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[1989] ZASCA 56
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Botha (now Grissel) and Another v Finansredit (Pty) Ltd. (133/87) [1989] ZASCA 56; [1989] 2 All SA 401 (A) (19 May 1989)
Case No 133/87
IN THE SUPREME COURT OF SOUTH AFRICA APPELLATE
DIVISION
In the matter between:
C E BOTHA (now GRIESSEL)
First Appellant/
First Defendant in the Court
a quo
VERWOERDBURG BELEGGINGS
Second Appellant/
(PROPRIETARY) LIMITED
Third Defendant in the
Court
a quo
and
FINANSCREDIT (PROPRIETARY) LIMITED
Respondent/Plaintiff
In the Court
a quo
CORAM:
HOEXTER, NESTADT, MILNE, JJA et F H GROSSKOPF, NICHOLAS,
AJJA
HEARD:
13 March 1989
DELIVERED:
19 May 1989
JUDGMENT
HOEXTER, JA
2
HOEXTER, JA
In the Transvaal Provincial Division Finanscredit (Pty)
Ltd obtained a money judgment against Mrs C E Botha (now Griessel) and
Verwoerdburg
Beleggings (Pty) Ltd, jointly and severally, with costs (including
the costs of two counsel) on the scale as between attorney and
client. In what
follows reference will be madê to Finanscredit (Pty) Ltd as "the
plaintiff"; to Mrs C E Botha as "the defendant";
and to Verwoerdburg Beleggings
(Pty) Ltd as "VBL". With leave of the trial Judge (HUMAN, AJ) the defendant and
VBL appeal against
the whole of the judgment of the Court below.
The
plaintiff's action was based upon two deeds of suretyship undertaken on 1 May
1973 by the defendant and VBL respectively. In each
deed of suretyship the
principal debtor was a company known as Pretoria Aardwerke & Kontrak-teurs
(Edms) Bpk ("Aardwerke"). In
each suretyship the
surety
3
surety bound herself or itself to the plaintiff as creditor,
in solidum
with Aardwerke -
" and all such other persons, who may be
or become indebted or owe obligations to the Creditor as a result of claims of
whatever nature acquired from the Principal Debtor/s
(such other persons
hereinafter referred to as the Debtor/s) and in respect of which the Principal
Debtor/s remain/s liable in any
way, for the due and punctual payment of all
amounts of whatever nature and/or the performance of any obligation, all of
which may
now or in future become owing by the Principal Debtor/s and/or the
Debtor/s for any reason whatsoever."
Appended to
this judgment as Annexure "A" is a copy of the
deed of suretyship undertaken
by the defendant ("the 1973
suretyship"). It was signed by two sureties :
the
defendant herself and her then husband, one J C Botha
("Botha"). The deed of suretyship undertaken by VBL
("the VBL suretyship") was signed by three sureties :
VBL and two
companies respectively known as Hupert Lessors
(Edms)
4
(Edms) Bpk ("Lessors") and Verwoerdburg Vervoer (Edms) Bpk ("VV"). Save as to
the identity of the sureties the terms of the VBL suretyship
are identical with
those set forth in the 1973 suretyship.
Whereas in the 1973 suretyship and in
the VBL suretyship the principal debtor in each case was Aardwerke, the
defendant and Botha
had previously, on 28 July 1972, bound themselves as
sureties to the plaintiff
in solidum
with the Lessors as the principal
debtor ("the 1972 surety-ship"). The identity of the principal debtor apart, the
1972 suretyship
was in terms identical with those set forth in the 1973
suretyship.
To complete the picture of suretyships it should further be
mentioned that there were cross-guarantees between Aardwerke and Lessors.
It has
already been noticed that in the VBL suretyship one of the co-sureties for
Aardwerke
5
Aardwerke was Lessors. In turn Aardwerke was a surety for Lessors's debt to
the plaintiff. On 28 July 1972 Aard-werke (as a co-surety
with W and VBL) had
bound itself to the plaintiff as creditor
in solidum
with Lessor as
principal debtor ("the Aardwerke cross-guarantee").
The defendant and Botha
were married to each other in 1968, out of community of property and with the
exclusion of the marital power.
They were divorced in 1982. In 1972 and 1973 the
defendant and Botha were equal shareholders in and sole directors of Aardwerke
and
Lessors. VBL was an inyestment company in which the defendant and Botha were
equal shareholders and sole directors.
The business of Aardwerke was that of
earth-removal and road-making. The equipment used by Aardwerke in its business
was, in the main,
leased to it by Lessors. The plaintiff was a financial house
which granted credit facilities
to
6
to clients with adequate securities. In order to obtain the equipment for
their business Aardwerke and Lessors required credit facilitiés.
The
plaintiff acquired equip-ment which it then sold, by way of hire-purchase, or
leased to either Aardwerke or Lessors, as the case
might be. In the main such
contracts were entered into in the name of Lessors.
On 28 February 1974 a
written contract of sale was concluded between the defendant and Botha as
sellers and Aardwerke as purchaser
in terms whereof Aardwerke bought from the
defendant and Botha their entire shareholding in Lessors and W. On the same date
a memorandum
of agreement ("the Vanacht contract") was concluded between the
defendant and Botha as sellers and a public company known as S M
Van Ach-terberg
Bpk ("Vanacht") as purchaser. In terms of the Vanacht contract Botha sold 10%,
being one-fifth of his shareholding,
and the defendant sold her entire
shareholding (i e the
sellers
7
sellers sold 10% + 50% = 60% of the issued share capital) in
Aardwerke to
Vanacht for R1,08m. In this way Vanacht acquired
control both of Aardwerke
and its subsidiary, Lessors. The
Vanacht contract also provided for the issue
of further shares
at par to Botha and Vanacht; for the allocation of R200 000
of
the purchase price payable by Vanacht in payment of debts owed
by the
defendant and Botha to Aardwerke; and for the ap-
pointment of Botha as the
managing director of Aardwerke,
subject to the control of Aardwerke's new
board of directors,
the majority of whom would be appointed by Vanacht.
In
the Vanacht contract Aardwerke is described as "Die Maat-
skappy".
Clause 6.1 of the Vanacht contract contained the
following provision -
"6.1
Vrystelling van sekuriteit:
Die Maatskappy
sal:
- daarbenewens sy bes probeer om
alle waarborge en sekuriteite wat deur mev Botha (the defendant) vir die
doelein-des van die besigheid
van die Maatskappy of die Filiale gegee of
beskikbaar gestel
is
8
is oor te neem en/of die vrystelling van mevrou Botha ten opsigte daarvan te
bewerkstellig."
Subsequent to the conclusion of the Vanacht
contract,
and during the period June to September
1974, Vanacht bound
itself on three separate occasions to the plaintiff
as
surety
in solidum
for Lessors as the principal debtor.
On 21
June 1974 Vanacht so undertook a suretyship to a limit
of R300 000; on 23
July 1974 Vanacht so undertook a surety-
ship to a limit of R150 000; and on
23 September 1974
Vanacht so undertook a suretyship to a limit of Rlm.
The
last-mentioned deed of suretyship recorded that it was in
substitution
for -
" alle vorige waarborge onderteken deur
S M van Achterberg Beperk, verskaf aan Finanskrediet (Edms) Bpk., vir
fasiliteite toegestaan aan Hupert Lessors (Edms)
Beperk."
During 1976, however, Vanacht was placed in
liquidation. There-
after, and during November 1976, Botha concluded a
contract with
the provisional liquidators of Vanacht in terms whereof
Botha
bought Vanacht's entire shareholding in Aardwerke for R150 000.
During the period March 1979 to April 1980
Aardwerke
9
Aardwerke bought vehicles and equipment from the plaintiff under 43 separate
hire-purchase agreements which provided for payment of
monthly instalments over
periods stretching from 12 to 36 months. The total purchase price under the 43
hire-purchase agreements
was R2 906 637,30. During October 1978 the plaintiff
and Aardwerke concluded three separate agreements of lease in terms whereof
the
plaintiff leased to Aardwerke one payloader and two tractors at monthly rentals
payable, in the case of each lease, over a period
of 36 months. The total
rentals payable under the three leases was R103 022,28.
On 4 November 1980,
and during the currency of the aforementioned hire-purchase and lease
agreements, Aard-werke was placed under
judicial management; but its judicial
manager elected to continue with each of the said hire-purchase and lease
agreements. Aardwerke
thereafter breached
each
10
each of the aforesaid hire-purchase agreements by failing to pay the
instalments thereunder on due date or at all; and the plaintiff
by reason
thereof lawfully cancelled each such hire-purchase agreement. Aardwerke likewise
breached each of the aforesaid three lease
agreements by failing to pay the
rental due thereunder on due date or at all; and the plaintiff similarly
cancelled each such lease
agreement.
During June 1982 the estate of Botha was
sequestrated. In July 1982 Aardwerke was placed in liquidation.
In November
1982 the plaintiff instituted its action against the defendant and VBL. In its
particu-lars of claim the plaintiff averred
that in consequence of Aardwerke's
breaches of the hire-purchase agreements it had suffered damages amounting in
all to R1 241 916,66
(reduced during the trial to R1 203 555,00) -
"...representing...
