Concourt dismisses Absa bond appeal
THE Constitutional Court dismissed an appeal by Absa in a case involving a bank’s right to reinstate mortgage bonds‚ which were cancelled as a result of a fraudulent scheme that affected hundreds of homeowners.
Christina and Jacques Moore owed Absa money and their debt was secured by five mortgage bonds registered over their property in Vereeniging.
Unable to meet their bond repayments‚ the couple approached Brusson Finance for a loan. They owed R145 000 on their home and required a loan of about R220 000 from Brusson.
They mistakenly thought the agreements they signed were to obtain a loan from Brusson. In fact‚ the whole scheme was a fraudulent scam in which Brusson caught both the Moores and Absa.
The agreement the Moores signed provided for the sale of their home to a “Brusson partnership investor”‚ Sunnyboy Kabini‚ followed by the sale of the property back to the Moores.
The crucial part of the scam was that the fraudsters had to “obtain title”. The lucrative part was that the “investor” took ownership of the property‚ and acquired a significant bank loan‚ presumably in cash‚ against the security it afforded.
To fund the purchase‚ Kabini received a loan of R480 000 from Absa and the loan was secured by the registration of a new bond in favour of Absa over the Moores’ property.
Kabini also defaulted on his bond payments and Absa obtained a default judgment against him.
The default judgment declared that the property could be sold in execution. This is when the Moores discovered that their home was to be sold in execution of Kabini’s debt. The Moores went to court to apply for an order that they were entitled to return to their property.
The high court said the Moores could return to their house as the Brusson contract was invalid‚ provided that the five original mortgage bonds in favour of Absa were reinstated.
Absa appealed to the Supreme Court of Appeal (SCA) against the entire judgment. The SCA dismissed Absa’s appeal and also said the high court could not order the Moores to pay an amount they did not owe to Absa. The SCA said that since the Moores and other victims of the Brusson scam were hoodwinked as to what they were being led into‚ the agreements they signed were invalid.
It ordered the return of the property to the Moores unconditionally‚ without the original mortgage bonds being reinstated.
Aggrieved with this decision‚ Absa approached the Constitutional Court.
The bank then fought only against the SCA’s reversal of the condition the high court imposed on the return of the property to the Moores: that their home be subject to the bonds previously registered with the bank. The Constitutional Court did not agree with Absa that the Moores had gained a windfall at its expense. The court criticised Absa for not explaining how the Moores’ debt to it was paid during the Brusson fraud.
In a unanimous judgment on Friday‚ Justice Edwin Cameron said the law was extraordinarily generous on how a debt might be paid. “It allows payment of a debt without the consent – and even the knowledge – of the debtor‚” Cameron said.
He said the Moores were better off now than before the fraud. “Their bond debt to the bank was discharged because the bank decided to take Mr Kabini‚ whom it thought now owned the property‚ as its debtor in their stead. It was the bank that decided to grant a loan to Mr Kabini.”
Cameron said the bank‚ which enjoyed the institutional resources and power to protect itself against the fraudulent scheme‚ but did not do so‚ had to suffer the loss its loan to Kabini caused to it.