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[2013] ZAWCHC 63
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Structured Mezzanine Investments (Pty) Ltd v Basson NO and Others (22732/2009) [2013] ZAWCHC 63 (24 April 2013)
IN THE HIGH COURT OF SOUTH AFRICA
WESTERN CAPE HIGH COURT, CAPE TOWN
REPORTABLE
CASE
NO: 22732/2009
In the
matter between:
STRUCTURED
MEZZANINE INVESTMENTS (PTY) LTD
........................................
Applicant
(Registration
No: 2007/006512/07)
and
FRANCOIS BASSON N.O.
............................................................................
First
Respondent
(In his representative capacity as duly
appointed trustee of the FXT Property Trust)
GABRIEL JOSHUA JORDAAN N.O.
.......................................................
Second
Respondent
(In his representative capacity as duly
appointed trustee of the FXT Property Trust)
GERHARDUS ADRIAAN ODENDAAL N.O.
................................................
Third
Respondent
(In his representative capacity as duly
appointed trustee of the FXT Property Trust)
FRANCOIS BASSON
.................................................................................
Fourth
Respondent
(Identity No: )
GERHARDUS ADRIAAN ODENDAAL
.........................................................
Fifth
Respondent
(Identity No: )
GABRIEL JOSHUA JORDAAN
....................................................................
Sixth
Respondent
(Identity No: )
JUDGMENT: WEDNESDAY 24
TH
APRIL 2013
___________________________________________________________________
GAMBLE, J:
INTRODUCTION
Structured Mezzanine Investments (Pty) Ltd (“SMI”) is a
money-lender which operates primarily in the property development
market. It provides a form of bridging finance (which it
conveniently calls “m
ezzanine finance
”) to
developers who run short of capital towards the end of a project
1
.
These loans are usually made at extremely high rates of interest and
are secured by mortgage bonds over the subject property.
In this matter SMI lent an amount of R10 m to the FXT Property Trust
(“the Trust”) in terms of a written agreement
(“the
loan agreement”) concluded on 29 May 2008. The loan was to be
repaid by 29 August 2009, in which event the
interest rate would be
1,25% per week (i.e. 65% per annum). In the event that the full
amount of the loan was not repaid by that
date, the interest rate on
the outstanding capital would increase to 1,5% per week (or 78% per
annum). The loan was evidently
to be utilized by the Trust to partly
finance a sectional title development in Hermanus.
The loan agreement contained a number of suspensive conditions,
including the registration of a covering mortgage bond over the
subject property and the execution of deeds of suretyship by each of
the trustees (Messrs. Basson, Odendal and Jordaan) in their
personal
capacities.
The Trust defaulted on its obligation to SMI and on 28 October 2009
SMI launched motion proceedings in this Court for repayment
of the
capital sum then outstanding (R16 631 071,41) by the Trust and the
sureties jointly and severally. Interest was also claimed
at the
rate of 1,5% per week with effect from 29 August 2009, together with
costs on the scale as between attorney and own client
(both as per
the loan agreement).
THE
HEARING BEFORE VAN STADEN AJ
The application was opposed by both of the Trust and the sureties
and the matter eventually came before Van Staden AJ in May
2011. By
that stage the Fourth Respondent (Basson) had been sequestrated. Van
Staden AJ was satisfied that judgment should be
granted against the
Trust and made an order to that effect in a written judgment handed
down on 31 May 2011. No order was sought
by SMI against Basson due
to his insolvency.
In regard to the remaining sureties (Odendal and Jordaan) Van Staden
AJ had certain reservations about the validity and enforceability
of
the suretyships. Van Staden AJ’s concerns stemmed from the
fact that the relevant loan agreement, to which reference
was made
in the body of the suretyship, was not annexed to the suretyship as
it was intended to be. The reason it was not so
annexed was fairly
fundamental: the suretyship was executed on 24 April 2008, whereas
the loan agreement was signed on behalf
of the Trust on 25 April
2008 and by SMI only a month later – on 25 May 2008.
Faced with a fairly forceful submission by
Adv. L.M. Olivier SC
for the sureties, that the deed of suretyship did not comply with
the requirements of s6 of the General Law Amendment Act, 50
of 1956
(“the Act”) in that the nature and amount of the
principal debt were not capable of ascertainment by reference
to the
provisions of the written document, Van Staden AJ was persuaded by
Adv. J.F. Pretorius
on behalf of SMI that the problem was
potentially capable of resolution by the consideration of extrinsic
evidence.
