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[2011] ZASCA 34
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Slip Knot Investments 777 (Pty) Ltd v Du Toit (176/2010) [2011] ZASCA 34; 2011 (4) SA 72 (SCA) (28 March 2011)
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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case
No: 176/2010
In the
matter between:
SLIP KNOT INVESTMENTS 777 (PTY) LTD
........................................................
Appellant
and
WILLEM MALAN DU TOIT
...............................................................................
Respondent
(Fifth Respondent in the court a quo)
Neutral citation:
Slip Knot v Du Toit
(176/2010)
[2011] ZASCA 34
(28 March 2011)
Coram:
NAVSA, NUGENT, HEHER, CACHALIA and MALAN JJA
Heard:
7 March 2011
Delivered: 28 March 2011
Summary:
Suretyship – fraud or misrepresentation by third party –
whether surety bound
_____________________________________________________________________
ORDER
On appeal from:
Free State High Court (Bloemfontein) (A Kruger
J sitting as court of first instance):
The appeal is upheld with costs.
The judgment of the court a quo is set aside and replaced with the
following:
‘
Judgment is granted in favour of the
applicant against the fifth respondent jointly and severally with the
first to third respondents
in their capacities as trustees of the
Smitskop Trust (IT Number 207/96) and the fourth and sixth
respondents, for –
payment of the sum of R 7 950 000,00;
interest on the aforesaid sum at the rate of 1,5 per cent per week,
calculated daily, from 8 May 2008 to date of payment;
(c) costs of suit on the attorney and own client scale.’
_____________________________________________________________________
JUDGMENT
MALAN JA (NAVSA, NUGENT, HEHER, CACHALIA JJA concurring)
[1] This appeal concerns the defence of
iustus
error
to a claim seeking to enforce an
agreement of suretyship. The respondent (the fifth respondent in the
court below), although admitting
that he signed the deed of
suretyship, denied that he was liable and averred that he signed by
mistake and without the intention
to incur contractual liability. In
determining whether a mistake is
iustus
the courts have posed the following question:
‘
Has
the first party – the one who is trying to resile – been
to blame in the sense that by his conduct he has led the
other party,
as a reasonable man, to believe that he was binding himself? . . .
If his mistake is due to a misrepresentation,
whether innocent or
fraudulent, by the other party, then, of course, it is the second
party who is to blame and the first party
is not bound.’
1
[2] This case is not concerned with a
misrepresentation, whether innocent or not, by the appellant inducing
the respondent to sign
a suretyship. The appellant, Slip Knot
Investments 777 (Pty) Ltd, did not negotiate with the respondent, nor
did it have any contact
with him prior to him signing the suretyship.
On the contrary, the respondent relied, if not on fraud, on the
omission of a third
party to inform him of the nature of the document
he was called upon to sign.
2
[3] At the time of the hearing of the application the respondent was
a sixty-year old farmer in the district of Luckhoff. He was
also a
trustee of the Smitskop Trust (the ‘trust’) along with
his brother and the latter’s son. The appellant,
Slip Knot,
advanced a sum of R6 million to the trust. The respondent, his
brother and nephew signed a deed of suretyship in favour
of Slip
Knot. Judgment was obtained against the trust and the sureties after
the trust had failed to adhere to the terms of a settlement
agreement. The sequestration of the trust and the estate of the
respondent’s brother followed. The respondent was unaware
of
the proceedings against the trust and the sureties. He brought an
application for rescission of the judgment against him, which
was
granted. The main application subsequently came before Kruger J
in the Free State High Court. He dismissed Slip Knot’s
application for judgment against the respondent but gave leave to
appeal to this court.
[4] The trust was created in 1996 by the respondent’s brother
who was a beneficiary of the income of the trust. Although
decisions
of the trustees had to be taken by a majority vote the brother had to
be part of the majority. He had the power to determine
by will the
date of vesting of the trust funds and to determine the way in which
its assets were to be divided at the termination
of the trust. The
brother also administered the trust in his own interests and those of
his heirs. The respondent had no interest
in the trust assets or its
income. He was, however, one of the three trustees albeit, as he
said, only in name. The business of
the trust was managed by the
respondent’s brother and nephew. The trust had farming
interests in Fauresmith but those interests
were unrelated to the
farming activities of the respondent. The respondent controlled
trusts of his own, of which his brother was
a trustee, but they were
managed by the respondent alone. The respondent knew before he signed
the suretyship that his brother
was involved in major business
transactions elsewhere in Africa. He regarded them as risky.
