IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
In the matters between
Case no 291/98
(1)
NBS Boland Bank
Appellant
and
One Berg River Drive and Others
Respondents
Case no 428/98
(2)
SB Deeb and Another
Appellants
and
ABSA Bank Ltd
Respondents
Case no 85/99
(3)
AL Friedman
Appellant
and
Standard Bank of South Africa Ltd
Respondents
Court:
Mahomed CJ, Van Heerden DCJ, Olivier JA , Melunsky and
Mpati AJJA
Heard:
16 August 1999
Delivered: 10 September 1999
Summary:  A mortgagee’s power to increase the rate of interest
JUDGMENT

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VAN HEERDEN DCJ:
[1] There is one cardinal question which falls to be answered in all three
appeals before us.  It is whether a clause in a mortgage bond conferring upon
the mortgagee the right to unilaterally  increase the original rate of interest
payable by the mortgagor is valid.  If so, appeal (1) must succeed and appeal
(2) be dismissed, whilst a further point will  have to be considered in appeal
(3). [For convenience I have in the heading numbered the appeals (1), (2) and
(3).]
[2] Appeal (1) is against a decision of  Southwood J  in the  Witwatersrand
Local Division (reported in 1998 (3) SA 765 (W).  He held that the clause in
question conferred upon the mortgagee an unfettered power to vary the
interest rate.  He concluded that the clause was invalid because a term of a
contract leaving  it to the will of one of the parties to determine the extent of his
or the other party’s presentation is void for vagueness.  For these reasons  he

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made an order declaring that the clause was invalid and unenforceable.
[3] The appellant in appeal (2) appeals against a decision of Thirion J in the
Natal Provincial Division (reported in 1999 (2) SA 656(N)).  He held that it was
an implied term of the clause under discussion that the mortgagee
“...would be entitled to raise the rate of interest agreed upon in clause
3 of the mortgage bond whenever and to the extent that it would, in
the usual and ordinary course of its business as a financial institution,
and as a result of a general increase in interest rates in the market,
raise the interest rate charged by it on new mortgage loans of the
same nature and category as the one to which the loan in question
belongs - provided always that such increased rate of interest would
not exceed the maximum permissible under the Usury Act “ (at 665B-
D).
[4] Since in his view it was not possible to decide whether the increased
mortgage rates in that case conformed with his basic finding, the matter was
postponed sine die so as to allow the parties an opportunity to adduce
evidence.
[5] In the court below in appeal (3) Gihwala AJ held in the Cape Provincial
Division that the mortgagee’s power was not unfettered sine he could increase

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the interest rate only in accordance with prevailing banking practices.  He
furthermore rejected separate defences raised by the present appellant in
appeal (3) and granted summary judgment against her (The decision has been
reported in 1999(2) SA 456 (C).)
[6] The matter is not res nova .  In Boland Bank v Steele 1994 (1) SA 259
(T) 276 Van Dijkhorst J held in the Transvaal Provincial Division that the
clause must be construed as conferring upon the mortgagee a power to be
exercised in a reasonable way, and that it was therefore valid.  A different
approach was adopted by Stegman J in the Witwatersrand Local Division.  In
NBS Bank Ltd v Badenhorst-Schnetler Bedryfsdienste BK 1998 (3) SA 729
(W) 736 he found that in a moneylending contract the rate of interest payable
by the lender is one of the essentials of the contract which must be rendered
certain by the parties’ agreement.  If not the contract is void for vagueness.
In the result he concluded that the clause was null and void.

