PROTECTION OF THE RIGHTS OF CREDITORS UPON THE DEBTOR’S DIVORCE: A CRITICISM OF THE JUDGMENT OF Corporate Liquidators (Pty) Ltd vs Wiggill, 2007 (2) SA 520 – Don Mahon

In the matter of Marathon Earthmovers CC v Dos Santos (unreported: South Gauteng High Court, case number 20546/2005) an application was brought by Marathon Earthmovers to have Dos Santos’ half-share in a property declared specially executable.

Judgment was obtained against Dos Santos in favour of Marathon Earthmovers on 28 October 2009, for payment of an outstanding debt, together with interest and punitive costs.

Pursuant to the judgment, the sheriff was duly instructed to attend at a property of which Dos Santos was the registered owner of a half-share in order to determine whether Dos Santos had any movable assets available for attachment.

The sheriff issued a return of service indicating that Dos Santos had no movable assets and this fact ultimately became common cause in the application.

In opposing the application, Dos Santos relied on an agreement in terms of which his half-share of the property was to be transferred to his wife and, according to Dos Santos, execution was accordingly not open to the applicant.

More particularly, Dos Santos contended that (1) he had entered into a settlement agreement in terms whereof he agreed to transfer his undivided half-share in the immovable property which was the subject matter of the application, to his wife; (2) despite this provision in the settlement agreement, his half-share had still not been transferred to his wife; (3) the delay in transferring the property was as a result of difficulties in obtaining a clearance certificate in respect of the property from the municipality; (4) as a result of the aforegoing, Dos Santos denied that he was the legal owner of the property concerned or that he had any legal right and/or interest and/or title in and to the property. 

Dos Santos relied on the judgment of Corporate Liquidators (Pty) Ltd v Wiggill 2007 (2) SA 520 as authority for the proposition that, where parties to divorce proceedings agree that each of them is to receive a particular immovable property upon divorce, that takes place immediately upon the grating of the order of divorce and dominium in respect of the properties vests immediately in each of the spouses and that registration of transfer of the property was not a prerequisite for the vesting of dominium in each of the spouses, but was merely a formality.

The facts of the Corporate Liquidators’ judgment were as set out hereunder.

A certain Mr Wiggill and the first respondent were married in community of property.  They had two fixed properties, Portion 13 of the farm Goedehoop and Erf 833 Louis Trichardt.  They entered into a written settlement agreement which contained the following provisions:

  • Mr Wiggill was to institute an action for divorce immediately and pray that the agreement be made an order of court, failing which, the first respondent could do so;
  • The joint estate was to be divided in that Portion 13 of Goedehoop was to be sold for R290 000.00 and the purchase price was to be utilised to pay off the outstanding amount of the mortgage bond over Erf 833 and a number of other debts;
  • According to the judgment, it was agreed that the first respondent would become the exclusive owner of the unencumbered proposed Portion 1 of Erf 833 (“Portion 1”), in extent 1427m², on which the house was situate and Mr Wiggill would retain as his property the Remaining Extent of Erf 833, in extent 1428m² (“the remaining extent”), subject thereto that on registration of the property in his name he was to register a lifelong usufruct in favour of the second and third respondents;
  • However, the quoted portion of the agreement which was made an order of court is set out in footnote 1 on page 523 of the Corporate Liquidators judgment and stated as follows:

(c)      Verweerderes word die uitsluitlike eienaares van:

(i)        die onbeswaarde voornemende gedeelte van woonhuis 833, Munnikstraat 38, Louis Trichardt, en is sy geregtig op onmiddellik aflossing en kansellasie van die bestaande Absa verband en oordrag van die eiendom op haar naam en kom die partye hieromtrent as volg ooreen:

(aa)     Dit is die voorneme van die partye om gemelde Erf 833, voor oordrag en sonder versuim te onderverdeel, soos per die meergaande aansoek skets en voorgestelde onderverdeling hierby aangeheg gemerk “A”:

  • In ‘n gedeelte 1 groot 1 427 vierkante meter, waarop die hoofwoonhuis geleë is wat die uitsluitlike eiendom van verweerderes sal wees en dit as sodanig aan haar oor te dra.
  • Die resterende gedeelte groot 1 428 vierkante meter, waarop die woonstel geleë is wat die eiendom van die eiser sal bly onderhewig aan die voorwaardes ondervermeld.

(bb)     Gelyktydig met die neem van die oordrag van die voorgenome resterende gedeelte sal die eiser ‘n lewenslange reg van vruggebruik daaroor registreer ten gunste van verweerderes se ouers Herbert James van der Merwe en Jacoba Christina van der Merwe.

