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[2007] ZASCA 142
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Eley (formerly Memmel) v Lynn & Main INC (614/2006) [2007] ZASCA 142; [2007] SCA 142 (RSA); [2008] 1 All SA 315 (SCA); 2008 (2) SA 151 (SCA) (22 November 2007)
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THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
CASE NO: 614/2006
In the
matter between
KAREN HARRIET ELEY
(formerly MEMMEL)
...........................
APPELLANT
and
LYNN & MAIN INC
...........................
RESPONDENT
CORAM:
MTHIYANE, LEWIS, PONNAN JJA, HURT AND KGOMO AJJA
HEARD: 2 NOVEMBER 2007
DELIVERED: 22 NOVEMBER 2007
Summary: Whether the claim against a surety in respect of a debt
where judgment has been given against a principal debtor prescribes
after three years as contemplated in
s 11(d)
of the
Prescription Act
68 of 1969
, or after 30 years as contemplated in
s 11(a)(ii)
of the
Act.
Neutral Citation: This judgment may be referred to as
KH
Eley v Lynn & Main
Inc
[2007] SCA 142
(RSA).
JUDGMENT
MTHIYANE JA
MTHIYANE JA:
[1] Section 11(a)(ii) of the Prescription Act 68 of 1969 (‘the
Act’) provides that the period of prescription shall be
thirty
years in respect of ‘any judgment debt’ and in terms of s
11(d), three years in respect of ‘any other debt’.
In
terms of s 15(4) of the Act ‘prescription shall commence to run
afresh on the day on which the judgment of the court becomes
executable’. This appeal is concerned with the question whether
the claim against a surety who has bound herself as surety
and
co-principal debtor in respect of a debt which was confirmed and
reinforced by a judgment against the principal debtor, became
prescribed after three years or after 30 years as contemplated in s
11(a)(ii) of the Act.
[2] The appeal is against the order of Goldstein J in the
Johannesburg High Court in terms of which he dismissed an application
by
the appellant for the rescission of a default judgment. The
appellant as surety had raised a defence that the claim against her
had
become prescribed after three years, notwithstanding that a
judgment had been obtained against the principal debtor.
[3] The salient features of the history of the matter are set out in
the appellant’s affidavit in support of her application
for
rescission. On 29 February 1996 the appellant executed a deed of
suretyship in terms of which she bound herself as surety and
co-principal debtor
in
solidum
for the repayment of
‘all or any sum or sums of money which the debtor may now or
from time to time hereafter owe or be indebted
to the bank, its
successors or assigns . . . whether such indebtedness arises from
money already advanced or hereafter to be advanced
. . . or otherwise
howsoever . . .’. The bank referred to in the deed of
suretyship is Nedbank Limited (later known as Nedcor
Bank Limited).
The deed of suretyship was executed to provide the bank with
collateral security for the amounts advanced or to be
advanced to
Help Seat It Southern Africa (Pty) Ltd (the principal debtor) on
overdraft. The appellant had, as director of the principal
debtor,
signed an application form on the principal debtor’s behalf on
9 September 1994, for the opening of a cheque account
with Nedbank
Limited (‘the bank’). When she was asked by the bank to
provide security she readily acceded to their request.
As the
appellant put it in her supporting affidavit:
‘
An
overdraft was required and Nedbank Limited approached me for a
suretyship which I gave to them.’
[4] A year after executing the deed of suretyship the appellant
experienced marital problems. In 1997 she left her husband and her
chosen
domicilium citandi
as stated in the suretyship deed,
was divorced and remarried. In the meantime the principal debtor fell
into debt and apparently failed
to meet its financial obligations to
the bank. The appellant blames her former husband for the financial
woes of the principal debtor.
She emphatically declares that it was
he who ‘caused it to suffer financial hardship.’ Nothing,
in my view, turns on
this.
[5] As was to be expected the bank sued the principal debtor for the
recovery of the moneys it had advanced and on 21 May 2001 it
obtained
judgment by default, for:
‘
1.
