PARATE EXECUTIE AND PUBLIC POLICY. THE SUPREME COURT OF APPEAL PROVIDES FURTHER GUIDELINES 

The right of a creditor to realise the property of its debtor without first obtaining the permission of the court is clouded in controversy. This type of extra-judicial execution is known in Roman-Dutch law as parate executie (literally: “immediate execution”). The essence of parate executie is that it allows the creditor to self-help in the event of default by the debtor. The tenability of parate executie has come under judicial scrutiny in the recent past, not least because of its potential infringement of the provisions contained in section 34 of the Constitution of the Republic of South Africa, 1996. Section 34 provides that “[e]veryone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum” (see in this regard, First National Bank of South Africa Ltd v Land and Agricultural Bank of South Africa; Sheard v Land and Agricultural Bank of South Africa 2000 3 SA 626 (CC); (2000 8 BCLR 876); Chief Lesapo v North West Agricultural Bank 2001 1 SA 409 (CC); Findevco (Pty) Ltd v Faceformat SA (Pty) Ltd 2001 1 SA 251 (E); De Beer v Keyser 2002 1 SA 827 (SCA); Senwes Ltd v Muller 2002 4 SA 134 (T); Shoprite Checkers (Pty) Ltd t/a OK Franchise Division v Juglal NO (unreported case no 6049/01, 13 Sep 2002 (D)) (which was endorsed on appeal in Juglal NO and another v Shoprite Checkers (Pty) Ltd t/a OK Franchise Division 2004 5 SA 248 (SCA)); Graf v Buechel 2003 4 SA 378 (SCA) (which dealt with a forfeiture clause (ie, pactum commissorium) and therefore falls outside the direct scope of the present note); and Bock v Dubororo Investments (Pty) Ltd 2004 2 SA 242 (SCA)).These cases have further been discussed in a number of case notes (see Scott “Summary Execution Clauses in Pledge and Perfecting Clauses in Notarial Bonds” 2002 65 THRHR 656 et seq; Steyn “Perfection Clauses, Summary Execution (Parate Executie) Clauses, Forfeiture Clauses (Pacta Commissoria) and Conditional Sales in Pledge Agreements and Notarial Bonds – The Position Clarified” 2004 Obiter 443 et seq; and Schulze “Parate Executie, Pacta Commissoria, Banks and Mortgage Bonds” 2004 37 De Jure 256 et seq).Although parate executie is employed by many creditors to realise the security that they hold, commercial banks, being the prime example of money lenders in modern times, have a particular vested interest in retaining parate executie as a valid instrument to realise movables that were given to the bank as security.In the recently reported decision in SA Bank of Athens Ltd v Van Zyl (2005 5 SA 93 (SCA)) the court was asked to pronounce on the validity of a clause that provides for parate executie on the movable property (in the present case: four investment policies) of a defaulting debtor which were held by a bank. The court was further asked to determine whether a parate executie clause is in conflict with public policy.


Introduction
The right of a creditor to realise the property of its debtor without first obtaining the permission of the court is clouded in controversy. This type of extra-judicial execution is known in Roman-Dutch law as parate executie (literally: "immediate execution"). The essence of parate executie is that it allows the creditor to self-help in the event of default by the debtor. The tenability of parate executie has come under judicial scrutiny in the recent past, not least because of its potential infringement of the provisions contained in section 34 of the Constitution of the Republic of South Africa, 1996. Section 34 provides that "[e]veryone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum" (see Although parate executie is employed by many creditors to realise the security that they hold, commercial banks, being the prime example of money lenders in modern times, have a particular vested interest in retaining  I am indebted to my colleague, Prof Susan Scott, for her valuable comments on an earlier draft of this case note. Any mistakes that remain are, of course, my own.
parate executie as a valid instrument to realise movables that were given to the bank as security.
In the recently reported decision in SA Bank of Athens Ltd v Van Zyl (2005 5 SA 93 (SCA)) the court was asked to pronounce on the validity of a clause that provides for parate executie on the movable property (in the present case: four investment policies) of a defaulting debtor which were held by a bank. The court was further asked to determine whether a parate executie clause is in conflict with public policy.

