Reportable
Case No 228/2002

In the matters between:

ANTHONY SIMON BOCK AND OTHERS

Appellants

and

DUBURORO INVESTMENTS (PTY) LTD
Respondent

Coram:
HARMS, ZULMAN, FARLAM, NAVSA JJA and VAN
HEERDEN AJA
Heard:
8  SEPTEMBER 2003
Delivered: 26 SEPTEMBER 2003
Subject:
Suretyship – release of – parate executie – pactum
commissorium – pledge of shares

JUDGMENT

HARMS JA/

HARMS JA:
[1] These appeals are about the release of sureties (the appellants)
from their obligations under a number of deeds of suretyship. They stood
surety for the obligations of L S Molope Holdings (Pty) Ltd, a company
that had borrowed substantial amounts from three banks: Nedcor Bank
Ltd, Mercantile Bank Ltd and The Business Bank Ltd. One of the
appellants, Dunbush Investments (Pty) Ltd, was also a debtor of
Mercantile Bank and the other appellants stood surety for its liabilities.
Much more need not be said about this because the outcome of the case
on the indebtedness of Molope Holdings applies to that of Dunbush.
[2] The banks have ceded their rights against the sureties to the present
respondent, Duburoro Investments (Pty) Ltd, a company in which they
hold shares and which they control. Duburoro instituted separate
applications, each dealing with the claims of one of the banks but since
the issues were similar they were heard together in the Court below and
so have the appeals, which are before us by leave of that Court.
[3] The facts have been set out in the judgment of Schwartzman J,1
who found in favour of Duburoro, and since it has been reported, I shall
limit myself to recite those facts that are material to this judgment. It may

1 Duburoro Investments (Pty) Ltd v Bock and Others 2003 (2) SA 76 (W).

be noted that his factual findings have not been attacked and that the
issues on appeal are largely legal. Because of the factual overlap, I intend
to take the claim of one of the banks as the basis for discussion of the
issues and where necessary indicate any relevant differences.
[4] Dunbush, Molope Holdings and the appellants were all part of an
intricate control structure of a listed company, Molope Group Ltd, and as
security for the loans of Dunbush and Molope Holdings a large number of
shares in Molope Group were pledged to the banks. (Some other shares
had also been pledged but those have no effect on this judgment.) Each
bank used its own deed of pledge and these differ one from the other but,
as will become apparent, not much turns on these differences. When the
principal debtors defaulted, the banks called up the loans and, purportedly
acting in terms of the pledges, took over the pledged shares and credited
the principal debtors with the value attributed to them. Herein lies the rub
of the problem between the sureties and the banks. The sureties, in
summary, say that the banks, in acting as they did, acted to their prejudice
and this led to their release. In the alternative, they allege that the
amounts credited to the principal debtors as a result of the taking over of
the shares were insufficient and that since the true amount of the principal
indebtedness had not been established on the papers, the applications
should have been dismissed or referred to trial or evidence.
[5] The Nedcor pledge permitted Nedcor, on default of the debtor,

‘immediately or at any time thereafter irrevocably and in rem suam or at its discretion
. . . to realise the securities . . . or to take over the securities at the bank’s election at a
fair value . . ..’
In other words, the bank had an option: it could have realised the pledged
shares by disposing of them to a third party or it could have taken them
over.2 It was, in any event, not obliged to do either.
[6] Three distinct legal concepts are at play:3 (a) The right to dispose
of a pledged article without the intervention of a court order, commonly
known as parate executie; (b) the contractual right of taking over a
pledged article by the creditor – a pactum commissorium; and (c) the
quasi conditional sale whereby the creditor may, upon default, take over a
pledge at a fair price.
[7] The principles concerning parate executie (immediate execution)
are trite.4 A clause in a mortgage bond permitting the bondholder to
execute without recourse to the mortgagor or the court by taking
possession of the property and selling it is void.5 Nevertheless, after
default the mortgagor may grant the bondholder the necessary authority
to realise the bonded property.6 It does not matter whether the goods are
immovable or movable: in the latter instance, to perfect the security, the