11
" ..representing the difference between
what the Plaintiff would have received from the principal debtor" (Aardwerke)
"had the latter honoured all its obligations under
the hire purchase agreements
and what the Plaintiff in fact received from the principal debtor in terms of
the hire purchase agreements
together with the value of the subject matter of
the hire purchase agreements."
In respect of the
lease agreements breached by Aardwerke
the plaintiff averred that at the date
of their cancellation
the total rentals due but unpaid totalled R43
898,90
(reduced during the trial to R42 543,00); in addition to
which sum the
plaintiff claimed damages in the sum of
R9 157,48 (reduced during the trial
to R8 874,00) -
" being the difference between the amount
which the Plaintiff would have received had
the principal debtor honoured all
of its
obligations under the lease agreements and not
breached the lease
agreements and the amount
that it in fact
received "
The particulars of claim set forth that
the aforementioned
amounts
12
amounts (respectively representing (1) damages in respect of the
hire-purchase transactions; (2) arrear rentals in respect of the
lease
transactions; and (3) damages in respect of the lease transactions) were owed by
Aardwerke to the plaintiff; and, on the strength
of the suretyships by the
defendant and VBL, the plaintiff accordingly claimed from the defendant and VBL,
jointly and severally,
payment of the aforesaid three amounts; interest thereon;
and costs of suit on the scale as between attorney and client, as provided
for
in the hire-purchase and lease agreements.
The defendant and VBL resisted the
plaintiff's action. In response to the plaintiff's particulars of claim there
was filed a lengthy
and discursive plea. A multiplicity of defences was raised.
A number of the defences pleaded were bolstered up with a series of alter-native
defences. By agreement between the parties
evidence.
13
evidence was led first on behalf of the defendant and VBL.
(It was a term of such agreement that this procedure en-
tailed no
admission by the defendant and VBL that they bore
any
onus.
) Four
witnesses, including Botha and the defen-
dant, were called on behalf of the
defendant and VBL.
Thereafter three witnesses testified for the
plaintiff.
In the course of the proceedings in the Court
below
some of the defences raised in the plea were jetti-
soned. Those defences in
which the defendant and VBL
persisted at the stage of argument before HUMAN,
AJ were
five in number; and they are conveniently summarised by
the
learned trial Judge in the following way:-
"(1) that the suretyship agreements were void
ab initio
because there
was no compliance with the provisions of section 6 of Act No 50 of 1956; (2)
that the
exceptio doli generalis
was
available to the defendants on the proven
facts;
(3) that
14
(3)
that plaintiff waived its
rights in terms of the suretyship agreements;
(4)
that the plaintiff could not claim damages in addition to a penalty
in conflict with the provisions of Act No 15 of 1962;
(5)
that whereas there was only one credit line, namely, that of Hupert
Lessors, and whereas plaintiff relieved defendants of their suretyship
agreements in respect of Hupert Lessors, the plaintiff. therefore did not have
any claim against the defen-dants in regard to the
suretyship agree-ments dated
1 May 1973."
HUMAN, AJ rejected each and every
defence raised at the trial
and gave judgment for the plaintiff, as claimed,
in the three
reduced amounts above indicated. Having regard to the
judg-
ment of this Court in
Bank of Lisbon and South Africa Ltd
v
De Ornelas and Another
1988 (3) SA 580
(A), the argument
based
on the
exceptio doli generalis
was abandoned in this
Court.
For the rest, and subject to certain variations and ela-
borations
which will be noticed later, substantially the
same defences as in the Court
a quo
were advanced on
behalf of the
appellants during the argument on appeal.
It
15
It is convenient to consider them in the same sequence in which they were
dealt with in the Court below. (A)
THE VALIDITY OF THE
SURETYSHIPS:
The appellants attacked the validity of the suretyships
along a broad front involving no less than eight different objections. Many
of
these objections were grounded upon a proposition that the suretyships fell foul
of the provisions of sec 6 of the General Law
Amendment Act, No 50 of 1956. It
was said that there were incapable of ascertainment, within the meaning of sec 6
of Act 50 of 1956,
various essential matters such as, for example, the identity
of the co-debtors, i e "all such other persons" described in clause
1 of the
suretyships; and the nature, indentity and extent of the debts secured by the
surety-ships. Again, it was urged that certain
of the terms of the suretyships
were irreconcilable with each other.
Both
16
Both in the Court below, and again before
us,
counsel for the plaintiff stressed that none of
the objec-
tions taken related to any term of the suretyships material
to
the plaintiff's action. It was furthermore pointed out
that, in the main, the
provisions attacked were notionally
and grammatically severable and distinct
from the main
suretyship obligation upon which the plaintiff's case
rested.
There is force in these contentions, but it is unnecessary,
I
consider, to say anything more about them. Upon a
proper reading of the
suretyships, so it seems to me, HUMAN
AJ, rightly concluded that the
suretyships in fact complied
with the provisions of sec 6 of Act 50 of 1956.
That section
prescribes formal requirements for contracts of
suretyship.
It reads as follows:-
"No contract of suretyship entered into after the commencement of this Act,
shall be valid, unless the terms thereof are embodied
in a
written
17
written document signed by or on behalf of the surety : Provided that nothing in
this section contained shall affect the liability
of the signer of an aval under
the laws rela-ting to negotiable instruments."
In
the instant case it is common cause that the two sure-
tyships in question
were signed by or on behalf of the
appellants. The requirement that the terms
of the surety-
ship must be embodied in the written document so
signed
means that both the terms which are essential for the
material
validity of any contract of suretyship (the iden-
tity of the creditor, the
surety, and the principal debtor,
and the nature and amount of the principal
debt), as well
as the additional terms upon which the parties (the
creditor
and the surety) may have agreed, must be in writing;
sup-
plemented, if necessary, by extrinsic evidence of identifi-
cation
other than the evidence of the parties as to their
negotiations and
consensus. (See:
LAWSA
vol 26 par 156.)
In
18
In the judgment of the Court below HUMAN AJ, fully consi-dered each of the
objections based on the formal validity of the suretyships
with reference to the
relevant provi-sions of the suretyships and the authorities on the subject.
Suffice it to say, in my opinion,
that none of these objections has any merit;
and that each was properly rejected by HUMAN AJ. To the extent that extrinsic
evi-dence
as to identification of any matter covered by the terms of the
suretyships may be necessary, such evidence does not involve the evidence
of the
parties as to their negotiations or the consensus achieved by them.
In
upholding the validity of the suretyships HUMAN, AJ further rejected as unsound
an argument that clauses 4 and 9 were contrary
to public policy. On appeal
clauses 5 and 11 were also attacked as being contrary to public policy. Suffice
it to say that, in my
view, none of
these
19
these four clauses can be said to offend against public
policy. What does
require attention, however, is a further
argument, not specifically advanced
in the Court below, but
which was forcibly urged on appeal : that the
suretyships
were void for the reason that the provisions of clause 7
were
contra bonos mores.
Clause 7 reads:-
"This Deed of Suretyship and Indemnity shall not be cancelled save with the
written consent of the Creditor."
In support of a
submission that clause 7 was clearly inimical
to the interests of the community, counsel for the appellants
sought to rely on the recent decision of this Court in
Sasfin (Pty) Ltd v Beukes
1989
(1) SA 1
(A), to which refe-
rence will be made hereafter as "the
Sasfin
case". That
case concerned a deed of cession executed by the respondent
Beukes
, a specialist anaesthetist, in favour of,
inter alios,
the
20
the appellant Sasfin, a finance company. The cession
contained provisions whose effect was to put Sasfin, from
the date of the cession and at all times thereafter, in
effective control
of all Beukes's professional earnings;
to entitle Sasfin on notice of cession
to the debtors of
Beukes to recover all Beukes's book debts and to
retain
all amounts recovered, irrespective of whether Beukes
was indebted
to Sasfin in a lesser amount or at all.
Nor was this the full extent of
Beukes's bondage to
Sasfin. Beukes was further rendered powerless to
end
this situation by the provisions of clause 3.14 and
3.14.1 of the deed
of cession which provided:
"3.14 This cession shall be a continuing covering cession and shall remain of
full force and effect at all times notwithstanding -3.14.1.
any intermediate
discharge or
settlement of or fluctuation in my/our obligations to the
creditors;"
The
21
The majority judgment of this Court in the
Sasfin
case
held that an
agreement to such effect was unconscionable;
incompatible with the public
interest; and unenforceable
on the grounds of public policy. SMALBERGER JA,
who
delivered the judgment of the majority, pointed out (at
12 F/G):-
"Contrary to the common law position, however,
on a proper interpretation of
clauses 3.4 and
3.14 Sasfin was entitled, from the moment the
deed of
cession was executed, to recover all
or any of Beukes's book debts, despite
the
fact that no amount was owed by Beukes to it
then, nor might be owed
in the future "
Later in his judgment (at 13G-14A)
SMALBERGER, JA observed:-
" Beukes could effectively be deprived of
his income and means of support for himself and his family. He would, to that
extent, virtually be relegated to the position of a
slave, working for the
benefit of Sasfin (or, for that matter, any of the other creditors). What is
more, this situation could, in
terms of clause 3.14, have continued
indefinitely
at
22
at the pleasure of Sasfin (or the other credi-tors). Beukes was powerless to
bring it to an end, as clause 3.14 specifically provides
that 'this cession
shall be and continue to " be of full force and effect until terminated by all
the creditors'. Neither an absence
of indeb-tedness, nor reasonable notice to
terminate by Beukes in those circumstances would, accor-ding to the wording of
clause
3.14, have sufficed to bring the deed of cession to an end. An agreement
having this effect is clearly un-conscionable and incompatible
with the public
interest, and therefore contrary to public policy.
