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[2012] ZAECPEHC 13
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Absa Bank Ltd v Trzebiatowsky and Others (2240/2010) [2012] ZAECPEHC 13; 2012 (5) SA 134 (ECP) (23 February 2012)
Reportable
IN THE HIGH COURT OF SOUTH AFRICA
EASTERN CAPE – PORT ELIZABETH
Case No: 2240/2010
Date Heard: 16/02/12
Date Delivered: 23/02/12
In the
matter between
ABSA
BANK LIMITED
…..........................................................
Plaintiff
and
PAUL DENEYS TRZEBIATOWSKY
….............................
First
Defendant
BARBARA TRACEY TRZEBIATOWSKY
(formerly WOOD)
…...............................................
Second
Defendant
PAUL DENEYS TRZEBIATOWSKY N.O.
…....................
Third
Defendant
MARK BRADLEY N.O.
…...........................................
Fourth
Defendant
GAVIN McNISCH N.O.
….............................................
Fifth
Defendant
(in their
capacities as Trustees of the Trez Trust)
J U D G M E N T
REVELAS
J
[1] The
issue to be decided in this matter is whether the directors of three
companies who in obtaining financial assistance from
the bank for a
business venture, and had signed deeds of surety in favour a bank in
their personal capacities, can escape liability
on the basis that
they did not understand the nature of the documents they were
required to sign.
[2] The
plaintiff, Absa Bank, instituted action against the five defendants,
jointly and severally, for payment of an amount of
R7 809 810.43,
plus interest and costs, arising from a loan and deeds of suretyship
signed as security for repayment
of the loan. The third, fourth and
fifth defendants are cited in their capacities as trustees of the
Trez Trust, and the plaintiff
obtained summary judgment against them.
The first and second defendants, who had signed deeds of suretyship
in their personal capacities,
were granted leave to defend the
action.
[3] The
two defendants contended that they were unaware, when they signed the
suretyship agreements, that they would incur personal
liability for
the repayment of the loans made to three companies to be formed:
Shelfcat 4 (Pty) Ltd, Shelfcat 23 (Pty) Ltd and
Star Coded Designs
(Pty) Ltd (the companies). Both defendants were directors of the
three companies. The first defendant is also
cited as the third
defendant, in his capacity a trustee of the Trez Trust. The
defendants’ main contention is that, had the
plaintiff’s
relationship manager, Mr Neels van Niekerk, who was present at most
of the discussions concerning the financing
of the intended business
venture as well as the relevant signature meeting of 7 October 2008,
alerted them to the nature and consequences
of the documents they
were about to sign, they would not have signed the suretyships.
[4] The
facts that gave rise to this action are briefly the following: The
first defendant and the second defendant were married
on 29 June
2008, after having been involved in a close relationship for a long
time. Sometime during 2007, or prior thereto, the
second defendant
introduced a Mr Christopher Sam to the first defendant after she
caused an alarm security system to be installed
at Mr Sam’s
home. It was then that she learned that Mr Sam was desirous of
selling three Woolworths stores, (one in Jeffrey’s
Bay and the
other two in Port Elizabeth), as he intended immigrating. The first
defendant, a businessman, became interested in
buying into the
Woolworths franchise, which to him presented a promising business
opportunity. Protracted negotiations followed
as the parties were
unable to agree on a purchase price.
[5]
Initially the parties intended that the three companies in question
would purchase all the assets in terms of an ordinary sales
transaction. Mr Sam, however, raised concerns about capital gains
tax. This led to a differently structured agreement, to the effect
that the companies (to be formed) would purchase all the shares in
the franchise held by Mr Sam’s Family Trust. It was agreed
that
the Trez Trust would stand surety for the companies in this
transaction.
[6] The
first defendant consequently approached the plaintiff for financial
assistance which brought Mr Neels van Niekerk into the
picture.
According to Van Niekerk, the second defendant, at his behest, came
to the bank on 7 October 2008, to sign the personal
surety documents,
to which she appended her signature on that very day. She had been
appointed as a second director of the companies
and was she was
furthermore tasked with
inter alia,
purchasing all the
textiles for the three Woolworths stores.
[7] The
first defendant wearing the hat of trustee of the previously dormant
Trez Trust and by virtue of the resolution passed the
month before
(18 September), also signed deeds of suretyship in terms of which the
trust bound itself as surety and co-principal
debtor, together with
the three principal debtors (the companies) on three separate, but
almost identical documents, for the payment
of the amounts owed by
them to the plaintiff.