2 So did the other pledges. Their terms appear from the judgment below para 14.1 and 15.1.
3 Cf Sasfin (Pty) Ltd v Beukes 1989 (1) SA 1 (A) 14C-E.
4 Scott & Scott Wille’s Mortgage and Pledge 3 ed 121-123; 17 LAWSA para 478 and 539; Van der
Merwe Sakereg 2 ed 611, 659; De Beer v Keyser and Others 2002 (1) SA 827 (SCA) para 26.
5 Iscor Housing Utility Co and Another v Chief Registrar of Deeds and Another 1971 (1) SA 613 (T).
6 Iscor Housing Utility Co and Another v Chief Registrar of Deeds and Another 1971 (1) SA 613 (T)
616D-G.

court’s imprimatur is required.7 It is different with movables held in
pledge: a term in an agreement of pledge, which provides for the private
sale of the pledged article and in the possession of the creditor, is valid
but a debtor may
‘seek the protection of the Court if, upon any just ground, he can show that, in
carrying out the agreement and effecting a sale, the creditor has acted in a manner
which has prejudiced him in his rights.’8
Smalberger JA put the proviso in slightly different terms when he said
that for validity the private execution clause should not prejudice, or be
likely to prejudice, rights of the debtor unduly,9 meaning that the clause
should not contain execution provisions that would be contra bonos
mores.
[8] The principles about a pactum commissorium have recently been
reaffirmed by this Court:10
‘A pactum commissorium in the context of a pledge is an agreement that, if the
pledgor defaults, the pledgee may keep the security as his own property.’
Such an agreement is void.
[9] An agreement whereby a creditor may keep a pledge upon the
debtor’s default – at a fair price then determined is similar to a
conditional sale. Such an agreement is valid11 and, in relation to the

7 Cf Contract Forwarding (Pty) td v Chesterfin (Pty) Ltd and Others 2003 (2) SA 253 (SCA).
8 Osry v Hirsch, Loubser & Co Ltd 1922 CPD 531 547.
9 Sasfin (Pty) Ltd v Beukes 1989 (1) SA 1 (A) 14D-E.
10 Graf v Buechel 2003 (4) SA 378 (SCA) para 9-11.
11 Graf v Buechel 2003 (4) SA 378 (SCA) para 27 et seq.

pledging of shares, known since at least 1892.12 It does not differ much in
kind from a lex commissoria or forfeiture clause which, typically, permits
a creditor to keep what was received from a debtor in the event of the
cancellation of an agreement.13 The effect of a forfeiture clause may be
alleviated under the Conventional Penalties Act.14
[10] The quoted clause in the Nedcor pledge does provide for parate
executie of the pledged shares which, for purposes of these rules, are
considered to be movables held by the creditor in securitatem debiti.15
But Nedcor did not ‘execute’ in terms of this right. It had, additionally,
the right to exercise the ‘option’ to purchase the pledged shares at a fair
price and it is this right the Bank sought to exercise.
[11] I have taken the trouble to explain this in some detail because the
Court below (at para 13.1) and the appellants in argument assumed that
Nedcor had exercised a right of parate executie. The importance of this
assumption for purposes of the appellants’ argument lies therein that they
submit that Nedcor’s exercise of its right to parate executie was
unconstitutional since clauses permitting summary execution are in
conflict with s 34 of the Constitution which, i. a., guarantees the right to
have a dispute resolved by the application of law before a court of law.
For this submission they rely on two judgments of the Constitutional

12 Osry v Hirsch, Loubser & Co Ltd 1922 CPD 531 546-547.
13 Cf Port Elizabeth Town Council v Rigg (1903) 20 SC 252 256.
14 15 of 1962.
15 Graf v Buechel 2003 (4) SA 378 (SCA) fn 1.