THE
JUDGMENT OF VAN STADEN AJ
Having considered the extrinsic evidence placed before him, Van
Staden AJ made the following findings in his judgment:
“
14. In my opinion the extrinsic evidence in this instance
does not sufficiently establish the nature and amount of the
principal
debt in the suretyship contract.
15. It does not appear from the founding affidavit or the replying
affidavit to what extent the terms of the Memorandum of Agreement
[i.e. the loan agreement] had been agreed upon at the time when the
suretyship agreement was signed. It is for instance possible
that the
agreement had been finalized and reduced to writing and that only the
signatures of the parties were outstanding.
16. These aspects can probably be cleared up by extrinsic
evidence…
17. Despite that fact that the suretyship contract contains a
non-variation clause (clause 25), the Applicant [SMI] can also, if
necessary, apply for the rectification of this contract…
18. In all the circumstances I conclude that the loan agreement
referred to in the suretyship agreement has not been properly
identified
and proved…
19……
20. In the circumstances it is clear that the Applicant is
entitled to an order as requested in the notice of motion in respect
of the trustees of the trust. As far as the sureties are concerned, I
concludethat the Applicant is not entitled to the order requested.
The Applicant should however not be denied the opportunity to amplify
its case and an order provided for in Rule 6(6) is appropriate
in my
opinion.”
After granting judgment against the Trust, Van Staden AJ then
ordered as follows:
“
2. In respect of the claim against Fifth and Sixth
Respondent [Odendal and Jordaan respectively] no order is made and
the respective
parties must pay their own costs.
3. The Applicant is granted leave to renew the application against
Fifth and Sixth Respondents on notice to them, on the same papers,
supplemented by such further affidavit(s) as the case may require,
for the relief set out in the notice of motion.”
It has been held that the effect of the granting of such relief
under Rule 6(6) is the equivalent of an order for absolution
from
the instance in an action
2
.
This Court must then consider the matter in its entirety with due
regard to any additional evidence adduced subsequent to the
order of
Van Staden AJ.
FURTHER
AFFIDAVITS FILED
On 2 April 2012 SMI filed a supplementary affidavit in terms of Rule
6(6) and simultaneously gave notice that it intended applying
for
rectification of the suretyship. Odendal and Jordaan filed short
supplementary answering affidavits in June 2012 to which
SMI replied
at the end of August 2012.
The matter thus duly augmented came before the Court again on 14
March 2013 with the representation as before. The Court is indebted
to counsel for the comprehensive heads of argument filed and their
helpful submissions in Court.
THE
RELEVANT TERMS OF THE DEED OF SURETYSHIP
It is necessary for the purposes of this judgment to repeat certain
of the provisions of the suretyship. The document is a lengthy
one
running to some eleven pages and consisting of twenty five clauses,
many in the customary form. For present purposes it is
necessary
only to recite the preamble and clause 1 thereof:
“
We, the undersigned
…
Francois Basson
...Gerhardus Adriaan Odendal
…
[and] Gabriel Joshua Jordaan…
do hereby bind myself (
sic
) jointly and severally to and
individually…in favour of…SMI…as surety for and
co-principal Debtor
in solidum
, with…[the Trust]
(hereinafter referred to as ‘the Debtor’) for:
The payment on demand of any sum of money together with all costs
and charges including legal costs as between attorney and own
client
which the Debtor may now or in the future owe to SMI arising from
the Loan Agreement concluded between SMI and the Debtor
on or about
April 2008 (a true copy which (
sic
) is annexed hereto).”
As has been pointed out above, no copy of a concluded loan agreement
was attached to the deed of suretyship which was signed
by Basson on
16 April 2008 and by Odendal and Jordaan on 24 April 2008. Further,
the loan agreement was signed by Basson on behalf
of the Trust on 25
April 2008 and by an authorized representative of SMI on 25 May
2008.
SMI’S
CASE IN THE FOUNDING AFFIDAVIT
The Founding Affidavit in these papers was deposed to by one Jean
Prieur du Plessis, a director of SMI. In para 15 of that affidavit
du Plessis introduces the loan agreement as follows:
“
15. On or about 29 May 2008 the Applicant, duly
represented, and the Trust, duly represented by…[Basson]…concluded
a written loan agreement in terms of which the applicant agreed to
lend and advance an amount of R10 m…to the Trust on the
terms
contained therein…(a) copy…(whereof)…is attached
hereto as annexure “FA3”.
Thereafter there is a detailed recital in the affidavit of the
alleged “
material express, alternatively implied, further
alternatively tacit terms of the loan agreement.”
