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[1999] ZASCA 94
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ABSA Bank Ltd. v Davidson (389/97) [1999] ZASCA 94; [2000] 1 All SA 355 (A); 2000 (1) SA 1117 (SCA) (30 November 1999)
REPORTABLE
IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
CASE
NO : 389 / 97
In the matter
between
ABSA BANK LIMITED
Appellant
and
JOHN GARRICK DAVIDSON
Respondent
COURT
Smalberger JA, Vivier JA, Harms
JA, Olivier JA, Farlam AJA
DATE OF HEARING
8 November 1999
DATE OF JUDGMENT
30 November
1999
Suretyship - estoppel - prejudicial conduct by
creditor
JUDGMENT
OLIVIER JA
OLIVIER JA
[1]
In June 1992 ABSA Bank Limited (“ABSA”) instituted action
in the then
Cape of Good Hope Provincial Division of the Supreme
Court against the Respondent, John Garrick Davidson (“Davidson”),
as
first defendant and one Peter Martin Myburgh (“Myburgh”) as second
defendant. The claim, which is the subject of
this appeal, is for payment of R
372 101,89, interest thereon at ABSA’s prime rate of interest plus 2%
per annum
capitalised monthly from 21 May 1992 to date of payment,
and costs of suit on the scale as between attorney and client. The claim,
in
all its component parts, is based on separate but identical deeds of suretyship
signed by Davidson and Myburgh at Cape Town on
24 February 1989. After the
institution of the action Myburgh passed away and his estate was sequestrated as
insolvent. Davidson
remained as the sole defendant.
[2]
The action went on trial before Foxcroft J, who dismissed the claim
with
costs. The learned judge subsequently refused ABSA leave
to appeal. Such leave was given by this Court.
[3]
ABSA is a duly incorporated and registered bank. On 1 July 1990
the
Trust Bank of Africa Limited (“Trust Bank” and/or
“the Bank”)
changed its name to Bankorp Limited. With
effect from 1 August 1992 (by virtue of section 54 of the Banks Act 94 of 1990
as amended)
ABSA succeeded to the rights, obligations, assets and liabilities of
Bankorp Limited. It was common cause that at the time of the
trial ABSA traded
through banking divisions known
inter alia
as Trust Bank and
Bankfin.
[4]
Davidson is a businessman and a qualified chartered accountant,
with
experience as auditor, financial management consultant,
general manager and director of companies.
[5]
On 24 February 1989 Davidson, in his capacity as a director of
Whistlers
Interiors (Pty) Limited (“Whistlers”),
applied to the Bank on Whistlers’ behalf for the opening of a cheque
account.
The application was accepted and an account was opened on 27
February 1989.
[6]
The banker-customer contract between the Bank and Whistlers,
which
was in a standard written form, stipulated that the latter
would from time to time appoint and authorise officials to operate the
account
on its behalf, and that the authorised officials
... may sign all documents in connection with any transaction which the
Applicant [Whistlers] may enter into with Trust
Bank.
It further provided
inter
alia
that -
(d) Trust Bank be and is hereby authorised and requested to honour all cheques,
vouchers, bills and other negotiable instruments
drawn on Trust Bank and
purporting to be signed, made or accepted by the authorised signatories on
behalf of the said Applicant and
to debit the said Applicant’s account
with the relevant amounts, whether the account is in credit or otherwise
...
(e) Trust Bank be and is hereby requested and authorised to allow the Applicant
to overdraw its cheque account(s) from time to time
and to enter into other
liabilities with Trust Bank, whether direct or indirect or from whatsoever cause
arising for an unlimited
amount, on the understanding that the facilities
allowed will always be in the discretion of Trust Bank until the authority is
cancelled
in writing.
(f) The Applicant undertakes to pay all bank charges and finance charges as
Trust Bank may from time to time levy in accordance with
general banking
practice. Should the said account at any stage become overdrawn, the Applicant
undertakes to pay Trust Bank on
demand the amount by which the account is
overdrawn ...
It is not disputed that these
terms governed the contractual relationship between Whistlers and the
Bank.
[7]
On the same day that the application to open the account was
made,
Davidson and Myburgh signed unlimited deeds of suretyship
in which each of them bound himself to the Trust Bank, its order or assigns,
as
surety and co-principal debtor
in solidum
for the due and proper payment
by Whistlers (the debtor) -
... of each and every amount which the debtor is at present indebted to the Bank
or may in future become indebted to the Bank, whether
as borrower or as surety
and whether alone or jointly with others, or from whatsoever other cause
arising, and notwithstanding any
fluctuation in the amount or even temporary
extinction thereof, as well as for the due and proper performance of all other
obligations
of whatsoever nature which the debtor has or may in future incur in
favour of the Bank.
