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[2001] ZASCA 114
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ABSA Bank Ltd. t/a Volkskas Bank v Page and Another (105/2000) [2001] ZASCA 114; [2002] 1 All SA 99 (A); [2002] 2 All SA 241 (A); 2002 (1) SA 617 (SCA) (28 September 2001)
REPORTABLE
Case
number: 105/2000
IN THE SUPREME
COURT OF APPEAL OF
SOUTH AFRICA
In the matter
between:
ABSA BANK LIMITED
t/a VOLKSKAS BANK APPELLANT
and
JAN HENDRIK NEL
PAGE FIRST RESPONDENT
HENDRIK VAN
NIEKERK NO SECOND RESPONDENT
CORAM
: NIENABER,
NAVSA, MTHIYANE JJA, CONRADIE and NUGENT AJJA
DATE
OF HEARING
: 18 SEPTEMBER 2001
DELIVERY
DATE
: 28 SEPTEMBER 2001
Summary:
Interpretation of court order – limited suretyship - discharge
of surety by payment by principal debtor –
only where liability
of principal debtor and surety co-extensive.
__________________________________________________________________
JUDGMENT
__________________________________________________________________
CONRADIE AJA:
[1]
The appellant is a commercial bank. It is a creditor of Derryk Page,
a farmer in the Adelaide district of the Eastern Cape. He
was the
first defendant in a trial before Whitehead AJ in which the appellant
sued him to recover money which he had borrowed on
a current account
overdraft. His son, who was the second defendant, stood surety for
his father’s liability up to an amount
of R190 000. I shall
refer to the
dramatis
personae
as the
creditor, the principal debtor and the surety.
[2]
The only part of the relief granted in the trial against the
principal debtor and the surety which is relevant at present is
that
formulated in paragraph 2 of the order:
‘
Judgment is
granted in favour of the plaintiff in the sum of R597 056,57 together
with interest thereon at the rate of 19,5% per
annum from 24 January
1998 to the date of payment, in respect of which sum the first
defendant and the second defendant shall be
jointly and severally
liable for payment of the first R190 000.00 together with the said
interest thereon, the one paying the other
to be absolved, and the
first defendant shall be solely liable for the balance together with
the said interest thereon.’
[3]
The creditor promptly caused a garnishee order to be issued against
the principal debtor’s attorney who held R300 000 in
his trust
account on his client’s behalf. The attorney’s reaction
to the service of the garnishee order was to pay
over to the acting
sheriff of Adelaide an amount of R219 741, 51. This was the capital
of R190 000 together with interest up to
the date of payment. In a
letter to the acting sheriff (who is the second respondent) he stated
that the payment was ‘in
full settlement of the amount due by
the First and Second Judgment Debtors on a joint and several basis.’
In subsequent
correspondence he made it clear that the money had
been paid in discharge of that portion of the debt for which,
according to his
interpretation of the judgment, the two defendants
were jointly and severally liable.
[4]
The creditor did not accept that the payment on behalf of the
principal debtor had discharged the surety's liability. It
accordingly
issued a writ against the latter. The attachment of a
truck forming part of the surety’s transport business impelled
him
to bring an urgent application to set aside the writ. This in
turn prompted the creditor to bring an application of its own for
a
declaratory order establishing the meaning of the order made by
Whitehead AJ.
[5]
The two applications came before Leach J. The decision in the court
a quo
is
reported as
Page v Absa
Bank Ltd t/a Volkskas Bank and Another
2000
(2) SA 661
(E). The creditor’s application was dismissed with
costs on the attorney and client scale. The court held that it had
been
frivolous to bring a separate application since the meaning of
the order would in any event be a central issue in the interdict
proceedings. The surety’s contention that the order of
Whitehead AJ meant that the principal debtor’s payment absolved
him (the surety) from liability to the creditor was upheld. The writ
was set aside. The creditor’s contention that Whitehead
AJ did
no more than give effect to the suretyship , as interpreted in the
light of the common law, failed. The creditor’s
application for
leave to appeal also failed, but an application to the Chief Justice
for leave to appeal against the whole of the
judgment of the court
a
quo
dated 10 September
1999 in respect of the main application was successful.
[6]
The approach which Leach J adopted to test the order for ambiguities
or errors was to compare it with what he conceived the common
law
position to be. Since it seemed to him that the order expressed the
common law he concluded that it meant what it said.
