Mhlari NO and Others v Nedbank Limited

On 7 May 2013, Nedbank and the Patrick Malabela Family Trust concluded a loan agreement for R14 million, secured by a mortgage bond over trust property and suretyships. The Trust was represented by the second appellant. Nedbank advanced the full amount and the Trust made regular payments until defaulting in June 2018. Nedbank sued for R12,316,632.37. The appellants defended on the basis that the Trust lacked capacity to contract because at the time of contracting only two trustees were in office, whereas the trust deed required a minimum of three trustees. A third trustee was only appointed on 4 October 2018. The appellants argued the loan agreement and mortgage bond were consequently null and void. Nedbank subsequently added an alternative claim based on unjust enrichment. The appellants raised a special plea of prescription against this alternative claim and counterclaimed for cancellation of the mortgage bond.

• Whether a trust has the capacity to contract when fewer trustees are in office than required by the trust deed
• Whether the principles of ostensible authority and estoppel can validate an otherwise void contract concluded by a trust lacking capacity
• Whether Nedbank's enrichment claim had prescribed in terms of section 12(3) of the Prescription Act 68 of 1969
• Whether Nedbank's enrichment claim should be determined according to the condictio indebiti or the condictio sine causa specialis
• Whether Nedbank's mistake in advancing the loan was reasonable and excusable

1. The appeal was upheld. 2. The cross-appeal was upheld with costs, including costs of two counsel. 3. The High Court order was set aside and substituted with an order that: (a) the trustees of the Patrick Malabela Family Trust pay R5,436,347.57 to Nedbank plus mora interest from 12 September 2019; (b) Nedbank cancel the mortgage bond; (c) if Nedbank fails to cancel within 30 days, the sheriff is authorized to do so; and (d) the trustees pay Nedbank's costs of suit.

1. A provision in a trust deed requiring a minimum number of trustees is a capacity-defining condition that must be fulfilled before the trust estate can be bound. When fewer trustees than specified are in office, the trust lacks capacity to contract. 2. Where a party pleads an enrichment claim specifically alleging payment made 'indebiti' in reasonable but mistaken belief that money was owing, the claim falls within the condictio indebiti rather than the condictio sine causa specialis, and the party must prove all elements of that condictio, including that the mistake was reasonable. 3. In determining whether a mistake was reasonable and excusable for purposes of the condictio indebiti, the court must consider: the relationship between parties, the conduct of the enriched party, whether that party was aware of or contributed to the mistake, the payer's state of mind, and the culpability of the payer's ignorance. 4. A creditor is not deemed to have knowledge of facts for prescription purposes under section 12(3) of the Prescription Act where the debtor has made representations warranting capacity and the debtor has acquiesced in performing the contract, even if the creditor could theoretically have discovered the incapacity by investigation.

The Court noted that while it is not generally necessary for a claimant to commit in its pleadings to either the condictio indebiti or condictio sine causa specialis to the exclusion of the other, and while as a general legal proposition a payment made pursuant to a void contract may be recovered under the condictio sine causa specialis (as there was no causa for payment), in this particular case holding Nedbank to its pleaded reliance on the condictio indebiti made no difference to the outcome given the reasonableness of its mistake. The Court also observed that the principles underlying the condictiones are not immutable but are constantly evolving to accommodate new circumstances, and that the condictio indebiti is an equitable remedy designed to prevent unjust enrichment.

This case clarifies important principles in South African law regarding unjust enrichment claims, particularly: (1) the distinction between the condictio indebiti and condictio sine causa specialis; (2) that while a plaintiff need not necessarily commit to one condictio exclusively in pleadings, where the pleading clearly brings the claim within the ambit of one condictio (here, the condictio indebiti), the plaintiff will be held to that cause of action; (3) factors relevant to determining whether a mistake was reasonable and excusable in the context of enrichment claims, including the conduct of the enriched party, representations made, and acquiescence in performance; (4) the application of section 12(3) of the Prescription Act in circumstances where one party has made representations about capacity; and (5) reaffirmation that a trust's capacity to contract depends on compliance with internal requirements regarding the number of trustees, and that estoppel cannot cure such incapacity.