Di Giulio v First National Bank of South Africa Limited (A1080/2001) [2002] ZAWCHC 33 (19 June 2002)

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[2002] ZAWCHC 33
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Di Giulio v First National Bank of South Africa Limited (A1080/2001) [2002] ZAWCHC 33; 2002 (6) SA 281 (C) (19 June 2002)

IN
THE HIGH COURT OF SOUTH AFRICA
(CAPE OF
GOOD HOPE PROVINCIAL DIVISION)
Case No:
A1080/2001
In the matter
between:
SERGIO
GUISEPPE DI GIULIO
Appellant
and
FIRST NATIONAL BANK OF SOUTH AFRICA LIMITED
Respondent
JUDGMENT: 19 JUNE 2002
VAN ZYL J:
INTRODUCTION
[1] The respondent, as plaintiff, issued summons
against the appellant, as first defendant, for payment of the amount
of R310 312,87,
together with interest and costs. The cause of action
was a written suretyship in terms of which the appellant bound
himself as surety
and co-principal debtor in favour of the respondent
for the due payment by the debtor, Soundprops 1094 Investments (Pty)
Ltd (“Soundprops”),
of all amounts owing, from time to time, to
the respondent.
[2] The appellant admitted signing the deed of
suretyship, but denied that he was bound by it. In this regard he
raised various defences
in his amended plea. At the commencement of
the trial he reduced them to what in essence constitutes only one
defence, namely that
the respondent had honoured cheques in breach of
its agreement with Soundprops, thereby acting to the prejudice of the
appellant
as surety and discharging or releasing him from his
obligations in terms of the suretyship. In this regard it was alleged
that the
respondent would, in terms of the said agreement, from time
to time advance money on overdraft to Soundprops up to a certain
limit.
In the course of doing so it would honour cheques and
withdrawals in accordance with the instructions of “the officials
of Soundprops”
and with their written authorisation. In breach of
written authorisations issued from time to time, the respondent
advanced Soundprops
the aforesaid sum of R310 312,87 on overdraft,
without the consent or knowledge of the appellant.
[3] When the matter came on trial in the court
a
quo
,
the learned magistrate ruled that, inasmuch as the
respondent had made out a
prima facie
case on the pleadings,
the appellant should commence with his case. The appellant called
only one witness, Mrs J F Erasmus, the resources
manager (“bestuurder
hulpbronne”) at the Mossel Bay branch of the respondent, to testify
on his behalf. In addition he handed
up numerous exhibits, including
two lists of “signing officers” marked “B” and “C”, two
sets of cheques marked “D1”
to “D111” and “E1” to “E
68” respectively, and a number of bank statements marked “F1”
tot “F23”. On conclusion
of the evidence the respondent admitted
that all these exhibits related to the relevant account of
Soundprops. The appellant thereupon
closed his case. The respondent
subsequently closed its case without leading evidence.
[4] The court
a quo
gave judgment in favour
of the respondent in the amount claimed, together with interest
a
tempore morae
and costs. In her reasons for judgment in terms of
rule 51(1) of the rules of the magistrate’s court, the learned
magistrate rejected
the appellant’s defence on the basis that he
had failed to prove any breach by the respondent of its obligations
in terms of the
principal contract. In any event he had been unable
to demonstrate any prejudice suffered by him a surety as a result of
the respondent’s
alleged conduct. The respondent, on the other
hand, was held to have proved its case against the appellant on a
balance of probabilities,
except for the contractual interest claimed
by it. That is why only interest
a tempore morae
was awarded.
[5] The present appeal is directed against the
whole judgment and order of the court
a quo
, including the
order relating to interest and costs.
THE RELEVANT DOCUMENTATION AND EVIDENCE
[6] The agreement of suretyship between the
appellant and the respondent, dated 19 November 1997, is not in
dispute and provides that
the appellant binds himself as surety and
co-principal debtor, jointly and severally, with Soundprops for the
payment of all monies
owed by it to the respondent, “from
whatsoever cause and howsoever arising”. This includes liability
for interest and costs on
the scale as between attorney and own
client.
[7] The testimony of Mrs Erasmus was of a limited
nature, despite her being confronted, during her evidence in chief,
with a large
number of the aforesaid exhibits. The difficulty was
that she clearly did not have any personal knowledge of the
Soundprops account
nor of the exhibits, all of which dated back to
the period June 1997 to February 1998, long before she commenced her
employment at
the respondent’s Mossel Bay branch on 16 August 1999.