[8] The
three principal debtors also entered into reciprocal suretyship
agreements. These were also signed by the first defendant.
The first
defendant was required to sign fifteen deeds of suretyship: in his
capacity as trustee, director and in person. He testified
that the
multitude of documents placed before him for signature caused him to
sign them without reading them which he said would
not have done had
he been properly alerted to the contents and effect thereof. The
second defendant signed three deeds of suretyship
binding herself in
her personal capacity. The companies are presently in final
liquidation.
[9] Having
testified and made certain concessions in cross-examination, the
first defendant consented to judgment, in the amount
as claimed.
Judgment was accordingly entered and the matter proceeded against the
second defendant.
[10] The
second defendant’s defence was that she was unaware of what she
was signing. She testified that she was simply requested
by her
husband, the first defendant, to come to Absa bank in order to sign
some documents. Having arrived there and at a meeting
with Van
Niekerk, she said she was given a pile of documents, which she
described as “a lot of paper work”, which she
was
requested to sign. In cross-examination she conceded that a large
pile of documents in fact was placed before the first defendant
and
that only the three documents which she was required to sign, were
handed to her. Mr van Niekerk, she maintained, failed to
advise her
that by her signature she would bind herself to become personally and
stated that if the consequences of appending her
signature had been
explained to her, she most certainly would not have signed the
documents. In giving the reasons for signing
the documents she
professed her ignorance concerning the concepts of suretyship and
warranties and further that she trusted Van
Niekerk with whom she had
prior business dealings when the alarm system was installed for him
and his father. She added that she
also had met Van Niekerk on some
occasions when discussions were held with Mr Sam concerning the
business venture. At none of these
meetings she said, was any mention
made that she, or the first defendant would be required to sign
personal suretyship agreements.
Finally, she denied having any
knowledge of the general practice observed by banks in requiring
directors of companies to furnish
personal security in respect of
loans granted to such companies.
[11]
Counsel for the second defendant submitted the parties were not
ad
idem
when the suretyship agreements were concluded, and that in
the absence of the second defendant’s knowledge as to the
contents
thereof, the deeds of suretyship were not binding on her: a
defence thus of
iustus error
.
[12] It is
common cause that Van Niekerk had pointed out that the documents in
question were suretyships in favour of the plaintiff,
and that his
assistant, Ms Joey van Niekerk, pointed out where the signatures had
to be appended. The words next to the line where
the second defendant
appended her signature, clearly indicate that she signed in her own
name. Of importance is the clause in the
suretyship agreements
providing for unlimited liability: the second defendant was
specifically requested to sign in full (as opposed
to only
initialling it) next to the clause in all three documents, which she
did. On her version this requirement should have caused
her concern.
It evidently did not and she made no attempt to obtain clarity as to
the meaning of this clause. Her faint explanation
was simply that she
trusted her husband and Van Niekerk.
[13] In
order to succeed in the defence of
iustus error
the second
defendant must show that she was misled as to the nature of the deeds
of suretyship or as to the terms which they contained,
or by some act
or omission on the part of Van Niekerk, if there was a duty on him to
inform the defendants (in particular the second
defendant) of the
consequences of signing the personal sureties. Such duty would only
arise where the document departed from prior
representations as to
the nature or contents thereof (see
Tesoriero v Bhyjo Investments
see Share Block Pty Ltd).
1
[14] It is
true that Van Niekerk did not single out the personal sureties
amongst the others in order to alert either of the defendants
to the
personal risks involved in signing those documents. It was moreover
common cause that the second defendant was not present
at all the
meetings with Van Niekerk. It can safely be assumed that she was not
as
au fait
as her husband concerning the details of the
financial transaction. The question therefore arises whether Van
Niekerk was in duty
bound to explain to her the personal risks of
signing the sureties.
[15] Ms
Enslin
, who appeared for the second defendant, placed reliance
on the judgment in
Brink v Humphries
2
in support of the defence raised by the second defendant. In that
matter, the surety similarly maintained that at the time of signature
of a credit application form on behalf of a debtor, he was unaware
that it contained a personal suretyship obligation. The facts
of that
matter suggest that the form was indeed misleading and induced a
fundamental and genuine mistake in the mind of the appellant:
he
thought he was signing a credit application form on behalf of a
company, whereas it in truth was a personal surety. The surety
obligation was accordingly held to be void,
ab initio
.
