THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case no: 246/2003
REPORTABLE
In the appeal between:
ABSA BANK LTD
Appellant
and
VERA HELENA SWANEPOEL NO
Respondent
Before:
Mpati DP, Cameron JA, Brand JA, Nugent JA
and Heher JA
Appeal:
Friday 21 May 2004
Judgment:
Monday 31 May 2004
Contract – Interpretation – Provisions in written agreement not all
necessarily having operational effect – Clause in bond agreement
recording that borrower has chosen to accept life cover – Not
intended to make bond-holder life insurer – Clause not imposing
contractual obligation
JUDGMENT
_____________________________________________________

CAMERON JA:
[1] On 20 September 1999 Mr Shaun Swanepoel, then 26 years
old, applied for a loan to be secured by a mortgage bond from
ABSA Bank Ltd.  The loan agreement he signed included this
statement:
‘I hereby declare that the advantages of life insurance that in terms of this
loan covers the amount owed, have been fully explained to me, and that I
have chosen to accept/not to accept this cover.’1
The words ‘not to accept’ were deleted at signature.  Less than
three months later Shaun (‘the deceased’) died in a motor
collision.  His bereaved mother, the executrix of his estate, sold
the property covered by the bond.  But before agreeing to
cancel the bond, the appellant bank (‘the bank’) insisted on
repayment of the outstanding bond amount.  Mrs Swanepoel,
the respondent, resisted the claim.  She asserted that the
quoted statement reflected a contractual obligation that
required the bank to pay her son’s estate an amount equivalent
to what he owed it when he died – in effect cancelling out the
debt.  She applied to the Pretoria High Court for a declaration
to this effect.  The bank counter-applied for an order declaring
it entitled to payment of the outstanding balance.

1 My translation throughout.  The original Afrikaans:
“Ek verklaar hiermee dat die voordele van lewensversekering wat ingevolge hierdie lening die
verskuldigde bedrag dek, ten volle aan my verduidelik is, en dat ek gekies het om hierdie
dekking te aanvaar/nie te aanvaar nie.”

[2] In the court below, Basson J upheld Mrs Swanepoel’s claim.
He did not consider that the provision obliged the bank to
provide the deceased with a gratuitous indemnity on his death.
The question he posed was whether the provision could be
described as an insurance contract.  He concluded that it
could: the provision meant that the bank extended life
insurance to the borrower in the amount owing at his death.  It
was ‘virtually unthinkable’, however, that the bank was required
to provide this cover without any charge.  The proper inference
was that the parties had tacitly agreed ‘that some or other quid
pro quo (in the form of a premium) would be payable under the
provision’.  The loan documents contained no such agreement,
nor did they record any premium amount.  So the judge
granted an order affording the parties an opportunity ‘to
determine by agreement what a reasonable premium would
embrace’, and, failing that, to approach the court to determine
its amount.  Basson J refused the bank leave to appeal against
this order, but leave was later granted by this Court.
[3] The bank contends that the disputed provision has no
enforceable contractual content.  It merely recorded that the
deceased had elected to take out life insurance himself.  The
bank is not in the business of providing insurance, it says, and

the provision signified no more than that a broker would later
approach the deceased to see to separate life cover for his
debt.  That was never done.  The deceased’s estate cannot
now, it argues, force it to act as the insurer of his life.
[4] The learned judge rejected these contentions.  He approached
the matter by inquiring what contractual meaning was to be
imputed to the contentious provision.  In following this
approach he applied the rules relating to the interpretation of
contractual terms, including that a term in a commercial
contract will not readily be rendered meaningless, and that in
case of ambiguity a provision may be interpreted against the
drafter (contra proferentem).
[5] But this approach anticipates the question whether the
provision had any contractual force at all.  It assumes that the
provision had an enforceable content, when the prior question
is whether it was an operational part of the parties’ agreement
at all.
[6] At its simplest, a contract is an enforceable promise to do or
not do something.  But when parties record an agreement in
writing, they often add provisions that do not embody such
promises.  A contract may have a preamble.  It may contain
‘recordals’ and ‘recitals’.  It may document prior events, or

record the parties’ future intentions.  It may contain clarificatory
or explanatory statements.  The parties may place on record
matters that bear on the interpretation of what they have
undertaken.  It is therefore wrong to approach a written
contract as though every provision is intended to create
contractual obligations.
[7] It may be difficult to determine whether a written provision is
intended to embody a promise to do or not do something, or
whether, without itself constituting an undertaking, it merely
bears upon what the parties have undertaken.  A recent
illustration of a dispute about the extent of a contract’s
operational provisions, about which this Court was divided, is
Man Truck & Bus (SA) (Pty) Ltd v Dorbyl Ltd t/a Dorbyl
Transport Products and Busaf.2  But the question whether a
contractual provision has operational content is fundamental to
the ambit of the obligations the parties undertake, and it
precedes the application of rules designed to establish the
proper interpretation of their undertakings.  Only once it is
determined that a provision was intended to have contractual
effect will the court try to interpret it so as to give it business