[8] The appellant attempted, through Mrs Erasmus,
to prove that the respondent had been in breach of its obligations to
Soundprops
by honouring cheques ostensibly not signed by the required
number of persons appearing in the lists of “signing officers”
(exhibits
"B" and "C"). She was unable to render
any assistance in this regard but explained that lists of this nature
were not always adhered to in that clients would, from time to time,
request a manager of the respondent to honour cheques not bearing
the
requisite signatures. She had no knowledge of any arrangements made
with regard to cheques submitted as exhibits in the present
matter,
but emphasised that the respondent would be extremely wary of
annoying clients by regularly referring cheques back to them.
[9] Of some significance is the fact that all the
cheques presented as exhibits appear to have borne a bank stamp.
According to Mrs
Erasmus this indicated that the cheques had been
duly presented and paid out, and that the amounts appearing from the
cheques had
been debited to the account of Soundprops. It also meant
that Soundprops had received value for the amount of each cheque and
could
hence not have suffered any damage as a result of the payment
thereof. In this regard, she testified, there was no indication that
any cheque payment honoured by the respondent had ever been queried,
be it with reference to signatures appearing on a cheque or
for any
other reason.
MAIN SUBMISSIONS ON BEHALF OF THE APPELLANT
[10] Mr van der Merwe, for the appellant,
submitted that the respondent had failed to discharge the
onus
of
proving that Soundprops in fact owed it the amount claimed. In this
regard he suggested that the respondent should have presented
evidence on the composition or calculation of such amount and on the
fact that it was due and payable. The court
a quo
had erred,
he argued, in finding that a
prima facie
case had been made
out by the respondent and that the appellant had the duty to begin.
[11] The gist of Mr van der Merwe’s argument was
that the respondent had acted in breach of its mandate as set forth
in the list
of “signing officers” dated 26 May 1997 (exhibit “B”)
by honouring some 110 cheques not bearing the required signatures.
It
was hence not entitled to debit the account of Soundprops with the
amounts appearing from such cheques and totaling R229 872,78.
From
this it followed that the appellant could not be held liable for such
amounts or for the accumulated interest thereon. If the
said interest
should in fact be credited to the Soundprops account, the amount of
the respondent’s claim would be extinguished.
The respondent had
chosen not to tender any evidence in rebuttal relating to authorised
payments and had hence not proved what amount,
if any, was in fact
due and payable by Soundprops and, accordingly, by the appellant.
[12] Mr van der Merwe submitted further that, as a
result of the aforesaid unauthorised payments debited to the
Soundprops account,
the respondent had acted irregularly and in
conflict with the interests of the appellant as surety. This
constituted prejudice arising
from the respondent’s “breach of
contract towards Soundprops”, which had the effect that the
appellant’s position and obligations
as surety were increased or
aggravated. The appellant was hence entitled to his discharge as a
surety.
MAIN SUBMISSIONS ON BEHALF OF THE RESPONDENT
[13] Mr du Toit, for the respondent, submitted
that the respondent had indeed proved a
prima facie
case
against the appellant and that the learned magistrate had quite
correctly ruled that the appellant should begin with his case.
It was
for the appellant then to prove that the respondent had breached its
contract with the appellant, or had acted without authority
in
honouring cheques subsequently debited to the account of Soundprops.
In this the appellant had failed, inasmuch as the appellant
had not
been able to prove that the cheques in question had been signed by
unauthorised persons, despite the existence of the lists
of "signing
officers". In any event, even if the lists were decisive, it had
not been proved that they were applicable
at any particular stage.
[14] In this regard Mr du Toit submitted that,
inasmuch as the appellant had admitted the amount of the loan and his
liability in
terms of the suretyship, the appellant was, at least,
saddled with an
onus
to rebut this
prima facie
evidence
substantiating the respondent's claim. Every cheque honoured by the
respondent constituted proof of its compliance with a
mandate given
by Soundprops to the respondent to make payment in terms of the
cheque. The lists of "signing officers" did
not affect the
validity of the mandate. If the respondent should ignore, or deviate
from, the requirements contained in the list,
it did so at its own
risk and with the full realisation that the signature or signatures
on the cheque in question might turn out
to be unauthorised. If no
objection, however, should be raised to the honouring of a cheque
that has not complied with the signing
authority contained in the
list, the respondent would be perfectly entitled to debit the amount
of the cheque to the account of Soundprops.