Eastwood v Shepstone
(supra)
;
Biyela v Harris
1921 NPD 83
;
Raubenheimer and Others v
Paterson and Sons
1950(3) SA 45 (SR);
King v Michael Faraday and Partners
Ltd
(1939) 2 KB 753
(
1939 2 All ER 478).
(I should add that counsel for Sasfin conceded (see 14 A/B)
that if the
above interpretation of clauses 3.4 and 3.14
were correct, the clauses as
they stood were contrary to
public policy.)
In the present appeal counsel for the
appellants
urged upon us that the provisions of
clause 7 of the sure-
tyships
23
tyships were so gratuitously harsh and oppressive that
public policy could
not tolerate them. On the other hand
counsel for the respondent submitted
that in all the cir-
cumstances of the case the provisions of clause 7 were
in
no way untoward; and that they did no more than to mirror
the
commercial realities of the situation in which the
creditor, the principal
debtor and the surety carried on
business. I proceed to consider whether the
provisions
of clause 7 are, in the language of the majority judgment
in
the
Sasfin
case (at 8 C/D) -
"...clearly inimical to the interests of the
community, whether they are contrary to law
or morality, or run counter to
social or
economic expedience "
and, accordingly,
unenforceable on the grounds of public
policy. In such an investigation (see
the remarks of
SMALBERGER, JA at 9 A/G of the
Sasfin
case) there must
be
borne
24
borne in mind: (a) that while public policy generally favours
the utmost
freedom of contract, it nevertheless properly takes
into account the
necessity for doing simple justice between
man and man; and (b) that a
court's power to declare con-
tracts contrary to public policy should be
exercised sparingly
and only in cases in which the impropriety of the
transac-
tion and the element of public harm are manifest.
So approaching the inquiry.in the instant matter,
I
am not persuaded that the provisions of clause 7 of the
suretyships are
plainly improper and unconscionable. While
at first blush the provisions of
clause 7 may seem somewhat
rigorous they cannot, I think, having regard to
the particu-
lar circumstances of the present case, fittingly be described
as unduly
harsh or oppressive. The inquiry is directed to -
" the tendency of the proposed transaction,
not its actually proved result."
(per
25 (per INNES, CJ in
Eastwood v Shepstone
1902 TS:
294
at 302;: the
Sasfin
case (
supra)
81-9A; 14F). The simple fact
of the matter is that the defendant stood surety herself, and she was a party to
the suretyship of VBL,
in order to obtain essential credit facilities for
Aardwerke. That the acces-sory liability of the appellants should have subsisted
for so long as Aardwerke owed money to the plaintiff is a pro-position which is
not only commercially sound but also both legally
and morally unexceptionable.
The obverse proposi-tion is that if either (a) Aardwerke paid off its debt to
plaintiff in full and
no longer sought to avail itself of the plaintiff's credit
facilities or (b) Aardwerke were able to procure, as substitutes for the
defendant and VBL, other sureties acceptable to the plaintiff, the appellants
would have been entitled to obtain their release as
sure-ties for Aardwerke. The
feasibility of possibility (b)
above
26
above is exemplified by the facts of the present case in relation to the
defendant's accessory liability for the debt of Lessors.
Mention has already
been made of the 1972 suretyship in terms whereof the defendant and Botha bound
themselves as sureties to the
plaintiff as credi-tor
in solidum
with
Lessors as the principal debtor; and of the further fact that on 23 September
1974 Vanacht undertook a suretyship to a limit
of Rlm to plaintiff guaran-teeing
payment of Lessors's indebtedness to the plaintiff. The latter suretyship
represented the seguel
to a decision on behalf of the plaintiff on 27 August
1974 which ap-proved the substitution of Vanacht's suretyship for that of the
defendant pursuant to the 1972 suretyship; and which further resolved to release
the defendant from that suretyship. The second paragraph
of the minutes of a
management committee meeting of the plaintiff on 27 August
1974
27
1974 reflect the following resolutions:-
"2.2 Op 27/8/74 BESLUIT dat 'n fasiliteit van
R1 000 000 aan Hupert
Lessors (Edms)
Beperk toegestaan word op die volgende
voorwaardes:
Sekuriteit - Borg R1 000 000 van S M van Achterberg Beperk. Onbeperkte
waarborge deur J C Botha, Pretoria Aard-werke en Kontrakteurs
(Edms) Bpk,
Verwoerdburg Vervoer (Edms) Bpk en Verwoerdburg Beleggings (Edms) Bpk
en dat
Mevr C E Botha onthef word van haar waarborg.
(besluit eers van krag om 9.15
vm op 28.8.1974)." (my emphasis)
In the instant case Clause 7 of the suretyships did not
leave the
defendant helpless in the clutches of the
plaintiff. The plaintiff was
prepared on 27 August
1974 to release her from her liability under the 1972
suretyship; and her
release from liability under the
1973
27(a)
1973 suretyship depended simply on the ability of Aard-werke to provide
suitable alternative security. It was, no doubt, the defendant's
appreciation of
this fact which underlay the inclusion of clause 6.1 of the Vanacht contract.
Clause 6.1 was, however, couched in
somewhat loose and unbusinesslike terms. Had
she wished to pro-tect herself properly at the time of the Vanacht contract the
defendant
should have insisted upon her release from suretyship as an absolute
pre-condition to the sale of her shares in Aardwerke.
(B)
THE ALLEGED WAIVER BY THE PLAINTIFF OF ITS RIGHTS
UNDER THE SURETYSHIP AGREEMENTS AGAINST THE APPELLANTS:
A consideration of this issue requires
some
reference to portions of the evidence adduced
at the trial.
In addition to Botha and the defendant herself, one
J E Muller......
28
J E Muller, a former employee of the plaintiff,testified
for the appellants. For the plaintiff the main witness
was Dr C A
Porter.
From the evidence it emerges that the plaintiff was a wholly-owned
subsidiary of a company known as Finansbank Beperk ("Finansbank");
and that the
latter also acted as the secretary for the plaintiff. In October 1973 a man
called Sills was appointed to the staff
of the plain-tiff as a salesman. In
April 1980 Sills became the plain-tiff's marketing manager. During 1979 the
Association of Finance
Houses decided that its members, of which the plaintiff
was one, should standardise the suretyships held by them. Botha testified
that
Sills had arranged a meeting between them in order that Sills might "update" or
revise the suretyship position. When the meeting
took place Botha found that
revised suretyships ready for sig-
nature
29
nature had already been prepared. Sills submitted to Botha four deeds of
suretyship ("the revised suretyships") which were intended
to replace -
(1)
the 1972 suretyship (in
respect of Lessors as principal debtor). The revised suretyship in question
provided for the suretyship
of Botha alone
;
(2)
the_ defendant's 1973 suretyship (in respect of Aardwerke as
principal debtor). The revised sure-tyship in question provided for the
suretyship of
Botha alone;
(3)
the VBL
suretyship (in respect of Aardwerke as principal debtor). The revised suretyship
in question provided, as did the VBL suretyship,
for three sure-ties : Lessors,
VV and VBL;
(4)
the Aardwerke cross-guarantee
(in respect of Lessors as principal debtor). The revised suretyship
in
question
30
question provided, as did the
Aardwerke
cross-guarantee, for three
co-sureties :
Aardwerke, W and VBL.
In regard to revised
suretyships (1) and (2) Botha was
asked during his evidence in chief why the
defendant had not
been required to sign these as surety. Botha's answer
was:-
"Omdat op daardie stadium daar geensins meer sprake was dat sy iets met die
maatskappy (Aardwerke) te doen gehad het nie."
With
reference to the revised suretyships (3) and (4) Botha
gave the following
account of what had transpired between
him and Sills:-
"Wel, ek het aan mnr Sills genoem dat Verwoerd-burg Beleggings (VBL) nie my
maatskappy alleen is nie en dat ek nie kan dié
maatskappy laat 'n
waarborg teken vir skulde waarvoor hy nie - as ek alleenaandeelhouer was, was
dit 'n ander saak, maar ek was nie,
ek het nie magtiging gehad om so 'n dokument
te kan teken nie. En op sterkte daarvan is die naam (VBL) toe geskrap en ek en
mnr Sills
het dit parafeer."
On
31
On the revised suretyships (3) and (4) produced at the trial the name of VBL
has in each case been deleted as a surety; and in fact
Botha signed revised
suretyship (3) on behalf of Lessors and W only; and revised suretyship (4) on
behalf of Aardwerke and W only.
In the course of his evidence Botha told the
trial Court that, in his view of matters, a director of a company who had
undertaken
a suretyship for the company's debts was liable thereunder only in
respect of debts incur-red by the company during the period of
the surety's
shareholding and directorship; and not in respect of debts incurred thereafter.
Botha conceded, however, that the provisions
of clause 6.1 of the Vanacht
contract (in which Aardwerke had undertaken to use its best endeavours to secure
the defendant's release
from her suretyships in respect of Aardwerke or its
subsidiaries) might run counter
to
32
to the view held by him. Further in connection with
clause 6.1 of the
Vanacht contract, Botha admitted that he
had at no stage obtained written
consent from the plaintiff
for such release.