2 Case 38/03, judgment of 26 March 2004.

efficacy.3  If it was not so intended, those rules of interpretation
do not come into play.  No ‘business meaning’ can be conjured
out of a clause that was not intended to have contractual effect
at all.
[8] That is what happened here.  The judge sought to apply the
rules of interpretation to the provision without considering its
context.  With respect to him, that was not the correct
approach.  Whether a provision forms an operational part of a
contract, or is merely informational or historical or evidentiary,
depends on what it says within its context in the contract,
against the background in which the parties concluded it.
[9] This agreement is headed ‘Bond Loan Agreement’.  A recital
follows with the parties’ names and addresses.  Clause 1 then
records that subject to the terms and conditions in the
annexure (‘Terms and Conditions’), the bank lends to the
borrower the cash amount together with the other sums
mentioned in the next clause, which the borrower must repay
‘in the manner set out in clause 2 and in accordance with the
Terms and Conditions’.  Clause 2 sets out the figures, including
the principal debt of R304 942.17, repayable at a specified rate
of interest in monthly instalments over twenty years.

3 As in Burroughs Machines Ltd v Chenille Corporation of SA (Pty) Ltd 1964 (1) SA 669 (W).

[10] Clause 3 states that the loan is subject to certain specified
provisions.  Summarised, they are:
1. registration of a covering bond in favour of the bank over the property;
2. an application for insurance [for the property] must be provided;
3. the stated interest rate is fixed for 24 months from registration of the
bond;
4. the insurance of the property being mortgaged for a specified amount;
5. inspection of the property by the bank places no duty of care upon it
and is purely for internal purposes.
[11] The contentious term is in clause 4, which is headed ‘Special
Conditions’.  It is necessary to set out its provisions in full.  It
reads:
1. The consequence of a new Reserve Bank ruling in respect of
new/additional home loans exceeding 80% of valuation is that such
loans will be more expensive to fund.  The bond rate will therefore be
changed accordingly.
2. The attached agreement to vary the terms of a bond loan (ABSA
1291AX) must be signed by the client before registration of the bond.
3. The repayment is a provisional amount and you will be informed of the
correct payment on date of registration.
4. “I hereby declare that the advantages of life insurance that in terms of
this loan covers the amount owed, have been fully explained to me,
and that I have chosen to accept/not to accept this cover.”
5. Although a bond is being registered for an amount that exceeds the
amount of the loan, this does not imply that further advances will
automatically be granted up to that amount.
6. If additional financing is required, a new application for a further
advance or Flexi-Reserve facility must be submitted.
7. A Flexi-Reserve facility for the pre-paid portion of the loan has been
granted.
8. A signed addendum to the bond loan agreement (ABSA 1289A) must
be faxed on day of registration to the administrative centre (record
maintenance department).
9. Attorney must obtain a signed debit order authorisation against
cheque account.’
[12] The last clause, 5, contains the definitions.  The parties’
signatures and those of the witnesses follow.  It was common
cause that the annexure, the bank’s ‘Terms and Conditions’,

was incorporated in the contract, together with the terms
contained in the bond subsequently registered over the
property, as well as those in a third document, the bank’s
‘Standard Bond Conditions Applicable to All Bonds Registered
in Favour of ABSA Bank Ltd’.  Together these documents
(each of which cross-refers to the other) provide the context
against which it must be determined whether the disputed
provision contained any undertaking by the bank.
[13] Two things immediately impress about the setting.  First,
despite the misleading heading (‘Special Conditions’) none of
the other provisions of clause 4 contain contractually
enforceable undertakings or conditions.  Clause 4.1 records
information about a Reserve Bank ruling.  Clause 4.2 refers to
a separate part of the parties’ agreement, apparently intended
to be a condition precedent to the registration of the bond (it
was not included in the court papers).  Clause 4.3 is
informational.  Clause 4.5 makes clear, in informative terms,
what already emerges from the other provisions – that the bank
is not obliged to make further advances.  Clause 4.6 informs
the borrower of application procedures.  Clause 4.7 records a
past event – the grant of a flexible loan facility in respect of the
portion of the bond already paid.  Clause 4.8 records an