He relied on
what he called ‘the well established principle’ that a
payment by a debtor ought to be appropriated to
the most onerous
portion of his debt. In the case of a debt partly secured by a
suretyship, this would be that part of it for which
both debtor and
surety are liable. The learned judge held that –
‘
In terms of
the common law, and without specific appropriation to any particular
portion of the judgment debt, the payment of the
principal debtor,
Derryk Page, of the amount equal to the indebtedness of the surety,
immediately discharged that portion of the
debt for which the latter
was liable as surety to the creditor…’
[7]
One should approach the interpretive difficulty in the order on the
footing that the expression “the first R190 000,00 together
with interest thereon” in the context is ambiguous. The manner
in which ambiguities in an order of court are to be dealt
with is
explained in
Firestone
South Africa (Pty) Ltd v Gentiruco A.G.
1977
(4) SA 298
(A)
at
304 D – H). The order and the court’s reasons for giving
it must be read as a whole; if uncertainty on the meaning
of the
order still persists, extrinsic circumstances leading up to the
court’s judgment may be investigated in order to clarify
it.
[8]
The trial before Whitehead AJ was not about the surety’s
liability. It revolved around the principal debtor’s
indebtedness.
The judgment concerning the liability of the surety is
understandably brief. It does little more than quote the part of the
suretyship
imposing liability on the surety. In essence, the document
binds the surety as co-principal debtor to the payment of whatever
sums
may be owing by the principal debtor to the creditor from time
to time. The limitation on the surety’s liability is recorded
in the form of a proviso:
‘…
met
dien verstande, nietemin, dat die totale bedrag verhaalbaar van my
ingevolge hiervan nie altesaam die bedrag van R19000.00…tesame
met sodanige verdere som vir rente en koste wat reeds opgeloop het of
mag oploop tot die datum van betaling van die hoofsom, te
bowe sal
gaan nie.’
[9]
The learned judge confined himself to this crisp comment on the
terms of the suretyship:
‘
The liability
of the second defendant (the surety) is, therefore, limited to the
sum of R190 000.00 together with interest thereon
and costs.’
[10]
At the conclusion of his judgment he found the surety liable to
the principal debtor ‘in accordance with the terms of
the Deed
of Suretyship’. There is no discussion in the judgment of the
soundness or otherwise of dividing the principal
debt into two parts,
one of which is secured and the other not. If there had been such a
(highly unusual) provision in the deed
of suretyship, the learned
judge could hardly have failed to mention it. It has not been
suggested before us that there was. I
proceed on the footing that
there was not. I further proceed on the footing that the judgment of
Whitehead AJ was intended not
to novate but to reinforce the
suretyship obligation (
Swadif
(Pty) Ltd v Dyke NO
1978
(1) SA 928
(A) at 944F – G) and that the surety at whom the
order was directed would have understood it in this sense. I
furthermore
do not believe that one should assume that the learned
judge misunderstood the terms of the suretyship.
[11]
The ambiguity in the expression “the first R190 000 together
with interest thereon” is latent. Leach J put the focus
on
compliance with the order. He assumed that the expression referred to
the first R190 000 (and interest) paid or to be paid by
either of the
debtors. It does not necessarily refer to that. On the face of it, it
may with equal justification be taken to refer
to the principal
debtor’s
indebtedness
.
In fact, having regard to the terms of the suretyship, and the tenor
of the judgment, this is its probable meaning. Whitehead
AJ must be
understood as having declared the extent of the two debtors’
joint and several liability (ie the obligation to
pay R190 000 of the
debt). He did not purport to deal with the legal consequences
produced by the payment by either debtor of his
obligations. Read in
this way, the order means that the surety was adjudged liable only
for an amount up to R190 000 (and interest)
of that owing by the
principal debtor; the amount by which the creditor permitted the
principal debtor’s indebtedness to
exceed the ‘first’
R190000 was not the surety’s concern. Indeed, the order takes
the trouble to spell out that
the remainder of the debt (over and
above the limit of R190 000) is the responsibility of the
principal debtor alone. Interpreted
in this way, the order makes
linguistic sense. It also gives effect to the provisions of the
suretyship (quoted by Whitehead AJ
without comment) that make the
surety accountable for ‘terugbetaling op aanvraag van enige som
of somme geld wat die skuldenaar/s
nou, of van tyd tot tyd hierna,aan
die Bank…om welke rede ook al verskuldig mag wees.’