Court16 where it had to consider the constitutionality of legislative
provisions entitling an organ of state acting as a bank in the agricultural
sector, without recourse to a court of law, to instruct a messenger of the
court to seize property, which is subject to a right of security and in the
possession of the debtor, and to sell it on such conditions as the bank in
its discretion may determine.
[12] Procedurally, the way this point has been dealt with by the
appellants is unacceptable. They, in one sentence in the answering
affidavit, submitted that what Nedcor did by means of parate executie
was unconstitutional. Before Schwartzman J the point was not argued
although the heads of argument had made some reference to it. He
consequently assumed the constitutionality of parate executie (at para
13.1). Before us it became the main point. It has more than once been
said17 that this is unsatisfactory especially where, as in the present case,
the attack becomes diffuse and the ramifications of the decision are
difficult to envisage. Where unconstitutionality may involve questions of
fact, especially when questions of reasonableness and justifiability have
to be considered, this method of dealing with such important commercial
matters ought not to be countenanced.

16 Chief Lesapo v North West Agricultural Bank and Another 2000 (1) SA 409 (CC); First National
Bank of South Africa Ltd v Land and Agricultural Bank of South Africa and Others, Sheard v Land and
Agricultural Bank of South Africa and Another 2000 (3) SA 626 (CC).
17 E.g. Singh v Commissioner South African Revenue Service 2003 (4) SA 520 (SCA) para 24.

[13] Nevertheless, I find it difficult to extend the proscription of these
statutory provisions by the Constitutional Court to parate executie of
movables which are lawfully in the possession of the creditor. This
procedure does not authorise a creditor to bypass the courts and ‘seize
and sell the debtor’s property of which the debtor was in lawful and
undisturbed possession.’18 It does not entitle the creditor ‘to take the law
into his or her hands’.19 It does not permit ‘the seizure of property against
the will of a debtor in possession of such property’.20 And since the
debtor may seek the protection of the court if, on any just ground, he can
show that, in carrying out the agreement and effecting a sale, the creditor
acted in a manner which prejudiced him in his rights,21 the creditor cannot
be said to be the judge in his own cause.22
[14] Our common law has always recognised that self-help is
unlawful.23 That is why the mandament van spolie developed and

18 Chief Lesapo v North West Agricultural Bank and Another 2000 (1) SA 409 (CC) para 10.
19 Chief Lesapo v North West Agricultural Bank and Another 2000 (1) SA 409 (CC) para 11.
20 Chief Lesapo v North West Agricultural Bank and Another 2000 (1) SA 409 (CC) para 19.
21 Osry v Hirsch, Loubser & Co Ltd 1922 CPD 531 547 quoted above.
22 Metcash Trading Ltd v Commissioner, South African Revenue Service and Another 2001 (1) SA
1109 (CC) para 50.
23 First National Bank of South Africa Ltd v Land and Agricultural Bank and Others 2000 (6) BCLR
586 (O) 590 quoting Curatoren van ‘Pioneer Lodge No 1’ v Champion en Andere 1879 OFS 51 at 54
where the following was said:
‘Deze is eene der belangrijkste zaken die voor dit Hof ooit kan gebracht worden of gebracht is; niet
wegens de waarde der goederen die er in betrokken zijn, maar wegens de voorname principen die er in
opgesloten zijn. Wanneer in dit hoofdstad van den Oranjevrijstaat het toegelaten zou kunnen worden
dat eene bende van achttien personen zou gaan om op eigen gezag goederen weg te voeren terwijl die
zijn in het bezit van anderen waartoe zij geen recht van ingang hadden, dan zou men bijna kunnen
zeggen dat de gerechtshoven maar moeten gesloten worden, want “de sterkste man is baas”. Dit zou
slaan aan den wortel van de veiligheid der maatschappij.’

judgments such as Nino Bonino v De Lange24 have stood the test of time.
The rules relating to parate executie in relation to pledged articles
developed within that milieu and drew a sensible distinction between the
case where the security is in the hands of the debtor and that where it is in
the hands of the creditor. The Constitutional Court was concerned with a
legislative deviation from the norm.
[15] It follows from this that the judgment in Findevco (Pty) ltd v
Faceformat SA (Pty) Ltd,25 finding that the law relating to parate executie
of movables as set out above is unconstitutional, is wrong. It is not
necessary to deal with all the reasons26 for this conclusion since the
criticism of Prof Susan Scott27 is generally to the point, especially where
she points out that the judgment failed to distinguish between (a)
perfection clauses, (b) statutory measures empowering the state to seize,
without the intervention of the courts, property from debtors and (c)
summary execution clauses in pledge agreements.
[16] However, as I have indicated, Nedcor (and, for that matter, the
other two banks) did not exercise its right of parate executie; instead it
took over the shares at an allegedly fair price in terms of its option. When