administrative requirement – it does not purport to set a
condition precedent to contractual efficacy.  Clause 4.9 says
nothing about the contracting parties’ obligations.  It is a
practical administrative reminder directed to the attorney.
[14] These clauses are informational.  They are not operational.
It would be surprising indeed if in this context a provision were
suddenly injected imposing a contractual obligation on the bank
to indemnify the deceased in the amount owed on the bond on
the date of his death.
[15] Second, sub-clause 4, alone of the provisions of clause 4, is
in quotation marks.  This is telling.  It supports the conclusion
that the sub-clause records a declaration by one of the parties.
The declaration, made by the borrower, records a prior fact:
that, assisted by an explanation, he has already chosen to
accept (or, not to accept) life insurance cover.  This again is not
compatible with the imposition of a contractual burden.  The
contextual indicators strongly suggest that the sub-clause does
no more than record the fact of the declarant’s prior choice,
and that it does not create, impose or record an obligation.
[16] Apart from context, there is the provision’s content.  This
points even more conclusively away from contractual
obligation.  If the provision creates a contract of ‘life insurance’,

what conditions apply?  It does not say.   And in what state of
health must the insured be?  Again, the clause is silent.  Can it
mean, as counsel for Mrs Swanepoel suggested, that on
signature a borrower at death’s door is without more insured for
the full amount of the loan?
[17] Counsel for Mrs Swanepoel urged us to find that the words
‘life insurance that in terms of this loan covers the amount
owed’ signified that the contract of loan itself, at its conclusion,
created the insurance obligation resting on the bank.  That
might have been possible had there been other provisions in
the loan agreement that are compatible with or suggestive of
such an obligation; but there are none.  The ambiguity on
which counsel relied is created by the fact that the words ‘in
terms of this loan’ appear before, and not after, the words ‘the
amount owed’.  But this ambiguity cannot serve to create an
obligation in the face of overwhelming indications to the
contrary.
[18] Central in this regard is the aspect that rightly troubled the
learned judge:  the premium.  If the clause is to be given
operational meaning, it must surely exact from the lender a
quid pro quo for the sizeable benefit it confers.  But what
amount?  Calculated with reference to what insurable interest

or value?  Would it remain static during the twenty years of the
bond?  Or decrease as the debt reduced?  And how often
would it be paid?  Yearly, as premiums on property insurance
sometimes are?  Or monthly, together with the bond
repayments?
[19] The judge appreciated the difficulty of conjuring up from the
provision a contractually enforceable undertaking to pay a
premium.  Hence the order he issued, which seeks to shift the
difficulties back to the disputing parties by inviting them to
reach agreement on a ‘reasonable premium’.
[20] Counsel for Mrs Swanepoel was trapped in a dilemma.  He
disavowed support for the expedient the judge’s order adopted
(though he did not, and in the absence of a cross-appeal could
not, abandon it).  Counsel’s reluctance is fully warranted.  If the
bank were an insurer, which had previously insured the
borrower, a ‘reasonable’ premium might have been capable of
calculation.  In the alien territory of bond lending, this goal
simply cannot be attained.
[21] But this drove counsel to the even more extravagant
contention that under the clause the bank undertook the
obligation
to
discharge,
without
counter-prestation,
the
outstanding bond debts of all clients upon their death.  This, it

will be remembered, the judge dismissed as ‘virtually
unthinkable’.  That judgment is correct.  For a lender in this
context to confer gratuitously a benefit of such significance, so
incidentally, is indeed not thinkable in a world of commercial
exaction and counter-exaction.
[22] In any event, if the bank wished to confer this benefit, why
would it need to ask the borrower to accept or reject it?  It could
simply broadcast its renunciation of any claim upon the estates
of its deceased clients without involving them in the bother of
signifying their acceptance at all.  Counsel was driven to
suggest that it could have been intended that an additional fee
equivalent to the premium that would have been payable on
such life insurance should be included in the amount of the
loan, but no provision in any of the documents constituting the
parties’ agreement offers support for this construction.
[23] The whole matter does not withstand scrutiny, and it is clear
that the bank’s contentions must prevail.  The disputed
provision contains no undertaking.  Nor, for that reason, could
the deceased reasonably have understood that the provision
did contain such an undertaking (assuming he in fact did so at
all, of which there was of course no evidence in view of his
death).  The case in my view fails at the first level of contractual

meaning, which is whether the clause properly construed in its
context is capable of imposing any obligation at all.
[24] The appeal succeeds with costs.  The order of the court
below is set aside.  In its place there is substituted:
1. The application is dismissed with costs.
2. The counter-application succeeds with costs.
3. An order is granted in terms of prayer 1 of the counter-
application.
E CAMERON
JUDGE OF APPEAL
CONCUR:
MPATI DP
BRAND JA
NUGENT JA
HEHER JA