THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

Reportable
Case no: 150/2002

In the matter between:

OTTO FRIEDERICH GRAF

APPELLANT
and

HANS JOACHIM WERNER BUECHEL

RESPONDENT

CORAM:
HOWIE P, SCHUTZ, STREICHER, CLOETE and
LEWIS JJA

HEARD:

13 MARCH 2003

DELIVERED:
27 MARCH 2003

Summary:
A pactum commissorium in a contract of pledge is unenforceable
even if the pledgor is not the pledgee's debtor. The creditor may keep the thing
pledged if the pledgor has at any time agreed that he may do so, provided a fair
price is given. If a rule of the common law is clear and unambiguous, it is a
wrong approach to apply that rule only if the policy considerations underlying
the rule are present. If the reasons for the rule have fallen away then the rule
may have to be changed.

JUDGMENT

CLOETE JA/

CLOETE JA:
INTRODUCTION
[1] The present appeal concerns primarily the question whether a
pactum commissorium in a contract of pledge can be enforced if the
pledgor is not the pledgee’s debtor; and also the question whether,
if the value of the pledge is less than the debt, the contract should
be regarded as being in the nature of a conditional sale and
therefore valid.
THE FACTS
[2] The respondent, the applicant in the Court below, was the
sole shareholder and director and the only loan account creditor of
Western Seaboard Development (then a close corporation but later
a company, and to which I shall refer as 'the company'). The
company purchased immovable property with the intention of

developing a sectional title hotel on it. The appellant, the respondent
in the Court below, lent the purchase price to the company against
the security of a mortgage bond registered in his favour over the
property. It was a term of the loan agreement that if conditions
relating to the development of the property were not met by a fixed
date, the appellant would become entitled to repayment of the
capital amount lent and interest thereon. The conditions were not
met.
[3] Subsequently the appellant, the respondent and the company
entered into an agreement ('the extension agreement') in terms of
which the appellant granted the company an extension of time for
payment of its indebtedness. In terms of the extension agreement,
the respondent and the company undertook to deposit with a firm of
attorneys a number of documents, including the share certificates in

respect of the issued share capital of the company; share transfer
forms in respect of such shares signed by the respondent and blank
as to transferee; a cession in respect of the respondent’s claim on
loan account against the company, duly signed by the respondent;
and a power of attorney authorising the appellant to pass transfer of
the company’s immovable property to himself or his nominee and to
sign all relevant transfer documentation on behalf of the company.
Further in terms of the extension agreement, the company and the
respondent authorised the attorneys to release the documents to
which I have referred, to the appellant, if the company had not paid
its indebtedness to the respondent timeously.
[4] Clause 9 of the extension agreement, which is central to the
issues in this appeal, provided inter alia:
‘ELECTION:

In the event of default and on delivery of the documents GRAF [the appellant]
will be entitled, without prejudice to any other rights which GRAF may have,
either to acquire the COMPANY by transferring the shares in his own name or
that of his nominee, and accepting cession of the loan claims, or alternatively to
pass transfer of the immovable property to himself or his nominee.
If GRAF elects to take transfer of the immovable property, the transfer value of
the property will be equal to the market value thereof as determined by DAVID
NEWHAM, or in the event of DAVID NEWHAM being unable or unwilling to act,
by GRAHAM ALEXANDER, or in the event of both of them being unable or
unwilling to act then such valuer as will be appointed by the President for the
time being of the SA Council of Valuers whose decision, acting as expert and
not as arbitrator, will be final and binding on the parties.
GRAF’s claim against the COMPANY will be reduced by the said value of the
immovable property. Transfer will be passed by GRAF’s conveyancers.’
[5] The company failed to repay its indebtedness to the
respondent. It was in fact insolvent. A provisional order of winding-

up was issued at the suit of the appellant on 26 April 1999 and a
final order followed on 9 September of the same year.
[6] On 7 May 1999 and in terms of clause 9 of the extension
agreement, the shares of the company were transferred from the
name of the respondent into the name of the appellant.
THE ISSUES
[7] In the Court below the respondent sought in motion
proceedings to undo the transfer on the basis that the provisions in
clause 9 of the extension agreement permitting the appellant to
acquire his shares and loan account, constituted a pactum
commissorium and were therefore invalid. The learned Judge
(Selikowitz J) held in his favour and gave the following order
(together with an order for costs):