24 1906 TS 120.
25 2001 (1) SA 251 (E) per Froneman J.
26 Froneman J thought it important that the statutory provisions dealt with by the CC related to both
immovables and movables (at 254G-H), failing to realise that the movables, too, were in the possession
of the debtor in terms of a statutory hypothec which does not require the creditor to have possession.
He also thought that that the common law permits the attachment of movables without a court order (at
256E-F) which it does not.
27 ‘Summary Execution Clauses in Pledge and Perfecting Clauses in Notarial Bonds’ 2002 (65)
THRHR 656.

this became apparent during argument, the appellants were driven to
submit that conditional contracts (especially sales), forfeiture clauses,
agency agreements permitting the sale of one’s property, powers of
attorney in rem suam, voluntary repossessions and even rights of
retention are all unconstitutional.  I do not believe that this was suggested
with any degree of confidence and it illustrates my objection to the
procedure adopted.
[17] The Nedcor pledge, permitting it to take over the shares ‘at a fair
price’, contained an important qualification: the parties to the pledge had
to agree on the price; and in the absence of agreement the price had to be
determined by an expert. Nedcor relied on an agreement which came
about as follows. On 6 December 1999, it wrote a letter to the directors of
Molope Holdings, informing them of its intention to take over the shares
at a fair price which it set out. Agreement was sought. In response,
Nedcor the following day received a letter on a Molope Holdings
letterhead, signed by a director, Mr Hirschowitz, agreeing to the value
proposed. Nedcor referred to these facts in answer to an allegation by one
of the sureties, Mr Bock, that no directors’ meeting had been held to
consider the letter of 6 December and that, to the best of his knowledge,
the company had never approved the suggested values. The Court a quo
(at para 13.3) saw this as a dispute of Hirschowitz’ authority which, on
the papers, could not be resolved and proceeded to determine the issues

on the assumption that in taking over the shares Nedcor was in breach of
the pledge agreement (at para 21.1). Counsel for the respondent was
content to argue the case on this assumption. The effect of this
assumption was that the validity of the relevant clauses and the propriety
of the exercise of their rights by the banks became irrelevant.
[18] I then turn to the next issue, namely that of prejudice. In the 1992
edition of Caney’s The Law of Suretyship,28 there appeared a statement in
these general terms:
‘The creditor must do nothing in his dealings with the principal debtor and the other
sureties which has the effect of prejudicing the surety; if he does the surety is
released.’
This and a similar statement from Wessels Law of Contract in South
Africa,29 were quoted in some judgments.30 The latter reads as follows:
'In equity, upon a contract of suretyship, if the person guaranteed does any act
injurious to the surety, or inconsistent with his right, or if he omits to do any act
which his duty enjoins him to do and the omission proves injurious to the surety, the
surety will be discharged.'
These statements, it appears, became in the eyes of some a rule of general
application and it is on this rule that the sureties in a sense rely. The
problem, however, is that Wessels was not quoted fully and that he was
quoted out of context. Wessels was dealing with the effect of the

28 4 ed by Forsyth & Pretorius.
29 2 ed para 4346. The para and page references in Schwartzman J’s judgment (at para 17.1) are wrong.
30 E.g. Minister of Community Development v SA Mutual Fire & General Insurance Co Ltd 1978 (1)
SA 1020 (W) 1023H; Fry and Another v First National Bank of SA Ltd 1996 (4) SA 924 (C) 928C-D.