The deeds of suretyship went
on to provide
inter alia
as follows :
I hereby declare that the extent, nature and duration of the obligations
incurred by the debtor shall at all times be in the discretion
of the Bank, and
that the Bank shall have the right, in its own discretion and without affecting
or vitiating any of its rights in
terms hereof, and without reference to me, to
release any securities and guarantees, to grant extension of time for payment to
the
debtor and to enter into any other agreement, settlement or compromise with
the debtor, on the understanding that the surety’s
obligation by virtue
hereof, will be unlimited ...
and ...
I agree that no termination, cancellation, limitation or variation of my
obligations in terms of this suretyship shall be of any
force or effect unless
agreed to in writing and signed by the Bank.
and
I agree that all admissions and acknowledgements of indebtedness by the debtor
shall be binding on me and the Bank shall be free
to enter into, cancel, vary,
add to and/or amend any contracts/s with the debtor without reference to me, on
the basis that every
such contract, cancellation, variation, addition or
amendment shall be as binding on me as if I had expressly consented thereto.
The Bank may at any time, in its sole and absolute discretion, without prejudice
to any of its rights and without notice to me
release any one or more of my
co-sureties (if any).
and ...
I hereby expressly renounce the benefits arising from the legal exceptions
ordinis seu excussionis et divisionis, de duobus vel pluribus reis
debendi
,
and
cedendarum
actionum
and I
declare that I am fully acquainted with the meaning thereof and understand and
appreciate same.
It is not disputed that the
deeds of suretyship thus signed became valid and binding upon Davidson and
Myburgh.
[8]
It was common cause that on 12 April 1991 Whistlers was
provisionally
liquidated as insolvent, the order being made final
on 6 May 1991. On 10 June 1992 the present action was instituted.
[9]
The
causa causans
of the later problems between ABSA and
Davidson
emanated from the termination of Davidson’s
shareholding in Whistlers and his
perception that such termination also
changed, in one way or another, his obligations as surety
vis-a-vis
Trust
Bank. On 21 August 1990 Davidson signed a written agreement with Myburgh in
terms of which Myburgh purchased Davidson’s
shares and loan account in
Whistlers. The agreement further provided that Myburgh was to procure
Davidson’s release from
certain deeds of suretyship, including the
suretyship in favour of the Bank. In fact, Davidson and Myburgh had reached
agreement
in principle much earlier (probably April 1990), and the written
agreement had gone through several drafts before the final version
was signed.
Myburgh never succeeded in obtaining the release of Davidson as surety for the
debts of Whistlers
vis-a-vis
Trust Bank.
The fact is that Davidson
was never released by Trust Bank as surety and co-principal debtor.
[10]
When sued by Trust Bank as mentioned previously, Davidson raised
three
defences which can be subsumed under two legal categories,
viz
(a)
estoppel
, in that Trust Bank negligently misrepresented to
Davidson, to his detriment, that he had been released as surety; and (b),
alternatively,
that Trust Bank, subsequent to its acquiring notice that Davidson
had sold his shares in Whistlers and wished to be released as surety,
had dealt
with the Whistlers account in such a way as to
prejudice
Davidson as
surety, thereby, in law, causing his automatic release as surety. Under this
category, Davidson relied on two prejudicial
acts by Trust Bank : (i)
debiting the Whistlers account with two cheques and four debit orders drawn on
the said account by Whistlers,
well-knowing that the cheques and debit orders
were drawn to pay for a Ferrari motor vehicle bought by Myburgh for his own use;
and
(ii) allowing a doubling of the Whistlers overdraft.
[11]
I
will deal first with the
estoppel
defence, which need not detain us
unduly. The main reason for the demise of this defence was that the facts
necessary to sustain
estoppel
as pleaded
were not
proved.
[12]
The very basis of the defence of
estoppel
,
as pleaded
, was that Davidson had written a letter to Trust Bank on 7 May
1990, which reads as follows :
... hereby note that my interest in the above company [Whistlers] has been
purchased by Mr PM Myburgh who in terms of a shareholders
agreement is required
to secure my release from all suretyships. Messrs Nieuwoudt, Myers and Verwey
have been advised of this and
unless I hear from you to the contrary will regard
the surety as cancelled.
Davidson pleaded that
after having received this letter and with full knowledge of its contents, Trust
Bank never replied to it at
all, thereby representing to him that he had been
released as a surety. Hence the defence of
estoppel
. As pleaded, the
alleged misrepresentation depended upon the receipt by Trust Bank of the
Davidson letter of 7 May 1990.
[13]
Davidson, however, has
singularly failed to prove the factual basis of the
estoppel
defence.