[15] On this basis Mr du Toit argued that it was
not sufficient for the appellant simply to demonstrate that the
signature or signatures
on the cheques did not comply with the
relevant list (whichever that may be). He should have tendered
evidence that the person or
persons signing the individual cheques
had not been authorised to do so. In this regard he himself had
chosen not to testify, despite
the fact that much of the evidence
required to establish the appellant's defence must have been within
his personal knowledge. This
justified a negative inference against
him. The evidence of Mrs Erasmus did not assist him at all. On the
contrary, she had exposed
the possibility that there could have been
an arrangement between Soundprops and the respondent to accept
signatures not consonant
with the requirements set forth in the
applicable list or lists. Of some significance, Mr du Toit pointed
out, was the fact that
a number of cheques constituted payments for
services rendered by the Municipality and Telkom. It was most
unlikely that such cheques
would not have been authorised.
[16] Another problem, raised as an alternative
argument by Mr du Toit, related to the fact that the first list
(exhibit "B")
had been cancelled on an unspecified date, so
that it was not clear which list, if any, was applicable at the
relevant stage. No
evidence was tendered to elucidate this
lacuna
in the appellant's case.
THE RELEVANT LAW
The Relationship between a Bank and its
Client
[17] The relationship between a bank and its
client has exercised the minds of lawyers over a long period of time.
In the well known
case of
London Joint Stock Bank, Limited v
Macmillan and Arthur
[1918] AC 777
(HL), Lord Finlay LC said the
following in his speech (at 789):
The relation between
banker and customer is that of debtor and creditor, with a superadded
obligation on the part of the banker to
honour the customer’s
cheques if the account is in credit. A cheque drawn by a customer is
in point of law a mandate to the banker
to pay the amount according
to the tenor of the cheque.
That the underlying agreement between bank and
client is one of mandate, has been unequivocally accepted in South
African law, as
appears from the
dictum
of Grosskopf J in
Volkskas Bpk v Johnson
1979 (4) SA 775
(C) at 777H-778A:
Die verhouding tussen
bankier en kliënt behels dat die bankier sy kliënt se opdrag om te
betaal, soos uitgedruk in ‘n tjek, moet
uitvoer. Indien hy dit doen
is hy geregtig om die kliënt se rekening te debiteer met die bedrag
van die tjek.
[18] In his leading judgment on banking law, as
reported in
Standard Bank of SA Ltd v Oneanate Investments (Pty)
Ltd
1995 (4) SA 510
(C), Selikowitz J, with reference to South
African and foreign legal authorities, stated thus (at 530G-H):
The law treats the
relationship between banker and customer as a contractual one. The
reciprocal rights and duties included in the
contract are to a great
extent based upon custom and usage. Although historically the
original objective of a depositor was to ensure
the safekeeping of
his money, over time jurists have considered characterising and
explaining the basic relationship as one of
depositum
,
mutuum
or agency. All of these approaches have on analysis proved to be
inadequate. It is now accepted that the basic, albeit not sole,
relationship between banker and customer of a current account is one
of debtor and creditor.
In regard to the use of cheques for purposes of
instructing a bank to make payments to the bearers thereof, the
learned judge added
(at 531F-H):
When an instrument such
as a cheque is used, the customer, acting as principal, instructs the
bank, his agent, to perform a specific
act, which is usually the
payment of a sum of money to the bearer, the payee or his order. As
between the bank and its customer a
payment by cheque is governed
primarily by the law of agency. Thus even in basic normal and
everyday banking activity the relationship
described as one between
debtor and creditor includes aspects – often described as
‘superadded obligations’ – which are regulated
by the law of
agency.
[19] This case has recently been cited with
approval in
Liebenberg v Absa Bank Limited t/a Volkskas Bank
[1998] 1 All SA 303
(C) at 308-309 and in
Absa Bank Bpk v
Janse Van Rensburg
2002 (3) SA 701
(SCA) at 709A-B. I am in
respectful agreement with the proposition that the relationship
between bank and client is contractual,
the client being the creditor
and the bank the debtor. In the context of agency, however, where the
client is the principal and the
bank the agent, it must be borne in
mind that agency and mandate are not exact equivalents. The contract
of mandate is a consensual
contract that has its origin in Roman law
(
mandatum
), whereas agency is a term that “is used in such a
wide variety of meanings that it cannot be regarded as a term of art
denoting
a specific branch of law”. These are the introductory
words of Professor J C de Wet in his discussion of agency and
representation
in
The Law of South Africa
vol 1 (1
st
reissue, 1993) par 100. In some cases agency may constitute nothing
more than an act of representation, while in others it may take
the
form of a contract of mandate, where the agent is in fact a mandatary
and the principal is a mandator. See
Totalisator Agency Board, OFS
v Livanos
1987 (3) SA 283
(W) at 290J-292E and the discussion of
mandate and
negotiorum gestio
in
The Law of South Africa
vol17 (1
st
reissue, 1999) par 1-2.