creditor’s negligence on the surety (para 4338). He mentioned that it is
difficult to lay down a general rule to determine when the personal
negligence of the creditor would enable the surety to claim discharge
(para 4342). He then hypothesized that the surety might be released
‘if by contract there is a duty cast upon the creditor to preserve the surety’s rights.’
(Para 4343; my emphasis.) The next four paragraphs illustrate this
proposition and the last of these deals with an 1861 case of Watts v
Shuttleworth31 where, as Wessels (at para 4346) said,
‘a person became surety  for the due performance of a work, on the understanding that
the employer would insure against fire. The Court held that a failure to insure
discharged the surety.’
Only then the quoted text came. In Watts the building did burn down. The
Court there had to consider whether the failure to insure released the
surety fully or only pro tanto and, applying the ‘analogy’ of the English
rule of equity that if the creditor gives the debtor time to perform, the
surety is released (which is not part of our law) the Court held that the
surety had been released in toto.
[19] Probably fearing that he might be misunderstood by future
generations Wessels, after the quotation, referred by way of comparison
to a judgment of his. That case, Nathanson and Another v Dennill 1904
TH 289 292, makes his point in no uncertain terms. He held that if

31 158 ER 510 (Ex Ch).

‘a material alteration is made between the creditor and the principal debtor in an
agreement to which there is a surety’
the surety may be released if the surety is thereby prejudiced. The
alteration he referred to was one that amounted to a novation of the
principal debt.
[20]  This Court, in Absa Bank Ltd v Davidson 2000 (1) SA 1117 (SCA),
was confronted with the submission that:
‘there is a general so-called “prejudice principle” in our law to the effect that, if a
creditor should do anything in his dealings with the principal debtor which has the
effect of prejudicing the surety, the latter is fully released.’
It came, in the words of Olivier JA, without any mincing to the
conclusion that no such principle exists and held (at para 19):
‘As a general proposition prejudice caused to the surety can only release the surety
(whether totally or partially) if the prejudice is the result of a breach of some or other
legal duty or obligation. The prime sources of a creditor's rights, duties and
obligations are the principal agreement and the deed of suretyship. If, as is the case
here, the alleged prejudice was caused by conduct falling within the terms of the
principal agreement or the deed of suretyship, the prejudice suffered was one which
the surety undertook to suffer. Counsel who drafted the plea was therefore on the right
track when he sought to base his case upon prejudice which flowed from the breach of
an obligation, contractual in the present circumstances.’

[21] This statement of the law was accepted as correct by Griesel J32
and by the Court a quo (at para 19) and somewhat grudgingly by the
sureties during argument before us. The problem is that Van Zyl J33 added
an obiter gloss to it in these terms:
‘On the basis of these considerations I would then suggest that the prejudice required
for a successful defence of prejudicial conduct justifying release from a suretyship
agreement may be described in the following terms. With reference to all the relevant
facts and circumstances, and with due regard to considerations of justice, fairness,
reasonableness, good faith and public policy, the alleged prejudice must constitute
real and substantial prejudice which has the effect of unduly increasing the contractual
burden of the surety.’
I have to admit that I do not understand how this test will work in practice
or why the gloss was necessary. The considerations given may be
appropriate where a judicial discretion is involved or a value judgment
called for, such as in the case of sentencing or the determination of
wrongfulness, but the release of a surety is not a matter of either. In a
constitutional democracy the principle of legality applies and making all
rules of law discretionary or subject to value judgments may be
destructive of the principle. In any event, this gloss is irreconcilable with
Brisley v Drosky 2002 (4) SA 1 (SCA) para 11-24 dealing with the
concept of bona fides in the law of contract. Lest there be any

32 Investec Bank Ltd v Lewis 2002 (2) SA 111 (C) 116H-117C.
33 Hlope JP concurring in Di Giulio v First National Bank of SA Ltd 2002 (6) SA 281 (C) para 41.