[5] The suretyship was signed on 6 November 2007. It appears that on
that day the respondent’s nephew had telephoned the
respondent’s friend, Altro Potgieter, and told her that he had
certain documents that required the respondent’s signature.
They concerned the business transactions that his father was
conducting in Africa and had to be signed urgently and returned by
fax on the same day. The respondent and his own son were at that time
busy on his farm outside Luckhoff. Potgieter told him of
the
conversation and informed him of the need to sign the documents
before a commissioner of oaths. He was, however, busy and asked
her
to wait. After two further calls to her from his nephew, Potgieter
again spoke to the respondent and emphasised the urgency
of the
matter. Potgieter gave him a bundle of documents comprising some 75
pages that had already been signed by his brother and
nephew. The
respondent remarked that it would have taken him a day to read
through them. He was prepared to sign the documents
without reading
them because he thought that he was not personally affected and
because the two other trustees had already signed.
The respondent
assumed that his brother and nephew had agreed to the terms on which
Slip Knot would advance monies to the trust
and that his signature
was required as a trustee only.
[6] The respondent and his son went to the manager of the First
National Bank in Luckhoff, a commissioner of oaths, to sign the
documents. Although the manager had occupied that position for a
week, he used to be manager at the Fauresmith branch of the same
bank
and knew of the transaction. This reassured the respondent that the
documents concerned his brother’s trust. He signed
on each of
the pages at the places where his brother and nephew had signed. He
also initialled every page where their initials
appeared. Potgieter
and the respondent’s son witnessed his signature and also
initialled where his initials appeared. Neither
the respondent nor
the bank manager or any of the two witnesses read the documents or
paid any attention to their contents. They
were thereafter faxed to
the respondent’s brother. The respondent could not afterwards,
when requested by his attorney, find
his copies and assumed that they
were destroyed after faxing; he had, he stated, no reason to keep
them because they did not affect
him financially. He had never
negotiated with the appellant and had never discussed the
transactions with his brother or nephew,
and he would not have signed
as surety in respect of such a large amount borrowed at a very high
rate of interest and concerning
a business venture he regarded as
risky.
[7] The documents comprised the memorandum of agreement providing for
the R6 million loan to the trust. Annexure A to it is a resolution
by
the trustees of the trust authorising it to enter into the loan
agreement. Annexure B is an extract of a resolution of the directors
of Slip Knot. Also included was the deed of amendment of the Smitskop
Trust signed by all the trustees; the amended letter of authority
of
the Master; the suretyship agreement; Annexure A thereto, an extract
of a resolution by Slip Knot authorising a director to
enter into the
deed of suretyship; a letter of undertaking authorising a firm of
attorneys to pay Slip Knot the sale proceeds of
certain properties
belonging to the trust; a letter by the attorneys to Slip Knot
undertaking to pay these proceeds; a power of
attorney to pay a bond
in favour of Slip Knot over certain trust properties; a covering
mortgage bond; and a cession of loan accounts
in the trust by the
trustees to Slip Knot. All these documents were signed and initialled
by the respondent and the other trustees.
The individual documents
were headed differently but the headings of the memorandum of
agreement, its Annexures A and B, and the
suretyship are all in bold
capital letters similar to the recitation of the parties to the
agreements. They are in larger print
than the remainder of the
document. Although he did not read the documents the respondent
stated that he never expected a suretyship
to be amongst them. No one
drew his attention to the suretyship.
