By: Radie Botha / Associate / Mooney Ford Attorneys
In a recently decided case in the South Gauteng High Court, the Court granted Summary Judgment in favour of a bank – allowing them to execute against the immovable property of a divorced couple following breach of a Loan Agreement. This case highlights the complex interplay between divorce Settlement Agreements, Loan Agreements, and property ownership.
The Respondents (referred to in the proceedings as Mr. B and Ms. M) were married in community of property in 2009, after which they applied for a loan and registered a mortgage bond over their immovable property. When they subsequently divorced, and as part of their Settlement Agreement, they agreed to divide their shared assets with Mr. B retaining sole ownership of the immovable property, and with him taking over the monthly payments in terms of the Loan Agreement. However, when the Bank initiated legal proceedings seeking Summary Judgment and an Order declaring the immovable property executable due to breach of the Loan Agreement, they instituted those proceedings against both parties.
Ms. M, in defending the matter, argued that the Settlement Agreement is an Order of Court and accordingly also binds the Bank – meaning that they cannot pursue legal action against her, but only against Mr. B. The Bank however rejected this defence and pointed out that both Mr. B and Ms. M signed the original Loan Agreement (which Ms. M does not dispute). The Bank further argued that when they decided whether Mr. B and Ms. M could afford to borrow the money, they considered Mr. B and Ms. M’s joint financial position (as they are required to do in terms of the National Credit Act).
Ms. M contended further that the Bank was clearly aware of the Settlement Agreement as they only deducted instalments from Mr. B’s account – which she argued shows that they considered themselves bound to the Settlement Agreement in the Court Order.
The deciding factor in this case was the legal principle of res inter alios acta, which in the circumstances means that a divorce Settlement Agreement between Mr. B and Ms. M does not legally bind, and cannot be enforced against, the Bank, as they did not also sign the Settlement Agreement.
The Court had sympathy with Ms. M’s position, acknowledging that she must be frustrated as she was hoping for a clean break from Mr. B after the divorce (with whom she was no longer on speaking terms), only to later find out that they are both still bound to the Loan Agreement. The Court emphasized however that it is not that the Bank’s internal administrative processes override a Court Order, but rather that the Bank is not legally obliged to give effect to the Settlement Agreement, despite it having been made an Order of Court, as it is only binding on the two divorcing parties.
The Court further pointed out that, while Ms. M cannot be absolved from the proceedings before it, she does have a separate recourse against Mr. B for his failure to comply with the Settlement Agreement by applying to substitute her as a debtor to the Loan Agreement.
This case serves as an important reminder of the legal complexities that can arise when divorce settlements intersect with Loan Agreements and property ownership. While Ms. M hoped for a “clean break” from Mr. B, the Court’s decision reiterates that the Bank is not legally obliged to give effect to a Settlement Agreement that it was not a party to. Ms. M’s recourse against Mr. B underlines the importance of understanding the legal implications of divorce settlements and Loan Agreements, especially when third parties are involved.