall back on its security in terms of cession provided for in policy — As insurer's cession prior to that of C appellant, insurer's claim to be paid out of proceeds of policy in priority to that of appellant — Cession in securitatem debiti of policy to insurer not resulting in merger or confusio of rights in the sense of insurer becoming its own creditor as at time of cession no obligation on insurer to pay proceeds of policy and insurer having no right to claim payment of loans. D

Headnote : Kopnota

The appellant had in March 1985 lent and advanced R500 000 to a company, Interfund. In terms of the agreement the loan had to be secured by a bank guarantee. The loan remained unsecured until 10 April 1985 when Interfund ceded to the appellant its rights under an insurance policy on the lives of two of its directors. The policy had been issued by the E respondent on 1 April 1985 and in terms thereof Interfund was to pay an annual premium of R500 000 for five years and the policy would mature 10 years from its commencement date or on the prior death of the surviving life assured. Interfund was the 'owner and beneficiary' of the policy which acquired a 'cash value' upon payment of the first annual premium entitling Interfund to apply for a cash loan against the security of the policy. The first annual premium was paid by Interfund on 2 April 1985 and shortly thereafter the respondent gave Interfund a cheque for F R300000 as a loan under the policy. The respondent, before handing over the cheque, required Interfund to sign a printed form headed 'Acknowledgement of loan on policy'. In terms of this acknowledgement of loan Interfund ceded all its rights under the first policy to the respondent as security for the repayment of the loan. The acknowledgement and cession was concluded prior to the cession of Interfund's rights under the policy to the appellant. The respondent also retained possession of the policy after its issue. On 12 April 1985 G a second loan in similar terms, but for R350 000, was concluded by the appellant and Interfund. The appellant accepted a cession of Interfund's rights under a second insurance policy issued by the respondent. The terms of the second policy were the same as those of the first policy, but the annual premium on the second policy was R350 000. On 16 April 1985 Interfund handed to the respondent its application for the second policy, a cheque for the first annual premium and a second acknowledgement of loan on policy, signed in blank but dated 16 April 1985, in terms whereof it ceded its rights under the second policy to H the respondent. On the same date, but subsequent to the signing of the acknowledgement of loan, Interfund also signed a document whereby it ceded its rights under the second policy to the appellant. The respondent also retained possession of the second policy. Both of the acknowledgements of loan contained the following provision: 'By the termination of this policy, howsoever arising, any indebtedness to the I Southern of whatsoever nature and which is then due and payable arising hereunder or otherwise under the said policy shall be a first charge against any moneys or other benefit payable by the Southern in terms of the said policy and shall be deducted from such moneys or other benefit.' Clause 5 of each of the two policies provided: 'Any indebtedness to the company (ie the respondent) in respect of this policy will be a first charge against the proceeds of this policy and the owner shall be deemed to have ceded, assigned, transferred and made over the policy as security to the company for such loan and/or any interest in respect thereof.' On 1 July 1985 Interfund was placed under J provisional

1992 (2) SA p809

A liquidation and a final order was granted on 1 October 1985. In order to realise the assets of Interfund the liquidator elected to surrender the policies. In the liquidation and distribution account the appellant and the respondent were treated as secured creditors but the claims of the respondent for the repayment of the loans under the two policies were ranked prior to the appellant's claims. An objection to the liquidation and distribution account by the appellant to the Master was not sustained. The appellant thereupon applied to a Local Division for an order setting aside the Master's decision and amending the accounts to B provide for the full proceeds of the two policies to be awarded to the appellant. The application was dismissed. The appellant appealed to the Appellate Division, but failed to comply with the Rules of the Appellate Division relating to the filing of the notice of appeal and the lodging of the record on appeal. The appellant accordingly applied for the condonation of its failure to comply with the Rules and the outcome of the application was dependent upon the question whether or not the C appellant had reasonable prospects of success on appeal. On this question it was contended by the appellant (1) that it was not necessary for the respondent to rely on the cessions in its favour as it had the right in terms of both policies and the acknowledgements of loan to deduct the amount of the loan in each case from the proceeds of the policy in priority to any other claim; and (2) that, if Interfund and the respondent had intended to cede Interfund's rights under the policies to the respondent, such transfer of rights would have led to a D merger (confusio), since the respondent would have become its own creditor.

Held, as to contention (1), that, in terms of the provisions of the two acknowledgements of loan and clause 5 of each of the policies, the loan was to be a 'first charge' against the proceeds of the particular policy with the result that the claim of the respondent had priority to any other claim: Interfund's right to claim the full proceeds in terms of the two policies was accordingly curtailed to the extent that the E respondent had a right, in priority to all other claims, to deduct the amount of the loan as well as interest from the proceeds of the particular policy.

Held, further, however, that the loans could not be deducted until such time as they became due and payable.

Held, further, that none of the events upon which the loans would become due and payable in terms of the acknowledgements of loan had taken place F by 1 July 1985 when Interfund was placed under provisional liquidation.

Held, further, that, a concursus creditorum having been established by the winding-up order, the respondent could not rely on its right of set-off under the acknowledgements of loan unless there existed at the date of the winding-up order mutuality between the respective claims or reciprocity of debts, and there was no such mutuality of claims or reciprocity of debts prior to liquidation as neither the loans nor the G policies had become due and payable as at the date of the winding-up order.

Held, further, that, in consequence of the surrender of the policies by the liquidator, however, the surrender values thereof had become payable, which in turn had caused the respective loans under the policies to become due and payable.

Held, further, that the respondent, as a result of Interfund's liquidation, could no longer rely on its right of set-off and had to fall back on its security, ie the cessions in terms of clause 5 of the policies, and as the respondent held the prior cession in each instance, H its claim had to be paid out of the proceeds of the respective policies in priority to that of the appellant.

Held, further, as to contention (2), that it had to be borne in mind that the respondent already had the right to treat each loan as a 'first charge' against the proceeds of the particular policy and that the cession was, therefore, required only to provide security in the event of Interfund's liquidation.

I Held, further, that the cessions to...