The Supreme Court of Appeal has reminded us that a simulated transaction is one where all the parties to the intended contract disguise the true nature of the transaction. Where one party fraudulently causes the other party to enter into a transaction different from what they thought it was, it is an invalid transaction, not a simulated transaction.

Moneylenders devised and implemented a fraudulent scheme where people needing money unknowingly sold their homes to the lenders who then found a creditworthy purchaser for the home who took out bonds over the property to enable them to give the loan and to pocket a large proportion of the proceeds.

The bank sought to enforce the bonds in Absa v Moore. The court found the underlying agreement of sale was tainted by fraud and that there was no true consent. The transfer of ownership without the borrower’s knowledge and consent had no effect. The purchaser had not acquired ownership of the property. Therefore the mortgage bonds registered to secure the bank’s loans to the fraudulent purchaser were also invalid.

The purported purchaser had no legal capacity to register a bond over the property. He could not grant a real right in property that he did not own. The position would have been different if the borrowers were not the innocent victims of the fraudulent scheme.