Payment of the sum of R157 685,55
2. Interest on R157 685,55 to date of
payment at the rate of 15.50 per centum per year from 1 March 2000.
3. Costs in the amount of R650,00 plus
sheriff’s fees in the sum of R117,07.’
[6] On 25 March 2003 the bank ceded all right, title and interest in
and to the book debts to the respondent with effect from 2 January
2003.
[7] The respondent, as cessionary, thereafter instituted action
against the appellant as surety and co-principal debtor
in
solidum
, for the repayment of the amount then due and owing by
the principal debtor. Summons was served at the appellant’s
chosen
domicilium citandi
on 14 September 2005. As no
appearance to defend was delivered, the respondent duly took judgment
by default on 18 October 2005,
for:
‘
1.
Payment of the sum of R157 685,55
Interest on R157 685,55 to date of
payment at the rate of 15,50 per centum
per year from 1
st
March 2000
Costs of suit on the scale as
between attorney and client to be taxed.’
[8] Subsequently, the appellant launched an application for
rescission of the default judgment. In her supporting affidavit she
alleged
that she had been unaware that summons had been issued
against her as she had left her
domicilium
by the time summons
was served. She averred that if she had been aware of the true
situation she ‘would have entered an appearance
to defend
immediately.’ She denied that she was liable to the bank and
premised her defence on two points. First, she contended
that the
respondent’s claim had become prescribed. This because judgment
against the principal debtor was obtained on 21 May
2001 and summons
was served only on 14 September 2005, more than three years later.
Second, she denied that there had been a cession
of the claim based
on the judgment debt by the bank.
[9] When the matter came before Goldstein J the second point was not
argued for reasons that are not readily apparent; the parties
requested the learned judge ‘to decide finally whether the
[appellant’s] defence of prescription is valid, and depending
on [his] decision on this point to grant or dismiss the application.’
The application for rescission was dismissed with costs.
The judge
followed and applied
Jans v Nedcor Bank Ltd.
1
He held that the prescriptive period in respect of the claim against
the appellant was the same as that in respect of the claim against
the principal debtor, that is 30 years, and granted the appellant
leave to appeal to this court.
[10] The main issue in the appeal is whether the respondent’s
claim against the appellant has become prescribed. In terms of
s
15(4), read with s 11(a)(ii), the period of prescription of the debt
owed by the principal debtor to Nedbank Limited (the judgment
creditor) was thirty years from the date of judgment on 21 May 2001.
The question debated in the court below and in the appeal before
us
was whether the claim against the appellant as surety who bound
herself as surety and co-principal debtor would prescribe after
the
same period or after the lesser period of three years referred to in
s 11(d). In
Rand Bank Limited v De Jager
2
the court held that in spite of a judgment against the principal
debtor the period of prescription applicable to the claim against
the
surety remained three years and is therefore considerably shorter
than that applicable to the claim against the principal debtor.
[11] In
Jans v Nedcor Bank Ltd
, Scott JA undertook an
exhaustive analysis of the fundamental principles applicable to
suretyship under South African law. The earlier
cases of
Cronin v
Meerholz
3
and
Union Government v Van der Merwe
,
4
which were not followed in
Randbank Limited v De Jager
, were
fully discussed and referred to with apparent approval in
Jans
.
The court held that
Randbank
was incorrectly decided. The
common thread that runs through these cases (other than
Randbank
)
is that the obligation of the principal debtor and the surety relate
to the same debt. The thrust of the dicta is, therefore, that
if the
principal debt is kept alive by a judgment, the surety’s
accessory obligation by common law continues to exist.
[12] The appellant sought to distinguish
Jans v Nedcor Bank Ltd
from the present matter on the basis that
Jans
was
concerned with the interruption or delay in the running of
prescription and not directly with the issue whether a judgment
against
the principal debtor results in prescription against a surety
being extended in terms of s 11(a)(ii) of the Act. Although counsel
does not say so in so many words, in my view the argument advanced on
the appellant’s behalf coincides with the approach adopted
in
Rand Bank v De Jager
, where it was held that in spite of the
judgment against the principal debtor, the period of prescription in
favour of the surety
remained three years. That case has, as I have
said, been overruled.
