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IN THE HIGH COURT OF SOUTH AFRICA,

FREE STATE DIVISION, BLOEMFONTEIN

 

Reportable: YES/NO

Of Interest to other Judges: YES/NO

Circulate to Magistrates: YES/NO

 

Case number: 4606/2020

 

In the matter between:

 

TUHF URBAN FINANCE (RF) LIMITED                                             Applicant

 

And

 

FOUNTAIN VIEW LODGE (PTY) LIMITED                                          1^st Respondent

RANGASAMY GORDON PILLAY                                                       2^nd Respondent

KPA STUDENT ACCOMODATION CC                                                3^rd Respondent

 

 

HEARD ON:               18 MARCH 2021

 

JUDGMENT BY:       DANISO, J

 

DELIVERED ON:      This judgment was handed down electronically by circulation to the parties' representatives by email and by release to SAFLII. The date and time for hand-down is deemed to be 15H00 on 30 June 2021.

 

[1]        The first respondent obtained a loan for R4 147 320.00 from TUHF Limited pursuant to a written loan agreement concluded on 21 August 2018.[1] The funds were for the acquisition  of a block of flats situated at erf 11335 in Bloemfontein (“the property”) to be rented out as student accommodation.

 

[2]        The loan was repayable by way of monthly instalments of R53 947.00 over a period of 180 months with effect from 10 December 2018 till 10 December 2033. A mortgage bond was registered over the property as security for the loan and the first respondent ceded its rights, title and interest in and to any rental arising from the said property to TUHF Limited.

 

[3]        In the event of any breach, TUHF Limited would be entitled to accelerate and declare all amounts owing to be immediately due and payable, to foreclose on the mortgage bond and to collect rentals arising from the property.  

 

[4]        At all material times thereto the first respondent was duly represented by the second respondent in his capacity as the director of the first respondent and surety for and co-principal debtor with the first respondent.

 

[5]        It is not in dispute that the first respondent failed to make the required monthly instalments. The last payment was made in October 2019. As at 10 September 2020 the outstanding arrears amounted to R593 373.61 and the total outstanding balance presently stands at R4 559 173.92 plus interest.

 

[6]        The applicant has launched these proceedings as a cessionary. It is the applicant’s case that on 07 December 2018 the applicant concluded a sale agreement with TUHF Limited in terms of which TUHF Limited’s rights, title and interest in and into loan agreement and the mortgage bond were divested to the applicant.[2] The applicant seeks an order against the first and the second respondents for:

 

6.1.      Payment of the amount of R4 559 173.92 together with interest and costs one paying the other to be absolved;

 

6.2.      The declaration of the first respondent’s immovable property, erf 11335 in Bloemfontein, held by Deed of Transfer No. T10505/2018 to be specially executable;

 

6.3.      An interdict prohibiting the respondents from contacting the tenants or occupants of the said property without the applicant’s consent or collecting rentals from the said tenants or interfering with the third respondent’s management of the properties;

 

6.4.      Directing the respondents to immediately pay over to the third respondents all rentals collected after the effective date of cession.

 

[7]        The respondents oppose the application essentially on technical grounds. The respondents challenge the applicant’s locus standi to institute these proceedings on the basis that the cession agreement relied upon by the applicant is invalid as it is not signed nor dated and there is also no indication of where it was allegedly concluded. The agreement was also subject to the fulfilment of two suspensive conditions, however, the applicant has failed to allege and prove the fulfilment of the said conditions, alternatively, the applicant has ceded all of its rights, title and interest in and to the legal proceedings to TUHF URBAN FINANCE SECURITY (RF) (PTY) LTD (“SPV”) in terms of the security cession agreement.

 

[8]        The applicant countered that there is no merit to the respondents’ objections. The respondents are not parties to the cession agreement, in any case the details relating to the date, the place and the identity of the signatories are apparent on the agreement, page 16, Annexure “PJ3.” The relevant page was mistakenly omitted on the copies served on the respondents, however, the details were also pleaded in the applicant’s founding affidavit, paragraphs 7.1, 7.2, 8.1.1. and 8.1.2. The security cession agreement concluded by the applicant and SPV did not divest the applicant’s rights, title and interest to the outcome of the litigation, lastly, the conditions stipulated in the agreement were fulfilled hence the agreement was registered by the Registrar of Deeds.