Of
significance at this juncture are the allegations in para 16.6 of
the founding affidavit which reads as follows:
“
16.6. The loan agreement was subject to fulfillment of the
following suspensive conditions which had to be fulfilled within 7
(seven)
days from signature of the loan agreement:-
16.6.1. signature of a deed of suretyship by the fourth, fifth and
sixth respondents in terms whereof they would jointly and severally
have (
sic
) guaranteed the obligations of the Trust under the
loan agreement, in such form and subject to such terms and conditions
as the
applicant may reasonably required (
sic
);…
16.6.2………
16.6.3. receipt and approval of a resolution by the Trust,
authorizing the entering into of the loan agreement and authorizing
the
fourth respondent [Basson] to sign all documentation relating
thereto on its behalf.”
In para 16.11 of the affidavit du Plessis alleges that:
“
The suspensive conditions were inserted for the benefit of
the applicant and should they not have been fulfilled, or waived as
the
case might (
sic
) be, within 7 (seven) days
of signature of the agreement, the agreement would be of no force and
effect…”
In para 17 of the founding affidavit du Plessis alleges that
“
subsequent
to the conclusion of the loan
agreement, all the suspensive conditions…were fulfilled”
(emphasis added)
In para 20 of the founding affidavit du Plessis introduces the
suretyship thus:
”
On or about 24 April 2008, and
in persuance of
the loan agreement, the fourth, fifth and sixth
respondents…bound themselves jointly and severally as sureties
and co-principal
debtors for the payment of any sum of money…the
Trust may owe to the applicant in terms of the loan agreement.”
(emphasis
added)
Thereafter
the relevant terms of the suretyship are repeated
ad nauseam.Du
Plessis goes
on to allege a breach of the loan agreement,
non-payment by both the Trust and the sureties, and the amount
allegedly due in terms
of a certificate of indebtedness.
The Trust’s answering affidavit (deposed to by Odendal) is
terse and in substance a mere three pages. No substantive defence
is
set out to SMI’s claim other than to ask the Court not to
enforce a claim which is against public policy because of
the high
rates of interest. The affidavit does acknowledge conclusion of the
loan agreement and the suretyship and raises no
irregularities in
relation thereto.
In the replying affidavit, du Plessis seeks (somewhat piously, it
must be said) to justify the interest rates and SMI’s
tough
lending policies. Nothing more is said about the suretyship or the
loan agreement.
The allegations in the founding affidavit to which reference has
been made above create obvious inconsistencies which SMI failed
to
address at any stage either before, or during the hearing before Van
Staden AJ. Those inconsistencies are such that, had the
claim been
brought by way of action, it is conceivable that an exception would
have been raised on the basis that SMI’s
case as pleaded was
vague and embarrassing and therefore failed to disclose a cause of
action.
In this regard, du Plessis’s allegations referred to in paras
15, 18 and 19 above are erroneous:
23.1 Firstly, the loan agreement was not concluded on 29 May 2008
but, at the latest, by 25 May 2008 as the signature of SMI’s
representative on the document on that date reflects.
23.2 Secondly, the last signatures to the suretyship were appended on
24 April 2008 and can hardly be said to be “
in pursuance of
the loan agreement
” on which the earliest signature (that
on behalf of the Trust) is in any event recorded as having been
appended on 25 April
2008.
23.3 Thirdly, the conclusion of the suretyship as a suspensive
condition of the loan was most certainly not
subsequent
to the
conclusion of the loan but obviously pre-dated the latter.
23.4 Fourthly, the suretyship itself refers to an agreement of loan
purportedly concluded during April 2008 on an unspecified day.
In light of the aforegoing, it is understandable that Van Staden AJ
came to the conclusions reached in this judgment of 30 May
2011.
SMI”S
SUPPLEMENTARY AFFIAVIT FILED IN TERMS OF RULE 6(6)
In his second bite at the cherry, Du Plessis attempted to explain
away the obvious deficiencies in SMI’s founding papers
to
which reference has already been made above, and which Van Staden AJ
also found to exist. These explanations are not convincing
but they
are, in the result, of no great moment and amount to no more than a
belated attempt at face-saving. They certainly do
not constitute
“
extrinsic evidence
” as contemplated in the order
made by Van Staden AJ.
As “
further evidence
”, Du Plessis presents the
following facts:
26.1 A four-page “
facility letter
” dated 18
February 2007 from SMI to Basson and Jordaan in which the details of
the loan facility which SMI was prepared to
grant to the Trust are
set out in some detail.
26.2 In the facility letter the capital is stipulated in the sum of
R10m, the interest rates of 1,25 per cent and 1,5 per cent
per week
referred to above are set out and the period of the loan is set at 12
months.