[8] It was submitted on behalf of Slip Knot that,
although the respondent’s mistake may have
been induced by fraud, ie the omission of his brother or his nephew
to draw the
suretyship to his attention, the binding force of the
suretyship was not affected thereby. It is correct that,
as
was said in
Karabus’
case,
3
where ‘the fraud which induces a contract
does not proceed from one of the parties, but from an independent
third person,
it will have no effect on the contract.’ But the
mistake relied upon in
Karabus
was an error in motive: the intention of the
defendant in that case was directed at the conclusion of the contract
on the cheque
and his mistake concerned only the reason for entering
into it.
4
[9] The respondent’s defence is that he
lacked the intention to be bound and therefore that no agreement of
suretyship was
concluded. Contractual liability, however, arises not
only in cases where there is consensus or a real meeting of the minds
but
also by virtue of the doctrine of quasi mutual assent.
Even where there is no consensus contractual
liability may nevertheless ensue.
5
The respondent’s mistake is a unilateral
one. Referring to the mistake of the kind the respondent laboured
under it was said
in
National and
Overseas Distributors Corporation (Pty) Ltd v Potato Board
:
6
‘
Our law allows a party to set
up his own mistake in certain circumstances in order to escape
liability under a contract into which
he has entered. But where the
other party has not made any misrepresentation and has not
appreciated at the time of acceptance
that his offer was being
accepted under a misapprehension, the scope for a defence of
unilateral mistake is very narrow, if it
exists at all. At least the
mistake (
error
)
would have to be reasonable (
justus
)
and it would have to be pleaded.’
The ‘decisive question’ to be asked in
cases such as this has been formulated as follows:
7
‘
[D]id the party whose actual
intention did not conform to 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?’
[10] In the court below Kruger J found that the
respondent’s mistake was reasonable. In coming to this
conclusion he emphasised
that the respondent was a farmer who had
nothing to do with the business of the trust and the loan to it. He
was not a businessman.
He knew that the documents related to his
brother’s venture into Africa and, although he considered it
risky, thought that
they did not concern him. It was because he was
put under considerable pressure to sign them forthwith that led him
to believe
that they did not affect him. Slip Knot did not negotiate
with the respondent at all and the latter became aware of their
existence
only afterwards. The bank manager, in addition, informed
the respondent that he was aware of the transaction and that had set
his
mind at rest. The suretyship was also not prominent among them.
In a sense, Kruger J opined, his brother and nephew,
in
forwarding the documents to him,
had acted
as the appellant’s agents who should have warned him of the
suretyship in the bundle. The heading of the suretyship
was in the
same type as the other words on the first page. The respondent, the
court below found, had no reason to expect a suretyship,
in
terms of which he would personally undertake liability as a surety to
be among them.
[11] In argument before us counsel for the
respondent expressly disavowed that the respondent was misled by Slip
Knot – whether
by reason of the form in which the documents
were couched or in any other way. To the extent that the respondent
was misled he
placed the blame squarely and solely at the doors of
his brother and nephew. Nor is there any suggestion that the fraud or
misrepresentation
of the respondent’s relatives could or should
be attributed to Slip Knot. There is every reason to infer that Slip
Knot,
as a reasonable person, believed that the respondent’s
declared intention to be bound as surety as evidenced by his
signature
to the suretyship also represented his real intention. The
respondent entered into the suretyship relying, not on any
representation
by Slip Knot, but on representations made to him by
his nephew and conveyed to him by Altro Potgieter.
[12]
A contracting party
is generally not bound to inform the other party of the terms of the
proposed agreement.
8
He must do so, however, where there are terms that
could not reasonably have been expected in the contract.
9
The court below came to the conclusion that the
suretyship was ‘hidden’ in the bundle and held that the
respondent was
in the circumstances entitled to assume that he was
not personally implicated. 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 a deed of
suretyship.
As I have said, counsel for the respondent conceded that
there was nothing misleading in the bundle and that a suretyship
among
the documents was not unexpected. The court below emphasised
the fact that the respondent was a farmer and not a businessman and
that he had nothing to do with the trust and the loan advanced to the
trust. This is incorrect. The respondent was a trustee of
the trust.
He may have been a farmer but this is of no consequence. The
respondent had his own trusts and managed them. He must
have known
what a trust was and what the duties and responsibilities of a
trustee were.
