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[2007] ZASCA 154
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Cecil Nurse (Pty) Ltd v Nkola (176/2006) [2007] ZASCA 154; [2007] SCA 154 (RSA); [2008] 1 All SA 428 (SCA); 2008 (2) SA 441 (SCA) (28 November 2007)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
Reportable
Case No: 176/2006
In the matter between
CECIL NURSE (PTY) LTD
.......................
Appellant
and
BONGILE NKOLA
.......................
Respondent
CORAM: SCOTT, VAN HEERDEN et MAYA JJA
HEARD: 15 NOVEMBER 2007
DELIVERED: 28 NOVEMBER 2007
SUMMARY:
Contract – clause requiring alterations to a suretyship
agreement to be ‘agreed to in writing by the creditor’
to
be binding – whether creditor precluded from relying on terms
of suretyship agreement presented to it by surety duly executed
but
subsequently alleged by surety to have been presented by mistake.
Neutral Citation: This judgment may be referred to as
Cecil Nurse (Pty) Ltd v
Nkola
[2007]
SCA 154 (RSA).
JUDGMENT
MAYA JA:
MAYA
JA:
[1] This is an appeal against a judgment of the Port Elizabeth High
Court (Chetty J, Jansen J concurring) upholding the respondent’s
appeal against a judgment of the Magistrate’s Court, East
London. In that judgment the magistrate granted the appellant’s
claim against the respondent for payment of a debt arising from a
sale of goods. The appeal is with the leave of the court below.
[2] The appellant is a manufacturer and supplier of office furniture
and equipment and trades from its two branches in Port Elizabeth
and
East London. The respondent is the sole director and shareholder of
FMMC Holdings (Pty) Ltd (‘FMMC’), a supplier
of school
and office furniture and equipment based in Mthatha.
[3] FMMC, duly represented by the respondent, started purchasing
goods for resale from the appellant on a cash-on-delivery basis
in
April 2000. In the early stages of the parties’ dealings, FMMC
would refer its customers to the appellant’s East London
branch
to view the goods. However, a need for a showroom in Mthatha soon
became apparent as demand grew for these commodities. The
respondent
then approached the appellant’s branch manager in East London,
Mr Bob Lindsay, with a proposal that the appellant
itself establish
the showroom. Lindsay, in turn, referred him to the appellant’s
managing director, Mr Robbie Bergh, in Port
Elizabeth. Bergh was not
amenable to the proposal, which he considered risky, as he believed
that a branch in Mthatha would be too
far to monitor.
[4] It was ultimately agreed between the respondent, Bergh and
Lindsay that FMMC would establish its own showroom with the
appellant’s
assistance. The requisite showroom stock would cost
approximately R50 000. As FMMC did not have the necessary funds it
was agreed
that the appellant would grant it a credit facility of
approximately R50 000 for which the respondent would stand surety. On
18 August
2000 the appellant’s staff in East London sent by
facsimile a credit application form and a deed of suretyship to FMMC
for
completion. Both documents, duly executed by the respondent, were
returned by facsimile to the appellant’s East London branch
at
10h04 on 23 August 2007. On the same day Lindsay faxed a letter to
FMMC which read:
‘
RE:
Office furniture for showroom
We wish to confirm that your order as per
items discussed for your showroom totalling R48 402-75 excluding VAT,
will be discounted
further to nett amount of R40 000 excluding VAT –
as a once off consideration for your new showroom.
Payment details: R20 000 plus VAT –
30 days;
R20 000 plus VAT – 60 days
Please note that we are unable to process
your order for the above until such time as we receive the completed
credit application
form – no goods can be supplied until your
account has been approved.’
[5] The credit facility was thereafter approved and the showroom
stock delivered and paid for as agreed. It appears that the credit
account remained open and operational after this transaction was
finalized because by 7 December 2000 FMMC had accumulated a debit
balance of R150 653.94, the amount of the claim.
1
As a result of FMMC’s failure to settle the debt, which was due
and payable, the appellant sued the respondent in the Magistrate’s
Court, East London, and obtained judgment by default for payment
thereof on the basis of the abovementioned suretyship agreement.
In
terms of this agreement the respondent had bound himself,
inter
alia
, as FMMC’s surety and co-principal debtor for all and
any of its present and future obligations to the appellant.
[6] The respondent successfully applied for rescission of the default
judgment. Interestingly, in his application papers in those
proceedings, in which he was legally represented, he acknowledged his
liability as FMMC’s surety and co-principal debtor as
alleged
by the appellant. Attached to his founding affidavit was the
suretyship agreement relied upon by the appellant. It was signed
by
the respondent, and by two witnesses. I shall refer to it as the
‘original suretyship’. The respondent did not deny
his
indebtedness to the appellant and merely stated that he had paid a
substantial amount of its claim.
[7] In his replying affidavit, and subsequently in his plea,
2
the respondent disputed any liability to the appellant and placed
reliance, as he did in the court below and before us, on an ‘amended
suretyship’. He contended that this agreement limited his
liability as FMMC’s surety to the value of the showroom stock
–
the sum of R45 600 – which had been paid in full. This
document, to which I shall refer as the ‘amended document’,
was identical to the original suretyship save for two significant
differences. First, the words ‘future obligations’
in the
preamble had been crossed out, resulting in an unintelligible
sentence which read:
‘
The surety is hereby bound as
surety and co-principal debtor to the creditor for all and any
present of the debtor to the creditor
on the following terms…’.