26.3 Also contained in the facility letter are various of the
conditions put up by SMI, including security in the form of a second
mortgage bond over the relevant property and the furnishing of “
joint
and several suretyships
” by Basson, Odendal and Jordaan.
26.4 The terms and conditions stipulated in the facility letter were
accepted by Basson on 7 March 2008 when he signed the document
on
behalf of the Trust.
26.5 An allegation that -
“
a copy of a written document containing the exact same
material terms as those contained in the loan agreement which was
eventually
signed, was attached to the suretyship and therefore in
the possession of the Respondents at the time they signed the
suretyship.”
26.6 A letter dated 8 May 2008 from Attorneys Jordaan and Associates
(in which the Sixth Respondent is the principal attorney and
which
firm represents the Trust and the sureties in these proceedings) to
SMI confirming,
inter alia
, that the latter had “
agreed
to loan and advance an amount of R10m (ten million rand) plus costs
to…(the Trust)…on the terms and conditions
set out in
the Loan Agreement…to be entered into between,
inter
alia
, our client and yourselves”.
26.7 A resolution dated 24 April 2008 passed by the Trust (and signed
by all three trustees) in which it was resolved that –
26.7.1 “
The Company (
sic
) borrows from
…SMI the sum of R10m (ten million rand) as set out in the Loan
Agreement annexed hereto marked “A””;
and
26.7.2 Basson was authorized “
in his sole and absolute
discretion to settle the terms and conditions applicable to the loan
and sign all documentation relating
thereto…”
In addition to these facts and allegations Du Plessis explains the
following steps taken on behalf of the Trust:
27.1 On 16 April 2008 Basson attended on the offices of SMI’s
attorneys in Cape Town.
27.2 At a meeting with SMI’s attorney
3
that day, Basson “
signed all the documents, including the
loan agreements and the deed of suretyship
” in the presence
of the attorney.
27.3 Basson explained to SMI’s attorney that he would meet with
Odendal and Jordaan (who could not make the meeting) for
purposes of
procuring their signatures on the various documents, including the
loan agreement and the suretyship.
27.4 Sometime between 16 and 24 April 2008Basson contacted a director
of SMI and proposed three minor amendments to the draft loan
agreement. It is contended that these were not contentious and that
SMI agreed thereto. SMI also instructed its attorneys to make
the
necessary amendments to the draft loan agreement.
27.5 A copy of the loan agreement in its form prior to these three
amendments, and as signed by Basson on 16 April 2008, was annexed
by
Du Plessis to the supplementary affidavit.
27.6 On 25 April 2008 SMI’s attorney met Basson at the latter’s
office and was handed a number of documents by Basson.
These included
the signed deed of suretyship, the loan agreement as already signed
by Basson on 16 April 2008 (in its unamended
form), and the unsigned
amended loan agreement.
27.7 During the aforesaid meeting with SMI’s attorney Basson
informed the latter that Jordaan had informed him, when signing
the
deed of suretyship the previous day, that he wanted a further
amendment to be made to the draft agreement
viz
. to clause
9.1.1 thereof which governs the procedure to apply on default by the
debtor.
4
27.9 Du Plessis says that according to Basson SMI’s attorney
was amenable to that amendment and a manuscript alteration was
made
to clause 9.1.1 of the amended draft of the loan agreement. This
alteration is visible on the signed loan agreement filed
with the
founding affidavit.
27.10 On the same day (25 April 2008) Basson handed to SMI’s
attorney the trustees’ resolution referred to above, which
also
bore the signatures of Odendal and Jordaan. Du Plessis draws
attention, once again, to the fact that the resolution identified
both the nature and the amount of the principal debt.
Du Plessis summarizes the position that obtained at the time that
the deed of suretyship was signed by Odendal and Jordaan (24
April
2008) as follows in the supplementary affidavit filed on behalf of
SMI:
”
23 From the above it is evident that, although the loan
agreement in its final signed form as attached to the founding
affidavit
was not in the possession of Odendal and Jordaan at the
time they signed the deed of suretyship, they were in fact in
possession
of a copy of the loan agreement in the exact same terms
save for the four amendments referred to above, which amendments were
effected
subsequently. It is further evident that the four amendments
did in no way whatsoever affect the principal debt. Accordingly, the
document which was attached to the deed of suretyship at the time it
was signed by Odendal and Jordaan properly and sufficiently
identified the principal debt for which they signed surety.
Furthermore, the four amendments which were effected were in fact
proposed by Basson and Jordaan, ostensibly after consultation with
Odendal. I re-iterate however, that those amendments did not
in any
way whatsoever affect the extent or nature of the principal debt.”