(cc)      Die partye sal alle koste van welke aard ookal met betrekking tot uitvoering van voormelde onderverdeling en gelyktydiges in gelyke mate betaal.

Immediately after the order of divorce the first respondent exerted pressure on Mr Wiggill to effect the subdivision and she transferred her portion of Erf 833 into her name. Portion 13 of Goedehoop was sold and the purchase price was used to pay the identified debts. In particular, the outstanding amount of the bond over Erf 833 was paid off.

Mr Wiggill procrastinated, using various excuses and, in the meantime, he married Mrs Wiggill.

During February 2002 the first respondent applied on motion for Mr Wiggill’s committal to imprisonment for contempt of court because of his failure to give effect to the divorce order.

In her affidavit supporting the application, the first respondent explained that during January 1998 the outstanding amount of the bond was approximately R165 000.00, that on 3 April 1998 Mr Wiggill paid an amount of R168 692.24 into the bond account and that she asked him to cancel the bond but that he failed to do so.

She further stated that subsequent thereto, Mr Wiggill borrowed further monies from ABSA under cover of the bond that had been paid off but had not been cancelled.

The surrender of the joint estate of Mr and Mrs Wiggill was accepted by order of court.

At that stage he had not transferred the property and it was still registered in the name of Mr Wiggill only. It was therefore contended at court that at the date of the divorce the first respondent and Mr Wiggill were joint co-owners of the assets of their joint estate and joint co-debtors in respect of the liabilities, that the settlement agreement was never given effect to, that the respondents only have personal rights against the insolvent estate, that a concursus creditorum came into existence as a result of the sequestration order and that the estate was to be liquidated in terms of the provisions of the Insolvency Act.

The first respondent, however, contended that ownership of the property vested in her immediately upon divorce and that the property did not form part of Mr Wiggill (and his new wife’s) estate. 

It is submitted that the Corporate Liquidators judgment calls for clarification.  

At first glance, it may appear that the judgment of the Full Bench of the Transvaal Provincial Division (as it then was) constitutes authority for the proposition that, upon the granting of the decree of divorce incorporating a settlement agreement which contemplates the transfer of property into the name of one of the spouses, dominium vests in that spouse upon the granting of the order of divorce and that registration is a mere formality. 

However, it is only upon closer scrutiny that it becomes apparent that the judgment is not authority for such a proposition.

In the Corporate Liquidators case, the parties were married in community of property and what was being considered was a consequence of the settlement agreement in regard to the joint estate.  This distinction is fundamental for the following reasons:

  • Claassen J, in the court a quo, held that one of the natural legal consequences of a marriage in community of property is that both spouses immediately become co-owners of their previously separated estates, which become their joint estate, irrespective of in whose name the assets are held;
  • He held that on the dissolution of a marriage the reverse follows automatically – the dominium of each spouse’s share in the joint estate vests in that spouse;
  • He concluded that on divorce the first respondent’s share vested in her and that Mr Wiggill ceased to have any claim to it especially as far as the immovable property was concerned;
  • He furthermore held that the first respondent’s portion of the first joint estate never became part of Mr Wiggill’s joint estate and that registration of her portion into her name was a mere formality;
  • The reasoning of Claassen J was, accordingly, premised upon the trite principle that, in the case of a joint estate which arises by virtue of a marriage in community of property, both spouses become co-owners of their previously separate estate ipso jure, and irrespective of any question of registration and, on a dissolution of that marriage, the reverse follows automatically;
  • This principle is trite and has been endorsed on many occasions;
  • However, this principle has not been applied in the case of marriages out of community of property where there is no automatic vesting of a joint estate and converse vesting upon the dissolution of marriage.

In the Marathon Earthmovers case, the co-ownership of the property in question did not arise as a result of any joint estate which existed pursuant to the conclusion of a marriage in community of property. There was no immediate vesting of co-ownership in the property upon the parties’ marriage or, indeed, upon any agreement. 

The co-ownership of the property in question vested only as a consequence of the registration thereof in the deeds office to that effect as it would in any arms-length transaction.  Therefore, the fundamental reasoning which underpinned the automatic vesting of each spouses’ share in the joint estate upon the dissolution of the marriage (which was the case in the Corporate Liquidators judgment), did not apply in the Marathon Earthmovers case. 

Furthermore, in the Corporate Liquidators judgment, the court placed reliance on the decision of Ex Parte Menzies et Uxor 1993 (3) SA 799 (C)

However, Ex Parte Menzies dealt with the proprietary consequences of a marriage in community of property and the dissolution of a marriage in community of property on the spouses.  To rely on the Corporate Liquidators judgment in circumstances where that judgment was made pursuant to consideration of Ex Parte Menzies was inappropriate in the Marathon Earthmovers case.