[12]
The suretyship envisages security for
all
debts of the principal debtor
to the
creditor. No question of any common law allocation arises. The
parties’ intention that every single one of the principal
debtor’s debts be secured, is incompatible with an intention
on their part that any particular portion of any particular
debt
should remain unsecured. If one were to suppose that the order held
the surety liable only for so long as it took the principal
debtor
to pay off R190 000 on his indebtedness, it would, contrary to what
Leach J thought, not accord with the common law. An
unlimited
suretyship covers the whole debt. A limited suretyship is no
different. It does not cover only a portion of the debt.
A limited
surety who performs obligation must be taken to pay a (fixed)
contribution towards the whole debt. His payment means
that the
creditor receives a ‘dividend’ of fewer than one hundred
cents in the Rand on the
whole
debt. He does not receive payment in full of some part of the debt.
Since a surety’s liability is accessory, and a surety’s
debt cannot be greater than that of the principal debtor, payment by
a principal debtor of an indebtness which is co-extensive
with the
surety’s liability will discharge both him and the surety.
Before that, a principal debtor’s payment discharges
only his
own debt.
[13]
The contrary conclusion of Leach J is based on a misreading of
dicta
in
Northern Cape Co-Operative Livestock Agency
Ltd v John Roderick & Co. Ltd
1965 (2) SA
64
(O) at 73D – H
and
Zietsman v Allied Building
Society
1989 (3) SA 166
(O) at 178C – D)
.
These cases dealt with
distinct secured and
unsecured debts.
[14]
In his judgment refusing the application for leave to appeal Leach
J found further support for his view of the law in the majority
judgment of this Court in
Pfeiffer v First
National Bank of SA Ltd
1998 (3) SA 1018
(SCA). But the point on which the Court
a quo
sought to rely for authority was expressly left open in the majority
judgment. The judgment of the majority is based on the rule
that
payments by a debtor are, in the absence of agreement to the
contrary, to be credited first to interest and then to capital.
In
regard to the rule that, failing agreement, payments are to be
appropriated to a secured debt in preference to an unsecured
one,
Harms JA says the following (at 1032G – H):
‘
The other
appropriation rule that, conceivably, can be invoked is that a
secured debt should be paid before an unsecured debt. This
rule as
found in textbooks is formulated on the assumption that there is more
than one debt, the one secured and the others not.
The obvious reason
for the rule is that good faith requires that the creditor and the
debtor should as far as possible ease the
burden of the surety.
Whether there is reason in principle, logic or fairness why this rule
should not also apply, depending upon
the terms of the deed of
suretyship, if a debt is partially secured does not arise on the
facts of this case.’
Pfeiffer’s
case is thus no authority for the proposition
that the common law countenances an appropriation of a debtor’s
payment to a
surety’s debt where the liabilities of the two are
not co-extensive.
[15]
The appeal succeeds with costs against the first respondent.
The
order of the court
a quo
is set aside and replaced with an order
reading:
‘
The
application is dismissed with costs’.
_______________
J H
CONRADIE
ACTING
JUDGE OF APPEAL
NIENABER JA )Concur
MTHIYANE JA )
CONRADIE AJA:
[1]
The appellant is a commercial bank. It is a creditor of Derryk Page,
a farmer in the Adelaide district of the Eastern Cape. He
was the
first defendant in a trial before Whitehead AJ in which the appellant
sued him to recover money which he had borrowed on
a current account
overdraft. His son, who was the second defendant, stood surety for
his father’s liability up to an amount
of R190 000. I shall
refer to the
dramatis
personae
as the
creditor, the principal debtor and the surety.
[2]
The only part of the relief granted in the trial against the
principal debtor and the surety which is relevant at present is
that
formulated in paragraph 2 of the order:
‘
Judgment is
granted in favour of the plaintiff in the sum of R597 056,57 together
with interest thereon at the rate of 19,5% per
annum from 24 January
1998 to the date of payment, in respect of which sum the first
defendant and the second defendant shall be
jointly and severally
liable for payment of the first R190 000.00 together with the said
interest thereon, the one paying the other
to be absolved, and the
first defendant shall be solely liable for the balance together with
the said interest thereon.’
[3]
The creditor promptly caused a garnishee order to be issued against
the principal debtor’s attorney who held R300 000 in
his trust
account on his client’s behalf. The attorney’s reaction
to the service of the garnishee order was to pay
over to the acting
sheriff of Adelaide an amount of R219 741, 51. This was the capital
of R190 000 together with interest up to
the date of payment. In a
letter to the acting sheriff (who is the second respondent) he stated
that the payment was ‘in
full settlement of the amount due by
the First and Second Judgment Debtors on a joint and several basis.’
In subsequent
correspondence he made it clear that the money had
been paid in discharge of that portion of the debt for which,
according to his
interpretation of the judgment, the two defendants
were jointly and severally liable.