[20] To avoid this kind of confusion it is, I
believe, essential to determine the true nature of the agreement
between the bank and
its client. Inasmuch as the client instructs the
bank to render certain banking services when required, and the bank
agrees to carry
out such instructions, their
consensus
must
needs emanate from a contract of mandate, in terms of which the
client is the mandator and the bank the mandatary. It is quite
correct that the rights and obligations arising from this form of
mandate may be of a complex nature, but its essence remains the
same.
I do not believe that the complexity of the mandate justifies its
classication as a contract
sui generis
, however tempting this
nomenclature may be. See
G S George Consultants and Investments
(Pty) Ltd v Datasys (Pty) Ltd
1988 (3) SA 726
(W) at 735-736 and
Commissioner of Customs and Excise v Bank of Lisbon International
Ltd
1994 (1) SA 205
(N) at 213-214.
[21] Particularly enlightening in this regard is
the pragmatism and sound common sense appearing from the following
passage in
Malan on Bills of Exchange, Cheques and Promissory
Notes in South African Law
(3
rd
ed by F R Malan and J
T Pretorius, 1997) par 203 (at p 334):
[I]n essence the
contract between bank and customer obliges the bank to render certain
services, the so-called services de caisse,
to the customer on his
instructions and for this reason it can be classified as a contract
of mandatum. The bank and customer relationship
is based on a
comprehensive mandate in terms of which the customer lends money to
the bank on current account, the bank undertakes
to repay it on
demand by honouring cheques drawn on it and to perform certain other
services for the customer, such as the collection
of cheques and
other instruments, and the keeping and accounting of his current
account. The fact that the customer lends money to
the bank, or the
bank, in the case of an overdraft, to the customer does not determine
the nature of the contract between them: these
loans facilitate the
execution of the comprehensive mandate between the parties. Within
this comprehensive mandate the individual
cheques drawn by the
customer are "dependent" orders, because their consequences
are in many respects governed by the terms
of this embracing
relationship. The body of rules governing the bank and customer
relationship can be called the "internal"
law of cheques.
I have no hesitation in respectfully associating
myself with this approach.
Unauthorized
Signatures
[22] Who and under what circumstances a person may
be authorised to sign a cheque on behalf of the client must
necessarily be contained
in the contract of mandate underlying the
relationship between the client and the bank. If, as in the present
case, a list of persons
with such signing powers is furnished to the
bank, it in fact becomes part of the mandate. Should a cheque then
not bear an authorised
signature or signatures, as the requirement
may be, the bank would be acting in breach of the terms of the
mandate if it should honour
such cheque and debit the client's
account with the amount thereof.
[23] In
Kunneke v Eerste Nasionale Bank van
Suidelike Afrika Bpk
1997 (3) SA 300
(T) it was common cause
(305E) that the bank had a written mandate to pay cheques only when
signed by the plaintiff and one Kruger.
The bank proceeded to honour
cheques not bearing the requisite signatures. This prompted Stafford
J to say (at 307B):
Die verhouding tussen
die BK en die verweerder is 'n kontraktuele verhouding. Dit is geykte
reg. Die verweerder kon slegs wanneer
hy tjeks in ooreenstemming met
sy mandaat uitbetaal het, die BK se rekening dienooreenkomstig
debiteer.
In casu
het die verweerder strydig met sy mandaat
opgetree en was hy ook gevolglik nie geregtig om die BK se rekening
met die eisbedrag te
debiteer nie.