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[7] For present purposes there does not appear to be any difference
between the clause under consideration and a clause in an overdraft
agreement conferring upon a banker the right to increase the rate of interest
payable on the amount of the overdraft.  In Nedbank Ltd v Capital Refrigerated
Truck Bodies (Pty) Ltd 1988 (4) SA 73 (N) 74 Milne JP had to consider the
validity or otherwise of such an overdraft agreement.  He found that it was
valid either because an obligation to pay interest is not one of the essentialia
of a contract of loan or because the bank’s power had to be exercised arbitrio
boni viri.  A similar conclusion was reached by Wunsh J in Investec Bank (Pty)
Ltd v GVN Properties CC 1999 (3) SA 490 (W) 499 F-H.  His view was that
interest rate variations have to conform with the rate charged to a borrower in
the same category to whom loans of the same type are made, and that the
clause did not confer upon the bank an unqualified right to act capriciously or
unreasonably.   For these reasons he concluded that the above mentioned
judgments of Stegman J and Southwood J were clearly wrong.

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[8] (For another analogous case which tends to support a contention that
the clause in question is enforceable, see Diners Club SA (Pty) Ltd v Thorburn
1990 (2) SA 870 (C) ).
[9] A recurring theme in those cases in which it was held that the clause in
question is invalid, is that a contract which empowers one of the parties to fix
a prestation is void for vagueness.  With one exception that was undoubtedly
the view of Roman Dutch Law writers in regard to the determination of the
price in a sale and the rental in a lease.  However, in Benlou Properties (Pty)
Ltd v Vector Graphics (Pty) Ltd 1993 (1) SA 179 (A)185-6 two  observations
were  made  thereanent.    The first was that the reason  given  by  our  writers
for  their  views, viz  that  the  price  or  rental is  uncertain,  is difficult  to
reconcile  with  their  recognition  that  it  may  validly  be  left  to  the
determination  of  a  third  party.    In  such a  case  the  price  or  rental  is
after  all  as  “uncertain”  as  when  such  a prestation is to be determined by

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one of the parties.   I may add that if A sells to B any one of his hundred
horses the merx remains uncertain until it is determined by either the seller or
the buyer, as the case may be.  Yet it is undoubtedly a valid contract.
[10] The second was that the views of Voet and others did not accord with
modern legal systems.  Something more should be said about those systems
as well as English and Scottish law to which no or little reference was made
in Benlou.
[11] In May and Butcher Ltd v R [1929] All ER Rep 679 (HL) 684 D, Viscount
Dunedin said that “it is a perfectly good contract to say that the price is to be
settled by the buyer”.  This dictum was followed in Lombard Tricity Finance Ltd
v Paton [1989] 1 All ER 918 (CA) 923 g,  a case very much in point. A
consumer credit agreement provided that the lender could increase the rate
of interest in his absolute discretion.  The Court of Appeal found that this
stipulation was valid.
[12] Scottish institutional writers also hold that a term in a contract of sale

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empowering either party to determine the price is unobjectionable.  Of
particular significance  is the  following  passage in Brown, Treatise on the
Law of Sale p 150:
“204.  Another question upon which some doubt has existed, is,
whether the price may lawfully be left to be fixed by one of the parties
to the sale.  Pothier holds that it cannot, (Contr. De Vente, No 23.;)
and it seems to be the common opinion, that such was the rule of the
Roman law, Vinn. ad Inst. 3.24. p. 612. § 3.: Voet. ad Pand. 18.1.§
23.: Huber, tom.l. p. 320. § 6.: Ersk. 3.3.4.  One commentator, (Noodt,
ad lib. 18. Tit. 1 T. tom. 2. p. 388) however, maintains that such a
reference was lawful and competent by the Roman law; not, indeed,
to the effect of enabling the party to whom the price was referred, to
fix it absolutely, and without its being possible to have it corrected in
case of obvious iniquity, but to the effect of enabling him to fix a price
secundum arbitrium boni viri, leaving it open to the judge to interfere
for the correction of his estimate, if it were  unjust.
The latter rule, together also with the qualification annexed to
it, seems to be adopted in our law, (Ersk. 3.3.4.: Stair, 131.) and in
one case was expressly admitted”.
See also Stair, Institutions, pp 188-9; Erskine, Institute, pp 725-6,  May and
Butcher Ltd, supra, at 684 E, and Steven v Robertson (1760) M 3158.
[13] In German Law the position is governed by para 315 of the BGB.  It