[4]
The creditor did not accept that the payment on behalf of the
principal debtor had discharged the surety's liability. It
accordingly
issued a writ against the latter. The attachment of a
truck forming part of the surety’s transport business impelled
him
to bring an urgent application to set aside the writ. This in
turn prompted the creditor to bring an application of its own for
a
declaratory order establishing the meaning of the order made by
Whitehead AJ.
[5]
The two applications came before Leach J. The decision in the court
a quo
is
reported as
Page v Absa
Bank Ltd t/a Volkskas Bank and Another
2000
(2) SA 661
(E). The creditor’s application was dismissed with
costs on the attorney and client scale. The court held that it had
been
frivolous to bring a separate application since the meaning of
the order would in any event be a central issue in the interdict
proceedings. The surety’s contention that the order of
Whitehead AJ meant that the principal debtor’s payment absolved
him (the surety) from liability to the creditor was upheld. The writ
was set aside. The creditor’s contention that Whitehead
AJ did
no more than give effect to the suretyship , as interpreted in the
light of the common law, failed. The creditor’s
application for
leave to appeal also failed, but an application to the Chief Justice
for leave to appeal against the whole of the
judgment of the court
a
quo
dated 10 September
1999 in respect of the main application was successful.
[6]
The approach which Leach J adopted to test the order for ambiguities
or errors was to compare it with what he conceived the common
law
position to be. Since it seemed to him that the order expressed the
common law he concluded that it meant what it said.
He relied on
what he called ‘the well established principle’ that a
payment by a debtor ought to be appropriated to
the most onerous
portion of his debt. In the case of a debt partly secured by a
suretyship, this would be that part of it for which
both debtor and
surety are liable. The learned judge held that –
‘
In terms of
the common law, and without specific appropriation to any particular
portion of the judgment debt, the payment of the
principal debtor,
Derryk Page, of the amount equal to the indebtedness of the surety,
immediately discharged that portion of the
debt for which the latter
was liable as surety to the creditor…’
[7]
One should approach the interpretive difficulty in the order on the
footing that the expression “the first R190 000,00 together
with interest thereon” in the context is ambiguous. The manner
in which ambiguities in an order of court are to be dealt
with is
explained in
Firestone
South Africa (Pty) Ltd v Gentiruco A.G.
1977
(4) SA 298
(A)
at
304 D – H). The order and the court’s reasons for giving
it must be read as a whole; if uncertainty on the meaning
of the
order still persists, extrinsic circumstances leading up to the
court’s judgment may be investigated in order to clarify
it.
[8]
The trial before Whitehead AJ was not about the surety’s
liability. It revolved around the principal debtor’s
indebtedness.
The judgment concerning the liability of the surety is
understandably brief. It does little more than quote the part of the
suretyship
imposing liability on the surety. In essence, the document
binds the surety as co-principal debtor to the payment of whatever
sums
may be owing by the principal debtor to the creditor from time
to time. The limitation on the surety’s liability is recorded
in the form of a proviso:
‘…
met
dien verstande, nietemin, dat die totale bedrag verhaalbaar van my
ingevolge hiervan nie altesaam die bedrag van R19000.00…tesame
met sodanige verdere som vir rente en koste wat reeds opgeloop het of
mag oploop tot die datum van betaling van die hoofsom, te
bowe sal
gaan nie.’
[9]
The learned judge confined himself to this crisp comment on the
terms of the suretyship:
‘
The liability
of the second defendant (the surety) is, therefore, limited to the
sum of R190 000.00 together with interest thereon
and costs.’
[10]
At the conclusion of his judgment he found the surety liable to
the principal debtor ‘in accordance with the terms of
the Deed
of Suretyship’. There is no discussion in the judgment of the
soundness or otherwise of dividing the principal
debt into two parts,
one of which is secured and the other not. If there had been such a
(highly unusual) provision in the deed
of suretyship, the learned
judge could hardly have failed to mention it. It has not been
suggested before us that there was. I
proceed on the footing that
there was not. I further proceed on the footing that the judgment of
Whitehead AJ was intended not
to novate but to reinforce the
suretyship obligation (
Swadif
(Pty) Ltd v Dyke NO
1978
(1) SA 928
(A) at 944F – G) and that the surety at whom the
order was directed would have understood it in this sense. I
furthermore
do not believe that one should assume that the learned
judge misunderstood the terms of the suretyship.