The defendant testified that
upon the conclusion of the Vanacht contract she had resigned as a director of
Aardwerke and Lessors.
After 1974 she had nothing to do with either Aardwerke or
Lessors; and from that date until she was sued in 1982 she received no
intimation at any time either frcm the plaintiff or Finansbank which suggested
that the plaintiff was holding her liable under the
1973 suretyship.
The
defendant told the trial Court that she had no kncwledge of the revised
suretyships; and that in 1979 no approach had been made
to her to sign any
further sure-tyships. She was ignorant of the fact that in the revised
suretyyhips
33
suretyships (3) and (4) the name of VBL as a surety had
been deleted; and
she told the trial Court that in 1979
she regarded herself as the
"alleeneienaar" of VBL. This
state of affairs in relation to VBL had been
achieved
because during or about 1979 Botha had transferred
his
shareholding in VBL to her.
During her cross-examination the defendant
pro-
fessed ignorance of the provisions of clause 7
of the 1973
suretyship, and she told the Court that when she signed it
she had not read its terms at all. At the time of conclu-
sion of the Vanacht contract, however, she was aware of the
provisions of
clause 6.1 thereof. In regard to clause 6.1
she gave the following evidence:-
"....ek stel dit aan u ....as u op daardie stadium geweet het wat in die
borgakte (the defendant's 1973 suretyship) gestaan het,
dan sou u seersekerlik
aangedring het dat hy hier-die skriftelike toestemming van
Finanskrediet
verkry?
34
verkry? Ek glo wel so.
Al wat u geweet het, is dat mnr Botha het verantwoordelikheid geneem om u vry te
kry
van die borgakte? Nie mnr Botha nie, maar
mnr Botha en mnr Martin van Achterberg van Van Ach.
Ja, die twee van hulle. Ja.
En u het net aanvaar dat alles wat hulle moes
doen om u vry te kry, sou hulle
gedoen het?
Heeltemal reg.
Geen vrae gevra? Nee.
Het Van Achterberg op enige stadium aan u gesê dat u is wel vry van
hierdie waarborg?
Nee.
En u man? -- Ook nie."
Muller was associated with
the plaintiff from June 1976 to March 1980. Initially he was appointed as a
manager, but in 1978 he became
a director. In Muller's dealings with Aardwerke
and Lessors those companies were represented by Botha.
In
35
In November 1976 a meeting was held of various financial insitutions which
had made financial facilities available to Aardwerke and
Lessors, to consider
whether a moratorium should be granted to these companies by their creditors. As
at 31 October 1976 Lessors
was indebted to the plaintiff in the total sum of
R848 893. The meeting in question was attended by Porter and Muller on behalf of
the plaintiff, and each of the various creditors present disclosed what
securities for its claims it held. Muller testified that
at the meeting the
plaintiff did not disclose the defendant's suretyship. Muller said that at the
time he was unaware of the fact
that the defendant had ever undertaken a
suretyship to the plaintiff; and, indeed, that Porter informed him of the
defendant's suretyship
only some four or five months before he (Muller) left the
plaintiff.
Questioned
36
Questioned about Sill's deletion of VBL as a surety in the revised deed of
suretyship signed by Botha on 21 March 1979, Muller conceded
that Sills lacked
authority on behalf of the plaintiff to cancel suretyships or to release
sureties bound to the plaintiff; and that
any decision thereanent could be taken
only by the plaintiff's "bestuurskomitee". In cross-examination Muller
neverthe-less contended
that by appending his signature to the de-letion of the
name of VBL as a surety on the deed in question, Sills had effected a valid
release of VBL from its pre-existing suretyship, and that such release was
binding on the plaintiff.
With reference to the decision of the plaintiff's
management committee on 27 August 1974 -
"...dat mev C E Botha onthef word van haar
waarborg
"
Muller
37
Muller expressed the opinion that although the resolution
in question
purported to relate to the debt owed by Lessors
to the plaintiff, the
resolution served equally to release
the defendant from her 1973 suretyship
to the plaintiff in
respect of Aardwerke as principal debtor.
Much of the evidence at the trial was devoted to
the
role and significance of what was described as a
"kredietlyn" or "credit
line" in relation to the credit
facilities granted by the plaintiff to
Aardwerke and Lessors.
In his evidence Muller gave the following definition
of a
"credit line":-
"'n Kredietlyn is 'n globale fasiliteit,
wat toegestaan word aan 'n maatskappy of 'n
groep van maatskappye wat hulle
in staat stel
om tot en met 'n maksimum bedrag te opereer
Dit is 'n
kredietfasiliteit."
Muller told the trial Court
that, according to his recollec-
tion, a single credit line for Rlm had been
granted by the
plaintiff
38
plaintiff to Aardwerke and/or its subsidiaries, including
Lessors; and
that it was a matter of indifference to the
plaintiff whether the debtor
which availed itself
thereof was Aardwerke or Lessors. This proposition
was
qualified somewhat by the witness under cross-examination.
I quote
from his evidence:-
"I am assuming at all times one is acting responsibly and one certainly does not
allow money to be lent to a company in a group which
has not got proper
securities, that would have
been your first reservation, would it not?
Korrek.
Let me put it to you in this way: Let us
assume they come along to ask for
credit for
a company in the group which had no sureties
and which had no
good performance, would you
have allowed it? Nee.
So really this allowing of another company to
use part of the credit line of
Hupert Lessors
is a matter in the discretion of the bank, is
that
right? Korrek.
Which
39
Which the bank will allow provided that it
is satisfied with the suretyships of the would-be
borrower? Dit is korrek."
In the
evidence of Muller (and again later, when
Porter came to testify) a good deal of time was devoted to
an examination
of the plaintiff's internal control sheets
affecting the hire-purchase
agreements and the lease
agreements relevant to the plaintiff's action.
These
control sheets reflect certain data in regard to the
credit
transactions involved and also set forth the names of the
sureties
involved. Muller described the control sheets
as "gewone werksdokumente" and
said that they were preceded
by a "mandaat" given at a "bestuursvergadering"
by a
"bestuurskomitee" consisting usually of two head managers
and two
managers. According to Muller these control sheets
should have mirrored
accurately decisions by the plaintiff's
directorate as to the sureties
involved in any particular
transaction
40
transaction. I quote from Muller's evidence in,chief:-
"Op die mandaat word daar inligting gegee
van borge? Dit is korrek.
En is daardie inligting weer oorgedra op
hierdie werkstuk(ke) wat u hier vind
van 270
tot 325? Dit behoort so te wees."
The
relevant control sheets cover dates of various payments
authorised by the
plaintiff over a period extending from
28 October 1978 to 1 April 1980. An
examination of these
control sheets reveals that:-
(a)
between 28 October 1978 to
7 March 1979 seven of the control sheets reflect the deféndant as one of
the sureties;
(b)
the control sheet
authorising payment on
21 March 1979 reflects the
defendant as one of the sureties, but the name of the defe-dant has been deleted
thereon;
(c) after...
41
(c)
after 21 March 1979 the
list of sureties does not again include the name of the
defendant;
(d)
between 28 October 1978 and 21
March 1979 eleven of the control sheets reflect VBL as one of the
sureties;
(e)
the control sheet authorising
payment on
26 March 1979 does not mention VBL as one
of the sureties;
(f)
between 20 April 1979 to 6
September 1979 ten of the control sheets reflect VBL as one of the
sureties;
(g)
after 6 September 1979 the list
of sureties does not again include the name of
VBL;
(h) Muller himself signed the control sheet
authorising payment on 7 March 1979 in which
both
42
both the defendant and VBL are mentioned as sureties.
The inconsistencies
in the control sheets, the possible reasons therefor, and the significance
thereof in the light of the defences
raised by the appellants, were considered
at some length by the trial Judge. His findings in this connection will be
indicated in
due course.
The witness Porter was the managing director of
Finansbank and a director of the plaintiff. During the years 1973 and 1974 he
was
a director of the plaintiff and the general manager of Finansbank. Porter
had personal knowledge of the 1972 suretyship, the 1973
suretyship and the VBL
suretyship. Porter explained to the trial Court that at the times relevant to
the action the plaintiff could
on its own grant credit facilities up to an
amount of R150 000, but that for facilities exceeding that limit
the
43
the managing director of the plaintiff was obliged to refer
the matter to a "kredietkomitee" consisting of two general
managers and
two managers in the group. As an example of
such a referral by the plaintiff
to the "kredietkomitee"
Porter cited an application in August 1974 for a
"credit
line" increase from R750 000 to Rlm. The document submitted
to the
"kredietkomitee" was prepared and signed by one
J J Botha, one of the
plaintiff's administrative employees.
I quote in full the concluding paragraph of J J Botha's
"voorlegging" to the "kredietkomitee":-
"3.2.5
Recommendation
It is recommended that the increase in
— the credit line be approved by Management.
As Mrs C E Botha is no longer a director or shareholder, the waiving of her
personal guarantee has been requested. S M van Achterberg
Ltd will guarantee for
the full amount of the credit line extended.
'Resolved that the credit line increase be approved subject to the following
qualifi-cations:
Credit
44
Credit Line Limit R1 000 000
Type of Facility Direct hire purchase
transactions up tu 3 years with no deposit.