‘1.
Declaring that the portion of clause 9 of the agreement concluded
between Respondent, Applicant and Western Seaboard Development
(Proprietary) Limited on 11 February 1999 which reads, ‘to acquire the
COMPANY by transferring the shares in his own name or that of his
nominee, and accepting cession of the loan claims’ is a pactum
commissorium and accordingly invalid;
2.
Declaring that the transfer during May 1999 to Respondent of 1 000
(One
Thousand)
shares
in
Western
Seaboard
Development
(Proprietary) Limited in terms of clause 9 of the aforesaid agreement is
invalid and of no force and effect.’
The learned Judge subsequently granted leave to appeal to this
Court against the order.
[8] On appeal the following two submissions which had been
made by the appellant in the Court below, and which were rejected
by the learned Judge, were repeated:

(1)
that because the shares and loan account were 'pledged'1 to
the appellant by the respondent, and not by the appellant’s debtor,
the company, the provisions of clause 9 of the extension agreement
permitting the appellant to take transfer of the shares and loan
account did not amount to an invalid pactum commissorium; and, in
the alternative,
(2)
that because the value of the property pledged did not exceed
the amount of the company’s indebtedness to the appellant, clause
9 must be construed as a conditional sale.
PACTUM COMMISSORIUM
[9] A pactum commissorium in the context of a pledge is an
agreement that if the pledgor defaults, the pledgee may keep the

1 Put more accurately, the rights in the shares and the loan account were ceded in sercuritatem
debiti; but where a right is ceded with the object of securing a debt, the cession is regarded as
a pledge of the right in question: Millman NO v Twiggs and Another 1995 (3) SA 674 (A) at
676H-J and cases there quoted. No reason, commercial or otherwise, requires in a case such
as the present that such a cession of incorporeal rights should be dealt with differently from a
pledge of a movable and it was so dealt with in the context of a pactum commissorium in Sun
Life Assurance Co of Canada v Kuranda 1924 AD 20.

security as his own property. Such an agreement was prohibited in
the Roman law by the Emperor Constantine early in the fourth
century AD. The prohibition was perpetuated by the Emperor
Justinian in C8.35(34).3, which reads:
‘Quoniam inter alias captiones praecipue commissoriae pignorum legis crescit
asperitas, placet infimari eam et in posterum omne eius memoriam aboleri. Si
quis igitur tali contractu laborat, hac sanctione respiret, quae cum praeteritis
praesentia quoque depellit2 et futura prohibet. Creditores enim re amissa
iubemus recuperare quod dederunt.’
The passage may be translated as follows:
‘Since amongst other harmful practices the severity of the lex commissorium in
pledges is on the increase, it has been decided to invalidate it and abolish all
memory of it for the future. If therefore anyone is oppressed by such a contract,
he shall find relief by this decree, which annuls such provisions past and

2 The Latin text is taken from the Krueger version of the Corpus Iuris. Other texts have 'repellit'.
The difference is not significant.

present and proscribes them in future. For we decree that creditors shall give
up the thing pledged and recover what they have given.’
It is of importance for the purposes of the present appeal to note
that the second sentence begins 'si quis' (if anyone) and not 'si
debitor' (if a debtor).
[10] The prohibition against a pactum commissorium in a contract
of pledge was very much part of the Roman Dutch law. Grotius
Introduction 2.48.41 (Maasdorp’s translation 2nd ed p 192) says:
‘The effect of a mortgage is not that a creditor may retain the mortgaged
property for himself, or sell it on his own authority; nay more, he may not even
stipulate by contract for the right of forfeiture of the ownership in default of
payment, but he must, after obtaining judgment, allow the sale to take place
according to the legal process and thus recover what is due to himself.’
Simon van Leeuwen Censura Forensis 1.4.8.7 (Barber and
Macfadyen’s translation pp 54-5) says:

