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Bridgeway Limited v Markam (07/32614) [2008] ZAGPHC 251; 2008 (6) SA 123 (W) (5 March 2008)

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IN THE HIGH COURT OF SOUTH AFRICA
(WITWATERSRAND LOCAL DIVISION)

CASE NO: 07/32614

In the matter between:

BRIDGEWAY LIMITED Applicant

and

MARKAM PHILLIP Respondent
_____________________________________________________________

JUDGMENT

_____________________________________________________________

MATHOPO J:

[1] The applicant seeks an order directing the respondent to make payment to it in the sum of R378 378.38 together with interest and costs.

1.1 The order for the rectification of the written agreement was not opposed by the respondent and I need not say much about it in my judgment.

BACKGROUND

[2] On the 28^th September 2007, the applicant and the respondent entered into an agreement in terms whereof the respondent as the seller of an immovable property described as erf 1386 Bryanston sold and transferred by way of cession to the applicant (as discounter) his rights to receive payment of the purchase consideration from the purchaser under the sale agreement.

[3] The sale agreement in terms of clause 1.7 is described as the agreement of sale concluded between the seller (respondent) and the purchaser which agreement was signed on the 25 June 2007 in terms whereof the purchaser agreed to purchase the aforesaid property from the respondent.

[4] The applicant alleges that it complied with the agreement as the discounter by making an advance amount payable to the respondent (seller) in the sum of R350 000.00 on the 28 September 2007 and alleges further that by virtue of the facts set out hereunder it is entitled to cancel the agreement and . The said facts are inter alia the following:

“4.1 The purchaser is not properly fulfilling his obligations in terms of the Sale Agreement; or

4.2 The Sale Agreement has not become or will cease to be of force or effect, whether by cancellation or otherwise; or

4.3 The proceeds will not be paid in accordance with the discounter’s instructions on the transfer date; or

4.4 The discounter’s rights, or ability to enforce its rights, in terms of this agreement will be prejudiced; or

4.5 The purchaser will not, or will not be able to, pay or procure the payment of the proceeds on the transfer date.

[5] It is not in dispute that the applicant exercised its right of cancellation in terms of the agreement by giving notice of cancellation to the respondent on the 6^th December 2007.

[6] The respondent in answer, disputes that the applicant is entitled to cancel the agreement by virtue of facts set in paragraph 4 supra and avers that the agreement relied upon by the applicant dated 25^th June 2007 is misplaced and further alleges that the purchaser is able to perform or fulfil his obligation in terms of the agreement concluded between the respondent and Jonas and Jikijela Ramathesele dated 24^th August 2007.

[7] In the alternative the respondent by way of a supplementary affidavit, introduced a new defence in which he sought reliance on the provisions of the National Credit Act 34 of 2005 (the Act) by alleging

that the agreement relied upon by the applicant was a credit facility or a credit transaction and that the applicant was precluded from instituting proceedings against him before complying with the provisions of Section 129 (1) and 130 (1)(a) and (b) of the Act. The essence of these provisions provides for the delivery of the notices to remedy the default prior to the institution of any action against the debtor and failure to do so, the respondent alleges applicant is precluded from instituting the present proceedings.

[8] The applicant in response denied that the agreement relied upon was a credit facility or credit transaction and alleges that it was a discount sale not affected by the National Credit Act.

[9] A credit facility in terms of Section 8(3)(a)(i), 8(3)(a)(ii)(aa) and 8(3)(b)(i) of the Act is defined as follows:

An agreement, irrespective of its form but not including an agreement contemplated in subsection (2) or section 4 (6)(b), constitutes a credit facility if, in terms of that agreement-

(a)

a credit provider undertakes:-
(i)

to supply goods or services or to pay an amount or amounts, as determined by the consumer from time to time, to the consumer or on behalf of, or at the direction of, the consumer; and
(ii) either to:-
(aa)

defer the consumer’s obligation to pay any part of the cost of goods or services, or to repay to the credit provider any part of an amount contemplated in subparagraph (i); or
(bb) bill the consumer periodically for any part of the cost of goods or services, or any part of an amount, contemplated in subparagraph (i); and

