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[2014] ZASCA 89
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Odendal and Another v Structured Mezzanine Investments (Pty) Ltd (482/13) [2014] ZASCA 89 (30 May 2014)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case
No: 482/13
In
the matter between
GERHARDUS
ADRIAAN ODENDAL &
ANOTHER
..................................................
APPELLANT
and
STRUCTURED
MEZZANINE
INVESTMENTS
(PTY)
LTD
........................................................................................
RESPONDENT
Neutral
citation:
G A Odendal v Structured
Mezzanine Investments
(482/13)
[2014]
ZASCA 89
(30 May 2014)
Coram:
Ponnan, Maya, Leach, Saldulker and
Swain JJA
Heard:
13 May 2014
Delivered:
30 May 2014
Summary:
General Law Amendment Act 50 of 1956 -
s 6 – deed of suretyship - validity of.
ORDER
On
appeal from:
Western Cape High Court
(Gamble J sitting as court of first instance)
The
appeal is dismissed with costs.
JUDGMENT
PONNAN
et SALDULKER JJA (MAYA, LEACH and SWAIN JJA concurring):
[1]
This appeal, with the leave of the court below, concerns the validity
of a suretyship. Judgment was granted by the Western Cape
High Court
(Gamble J) in the sum of R16 631 071,41, together
with interest and costs, in favour of the respondent,
Structured
Mezzanine Investments Limited (SMI), against the first appellant,
Gerhardus Adriaan Odendal (Odendal) and the second
appellant, Gabriel
Joshua Jordaan (Jordaan) in terms of that deed of suretyship (the
suretyship) which had been signed by the appellants
and Francois
Basson (Basson), who were the trustees of FXT Property Trust (the
Trust), as security for a loan to the Trust.
[2]
On 18 February 2008, SMI, a bridging financier, approved an
application by the Trust for a loan facility in the amount of R10
million to partly fund a sectional title development by the Trust in
Hermanus. In its letter of approval, SMI recorded,
inter
alia
, that as security for the loan a
second mortgage bond would have to be registered over erf 10965
Hermanus (the property), the trustees
would have to bind themselves
as sureties for all of the Trust’s obligations, and an
irrevocable guarantee would have to
be furnished on behalf of the
Trust to SMI. The terms and conditions recorded in the facility
letter were accepted by Basson on
behalf of the Trust by appending
his signature thereto on 7 March 2008. On 16 April 2008 Basson, duly
authorised by the Trustees,
signed a power of attorney authorising
the registration of a mortgage bond over the property in favour of
SMI as security for the
loan. On the same day Basson signed the
suretyship, as a surety and co-principal debtor in respect ‘of
any sum of money’
which the Trust may ‘now owe or in the
future owe’ to SMI arising from the loan agreement concluded
between SMI and
the Trust in April 2008.
[3]
On 24 April 2008 the trustees adopted a resolution authorising the
Trust to borrow R10 million from SMI. Basson was authorised
in his
capacity as trustee of the Trust to settle the terms and conditions
applicable to the loan and sign all documentation relating
thereto.
On the same day the appellants signed the suretyship, which provided
in clause 1:
‘
The
payment on demand of any sum of money together with all costs and
charges including legal costs as between attorney and own
client
which the Debtor may now or in the future owe to SMI arising from the
Loan agreement concluded between SMI and the Debtor
on or about
April 2008 (a true copy which (sic) is annexed hereto).’
A further material
term of the suretyship was, inter alia:
‘
4.
This suretyship shall remain in force and effect as a continuing
covering suretyship for the present and future indebtedness
and
obligations of the debtor to SMI
,
notwithstanding any interim fluctuation in the extinction (for any
period) or of indebtedness and subsequent incurring of any new
indebtedness or obligation by the Debtor to SMI and nothwithstanding
the death or other legal disability of any of us until terminated
in
accordance with the terms hereof.’
[4]
On 25 April 2008 Basson, on behalf of the Trust signed a Memorandum
of Agreement (the loan agreement), which recorded the undertaking
by
SMI to lend and advance R10 million to the Trust. The further
material terms of the loan agreement were, inter alia:
‘
3.1.1
the registration of a First or Second Covering Mortgage Bond by the
Borrower in favour of SMI over the property to the value
of
R10 000 000.00 (ten Million Rand)
. . .
3.1.2
A Deed of Suretyship signed by Francois, Gabri and Gerhard in terms
whereof they shall jointly and severally have guaranteed
the
obligations of the Borrower under this agreement in such form and
subject to such terms and conditions as SMI may reasonably
require
;
which shall continue to constitute security for all the Borrower’s
obligations to SMI from time to time including its obligations
arising out of this Loan Agreement.