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provides that if a prestation is to be determined by one of the parties it is, in
case of doubt, to be accepted that an equitable discretion must be exercised.
If an inequitable determination is made, it can be assailed by the other party:
Palandt, Bürgerliches Gezetzbuch, 42nd ed, pp 355-7; Larenz, Lehrbuch des
Schuldrechts, 12th ed, vol 1 pp 67-70.  An identical position obtains in Swiss
law: Von Tuhr, Allgemeiner Teil des Schweizerischen Obligationenrechts 3rd
ed, vol 1, p 191.
[14] The test in Dutch Law is somewhat different.  If the parties left it to one
of them or a third party to determine a prestation, the agreement is perfectly
valid but a determination can be assailed if it is inequitable or unreasonable.
See Asser-Hartkamp, Verbintenissenrecht, 10th ed, part 1, p 18, and part 2,
p.314.  In such a case the determination is voidable at the instance of the
other party.
[15] In the United States section 2-305 (2) of the Uniform Commercial Code
provides that a price to be fixed by the seller or by the buyer “means a price

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for him to fix in good faith”.
[16] It will thus be seen that the views of our writers that a sale or lease
containing a power to fix the price or rental is not only illogical but also sadly
out of step with modern legal systems.  It is problematical whether we should
still follow those rules, and I shall revert to this question.  For present purposes
it is, however, unnecessary to decide the point.  This is so because the above
views were not articulated in respect of a contractual power to fix a prestation
other than a price or rental, and there is ample reason not to extend the
common law rule to other types of contractual discretions, and therefor not e.g.
to a discretionary power provided for in a contract of loan.
[17] There is an additional reason for holding that the clause under
discussion is valid.  Even if , contrary to my above view, there should be an
analogous extension of the common law rule, that rule concerned one of the
essentialia of a sale or lease, and I am not aware of an extension of that rule
to other terms of such contracts, and a fortiori not to terms of other types of
contracts.  And although in the Western world the erstwhile Catholic

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prohibition of the charging of interest, so fiercely defended by the Jesuits, no
longer obtains, a term relating to the payment of interest is not an essentialé,
as opposed to a material term, of a contract of loan.   There can after all  be
a  perfectly good  contract of loan even if it makes  no  provision for the
payment of interest.  I  am not  unmindful  of the  fact that  according  to Lubbe,
Kontraktuele
diskresies,
potestatiewe
voorwaardes
en
die
bepaalheidsvereiste, 1989 TSAR 159,173, no distinction should be drawn, for
present purposes, between an essentialé and another term of a contract, but
he gives no reasons for his opinion.  And see Davids, Unilaterally imposed
terms in Contract, 1965 SALJ 108,110.
[18] It has already appeared that in NBS Bank Ltd Stegmann J typified a
term in a loan relating to the payment of interest as an essential term of the
contract.  It is not clear to me whether Stegmann J intended to say that such
a term is an essentialé, as distinguished from a material term,  of a loan.  If he
did, he was clearly wrong.
[19] Is there any decision of this court which stands in the way of my above

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approitach?  In Murray and Roberts Construction Ltd v Finat Properties  (Pty)
Ltd 1991 (1) SA 508 (A), 514  Hoexter JA said:
“It is no doubt a general principle of the law of obligations that, when
it depends entirely on the will of a party to an alleged contract to
determine the extent of the prestation of either party, the purported
contract is void  for vagueness. Obvious examples of the application
of the principles are afforded by the law of sale. If, for example, it is left
to one of the parties  to fix the price the contract is bad.”
Not only was no authority cited in support of this broad statement but it was
clearly an obiter dictum.
[20] In Patel v Adam 1977 (2) SA 653 (A) 666 this court considered an
agreement of sale in terms of which it was left to the purchaser to determine
what amount he wished to pay each month as an instalment of the purchase
price.  It was held that the sale was void for uncertainty.  It should be observed,
however, that the sale also did not provide for a period during which the full
purchase price had to be paid.  Hence, this was a clear case of a condicio si
voluero (to which further reference is made below).  In any event, the power of
the purchaser related to the fixing of components of a purchase price.
[21] At first blush a more formidable obstacle is created by a passage in the

