ABSA Bank Limited v Van de Vyver NO

The respondent, as executrix of her late husband’s estate, disputed the amount owing to ABSA Bank Limited (as successor to Trust Bank) on two overdrawn current accounts secured by mortgage bonds. The deceased had ceded a life insurance policy to the bank as security, but the policy lapsed due to unpaid premiums. The respondent blamed the bank for the lapse and contended that the proceeds would have substantially reduced the debt. In July 1997, the respondent’s attorney sent ABSA a cheque for R180 000 expressly stated to be in full and final settlement of both accounts. ABSA deposited the cheque and appropriated the funds to one account, but informed the respondent that it did not accept the payment as full and final settlement and claimed that a much larger amount remained owing. ABSA later sued for the balance, while the respondent pleaded that the debt had been compromised.

The appeal was dismissed with costs, and the High Court’s decision that the claim had been settled by compromise was upheld.

The case clarifies South African law on payments made "in full and final settlement," particularly the distinction between payment of an admitted liability and an offer of compromise. It affirms that retention and appropriation of a cheque offered in full settlement can constitute acceptance of a compromise, even where the creditor purports to reject it. The judgment also dispels confusion arising from earlier case law concerning tender versus compromise and confirms that compromise does not constitute a prohibited variation of security instruments such as mortgage bonds.