Security That guarantee of Mrs C E
Botha be waived and that a new guarantee for Rl million be obtain from S M
van Ach-terberg Ltd.'
Van Achterberg is heavily involved with
Finansbank. Already there is a R650 000
acceptance facility.
J J Botha
22.8.74 "
Porter stressed that the "voorlegging"
embodied no more than
a recommendation, which the "kredietkomitee" was at
liberty
to turn down. From the documentary evidence it appears that
the
"voorlegging" quoted above was appended as an annexure
to the notice of a
"bestuursvergadering" on 27 August 1974
(to which meeting reference has already been made) and at
which Porter was
one of the members of the "kredietkomitee"
which voted unanimously in favour
of the resolution there
adopted
45
adopted and set forth in para 2.2 of the minutes. That resolution, it will be
recalled, approved the granting of a facility of Rlm
to Lessors on certain
conditions (including the undertaking by Vanacht of a suretyship for Rlm); and
the resolution further approved
the release of the defendant "van haar
waarborg."
Porter pointed out that the plaintiff held surety-ships securing
the debts both of Aardwerke and Lessors. His evidence was to the
effect that the
resolution of the "kre-dietkomitee" on 27 August 1974 released the defendant
from the 1972 suretyship (in respect
of the principal debtor Lessors) but not
from the 1973 suretyship (in respect of Aardwerke as the principal
debtor).
Porter was closely cross-examined both as to why Vanacht had
undertaken a suretyship in respect of the debt of Lessors to the plaintiff;
and
why Porter contended that
the
46
the plaintiff's resolution of 27 August 1974 had served to
release the
defendant from the 1972 suretyship only, and
not also from the 1973
suretyship. I quote from Porter's
evidence on these points:-
"Maar is dit dan net bloot toevallig dat hy [Vanacht as borg vir] Hupert Lessors
geteken het? Waarom kon hy nie maar net sowel vir
Pretoria Aardwerke geteken het
nie? En onthou Pretoria Aardwerke was
die houermaatskappy? Op daardie stadium, ja.
Ek dink ek het die vraag reeds beantwoord, dat op daardie stadium toe Van
Achterberg se borgskappe bygekom het, was die skuld in
die maatskappy Hupert
Lessors en ons wou addisionele sekuriteit gehad het en ek dink dit is net logies
dat ons sal sekuriteit neem
in hierdie maatskappy wie die geld skuld, en dit was
Hupert Lessors gewees, en dit is waarom die borgskap in alle waarskynlik-heid
geneem was vir Hupert Lessors."
"Kan u vir Sy Edele een rede gee waarom u mev Botha in 1974 sou vrystel van
Hupert Lessors se skuld,
maar nie van Pretoria Aardwerke s'n nie? Ek
dink dit is voor die hand liggend. Ons het hom vervang op daardie stadium met 'n
sogenaamde
goeie
47
goeie borg en dit is Van Achterberg. Ons het nie 'n borg van Van Achterberg
gekry vir Pretoria Aard-werke nie."
Porter denied
the existence of any practice in the plaintiff's business according to which a
company director who had undertaken a
suretyship to the plaintiff as creditor
for the debt of the company became entitled to his release as surety upon the
sale of his
shareholding and his resigna-tion as a director of the company; and
he denied that the result of the Vanacht contract had been to
release the de-
fendant from her suretyships. Porter insisted that such a release could be
authorised only by the "kredietkomitee".
During cross-examination Porter
admitted that, as a share-holder, he had a personal interest in the plaintiff's
action; and that
the failure of the action would involve the plain-tiff in a
heavy loss.
Dealing with the control sheets, Porter said
that
these
48
these were purely internal documents used in the discounting section, and
that they did not go to clients. Porter admit-ted the omission
of the names of
the defendant and VBL as sureties from many of the relevant control sheets; and
he said that these omissions were
wrong and due to an admini-strative oversight.
Porter was unable to explain why it was that in 1979 (when Botha had been
approached
in this connection by Sills) the defendant herself had not been
requested to sign revised suretyships in replacement of the 1972
suretyship and
the 1973 suretyship.
Where there were conflicts between the evidence of Botha
or Muller on the one hand and that of Porter on the other, the trial Judge
had
no hesitation in preferring the testimony of the latter. In this connection
HUMAN, AJ observed in the course of his judgment:-
"Dr Porter het my beïndruk as 'n bekwame
besig-
heidspersoon
49
heidspersoon en as 'n geloofwaardige getuie ten spyte van sy aandeelhouding wat
hy erken het. Sy getuienis strook ook met logiese
besigheids-praktyk en waar sy
getuienis bots met diê van Botha en Muller het ek nie die minste huiwering
om hulle getuienis
te verwerp en sy getuienis te aanvaar
nie."
Counsel for the appellants sought to persuade
us that the
trial Court had erred in its assessment of the merits of
Porter as a
witness; and that in truth Porter's evidence was
quite unworthy of credence.
I am unable to accept that sub-
mission. In my view a careful reading of the
record not only
reveals that Porter was á satisfactory and credible
witness,
but it further points to the conclusion that his testimony is
more consistent and cogent than that of Botha and Muller.
In my judgment
no good reason exists for disturbing the
credibility findings made by the
learned trial Judge.
Regarding the omissions in the control sheets to which
reference has already been made, HUMAN, AJ remarked in his judgment:-
"Hierdie werksdokument word opgestel deur
die
verdiskonteringsafdeling
50
verdiskonteringsafdeling, 'n departement van Finanskrediet. Dit word gedoen
deur 'n dames-klerk wat nie die vergadering van die krediet-komitee
bywoon nie.
Die werksdokument word geteken deur Coetzee, 'n bestuurder van Finans-krediet.
Hy kontroleer dat die sekuriteite wat
gevra is op die mandaat korrek weergegee
is op hierdie werksdokument. Muller sê hy weet nie of Coetzee na die
oorspronklike
dokumente kyk nie. Coetzee vervul bloot 'n administratiewe
funksie. Hierdie verwerkingsdokument gaan nie terug na die bestuurskomitee
of
kredietkomitee nie. Die kredietkomitee aanvaar dat sy besluit uitgevoer word. Hy
erken dat die doel van hierdie dokument is om
iemand te magtig om 'n tjek vir
die spesifieke transaksie te trek.
Dit is duidelik dat 'n blote werksdokument nie
altyd korrek die besluit
van die kredietkomitee
weerspieël nie en dat foute deur klerke
gemaak
word. Sulke foute kan nie die eiser se oor-
spronklike besluit wat
van krag bly in die minste
beïnvloed nie. Dit is 'n interne dokument
wat
nie altyd die besluit van die kredietkomitee
weergee nie
Hierdie administratiewe foute, na my mening, kan nie op staatgemaak word om
'n afleiding te reg-verdig dat of sy (the defendant) òf
derde ver-weerder
(VBL) as borge onthef was deur eiser nie.
Ek
51
Ek aanvaar die getuienis van dr Porter in dié verband. Dit is tog immers
duidelik dat
Muller se getuienis dat dit aandui dat hulle
onthef is as borge deur eiser, nie korrek betrou-baar en aanvaarbaar kan wees
nie. Vanuit h besig-heidsoogpunt gesien, kon alleen
die kredietkomitee h besluit
neem om hulle te onthef as borge en kan klerke wat bloot administratiewe take
vervul, deur hulle oorsig
die verweerders nie onthef as borge nie."
It is common cause that neither the
defendant's
liability under the 1973 suretyship nor
VBL's liability
under the VBL suretyship was cancelled (in terms of
clause
7 of the suretyships) with the written consent of the
plaintiff. On
behalf of the appellants it was contended,
however, that the evidence before
the trial Court established
that the plaintiff had waived its rights under
the 1973
suretyship against the defendant; and also its rights under
the
VBL suretyship against VBL. The
onus
of establishing
this defence
rested on the appellants.
Insofar
52
Insofar as VBL is concerned the corner-stone. of
the
argument was that when in March 1979 Sills deleted the
name of VBL from the
revised suretyship (3), and that
deletion was initialled by Sills and Botha,
these events -
to quote from the heads of argument for the appellants:-
"....conveyed the consent of Finanskrediet to the omission of Second Appellant
(VBL) as a surety...."
For a number of reasons this
argument does not, in my opinion,
bear scrutiny. I agree, with respect with
the following
analysis of the essential facts sets forth in the
judgment
of HUMAN, AJ:-
"Dit was geargumenteer dat omdat Sills, wat by
die eiser werksaam was en 'n senior amptenaar -aldaar was, dat eiser dus derde
verweerder (VBL) onthef het. Hierdie argument kan
nie opgaan
nie. Sills was in leketaal h verkoopsman.
Sy verantwoordelikheid was om kliënte te besoek om uit te vind of daar nuwe
besigheid kon wees vir die finansiering van kapitaalgoedere
en toe-rusting. Sy
normale taak was om kliënte te
gaan
53
gaan soek met wie eiser nuwe besigheid of nuwe finansieringstransaksies kon
aangaan.