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judgment of Van den Heever JA in Theron NO v Joynt 1951(1) SA 498 (A) 506.
It reads:
“Waar een van twee mense, wat voorgee kontrakterende partye te
wees, hom die reg voorbehou om na willekeur enige beding in die
sogenaamde ooreenkoms eensydig te wysig, kom sy resposisie in alle
opsigte ooreen met dié van iemand wat oënskynlik ‘n verpligting
aangaan op voorwaarde dat hy na willekeur daardie verpligting kan
nakom of ontduik.  Sulke handelinge beskou ons reg as geen
regshandelinge nie of handelinge sonder regsgevolge (D. 45.1.17;
45.1.46.3; 45.1.108.1).”
[22] It is not clear to me what was meant by the use of the word “willekeurig”.
But even if the learned judge intended to refer to a discretionary power two
observations should be made.  The first is that the quoted passage was also
an obiter dictum since nothing turned on it.  The second is that the dictum is,
with respect, not borne out by the Digest texts upon which Van den Heever JA
relied.  They read as follows (Mommsen, Krueger and Watson, The Digest of
Justinianus, vol iv pp 652, 657 and 667):

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D45.1.17
“A stipulation is not valid when a condition is entrusted to the
judgment of the party making the promise”
D 45.1.46.3
“However, the stipulation ‘do you promise to give, if you wish’, is
clearly invalid”.
D 45.1.108.1
“No promise can be valid if it lies wholly within the choice of the
promissor”.
[23] It is clear, I think that all three texts relate to the validity of a condicio si
voluero, i.e. a condition that the promissor is bound to perform only should he
wish to do so.  At most they concern a contract or stipulation where the
promissor may determine his own prestation, and do not deal with the situation
where the other party has the right to determine or alter the promissor’s
obligation.

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[24] In sum I am of the view that, save, perhaps, where a party is given the
power to fix his own prestation, or to fix a purchase price or rental, a stipulation
conferring upon a contractual party the right to determine a prestation is
unobjectionable.  Second, and has been said above,  there is an additional
reason for holding that the clause under discussion is valid.  Of course, in
some cases providing for discretional determinations there may be no
enforceable contract until the determination is made.  But when made an
unconditional contract comes into being.
[25] All this does not mean that an exercise of such a contractual discretions
is necessarily unassailable.  It may be voidable at the instance of the other
party.  It is, I think, a rule of our common law that unless a contractual
discretionary power was clearly intended to be completely unfettered, an
exercise of such a discretion must be made arbitrio bono viri (cf  Dharumpal
Transport (Pty) Ltd v Dharumpal  1956 (1) SA 700 (A)  707 A-B;   Moe Bros v
White 1925 AD 71,77;  Holmes v Goodall and Williams Ltd  1936 CPD 35,40;

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Belville-Inry (Edms) Bpk v Continental China (Pty) Ltd 1976 (3) SA 583 (C) 591
G-H,  and Remini v Basson 1993 (3) SA 204 (N) 210 I-J).   In his commentary
on the Digest Windscheid, Lehrburch des Pandektenrechts, 7th ed, vol 2 p 407,
maintains that such a rule existed in Roman Law.  He relies inter alia on D
50.17.22 which certainly appears to provide analogous support for his view.
It reads (the same translation):
“One must in general approve of the principle that wherever in actions
of good faith the condition of someone is placed in the power of his
master or of his procurator, then this power is to be regarded as
equivalent to the power of the decision of a good man”.
[26] Reference may also be made to D.17.2.77 where it is said that where
one party has to do work to the satisfaction of the other party, the latter must
exercise his discretion arbitrium bono vire.
[27] The discretionary powers vested in the mortgagees by the relevant
deeds must therefore be subject to this inherent limitation.  The attack made
on behalf of the mortgagors concerned effectively assumes that there is no