‘The other is the pactum commissorium, by which it is agreed between the
debtor and creditor that if the debtor does not pay on the stipulated day, the
thing pledged should go to the creditor, and this is prohibited by law.’
Voet in his Commentary on the Pandects 20.1.25 (Gane’s
translation vol 3 p 502) says:
‘As regards a commissory agreement, it is true that it is correctly attached to a
purchase; and that according to the opinion of some it was perhaps also
tolerated of old in pledges and hypothecs. Nevertheless it is found to have
been later discountenanced in the latter by Constantine as being harsh and
fraught with unfairness.’
Van der Keessel3 says:
‘Dis oorbekend dat die regsgevolg van 'n pand nie is dat die skuldeiser, by
wanbetaling van die skuld, die pand vir hom behou nie; meer nog, selfs indien

3 Praelectiones Iuris Hodierni ad Hugonis Grotii Introductionem ad Iurisprudentiam Hollandicam
edited by Van Warmelo, Coertze, Gonin and Pont, and translated into Afrikaans by Gonin, vol 3
p 473 (ad Grotius 2.48.41).

dit d.m.v. 'n uitdruklike ooreenkoms beoog is, is so 'n lex commissoria deur die
reg verwerp.’
[11] The prohibition has also been received into the modern South
African law4: Mapenduka v Ashington 1919 AD 343; Sun Life
Assurance Co of Canada v Kuranda supra n 1; Vasco Dry Cleaners
v Twycross 1979 (1) SA 603 (A) at 611G.
[12] The appellant’s counsel pointed to the reason why the
prohibition was introduced by Constantine. Voet loc cit says:
‘The reason is that anyone with whom the arrangement is made that, on the
debt not being paid within a definite time, the pledge shall remain with the
creditor for the debt, would often find that things of the greatest import and
value would go to pay off a paltry liability. A needy debtor, pressed by tightness
of ready cash, will readily allow any hard and inhuman terms to be written down

4 There is one statutory exception in the Cape:  s 14 of Act 36 of 1889 (C) provides:  ‘A pledge
pawned for ten shillings, or under, if not redeemed within the year of redemption, shall become
and be the pawnbroker’s absolute property.’  Successive sections provide, however, that
pledges pawned for above ten shillings shall be disposed of by sale  by public auction and not
otherwise (although the pawnbroker may bid and purchase the pledge) - s 16; and that any
surplus above the amount of the loan and profit due at the time of the sale, less the cost of the
sale, shall be paid by the pawnbroker to the holder of the pawn ticket on demand made within
three years after the sale - s 19.

against him. He promises himself smoother times and better fortune before the
day put into the commissory term, and thus hopes to avert the harshness of the
agreement by payment; though such a hope, quite slippery and deceptive as it
is, not seldom finds nothing at all to encourage it in the aftermath.’
Solomon JA in Sun Life Assurance Co of Canada v Kuranda, supra
at 24 said of a pactum commissorium:
‘[T]he very essence of that pact is that the creditor is entitled to retain the article
pledged, however great its value may be, in satisfaction of a debt, however
small in amount. And it was because of the harshness and injustice of such an
arrangement made with the debtor in straitened circumstances that the
Emperor Constantine decreed that such pacts should for the future be
prohibited.’5

5 See also Zimmerman The Law of Obligations Roman Foundations of the Civilian Tradition pp
223-5 s.v. ‘The consequences of non-redemption of the pledge’, where the development of the
Roman law is set out.