misunderstanding, this judgment subscribes to the law as set out in the
judgment of Olivier JA34 in spite of the criticism in the current edition of
Caney.35
[22] The argument of the sureties amounts to this: the banks were in
possession of securities; these had to be realised in a lawful manner at the
appropriate time and at a fair value; since this did not happen, they were
released. The Court a quo (at para 19.1) saw the law in another way:
‘I can see no reason in equity, morality, public policy, principle or law why minimal
prejudice should automatically release a surety from all liability for the principal debt.
In an appropriate case there is much to be said for limiting the surety’s release to the
extent that he or she has been prejudiced by the conduct of the creditor that is in
breach of some of some or other legal duty or obligation.’
[23] One can approach the matter from a slightly different angle. The
agreement between Nedcor and the principal debtor provided for the take-
over of the pledges in a particular manner. Nedcor took them over in a
manner contrary to that agreed upon. This breach did not release the
principal debtor from its liability but the principal debtor was entitled to
have been placed in the position as if the agreement had not been
breached, which means in this case that the principal debtor was entitled
to be credited with the ‘true’ value of the shares as at the date of take-
over. Why should the position of the sureties, who are also co-principal

34 Absa Bank Ltd v Davidson 2000 (1) SA 1117 (SCA) para 19.
35 Forsyth & Pretorius Caney’s The Law of Suretyship 5 ed 205-206.

debtors, be any different? There is no fiduciary relationship between them
and the creditor.36 Their indebtedness will not have been increased or
changed as a result of Nedcor’s breach.
[24] Wessels (para 4345) in the paragraph preceding his discussion of
Watts, gave an example that fits this exposition of the law and is
particularly apposite to the facts of this case:
‘A obtained an advance of money from a loan society and B became his surety. There
were certain goods pledged to the society by A. The society sold these goods and
claimed on B for the balance. B pleaded as an equitable defence that but for the
mismanagement of the agents of the society in selling A’s goods they would have
realised sufficient to satisfy the whole debt. The Court held this to be a good plea.’
(Emphasis added.)
[25] It would thus appear as if the question of the release of a surety due
to the prejudicial conduct of the creditor and the question of the quantum
of the principal debt tend to be conflated. These are two distinct inquiries.
Properly analyzed, the sureties’ defence is about quantum, i.e., the extent
of the principal debtor’s liability for which they are in solidum liable.37
[26]  Nestadt JA38 once referred to a general principle according to
which a surety will be discharged if the creditor by his own act makes it
impossible for himself to cede his security to the surety. This statement of

36 Cf the relationship between a bank and its client: Absa Bank Bpk v Janse van Rensburg 2002 (3) SA
701 (SCA) para 16.
37 Cf Wessels para 4363; Gould v Ekermans 1929 TPD 96.
38 Barlows Tractor Co Ltd v Townsend 1996 (2) SA 869 (A) 878D-E.

his may appear to be in conflict with conclusions thus far. The learned
Judge, it should be noted, did not deal with the question whether the
release is in toto or pro tanto and, additionally, Wessels  makes it clear
that the release is dependent on the creditor’s negligence (at para 4338-
4339 and 4352) and is pro tanto (at para 4354). This principle can, in any
event, not be applicable where the creditor utilised the securities in order
to reduce the indebtedness of the principal debtor.39
[27]  The banks were entitled to prove prima facie the extent of the
principal debtor’s liability by means of certificates, which they have
done.40 The extent of the indebtedness before the credit due to the take-
over of the pledges is common cause. It is also common cause that the
debtor was credited by the banks with an amount somewhat above the
ruling price of the shares as quoted on the Johannesburg Secureties
Exchange on the dates the shares were taken over.41 There is no
acceptable evidence to contradict that of the banks that, at the time, these
prices represented the fair value of the shares.42 The fact that thereafter
the share price kept dropping to still lower levels provides compelling
evidence that the banks were correct.

39 Cf  South African Scottish Finance Corporation Ltd v Wassenaar 1966 (2) SA 723 (A) 731H-732A.
40 Contrary to the position in the Court a quo (at para 25 et seq), there is no attack on the certificates
before us.
41 Nedcor took over the shares pledged to it on 6 December 1999 at a price of 105 cents. On that day
the closing price of the shares on JSE was 100 cents. Mercantile Bank took over the shares pledged to
it  on 14 December 1999 at 92 cents an ordinary share and 90 cents an 'N' share. The closing prices of
the shares on the JSE that day were 84 cents and 85 cents respectively. On 3 December 1999 Business
Bank  took over the shares pledged to it at a price of 107 cents a share for the ordinary shares and 105
for the 'N' shares. These were the closing prices of the shares on the JSE that day. (Para 12.7.)
42 The reasons for the fall of the share prices are set out by Schwarzman J at para 12.