THE SURETIES’ ANSWER TO THE SUPPLEMENTARY AFFIDAVIT
The supplementary answering affidavit filed by the sureties in terms
of Rule 6(6) was deposed to by Odendal and confirmed by
Jordaan.
This affidavit, like its predecessor, is scant on detail and skirts
the issues. The following are the only points worth
detailing at
this stage:
29.1 Odendal was not particularly interested in the legal niceties
around the development which he says were left up to Basson
as
representative of the Trust. He attempts to shirk responsibility as
follows:
“
3…As I was merely an investor in the development I
did not make it any of my business. Respondent and I did no (
sic
)
worry to sign the suretyships as the ‘loan’ to First
Respondent was intended as a short term bridging loan until the
construction of the development was completed. It was estimated to
take no longer than 12 months. There was not supposed to be
any risk
to the sureties.”
In relation to the availability of the loan agreement when the
suretyship was signed, Odendal takes issue with Du Plessis:
“
11. The Suretyships and resolution were signed by Jordaan
and myself at Jordaan’s offices on 24 April 2008 after Basson
handed
it to Jordaan for signature. The loan agreement was definitely
not handed to us nor attached to any document we signed. We were
asked to sign the suretyships at that stage and were told that the
loan agreement would be concluded later. I did not even read
the
terms of the suretyship due to the factors set out above. Sixth
Respondent and I were not aware (
sic
) what
happened at the meetings between the meetings (
sic
)
between Applicant and First Respondent nor what was said between
them.”
29.3 Odendaal denies that he was personally aware of the terms of the
draft loan agreement, which he says was never attached to
the
suretyship document. He goes on to contend (for the first time) that
the suretyship is invalid:
“
7. At the stage when I deposed to the answering affidavit
on 19 November 2009 the property and the development on it was (
sic
)
still on track, and served as security for Applicant’s loan to
First Respondent, hence the short affidavit. The simple fact
of the
matter is that the loan agreement did not exist at the time of the
conclusion of the Suretyships (
sic
). The
provision of clause 25 of the suretyships made it clear that no
addition to the suretyships shall be of any force or effect.
Due to
the fact that the loan agreement was not attached and did not exist,
the suretyships are (
sic
) invalid.”
29.4 Odendal stresses (and Jordaan, a practicing attorney confirms)
that at no stage was any draft agreement annexed to the suretyship
when he and Jordaan signed the document and he disavows knowledge of
the terms of the loan at that stage:
“
10. None of the material terms of the Loan Agreement are
mentioned in the suretyships and were known (
sic
)
to Sixth Respondent and I when we signed the suretyships.’”
29.5 Importantly, Odendal and Jordaan do not take issue with Du
Plessis’s conclusions set out in para 23 of the supplementary
affidavit (as reflected in para28 above). Indeed, the paragraph is
not dealt with in the supplementary answer which deals selectively
with only certain of the paragraphs in SMI’s supplementary
affidavit.
I am satisfied that Du Plessis’s summary of events in the
supplementary affidavit, and the conclusions to be drawn therefrom
as set out in the said paragraph 23,are a correct and accurate
reflection of the state of play at the time the suretyhip was
signed. To the extent that there are disputes of fact put up by
Odendal in the supplementary answer, I do not believe that such
disputes survive the test in
Plascon-Evans
5
:they
are fanciful and designed to be apparent rather than real.The
question that then arises is whether this additional evidence
is
admissible in light of the parol evidence and integration rules.
REQUIREMENTS
FOR A CONTRACT OF SURETYSHIP
In terms of s6 of the Act:
“
No contract of suretyship entered into after the
commencement of this Act, shall be valid, unless the terms thereof
are embodied
in a written document signed by or on behalf of the
surety…”
In
Sapirstein
6
,
the Court held that:
“
What s6 requires is that the ‘terms’ of the
contract of suretyship must be embodied in the written document. It
was
contended by counsel for plaintiff that this meant that the
identity of the creditor, of the surety and of the principal debtor,
and the nature and amount of the principal debt must be capable of
ascertainment by reference to the provisions of the written
document,
supplemented, if necessary, by extrinsic evidence of identification
other than evidence by the parties (i.e. the creditor
and the surety)
as to their negotiations and
consensus
. I agree
with this contention. In my view, there can be no objection to
extrinsic evidence of identification being given, either
by the
parties themselves, or by anyone else, unless the leading of such
evidence can be said to amount to an attempt to supplement
the terms
of the written contract –
‘
by testimony as to some negotiations or
consensus
between the parties which is not embodied in the written agreement’
(see
Van Wyk v Rottcher’s Saw Mills (Pty) Ltd
1948
(1) SA 983
(A) at 991)”
In the instant case there is no problem with identifying the
creditor of the surety (SMI) or the principal debtor (the Trust),
both of whom are adequately described in the deed of suretyship.