[13] The appellant’s counsel also placed reliance on the following
dictum of Mahomed AJA in Meyer v Hessling 1992 (3) SA 851 (Nm
SC) at 864I-865D:
‘The reasons for the prohibition against a pactum commissorium are
nevertheless relevant in determining the ambit and limits of the prohibition. The
prohibition has therefore been held not to extend to various categories of
circumstances in which the reasons for the prohibition would be of no
application. Thus, in Simon van Leeuwen’s Censura Forensis (translated into
English by Barber and Macfadyen) part I book IV6, the following is said:
“But when, however, the reason of the prohibition ceases, it is allowed so that
the pledge may go to the creditor in payment of the debt, according to a fair
valuation of the price. (Costal. ad l Titius 34, ff. de Pignor. Act.; Molin. de Usuris
quaest. 52; Bronchorst miscell. controv. cent. 1, assert. 77; Neguzant de
Pignorib, 4 part princip. num. 6, vers. secundo fallit; Covarruv, Variar resolut.
lib. 3, cap. 2. num. 7, vers. secundo.) And so it has been decided by the Senate

6 Chapter 8 para 7.

of Paris, according to Gregor. Tholosan. (Syntagma Jur. Univers. lib. 22, cap.
9, num. 14), and by the Senate of Savoy, on the authority of Anton. Fab. (ad.
Cod. de Pact. pignor. lib. 8, tit. 23, defin 1); and the reason is that an
agreement as to selling back is preferable, and this is the sense of l.16 § ult. ff.
de Pignorib, et l. ult. in pr. ff. de Contrah. empt., in which the commissory
clause appears, and no fraud is imputed to the creation of the agreement, for a
debtor can sell his pledge not only to a third party, but also to the creditor (l.12,
in pr. ff. de Distract. pignor, l.9, in pr. ff. Quib. Mod. pign., l.20, § 3, ff. de pignor.
act.). And in like manner the reason of the prohibition of the commissory clause
also ceases if the debtor has expressly renounced the protection of the law
found in l. fin. Cod. de Pact. pignor, as if, with full knowledge of his rights, he
has knowingly and willingly given up to the creditor the thing, subject to the
burden of the pledge, for the amount of the debt (arg. l.1, § 5 ff. de Injur. Junct.
l. pen.; Cod. de Pact. l. 41, ff de Minorib.; Anton. Fab. ad Cod. d. tit. defin. 5).’7

7 The punctuation as it appears in the translation quoted, and the original text, has been
inserted.

[14] The crux of the submission on behalf of the appellant was (I
quote from the heads of argument):
‘There was a very clear, single policy which underlay the prohibition of pacta
commissioria … That policy finds no application in the case of a third-party
pledgor, who cannot be presumed to be labouring under the same
disadvantages as a debtor at the time of entering into the agreement.’
[15] The approach adopted by the appellant’s counsel is fallacious
because it postulates that whether or not a rule of the common law
which is clear and unambiguous applies to a given situation,
depends upon an examination of whether the policy considerations
which led to the law being enacted, are present. Such an approach
has already been rejected by this Court: Langeberg Voedsel Bpk v
Sarculum Boerdery Bpk 1996 (2) SA 565 (A) at 570E-571F, where it

was held8 that where a rule of law is clear and in general terms, it is
unnecessary to enquire in each instance whether the considerations
which motivated the rule are present. Such an enquiry, apart from
constituting a juridically unsound approach, leads to casuistic
reasoning and uncertainty in the law particularly where, as in the
case of the rule under discussion in the matter just cited, the
reasons which motivated the rule do not accord with modern
conditions prevailing when the rule is sought to be enforced.
[16] The rule laid down by Constantine is quite clear: a lex
commissorium in a contract of pledge is prohibited both in the case
of the poor man in acute need of money and in the case of the rich
man who is not. The rule is aimed at a dangerous tendency, not
only at particular cases. The rule is also in general terms: it is not

8 At 570I and 571D-E.

limited to a pledge made by the debtor.9 In such circumstances it is
simply not permissible to allow the policy behind the rule to dictate
its applicability, any more than it is permissible as the law presently
stands10 to have regard to views expressed during debate in
Parliament during the passage of a bill in order to interpret a
modern statute which is clear and unambiguous in its terms. Both
are laws; both apply to all situations to which they, in terms, relate;
and - absent constitutional considerations - that is an end of the
matter. Of course, if it can be established that things have so
changed since the rule was instituted as to render the rule no longer