[11]
The ambiguity in the expression “the first R190 000 together
with interest thereon” is latent. Leach J put the focus
on
compliance with the order. He assumed that the expression referred to
the first R190 000 (and interest) paid or to be paid by
either of the
debtors. It does not necessarily refer to that. On the face of it, it
may with equal justification be taken to refer
to the principal
debtor’s
indebtedness
.
In fact, having regard to the terms of the suretyship, and the tenor
of the judgment, this is its probable meaning. Whitehead
AJ must be
understood as having declared the extent of the two debtors’
joint and several liability (ie the obligation to
pay R190 000 of the
debt). He did not purport to deal with the legal consequences
produced by the payment by either debtor of his
obligations. Read in
this way, the order means that the surety was adjudged liable only
for an amount up to R190 000 (and interest)
of that owing by the
principal debtor; the amount by which the creditor permitted the
principal debtor’s indebtedness to
exceed the ‘first’
R190000 was not the surety’s concern. Indeed, the order takes
the trouble to spell out that
the remainder of the debt (over and
above the limit of R190 000) is the responsibility of the
principal debtor alone. Interpreted
in this way, the order makes
linguistic sense. It also gives effect to the provisions of the
suretyship (quoted by Whitehead AJ
without comment) that make the
surety accountable for ‘terugbetaling op aanvraag van enige som
of somme geld wat die skuldenaar/s
nou, of van tyd tot tyd hierna,aan
die Bank…om welke rede ook al verskuldig mag wees.’
[12]
The suretyship envisages security for
all
debts of the principal debtor
to the
creditor. No question of any common law allocation arises. The
parties’ intention that every single one of the principal
debtor’s debts be secured, is incompatible with an intention
on their part that any particular portion of any particular
debt
should remain unsecured. If one were to suppose that the order held
the surety liable only for so long as it took the principal
debtor
to pay off R190 000 on his indebtedness, it would, contrary to what
Leach J thought, not accord with the common law. An
unlimited
suretyship covers the whole debt. A limited suretyship is no
different. It does not cover only a portion of the debt.
A limited
surety who performs obligation must be taken to pay a (fixed)
contribution towards the whole debt. His payment means
that the
creditor receives a ‘dividend’ of fewer than one hundred
cents in the Rand on the
whole
debt. He does not receive payment in full of some part of the debt.
Since a surety’s liability is accessory, and a surety’s
debt cannot be greater than that of the principal debtor, payment by
a principal debtor of an indebtness which is co-extensive
with the
surety’s liability will discharge both him and the surety.
Before that, a principal debtor’s payment discharges
only his
own debt.
[13]
The contrary conclusion of Leach J is based on a misreading of
dicta
in
Northern Cape Co-Operative Livestock Agency
Ltd v John Roderick & Co. Ltd
1965 (2) SA
64
(O) at 73D – H
and
Zietsman v Allied Building
Society
1989 (3) SA 166
(O) at 178C – D)
.
These cases dealt with
distinct secured and
unsecured debts.
[14]
In his judgment refusing the application for leave to appeal Leach
J found further support for his view of the law in the majority
judgment of this Court in
Pfeiffer v First
National Bank of SA Ltd
1998 (3) SA 1018
(SCA). But the point on which the Court
a quo
sought to rely for authority was expressly left open in the majority
judgment. The judgment of the majority is based on the rule
that
payments by a debtor are, in the absence of agreement to the
contrary, to be credited first to interest and then to capital.
In
regard to the rule that, failing agreement, payments are to be
appropriated to a secured debt in preference to an unsecured
one,
Harms JA says the following (at 1032G – H):
‘
The other
appropriation rule that, conceivably, can be invoked is that a
secured debt should be paid before an unsecured debt. This
rule as
found in textbooks is formulated on the assumption that there is more
than one debt, the one secured and the others not.
The obvious reason
for the rule is that good faith requires that the creditor and the
debtor should as far as possible ease the
burden of the surety.
Whether there is reason in principle, logic or fairness why this rule
should not also apply, depending upon
the terms of the deed of
suretyship, if a debt is partially secured does not arise on the
facts of this case.’
Pfeiffer’s
case is thus no authority for the proposition
that the common law countenances an appropriation of a debtor’s
payment to a
surety’s debt where the liabilities of the two are
not co-extensive.
[15]
The appeal succeeds with costs against the first respondent.
The
order of the court
a quo
is set aside and replaced with an order
reading:
‘
The
application is dismissed with costs’.
_______________
J H
CONRADIE
ACTING
JUDGE OF APPEAL
NIENABER JA )Concur
MTHIYANE JA )