Absa Bank Limited v Moore (CCT03/16) [2016] ZACC 34 (21 October 2016) per Cameron J; Nkabinde ADCJ, Froneman J, Jafta J, Khampepe J, Madlanga J, Mbha AJ, Mhlantla J and Musi AJ concurring.

The Constitutional Court today upheld the judgment of Lewis JA in Absa v Moore [2015] ZASCA 171; 2016 (3) SA 97 (SCA) and refused leave to appeal after referring to a number of ‘old authorities’.

[33]     This is because, in contrast to some other systems,[1] our law is extraordinarily generous in how a debt may be paid.   It allows payment of a debt without the consent – and even without the knowledge – of the debtor.   This contrasts with the position of the creditor, whose knowledge of and assent to payment are required.[2]  It is well established in both our common law jurisprudence and case law that a debt owing by A to B “may be extinguished by a payment made by a stranger to B in discharge of that debt even if A is unaware of such payment”.[3]  This proposition is supported by long-standing common law authority in the Roman-Dutch sources.   These hold that a debt paid by a third party in the name of the debtor extinguishes the debt, even when payment is unauthorised, or even if the debtor opposes it.[4]  The debtor is discharged, willy-nilly.   This does not apply to the discharge of an obligation which by its nature can be properly performed only by the debtor in person.[5] [footnotes omitted]

Excerpts without footnotes

Background and litigation history

[3]     The SCA judgment sets out the facts lucidly.[1] It is not necessary to repeat them.   At their centre is the Brusson scam, the brainchild of Mr Mike Brusson.   Many homeowners and banks were taken in by it.   The scam took this form: a fraudster preyed on property‑owners in distress by offering them a chance, as the scam’s brochure put it, to “make money without capital outlay or risk”.   A loan, on favourable terms, would be advanced to the home-owner.   The home‑owner’s property would serve as security.   Repayment would be through Brusson.

[4]     The brochure sets out the mechanism through which this is achieved.  A “Brusson partnership investor” purchases the home-owner’s property, in an Offer to Purchase, but immediately sells it back to the home-owner, in a Deed of Sale.   The “investor” and the home-owner complete and sign both documents, and in addition a Memorandum of Agreement.   This records the respective obligations of Brusson, the “investor”, and the homeowner.

[5]     Crucially, the brochure explains, “the client retains ownership of his/her home”.  But that was the scam.   It was a lie.   The client did not retain ownership.   She lost it.   The instantaneous “resale” was bogus.   Unsuspectingly, she had signed her ownership away.   The “Deed of Sale” was a worthless piece of paper that would never take effect.   Crucial to the scam was that the fraudsters had to obtain title.   And its lucrative part was that the “investor” promptly took ownership of the property, and acquired a significant bank loan, presumably in cash, against the security it afforded.

[6]     Hundreds of home-owners suffered losses, as did banks countrywide.  The amounts run into many tens of millions of rands.   Sometimes the bank advancing money on the strength of the home-owner’s property was the same as that of the home-owner.   Sometimes it was a different bank.   In each case, the cash proceeds of the newly registered bond seem to have been shared between Brusson and its confederate in the fraud, the “investor”.

. . . . .

[19]     One cannot, the Bank urges, pick out any pure pieces from the tangle and preserve them intact.  If the Moores are to have their house back, with the result that the Bank loses its security against Mr Kabini’s void title, then the Bank must have back the debt the Moores owed it, secured as it previously was against their title.   Fraud, the Bank says, unravels all.[1]

Alternatively, if this argument fails, the Bank contends that this Court should develop the law of unjustified enrichment to afford the Bank a proprietary remedy.   This argument depends, importantly, as we will see, on the premise that the Bank’s money was used to discharge the Moores’ debt.

[20]     At the centre of the Bank’s argument lies the complaint that the Moores have benefitted, at its expense, from an unmerited windfall.  At the time the fraud was perpetrated, the Moores owed the Bank some R145 000.   Now, after the fraud, they owe it nothing.   Their bond debt was extinguished in the course of the fraud.   In addition, soon after signing the dud documents, they received some R157 651 in cash.   So, the Bank says, the Moores have done very well out of the fraud – but the Bank is left to suffer.   It contends that it should at least get back the security it enjoyed over the Moores’ property before the fraud.

[21]     The Bank seeks restitutionary subrogation, which it says the English law affords a creditor in its position.[2] This remedy would recognise that, in releasing the Moores’ bonds and accepting Mr Kabini as its secured creditor, the Bank did not take the risk that Mr Kabini’s security would prove worthless.   It advanced Mr Kabini the money to discharge the Moores’ bond debt on the supposition that he had good title to offer instead.   That not being so, it must be restored to the benefit of the security it had against the Moores’ property.

. . . . .

[34]     In our law, even a deposit into an account of a fraudster is effectual to transfer ownership in the money.  The victim is left with only a personal claim against the fraudster – and a concurrent claim against the fraudster’s curators in the case of a sequestration.[1]  Consistent with this position is also that a debt is paid when the creditor / payee receives the money from the bank, whether payment was authorised or not.[2]

[35]     Indeed, a thief who pays her own debts with stolen funds extinguishes those debts, provided the creditor who receives and accepts payment is innocent.[1] Thus, an employee who steals money and deposits it for her own benefit in various accounts that are in debit, effectually extinguishes those debts, although the amounts that remain in credit can be recovered by the victim.[2]  Our law goes further.

Provided the payee / creditor is innocent, payment of another’s debt, even by a thief, with stolen funds, operates to extinguish the debt.[3]

[36]     In short, payment is a bilateral act requiring the cooperation of the payer and the payee – but not the debtor.[4] The payer is usually the debtor, but doesn’t have to be.   If A owes money to B, and C decides to pay off the debt, then C (payer) must intend to pay, and B (payee / creditor) must intend to accept the payment.   But A (debtor) does not have to know of or consent to the payment.[5]

. . . . .

[50]     Alert to this dilemma, counsel for the Bank was driven during oral argument to abandon the Kabini default judgment, as well as any claims the Bank might have against Mr Kabini.  Counsel for the Moores interjected that this was too late.   And indeed so.   Way too late.   One induced to contract by fraud must choose between upholding the contract and rescinding it – and must do so within a reasonable time after knowledge of the deception.[1]

. . . . .

[57]     In the way things have turned out, on what we have before us, the outcome is not unjust.  The Bank, which enjoyed the institutional resources and power to protect itself against the fraudulent scheme, but didn’t do so, has to suffer the loss its loan to Mr Kabini caused to it.