[24] A deviation from the list of authorised
signatories does not necessarily mean that payment of the cheque is
invalidated. In
London Intercontinental Trust Ltd v Barclays Bank
Ltd
[1980] 1 Lloyd's Law Reports 241 (QB)(Com Ct), the defendant
bank was instructed to honour only those cheques signed by two
authorised
signatories. In conflict with this instruction, however,
the bank honoured two cheques bearing only one authorised signature
and
debited the account of the plaintiff with the amount of the
cheques. The plaintiff thereupon claimed that, inasmuch as payment of
the cheques had been without authority and in breach of the mandate
to the bank, the bank had not been entitled to debit the plaintiff's
account as it had done. On consideration of the relevant evidence and
documents, Slynn J held that the cheques in question had in
fact been
deposited with the authority and approval of the plaintiff's board
and that one Ross had had actual authority to arrange
for the
transfer of the amounts indicated on the cheques. In this regard the
learned judge stated (at 249):
In the light of Mr.
Ross's actual authority to direct the transfer of these moneys I hold
that the bank was entitled to act on the
cheques drawn on his single
signature. Those cheques are not invalidated by the fact that the
bank had a mandate requiring two signatures.
The bank as a result of
its failure to observe the discrepancy took a risk in honouring the
cheque that Mr. Ross was not in fact
authorized. In the case of both
these cheques I hold that he was so authorized.
[25] This
dictum
was cited with approval by
Stafford J in
Kunneke v Eerste Nasionale Bank van Suidelike Afrika
Bpk
1997 (3) SA 300
(T) at 311B. It likewise met with the
approval of Davis J at typed page 6 of his unreported judgment,
delivered on 10 February 2000,
in
The Standard Bank of South
Africa Limited v Langraphix (Pty) Limited and Colin Nadasen Naidoo
(Case No 15802/97). I must respectfully concur with my learned
brethren in doing so. The parties to a contract of mandate are free
to amend or deviate from its authorisation requirements relating to
the signing of cheques, provided such amendment or deviation
is
consensual. This may be done formally, in writing, orally, by word of
mouth, or tacitly, by conduct in the form of acts or omissions.
If
there should be no such
consensus
, they may, with equal
validity, subsequently ratify any deviation from the terms of the
mandate. In any event the bank may, at its
own risk, honour
ostensibly unauthorised cheques in the expectation that their payment
will be approved or ratified. This may, in
essence, constitute a
breach of the mandate, but it will not
per se
invalidate the
payment of the cheques.
The
Onus of Proof in Suretyship Agreements
[26] In
any claim against a surety the plaintiff must, at the outset, prove
the existence of a valid contract of suretyship. He must
then prove
that the source of indebtedness (
causa debiti
) in terms of
such agreement is one in respect of which the defendant undertook to
be liable. Finally he must prove that the said
indebtedness is due
and payable. See the useful discussion of these requirements, with
reference to relevant authorities, in
Amler's Precedents of
Pleadings
(5
th
ed by LTC Harms, 1998) 381-382.
[27] If the
defendant should place the amount of the claim, relating to its
composition or calculation, in issue, the necessary evidence
to
substantiate such amount must be presented by the plaintiff. See
Moreriane v Trans-Oranje Finansierings- en Ontwikkelingskorporasie
Bpk
1965 (1) SA 767
(T) at 769G;
Senekal v Trust Bank of
Africa Ltd
1978 (3) SA 375
(A) at 383A.
[28] It is
trite that, if the surety should admit liability in terms of the
suretyship agreement, the plaintiff would not be required
to lead
evidence in this regard. If the amount of the claim should likewise
be admitted, no evidence of its composition or calculation
would be
required. If the surety should, however, deny liability on the basis
that the principal debt was not due, the principal
would have to
prove that it was. See the
Senekal
case (par 27 above) at
383A-F. On the other hand, if the surety should raise a "special"
defence such as illegality, fraud,
lack of contractual capacity or
lack of authority, he would be required to present evidence in
support thereof. This is because the
facts underlying such defence
are regarded as falling beyond the ambit of the plaintiff's cause of
action. See C W H Schmidt and
H Rademeyer
Bewysreg
(4
th
ed 2000) 38-39 and the authorities cited there.
[29] Once the
party bearing the
onus
of proof has made out a
prima facie
case, his opponent is burdened with an
onus
of rebuttal.
Should he fail to discharge this
onus
of rebuttal,
prima
facie
evidence would be regarded as sufficient evidence for
purposes of discharging the main
onus
of proof. See
Senekal
v Trust Bank of Africa Ltd
(par 27 above) 382H-383A; Schmidt and
Rademeyer (par 28 above)
65. Even more so would this be the
case if he has personal knowledge of facts or information relevant to
the discharge of such
onus
, but fails or refuses to testify.
