Vernon and Others v Schoeman and Another

• Jurisdiction: South Africa

Vernon and Others v Schoeman and Another
1978 (2) SA 305 (D)

1978 (2) SA p305

Citation	1978 (2) SA 305 (D)
Court	Durban and Coast Local Division
Judge	Hefer J
Heard	November 15, 1977
Judgment	February 2, 1978

Flynote : Sleutelwoorde

Company — Shares — Sale of — Financial assistance to be given by company — Provision in conflict with s 38 (1) of Act 61 of 1973 — When such provision does not render whole agreement invalid.

1978 (2) SA p306

Headnote : Kopnota

An agreement for the sale of shares in a company which contains a provision for financial assistance to be given by the company contrary to the provisions of s 38 (1) of Act 61 of 1973 is not necessarily wholly void; whether it is, depends upon whether the unenforceable provision is severable from the others.

Where the parties themselves had separated the invalid provision from the rest of the agreement, and physically and notionally it was severable according to what the Court conceived to have been their intention, the Court dismissed an application for an order declaring the agreement to be invalid and unenforceable. B

Case Information

Application to declare an agreement of sale of shares invalid. The facts appear from the reasons for judgment.

M J D Wallis for the applicants.

D H Bester for the respondents.

Cur adv vult.

Postea (February 2). C

Judgment

Hefer J:

The respondents were formerly shareholders in a company Klipcon D Construction (Pty) Ltd. On 25 October 1976 they disposed of their shares in the company to the applicants by way of a written agreement, the relevant part of which reads as follows:

"I Stephanus Schoeman and Martha Elizabeth Schoeman hereinafter referred to as the 'sellers' in our capacity as directors of the company 'Klipcon Construction (Pty) Ltd' hereinafter referred to as 'the company' do hereby agree to sell all the shares in 'the company' to Kevin James Murgathroyd, Mrs Lesley Cheryl Vernon and Roger Vernon hereinafter referred to as 'the buyers' under the following conditions:

(1)

Purchase price

(a)

All moneys due to 'the company' prior to the date of take-over to be payable to the seller by the buyers within 30 days (take over date to be 4 November 1976).

(b)

A further R11 000 interest free paid on or before 1 November 1977.

(2)

Guarantees

(a)

All assets of 'the company' to be seeded back to 'the seller' by 'the buyers' until the fulfillment of clause 1 (b)."

F The applicants have now sought an order declaring the agreement to be invalid and unenforceable, it being alleged that "it constitutes a contravention of s 38 of Act 61 of 197". Respondents' attitude to this contention is set out in the following terms in first respondent's opposing affidavit:

"21. Para 22:

G I deny that the effect of s 38 of Act 63 of 1973 is to render the agreement null and void by reason of the inclusion of clause 2 (a) in the said agreement. I respectfully submit that clause 2 (a) of the agreement is a stipulation provided for the protection of the respondents under the agreement. The respondents have never sought to enforce the stipulation contained in clause 2 (a) of the agreement nor will they in future endeavour to do so. I humbly submit that neither the company nor the H applicants have suffered any prejudice by virtue of the inclusion of clause 2 (a) in the said agreement and neither can they possibly be prejudiced thereby in the future. Furthermore I respectfully submit that clause 2 (a) of the agreement is severable from the remainder of the agreement."

Counsel who argued the application were agreed that clause 2 (a) of the agreement is in direct conflict with the provisions of s 38 (1) of the Companies Act 61 of 1973 and respondents' counsel conceded for that reason that the clause in question is void. He argued, however, that that does not render the whole agreement unenforceable; clause 2 (a) (so he argued) was severable from the rest of the agreement; respondents have

1978 (2) SA p307

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