Shabangu v Land and Agricultural Development Bank of South Africa and Others

The applicant and other respondents stood surety for loans advanced by the Land and Agricultural Development Bank (Land Bank), an organ of state, to Westside Trading 570 (Pty) Ltd for an urban property development. It later emerged that the Land Bank lacked statutory authority under the Land and Agricultural Development Bank Act 15 of 2002 to finance urban (non-agricultural) development, rendering the loan agreement invalid. After advancing substantial funds, the Land Bank ceased payment and claimed repayment. Westside’s financial director signed an acknowledgment of debt for R82 million, purporting to settle the indebtedness arising from the loan. Westside was later liquidated, and the Land Bank pursued the sureties based on the acknowledgment of debt rather than the original loan. The High Court upheld the claim against the sureties.

Leave to appeal was granted. The appeal succeeded with costs. The High Court order was set aside and replaced with an order dismissing the Land Bank’s claim against the sureties with costs.

The case clarifies that an acknowledgment of debt or compromise cannot validate or enforce an underlying agreement that is admittedly invalid, particularly where an organ of state acted beyond its statutory powers. It limits the extension of Panamo and confirms that suretyships cannot be enforced where the principal obligation merely perpetuates invalidity, reinforcing the principle of legality in state commercial activity.