[28] The sureties, contrary to their main submission that the banks were
not entitled to take over the shares at all, submit that the shares should
have been taken over as soon as the respective debts fell due, relying on
the principle that the exception to the prohibition of a pactum
commissorium depends on
‘the proviso that a fair price is to be given when the debt falls due, not the time when
the agreement is concluded.’43
The sureties point out that if the shares had been taken over at an earlier
date their indebtedness would have been smaller. Once again, different
concepts are being confused. At this stage of the inquiry we are no longer
concerned with the validity of parate executie and the like – since the
argument is proceeding on the assumption that the take-over was in any
event flawed – but with the question whether the banks, through their
negligence, have prejudiced the sureties. In any event, there is much to be
said for the following view of Schwartzman J (at para 22.4):
‘I find that Mapenduka's44 case does not lay down as a principle of our common law
that a pledgee must realise the pledged property on the date when the debt falls due
for payment. The Sun Life45 decision clearly suggests that this is not the case. If there
is no common-law duty on the pledgee to realise the pledge on the day the debt falls
due it follows that a surety for such debt cannot complain if the debt is not so
realised.’

43 Graf v Buechel 2003 (4) SA 378 (SCA) para 29.
44 Mapenduka v Ashington 1919 AD 343.
45 Sun Life Assurance Co of Canada v Kuranda 1924 AD 20.

[29] There is, however, a simpler answer. As the venerable Voet46 once
said
‘agreements make the law for contracts, and therefore for suretyships also . . .’
thereby making the obvious point that one should begin with the terms of
a deed of suretyship in order to determine the rights and obligations of the
respective parties. In the Nedcor case, the deed granted the Bank a
discretion to determine the nature and duration of the facilities; without
prejudicing its rights, the Bank could give time in respect of any security;
additionally, the sureties renounced the benefit of excussion. Similar, if
not more stringent, provisions are contained in the other banks’ deeds.
Further, if one has regard to the terms of the pledges, they make it clear
that the banks were entitled, at their discretion, to decide when to realise
the pledges.47 In other words, the reliance on the (supposed) rule cannot
succeed in the light of the agreements to which the debtor and the sureties
had bound themselves.
[30] In order to protect their own interests in recovering the debt, the
banks entered into an agreement with a third party. The circumstances
surrounding and the effect of this arrangement gave rise to further
‘defences’ for the sureties.
[31] Schwartzman J explained the reasons for and effect of the
agreement fully (at para 12) and what follows is more or less a quotation.

46 Comm ad Pandectas 46.1.36 (Gane’s translation vol 7 p 67).
47 The detail appears from the judgment below at para 22.5.

The banks found the value of their security rapidly diminishing and were
on the horns of a dilemma. If any of them attempted to realise their
security by disposing of the pledged shares the sheer size of the number
of shares offered for sale would probably have caused a panic amongst
investors and further suppressed the price, thereby materially reducing the
amount that might be recovered. Legal proceedings against Molope
Holdings to recover the debt or exercise the pledge could also have
caused a panic. In the circumstances the financial interests of the banks
lay in preserving the going concern value of the Molope Group until a
cash-rich buyer of either its shares or assets could be found. There was no
purchaser for this number of shares.
[32] During the week ending 15 October 1999 there were three possible
purchasers of the business. Two of them fell by the wayside. The third,
Rebhold Ltd, a quoted company, pursued negotiations that resulted in a
written agreement signed on 25 November 1999 in terms of which
Rebhold Ltd and an associated company, Rebserve Ltd, purchased certain
of the businesses of the Molope Group and its subsidiaries. The purchase
price was R483 million, being a cash amount of R300 million plus R183
million of liabilities assumed by Rebserve Ltd. The price that Rebhold
offered was the best available price.
[33] Consummating the Rebserve sale required the passing of some
resolutions and it was essential that the voting rights attached to the

