Standard Bank of South Africa Ltd v Saunderson and Others

• Jurisdiction: South Africa
• Judge: Howie P, Cameron JA, Nugent JA, Jafta JA and Mlambo JA
• Judgment Date: 15 December 2005
• Citation: 2006 (2) SA 264 (SCA)
• Docket Number: 358/05
• Hearing Date: 23 November 2005
• Counsel: Wallis SC (with F S G Sievers) for the appellant. G Marcus (with A Katz, A M Stewart, M du Plessis and G Budlender) for the amici curiae.
• Court: Supreme Court of Appeal

Cameron JA et Nugent JA: B

[1] The mortgage bond is an indispensable tool for spreading home ownership. Few people can buy a home immediately: by providing security for a loan, the mortgage bond enables them to do so. There can hardly be a private residence in this country that has not at one time or another been mortgaged, nor a homeowner who has not at some time C been a mortgagor. We were told by the appellant bank that in August 2005 loans secured by mortgage bonds on residential property in this country amounted to almost R500 billion.

[2] A mortgage bond is an agreement between borrower and lender, binding upon third parties once it is registered against the title of D the property, that upon default the lender will be entitled to have the property sold in satisfaction of the outstanding debt. Its effect is that the borrower, by his or her own volition, either on acquiring a house or later, when wishing to raise further capital, compromises his or her rights of ownership until the debt is repaid. The right to continued ownership, and hence occupation, depends on repayment. The E mortgage bond thus curtails the right of property at its root, and penetrates the rights of ownership, for the bond-holder's rights are fused into the title itself.

[3] The value of a mortgage bond as an instrument of security lies in confidence that the law will give effect to its terms. That confidence has been shaken by a recent decision of the Cape High Court F that is the subject of this appeal. The decision must be seen against the background of the ordinary legal process for recovering debts. When judgment is given against a debtor and the debtor fails to satisfy the judgment debt the process for recovery of the judgment debt is by execution against the judgment debtor's belongings. It is a long-standing practice of our courts that execution must be directed G first against the debtor's movable property and only thereafter, if the movables are insufficient, against immovable property, [1] but a Court may alter that sequence. This occurs when the debt is secured by a mortgage bond for the secured creditor will then ordinarily ask the Court in advance H

'to dispense with the circumlocution of having to take execution against the movable property first and only on that property failing to realise the money sum, then to have recourse against the immovable property. When an order is granted declaring executable the property specially hypothecated that order permits the grantee, the creditor, to take his execution straightaway against the immovable property. I ' [2]

Cameron JA et Nugent JA

[4] In the cases now before us the bank issued summons against nine borrowers who defaulted on their loans. In each case the debt was A secured by a mortgage bond. In its summonses the bank asked for judgment against each of the debtors for the amount of their respective debts and, in accordance with the ordinary procedure, for ancillary orders declaring the mortgaged property to be executable. Eight of the defendants failed to defend the actions and in accordance with Rule 31(5) the bank applied to the Registrar of the Court for B judgment by default. The Deputy Judge President instructed that such matters not be disposed of by the Registrar until further notice and they were enrolled for hearing in open Court. In the ninth case the defendant entered an appearance to defend whereupon the bank applied for summary judgment and that application was set down for C hearing together with the applications for default judgment.

[5] The Court below (Blignault J) granted judgment in each case for the amount of the outstanding debt but declined to order the mortgaged properties to be executable. Relying on the decision of the Constitutional Court in Jaftha v Schoeman and Others; Van Rooyen D v Stoltz and Others[3] he concluded that the summonses were deficient in that they lacked sufficient allegations to show that orders for execution were constitutionally permissible.

[6] With the leave of the Court below the bank now appeals against the refusal to grant orders for execution in three of the E applications for default judgment. (The summary judgment matter has fallen away.) Hundreds of similar cases come before the courts each year and this is a test case. None of the defendants opposed the appeal but Mr A Katz, Mr A M Stewart, Mr M du Plessis and Mr S Budlender, led by Mr G Marcus F SC, generously responded to our request to act as amici curiae. Their able and helpful assistance has been indispensable to a proper consideration of the matter. We are also appreciative of the manner in which Mr Wallis SC, assisted by Mr F S G Sievers, presented the case for the bank.

[7] Because the Court below based its conclusions on the judgment of the Constitutional Court in Jaftha it is as well G at the outset to examine how that case arose and what was decided. Mrs Jaftha lived in a modest house in Prince Albert, built by the state as part of a national housing scheme, which she acquired with a state subsidy. She incurred a modest debt that was not secured and was unrelated to her property. This she was unable to repay and her creditor took judgment against her by default in the magistrate's H court. When her house was sold in execution and she was left homeless her case received the attention of the Cape High Court [4] and later the Constitutional Court. [5]

[8] The process for execution in the magistrates' courts is similar to that I

Cameron JA et Nugent JA

in the High Courts. Once judgement has been granted (in undefended actions for a liquidated debt it may be granted by the clerk A of the Court) [6] and the judgment debt is not paid the judgment creditor is entitled to execute against the debtor's property in satisfaction of the judgment. We have drawn attention to the practice that requires execution to be levied first against movables before proceeding against immovable property unless a Court orders otherwise. That practice is embodied in s 66(1)(a) B of the Magistrates' Courts Act 32 of 1944, the material portions of which (before the decision in Jaftha) read as follows:

'Whenever a court gives judgment for the payment of money . . . such judgment, in case of failure to pay such money forthwith . . . shall be enforceable by execution against the movable property and, if there is not found sufficient movable property to satisfy the judgment C . . . , or the court, on good cause shown, so orders, then against the immovable property of the party against whom such judgment has been given. . . .'

[9] The process of execution is initiated when the clerk of the court issues a writ of execution, which authorises the Sheriff to attach and sell property of the defendant. [7] In keeping with s 66(1)(a) of the Act, the writ will at D first be confirmed to movables and only once it is shown that they are insufficient will a writ be issued for execution against immovable property. Before the decision in Jaftha an ordinary judgment creditor (one whose claim is not secured by a mortgage bond - as was the case there) was entitled as of right to...