Facts
In the case of Moore and Another v Sheriff for the District of Vereeniging and others, the applicants, Moore and his son, who were the owners of the property in question, were in a financial fix and could not meet there financial obligations as to servicing of a mortgage Moore had obtained from a bank. Besides, his application for additional loan was denied on the premise of his poor credit rating. Accordingly, they concluded an agreement with Brusson, one of the respondents, which purportedly transferred the title in their immovable property to a Brusson investor who by another agreement, agreed to sell back the property to the applicants in installments. Consequently, monies were advanced to the applicants. The title was to be transferred back contingent upon repayment of the money by the applicants.
Unknown to the applicants, the Brusson investor mortgaged the property in favor of the bank in order to obtain the required amount. However, Kabini, the Brusson investor, later defaulted in servicing the mortgage. Consequently, the bank instituted legal proceedings to recover the amount advanced to Kabini and sought declaratory orders to the effect that the property in question was executable.
Submissions
The applicants argued that while concluding the agreements, they were not aware that they were in effect transferring the title in the property to a Brusson investor. Instead, they submitted that they believed they were providing the property as security for the loan that they were to receive from Brusson. They predicated their argument on lack of intention to sell the property on their part and absence of the same intention to purchase the property on the part of the Brusson investor. Additionally, they argued that the agreements constituted unlawful pacta commisorium and that Brusson was not a registered financial institution under section 40 of the NCA. Accordingly, they sought orders setting aside the agreements concluded with Brusson investor and the mortgage bond registered over the property.
On the other hand, the bank premised their opposition on the grounds that the applicants lacked locus standi to seek rescinding order by virtue of the fact that they were not parties to the proceedings in which the judgment against the Brusson investor was obtained. Moreover, the applicants had not made a case for rescission either under the Common Law or the relevant provisions of Uniform Rules of Court. More so, it asserted that the agreements between the applicants and the Brusson investor were not void ab initio as it conferred rights and obligations on the bank. As a result, it could not vitiate against the mortgage bond. Finally, the bank rested its submission insisting that it advanced the money to Kabini, in good faith, unaware of the Brusson Scheme.
Issue
The issue before the court was three-fold. Firstly, the question as to whether the applicants had locus standi had to be addressed. Secondly, the court had to determine whether the agreements entered into by the applicants and the Brusson investor were valid and legally binding. Thirdly, the court was faced with the question as to whether or not the invalidity of the aforesaid agreements vitiates against the mortgage bond registered in favor of the bank.
Decision
The court held that the agreements concluded by the applicants and the Brusson investor and the mortgage bond were void and that the first applicant was entitled to the restitution of the property subject to the reinstatement of previous mortgage bonds and payment of the money advanced to the applicants by Brusson less the amount repaid.
With regard to the second issue, the court held that the agreements entered into by the applicants and Kabini were void and unenforceable. By concluding the agreements, the parties intended the immovable property to be a security for the loan as opposed to the intention to transfer the title in the property. The court reasoned that there was no intent to transfer the title in the immovable property as is typical of contracts for sale of immovable property. To this end, the court was so persuaded by the reasoning in the case of Ditshego and others v Brusson Finance (Ply) Ltd and others.
The court had no difficulty in ruling that the invalidity of the agreements between the applicants and Brusson investor vitiated against the mortgage bond since the previous Supreme Court of Appeal decisions had set a clear precedent on the issue. Additionally, the court relied on the distinction between real and personal rights inherent in a mortgage transaction. Accordingly, the illegality in the aforementioned agreement vitiated against the mortgage in so far as the real rights were concerned. However, the personal right that the bank had against the Brusson investor was unaffected. Therefore, the bank could still pursue appropriate remedies against Kabini.
Conclusion
The case above may not have been a landmark decision with regard to Brusson Scheme. However, it contributed to the emerging jurisprudence to the effect that the courts will not be quick to aid financial institutions that extend loans and mortgage services to clients without exercising due diligence.
Work Cited
Ditshego and others v Brusson Finance (Pty) Ltd and Others (5144/2009) Free State High Court of South Africa [2010] (Unreported) ZAFSHC 68 (22 July 2010).
Moore and Another v Sheriff for the District of Vereeniging and others (22082/2013) South Gauteng High Court of South Africa [2014] (Unreported) ZAGPJCH 230 (September 26, 2014).