[16] In
the more recent decision of
Slip Knot Investments 777 du Toit
3
,
the defence of
iustus error
was also raised where the
omission of a third party (to inform the defendant of the nature of
the document he was called upon to
sign), was relied upon. The court
a quo
found that the respondent, a farmer, had nothing to do
with the loan made in that matter, and had made a reasonable mistake,
as
he did not expect the suretyship he signed amongst the documents
sent to him. The Supreme Court of Appeal in
Slip Not
recognized the principle that a party is permitted to rely on his or
her own mistake in certain circumstances, except where the
other
party has not made any misrepresentations
4
,
as was held in
National and Overseas Distributors Corporation
(Pty) Ltd v Potato Board
5
.
The Court also deferred
6
to the decision in
Sonap Petroleum (SA) Pty Ltd v Pappadogianis
7
where the ‘decisive question’ to be asked in these type
of matters was summed up as follows:
“
(D)id the party whose actual
intention did not conform the common intention expressed, lead the
other party, as a reasonable man,
to believe that his declared
intention represented his actual intention? . . . To answer this
question, a three-fold enquiry is
usually necessary, namely, firstly,
was there a misrepresentation as to one party’s intention;
secondly, who made that misrepresentation;
and thirdly, was the other
party misled thereby? . . . The last question postulates two
possibilities: Was he actually misled and
would a reasonable man have
been misled?”
8
[17] In
upholding the appeal in
Slip Knot
the court held that a person
who was induced to sign a surety by the fraud or misrepresentation of
a third party (in that case the
respondent’s brother who wanted
a loan from the family trust for a business venture) will
nevertheless be bound by the agreement
if the lender is innocent and
unaware of the surety’s mistake. The lender would be entitled
in those circumstances, to rely
on the appearance of liability
created by the surety’s signature, thus precluding the surety
from setting up his or her own
mistake to escape liability.
9
[18] In
formulating the aforesaid, Malan JA also relied on the principle
formulated in
Constantia Insurance Co Ltd v Compusource (Pty)
Ltd
10
,
that a contracting party is generally not bound to inform the other
party of the terms of the proposed agreement, but is required
to do
so where there are terms that could not reasonably have expected to
be in the contract. The learned Judge, having applied
applied the
aforesaid to the facts in
Slip Knot,
continued as follows
11
:
“
I can find nothing
objectionable in the set of documents sent to the respondent. Even a
cursory glance at them would have alerted
the respondent that he was
signing at deed of suretyship”.
It was further stressed that the farmer in that matter was a trustee
who had dealt with his own trusts. Applying these considerations
to
the present matter “a cursory glance” at the deed of
suretyship may have alerted the first defendant, but not the
second
defendant, if her professed ignorance was genuine.
[19] The
second defendant had always been employed in the business sector,
albeit in the marketing side. It is improbable that she
had never
heard of sureties or never signed any documents in her work
situation. On this score the evidence of the second defendant
was
less than satisfactory: she reluctantly answered questions and became
visibly agitated.
[20] The
second defendant was the co-director, together with her husband, of
the companies to be formed. Her husband had considerable
business
experience. The copies of the internal communications between Van
Niekerk and the loan sanctioner (the manager who approved
the
financing in question), were presented in evidence. These
communications clearly demonstrated that information was gathered
about the two defendants which could only have been obtained from the
defendants themselves, and which portrayed them as highly
suitable
business people. The defendants testified that the second defendant
was appointed as a director to enable her to make
independent
decisions, as she was to bear the responsibility of purchasing
textile items to be sold in the three Woolworths stores.
She was a
career woman who had always worked in the business sector. It
happened to be in this very capacity that Mr van Niekerk
first met
her,
ie
when the ‘Voice Alert’ alarms were
installed at his home and that of his father.
[21]
Against this background Van Niekerk, in my view, had no reason to
suspect the degree of ignorance relied upon by the second
defendant.
[22]
According to Van Niekerk, the only purpose for requiring the second
defendant’s presence at the signature meeting of
7 October 2008
was for her to sign the personal sureties. The second defendant did
not make any effort to establish why she, as
a director of the three
companies concerned, was called upon to sign the documents which she
maintains she did not read. The deeds
of suretyship in any event,
were not part of a pile of documents as the second defendant
initially attempted to convey in her evidence.
[23] In my
view, it would be almost inconceivable that a bank would not require
security from directors in their personal capacity
in circumstances
such as these. The only other surety in this case was the Trez Trust
which was a dormant trust. It was also established
during
cross-examination of the first defendant, (who conceded the point),
that there were indeed insufficient securities, bar
the personal
sureties of the directors, to cover the amount of financing required.