. . .
4.2 Receipt and
approval of a Special Power of Attorney signed by Francois
authorizing the registration of a First or Second Covering
Mortgage
Bond in favour of SMI by the Borrower ranking as second charge over
the property to the value as set out in clause 3.1.1
above, upon
terms and conditions as registered by the attorneys;
4.3 Receipt and
approval of resolution by the Borrower [the Trust] authorizing the
entering into of this agreement and authorizing
Francois to sign all
documentation relating hereto on its behalf
;
4.4
Receipt of an irrevocable undertaking by the transferring attorneys
attending to the transfer of the Units in the development,
to
guarantee payment of the net proceeds of the sale of the Units
immediately on date of registration of transfer of the Units
to first
transferees, to SMI in settlement of the outstanding capital sum due
to SMI. . .’
[5]
On 8 May 2008 attorneys Jordaan & Associates (per Jordaan)
furnished the irrevocable guarantee sought by SMI in these terms:
‘
1.
We have been instructed that you have agreed to loan and advance an
amount of R10 000 000.00 (Ten Million Rand) plus
costs and
interest to [the Trust] on the terms and conditions set out in the
Loan Agreement [the loan Agreement] to be entered
into between, inter
alia, our client and yourselves.
2. We confirm that
we have received a written and irrevocable appointment by [the Trust]
to attend to the opening of the abovementioned
sectional title scheme
and to attend to the transfer of the units in the Development from
our client to the purchasers thereof.
. . .
4.
We confirm that this undertaking may not be revoked.’
[6]
On 25 May 2008 the loan agreement was signed on behalf of SMI. On
29 May 2008 SMI advanced the capital sum of R10 million
to the Trust.
A further sum of R1.4 million was advanced by SMI to the Trust
on 27 October 2008. When the Trust defaulted
in making payments under
the loan agreement, SMI launched application proceedings against it,
as well as the sureties, seeking
judgment jointly and severally, for
payment in the sum then outstanding of R16 631 071,41.
[7]
In an answering affidavit filed on behalf of the appellants, neither
the existence of the loan agreement nor the suretyship
was disputed.
The appellants restricted themselves to two defences, namely, that:
‘Applicant [SMI] would be repaid from the
development and,
although we bound ourselves as sureties, stood no real risk of being
called upon to pay’; and, ‘[t]he
interest
rate of 1,25% per week, stipulated in the loan agreement, escalated
to 1,5% per week in the event of default, is against
public policy
and should . . . not be enforced’. When the matter came
before Van Staden AJ both of those defences were
abandoned, and for
the first time the validity of the deed of suretyship was placed in
issue. Van Staden AJ, who it would appear
entertained some
reservations as to the validity of the suretyship, entered judgment
against the Trust but postponed the application
against the
appellants and granted leave to the parties to supplement their
papers if so advised. SMI duly supplemented its
papers. The
appellants filed answering affidavits in response, stating that when
they signed the suretyship the loan agreement
was not then in
existence. The matter ultimately came to be argued before Gamble J.
By that stage, Basson, whose estate had been
sequestrated, had fallen
out of the picture. Gamble J found in favour of SMI and entered
judgment against the appellants.
[8]
The gist of the argument advanced on behalf of the appellants on
appeal is that the deed of suretyship did not comply with the
requirements of s 6 of the General Law Amendment Act 50 of 1956 (the
Act), inasmuch as: first, the principal debt was not in existence
at
the time of the conclusion of the suretyship; and, second, clause 1
of the suretyship was not a reference to the loan agreement
that in
due course came to be concluded between the parties. Section 6
is in these terms:
‘
No
contract of suretyship entered into after the commencement of this
Act, shall be valid, unless the terms thereof are embodied
in a
written document signed by or on behalf of the surety:’ (The
proviso which is not here relevant has been omitted)
As
to the first
:
[9]
As far as the parties in the present proceedings are concerned, the
suretyship in essence amounts to a promise by each of the
appellants
to SMI to guarantee any indebtedness which the Trust may now or in
the future incur to SMI. It is indeed so that a contract
of
suretyship is accessory in the sense that it is of the essence of
suretyship that there be a valid principal obligation (that
of the
debtor to the creditor). But, that the loan agreement between the
Trust and SMI had not yet been concluded, is in and of
itself no
barrier to the potential validity of the suretyship contract. As was
pointed out by Corbett JA in
Trust Bank
of Africa Ltd v Frysch
1977 (3) SA 562
(A) at 584G-H, ‘
…
it is not
essential that the principal obligation exists at the time when the
suretyship contract is entered into. A suretyship
may be contracted
with reference to a principal obligation which is to come into
existence in the future.’
