The Land and Agricultural Development Bank of South Africa lent the sum of R18.5 million to Panamo Properties 103 (Pty) Limited to enable it to purchase agricultural land that was going to be developed into a township. That agreement was invalid. The mortgage bond registered over the property to secure the loan was nonetheless valid to cover any enrichment claim to get the R18.5 million back because the wording of the mortgage bond was broad enough to cover the enrichment claim.

All mortgage bonds are accessory to another obligation. Mortgages secure underlying obligations. There must be a legal or natural obligation for which the mortgage is security.

Although the bond was passed to secure performance under the loan it was a covering bond providing security for any existing or future debt that Panamo Properties owes or may owe to the bank. A default included the failure to meet any obligation or commitment to the bank. There are other references to the bond covering “other money … which may at any time become owing or payable from whatsoever cause”.

Other clauses in the bond did not quite fit the enrichment claim, but did not preclude it. The bond was said to be “not a model of clarity”. But as a whole the court could find no basis for limiting the broad and all-encompassing language referred to above. The bond was therefore security for a claim for repayment of the enrichment action for money paid over without lawful cause.

There is a general lesson to be learnt from this case. Firstly, mortgage bonds must be drafted as continuing covering mortgage bonds to cover all debts by the borrower including an enrichment claim that arises if the underlying transaction is unenforceable or invalid. Secondly, all the clauses in the bond must be drafted to be consistent with that outcome.