Reportable
Case No A17/02

In the matter between:

CONTRACT FORWARDING (PTY) LTD

Appellant

and

CHESTERFIN (PTY) LIMITED

1st Respondent
HARRY KAPLAN NO

2nd Respondent
NORMAN KLEIN NO

3rd Respondent
EUROTILE CC

4th Respondent
(In provisional liquidation)

Coram:
HARMS, SCHUTZ, SCOTT, BRAND JJA  and  HEHER AJA
Heard:
21 NOVEMBER 2002
Delivered: 27 NOVEMBER 2002
Subject:
General notarial bond; perfection in terms of interim order;
effect.

JUDGMENT

HARMS JA/

HARMS JA:
[1] This is an appeal against a judgment of Moseneke AJ, reported as
Chesterfin (Pty) Ltd v Contract Forwarding (Pty) Ltd and Others 2002 (1)
SA 155 (T).  Since then this Court, in a majority judgment (per Streicher and
Navsa JJA, Nienaber JA dissenting), had occasion to consider the main issue
and came to a conclusion inimical to that of the Court below: Development
Bank of Southern Africa Ltd v Van Rensburg and Others NNO 2002 (5) SA
425 (SCA).1  This issue relates to the effect of a supervening liquidation
upon a provisional order permitting a creditor to perfect a general notarial
bond over movables in the light of the working of a concursus creditorum,
which crystallises the insolvent’s position by preventing a creditor from
advancing its own position to the detriment of other creditors.2

1 Also reported in [2002] 3 All SA 669 (SCA).
2 Walker v Syfret NO 1911 AD 141 at 166, International Shipping Co (Pty) Ltd v Affinity (Pty) Ltd and
Another 1983 (1) SA 79 (C) 85.

[2] The debtor, Eurotile CC (‘Eurotile’), passed four general covering
notarial bonds over its movables in favour of, amongst others, the first
respondent ‘Chesterfin’, and afterwards in favour of the appellant (‘Contract
Forwarding’).  Contract Forwarding, on an urgent basis, obtained an ex parte
order (per Roux J) perfecting its bond and permitting it to take possession of
Eurotile’s movable assets.  The terms of the order were these:
‘It is ordered that:

1.
The notarial bond BN 71188/2000 be perfected.

2.
The attorney for the applicant be authorised to dispatch this order per
facsimile to the Sheriff of Randburg.

3.
The applicant be authorised and ordered to take into possession the
movable assets of the respondent, . . . to take possession of such movable assets for the
purposes of safekeeping in its possession, for as long as the respondent's indebtedness to
the applicant exists.

4.
That the respondent be ordered to adhere to this order for possession of the
said movable assets.

5.
The Sheriff of Randburg be ordered to take all necessary steps to ensure
the execution of the contents of this order by locking the premises and to hand over the
keys of the business of the respondent to the applicant or to deal with the situation as the
applicant sees fit.

6.
That a rule nisi be served on the respondent, to give reasons why . . . an
order in the following terms may not be executed:

(a)
that the applicant be authorised to take possession of the movable
assets as taken over in terms of the rights through the . . . notarial covering bond
BN71188/2000;

(b)
that the respondent be ordered to adhere to this order for
possession of the said movable assets pending the institution of an action against the
respondent within 30 days from date of this order;

(c)
that the respondent be ordered to pay the cost of this application on
an attorney and client scale;

(d)
that this application, the pleadings and order be served on the
respondent.'