Hy het geen bevoegdheid gehad - of besluitnemings-vermoë of funksie gehad
nie. Hy het volgens dr Porter geen bevoegheid besit
om derde verweer-der (VBL)
van enige borgskap te onthef nie. Alleen die kredietkomitee kon so 'n besluit
neem
Aanvanklik het die kredietkomitee besluit
dat derde verweerder (VBL) as borg sou optree vir fasiliteite toegestaan aan
Aardwerke en Lessors. Die oorspronklike borgakte van
1973 het bly bestaan of die
nuwe borgakte nou onderteken was of nie.......Dit is ook voor-die-hand-liggend
dat as die kredietkomitee
vir 'n bepaalde transaksie besluit dat sekere persone
en instansies borge moet wees dat Sills nie op eie houtjie so 'n besluit
ongedaan
kon maak op 'n later stadium nie. Dit sou chaos tot gevolg hê as
so iets kon gebeur."
In the case of the defendant
the defence of waiver was a more
elaborate one. Briefly stated, it came to
the following.
In passing that portion of the resolution of 27 August
1974
which bore on the release of the defendant as a surety, so
the
submission ran, the intention of the "kredietkomitee"
had
54
had in truth been to release the defendant not only from the 1972 suretyship
(in respect of Lessors) but also from the 1973 suretyship
(in respect of
Aardwerke); and "in reality" that part of the resolution represented a release
of the defendant from both the suretyships.
Such a double release, so the
argument proceeded, was confirmed by the fact that the revised surety (2) - in
respect of Aardwerke
as the principal debtor - which Sills had requested Botha
to sign in March 1979, involved only one surety (Botha); that the defendant
herself had not been requested to sign any revised suretyships in 1979; that on
21 March the name of the defendant as a surety was
deleted from a control sheet;
and that thereafter her suretyship was never men-tioned in the control
sheets.
To counter the defendant's defence based on waiver the plaintiff
relied on two arguments. The first
was
55
was based on evidence adduced at the trial that the contents of the
resolution of 27 August 1974 had never been communi-cated, whether
by letter or
by word of mouth, to the defen-dant. Therefore, so it was contended, whatever
the proper meaning to be assigned to the
part of the resolution dealing with the
defendant's release from "haar waarborg", and since waiver is a form of
contract, such lack
of communication was fatal to the defence. In the
alternative it was argued that, in any event, the tenor of the said resolution
was manifestly to release the defendant only from liability under the 1972
suretyship (in respect of Lessors).
The plaintiff's first argument did not commend itself to the learned trial
Judge. HUMAN, AJ took the view that, at any rate in relation
to the 1972
suretyship, the resolution of 27 August 1974 - whether communicated to her or
not - was legally effective to release
the defendant
from
56
from her 1972 suretyship in respect of the debt of Lessors:
"Alhoewel eerste verweerderes onthef is deur die kredietkomitee as borg vir die
skuide van Lessors is daar nooit h brief in dier
voege aan haar gerig nie. Dit
is vir my egter duidelik dat as die kredietkomitee so 'n besluit geneem het sy
nie meer aanspreeklik
gehou kan word-ingevolge haar borgskap vir die skulde van
Lessors nie.
Daar is egter nooit so 'n besluit geneem deur die kredietkomitee insake haar
borgskap van
Aardwerke nie."
There is, I think, much to be said,
for the view expressed by HUMAN, AJ in the first of the two paragraphs from his
judgment quoted
above. Even in the absence of communication to the party
released waiver or release may, in an appropriate case, be established by
proof
of an overt act or acts clearly evincing the creditor's intention to surrender
his right against the debtor. In
Mutual Life Insurance Co of New York v
Ingle
1910 TS 540
INNES, CJ pointed out at 550:-
"After.......
57
"After all, waiver is the renunciation of a right. When the intention to
renounce is expressly communicated to the person affected
he is entitled to act
upon it, and the right is gone. When the renunciation, though not communicated,
is evidenced by conduct incon-sistent
with the enforcement of the right, or
clearly showing an intention to surrender it, then also the intention may be
acted upon, and
the right perishes. But a mere mental resolve, not so evidenced,
and not communicated to the other party, but discovered by him after-
wards, seems to me to have no effect upon
the legal position of the person making the
resolve."
In the instant case, so it appears to me,
the taking and minuting
of the resolution on 27 August 1974 may well have
constituted an
ineluctable overt act on the part of the plaintiff
clearly
evidencing the latter's intention to release the defendant
from a
suretyship. Because of the opinion I have formed
as to the meaning of the
resolution, however, it is un-
necessary to express any firm opinion on the
plaintiff's
first argument. For purposes of the present appeal I shall
assume
58
assume, in favour of the defendant, that the view expressed by HUMAN, AJ is
correct, and that non-communication of the resolution
does not preclude the
defendant's reliance upon it insofar as it may be relevant to the defence of
waiver raised.
Turning to the second limb of the argument, I agree with the
submission of the plaintiff's counsel that the resolution of 27 August
1974
cannot be construed in the manner for which the appellants contend; and that it
served merely to release the defendant from
liability in respect of the 1972
suretyship. As correctly pointed out by the plaintiff's counsel:-
(a)
the resolution granted a
credit facility specifically to Lessors;
(b)
the credit facility is granted on condition that a suretyship for
Rlm (which is precisely
the
59
the amount of the facility granted to Lessors) be given by Vanacht;
(c)
while in the notice of the
meeting the name of the client is stated to be Aardwerke, the credit facility is
granted against the security
also of an uniimited suretyship by Aardwerke
itself;
(d)
the suretyship in respect whereof
the defen-dant is released is described in the singular ("haar
waarborg");
(e)
the suretyship for Rlm
thereafter undertaken by Vanacht was for the debt of Lessors
only.
In my opinion the appellants have not shown on
a balance of probability that in relation to the 1973 suretyship or the VBL
suretyship
the plaintiff waived its rights against
the
60
the appellants or released them from the said suretyships.
Before us it
was also argued, albeit somewhat faintly, that the defendant was further
entitled to rely on an implied or tacit term
to the effect that upon the
termination of her shareholding and directorship in Aardwerke and Lessors the
plaintiff would consent
to her release from the suretyships undertaken by her;
and conse-quently that the conclusion of the Vanact contract had operated
to
secure the defendant's release from the 1973 suretyship. Apart from the fact
that there is no acceptable evidence to support such
a term, it is
irrecon-cilable with the express terms of the suretyships as to the duration of
the surety's liability. A similar argument
addressed to the trial Court was
properly rejected by HUMAN, AJ. In the course of his judgment the trial Judge
remarked:-
"Direkteure....
61
"Direkteure van 'n maatskappy word nie onthef as borge as hulle van die
direkteurskappe afstand doen en hulle aandeelhouding verkoop
nie. Daar bestaan
nie so h praktyk by eiser nie. Die eerste verweerderes was nie outomaties
vrygestel as borg toe sy haar aandeelhouding
aan Van Ach verkoop het en nie
langer direktriese was nie. Alleen die kredietkomitee kon haar van haar borgskap
onthef het."
(C)
THE DEFENCE THAT THE CLAIMS FOR
DAMAGES AGAINST AARDWERKE
ARE IN CONFLICT WITH THE PROVISIONS OF SEC 2(1) OF THE
CON
-
VENTIONAL PENALTIES ACT NO 15 OF 1962:
The defences here raised relate to the damages
(Rl
203 555,00) in respect of the breach of the hire-purchase
agreements and the
damages (R8 874,00) in respect of the
breach of the lease agreements. It will
be recalled that
in each case the plaintiff computed its damages as the
difference between
what the plaintiff actually received and
what it would have received had
Aardwerke duly performed
its contractual obligations.
In
62
In the case of the hire-purchase agreements provision for acceleration of
payments or cancellation is made in clause 5 of the agreements.
The provisions
of
clause 5 relevant to the present appeal are the following:-
"5.(a) Should the Buyer commit any breach of
the
terms and conditions of this agree-ment, or fail to pay any amount due
hereunder on due date
the Seller shall have the right, without prejudice to any other rights which
he may have against the Buyer, to recover forthwith the
total amount of any
balance of the purchase price of the said goods, and any other sums payable by
the Buyer hereunder, and all such
payments as are due or to become due shall be
deemed to have become due and recoverable forthwith, notw_ithstanding that
payment
in terms of any relative bills of exchange or promissory notes has not
yet fallen. due, or to terminate this agreement without notice
to the Buyer. (b)
In the event of the Seller terminating this agreement, the Buyer shall be
obliged, at his own risk and expense,
to return the goods to the Seller who
shall
63
shall, without prejudice to his other rights, be entitled to claim all
expenses of and incidental to the resumption of possession,
and any damages,
depreciation or loss sustained by him, and any other amounts payable by the
Buyer (Seller ?). The Buyer shall not
be entitled to recover any moneys paid by
him under this agree-ment nor any allowance in respect of any article which he
may have
handed over to the Seller in part payment of the said purchase price,
and such moneys shall be forfeited to the Seller."
It is common cause that the plaintiff's claim for damages
in respect of
the breach of the hire-purchase agreements is
based on the provisions of
clause 5(b) quoted above.
In the case of the lease agreements the rights
of
the lessor in the case of a breach by the lessee are
governed by clause 10 of
the agreements. The provisions
of clause 10 relevant to the present appeal
are the following:-
"10. Breach
64
"10. Breach (a) Should the Lessee breach any of the terms of this Lease or
fail to pay any amount
on due date
the Lessor shall have the right without prejudice to any other rights which it
might have against the Lessee to -
(i) terminate this Lease; and (ii) retake possession of the goods; and (iii)
claim immediate payment of all arrear rentals and any
other amounts due,
including overdue interest in terms of Clause (c) hereof; and (iv) claim
compensation for any loss or damage of
whatever nature the Lessor may have
suffered or may suffer in consequence of the Lessee's default;
or
(b)
Demand full payment of the balance owing under this Lease plus all
amounts unpaid together with overdue interest in terms of Clause
1(c)
hereof.