Under such circumstances an adverse inference may be drawn against
him. See
Galante v Dickinson
1950 (2) SA 460
(A) at 465;
New
Zealand Construction (Pty) Ltd v Carpet Craft
1976 (1) SA 345
(N)
at 349G-H;
Hasselbacher Papier Import and Export (Body Corporate)
and Another v MV Stavroula
1987 (1) SA 75
(C) at 79F-80C;
Lazarus
v Gorfinkel
1988 (4) SA 123
(C) at 134B-135C.
The
Defence of Prejudice Justifying Release of a Surety
[30] Over
a long period of time a rule has evolved that, in general terms, a
surety may be fully or partially released from his obligations
in
terms of the suretyship agreement if he should be prejudiced by an
act of, or omission by, the creditor. This rule has, however,
been
qualified in later legal development. A classical rendition of the
rule is attributed by J W Wessels,
The Law of Contract in South
Africa
(2
nd
ed by A A Roberts, 1937) par 4341, to
Joseph Story
Equity Jurisprudence
(13
th
ed 1886)
section 325:
Where the
person guaranteed does any act injurious to the surety or
inconsistent with his right, or if he omits to do any act which
his
duty enjoins him to do, and the omission proves injurious to the
surety, the latter will be discharged.
Wessels
par 4346 points out that this rule, with its origin in equity,
appears to have been stated in the English case of
Watts v
Shuttleworth
(1861) 7 H & N 235 [at 247-248; also in
157 ER
1171
(Ex Ch) at 1176].
[31] In South
African legal context Colman J cited the rule with approval in
Minister of Community Development v S A Mutual Fire & General
Insurance Co Ltd
1978 (1) SA 1020
(W) at 1024A. With reference to
its equitable origin, however, the learned judge emphasised that it
was "clearly not intended
to mean that the proposition
enunciated related to some system of law other than our own".
[32] The
issue of prejudice justifying discharge from suretyship obligations
was dealt with in some detail by Van der Westhuizen AJ
in
Fry and
Another v First National Bank of South Africa Ltd
1996 (4) SA 924
(C) at 927G-931J. It was common cause in that case that the
respondent bank had advanced additional funds on overdraft to the
principal
debtor, in breach of its mandate which required that such
transactions were to be approved by three of the principal debtor's
directors.
With reference to the rule enunciated above, the learned
judge considered (at 928F) "whether the rule as stated is
founded on
a principle of our law or whether it must be regarded as
the 'exercise of a broad equitable power'".
[33] In
considering this issue the learned judge referred to a number of
authorities, including
Bank of India v Trans Continental Commodity
Merchants and Patel
[1983] 2 Lloyd's Reports 298 (CA) at 301-302.
In that case Lord Goff of Chieveley held "that merely irregular
conduct on the
part of the creditor, even if prejudicial to the
interests of the surety, does not discharge the surety". After
careful consideration
of the legal basis of the rule, as qualified,
in South African legal context, Van der Westhuizen AJ concluded (at
931F-G) that it
was not "founded on the exercise of some broad
equitable discretionary power". In this regard the learned judge
observed
(at 931G-I):
Although
the principles underlying the rule are founded on principles of
equity, they have become firmly embedded and have been established
for a very long time as part of our law… There can be no doubt that
from ancient times to the present public policy and well-established
business morals require creditors to act
bona fide
in their
dealings with sureties and that these considerations contributed to
the growth of the rules of law that I have referred to.
Applying
these considerations to the facts of the case before him, Van der
Westhuizen AJ held (at 935H-I) that the conduct of the
bank was not
only irregular, but in fact "wholly unacceptable and reckless
and was to his knowledge to the prejudice of the
appellants".
[34] In the
Kunneke
case (par 25 above) at 314B-C, Stafford J referred to
the payment of cheques by the bank, in breach of its mandate, as
irregular
and prejudicial to the interests of the surety. Although
the learned judge did not give further consideration to the meaning
and
ambit of prejudice in this context, he suggested (at 314C) that
the bank's conduct had not been conducive to doing "justice
between man and man".