The Sheriff executed the order by securing the premises, making an
inventory and handing the keys to Contract Forwarding’s attorneys.  It may
be accepted for purposes of argument at this stage of the judgment, that
Contract Forwarding thereby took possession of Eurotile’s movables and
remained in possession thereof.  Thereafter, but before the return date of the
rule nisi, Eurotile applied for and obtained a provisional order for its
liquidation.  Subsequently, Chesterfin lodged an application for leave to
intervene in Contract Forwarding’s application, which was granted.  The
quoted order was set aside, the rule nisi was discharged and Contract
Forwarding’s application was dismissed.  Moseneke AJ granted leave to
appeal these orders to this Court.
[3] The general notarial bonds in question do not fall within the purview
of the Security by Means of Movable Property Act 57 of 1993.  Their effect
is trite and I shall content myself by paraphrasing the relevant section from

17 LAWSA (reissue) par 517.  The holder of a general notarial bond does not
enjoy a real right of security in the assets subject to the bond.  There is
nothing to prevent the owner from dealing with and disposing of assets
subject to the bond, or of bonding them to another creditor.  The creditor
cannot prevent an alienation or pledge of the assets subject to the bond,
cannot follow up the property in the hands of the acquirer and cannot
prevent a judicial attachment.  The rights of the bondholder are of
importance mainly upon insolvency. The bondholder is not a secured
creditor and is only entitled to a preference over the concurrent creditors of
the insolvent with respect to the proceeds of assets subject to the bond.
[4] A perfection clause entitles the holder of the bond to take possession
of the movables over which the bond has been registered.  Such a clause
amounts to an agreement to constitute a pledge and will be enforced at the

instance of the bondholder, whereupon the creditor obtains a real right of
security.
[5] A bondholder enjoys the protection of the doctrine of notice.3  For
instance, a later bondholder who has knowledge of the existence of a prior
bond will not be entitled to perfect the bond in disregard of the prior bond,
this being regarded as a species of fraud4 or an intentional interference with
contractual relationships.5  However, constructive knowledge is not enough
to bring the doctrine into play.6  Though it can be said that the registration of
a notarial bond amounts to notice to the world of the existence of the claim,7
the world is not bound to take notice or deemed to have notice.8  I mention
this aspect because the Court below apparently held that the earlier notarial
bondholders were entitled to some precedence above later bondholders.9

3 Coaton v Alexander 1879 Buch 17, Cato v Alion and Helps (1922) 43 NLR 469.
4 Grant and Another v Stonestreet and Others 1968 (4) SA 1 (A) 20B-F.
5 New Kleinfontein Company Ltd v Superintendent of Labourers 1906 TS 241 at 254. NJ van der Merwe
Die Beskerming van Vorderingsregte uit Kontrak teen Aantasting deur Derdes (1959).
6 Grant and Another loc cit.
7 Hare v Trustee of Heath (1884-1885) 3 SC 32 at 34.
8 Frye’s (Pty) Ltd v Ries 1957 (3) SA 575 (A) 583E-G.
9 At 167B-D.

[6] Real rights are stronger than personal rights and in the case of
conflicting real rights the principle prior tempore potior iure applies.10  The
right in question, a pledge, is a real right, which is established by means of
taking possession and not by means of an agreement to pledge.  The
bondholder who obtains possession first thereby establishes a real right.  If I
may be permitted some more Latin: vigilantibus non dormientibus iura
subveniunt, meaning that the laws aid those who are vigilant and not those
who sleep.  (Both principles provide a safer guide to the correct answer than
the Court below’s ‘just and equitable’ principle.11  The fact that it is
‘fortuitous’ that the vigilant person perfects his rights first does not make the
act either unjust or inequitable.)  There is no evidence that Contract
Forwarding had knowledge of Chesterfin’s prior bond when it took
possession of the pledged goods.  The fact that Chesterfin’s bond contained
a provision prohibiting Eurotile from pledging or hypothecating its movables

10 CG van der Merwe Sakereg 2ed p 64.
11 At 169H-I.

without Chesterfin’s consent also has no effect on Contract Forwarding’s
position unless the latter knows of it.  In the absence of Contract
Forwarding’s knowledge, Eurotile’s breach of its contract with Chesterfin
does not affect the former’s position.
[7] The Court below spent some time on the question of whether the order
of Roux J was final or interim and came to the conclusion that it was an
interim order.  Having come to that result, it felt entitled to reconsider the
matter and concluded that to confirm the order would have amounted to a
disposition by the company after the grant of the provisional liquidation
order contrary to the provisions of s 341(2) of the Companies Act 61 of
1973.  This provision is to the effect that a company may not dispose of its
assets after the commencement of a winding up.  But an act pursuant to an
order of court does not amount to a disposition.12  The Court probably had