However,
Mr. Olivier SC
argued that “
the nature and
amount of the principal debt”
did not appear
ex facie
the
suretyship and that, for this reason, the document did not comply
with section 6 and was therefore invalid.
In
Fourlamel
7
,
Miller JA was prepared to assume that, as in cases involving
contracts for the sale of land, the principles of incorporation
by
reference
8
were similarly applicable to contracts of suretyship under s6 of the
Act:
“
It is a condition of the incorporation of other writing
into a written document required by law to contain the terms of the
contract,
if such contract is to have validity, that such other
writing be referred to in the written document. CERTUM EST QUOD
CERTUM REDDI
POTEST.”
In the
Industrial Development Corporation matter
,
supra,
the suretyship did not reflect the name of the principal debtor and
the point was taken that the document was invalid. Scott
JA had the
following to say in that regard at 368J-369C:
“
[5]…Although it may at first blush appear not to be
the case, the identity of the principal debtor is undoubtedly a
material
term of a contract of suretyship (
Fourlamel (Pty)
Ltd v Maddison
1977 (1) SA 333
(A) at 344H-345E). Unless,
therefore, the identity of the principal debtor is embodied in the
written document, the contract of
suretyship will be invalid. In the
present case the appellant relies on the reference in the deed of
suretyship to the loan agreement
which in turn discloses the identity
of the principal debtor. It is contended that the loan agreement was
incorporated by such
reference into the deed of suretyship and that
there was accordingly compliance with the section despite the blank
space where
the name of the principal debtor ought to have been
inserted.”
Scott JA went on to deal with the principle of incorporation by
reference and held, definitively, that it was applicable to
contracts of suretyship as well:
“
[6] Incorporation by reference, as the name implies, occurs
when one document supplements its terms by embodying the terms of
another.
Leaving aside for the moment the admissibility of extrinsic
evidence that may be necessary to complete the identification of a
document whose terms are sought to be incorporated, the first enquiry
is whether the terms of a deed of suretyship may be supplemented
in
this way. Incorporation by reference in the context of contracts for
the sale of land was recognized as long ago as 1920 in
Coronel
v Kaufman
1920 TPD 207
and subsequently adopted by this
Court in
Van Wyk v Rottcher’s Mills (Pty) Ltd
1948 (1) SA 983
(A) at 990-1. It has also been recognized as
applicable to contracts of suretyship governed by s6 (see, for
example,
Trust Bank of Africa Ltd v Cotton
1976
(4) SA 325
(N) at 329E-H;
F.J. Mitrie (Pty) Ltd v Madgwick
and Another
1979 (1) SA 232
(D) at 235B-E).But in
Fourlamel (Pty) Ltd v Maddison
(supra) at 345E)
this Court was only prepared to assume that the principle was
applicable to contracts of suretyship and refrained
from finally
deciding the issue. I am satisfied, however, that, once the principle
of incorporation by reference is held to apply
in the case of sales
of land, there can be no justification for holding the principle not
to be applicable in the case of contracts
of suretyship.”
And, as in the present case, the suretyship in the
Industrial
Development Corporation case
contained limited references to the
missing term:
“
[8] Although in the present case the description contained
in the deed of sale goes a long way towards identifying the loan
agreement,
it was not in dispute that the identification would not be
complete without the aid of some additional extrinsic evidence.”
In considering the admissibility of the extrinsic evidence in that
case, Scott JA pointed out the following at 370 D-371A:
“
[9] As a general rule the terms of a contract required by
law to be in writing must appear from the document itself and may not
be supplemented by extrinsic evidence. Nonetheless, extrinsic
evidence has been permitted in a number of situations provided always
that such evidence is not of negotiations between the parties prior
to the execution of the written agreement or of their consensus
.