9There is, with respect, no warrant for Schiller Selected Texts and Cases on the Roman Law of
Things with an excurses on the Roman Law of slavery to translate 'commissoria pignorum legis
crescit asperitas' in C8.34(35)3 as 'the hardship which the agreed foreclosure of the pledge
imposes upon the debtor grows' (underlining supplied). There is similarly no justification for Van
Leeuwen loc cit (quoted in para [10] above) and Schorer (note 266 to Grotius 2.48.41) to limit
the pactum commissorium to an agreement between a debtor and a creditor. Schorer’s note
begins 'Grotius disapproves of an agreement (pactum commissorium) between a debtor and
creditor to the extent that, if the debt be not paid at the proper time, the mortgaged property is
to become the property of the creditor in full ownership for the amount of the debt …’
(Maasdorp’s translation, 2nd ed p 546).  All three authors are plainly dealing with the factual
situation which would most commonly arise and must not be understood as placing a restrictive
interpretation on the phrase 'si quis' emphasised in para [9] above.
10 See the minority judgment of Mokgoro J in Case and Another v Minister of Safety and
Security and Others 1996 (3) SA 617 (CC) 624-5, n 18.

appropriate, that may be reason to change the rule or abolish it
altogether.11 I shall return to the constitutional aspect shortly.
[17] The passage from Van Leeuwen quoted in Meyer v Hessling,
supra explains why the prohibition does not apply in the particular
cases referred to. But that passage is not authority for excluding the
prohibition where the particular facts do not accord with the policy
considerations behind the prohibition; and it is in that sense that the
passage of the judgment in Meyer v Hessling, supra relied on by the
appellant’s counsel and which precedes the quotation from Van
Leeuwen, must be understood.
[18] The appellant’s counsel submitted that there was indeed a
constitutional consideration present, namely, that contracts should

11 Cf the remarks of Schutz JA in Langeberg Voedsel Bpk v Sarculum Boerdery Bpk, supra, at
572G-H and Howie P in para [30] of the as yet unreported judgment in Wagener v Pharmacare
Ltd;  Cuttings v Pharmacare Ltd, case 32/2002.

be enforced: Brisley v Drotsky 2002 (4) SA 1 (SCA) at 15G-16F;
and that ‘contractual autonomy is a part of freedom’ (ibid at 35F).
[19] I do not consider that the common law requires development
to limit the general prohibition on pacta commissoria so as to
exclude its operation where the pledge is made by a third party. It
may be that the third party is the corporate alter ego of the debtor,
as in the present case, or subject to the same pressures as the
debtor (eg the debtor’s spouse or parent), or a person whom the
debtor will be obliged to compensate in full if the pledged article is
forfeited.12 But in any event, the potential for injustice   particularly
usury and an unfair distribution of an insolvent pledgor's assets
remains, regardless of whether the pledgor is also the debtor.

12 Cf  Voet loc cit ‘Nor does it matter either whether an agreement of this sort takes place
between debtor and creditor, or between a debtor and his surety;  nor whether the debtor has
given this safeguard when assigning pledge and surety together, or has established the pledge
for the surety himself to secure his indemnity. We know that the surety himself is also a creditor
of him for whom he went surety;  and thus there is alike the same opportunity for unfairness
and the same reason to prompt the discountenancing of such an agreement.’

Accordingly, the limitation on contractual freedom is, in my view,
justifiable especially in the light of the constitutional protection of the
values of dignity and equality.
[20] Furthermore, the Civil Codes of France, Germany, Belgium
and the Netherlands, all countries which had a common law similar
to our own, contain a prohibition in general terms.
[21] The French Civil Code13 provides in art 2077 that 'A pawn
may be given by a third party for the debtor'. The immediately
following article, art 2078, provides:
‘A creditor cannot, in case of non-payment, dispose of the pawn: but he can
apply to the Court to be authorized to retain the pawn as payment to the extent
of its value, according to an appraisal made by experts, or to have it sold at
auction.