12 International Shipping Co 85E-F.

the provisions of ss 348 and 359(1)(b) in mind13 which provide that any
attachment or execution put in force after the commencement of a winding
up is void, and I will proceed to deal with the matter on that basis.
[8] I am prepared to assume that the order of Roux J was interim in
nature.  Nevertheless, it permitted Contract Forwarding to take possession of
the pledged goods pending the return day.  This Contract Forwarding did
and its bond was thereby perfected.  On the return day the Court was
required to revisit the original order by determining whether it had been
granted properly.  If it had not, for instance, because there was no
outstanding indebtedness, or the bond was for some reason bad, the rule
would have been discharged ex tunc, meaning retrospectively.  Contract
Forwarding’s possession would then not have created any security and
would have had no legal effect.  In this sense the order was interim or
conditional.  If, on the other hand, the order was granted properly, its

13 Cf Development Bank par 8.

confirmation would declare or confirm that fact.  The order did not give
Contract Forwarding possession but permitted it to take possession legally.
The position would have been no different had Eurotile handed the goods to
Contract Forwarding willingly.  In this regard I wish to highlight two
passages from the majority judgment in Development Bank:
‘The purpose of the application was clearly to obtain possession of the movable property
in order to convert the appellant’s rights to that of a secured creditor.  The interim order,
therefore, authorised the appellant to take possession of the movable property and assets
covered by the notarial bond “in order to perfect its security”.’14
‘The fact that the order authorising the appellant to take possession of the movables was
provisional therefore does not detract from the fact that the moment the appellant
obtained possession of the movable property hypothecated in terms of the notarial bond it
was in the position of a pledgee who had obtained possession of the movable property
before the commencement of the winding-up of Serious Mills.’15

14 Par 21.
15 Par 22.

[9] Counsel for Chesterfin submitted that we should rather follow
Nienaber JA’s judgment.  The approach of this Court to stare decisis is well
known and we are not here merely in order to pay lip service to it.  It
suffices to underscore the formulation in Bloemfontein Town Council v
Richter 1938 AD 195 at 232:
‘The ordinary rule is that this Court is bound by its own decisions and unless a decision
has been arrived at on some manifest oversight or misunderstanding that is there has been
something in the nature of a palpable mistake a subsequently constituted Court has no
right to prefer its own reasoning to that of its predecessors   such preference, if allowed,
would produce endless uncertainty and confusion.’
[10] In any event, I disagree with Nienaber JA’s point of departure that an
interim order of attachment has a mere holding effect.16  Even if it has, it
does not dispose of the fact that once the creditor obtains possession
lawfully, the pledge is perfected.  The learned Judge also held that had it
been otherwise,

16 Par 40 of the judgment.

‘it would mean that in all kindred cases a real right supposedly vesting in a bondholder on
the execution of a provisional order of attachment would thereafter be abrogated should
the provisional order be discharged on the return date, be it at the instance of the
liquidator or a third party or because the court for good reasons resolved to exercise its
discretion against the bondholder.’
With respect, I do not perceive the problem.  The rule can only be
discharged on grounds that go to the root of the creditor’s entitlement to
possession.  ‘New facts’ which the court can take into account have to be of
that class and not extraneous facts such as those introduced in this case.17  I
also do not understand the reference to the court’s discretion.  Although
aware of dicta by Didcott J18 to the effect that there is a discretion, I cannot
see how a court, in the exercise of its discretion, can refuse an order to an
applicant who has a right to possession of a pledged article to take

17 Cf Weare v ABSA Bank Ltd 1997 (2) SA 212 (D) 217B-G.
18 Barclays National Bank Ltd and Another v Natal Fire Extinguishers Manufacturing Co (Pty) Ltd and
Others 1982 (4) SA 650 (D).