[13] The distinction which the appellant seeks to draw is illusory.
Jans v Nedcor Bank Ltd
sets out the fundamental principles
applicable to suretyship contracts in general and is not confined to
the effect of the interruption
of the running of prescription against
the principal debtor. This is particularly clear from the judgment
where, after discussing
the nature of the contract of suretyship,
Scott JA makes the following observation, relevant to the question we
are concerned with
in the present matter:
5
‘
The
very existence of the debt is therefore dependent upon the existence
of the suretyship while the object and function of the latter
is, of
course, to ensure proper payment of the former. To permit the claim
against the surety in these circumstances to prescribe
before the
claim against the principal debtor, in the words of Wessels JP in
Union Government v
Van der Merwe
(
supra
at 320), would be “almost
subversive of the whole contract of suretyship.”’
[14] In the appeal before us it was not argued that
Jans v Nedcor
Bank Ltd
was wrongly decided. There is no reason why it should
not be followed. Accordingly the contention that the claim against
the appellant
had become prescribed after three years falls to be
rejected.
[15] The judgment in
Bulsara v Jordan & Co Ltd
6
also relied on by the appellant does not assist her. In
Bulsara
,
judgment was given against the principal debtor on 23 May 1989 after
summons had been served on him on 20 March 1987. Summons was
served
on
Bulsara
(as surety) on 28 May 1990. In construing the deed
of suretyship the court held that it included the judgment debt
against the principal
debtor as the subject of the suretyship. In any
event the summons on
Bulsara
was served well within the
three-year period of prescription referred to in s 11(d). The court
in
Bulsara
expressly refrained from considering the
correctness of the decision in
Randbank
, but there is nothing
in the judgment that is inconsistent with the principles laid down in
Jans
. And there is nothing in the deed of suretyship at issue
in this matter that warrants a different construction.
[16] I turn to the second point which was raised on the pleadings but
not argued in the court
a quo
. Counsel for the appellant
submitted that the cession of the claim based on the judgment debt
was not apparent from the deed of cession
annexed to the summons. The
argument is without merit. In terms of the deed of cession Nedbank
Limited ceded to the respondent ‘all
right, title and interest
in and to the book debts and
any judgment in respect of any such
book debts
. . . . For purposes of the foregoing, ‘book
debts’ means collectively the book debts owed to Nedbank by
various debtors,
a list of which is annexed hereto, and includes all
claims . . . against any
third party
(whether or not such
third party is jointly or severally liable with such debtors) for, or
in relation to, the debts comprising such
book debt . . . and
includes all security provided to Nedbank
’. . . . (My
emphasis.) The principal debtor’s name (Help Seat It Southern
Africa (Pty) Ltd) appears on the schedule to
the cession. The said
schedule was annexed to the particulars of claim.
[17] The case pleaded is that Nedbank ceded to the respondent its
claim against Help Seat It Southern Africa (Pty) Ltd (the principal
debtor) including any judgment in respect thereof and all security
provided to Nedbank in respect thereof. The appellant bound herself
to Nedbank Limited as surety and co-principal debtor, in consequence
of which the respondent was entitled to claim the debt from
the
appellant. It has never been suggested that the judgment against the
principal debtor related to something other than the banking
facilities which the appellant applied for as director of the
principal debtor. The wording of the suretyship deed expressly covers
a judgment against the principal debtor. I agree with counsel for the
respondent that it would be artificial to hold that the suretyship
covers the book debt, but not a judgment obtained in respect of the
book debt. It follows that the argument that the claim was not
properly pleaded must also fail.
[18] Accordingly the appeal is dismissed with costs.
______________________
KK MTHIYANE
JUDGE OF APPEAL
CONCUR:
LEWIS JA
PONNAN JA
HURT AJA
KGOMO AJA
1
2003
(6) SA 646
(SCA).
2
1982
(3) SA 418
(C).
3
1920
TPD 403.
4
1921
TPD 318.
5
Para
30.
6
[1995] ZASCA 106
;
1996
(1) SA 805
(A).