## Facts

- A company controlled by two joint managing directors obtained overdraft facilities from a bank.
- The bank took security consisting of (i) deeds of suretyship executed by the two directors and (ii) a mortgage bond over immovable property.
- The company later entered into a forward foreign-exchange contract with the bank; the bank alleged the company unlawfully repudiated it, causing damages.
- The company repaid the overdraft in full and the account was closed.
- The company and the two sureties demanded release and return of the suretyships and cancellation/release of the mortgage bond.
- The bank refused, claiming a right to retain the securities as cover for a prospective, unliquidated damages claim arising from the alleged repudiation of the forward contract.
- The sureties sought an order compelling release of the securities; they invoked dolus generalis and relied on the exceptio/replicatio doli generalis to defeat the bank’s asserted retention right.
- The trial court ordered the bank to release the securities; the bank appealed.

## Issues

1. Whether the exceptio doli generalis (and replicatio doli generalis) exists in modern South African law as an independent, equitable defense allowing a court to refuse enforcement of contractual rights on broad grounds of “dolus” or unconscionability.
2. Whether, properly construed, the suretyships and mortgage bond entitled the bank to retain the securities after discharge of the overdraft to secure a disputed, unliquidated damages claim arising from a separate forward foreign-exchange contract.

## Decision

- The Appellate Division dismissed the bank’s appeal and upheld the order compelling release of the securities.
- The court held (majority) that the exceptio doli generalis and replicatio doli generalis are not part of modern South African law as free-standing substantive defenses.
- On interpretation of the security instruments, the court held the bank had no contractual right to retain the suretyships and mortgage bond once the overdraft indebtedness was fully discharged.
- The bank could not hold the securities as cover for an unrelated, disputed, unliquidated damages claim based on the forward foreign-exchange contract.
- A dissent would have recognized a continuing role for the exceptio/replicatio doli generalis as a substantive defense in appropriate cases.

## Legal Principles

- Courts will not recognize an open-ended “equitable” defense (exceptio/replicatio doli generalis) as an independent basis to deny enforcement of contractual rights; unfairness and abuse must be addressed through established doctrines and proper construction of the parties’ agreements.
- Security instruments (including suretyships and mortgage bonds) are construed in context and by reference to their purpose; broad wording does not, without clear support on a proper reading, convert security for a specific credit facility into general security for unrelated, contingent claims.
- After the secured principal indebtedness is extinguished, a creditor must release security unless the agreement clearly provides for continued retention to secure further specified obligations.

## Conclusion

The court rejected the exceptio doli generalis as a free-standing defense and resolved the dispute through contractual interpretation, holding that securities given for an overdraft had to be released after the overdraft was repaid and could not be retained to secure a separate, disputed damages claim.


Bank of Lisbon & S. Afr. Ltd. v. De Ornelas, 1988 (3) S. Afr. L.R. 580 (S. Afr. App. Div. 1988)