(b)

any charge, fee or interest is payable to the credit provider in respect of:-
(i)

any amount deferred as contemplated in paragraph (a) (ii) (aa); or
(ii) any amount billed as contemplated in paragraph (a) (ii)(bb) and not paid within the time provided in the agreement

[10] A credit transaction is defined in terms of section 8(4)(f)(i)or(ii) in the Act as:

An agreement, irrespective of its form but not including an agreement contemplated in subsection (2), constitutes a credit transaction if it is:-

(f) Any other agreement, other than a credit facility or credit guarantee, in terms of which payment of an amount owed by one person to another is deferred ; and any charge, fee or interest is payable to the credit provider in respect of:-
(i)

the agreement; or
(ii) the amount that has been deferred.

[11]     As regards the merits, the applicant relied on the agreement concluded with the respondent dated 28^th September 2007, in terms whereof the respondent and the purchaser, one R and A family Trust concluded a sale agreement on the 25 June 2007. This latter agreement is the one envisaged in clause 1.17 of agreement marked “JL1” and according to the applicant the Respondent breached the agreement as a result of facts set out in sub paragraph 9.1.1 to 9.1.8.

[12]     On the merits, Mr Hollander for the respondent in an attempt to circumvent the respondent’s breach in terms of the agreement, submitted that the respondent concluded a new sale agreement in respect of the same property with new purchasers namely Jonas and Jikijela Ramathesele and sought to persuade me that because a new purchaser have fulfilled all their obligations including the fact that the proceeds will be paid in accordance with the applicant’s instructions on transfer date, the respondent have not breached the agreement and applicant not entitled to cancel same.

[13]     In my view the respondent reliance on the new agreement is misplaced or ill founded and clearly in conflict with clause 1.17 of the agreement concluded between the applicant and respondent, in terms whereof the purchasers are R and A Family Trust pursuant to a sale agreement concluded on the 25 June 2007 and not as alleged by the respondent.

[14] I accordingly agree with Mr Pincus for the applicant that the respondent on his own version conceded that this agreement has been

replaced and thus null and void. I agree that the applicant was in the circumstances entitled to cancel the agreement because the purchaser cannot comply with their obligations and transfer will not be effected in terms of the agreement between the respondent and applicant dated 28 September 2007.

[15] I now turn to new defence of non compliance with the Act raised by the respondent in the supplementary affidavit which was not objected to by the applicant. Mr Subel who argued this point on behalf of the applicant, relying on the authority of Tucker v Ginsberg 1962 (2) SA 58, (WLD) submitted, that to determine whether the agreement relied upon by the applicant fell within the ambit of the credit facility or credit transaction as envisaged by the Act, regard must be had to nature of the transaction, its substance and not merely its objects or form and that the court must scrutinise the whole course of the parties dealings.

[16] He submitted that a proper reading of section 8 of the Act indicates quite clearly that the credit provider may supply goods or services periodically or from time to time to the consumer and may also in certain instance defer the consumer’s obligations inclusive of payment of interest. The aforegoing provision, he argued are distinct from the discount sale which has as its distinguishing feature or hallmark, the immediate payment of money without any deferral.

[17] He thus argued that the agreement between the applicant and the respondent was a discount sale and not a money lending transaction because it provides for immediate payment of the purchase consideration, which was made upfront on the 28 September 2007 thus clearly distinct from the credit facility or credit transaction.

[18] He submitted that the discount sale can neither be classified as a credit facility nor credit transaction because no payments were made periodically or deferred as envisaged in the Act. Once the applicant pays the purchase price upfront, he steps into the shoes of the seller vis-a-vis the purchaser and no money is borrowed in this instance. Again he submitted that if regard is had to the intention of the parties and the objective facts, the inescapable inference or conclusion to be drawn is that this was a discount sale and not a money lending, and the applicant as discounter is purchasing and not lending See De Villiers v Roux 1916 CPD at 298 where Kotze J said the following :