 

[9]        I’m in agreement with the applicant’s contentions. The defence against the validity of a cession agreement is not available to a debtor, it can only be raised by one or both of the parties to the agreement, the cedent or the cessionary. There is also no merit to respondents’ contention that SPV is the party entitled to institute these proceedings based on its security cession agreement with the applicant. In terms of clause 6.4.2. of the security cession agreement, SPV is entitled to authorize the applicant to institute legal proceedings to enforce the loan agreement. On 23 March 2020 SPV issued a written authorization in favour of the applicant in that regard. On this basis, the applicant has the necessary locus standi to proceed against the respondents.

 

[10]      The respondents also contend that the mortgage bond registered over the property as security for the loan is contrary to public policy. It is not a true reflection of the loan agreement. It records the loan amount as R6 220 980.00 together with an additional R1 866 294.00 whereas only an amount of R4 147 320.00 was advanced to the respondents. The mortgage bond creates a false representation to the registrar of deeds and third parties, it is accordingly invalid.

 

[11]      The applicant admits that the mortgage bond was registered for amounts which are in excess of the loan amount. The applicant submits that a covering mortgage bond is a security instrument to the mortgagee and the covering security is calculated at an amount equal to at least 150% of the loan amount together with an additional amount of 30% of the facility amount as it is intended to cover not only the debt in respect of the amount advanced but every indebtedness of whatsoever nature.  I agree.

 

[12]      It is customary for credit providers to register a bond over a consumer’s property for an amount higher than the actual loan. This is an additional security measure to protect the credit provider in the event of non-payment and the outstanding amount has escalated beyond the original loan amount. The respondents’ referral to  Lief N.O. v Dettmann 1964 (2) SA 252 A[3] in support of their argument is misplaced as Lief does not allude to a prohibition against registering a mortgage bond for an amount in excess of the actual loan amount.

 

[13]      As regards the unpaid loan, in the answering affidavit the respondents averred that the failure to repay the loan was occasioned by circumstances beyond their control. The student’s non-payment of the rentals and also the Covid-19 lock-down. In argument, this contention was not persisted with, correctly so. The defence is untenable in the light of the fact that the loan agreement does make provision for the repayment upon receipt of the rental income from the property.  The National State of Disaster followed by Lockdown to curb the spread of the Covid-19 pandemic commenced in March 2020, by that time the respondents’ account was already in arrears.

 

[14]      I’m not persuaded that the applicant has shown a sufficient case for an interdictory order to enforce a cession to collect rentals to satisfy the debt in addition to a monetary judgment.

 

[15]      Rule 46A of the Uniform Rules of Court regulates the procedures which must be complied with by a judgment creditor in order to obtain an order to execute against a judgment debtor’s residential property. The rule applies to all properties used for residential purposes. To this end a judgment creditor would have to satisfy the court of the justifiability of the order and the fact that property is not the judgment debtor’s primary residence is one of the factors that the court will take into consideration whether the execution is justifiable or not.

 

[16]      In the circumstances, I am not satisfied that the respondents have raised a bona fide dispute to the applicant’s claim. All the defences are meritless and cause to be rejected. See National Director of Public Prosecutions v Zuma [2009] ZASCA 1; (2009) 2 SA 277 (SCA) page 290 at para [26]. The costs shall follow the result.

 

[17]      I make the following order:

 

1.            The respondents are ordered to pay the amount of R4 559 173.92 together with interest and costs jointly and severally one paying the other to be absolved;

 

2.            The order to declare the immovable property erf 11335 in Bloemfontein, held by Deed of Transfer No. T10505/2018 executable is adjourned sine die. 

 

 

Dated at BLOEMFONTEIN on this the 30^th day of JUNE 2021.

 

 

NS DANISO, J

 

 

APPEARANCES:

 

Counsel on behalf of Applicant:                  Adv. J Els

Instructed by:                                              McIntyre van der Post

                                                                           BLOEMFONTEIN

 

 

Attorney on behalf of Respondents:          Mr R Coetzee

Instructed by:                                             Steenkamp & Jansen Inc.

                                                                           BLOEMFONTEIN

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