Graf v Buechel (150/2002) [2003] ZASCA 29; [2003] 2 All SA 123 (SCA); 2003 (4) SA 378 (SCA) (27 March 2003)

Graf v Buechel (150/2002) [2003] ZASCA 29; [2003] 2 All SA 123 (SCA); 2003 (4) SA 378 (SCA) (27 March 2003)

The Supreme Court of Appeal held that the prohibition on pactum commissorium applies to all pledges, irrespective of whether the pledgor is the debtor or a third party. The rule is clear and general, and its application does not depend on the presence of the policy considerations that motivated its origin. Comparative law supports the general prohibition, and the potential for injustice remains regardless of the pledgor's status. The contract in question did not provide for a fair valuation of the shares and loan account, and thus the relevant clause constituted an invalid pactum commissorium. The alternative argument that the transaction was a conditional sale was rejected, as there was...

Citation
[2003] ZASCA 29
Parties
Appellant: Otto Friederich Graf; Respondent: Hans Joachim Werner Buechel
Court
Supreme Court of Appeal
Jurisdiction
South Africa
Judgment Date
27 March 2003
Case Number
150/2002
Procedural Posture
Civil Appeal / Appeal From Western Cape High Court
Outcome
Appeal dismissed with costs, including costs of two counsel.
Judges
Howie, Schutz, Streicher, Cloete, Lewis
Legal Topics
Pactum Commissorium, Contractual Autonomy, Public Policy, Conditional Sale, Pledge and Security, Constitutional Values
Commercial and Corporate Civil Procedure Pactum Commissorium Contractual Autonomy Public Policy Conditional Sale Pledge and Security Constitutional Values

Case Brief

Summary, issues, holding and outcome

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Parties

Otto Friederich Graf

Appellant

Hans Joachim Werner Buechel

Respondent

Procedural Posture

Civil Appeal / Appeal From Western Cape High Court

Legal Issues

  1. 1 Whether a pactum commissorium in a contract of pledge is enforceable if the pledgor is not the pledgee's debtor.
  2. 2 Whether the contract should be regarded as a conditional sale and therefore valid if the value of the pledge is less than the debt.
  3. 3 Whether the prohibition on pactum commissorium applies to pledges by third parties.

Ratio Decidendi

The Supreme Court of Appeal held that the prohibition on pactum commissorium applies to all pledges, irrespective of whether the pledgor is the debtor or a third party. The rule is clear and general, and its application does not depend on the presence of the policy considerations that motivated its origin. Comparative law supports the general prohibition, and the potential for injustice remains regardless of the pledgor's status. The contract in question did not provide for a fair valuation of the shares and loan account, and thus the relevant clause constituted an invalid pactum commissorium. The alternative argument that the transaction was a conditional sale was rejected, as there was...

Court Disposition

Appeal dismissed with costs, including costs of two counsel.

Orders

  • The appeal is dismissed with costs, including the costs of two counsel.