1 Facts
The facts in SA Bank of Athens v Van Zyl were as follows. The plaintiff ("Van Zyl") instituted action against the defendant ("the bank"). The court a quo gave judgment in favour of the bank. Van Zyl averred that while in a vulnerable psychological condition after the death of her husband, she was persuaded by one Joubert, an insurance representative and "financial advisor" in the employ of an insurance company ("Sanlam"), to invest money in a trust in which members of his family had an interest. Without her knowledge, she was made a trustee of the trust. Early in 1998 Joubert requested Van Zyl to sign certain documentation in connection with the business of the trust. She accompanied him to the bank where she found documents spread on a table. She signed these without reading their contents. She further alleged that she had no idea what she was signing. The nature of the documents was never explained to her. In particular she was unaware that she was signing a deed of suretyship. She denied ever having the intention of binding herself as a surety (par 2).
During October 1998 the bank instituted action in the magistrate"s court against Van Zyl for payment of R75 525.08 in respect of amounts allegedly owing by the trust on its cheque account. She was cited in her representative capacity as a trustee, and in her personal capacity as a surety. Van Zyl entered appearance to defend and, when the bank thereupon applied for summary judgment, she filed an affidavit resisting the application. At the time that the present appeal was heard, the summary judgment application had not yet been finalised (par 2).
The basis of Van Zyl"s claim against the bank (which formed the crux of the present appeal) was that, while the opposed summary judgment application was pending in the magistrate"s court, the bank, acting without court sanction, called up and retained the proceeds of four investment policies held by her with Sanlam, the total of which amounted to R206 907.00 (par 3).
Van Zyl argued that the bank had purported to act in terms of parate executie clauses contained in deeds of cession. Van Zyl denied knowledge of the existence of these deeds of cession. Alternatively, so she argued, these parate executie clauses were in conflict with section 34 of the Constitution and therefore invalid. As a result, so she averred, by effecting parate execution of the policies, the bank had unlawfully taken the law into its own hands. She concluded that the bank was therefore obliged by law to pay her the amount realised by it on the policies (par 4).
In the court a quo, Spilg AJ pointed out that the position in regard to the realisation of the first two policies was unclear insofar as it could not be established whether the bank was aware of Van Zyl"s objections at the stage when these policies were realised. However, the bank was well aware of Van Zyl"s defence at the time when the last two policies were realised. The learned judge made no bones in expressing his disapproval of the bank"s conduct. In this regard he remarked: "I find it difficult to use restrained language in describing the bank"s conduct, particularly as it is conduct of a financial institution. Suffice that its conduct on the papers before me is disgraceful and for this reason I consider it appropriate that investigations be conducted into the matter by appropriate authorities" (par 6).
The relevant portion of the deeds of cession provided that: In the court a quo it was held this portion of the deed of cession was indeed contra bonos mores and therefore invalid in that it constituted a "classic parate executie provision" (par 9).
In passing I should perhaps mention that it is not necessarily cut and dried that this clause constituted a "classic parate executie provision". The clause provided that the bank was appointed as Van Zyl"s "attorney and agent … to … deal with the policy". The bank acted therefore on behalf of Van Zyl, and with her consent, and there was thus no question of "self help" in the present case.
It was further held that an agreement that allows a person to be the arbiter of whether a debt is owed by another without due process of law and which denies access to the courts, offends the provisions of section 34 of the Constitution (par 9).
It was accordingly held in that court that the bank"s action in realising Van Zyl"s investment policies was invalid, which meant that there was no bona fide defence to Van Zyl"s claim recognised by law and that she was therefore entitled to summary judgment (par 9).

Common law
It is trite that parate execution has long been acceptable under the common law, provided that the terms of the agreement authorising the procedure are not unconscionable or incompatible with public policy (see in this regard Examples of a procedure that would be in conflict with public policy will be where the agreement entitled the creditor to determine the fact of the debtor"s default, or where it authorises the creditor to seize the debtor"s property without the court"s sanction (SA Bank of Athens v Van Zyl supra par 10).