Thus in
Sapirstein and Others vAnglo African Shipping
Company (SA) Ltd
1978 (4) SA 1
(A) extrinsic evidence was
held to be admissible to establish the identity of both the principal
debtor and sureties where the
plaintiff sued on a multiple guarantee
in which a number of promisors had bound themselves as sureties and
co-principal debtors
in solidum with each other for all sums of money
which each “may have in the past owed or may presently or in
the future
owe” to each of a number of promisees. More relevant
as far as the present case is concerned, is the rule admitting
extrinsic
evidence to relate what is in writing to the physical
object referred to. In
Oberholzer v Gabriel
1946
OPD 56
at 59 Van den Heever J emphasized the distinction between “the
sufficiency of a demonstration of the subject-matter on the
one hand
and its application to physical phenomena on the other”. As to
the latter, the learned Judge observed: “There
never has been
and there cannot be a rule to exclude parol evidence…”As
has frequently been stressed, such evidence
is not only admissible
but is very often essential. The rationale for its admissibility was
explained by Watermeyer CJ in
Van Wyk v Rotther’s Saw
Mills (Pty) Ltd
(supra at 990) as follows:“It has
been suggested that a written contract does not satisfy the
provisions of the statute unless
the mere reading of the document is
sufficient to identify the land sold without invoking the aid of any
evidence
dehors
the document, but a moment’s
reflection and an appreciation of the fact that a written contract is
merely an abstraction until
it is related, by evidence, to the
concrete things in the material world will show at once that
suggestion makes s30 demand performance
of an impossibility.”
The admissibility of extrinsic evidence for this purpose has been
consistently recognized (See, for example,
Vermeulen v Goose
Valley Investments (Pty) Ltd
2001 (3) SA 986
(SCA) at 999 D-I;
Kriel and Another v Le Roux
[2000] 2 All SA 65
(SCA) at 67c-j;
Headerman (Vryburg) (Pty) Ltd v Ping Bai
1997 (3) SA 1004
(SCA)
at 1009A-D;
General Accident Insurance Co SA Ltd vDancor Holdings
(Pty) Ltd and Others
1981 (4) SA 968
(A) at 978 E-H).
[10] It has sometimes been said that such evidencemay not be given
by the parties themselves. This is not correct. It is admissible
whether given by the parties themselves or anyone else. What they, or
anyone else, may not do, is testify as to some negotiation
or
consensus
between the parties. (see
Van Wyk v Rottcher’s
Saw Mills
(supra), per Watermeyer CJ at 991-2, Tindall JA at 996,
Schreiner JA at 1007);
Sapirstein and Others v Anglo African
Shipping Company (SA
)
(
supra) at 12 C-E))”
Scott JA then discussed the decisions in
Cotton
9
,
Fourlamel
and
Sullivan
10
and observed as follows:
”
[12] In the
Cotton case
it was clear
ex facie
the deed of suretyship that the
document sought to be incorporated did indeed give rise to the
indebtedness secured by the suretyship.
All that was required,
therefore, was extrinsic evidence identifying that document as the
document referred to in the deed of suretyship.
In this important
respect the
Cotton case
is distinguishable from
the
Fourlamel case
. It was therefore correctly
decided. In the
Sullivan case
, too, it appeared
ex facie
the deed of suretyship that the debt
secured arose in terms of the lease agreement sought to be
incorporated. What was required
therefore was no more than extrinsic
evidence identifying the actual lease agreement as the one referred
to. It follows that, in
my view,
Sullivan’s case
was wrongly decided.
[13] As previously stated, the deed of suretyship in the present
matter similarly makes it clear that the debt secured is the loan
in
terms of the loan agreement sought to be incorporated. Extrinsic
evidence identifying the loan agreement as the one referred
to is all
that would be required and is therefore admissible.”
In my respectful view, a similar approach is warranted
in casu
where the nature of the principal debt is described (at least in
part) in the deed of suretyship as “
any sum of money…now
or in the future…(owing…) to SMI
” by the
Trust. The further basis for the Trust’s indebtedness is said
to be the annexed “
Loan Agreement concluded between SMI and
(the Trust).”
I have already found that the denial by Odendal and Jordaan that the
partially signed, unamendedagreement was annexed to the
suretyship
is not worthy of serious credence. But even if I am wrong in this
regard, it matters little to my mind that the document
was not
attached: it was readily capable of identification by the parties,
was inexistence at the time the suretyship was signed,
had been
signed by Basson on behalf of the trust and the material terms
thereof had been agreed upon.
Mr. Olivier SC
went on to argue that as of 24 April 2008 the
loan agreement was inchoate and so, it was argued further, as there
was no principal
debt in existence at the time, the suretyship was
of no force and effect. What was in existence at that time, as the
admissible
extrinsic evidence shows, was a draft agreement in which
(it is common cause) the material terms had been agreed and reduced
to writing. That instrument had already been signed by Basson on
behalf of the Trust but not by SMI. The partially signed agreement
was consistent (so far as the material terms of the suretyship were
concerned) with –
42.1 the facility letter on which Basson had acknowledged acceptance
of the terms and conditions on behalf of the Trust;
42.2 the resolution by the trustees signed on 24 April 2008 (the same
day that they signed the suretyship) resolving to conclude
the loan
agreement; and
42.3 Jordaan’s letter (
qua
attorney for the Trust) to
SMI dated 8 May 2008 confirming the loan agreement and furnishing an
undertaking to SMI to effect certain
payments to it.