The requirement of personal sureties to be given
by the directors in
this matter is consonant with prudent bank practice. The fourth
defendant, who was also the first defendant’s
accountant,
conceded this point in his evidence. Van Niekerk testified that at
the commencement of the negotiations (or about that
time), he had
informed the first defendant that personal sureties would be
required.
[24] The
surety deeds did not contain any unusual or unexpected clauses. The
limitation clause, as I have mentioned, was pointed
out to the second
defendant and her full signature was required next to it. All three
documents placed before her were surety deeds
from which it was
apparent that they had to be signed in her personal capacity. In the
present matter, there is no basis to find,
as was found in
Brink
Humphries (supra),
that the document in question was “a
trap for the unwary and that the appellant was justifiably misled by
it”.
12
If the principles enunciated in the cases I have referred to above,
are applied, Van Niekerk was not under any duty to alert the
second
defendant of the risks involved in signing the surety agreements in
question. As stated in
Langeveld v Union Finance Holdings (Pty)
Ltd,
13
the second defendant was no “babe-in-the-wood” where
facts similar to the present matter were considered.
[25] In
Roomer v Wedge Steel (Pty) Ltd
14
the suretyship was contained in a clause in a bold font, headed
‘Agreement of Sale and Suretyship’. In that matter
the
defence of ignorance was rejected and the court held that the
creditor reasonably relied on the surety’s consent. In
the
Langeveld
matter, the court applied the ‘
praesumptio
hominis’
(popular presumption) in holding that there was a
strong presumption that anyone who has signed a document had the
intention to
enter into the transaction contained in it, and the
surety is burdened with the
onus
of convincing the court that
he or she had not intended to enter into the contract. The maxim
caveat subscriptor,
then finds application. This principle in
our law that a person who signs a contract, is taken to be bound by
the ordinary meaning
and effect of the words which appear over his
signature, is still regarded as valid.
15
The second defendant’s defence of a
iustus error,
is
clearly trumped by the aforesaid maxim.
[26] In
the circumstances, the second defendant’s defence falls to be
rejected. Judgment is accordingly entered in favour
of the plaintiff
against the second defendant, jointly and severally with the first
defendant’s liability in terms of the
judgment granted against
the first defendant on 17 February 2012, for:
Payment
of the sum of R7 809 810.43.
Interest
on the aforesaid amount at the rate of 10% per annum from 1 July
2010 to date of payment.
Costs
of suit on the scale as between attorney and client.
__________________
E REVELAS
JUDGE OF THE HIGH COURT
Counsel
for the Plaintiff: Adv A Beyleveld SC
Instructed
by: Sandenberg Nel Haggard
Golden
Isle
281 Durban
Road
Belville
c/o
McWilliams
& Elliot Inc
83
Parliament Street
Central
Port
Elizabeth
Counsel
for the First and Second Defendants: Adv W Enslin
Instructed
by: Orelowitz Inc
c/o
Kaplan
Blumberg Att.
1
st
Floor, Block A
Southern
Life Garden
No. 70-2
nd
Avenue
Newton
Park
Port
Elizabeth
Dates
Heard: 16-17 February 2012
Date
Judgment Delivered: 23 February2012
1
2001
(1) SA 167
(W) at 175 F-H.
2
2005
(2) 419 (SCA).
3
2011
(4) SA 72
(SCA).
4
At
76 C-D.
5
1958
(2) SA 473
(A) at 479 H-G.
6
At
76 E-F.
7
[1992] ZASCA 56
;
1992
(3) SA 234
(A)
See
also:
South African Railways and Harbours v National Bank of
South Africa Ltd
1924 AD 704
at 715-16 where the principle was
formulated that the law concerns itself with the external
manifestations, and not the workings,
of the minds of the parties to
a contract.
8
At
238 I.
9
Paragraph
[9] at 76 C-77 A.
10
2005
(4) SA 345
SCA paragraph [19].
11
Paragraph
[12] at 77 H-I and 78 A-B.
12
At
426 B-C paragraph [11].
13
2007
(4) SA 572
(W) at 575 H, paragraph [12], per Willis J.
14
1998
(1) SA 538
(N).
15
See:
George v Fairmead (Pty) Ltd
(the
locus classicus)
1958
(2) SA 465
A at 470 B-E. See also:
Brink v Humphries (supra)
at
421 G-I where Cloete JA held that the principle is still a sound one
at 575 H-I.