[35] In
Absa
Bank Ltd v Davidson
2000 (1) SA 1117
(SCA) at 1123J-1124A (par
14), Olivier JA cautioned against broadening the concept of the
"prejudice principle" to include
any conduct of the
creditor, in his dealings with the principal debtor, which may
prejudice the surety. The learned judge rejected
the suggestion that
"such a wide and unqualified principle" may exist in our
law and proposed (at 1124I-1125A - par 19)
that it should have
specific parameters:
As a
general proposition prejudice caused to the surety can only release
the surety (whether totally or partially) if the prejudice
is the
result of a breach of some or other legal duty or obligation. The
prime sources of a creditor's rights, duties and obligations
are the
principal agreement and the deed of suretyship. If, as is the case
here, the alleged prejudice was caused by conduct falling
within the
terms of the principal agreement or the deed of suretyship, the
prejudice suffered was one which the surety undertook
to suffer.
This
qualification of the rule relating to prejudicial conduct which may
release a surety was followed and endorsed by Griesel J in
Investec
Bank Ltd v Lewis
2002 (2) SA 111
(C) at 116G-117C.
[36] The
issue of prejudice justifying release from a suretyship was
considered in a recent decision of Davis J in this court, namely
Spur
Steak Ranch Ltd v Mentz
2000 (3) SA 755
(C). Although not
propounding a broadening of the concept of prejudice in this context,
the learned judge supported a flexible approach
to the obligations
arising from the principal ("initial") contract by taking
cognisance of certain annexures apparently
supplementing such
contract. With reference to the
Fry
matter (par 32 above)
Davis J observed (at 764B):
The
description of the rule, that is prejudicial conduct on the part of
the creditor, must be distinguished from the scope of the
rule. The
nature of the enquiry to determine the prejudicial conduct and how
that enquiry should be conducted depends upon an investigation
of the
very purpose of the rule.
After
considering various passages from the
Bank of India
case (par
33 above), Davis J cited par 4295 of Wessels
Law of Contract
(par 30 above) to the effect that "the creditor may improve the
position of the surety but he may not render his liability more
burdensome". The creditor and debtor may hence not prejudice the
surety by amending the terms of the principal contract without
his
consent. To determine whether or not there has been such prejudice,
however, the court deciding the matter is required to have
regard to
any such purported amendments. In this regard Davis J stated (at
765D-E):
Accordingly,
when defendant submits that it had a legitimate defence in law of
prejudicial conduct, it requires the Court which decides
this matter
to look at prejudicial conduct in a broader context than simply in
terms of the initial contract strictly defined. If
this is so, it
must strengthen the conclusion that there is no basis by which a more
comprehensive examination of prejudicial conduct
should be precluded.
This prompted
the learned judge to conclude (at 765H-I):
Accordingly,
defendant has raised a defence grounded in the law of suretyship
which was initially sourced in equity but which has
now become a rule
of law, namely that plaintiff in such a case should not engage in
conduct prejudicial to the surety which makes
its obligations more
burdensome.
[37] When
the authorities cited above are considered it is clear that the rule
relating to release of a surety as a result of prejudicial
conduct by
the creditor is rooted in equity. What might initially have been a
product of English equitable jurisprudence, however,
has been
received by, and become firmly entrenched in, South African law. This
has not, I venture to say, been a particularly difficult
process,
since equity is a fundamental value underlying much of the
Roman-European civil tradition that constitutes a substantial
part of
our South African common law.
[38] Significantly,
as appears from the citations from the
Fry
and
Kunneke
cases (par 33 and 34 above), equity goes hand in hand with what I
regard as its natural concomitants, namely justice, reasonableness,
good faith (
bona fides
) and good morals (
boni mores
) or
public policy. These values occur with consistent frequency in
private law in general, and in the law of contract in particular.
The
concept of prejudice, in the context of a surety's release from
contractual obligations in terms of an agreement of suretyship,
is in
fact an excellent example of how these values work in unison to
achieve a fair and just result.
[39] The
qualification of the general rule as enunciated in the
Absa
case
(par 35 above) does not, in my respectful view, create any limitation
to the applicability of the said values. On the contrary,
it serves
to illuminate the practical matrix or context within which the rule
must apply. The prejudice in question will, in general,
emanate from
a breach of either the principal agreement or the agreement of
suretyship. Such breach cannot, however, be viewed in
isolation, but
must be assessed within the broader context of the relevant facts and
circumstances as a whole. This may include,
as Davis J pointed out in
the
Spur Steak Ranch
case (par 36 above), a consideration of
additional documentation or evidence relating to the allegedly
breached agreement, and should
not be restricted to the strict
parameters of the initial agreement.