3 Constitutional and judicial developments
Since 1996 the relevant common law principle has been tempered to a certain extent by the provisions of the Constitution, most notably those contained in section 34. In Chief Lesapo v North West Agricultural Bank (supra) the court held that a statutory provision that permitted a creditor to seize a defaulting debtor"s property, and to sell it in defrayal of the debt, without recourse to a court of law, was unconstitutional and invalidnotwithstanding the fact that there was no dispute as to the debtor"s default.
It is important at this stage to point out that the Lesapo case involved immovable property.
In the Findevco case, which was decided in a local division of the High Court, the court relied on the Lesapo case in declaring invalid a clause in a general notarial bond that authorised the creditor to take possession of the debtor"s movable property and to dispose thereof in payment of the debt. The court in Findevco reasoned that because legislation authorising parate executie is unconstitutional (based on the finding in the Lesapo case), therefore the common law cannot countenance such a stipulation in a contract. As a result, so the court in Findevco held, the stipulation in the particular provision authorising parate execution was unconstitutional (Findevco (Pty) Ltd v Faceformat SA (Pty) Ltd supra 256E-F).
In the SA Bank of Athens case, counsel for the bank informed the court that at the time when Van Zyl instituted action against the bank (on 29 November 2001), they (ie, counsel) took it that the particulars of claim were drafted on the basis of the law as stated in Findevco and that they accepted that the law was settled on that basis. But after Van Zyl had instituted action against the bank and after the court a quo had held in favour of Van Zyl, the judicial tide had turned against the decision in Findevco. The correctness of the decision in the Findevco case was questioned in academic circles (see Scott 2002 65 THRHR 656-664) and subsequently also rejected by the Supreme Court of Appeal (in Bock v Duburoro Investments supra: for a discussion of which, see Steyn 2004 Obiter 451-452;and Schulze 2004 37 De Jure 264-266). In this regard Harms JA in the Bock case held that since the debtor may seek the protection of the court at any stage of the proceedings where the creditor takes parate execution of a movable, and if the debtor can show that the creditor acted in a manner which prejudiced him in his rights, the creditor cannot be said to have taken the law into his own hands (par 13 of the Bock case). Harms JA concluded that the decision in the Findevco case, finding that the law relating to parate executie of movables is unconstitutional, was wrong (par 15 of the Bock case).
It is important to point out that the court in Bock's rejection of the Findevco case was nothing more than an obiter dictum because the judgment in Bock did not turn on the validity of parate execution clauses in general, but on the constitutionality of the procedure followed by the creditor in that case (par 13 of the SA Bank of Athens case).
Of more direct relevance was the refusal by Hurt J in the court a quo in Shoprite Checkers v Juglal (supra) to follow the decision in Findevco. Hurt J held that: "[T]he common law, insofar as stipulations for parate execution are concerned … which are not so far-reaching as to be contrary to public policy, are valid and enforceable; that, as a matter of practice, creditors seeking to enforce such stipulations take the precaution of applying for judicial sanction before doing so; and that the debtor can avail himself of the court"s assistance in order to protect himself against prejudice at the hands of the creditor" (par 14 of the SA Bank of Athens case).
This decision by Hurt J in the court a quo in the Juglal case was endorsed on appeal (see the decision by Heher JA in Juglal v Shoprite Checkers (supra)). On appeal Heher JA held that the common law does not limit the right of access to the courts, nor does it fall short of the "spirit, purport or the objects of the Bill of Rights [contained in the Constitution]" (own insertion) (par 12 of the Juglal case). In the Juglal case the court held that in order to establish whether a contractual provision (also one which purports to allow parate execution), is in conflict with public policy, one has to take into account the cumulative effect of the implementation of the provisions that allow the creditor to take parate execution. It held that the mere fact that a contractual provision is capable of implementation by the creditor in a manner that is against public policy, but the tenor of the provision is neutral, then the offending tendency is absent (par 12 of the Juglal case).
With this background to the existing law, the court in the SA Bank of Athens case turned to the facts of that case.