As
to the second:
[10]
In this instance, in terms of the suretyship, the appellants are
potential principal debtors and potential sureties. As sureties,
they
are liable to SMI for the principal debt created by the suretyship,
namely the debt arising from the loan agreement between
SMI and the
Trust. But, contend the appellants, that agreement, being the one
giving rise to the principal debt, is not the one
to which reference
is made in the suretyship. The suretyship refers to an already
concluded loan agreement. But it is undisputed
that at the time of
the signing of the suretyship and despite the reference therein to an
already concluded agreement no such agreement
had in fact been
concluded. In
Sapirstein
&
others v Anglo African
Shipping Co
(SA) Ltd
1978 (4) SA 1(A)
at 12B-D, Trengove AJA
stated:
‘
What
s 6 requires is that the “terms” of the contract of
suretyship must be embodied in the written document. It was
contended
by counsel for plaintiff that this meant that the identity of the
creditor, of the surety and of the principal debtor,
and the nature
and amount of the principal debt, must be capable of ascertainment by
reference to the provisions of the written
document, supplemented, if
necessary, by extrinsic evidence of identification other than
evidence by the parties (ie the creditor
and the surety) as to their
negotiations and consensus. I agree with this contention. In my view,
there can be no objection to
extrinsic evidence of identification
being given, either by the parties themselves, or by anyone else,
unless the leading of such
evidence can be said to amount to an
attempt to supplement the terms of the written contract “by
testimony as to some negotiation
or consensus between the parties
which is not embodied in the written agreement” (see
Van
Wyk v Rottcher’s Saw Mills (Pty) Ltd
1948 (1) SA 983
(A) at 991).’
[11]
It is contended by SMI that what saves the suretyship, despite its
deficiency, from extinction, was the reference to the loan
agreement
ultimately concluded, which, it was said, was incorporated by
reference into the deed of suretyship. Incorporation by
reference, as
the name implies, occurs when one document supplements its terms by
embodying the terms of another.
It is now settled
that a deed of suretyship that omits essential terms may nonetheless
be saved from invalidity by virtue of the
doctrine of incorporation
by reference. (See
Fourlamel (Pty) Ltd v
Maddison
1977 (1) SA 333
(A);
Industrial Development Corporation of SA
v Silver
2003(1) SA 365 (SCA).) Scott
JA observed in
Industrial
Development Corporation
, para13 that:
‘Extrinsic evidence identifying the loan agreements as the one
referred to is all that would be required and
is therefore
admissible.’
[12]
The deed of suretyship in this case identifies the principal
obligation by direct reference to the loan agreement. Much evidence
was placed before the high court as forming part of the background
facts relevant to and proper for consideration in relation to
the
question now being considered, namely, whether the requirements of s
6 were met. All of that evidence served, moreover, to
identify the
acknowledgement of debt referred to in the suretyship. Thus in his
supplementary affidavit filed on behalf of SMI,
Du Plessis stated (as
summarised by Gamble J):
‘
27.1
On 16 April 2008 Basson attended on the offices of SMI’s
attorneys in Cape Town.
27.2 At a meeting
with SMI’s attorney that day, Basson “signed all the
documents, including the loan agreements and
the deed of suretyship”
in the presence of the attorney.
27.3 Basson
explained to SMI’s attorney that he would meet with Odendal and
Jordaan (who could not make the meeting) for purposes
of procuring
their signatures on the various documents, including the loan
agreement and the suretyship.
27.4 Sometime
between 16 and 24 April 2008 Basson contacted a director of SMI and
proposed three minor amendments to the draft loan
agreement. It is
contended that these were not contentious and that SMI agreed
thereto. SMI also instructed its attorneys to make
the necessary
amendment to the draft loan agreement.
27.5 A copy of the
loan agreement in its form prior to these three amendments, and as
signed by Basson on 16 April 2008, was annexed
by Du Plessis to the
supplementary affidavit.
27.6 On 25 April
2008 SMI’s attorney met Basson at the latter’s office and
was handed a number of documents by Basson.
These included the signed
deed of suretyship, the loan agreement as already signed by Basson on
16 April 2008 (in its unamended
form), and the unsigned amended loan
agreement.
27.7 During the
aforesaid meeting with SMI’s attorney Basson informed the
latter that Jordaan had informed him, when signing
the deed of
suretyship the previous day, that he wanted a further amendment to be
made to the draft agreement viz.to clause 9.1.1
thereof which governs
the procedure to apply on default by the debtor.
27.9 Du Plessis says
that according to Basson SMI’s attorney was amenable to that
amendment and a manuscript alteration was
made to clause 9.1.1 of the
amended draft of the loan agreement. This alteration is visible on
the signed loan agreement filed
with the founding affidavit.
