A simulated transaction occurs when the parties structure their transaction to achieve an objective other than the one that appears on the face of the agreement. Contracting parties may arrange their affairs to avoid a statutory prohibition as long as it does not result in a simulated transaction in fraud of the legislation.
A motor dealer bought two trucks from Nissan Diesel. The transaction was financed by Wesbank. Nissan Diesel sold the trucks to Wesbank who paid the purchase price. In terms of a floor plan agreement between Wesbank and the motor dealer, the vehicles were delivered to the motor dealer on the basis that Wesbank remained owner of the trucks until payment was received from the dealer. The sale of the goods by Wesbank was made on the suspensive condition that, until payment of the selling price was made by the dealer in full, the ownership in the goods did not pass to the dealer but remained with the bank.
The appellant, Roshcon (Pty) Limited, paid the dealer as purchaser of the trucks. Before the dealer could pay the bank it went insolvent and the bank took possession of the trucks and sold them for its own account. The ultimate purchaser sued for the vehicles on the basis that the floor plan agreement was a simulated agreement and was actually a loan against security of the trucks, not a sale of the trucks.
The enquiry is one of fact. The court will take into account the facts leading up to the contract and any unusual provisions in the contract and its real substance and purpose. It was held that Wesbank, Nissan Diesel and the dealer did not have a secret understanding between them. The floor plan agreement and the entire transaction was intended to have effect according to its terms. The reservation of ownership to Wesbank in the floor plan was good in law and not a simulation.