4
The decision in SA Bank of Athens Erasmus AJA held (Mpati AP, Farlam, Mthiyane and Van Heerden JJA concurring) that the court a quo erred in finding that the deeds of cession signed by Van Zyl allowed the bank to be the arbiter of whether the debt was owing. The cession agreements did not expressly authorise such action on the part of the bank, nor was this objectionable feature of parate executie implicit in the cession deeds (par 15).
Next, the court drew an important distinction between the provisions of a parate executie clause, on the one hand, and the actual purported reliance on it by the creditor, on the other hand. In this regard it held that the mere fact that the provisions in the cession agreements allowing for parate execution were valid, did not necessary entail that the bank"s actions in purported reliance on it were lawful (par 16).
It further held that the proceedings in the court a quo were from their commencement to their conclusion misdirected by the mistaken acceptance by the parties and the court of the correctness of the decision in Findevco. On appeal it was pointed out that the bank"s affidavit resisting summary judgment was not as comprehensive as it should have been. This might have been ascribed to the fact that the affidavit was not directed at justifying the bank"s parate execution of Van Zyl"s investment policies, but was designed to accommodate the legal argument which was presented on behalf of the bank in the court a quo, but which was not persisted with at the hearing of the appeal (par 16). This could perhaps be ascribed to the fact that the determination of the lawfulness of the bank"s conduct (ie, in taking parate execution of Van Zyl"s policies) required a value judgment which could have been properly made upon consideration of all the "relevant facts and attendant circumstances". But these were not placed before the court a quo. As a result, so the court on appeal reasoned, it would be unfair and improper towards the bank to leave standing a summary judgment which was given without consideration of all the relevant facts and circumstances. This would especially be the case where such failure was the result of a misunderstanding of the law by both the plaintiff (Van Zyl) and the court, and where such misunderstanding was caused by the acceptance of the correctness of the decision in Findevco, notwithstanding the subsequent rejection of the reasoning in Findevco by the Supreme Court of Appeal in the Juglal case (par 16).
In conclusion the court held that the real focus in the present appeal was not the constitutional validity of a parate executie clause because that has been settled in both the Bock and Juglal cases. The crux of the present matter turned on the lawfulness of the bank"s actions in the purported execution of those provisions of the deeds of cession (par 18).
The court allowed the appeal, not because of the bank"s explanation of its actions (there was no explanation at all), but rather despite its failure to set out the relevant facts and circumstances in its affidavit opposing summary judgment. This failure was caused by the misunderstanding by both parties as to the law applicable to the present case (par 18).
Because both parties were to blame for the misdirection of proceedings, the court held that no order be made as to the costs of the appeal.