(c)
The Lessee shall not be entitled
to recover any monies paid by him under this Lease and all such monies shall be
forfeited to the
Lessor."
(In passing it should be
pointed out that clause 10 is the
product of slovenly draftmanship. Clause
10(b) is clearly
designed
65
designed as an alternative not to the whole of 10(a) but only to the
provisions of Clause 10(a)(i) to (iv).)
On behalf of the appellants it was
contended that the plaintiff's claim for damages in respect of the breach of the
lease agreements
is based upon Clause 10(b). That contention is clearly
untenable. Clause 10(b) is invoked where the lessee has breached the contract
but the lessor prefers not to terminate the lease. In the instant case it is
common cause that the plaintiff did cancel the lease
agreements. It is obvious,
I think, that the plaintiff sought to invoke Clause 10(a)(i) - (iv); and that
its claim for damages is
based upon the provisions of Clause 10(a)(iv). This was
the contention correctly advanced on behalf of the plaintiff.
One of the
witnesses called by the plaintiff was Mr R C Sacks, an attorney, who had been
involved in
the
66
the preparation and presentation of the plaintiff's case. Sacks was the
draftsman of an agreement between the plain-tiff and the judicial
manager of
Aardwerke in terms of which vehicles and equipment under the hire-purchase and
lease agreements which had been repossessed
by the plaintiff were disposed of by
public auction or by private treaty under strictly controlled conditions. In
terms of the agreement
the net proceeds of these sales were applied in
satisfaction or reduction of Aardwerke's liabilities to the plaintiff. In his
evidence
Sacks further explained on what basis the damages claimed had been
computed. The vehicles and equipment in question had been valued
for the
plaintiff by a sworn appraiser. In respect of each re-possessed item Aardwerke
was credited with a value which was the greater
of the appraised value or the
actual price realised upon sale by auction or private treaty. The
broad
67
broad basis of the plaintiff's method of calculation of
damages appears
from the following answers given by Sacks
in cross-examination:-
"What are the elements of your computation?
The elements of my computation are
take the hire purchase contract. The total purchase price that was payable under
the contract and would in the ordinary course, but
for the default, have been
received by Finanscredit.
Now you must make certain deductions. Now,
I give you full credit for every payment made by Pretoria Aardwerke under that
contract or the judicial manager, - whoever has paid
you give credit for that,
you deduct that off. You also deduct the higher value of the proceeds.
Yes?- Less your cost of repossession. So
the net difference is your damages. There is nothing forfeited, there is full
benefit given."
The picture which emerges from the
evidence of Sacks and the
documents identified and explained by him in the
witness-
stand is, I consider, accurately summed up in the following
passage ....
68
passage of the judgment of HUMAN, AJ:-
"It is clear from his evidence that in no case did the plaintiff elect to
enforce a penalty. The principal debtor and therefore the
sureties had the full
benefit of every payment that was made and of the value to be attributed to the
articles repossessed and the
calculation of the damages was done in a manner
calculated to ensure that the least possible amount was
claimed."
Sec 2(1) of the Act is in the following
terms:-
"A creditor shall not be entitled to recover in respect of an act o.r omission
which is the subject of a penalty stipulation, both
the penalty and damages, or,
except where the relevant contract expressly so provides, to recover damages in
lieu of the penalty."
Sec 4 of the Act reads:-
"A stipulation whereby it is provided that upon withdrawal from an agreement by
a party thereto under circumstances specified therein,
any other party thereto
shall forfeit the right to claim restitution of anything performed by him in
terms of the agreement, or shall,
not-withstanding the withdrawal, remain liable
for the performance of anything thereunder,
shall
have
69
have effect to the extent and subject to the conditions prescribed in sections
one
to
three,
inclusive, as if it were a penalty
stipulation."
Counsel for the appellants point out
that in terms of the relevant clauses of the hire-purchase and lease agreements,
upon breach
by Aardwerke the plaintiff is not only entitled to recover damages,
but there is also a penalty stipulation. The complaint made on
behalf of the
appellants is this. Although the plaintiff may seek only to recover damages, its
claim is legally impermissible in
terms of sec 2(1) of the Act for the reason
that the relevant con-tracts do not expressly provide that the plaintiff may
recover
damages in lieu of the penalty.
I do not think that this argument can
be sus-tained. A somewhat similar contention was raised, and in my opinion
rightly rejected,
by a full bench of the. Orange Free State Provincial Decision
in
De Lange v Deeb
1970(1)
SA 561
70
SA 561 (0). Ir. that case a deed of sale for a house pro-
vided on clause 8 -
"Indien die koper versuim om die terme en
voorwaardes hiervan stiptelik na te
kom, sal
die verkoper die reg hê om hierdie ooreenkoms
te
kanselleer, die eiendom weer in besit te
neem, enige gelde wat alreeds
inbetaal is as
'rouwkoop' te behou sonder enige verbeuring
van sy reg om
geregtelike eise in te stel vir
enige
skade "
When the buyer failed to pay the instalments
the seller cancelled
the contract of sale and resold the house, The seller
then sued
the buyer for damages which were calculated as the
difference
between the contract price and the resale price, less the
amount
paid by the buyer as a deposit. On behalf of the buyer it
was
contended that clause 8 provided for the recovery of the
penalty in
addition to damages; and that it did not
"expressly" provide for the recovery of damages "in lieu
of the penalty".
SMIT, JP (in whose judgment DE WET, J
concurred)
71
concurred) dealt with this argument in the following words:-
(at 562G - 563F) -
I do not think that the use of the word 'expressly' in the section is so
stringent that it requires the provision to recover damages
to be in identical
words, namely, 'in lieu of damages'. In
Commissioner of Inland Revenue v
Dunn,
1928 E D L 184
at p 195, GANE, AJ, said
this:-
'The words are stringent and
there are
many cases illustrating the strong force of the words 'express' and 'expressly.'
On the other hand there are cases in which it has
been held that 'express' does
not mean 'by special reference' or 'in . identical words' but only 'with
reasonable clearness' or 'as
a necessary
consequence'.'
The Act provides in sec 1 for the enforcement of penalty stipulations in
contracts. It does not deprive the creditor of his right
to claim damages in
respect of the act or omission which is the subject of the penalty stipulation
but prescribes that right : thus
he is not entitled to recover both the penalty
and damages. His right to recover is accordingly in the alternative -he can only
recover
either thê penalty or damages. That means that he can only recover
either the penalty 'in lieu of damages' or damages 'in lieu
of the penalty'. But
the section prescribes this
right
72
right to recover 'damages in lieu of the penalty' still further, by providing
that he can only recover such damages where the contract
expressly so provides.
In my opinion a contract does so provide where it expressly reserves to the
creditor the right to recover
damages even where the words 'in lieu of the
penalty' are not added. This is necessarily so because the only right to recover
damages
which the creditor has is 'in lieu of the penalty'. The express additicn
of those words are of no consequence. What is necessary
is that the choice to
recover damages be expressly provided for. There is no merit in adding the words
'in lieu of the penalty' because
the creditor can get no damages other than in
lieu of the penalty and is in any case not bound to sue for damages rather than
claim
the penalty. He has a choice whether to do so or not.
The respondent
did expressly reserve his right to claim damages in clause 8 of the
contract,
where it provides for the payment of the penalty
therein
stipulated:
'sonder enige verbeuring van sy reg om geregtelike eise in te stel vir enige
skade.'
The right to recover damages is an alternative
right
according to the Act and I do not
agree with the submission that
clause 8
73
clause 8 provides for the recovery of the penalty and, in addition, damages. If,
however, that is what it means then it would seem
that, if the creditor is given
the right by contract to claim damages in addition to the penalty, that would
include the lesser right
of claiming damages in lieu of the penalty. If then the
right to recover damages in addition to the penalty is not enforceable by
reason
of the provisions of the Act, the creditor must still have the right to claim it
in lieu of the penalty.
I am of opinion that respondent was entitled in the circumstances of this case
to claim damages as he did. He claimed no part of
the penalty but gave appellant
credit for the R100 he paid in reduction of the purchase
price."
(See further:
Tierfontein Boerdery (Edms)
Bpk v Weber
1974(3) SA 445 (C) at 449H-451H;
Custom Credit
Corporation
(Pty) Ltd v Shembe
1972(3J 462 (A) at 474E/G.)
Having due regard to the wording of clause 5(b)
of
the hire-purchase agreements and clause 10(a) (iv) of
the lease agreements it
seems to me that the reasoning adopted
by the Court in
De Lange v Deeb
(
supra)
is entirely
applicable
74
applicable to the facts of the instant case. HUMAN, AJ concluded that there
was no merit in the contention that the plaintiff's claims
for damages offended
against sec 2(1) of the Act. I would, with respect, agree with that
conclusion.