Second, an additional, handwritten provision, clause 13, had been
inserted. It limited the respondent’s suretyship ‘to
the
showroom consignment stock to the net (sic) value of R45 600.00’.
[8] In the ensuing trial proceedings, the purpose and duration of the
credit facility extended to FMMC and which of the two suretyship
documents was binding were hotly contested and remain at the heart of
the parties’ dispute: the appellant’s version was
that
FMMC was granted a general credit line of unlimited duration as it
was not its policy to open credit accounts for once-off transactions
and that the credit limit of R50 000 was merely a start-up figure;
the respondent on the other hand contended that the credit account
was opened solely to facilitate the purchase of the showroom stock
hence the specific credit limit amounting to its approximate value
of
R50 000 to which his liability as surety was also limited.
[9] The respondent, supported by his erstwhile employee, Ms Helen
Trower, testified that although he signed the original suretyship,
he
had no intention of being bound by its terms at the time because he
was still negotiating with Bergh to limit his liability as
surety to
the value of the showroom stock. The latter, he said, subsequently
agreed in a telephone conversation that he, the respondent,
could
amend the original suretyship in the manner reflected in the amended
document. However, during the respondent’s absence
from his
office and before he could effect the amendments, Trower –
without the respondent’s permission and as a result
of
Lindsay’s persistent calls for the return of the documents –
took them from his desk and faxed them to Lindsay after
signing them
together with FMMC’s manager as witnesses. A startling version,
initially put to Lindsay in cross-examination,
was that the original
suretyship (on which the appellant relied) must have been falsified
by someone in Lindsay’s office by
removing the amendments,
because the respondent had faxed the credit application form to
Lindsay together with the amended document.
This was hastily
withdrawn without explanation. The changed version was that on
discovering Trower’s mistake a few hours later,
the respondent
caused her to effect the relevant amendments and thereafter fax the
amended document, duly signed and witnessed, to
Lindsay. In response,
Lindsay sent the letter mentioned in para [4] above which the
respondent assumed signified his assent to the
changes.
[10] The appellant’s witnesses, Bergh, Lindsay and its
financial director, Mr Marius Rahl, denied any knowledge of the
amended
document. The gist of their evidence was that only Bergh and
Rahl had the authority to sanction any amendment to a suretyship
agreement
on the appellant’s behalf. Bergh disputed
renegotiating the terms of the suretyship with the respondent. He
pointed out that
the terms of the amended document would have exposed
the appellant to unnecessary risk and were, in any event, against its
business
policy.
[11] The trial court decided the case in the appellant’s
favour. The magistrate queried the existence of the amended document
at the material time and found that the respondent had failed to
prove that it was presented to the appellant because it did not
reflect FMMC’s fax transmission imprint.
3
In reaching this conclusion the magistrate made no credibility
findings about the witnesses, particularly Trower who had
corroborated
the respondent’s version with regard to the faxing
of the amended document.
4
[12] In addition to finding Trower a satisfactory witness whose
evidence had not been assessed properly or was arbitrarily rejected
by the trial court, the court below accepted the version of the
respondent, whom it described as ‘no business novice’
and
a person who clearly understood the consequences of signing as
surety. In its view, the fact that Lindsay’s letter was
faxed
to FMMC separately and after the blank credit application form and
suretyship agreement had been sent to the respondent ‘unequivocally
refuted [the appellant’s version and]…ineluctably compel
the conclusion that the [appelant] consented to and accepted
the
[respondent’s] amendments to the deed of suretyship’. The
court below concluded that the appellant had failed to
discharge the
onus, which it bore, to prove that the original suretyship had not
been amended by agreement.
[13] The only point of contention remaining between the parties in
this appeal is which of the two suretyship documents determined
the
respondent’s obligations to the appellant.
[14] In argument before us, it was admitted on the appellant’s
behalf that it bore the onus of proving the suretyship agreement
on
which it relied. The concession was properly made as it is in keeping
with the trite principle of law that a party who sues on
a contract
must prove its terms.
5
It was, however, contended that by faxing the original suretyship,
duly signed by him, to the appellant, the respondent had created
the
reasonable impression in the appellant’s mind that he intended
to be bound by its terms. As far as the amended document
was
concerned, the appellant pointed out that it did not comply with the
provisions of either suretyship document which required
the
appellant’s written consent to any alterations.
[15] The starting point is to determine the effect and consequence of
the respondent’s presentation of a properly executed
suretyship
agreement to the appellant. In this enquiry one need look no further
than the well-known dictum of Blackburn J in
Smith v Hughes
6
where the learned judge said:
‘
If,
whatever a man’s real intention may be, he so conducts himself
that a reasonable man would believe that he was assenting
to the
terms proposed by the other party, and that other party upon that
belief enters into the contract with him, the man thus conducting
himself would be equally bound as if he had intended to agree to the
other party’s terms.’