Comment
The decision in SA Bank of Athens merits a number of comments. These mostly concern not what was said in that case, but rather what was remained unsaid. I will merely mention five of these aspects here.  Summary execution clauses in pledge agreements. In SA Bank of Athens the court held (par 15-16) that parate execution is not per se unconstitutional or offensive to public policy. From this one may conclude that a summary execution clause in a pledge agreement is valid per se, but that subsequent unreasonable conduct by the creditor (eg, the procedure that the creditor follows in realising the property) may impact on the validity of the actual execution of the creditor"s right. The question whether certain conduct would be unreasonable and thus invalid would depend on the circumstances of each case (see SA Bank of Athens case supra par 16). This point was emphasised in the Bock case (par 7) where it was held that "it is different with movables held in a 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"". In Graf v Buechel (supra 382) the court held that no reason exists for a cession of incorporeal rights to be dealt with differently from the pledge of a (corporal) immovable (for a discussion of the first three legal concepts or situations, see Scott 2002 65 THRHR 657 et seq).
 Summary execution clauses in mortgage bond agreements. In this regard a further distinction has to be drawn between a summary execution clause (ie, parate executie) that was agreed upon in the original loan agreement or mortgage deed, and the right to parate executie that was agreed upon by the parties after the debtor"s (mortgagor"s) default. The former agreement is invalid, the latter one not (see Schulze 2004 37 De Jure 259-260).
Although not directly relevant to the facts in the SA Bank of Athens case, two further types of clauses also merit a brief reference here:  Forfeiture clauses (also known as pacta commissoria). A forfeiture clause in a pledge agreement (movables) or a mortgage deed (immovables) is invalid. However, a conditional sale, or a provision that the creditor may take over the pledged article at a fair price, is valid. If the pledged article realises an amount in excess of the debt secured by it, the excess or "profit" belongs to the pledgor (usually the debtor) (see Steyn 2004  Secondly, and closely linked to the first comment above, is the fact that the SA Bank of Athens case serves as confirmation, albeit in passing only, that our law draws a distinction between parate execution on immovables, on the one hand, and parate execution on movable property, on the other hand. Froneman J in the Findevco case, held that the constitutional invalidity of a parate executie clause did not depend on the nature of the goods in question. His lordship was at pains to emphasise that s 34 of the Constitution applied to both immovable and movable property. In this regard Froneman J referred to the Chief Lesapo case (which dealt with immovable property) and FNB v The Land and Agricultural Bank (which dealt with movable property) (Findevco (Pty) Ltd v Faceformat SA (Pty) Ltd supra 254E-H). But Harms JA in the Bock case rejected the reasoning in Findevco. In the Bock case it was held that "[i]t is different with movables held in a 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"" (par 7). What the court in the SA Bank of Athens case should perhaps have added was that in Findevco the court failed to distinguish between statutory measures which empower the state to seize movable property from unwilling debtors, on the one hand, and parate executie clauses in an agreement which are based on consensus between the parties, on the other hand. The authority that the court in Findevco relied on in finding that parate executie clauses in general are unconstitutional and therefore invalid, simply does not support such finding. The finding in the First National Bank case should have been restricted to statutory measures which empower the state to seize movable property, and not also parate executie clauses in respect of movables where the state is not involved. Furthermore, in the Chief Lesapo and First National Bank cases, the creditor dispossessed the debtor of his land, so reverting to a statutory "self-help". It is trite that self-help is illegal (Nino Bonino v De Lange 1906 TS 120). Scott (2002 65 THRHR 658) further correctly points out that "a fundamental aspect [in dealing with parate executie clauses] is the fact that [with statutory powers to seize] one is dealing with the state as opposed to an individual. The individual has no say in the matter" (my insertions).
Thirdly, and closely linked to the second comment above, is the fact that the court in SA Bank of Athens was silent on the criticism that has been expressed in regard to the distinction which is drawn between parate executie on immovable property (which is invalid: see Iscor Housing Utility Company v Chief Registrar of Deeds 1971 1 SA 614 (T) 616-617), on the one hand, and parate executie on movable property (which is valid), on the other hand. In this regard it has been argued, and correctly so, that the distinction should not be based on the value of the property, because nowadays various types of movables (eg, aircraft, shares and investment policies to mention but three) have values that far exceed that of many immovable properties (see Scott 2002 65 THRHR 664;and Steyn 2004 Obiter 454).
Fourthly, the court in the Bock case emphasised the fact that parate executie of movables 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" (emphasis added) (par 13). The Bock case therefore drew a distinction between parate execution of movables that are in the possession of the creditor, on the one hand, and parate execution of movables that were in the possession of the debtor but then removed from the latter"s possession by the creditor against the debtor"s will and sold in execution, on the other hand (par 13). That is why the mandament van spolie developed to protect the debtor where he has possession of the security (par 14). Although not directly relevant to the facts in the SA Bank of Athens case, I believe that the important distinction between a pledged article which is in the possession of the debtor, on the one hand, and one which is in the possession of the creditor, on the other hand, should have been emphasised by the court in SA Bank of Athens.
Finally, SA Bank of Athens provides an example of a further type of documentary instrument (movable) (here: investment policies) that creditors, and especially bankers, may rely on as security held by the bank subject to a parate executie clause. Other types of securities held by banks and for which there exist judicial precedent, include shares, bills of exchange and bills of lading (see Scott and Scott 123 and the authorities with examples of securities referred to there). It is important here to point out that the security held by the creditor is the right embodied in the document (eg, a bill of exchange, share certificate or a policy document), and not the document itself. Destruction or loss of the document would therefore not result in a loss of the security held by the creditor.

Conclusion
After the decisions in Juglal, Bock and SA Bank of Athens, read with the principles of our common law, the position under South African law regarding the validity of a summary execution clause (parate executie) is as follows: A parate executie clause in a mortgage bond permitting the creditor (bondholder) to execute without recourse to the debtor (mortgagor) or the court by taking possession of the immovable property and selling it, is illegal and thus void.
A parate executie clause in the case of movable property is in principle valid. But where the movable thing is seized and removed from the lawful possession of the debtor against his will, parate executie will not be valid and the debtor will be able to rely on the mandament van spolie to restore his possession.
Where the movable thing is in the lawful possession of the creditor, he may validly take parate executie where the parties have agreed on that. In the latter case the debtor may still seek the protection of the court if, on any just ground, he can show that, in carrying out the parate executie agreement and so effecting a sale, the creditor acted in a manner which prejudiced the debtor in his rights. For this reason, it would therefore be incorrect to say that parate executie allows the creditor to be the judge in his own case (see Bock par 13).

WG Schulze
University of South Africa (UNISA)