27.10
On the same day (25 April 2008) Basson handed to SMI’s attorney
the trustees’ resolution referred to above, which
also bore the
signatures of Odendal and Jordaan. Du Plessis draws attention, once
again, to the fact that the resolution identified
both the nature and
the amount of the principal debt.’
[13]
Earlier in that affidavit, Du Plessis asserted (para 23):
‘
From
the above it is evident that, although the loan agreement in its
final signed form as attached to the founding affidavit was
not in
possession of Odendal and Jordaan at the time they signed the deed of
suretyship, they were in fact in possession of a copy
of the loan
agreement in the exact same terms save for the four amendments
referred to above, which amendments were effected subsequently.
It is
further evident that the four amendments did in no way whatsoever
affect the principal debt. Accordingly, the document which
was
attached to the deed of suretyship at the time it was signed by
Odendal and Jordaan properly and sufficiently identified the
principal debt for which they signed surety. Furthermore, the four
amendments which were effected were in fact proposed by Basson
and
Jordaan, ostensibly after consultation with Odendal. I reiterate that
those amendments did not in any way whatsoever affect
the extent or
nature of the principal debt.
’
The supplementary
answering affidavit filed by the appellants in response, like its
predecessor, was scant. Odendal, who deposed
to that affidavit
stated:
‘
The
Suretyships and resolution were signed by Jordaan and myself at
Jordaan’s offices on 24 April 2008 after Basson handed
it to
Jordaan for signature. The loan agreement was definitely not handed
to us nor attached to any document we signed. We were
asked to sign
the suretyships at that stage and were told that the loan agreement
would be concluded later. I did not even read
the terms of the
suretyship due to the factors set out above. 6
th
Respondent and I are not aware what happened at the meetings between
the meetings between Applicant and First Respondent nor what
was said
between them.’
[14]
Gamble J observed:
‘
I
am satisfied that Du Plessis’s summary of events in the
supplementary affidavit, and the conclusions to be drawn therefrom
as
set out in the said paragraph 23, are a correct and accurate
reflection of the state of play at the time the suretyship was
signed. To the extent that there are disputes of fact put up by
Odendal in the supplementary answer, I do not believe that such
disputes survive the test in
Plascon-Evans
:
they are fanciful and designed to be apparent rather than real. The
question that then arises is whether this additional evidence
is
admissible in light of the parole evidence and integration rules.’
The
learned judge accordingly concluded:
‘
I
have already found that the denial by Odendal and Jordaan that the
partially signed, unamended agreement was annexed to the suretyship
is not worthy of serious credence. But even if I am wrong in this
regard, it matters little to my mind that the document was not
attached: it was readily capable of identification by the parties,
was in existence at the time the suretyship was signed, had
been
signed by Basson on behalf of the trust and the material terms
thereof had been agreed upon.’
[15]
In our view this evidence is decisive with regard to the
identification of the loan agreement referred to in the suretyship.
Moreover, the appellants were not strangers to either transaction -
qua trustees, they had: resolved to borrow the money from SMI
on
behalf of the Trust; authorised various actions to secure the loan,
including, but not limited to, the signing of the suretyship
agreement, the registration of a mortgage bond over the property and
the furnishing of an irrevocable guarantee. In addition, the
terms of
the loan facility approval of February 2008, which Basson signed on
behalf of the Trust, mirrored in material respects
those of the loan
agreement. Tellingly, in Jordaan’s application for the
sequestration of the Trust, he recorded that he
and Odendal regarded
themselves as indebted to SMI by virtue of the deed of suretyship
that they had concluded in respect of the
Trust’s indebtedness
to SMI. That was consistent with their initial approach in these
proceedings, when the validity of the
suretyship was not placed in
issue. It is thus difficult to resist the conclusion that the
defence, which came to be raised midstream
in these proceedings, was
contrived.
[16]
It must follow that the defence raised that the deed of suretyship is
invalid for lack of compliance with s 6 of the Act must
fail, for
reading the written loan agreement as incorporated into the
suretyship, which expressly refers to it, the requirements
of that
section are satisfied. In the result the appeal must fail.
[17]
The appeal is dismissed with costs.
_________________
VN
PONNAN
JUDGE
OF APPEAL
_________________
HK
SALDULKER
JUDGE
OF APPEAL
APPEARANCES
For
appellant: L M Olivier SC
Jordaan
& Associates, Somerset West
Rossouw
& Conradie, Bloemfontein
For
respondent: J F Pretorius
Sim
& Botsi Attorneys, Johannesburg
Smit
Rowan Attorneys, Cape Town
Symington
& De Kock, Bloemfontein