shares should be exercised in favour of all resolutions that were required
to implement the agreement.
[34] In the agreement (the letter agreement) the banks undertook to take
possession of and execute under the terms of their respective deeds of
pledge all the shares held by them in Molope Group; to attend all
shareholders' meetings of the Molope Group; and to vote for the
resolutions.48 All this they subsequently did.
[35] The agreement envisaged the voluntary winding-up of Molope
Group and the payment to shareholders of a liquidation dividend. This, on
the evidence, would not have exceeded 90 cents a share which is less than
the value attributed to the shares by the banks for purposes of their taking
over.
[36] Mr van Huysteen, who appeared on behalf of some sureties,
submitted that the banks should have disclosed the arrangement with
Rebhold and Rebserve to Molope Holdings and to the sureties, and that a
failure to have done so amounted to some breach of confidence.
Assuming that to have been the case, the question that springs to mind is
how did this breach of confidence affect the value of the shares at the
time? He could not provide us with any answer. He also made some
recalculations of the value of the shares in which he assumed that the net

48 Nedcor and Mercantile Bank did not in terms of their respective pledges have to execute on their
pledges as their respective agreements gave them voting rights over the pledged shares.

asset value of a company divided by the number of shares gives the value
of those shares. This I find a startling proposition but it is in any event not
supported by evidence. His recalculation was also flawed in that the facts
used for the exercise were not the correct facts. He further argued that the
shares gave the banks a controlling interest in Molope Holdings and that
some premium should have been added to the quoted prices. One can
assume that, in principle, the controlling shares in a company do have a
premium but the fact is that the banks acted as creditors and none had a
controlling interest and they did not act in concert to take control of
Molope Holdings. This matter was fully thrashed out before the
Securities Regulation Panel, and we agree with its conclusion. However,
the short answer is that there is no evidence that in this case the
controlling shares had any added value over and above the quoted price.
On the contrary, there were no buyers for the banks’ bundle of shares.
[37] The letter agreement gave each bank an option to acquire a number
of Rebserve shares. The options were not exercised and allowed to lapse.
Mr van Huyssteen submitted that the options must have had a value when
granted and that added value should have been deducted from the main
debt. The first answer to this submission is, as Schwartzman J found (at
para 24), that since they had not been exercised they did not provide the
banks with any additional benefit. There is also a dispute as to the
meaning of the options. In order to have exercised them, the banks had to

fork out substantial amounts as option price. They would have been
obliged to have kept the shares for a substantial period of time. They were
not permitted to dispose of the options. I know of no principle obliging a
creditor to take steps such as these in order to reduce the liability of a
surety. Last, there was no evidence that the options had any market value
or of the amount by which the claims of the banks should have been
reduced.
[38] In the Rebhold agreement the banks undertook to cede certain
claims against the chairman of Molope Holdings (Mr Ramaphosa) and
the mentioned Mr Hirshowitz to Rebhold. In consideration for these
cessions Rebhold indemnified the banks indirectly
‘in respect of such loss (limited to R20 000 000) which the [banks] may suffer, sustain
or incur as a result of the [claims against the sureties] proving to be irrecoverable’.
Under a deeming provision the claims were to be deemed to have been
irrecoverable if the sureties had not paid by 30 November 2001.
[39] The sureties argue that their indebtedness had to be reduced by
R20m because of this. As I read the agreement, the intention of the
parties was not that, eventually, the banks would be entitled to the R20m
as additional consideration. It is not as if Rebhold had intended to pay
part of the sureties’ indebtedness or make payment on their behalf; on the
contrary, Rebhold clearly did not intend to do anything of the kind.

[40] The appeals are dismissed with costs, including those of two
counsel.

___________________
L T C  HARMS
JUDGE OF APPEAL

Agree:

ZULMAN JA
FARLAM JA
NAVSA JA
VAN HEERDEN AJA