“ The difference between advancing, lending money and discounting is distinct and palpable. Discounting is purchasing, not lending. The discounter whether of a bill or bond, or any other security, becomes the owner. If the thing bought, turns out, when realised, to be of less value than the price paid for it, the loss falls upon the purchaser or discounter. If a profit or gain is made upon the transaction, it belongs wholly and exclusively to the discounter or purchaser. The view, therefore, which I expressed during the argument that the
relation between the discounter of a bill or promissory note and the person who presents it for discount seems rather that of purchaser and seller than that of lender and borrower, is borne out b y authority. The discounter becomes owner of the note, it is his property and he in turn can discount it, pass it over to others, or deal with it in any other legitimate way, whereas, if the transaction were one of the loan of money against the security of the bill or note, the discounter would not be able to deal with the document in the way described”.

[19] Mr Hollander on behalf of the respondent submitted that the agreement falls within the ambit of the Act because according to clause 9.1 of the agreement, interest is claimed on default and also because payment of the amount is deferred and relied on Section 84(f) which provides that an agreement irrespective of its form but not including an agreement contemplated in sub section (2) constitutes a credit transaction if it is:

the agreement; or
ii. the amount that has been deferred.

[20] He argued that because on breach, interest is claimed, the agreement falls to be governed by section 8(4)(f) thus it is a credit transaction and failure by the applicant to comply with the provisions of section 129 and 130 of the Act which sections are peremptory, precludes the applicant from instituting the present proceedings.

CONCLUSION

[21]     I accept, as having merit the submission, by Mr Subel that the agreement in issue was a discount sale which provided the respondent with ready money and clearly distinct from money lending or credit transaction because in the latter instance, the transaction occurs when a party borrows money from the lender and undertakes to pay an equal amount in full, in instalments or periodically. The lender is compensated for laying out his money by the interests that he charges the borrower. See also section 8(4)(f)(i) or (ii) of the Act.

[22]     On the contrary, the undisputed facts reveals that the money was paid upfront when the agreement was concluded between the applicant and the respondent. There is no suggestion even on the respondent’s own version that payment was not made upfront or deferred. Neither did I understand the respondent to be denying the correctness of the above facts.

[23]     In my view, the fact that the agreement provides for the deferred payment of interest upon the breach in clause 9.3.4 of the agreement cannot assist the respondent and consequently cannot detract from the fact that the immediate payment of the purchase consideration was made by the applicant to the respondent. I accept that the character and consequences of a discounting sale are clearly distinguishable from the credit facility or transaction as envisaged in the Act.

[25] I conclude that, if regard is had to the nature, substance of the transaction and the intention of the parties gathered from their conduct, the inescapable inference to be drawn is that this was a discount sale and not money lending transaction or credit transaction. I do not think that the legislature intended that this transaction should be classified as money lending transaction. This is especially so because money is paid upfront as opposed to the credit transaction where the credit provider or consumer can agree to payments been made periodically or be deferred and also charge a fee or interest on the amount that has been deferred.

[26] I therefore conclude that this agreement does not fall within the ambit of the provisions of section 8(3) and 8(4) of the Act and the applicant is not precluded by the provisions of Section 129 and 130 of the Act from bringing this action.

[27] Having concluded that there is no defence on the merits, I grant the following order:

Rectifying the written memorandum of agreement entered into between the applicant and the respondent on the 28 day of September 2007 by the deletion in clause 3.1 thereof of the word “Applicant” wherever same appears and the substitution therefore of the word “Seller”.

Directing the respondent to make payment to the Applicant in the amount of R378 378,38 together with interest thereon at the rate of 15.5% per annum form the 28 day of September 2007 to date of payment.

Directing the Respondent to pay the costs of this application on the scale as between an attorney and his own client.

____________________________
RS MATHOPO
JUDGE OF THE HIGH COURT

Appearances:
For the Applicant                          :        MR SUBEL SC WITH MR PINCUS
instructed by                      :        Howard S Woolf Attorneys
For the Respondent                :        MR HOLLANDER
instructed by                      :        Ian Levitt Attorneys
Date of hearing                   :        07 February 2008
Date of Judgment                           :        05 March 2008