[40] I
respectfully associate myself with the view expressed by Davis J in
the said case, namely that an increase in the contractual
burden of
the surety will, generally speaking, be prejudicial to the surety
(par 36 above). It may, however, be appropriate to add
a rider that
the increase in the surety's burden should be substantial,
unreasonable or undue. A trivial increase may indeed elicit
an
invitation to raise the maxim
de minimis non curat lex
.
[41] On the
basis of these considerations I would then suggest that the prejudice
required for a successful defence of prejudicial
conduct justifying
release from a suretyship agreement, may be described in the
following terms. With reference to all the relevant
facts and
circumstances, and with due regard to considerations of justice,
fairness, reasonableness, good faith and public policy,
the alleged
prejudice must constitute real and substantial prejudice which has
the effect of unduly increasing the contractual burden
of the surety.
CONSIDERATION
OF THE FACTS IN THE PRESENT MATTER
[42] It is
clear from the legal principles set forth above that the appellant
was burdened with the
onus
of proving that the respondent had,
in conflict with its obligations in terms of the mandate subsisting
between it and Soundprops,
honoured cheques without authority. The
appellant came nowhere near discharging this
onus
inasmuch as
it failed even to prove the terms of the mandate. There was no
evidence as to who the authorised signatories were and
it was never
proved that the lists of "signing officials" (exhibits "A"
and "B") had ever been incorporated
in the mandate. And
even if they were, there is no indication that the board of
Soundprops objected to the payment of cheques not
signed strictly in
accordance with the lists. On the contrary, the fact that no single
cheque thus paid out was ever queried, indicates
that the board in
fact authorised, or approved, the payment thereof.
[43] It is
inexplicable why the appellant called only Mrs Erasmus to testify on
his behalf. She clearly had no personal knowledge
of the provisions
of the mandate relating to authorised signatories, and was quite
unable to assist the appellant in discharging
his
onus
. On the
contrary, she tendered information in support of the respondent's
case, namely that none of the cheques had been queried
and that it
was not unusual for a principal debtor such as Soundprops to approve
the payment of ostensibly unauthorised cheques.
In this regard there
was no explanation as to why the appellant himself, or any director
or official on behalf of Soundprops, was
ever called to testify on
relevant matters falling peculiarly within their personal knowledge.
I believe that it would, under such
circumstances, be justified to
draw an adverse inference against the appellant for failing to
testify or to place other evidence
before the court in support of his
case.
[44] The
reason why no cheques were ever queried may be attributable to the
fact that they were, for the most part, issued in payment
of moneys
owing on ordinary, run of the mill transactions. This is confirmed by
the fact that a number of the cheques were payable
to the Great Brak
Municipality (or simply “Municipality”), Telkom, Waltons and Pick
‘n Pay. It was never suggested that any
of the cheques related to
suspect or extraordinary transactions. The only reasonable inference
which, to my mind, may be drawn from
this, is that the board or other
authorised officials of Soundprops had approved, expressly or
tacitly, every single payment. It
follows that the appellant failed
to discharge his
onus
of proving that any of the said cheques
was unauthorised, or that the respondent had wrongly debited the
Soundprops account with
the amounts of such cheques.
[45] Even if
the appellant had discharged his
onus
of proving that the
cheques had been unauthorised and paid out in breach of the
provisions of the mandate subsisting between Soundprops
and the
respondent, this does not mean, as pointed out above (par 24-25) that
the payments were
per se
invalidated. The respondent might
have been at risk in honouring the cheques, but its reasonable
expectation, that Soundprops would
approve the payments, was clearly
met.
[46] In any
event the appellant did not tender any evidence relating to the
prejudice he allegedly suffered. At best for him the payments
might
have been irregular. That did not, however, constitute real and
substantial prejudice that had the effect of making his obligations
as surety more burdensome. With reference to the extremely limited
facts and circumstances placed by him before the court
a quo
,
and bearing in mind the considerations of justice, fairness,
reasonableness, good faith and public policy, the appellant was
unable
to prove that he suffered even the slightest prejudice.
CONCLUSION
[47] It
follows that there is no basis for interfering with the findings of
the court
a quo
. Accordingly the appeal must be dismissed with
costs.
D H VAN
ZYL
Judge of
the High Court of South Africa
I agree. It
is so ordered.
J M HLOPHE
Judge-President
of the High Court of South Africa