email this page

print this page

Sales in execution of property previously sold by the debtor

When a person gets seriously into debt and can see that creditors are soon going to be issuing summonses against him, taking judgments, and having his property sold in execution, it is very tempting for the debtor to try to dispose of his property to friends or, better still, family members – preferably at an undervalue – and often on the understanding (nudge, nudge, wink, wink) that the friend or relative will sell the property back to him in due course, or allow him to continue using it in the meantime.

In Dream Supreme Properties 11 CC v Nedcor Bank Ltd 2007 (4) SA 380 (SCA) the Supreme Court of Appeal made an important ruling in this regard.

The gist of the judgment is this. A judgment creditor who attaches (ie has the deputy sheriff take control of) immovable property of the judgment debtor is entitled to have that property sold in execution even if that creditor knows that the judgment debtor had previously sold that property to someone else, where registration of transfer had not yet been passed to that other person.

The doctrine of notice

Our law recognises the so-called "doctrine of notice" which says, in essence, that if A sells property to B (but has not yet delivered it) and then later sells it to C and delivers it to C, then C’s right to the property prevails over B’s right to the property – unless, at the time that C bought the property, he knew that it had been previously sold to B. Some writers suggested that, for C to purchase the property knowing of the earlier sale, was a kind of fraud.

Until this judgment, there was a school of thought which said that the doctrine of notice applies where a judgment creditor wishes to sell in execution property belonging to a judgment debtor. In terms of this view, if the judgment creditor knew that the debtor had previously sold the property to someone else, then he (the creditor) was not entitled to attach and sell that property in execution.

The Supreme Court of Appeal did not agree with this. The court ruled that a judgment creditor is in a different position from the second purchaser in a double sale of the kind outlined above.

This is because the rules of court allow a judgment creditor to attach and sell the debtor’s property in execution in order to satisfy the debt. If the law were to say that the prior sale took priority over the judgment creditor’s rights, this (said the court) would allow unscrupulous debtors to fabricate prior sales, and it would also create uncertainty, where property was sold in execution, as to whether the judgment creditor or the professed previous purchaser was entitled to the property.

email this page

print this page