possession.19  The principles relating to the limited discretion to refuse
specific performance apply only where the creditor has another remedy, such
as a claim for damages, at its disposal.  A claim for damages cannot replace
a claim for real security.  In the absence of a conflict with the Bill of Rights
or a rule to the contrary, a court may not under the guise of the exercise of a
discretion have regard to what is fair and equitable in that particular court’s
view and so dispossess someone of a substantive right.
[11] It may be mentioned that Roux J’s order, which followed the terms of
the applicant’s notice of motion, was not happily framed and gave rise to
some debate.  A better formulation would have been to authorise the
applicant to perfect its pledge by taking possession of the goods instead of
ordering that the pledge is perfected by the order (which it is not) and then
permitting attachment of those goods.  However, by permitting the applicant

19 Cf the tentative observations in International Shipping Co at 84F-H.

to take possession, Roux J allowed it to perfect its pledge.  Any other
interpretation of the order does not do justice to the order read as a whole.
[12] My conclusion thus far is that the intervening liquidation of Eurotile
did not stand in the way of a confirmation of the rule nisi.  There are,
however, two further matters that have to be mentioned.  The first concerns
the provision in the bond that entitled Contract Forwarding to effect parate
executie, which, according to longstanding authority is valid in relation to
movables.20  However, Froneman J21 found that this common-law rule
offends against the Constitution.  The judgment was trenchantly criticised by
Prof Susan Scott.22  The issue need not be pursued here because, by
agreement between all concerned and by a court order, the relevant assets
have been sold and the proceeds kept on deposit pending the determination
of this case.

20 Osry v Hirsch Loubser & Co Ltd 1922 CPD 531 at 547.
21 Findevco (Pty) Ltd v Faceformat SA (Pty) Ltd 2001 (1) SA 251 (E).
22 ‘Summary Execution Clauses in Pledge and Perfecting Clauses in Notarial Bonds’ 2002 THRHR 656.

[13] The rule nisi cannot be confirmed unless the pledge was perfected in
good time.  Chesterfin squarely raised this issue on the papers, albeit as an
alternative, as a ground why the rule should not be confirmed.  Since the
joint liquidators have been joined in these proceedings, we are entitled and
bound to pronounce on the issue.  The matter was not seriously raised during
argument on behalf of Chesterfin and it will suffice to deal with it cursorily.
[14] On serving the order, the Sheriff secured the premises and made an
inventory and thereafter handed the keys of the premises to Contract
Forwarding’s attorneys.  Contract Forwarding exercised effective control
over the business, placed security guards around it and placed a candidate
attorney in charge of the business (the business formed part of the movables
pledged).  The high watermark of Chesterfin’s written submissions is that
this possession amounted to symbolic possession or constitutum
possessorium, which cannot perfect a pledge.  Both submissions are devoid

of any merit.  There is no rule that provides that symbolical transfer of
possession (like the handing over of keys) is not sufficient to constitute a
pledge.23  It is different with constitutum possessorium, a method of delivery
that presupposes that the goods remained under the physical control of the
debtor.  That simply did not happen in this case.
[15] It follows that the appeal stands to be upheld.  Because of the lapse of
time and the intervening events it appears to be inappropriate simply to
confirm the rule nisi.  A suitable declaratory order to cater for the present
circumstances would be more apposite.
[16] The following order is made:
(a)
The appeal is upheld with costs, including the costs of two counsel.
(b)
The order of the Court a quo is set aside and substituted with an
order –

23 CG van der Merwe Sakereg 2ed 656-657.

(i)
declaring that Contract Forwarding (Pty) Ltd perfected its
notarial bond BN 71188/2000 by taking possession of the
movables therein mentioned before the advent of a concursus
creditorum;
(ii)
ordering the intervening creditor (Chesterfin (Pty) Ltd) to pay
the costs occasioned by its opposition and its intervention
application, including the costs of two counsel.

_________________
L T C HARMS
JUDGE OF APPEAL

Agree:

SCHUTZ JA
SCOTT JA
BRAND JA
HEHER AJA