13 Translation by Henry Cachard in the revised edition at pp 543-4.

All covenants allowing a creditor to appropriate the pawn, or to dispose of it
without complying with the formalities above set forth, shall be void.’
[22] The German Civil Code14 contemplates that the pledgor may
not be the debtor   for example, § 1225 says, inter alia: 'If the
pledgor is not the personal debtor, the claim passes to him, to the
extent that he satisfies the pledgee'. §1229 provides:
‘An agreement made before the existence of the right to sell, by which the
ownership of the thing falls to the pledgee or is transferred to him, in case he
does not, or does not in due time, receive satisfaction, is void.’
[23] The Belgian Civil Code provides in art 2077 that 'A gage may
be given by a third party for the debtor', and in the immediately
following article, art 2078:
'A creditor may not, in default of payment, dispose of the gage except for
obtaining an order at law whereby such gage will remain with him in payment

14 Translation by Simon L Goren at p 222.

and up to the amounts due, according to a valuation made by experts, or will be
sold at auction.
Any clause is void which authorizes the creditor to appropriate the gage for
himself or to dispose of it without the above procedures.'15
[24] The New Netherlands Civil Code16 which came into operation
on 1 January 1992 also contemplates a person other than the
debtor pledging property. For example, arts 233.1 and 234.1
provide:
'233.1. The grantor of a pledge or hypothec, who is not himself the debtor, is
liable for depreciation of the property to the extent that the security of the
creditor is endangered by this depreciation and that he or a person for whom
he is responsible can be blamed therefor.
234.1. If property of both the debtor and a third person has been pledged or
hypothecated to secure one and the same debt, the third person can demand

15 The Constitution of Belgium and the Belgian Civil Code as amended to September 1, 1982
by John H. Crabb.
16 The quotations which follow are taken from the translation by Haanappel made under the
auspices of the Ministry of Justice of the Netherlands at the Quebec Centre of Private and
Comparative Law.

from the creditor who proceeds to execution that the property of the debtor be
included in the sale as well and that it be sold first.'
Article 235 then follows, and that article is not limited to pledges
given by debtors. It provides:
'Any stipulation whereby the pledgee or the hypothecary creditor is given the
power to appropriate the pledged or hypothecated property is null [original text:
'is nietig'].'
[25] In conclusion on the comparative survey of the law of some
Western European countries, I can do no better than quote what
Maasdorp JA said in the minority judgment in Mapenduka v
Ashington, supra at 358:
'The reasons on which this law is grounded are as sound to-day as they were in
the times of Constantine.'

That position remains.17
[26] There is accordingly no merit in the first argument advanced
on behalf of the appellant. Nor is there any merit in the second
argument.
CONDITIONAL SALE
[27] Despite the provisions of the Code to which I have already
referred, D 20.1.16.9 provided that 'It can be a term of a pignus or
hypotheca that if the money is not paid by a certain date, the
creditor can have the property as buyer at a fair price then to be
assessed’ because ‘in this case, there is, as it were, a conditional
sale’.18

17 See also what Kotze JA said of the actio de pauperie in O'Callaghan NO v Chaplin 1927 AD
310 at 366:
'The doctrine, therefore, which they [the common law authors] state was observed in actual
practice in their time, has since been accepted by the more modern and maturer jurisprudence,
and still prevails as existing law in several civilised European countries as well as our own.'
18 Watson’s translation in The Digest of Justinian by Mommsen, Krueger and Watson (eds.) vol
2 p 585.