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such limitation. It is an erroneous assumption.
[28] So far I have confined myself to our common law and  comparable  legal
systems.  An analogous  conclusion may  well be  reached if  one applies the
modern concept of the role of public policy, bona fides and contractual equity
to the question in issue (see e.g. Eerste Nasionale Bank van Suidelike Afrika
Bpk v Saayman NO 1997 (4) SA 302 (SCA) 318-31, per Olivier JA.)
[29] The question whether in cases such as these appeals a determination
does not comply with the above requirement if it is merely unjust, or whether
it must be manifestly unjust, need not be answered (cf Voet 18.1.23 and
Gane’s note (h) in vol 3, p 278, in regard to the determination of a price by a
third party).  The reason is that none of the mortgagors attempted to assail the
fixing of increased interest rates.  They relied solely on the contention that the
clause was invalid.  At the risk of repetition I should again say that the clause
is perfectly valid, but that an exercise of the power conferred upon the
mortgagor may be objectionable.

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[30] One further point should be made.  It is conceivable, albeit unlikely, that
a stipulation may be so worded that an absolute discretion to  fix a prestation
is conferred on one of the parties.  Here again it is unnecessary to express a
view as to whether such a stipulation will be invalid, as being in conflict with
public policy, or whether the fixing of the prestation  may only be assailed when
it is done in bad faith.
[31] In conclusion I should mention that the provisions of the Usury Act 73 of
1968 have no bearing on the outcome of the three appeals.
[32] I revert to a stipulation which confers on one of the parties the power to
fix the purchase price or rental, as the case may be.  In the light of what has
already been said there does not appear to be any logical rationale for drawing
a distinction, in the context under consideration, between such a stipulation and
other similar stipulations conferring on a party to a contract a discretion to
determine a prestation.  The exercise of the power to determine the price or
rental would after all be open to attack on the same grounds as in the case of

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utilization of other types of discretionary stipulations.  However, the common
law rule governing sales and leases was not in issue in this court, and the
question whether the rule should be jettisoned was not argued before us.
Hence, it is unnecessary, and indeed undesirable, to decide that question.
[33] I now  turn to  an additional point raised by  the  appellant  in appeal (3).
In her affidavit resisting the application for summary judgment she alleged that
the present respondent had previously obtained judgment by default against
her;  that this had occurred in conflict with an arrangement between the parties
that pending settlement negotiations it would not be necessary for her to enter
an appearance to defend, and that she resultantly suffered damages  under
various  headings.    She  went on to say that she would  claim the damages
either by way of a counterclaim in the respondent’s action against her or by
instituting a separate action.
[34] For various reasons her affidavit does not disclose a genuine defence.
I mention only two .  The first is that a claim for damages can only be a

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”defence” if the court is asked to stay judgment on the plaintiffs claim until the
defendant has established a counter claim.  As has appeared, this is not what
the appellant did in casu .  Indeed, she indicated that she might prefer her
claim in a separate action.
[35] Second, the appellant in essence did no more than make the bald
allegations that her credit-worthiness and rights of personality had been
infringed because judgment by default had been given against her.  She
studiously refrained from giving factual details to support her allegations, and
certainly did not comply with the requirements of Rule 32(3) (b) of the Uniform
Rules  that an affidavit resisting a claim for summary judgment disclose fully
the material facts relied upon by a defendant.
[36] The following orders are made:
(1) Appeal (1) is allowed with costs, including the costs of two counsel, and the
following is substituted for the order of the court a quo:

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“(a) It is declared that clause 14 of mortgage bonds 36200/95 and
68231/95 is valid.
(b) The defendants are ordered jointly and severally to pay the
plaintiff’s costs, including the costs of two counsel”.
(2)
Appeals (2) and (3) are dismissed with costs, including the costs of two
counsel.

HJO VAN HEERDEN
DEPUTY CHIEF JUSTICE
Concur:
Mahomed CJ
Olivier JA
Melunsky AJA
Mpati AJA

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