It was, however, recognised in Ex Parte Menzies that under our system of administering deceased estates, dominium in a spouse’s half-share of an immovable property does not automatically vest in the surviving wife and that dominium is only conferred upon her by registration in her name by the executor.  King J, in Ex Parte Menzies, criticised the practical workings of such a system due to the potential for absurdities.  However, he made reference to the judgment of Rosenberg v Dry’s Executives and Others 1911 AD 679 which, in turn, made reference to the old authorities and stated that:

It is expressly stated by Groenewegen (Ad Inst 3,23) that the alienation of immovable property, brought about by virtue of the conjugal community of goods, constitutes one of the exceptions to the general rule of the Dutch law that no such alienation can be effected except coram judice re sitae.  In another passage(Ad Ins 2,8), he makes a similar statement and Voet (23, 2, 68) says that by virtue of the community of goods all the property of the one spouse is vested in the other ipso jure without delivery of corporeal property or cession of incorporeal property.

It was on the strength of these authorities that the court concluded that, on the facts in the Corporate Liquidators case (that is, in cases where one is dealing with a joint estate which arises by virtue of a marriage in community of property), dominium vested by reason of the community and not as a result of any registration. 

The reasoning, therefore, is that where one is dealing with a joint estate which vests as a result of “conjugal community”, one deals with an exception to the general rule.  In the Marathon Earthmovers case there was no question of conjugal community and, therefore, the exception to the general rule did not apply.

There is, however, a further factor which distinguishes the Corporate Liquidators case from an ordinary case where a creditor seeks execution of property of a creditor where the creditor purports to alienate that property in terms of a settlement agreement incorporating the divorce of a marriage out of community of property.

The actual wording of the settlement agreement in the Corporate Liquidators case was that:

Verweerderes word die uitsluitlike eienaares van …

The word “word” means “become” or “take place” (see Kromhout & Kritzinger, English/Afrikaans Dictionary, 5th Edition).

Therefore, if the wording of the settlement agreement were to be read as an order of court it would have the effect of a declarator in that “the defendant becomes the owner of …).

This is quite different from the wording in the Marathon Earthmovers case where the agreement stated that:

The defendant will transfer his half-share of the immovable property to the plaintiff.

In the ex tempore judgment by Willis J in the Marathon Earthmovers matter, it was held that the Corporate Liquidators judgment was not applicable in that it related only to marriages in community of property.  Willis J further expressed the obiter remarks that in his view, the decision of the Full Bench of the Transvaal Provincial Division (as it then was) in the Corporate Liquidators case is not correct.  He further expressed his hope that the matter would be clarified by the Supreme Court of Appeal.

What is apparent from the aforegoing, however, is that a debtor who is married out of community of property cannot alienate immovable property by means of a settlement agreement and obtain the vesting of dominium simply by virtue of the order of divorce.  Registration of the immovable property into the name of the transferee would have to take place in the deeds office.  However, according to the Full Bench of the Transvaal Provincial Division, the same cannot be said where the debtor is married in community of property.  This state of affairs is open to abuse in that debtors seeking to avoid execution would be able to circumvent the execution process by vesting dominium of any immovable property to his/her spouse, by obtaining an order of divorce by means of a settlement agreement (a procedure which can be undertaken relatively speedily).

My submission, with respect, is that the Full Bench of the Transvaal Provincial Division failed to recognise that South Africa has a negative system of registration and that the contents of the deeds registry does not constitute absolute proof of the true state of affairs.  Therefore, any vesting of dominium in immovable property upon an order of divorce dissolving a marriage in community of property ought to be perfected by means of registration in the deeds office.

Hopefully the Supreme Court of Appeal will have the opportunity to clarify the position in future. 

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3 thoughts on “PROTECTION OF THE RIGHTS OF CREDITORS UPON THE DEBTOR’S DIVORCE: A CRITICISM OF THE JUDGMENT OF Corporate Liquidators (Pty) Ltd vs Wiggill, 2007 (2) SA 520 – Don Mahon

  1. Interesting article. Can you perhaps advised what happened on appeal? Was the half share of the property declared executable?
    Thank you
    Henriette

    • Hi Henriette

      Dos Santos applied for leave to appeal against Willis’ judgment and we successfully opposed the application for leave to appeal. The application for leave to appeal was dismissed with costs.

      • Thank you for your response. Can you perhaps email the SCA Judgment or alternatively provide the case citation?
        Thank you
        Henriette

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