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1992
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[1992] ZASCA 39
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Morgan and Another v Brittan Boustred Ltd. (410/90) [1992] ZASCA 39; 1992 (2) SA 775 (AD); [1992] 2 All SA 69 (A) (26 March 1992)
/CCC
CASE NO 410/90
IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)
In the
matter between:
ANTHONY CLARENCE MORGAN
FIRST
APPELLANT
NORMAN FRANK MORGAN
SECOND
APPELLANT
and
BRITTAN BOUSTRED LIMITED
RESPONDENT
CORAM
: BOTHA, NESTADT JJA NICHOLAS, VAN COLLER et
HARMS AJJA
DATE HEARD
: 13 MARCH 1992
DATE DELIVERED
: 26 MARCH 1992
JUDGMENT NESTADT, JA
:
The respondent sued the appellants in the
2
Witwatersrand Local Division for payment of the sum of
R348
606,58. Its cause of action was based on separate
though identical deeds of suretyship signed by the
appellants in favour of
the respondent. The amount
claimed represents the alleged indebtedness of
the
principal debtor to the respondent. The appellants
filed a lengthy plea in which they alleged a number of
defences. The
respondent excepted to certain of them
on the grounds that in each case no
defence was
disclosed. STAFFORD J upheld the exception. This
appeal is against certain parts of such order. It is
brought with the
leave of this Court.
The plea must be considered with clause 4 of
the deeds of suretyship, and in particular the second
sentence thereof, in mind. The clause reads:
"This suretyship is a continuing suretyship and shall remain of full force and
effect notwithstanding the fluctuation in
or
3
temporary extinction of the debtor's indebtedness to the creditor. It may not be
withdrawn revoked or cancelled without the creditor's
prior written
consent."
I do not propose to set out the plea in
any detail. I
would rather summarise its effect. The central
averment,
insofar as is presently relevant, is that
subsequent to the conclusion of the
suretyship, but
prior to the principal debt having arisen, the
parties
orally agreed that "the Plaintiff releases the first and
second
Defendants from (the) deeds of suretyship...and
such deeds...are cancelled".
The plea goes on to state
that it was a term of the oral agreement that clause 4
was "amended prior
(to the deeds) being cancelled"; and
that such amendment "had the effect that the Plaintiff
waives its rights
to insist cm a written discharge in
terms thereof".
It is well established that sec 6 of the
4
General Law Amendment Act, 50 of 1956, which requires that a
contract of suretyship be in writing, does not preclude its oral cancellation.
The essential issue raised by the exception is whether clause 4 does. As I have
indicated, the court a
quo
gave a positive answer to the question. The
reasoning was that sec 6 renders invalid subsequent oral variations of any of
the material
terms of such a contract; that the oral agreement alleged by the
appellants, relating as it did to the duration of the suretyship,
constituted
such a variation, namely the deletion or waiver of that part of clause 4 which
prohibits the withdrawal, revocation or
cancellation . of the suretyship without
the creditor's prior written consent; and that the oral agreement was,
accordingly, not
a defence.
Before us, Mr
van
Niekerk, on behalf of the
5
appellants, attacked the correctness of this approach. The pith
of his submission was that the oral agreement pleaded brought about
a
cancellation of the whole suretyship; this did not amount to a variation of
clause 4; alternatively even if it did, this was not
the type of variation which
was prohibited by sec 6. The argument is an interesting one. On the one hand,
there are cases such as
Oceanair (Natal) (Pty) Ltd vs Sher
1980(1) SA 317
(D & CLD) and
Plascon-Evans Paints (Transvaal) Ltd vs Virginia Glass
Works (Pty) Ltd and Others
1983(1) SA 465(0) which would seem to be against
it. They decided that a purported oral cancellation of a suretyship does amount
to a variation of a stipulation in it that the creditor's written consent to any
cancellation is required; and that such variation
can have no effect because of
the statutory
6
entrenchment of the "no cancellation unless in
writing"
clause. Consider, however, what BOTHA JA said in
Ferreira and
Another vs SAPDC (Tradinq) Ltd
1983(1) SA
235(A). This, too, was a case
where the validity of an
oral variation of a suretyship was in issue. At 247
B,
having analysed the effect of what STEYN CJ said in
Neethlinq vs
Klopper en Andere
1967(4) SA 459(A), the
learned judge made the following significant remarks:
"From
Neethlinq's
case I venture to abstract this principle: while an
oral agreement varying (at least materially) the terms of a contract of the kind
in question is not permissible, there is no objection to allowing proof of an
oral agreement relating to the cancellation of the
contract by which its terms
as such are not placed in issue."
This was because
the object of provisions such as sec 6
was to avoid or minimise disputes
concerning the terms
of the contract in question (see at 246 A). And whilst
there may well be disputes as to the fact or contents of
7
a subsequent oral agreement cancelling the contract, a dispute
as to the terms of the contract alleged to be cancelled was not involved
(see at
247 A). Counsel for the appellants relied heavily on these statements and on the
strength of them submitted that the
Oceanair
and
Plascon-Evans
decisions were wrong.
The problem thus raised is not an easy one. It is
however unnecessary to resolve it. This is because on behalf of the appellants
another
point was taken which in my view must succeed. It was that properly
construed the relevant part of clause 4 did not require the creditor's
written
consent to the type of cancellation pleaded, viz a consensual or as it was put a
bilateral cancellation; the "no cancellation"
clause (so it was said) was
confined in its application to a case where the surety seeks to bring about
the
8
withdrawal, revocation or cancellation of the suretyship; only
then did the creditor have to give its prior written consent.