10
Slip Knot was entitled to rely on the respondent’s
signature as a surety just as it was entitled to rely on his
signature
as a trustee.
11
The respondent relied entirely on what was
conveyed to him by his nephew through Altro Potgieter. Slip Knot made
no misrepresentation
to him and there is no suggestion on the
respondent’s papers that Slip Knot knew or ought, as a
reasonable person, to have
known of his mistake. The rate at which
interest was charged was not placed in issue in the court below or in
this appeal.
[13] The following order is made:
(1) The appeal is upheld with costs.
(2) The judgment of the court a quo is set aside and replaced with
the following:
‘
Judgment is granted in favour of the
applicant against the fifth respondent jointly and severally with the
first to third respondents
in their capacities as trustees of the
Smitskop Trust (IT Number 207/96) and the fourth and sixth
respondents, for –
payment of the sum of R 7 950 000;
interest on the aforesaid sum at the rate of 1,5 per cent week,
calculated daily, from 8 May 2008 to date of payment;
costs of suit on the attorney and own client scale.’
_________________
F R MALAN
JUDGE OF APPEAL
APPEARANCES:
For Appellant: A C Botha
Instructed
by:
Sim & Botsi Attorneys Inc
Johannesburg
Lovius Block
Bloemfontein
For Respondent: J P de Bruin SC
Instructed
by:
Symington & De Kok
Bloemfontein
1
George
v Fairmead (Pty) Ltd
1958 (2) SA 465
(A) at 471A-D.
2
The
position where the misapprehension has been caused by a third party
was left open in
Brink v Humphries & Jewell (Pty) Ltd
[2005] 2 All SA 343
(SCA) para 2 n 6.
3
Karabus
Motors (1959) Ltd v Van Eck
1962 (1) SA 451
(C) at 453C-D.
4
Saambou-Nasionale
Bouvereniging v Friedman
1979 (3) SA 978
(A) at 999H-1000C.
5
See
eg
Sonap Petroleum (SA) Pty Ltd (formerly known as Sonarep (SA)
(Pty) Ltd) v Pappadogianis
[1992] ZASCA 56
;
1992 (3) SA 234
(A) at 238I-240B;
Be
Bop a Lula Manufacturing & Printing CC v Klingtex Marketing
(Pty) Ltd
[2008] 1 All SA 529
(SCA) paras 10, 11 and 14.
6
1958
(2) SA 473
(A) at 479G-H.
For a discussion of
Musgrove &
Watson (Rhod) (Pvt) Ltd v Rotta
1978 (2) SA 918
(R) (on appeal
reported as
Musgrove & Watson (Rhodesia) Ltd v Rotta
(1978 (4) SA 656
(RA)) and
Standard Credit Corporation Ltd v
Naicker
1987 (2) SA 49
(N) see Carole Lewis ‘Caveat
subscriptor and the doctrine of justus error’
(1987) 104
SALJ
371.
7
Sonap
Petroleum (SA) (Pty) Ltd (formerly known as Sonarep
(SA) (Pty) Ltd) v Pappadogianis
[1992] ZASCA 56
;
1992 (3) SA 234
(A) at
239I-240B. See
Davids & andere v ABSA Bank Bpk
2005 (3)
SA 361
(C) paras 13-15 and cf the discussion by Dale Hutchison
‘“Traps for the Unwary”: when careless errors are
excusable’
in Graham Glover (ed)
Essays in Honour of AJ
Kerr
(2006) p 39.
8
Constantia
Insurance Co Ltd v Compusource (Pty) Ltd
2005
(4) SA 345
(SCA) para 19.
9
Afrox
Healthcare Bpk v Strydom
2002 (6) SA 21
(SCA) para 36 and cf
Fourie v Hansen & another
[2001] 1 All SA 510
(W) at 516.
10
See
Edwin Cameron with Marius de Waal, Basil Wunsh,
Peter Solomon and Ellison Kahn
Honoré’s
South African Law of Trusts
5 ed
(2002) p 262ff.
11
S
ee
Glen Comeragh (Pty) Ltd v Colibri (Pty)
Ltd & another
1979 (3) SA 210
(T)
at 214D-F.