[28] In Mapenduka v Ashington, supra, De Villiers AJA, in whose
judgment Wessels AAJA concurred, analysed the common law
authorities and concluded by stating the law as follows (at 352 in
fine–353):
'The language of the Digest is designedly indefinite. It is not a real sale, for the
transaction does not lose the character of a pledge and the debtor retains the
right to claim his property against payment of the debt. But if when the time for
payment arrives the debtor is willing that the creditor should retain the pledge
as his own, there can be no objection to this provided a fair price is given.'
Maasdorp JA said at 357 that:
‘[W]e may take it that these two laws [C 8.35(34).3 and D 20.1.16.9] existed
side by side, and that while the lex commissoria was invalid in pledges, the
parties could still agree that if the debt was not paid on the due date, the
pledgees could take over as purchaser the subject of the pledge at a price to

be fixed at the time the debt became due. To that extent Constantine’s strict
law in the Code condemning the lex commissoria is relaxed’,
and the learned Judge of Appeal goes on to show that both the
provisions of the Code and the Digest were received into the law of
Holland, Germany and France.19
[29] The passage quoted from the judgment of De Villiers AJA20 in
the previous paragraph of this judgment must be read in context.
That passage is preceded by a discussion of the old authorities for
the purpose of determining when the valuation of the thing pledged
must be made. It must not, as was suggested in argument, be taken
as authority for the proposition that the pledgor cannot, at the time
the pledge is concluded, agree with the creditor that the latter may
keep the thing pledged if the debt is not paid, provided a fair

19 As I have already pointed out, the judgment is a minority judgment but  it is consistent with
the majority on this point.
20 Followed in Van der Westhuizen v Sibiya 1961 (4) SA 413 (N) at 436D.

valuation of the thing is made when the debt falls due; nor must it be
taken as authority for the proposition that such agreement is not
binding on the pledgor if he is unwilling when the debt becomes due
that the creditor retain the thing. What is decisive is the proviso that
a fair price is to be given when the debt falls due, not the time when
the agreement is concluded. Indeed, it is evident from D 20.1.16.9
(quoted in para [27] above) that such an agreement may be a term
of the pledge; and an agreement made at that time was upheld in
Sun Life Assurance Co of Canada v Kuranda, supra, because it was
found that the requirements of the proviso were satisfied (see 25-
26). It is perhaps desirable to emphasize that to the extent that the
valuation exceeds the amount owing to the debtor, the excess
belongs to the pledgor.

[30] In the present case there never was an agreement, whether
express or tacit, that the security pledged could be taken over at a
just price. Clause 9 of the extension agreement provides that if the
appellant elects to take transfer of the immovable property owned
by the company, the property will be valued at its market value and
the appellant’s claim against the company will be reduced
accordingly. By way of contrast, no such valuation provision is
included if the appellant elects to acquire the shares and the
respondent’s loan accounts in the company.
[31] The submission on behalf of the appellant that if the value of
the article pledged in the event proves to be less than the debt, D
20.1.16.9 governs the position, cannot be upheld. Contracts against
public policy are judged objectively, regard being had to ‘the
tendency of the proposed transaction, not its actually proved

result’21 - per Innes CJ in Eastwood v Shepstone 1902 TS 294 at
302.22 Here, the contract provided that in the event of default, the
appellant would be entitled to elect to acquire the respondent’s
shares and loan account in the company. The contract did not
provide that a fair valuation (or indeed that any valuation) would be
made of the shares and loan account. The present facts are
accordingly distinguishable from the facts in Sun Life Assurance Co
of Canada v Kuranda, supra, where the basis of the valuation was
agreed upon and the question at issue was whether such basis
would result in a fair valuation at the time the security was realised.
That part of clause 9 which deals with the acquisition of the shares
and loan account is nothing other than an invalid pactum

21 And for that reason it was, with respect, incorrect for Lange AJP to have had regard to the
facts in Dawson v Eckstein (1905) 10 HCG 15 at 19.
22 Approved in Sasfin (Pty) Ltd v Beukes 1989 (1) SA 1 (A) at 8J-9A/B and Botha (now
Griessel) and Another v Finanscredit (Pty) Ltd 1989 (3) SA 773 (A) at 783C.

commissorium, as the learned Judge in the Court below correctly
held.
ORDER
[32] The appeal is dismissed with costs, including the costs of two
counsel.

..…………….
T D CLOETE
JUDGE OF APPEAL

Concur:
HOWIE P
SCHUTZ JA
STREICHER JA
LEWIS JA