In
Sonap Petroleum (SA) (Pty) Ltd (formerly known as Sonarep (SA)
(Pty) Ltd) v Pappadogianis
7
Harms AJA applied this dictum and further elucidated the test as
follows:
‘
In
my view, therefore, the decisive question in a case like the present
is this: did 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
representation; 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?’
[16] There is no question on the facts of the present case that the
answer to the first and third questions in the above enquiry
is a
resounding yes. As to the second, the misrepresentation was clearly
made on behalf of the respondent. Once the original suretyship,
signed by him and two witnesses, was sent to and received by Lindsay,
a contract of suretyship came into being. Whether or not the
amended
document was subsequently sent to the appellant is irrelevant. It
constituted no more than a proposed amendment to a suretyship
agreement already in existence, a fact which the respondent’s
counsel was constrained to concede in argument. This being so,
the
onus was on the respondent to prove that the appellant agreed to the
proposed amendments, thereby bringing into being a ‘new’
contract of suretyship.
[17] Assuming, without deciding, that the respondent’s version
(a version fraught with improbabilities and which on the view
I take
of the matter, need not be considered) that he and Bergh
telephonically agreed to the amendments is the correct one, the
difficulty
that faces the respondent is clause 6 of the original
document (which is identical to clause 6 of the amended suretyship).
The clause
reads:
‘
No alteration to this
suretyship or prior representation shall be binding on the supplier
unless agreed to in writing by the creditor.’
Contractual provisions of this nature are, of course, valid and
binding on the parties who are entitled to impose specified
formalities
to their written contract including agreeing that
variations thereto shall be effected only by written agreement.
8
[18] As previously indicated, it was argued in the court below and in
this court that Lindsay’s letter of 23 August constituted
the
appellant’s written consent to the amended document. Two
hurdles face this proposition. There is, first, the appellant’s
uncontested evidence that Lindsay (to whom this interpretation of his
letter was significantly not put in cross-examination) had
no
authority to consent to any amendments. This evidence is supported by
the respondent’s own version that he negotiated all
the
relevant transactions with Bergh, starting with his proposal for the
establishment of a showroom to the preliminary negotiations
relating
to the suretyship agreement.
[19] Second, and more compelling, is Lindsay’s warning in the
letter itself that the order could not be processed until the
credit
application form and the suretyship agreement had been duly completed
and returned to the appellant. Apart from the fact that
this letter,
from its mere reading, clearly has no bearing whatsoever on the
suretyship issue, Lindsay’s warning in this regard
puts it
beyond doubt that the letter was faxed to FMMC before the two
documents which he requested were faxed to him by Trower. Thus,
whether or not Lindsay had authority to consent to the amendments,
the letter could not constitute consent to terms which, on the
respondent’s own version, were still under negotiation. There
was, therefore, no written consent as required by clause 6, which
the
appellant was entitled to invoke. The respondent’s counsel
found himself obliged to concede the point as well. This, in
my view,
is the end of the matter.
[20] In the result the appeal is upheld with costs including the
costs of two counsel. The order of the court below is set aside
and
the following is substituted:
‘
The
appeal is dismissed with costs, including the costs of two counsel.’
_____________________
MML MAYA
JUDGE OF APPEAL
CONCUR:
SCOTT JA
VAN HEERDEN JA
1
At
the trial this amount was reduced to R145 911.54 on account of two
credit notes passed by the appellant in FMMC’s favour
subsequent to the close of pleadings.
2
In
this pleading the respondent also raised various preliminary
objections and defences which were all rejected by the magistrate
and the court below and which need not concern us for purposes of
this appeal.
3
The
magistrate found (obviously relying erroneously on the transmission
data imprinted by the respondent’s fax machine on
the blank
credit application form and suretyship agreement sent by Lindsay)
that the documents were faxed back to Lindsay on 18
August at 15h00,
contrary to undisputed evidence that they were faxed back during the
morning of 23 August.
4
Contrary
to the magistrate’s finding that she said nothing about faxing
the amended agreement, Trower testified that she personally
faxed it
to Lindsay and stated that the copy before court probably bore no
proof that it had been faxed from FMMC’s offices
because it
was the original and only the recipient copy in the appellant’s
possession would reflect such details.
5
Stocks
& Stocks (Pty) Ltd v T J Daly & Sons (Pty) Ltd
1979
(3) SA 754
(A) at 762G-H.
6
(1871)
LR 6 QB 597
at 607.
7
[1992] ZASCA 56
;
1992
(3) SA 234
(A) at 239I-240B. See also
Steyn v LSA Motors Ltd
1994
(1) SA 49
(A) at 61F-H;
Constantia
Insurance Co Ltd v Compusource (Pty) Ltd
2005
(4) SA 345
(SCA) at para 17.
8
SA
Sentrale Ko-op Graanmaatskappy Bpk v Shifren
1964
(4) SA 760
(A);
Brisley v Drotsky
2002
(4) SA 1
SCA;
HNR Properties CC v
Standard Bank of SA Ltd
[2004] 1 All
SA 486
(SCA).