(D)
THE DEFENCE BASED ON THE CREDIT LINE ARGUMENT:
The argument relied upon on behalf of the
appellants
on this part of the case in the Court
below was summarised
by the learned trial Judge in the following words:-
"Mr
Muller
also contended that because Aardwerke and Lessors had one
credit line and because first defendant was released by the plaintiff as
surety
for Lessors, which is common cause, therefore she can no longer be held liable
for the debts incurred by Aardwerke.
This argument means that the plaintiff granted Aardwerke and Lessors a single
line of credit, that this line of credit was secured
by suretyships by the first
defendant and when the plaintiff decided to release the first defendant from her
suretyship for Lessors
it followed
that
75
that she was also released from her suretyship
for Aardwerke because there
was only one credit
line
The argument therefore really amounts to this: Hupert Lessors and Aardwerke are
indistinguishable. The sureties were not standing
surety for one or other of the
companies but for a 'credit line' and it did not matter what name was
used."
HUMAN, AJ rejected this line of reasoning as
unsound. He
agreed with counsel for the plaintif:-
"...that the fallacy lies in the equation of
a credit line with a legal transaction such as a loan. One cannot possibly say
that because Aardwerke and Lessors shared a credit
line that a transaction with
one is the same as a tran-saction with the other."
Before this Court the thrust of the credit
line
argument altered somewhat. On appeal particular
emphasis
was laid on the fact that the credit line originally ap-
proved
in the name of Aardwerke had lapsed during or about
July 1975; and that upon
an examination of the relevant
control
76
control sheets it emerged that the payments approved by the plaintiff.
pursuant to the lease and hire-purchase agree-ments in question
had been
approved against the credit line of Lessors.
It hardly matters, I consider,
in what guise the credit line argument is dressed. It remains legally unsound
for the reason that it
overlooks that suretyship is an undertaking in favour of
a creditor by a particular person (the surety) to satisfy the obligations
owed
to the creditor by a particular debtor. A credit line, according to the evidence
led at the trial, is a notional credit limit.
The existence of an approved
credit line by itself creates no debt. A credit line cannot be secured by
suretyship. The identity of
the particular credit line against which the
plaintiff decided to approve actual payments did nothing to affect or alter the
essential
facts (1) that in the
lease
77
lease and hire-purchase agreements concerned the plaintiff was the creditor
and Aardwerke was the debtor; and (2) that by the 1973
suretyship the defendant
had bound herself to the plaintiff to satisfy the debts, present and future,
owed by Aardwerke to the plaintiff.
In my opinion HUMAN, AJ rightly concluded
that the credit line argument was incapable of sustaining a valid
defence.
For the aforegoing reasons the appeal is dismissed with costs,
including the costs consequent upon the employ-ment of two counsel.
G G HOEXTER, JA
NESTADT, JA )
MILNE, JA )
F H GROSSKOPF, AJA ) Concur
NICHOLAS, AJA )
- 14 -
A
NNEXURE A
IN SUPPORT 0F MEMORANDUM 25c Revenue Stamp to be
OF
AGREEMENT cancelled by surety/sureties
initials and dated DEED 0F SURETYSHIP AND INDEMNITY
1. I/We, the
undersigned, 1, J.C. BOTHA Full Names
2. MEV. C.E. BOTHA of
3.
Surety/
4.
Sureties do hereby bind
myself/ourselves unto and in favour of FINANSKREDIET (EDMS) BPK., P0S3US 62343,
MARSHALLTOWN, TVL.(l0) or
its successors in title or assigns (hereinafter
referred
to as the "Creditor") as surety/sureties
and co-principal debtor/s i
n solidum
with
PRETORIA AARDWERKE &
KONTRAKTEURS (EDMS) 3PK., POSBUS 791, PRETORIA (hereinafter referred to as "The
Principal Debtor/s", and
all such other persons, who may be or become indebted
or owe obligations to the Creditor as a result cf claims of whatever nature
acquired from the Principal Debtor/s (such other persons hereinafter referred to
as the Debtor/s) and in respect of which the Principal
Debtor/s (20) remain/s
liable in any way, fcr the due and punctual payment of all amounts of whatever
nature and/or the performance
of any obligation, all of which may now or in
future become owing by the Principal Debtor/s and/or the Debtor/s for any reason
whatscever.
2. The Creditor shall be at iiberty, at its sole and absc-
luts
discretion, without my/our prior knowledge or consent,
and without releasing
me/us from my/our liabilicy hereunder:
(i) to institute such prcceedings or take such steps
as it may deem fit against che Principal (30)
Debtor/s/...
-15-
Debtor/s and/or the Debtors including the right to re-possess any goods sold
to the Debtors aná to deal therewith or sell same
in such manner, at such
price and on such terms as the Creditor in its sole discretion may decide, in
which event the selling price
shall be deemed to be the true mar-ket value of
the goods sold;
(ii) to compromise with or make other arrangements with
the Principal
Debtor/s and/or the Debtors and/or
with any other sureties; (10)
(iii) to
grant any leniency, indulgence or extension
of time to the Principal Debtor/s and/or Debtors or vary any agreement,
undertaking and/or arrange-ment with the Principal Debtors
and/or Debtors in any
other manner whatsoever;
(iv) to enter into agreements of cancellation with the Principal Debtor/s
and/of the Debtors in respect of any existing or future
arrangement and/or to
enter into new arrangements and/or to substitute new purchasers for the
Principal Debtor/s and/or(20) any of
the Debtors; (v) to cede, assign and
transfer any of its right, title and interest in and to any or all of its claims
against the
Principal Debtor/s and/or Deb-tors which are now in existence or may
come into existence in its own discretion and on such cession
my/our liability
shall continue in favour of the cessionary for both the existing liability at
the date of the cession and also in
respect of any future liability incurred by
the Principal (30)
Debtor/s/...
- 16 -
ANNEXURE A
Debtor/s and/or Debtors with the Cessionary arising from any cause
whatsoever.
3.
In any or all of the events
described above, my/our liability shall be co-extensive wich that of the
Principal Debtor/s and/or Debtors.
4.
I/We
hereby indemnify and hold the Creditcr harmless against any loss or damage which
it may sustain for any reason whatsoever, irrespective
of the validity and/or
en-forceability of its cause/s of its claim/s against the Principal Debtor/s
and/or Debtors. (10)
5.
In giving this
suratyship, I/we do hereby voluntarily waive, renounce and abandon the benefits
of excussion, divi-sion, cession of
action,
errore cal
c
uli, non
numeratae
pe
cunia
e, revision of accounts,
de duobu
s vel
plur
ibus reis d
ebendi, as well as all benefits, rights anc privileges to
which I/we may be, or become, entitled under the Agricul-tural Credit Act
(No.
28 of 1966) and/or the Moratorium Act No. 25 of 1963) as amended from time to
time. I/We further-more agree that the provisions
of the waivers, renunciations
and abandonments contained herein, the full meaning, (20) force and effect
whereof I/we understand,
shall also be binding upon my/our successors in title,
assigns, etc.
6. It is agreed and declared that all
admissions of acknow-
ledgements or indebtedness by the Principal Debtor/s and/or
Dabtors shall be binding on me/us.
7. This Deed of Suratyship and Indemnity shall not be
cancelled save with the written consent of the Creditor.
3. In the event of insolvency, liquidation, assignment or
compromise by the Principal Debtor/s and/or Debtors, the
Creditor shall be entitled to prove against the Estate (30)
- 17 -
ANNEXURE A
for the full amount of the indebtedness and/or to accept
any offer of compromise, whether at common law or in terms of any statutory
provision, without prejudice to its rights to recover from me/us to the full
extent hereof any sum which may be owing by the Principal
Debtor/s and/or
Debtors.
9. I/We do hereby furthermore cede and make over unto and
in
favour of the Creditor, as its sole and absolute property,
any claim, of
whatever nature, based hereon or flowing or
arising herefrom, which I may
have or acquire against any
of the persons covered hereby, for the benefit of
any (10) indebtedness which I may have hereunder. I/We furthermore undertake and
bind myself/ourselves to take whatever necessary action to enforce settlement of
any such claim, upon the Creditor's request and
in terms of its directions.
Nonethe-less the Creditor shall be and remain entitled to use its own or our
name and to take such action
as it may elect for purposes thereof. The other
provisions of this document shall also
mutatis mutand
is apply to this
clause.
10. I/We hereby agree and consent that the Creditor shall
be
entitled, at its option, to institute any legal (20) proceedings which may arise
out of or in connection herewith in any Magistrate's
Court having jurisdiction
in respect of my/our person, notwithstanding that the claim or the value of the
matter in dispute might
exceed the jurisdiction of the Magistrate's
Court.
11. I/We acknowledge and agree chat a certificate signed
by the
Secretary of the Creditor for the time being setting
out the amount of my/our
indebtedness hereunder shall be
sufficient and satisfactory evidence and
shall constitute
prima/... (30)
- 18 -
ANNEXURE A
prima facie
proof
per se
of the amounts of
my/our indebted-ness to the Creditor.
DATED at Pretoria this 1st day of May
1973.
AS WITNESSES: AS SURETY/SURETIES:
1.
(Sgd) ? ? 1. (Sgd) J.C.
Botha
2.
(Sgd) ? ? 2. (Sgd) C.E.
Botha
3.
3.
4.
4.
Full
addresses of surety/sureties:
Addresses 1. P.O. Box 791, Pretoria (10)
2. P.O. Sox 791, Pretoria
3 .
ANNEXURE B/...