Counsel readily conceded during argument that the evidence does not establish
either the despatch or the receipt of the
letter. The argument then relied
upon was that ABSA, having knowledge of the agreement in principle which obliged
Myburgh to secure
Davidson’s release from the deed of suretyship, by
inaction represented to the latter that he was indeed so released. One
need
only state the proposition to realise that it is without any merit. If
Davidson suffered under any misapprehension as to his
liability towards ABSA it
was of his own making and not as the result of any wrongdoing by ABSA. I would
in any event have thought,
in the light of the provision in the deed of
suretyship that any consensual cancellation required a written document signed
by ABSA
for validity, that only a representation that Davidson was so released
could have sufficed for a valid recourse to
estoppel
. The defence of
estoppel
has accordingly not been proved.
[14]
This brings
me to the two instances of prejudicial conduct relied on by Davidson. On behalf
of Davidson it was submitted that there
is a general so-called “prejudice
principle” in our law to the effect that if a creditor should do anything
in his dealings
with the principal debtor which has the effect of prejudicing
the surety, the latter is fully released. That such a wide and unqualified
principle exists in our law cannot be correct, as the facts of this case
illustrate.
[15] (i)
The Ferrari
matter
Myburgh had a predilection for Ferrari
motor cars. He owned several. During October 1990 Myburgh entered into a
written rental
agreement with Santam Bank in terms of which he owed the Bank R
683 315,23 for a Ferrari. The Ferrari was for Myburgh’s own
use and, at
the end of the agreement, would become his property. At that stage, it will be
remembered, Davidson had already sold
his shares to Myburgh and had resigned as
a director of Whistlers. He had not been released as surety by Trust Bank.
In order
to reduce his indebtedness to Santam Bank, Myburgh drew two cheques and
signed four debit orders on the account of Whistlers at Trust
Bank. The cheque
and debit orders were honoured by Trust Bank and the Whistlers account
accordingly debited. The particulars
of the debits are as follows :
01-11-90 Cheque R 15 471,86
12-12-90 Cheque R 15 471,86
13-12-90 Debit Order R 15
471,86
31-01-91 Debit Order R 15 471,86
01-03-91 Debit Order R 15
471,86
02-04-91 Debit Order R
15 471,86
Total R
92
831,16
[16]
Davidson’s case is that he was prejudiced as
surety by Trust Bank honouring the cheques and debit orders for a personal debt
of Myburgh without informing him, Davidson, of its intention to do so,
well-knowing that he had sold his shares to Myburgh and wished
to be released as
surety.
[17]
Foxcroft J in the court
a quo
accepted
this argument. His view was that Trust Bank had “wrongly” debited
the Whistlers account. Davidson was prejudiced
thereby and was therefore
released as surety, from
... the moment the Bank first debited the principal debtor (for which he was
standing surety) in a sum which it was not legally liable
to
pay.
[18]
The conclusion reached by
Foxcroft J assumes that a surety is always released even if the extent of the
prejudice is substantially
smaller than, or bears no relation to, the
surety’s obligations. The correctness of this assumption is questionable
but need
not for purposes of this case be considered any further.
[19]
As a general proposition prejudice caused to the surety can only
release
the surety (whether totally or partially) if the
prejudice is the result of a breach of some or other legal duty or obligation.
The prime sources of a creditor’s rights, duties and obligations are the
principal agreement and the deed of suretyship.
If, as is the case here, the
alleged prejudice was caused by conduct falling within the terms of the
principal agreement or the deed
of suretyship, the prejudice suffered was one
which the surety undertook to suffer. Counsel who drafted the plea was
therefore on
the right track when he sought to base his case upon prejudice
which flowed from the breach of an obligation, contractual in the
present
circumstances. In the event, however, Davidson failed to prove such a
breach.
[20]
Turning to the relevant contracts, clauses (d) and
(e) of the principal agreement between Trust Bank and Whistlers have been quoted
in para [6] above. As appears from their terms they authorised Trust Bank
“ to honour all cheques, vouchers, bills and other
negotiable instruments
drawn on Trust Bank and purporting to be signed, made or accepted by the
authorised signatories on behalf
of [Whistlers]” and “to allow
[Whistlers] to overdraw its cheque account ... in the discretion of Trust
Bank.”
[21]
It was not disputed that Myburgh was an
authorised signatory on behalf of Whistlers. In fact, it was conceded by
Davidson. It
follows that Trust Bank even if it knew that the Ferrari was
bought by Myburgh, could not have refused to honour the aforesaid cheques
and
debit orders. Quite apart from that, the Bank could not know what internal
arrangements were made between Myburgh and Whistlers
for the crediting of
Myburgh’s loan account in Whistlers. Consequently Trust Bank cannot be
faulted in view of the terms
of the principal agreement for not having
concerned itself with the nature of the debt.