This point was not pleaded. On the contrary, the plea proceeds on the premise
that the restrictive effects of clause 4 apply to the
cancellation relied on. It
seeks to avoid the consequences of this by the variation or waiver ref erred to.
Even so, I do not think
that the appellants are precluded from raising the
issue. It would have been permissible and indeed proper (see for example
Garlick vs Smartt and Another
1928 AD 82
at 87 and
Schultz vs Nel
1947(2) SA 1060(C)) for the appellants to have pleaded the interpretation of
clause 4 now advanced. But an acceptance that clause
4 applies to all types of
cancellations cannot properly be inferred from their failure to do so. Nor can
it be
9
said that there was a waiver or abandonment of the point. This
is obviously a case of it not having occurred to the pleader that the
allegations of variation and waiver should be relied on in the alternative to a
plea based on an interpretation of clause 4. In fact
when the exception was
argued the contention under consideration was put forward. The point is purely a
legal one. There was no obligation
to plead it. The respondent has not been
prejudiced (within the accepted meaning of this word) by the appellants not
having done
so.
I turn to a consideration of the merits of the contended for interpretation
of the provision that the suretyship "may not be withdrawn
revoked or cancelled
without the creditor's prior written consent". As is apparent from clause 4, the
suretyships are typical
10
examples of what has been termed a continuing guarantee.
Generally speaking, this kind of surety has, apart from a provision to the
contrary in the contract, the right by notice given to the creditor to bring
about a termination (in relation to amounts becoming
due by the principal debtor
after the notice) of his liability under the deed (
Kalil vs Standard Bank of
SA Ltd
1967(4) SA 550(A) at 555 G). Clause 4 is to be interpreted against
the background of this principle. The clause must be taken to
have been inserted
to deprive the appellants of this right. Hence (unlike the clauses in
Oceanair
and
Plascon-Evans
) the reference to and emphasis on the
contingency of withdrawal and revocation. Conduct of this kind can plainly only
be that of
the surety. The same applies to "cancelled". Though this word is
often used to indicate a
11
cancellation by agreement between the parties, ie a consensual
cancellation or one brought about by the exercise of a right to terminate
(
Van Streepen and Germs (Pty) Ltd vs Transvaal Provincial Administration
1987(4) SA 569(A) at 588 H), this is not always so. A New Zealand case
illustrates this. In
Willcocks vs New Zealand Insurance Co
[1926] NZLR
805
(CA) the insured in a proposal form had stated that no policy of his had
previously been "cancelled". It was held that the word meant
the determination
of the policy by the unilateral act of the company and that the termination of
the policy by mutual arrangement
did not amount to a cancellation. Similarly,
"cancelled" in clause 4 is, in my opinion, used in the sense of a purported
unilateral
termination of the contract at the instance of the surety. The
requirement of "the creditor's
12
prior written consent" is a strong indication of this. These
words can only mean a consent to something to be done by the surety.
So they
serve to confirm that the clause was intended to deal with the situation where
the surety attempts to revoke the suretyship;
not with the case where there is a
discharge consequent upon a mutual agreement between creditor and surety, or (a
fortiori
), where the creditor waives his rights under the suretyship. It
is true that this construction of "cancelled" brings about an element
of
tautology. But by the use of "withdrawn" and "revoked", this already exists. And
to the extent that there is ambiguity, there
is the consideration that any
restriction on the right of parties to informally terminate a suretýship
should be strictly
construed.
13
The distinction referred to may often be a fine one to draw in
practice. It may even be said to be somewhat artificial. Where there
is a
withdrawal, revocation or cancellation at the instance of the surety, the
creditors' written consent would be required. But
that having been given the
resulting cancellation would become a consensual one. Nevertheless, as I have
attempted to show, it is
a distinction with a difference. And, in my opinion, on
the allegations made in the plea, the oral agreement relied on is at least
capable of falling within that class of case which is not hit by clause 4. On
this approach the plea that clause 4 was amended prior
to the deed being
cancelled was unnecessary. On the other hand a deletion of the allegation would
not have avoided the leading of
any evidence. Applying the principle
14
stated in
Barclays National Bank Ltd vs Thompson
1989(1) SA 547(A) at 553 F-I, the exception in that respect was therefore not
warranted. It follows that the exception under consideration
should have been
dismissed.
As indicated at the commencement of this judgment, this appeal is against the
upholding of the exception in relation to only certain
of the paragraphs of the
plea; there is no appeal against the upholding of the exception to other
paragraphs. There is therefore
no reason to alter the order for costs of the
court a
quo
, namely that the appellants pay the respondent's costs in
that court (cm the attorney and client scale as provided for in the deeds
of
suretyship). The appellants are, of course, entitled to their costs on
appeal.
The following order is made:
15
(1)
The appeal succeeds with
costs. Such costs are to include the costs of the application to the court a
quo
for leave to appeal as well as the costs of the petition for leave to
appeal.
(2)
The order of the court a
quo
is set aside and the following
substituted:
"1. The exception to paragraph 4 of the
plea is dismissed.
2.
The exception to paragraphs
10(b)(i) and (ii) and 10(e)(i) and (ii) is upheld. These paragraphs are struck
out.
3.
The defendants are ordered to pay the
plaintiff's costs as between attorney and client in terms of clause 9 of the two
deeds of suretyship."
NESTADT, JA
BOTHA, JA )
NICHOLAS, AJA ) CONCUR
VAN COLLER, AJA )
HARMS,
AJA )