In a decision involving an elaborate set of facts, the Supreme Court of Appeal reminded us of certain legal principles relating to parate executie and the performance of contracts which the law says have no force.
When an asset (in this case loan account claims) is ceded in securitatem debiti (as security), the principle of parate executie (immediate execution) permits the cessionary (recipient of the ceded right), upon the cedent’s default, to realise the cedent’s property without following any judicial procedure. This is one of the few situations in law where self-help is permitted. In this case the bank had, before exercising its rights of immediate execution, advised the other party of its intention to do so and given them an opportunity to make an offer to avoid that consequence. That is always a good idea. The sale of the asset by the bank was upheld by the court.
The other interesting thing about this judgment is the rejection of an argument by the appellant that an agreement between the bank which exercised its immediate execution rights and the purchaser did not exist because of non-fulfilment of a resolutive condition. The court quoted from a 1913 Appellate Division judgment which said: “It by no means follows that because a court cannot enforce a contract which the law says has no force, it would therefore be bound to upset the result of such a contract which the parties had carried through according to its terms. Suppose, for example, an … [oral] agreement of sale of fixed property …, a payment of the purchase price and due transfer of the land. Neither party would be able to upset the concluded transaction on the mere grounds … that it was in reality an agreement to sell, invalid and unenforceable in law.”
It is not open to a stranger to an agreement that has been carried through according to its terms by the contracting parties to challenge the already-performed transaction.