[22]
That being the
position, the Whistlers account was correctly debited with the Ferrari payments.
Davidson, who bound himself as surety
and co-principal debtor for the debts of
Whistlers “... from whatsoever ... cause ...”, cannot in law be
heard to say
that he was unlawfully prejudiced by the debits now under
discussion.
[23] (ii)
The increase of the
overdraft
Davidson’s case is that when
he sold his shares to Myburgh (in August 1990) the Whistlers overdraft limit was
R 150 000,00.
Thereafter, well knowing of the sale and of Davidson’s
wish to be released as surety and without informing him, Trust Bank
raised the
overdraft to R300 000,00. Davidson says he was prejudiced thereby and thus
released as surety.
[24]
Assuming that the Bank had the
knowledge ascribed to it by Davidson and that he was not advised of the
increase of the overdraft,
he, once again, cannot rely on the prejudice doctrine
as contended for in view of the terms of the relevant
contracts.
[25]
The main contract between Trust Bank and Whistlers
deals with the matter of overdrafts in clause (e) (quoted in paragraph
[6]
above) which permits Trust Bank in its discretion to allow an
overdraft “for an unlimited amount”.
[26]
In raising the overdraft limit, even
with all the knowledge ascribed to by Davidson, Trust Bank acted within its
contractual rights
to exercise its discretion so as to allow an increase in the
overdraft. In the suretyship agreement, as appears from paragraph
[7]
above, Davidson bound himself as surety and co-principal debtor for an unlimited
amount
... notwithstanding any fluctuation in the amount or even temporary extinction
thereof, as well as for the due and proper performance
of all other obligations
of whatsoever nature which the debtor has or may in future incur in favour of
the Bank
and agreed that the
obligations of the debtor “shall at all times be in the discretion of the
Bank”. Having agreed to
these terms, it does not lie in the mouth of
Davidson to plead prejudice in respect of something which Trust Bank could
legally do.
[27]
The defences raised by Davidson to the
claim being unsustainable, the appeal must succeed and the claim be upheld.
The right to
attorney and client costs was provided for in the suretyship
agreement.
[28]
Before concluding this judgment, there is one
other matter that should be mentioned. It is the inclusion in the record of
numerous
documents and letters which were never properly proved at the trial as
exhibits, were never used at the trial or in the appeal,
and which are patently
irrelevant. All this arises from the unacceptable practice at the trial of
counsel being allowed to place
a so-called “bundle” of documents
before the Court. Most of these documents were never proved or used at the
trial.
Those that were used remained in the bundle and the rest were not
removed. The result is that 553 pages of so-called exhibits
were placed before
us. Not more than approximately 25 of these pages were relevant.
Furthermore, the relevant exhibits were not
properly identified and caused the
judges of this Court a lot of wasted time and effort. This Court has on more
than one occasion
expressed its displeasure at the practice of placing
unnecessary documents before it and intimated that in appropriate cases an award
of costs
de bonis propriis
may be made (see
Government of RSA v
Maskam Boukontrakteurs (Edms) Bpk
1984 (1) SA 680
(A) at 692 E
et seq
and
cases there cited
;
Louw
v WP Koöperatief Bpk en Andere
[1994] ZASCA 54
;
1994 (3) SA 434
(A) at 447 D
- 448 C).
[29]
At the hearing of this appeal the matter of the
record was not taken up with counsel. For this reason a punitive costs order
will
not be made, but the attention of practitioners, especially those appearing
at the trial, is once again drawn to the displeasure
of this Court at the habit
of putting bundles of unproved and irrelevant documents before a trial court and
eventually a court of
appeal.
[30]
The following orders are made
:
1 The appeal succeeds with costs on the scale as between attorney and client,
including the costs occasioned by the employment of
two
counsel.
2 The judgment of the court
a quo
is set aside and replaced by the
following
order :
Judgment is granted in favour of the
plaintiff for :
(i) Payment of the sum of R372 101,89.
(ii) Interest thereon at the plaintiff’s prime rate of interest plus 2%
per annum
capitalised monthly, from 21 May 1992 to date of payment (the
said prime rate being as set out in annexure “E” to the
plaintiff’s Particulars of Claim, as amended, in respect of the periods
referred to therein);
(iii) Costs of suit on the scale as between attorney and client, including the
costs occasioned by the employment of two
counsel.
PJJ OLIVIER JA
CONCURRING :
SMALBERGER JA
VIVIER
JA
HARMS JA
FARLAM
AJA