Each
of those documents shows unequivocally that the nature and extent of
the principal debt was a loan to the Trust of R10m by
SMI, together
with interests and costs thereon.
Mr. Olivier SC
made much of the fact that the loan agreement
had not been finalized at the time the suretyship was signed, and
that SMI only
appended its signature thereto a month later. It is,
however, not a requirement for a valid deed of suretyship that the
indebtedness
must exist at the time that the document is signed. In
Frysch
11
Corbett JA observed as follows:
“
The contract is accessory in the sense that it is of the
essence of suretyship that there be a principal obligation. At the
same
time it is not essential that the principal obligation exists at
the time when the suretyship contract is entered into. A suretyship
may be contracted with reference to a principal obligation which is
to come into existence in the future…Where the only
principal
obligation guaranteed by the suretyship is one to come into existence
in the future, then the liability of the surety
under his guarantee
does not arise until the principal obligation has been contracted…”
And
at 585E-G Corbet JA noted the following:
“
It is true that asuretyship contract will often indicate
that the principal obligation to which it is accessory is presently
in
existence or is to be contracted in the future or that it covers
obligations of both varieties. This is done mainly in order to
identify the obligation to which the suretyship relates and in some
instances this may be the only means of identification. Thus,
for
example, a suretyship contract which spoke only of the “existing
debts” of the principal debtor, would not normally
be construed
as covering debts contracted after the conclusion of the contract. It
does not follow, however, that a future obligation,
which is
otherwise clearly indicated as the subject-matter of the suretyship
contract will not be covered thereby merely because
it is not
described therein as being a future obligation. Nor do I think that
in such a case there would be any grant for contending
that the
contract of suretyship was invalid or inoperative.”
In
Sapirstein
12
Trengrove
AJA made the following comment after reference had been made to the
Frysch case:
“
And, if such a contract of suretyship is recorded in
writing, it follows that extrinsic evidence must necessarily be
admissible
to prove that the principal obligation has come into
existence, and to establish the amount of the obligation if, as in
this case,
the guarantee is an unlimited continuing guarantee for
payment of all sums of money which the principal debtor may in future
owe
to the creditors.
The provisions of s6 of Act 50 of 1956 do not invalidate a
contract of suretyship of this sort provided, of course, such
contract
is embodied in a written document and is signed by or on
behalf of the surety.”
Applying these principles to the present case one finds the
following:
45.1. In February-March 2008, and as the facility letter records, the
Trust knew that it was going to be borrowing “
R10m (ten
million rand) plus costs associated with the transaction”
from SMI: indeed it was the Trust that had sought the loan;
45.2. Its trustees knew too that the term of the loan was to be 12
months with a variable interest rate;
45.3. The trustees knew further from the facility letter that they
would be required to sign suretyships on behalf of the Trust
for its
obligations to SMI;
45.4. On 16 April 2008 Basson signed a draft loan agreement on behalf
of the Trust which made provision for a loan from SMI on
the same
terms as set out in the facility letter;
45.5. On 16 April 2008 Basson signed the deed of suretyship and bound
himself as surety and co-principal debtor on behalf of the
Trust, and
on 24 April 2008 Odendal and Jordaan did likewise;
45.6. On 24 April 2008 the trustees formally passed a resolution
resolving to borrow R10m from SMI on the terms set out in an attached
draft loan agreement, and authorizing Basson to sign the necessary
documentation on behalf of the Trust;
45.7. On 25 April 2008 Basson signed the final, amended draft of the
loan agreement on behalf of the Trust which became effective
and
operative on 25 May 2008 when SMI appended its signature thereto;
45.8. The material terms in that final agreement were consistent with
the terms of the facility letter and the earlier draft signed
by
Basson on 16 April 2008;
45.9. The parties subsequently implemented the terms of the loan
agreement: R10m was advanced to the Trust by SMI on 29 May 2008
and
the Trust mortgaged its property in Hermanusin favour of SMI by way
of a second bond registered on 28 August 2008 in a similar
amount.
45.10. A further R1,4m was advanced by SMI to the Trust on 27 October
2008;
45.11 The Trust failed to repay the loan on due date.
CONCLUSION
In light of the aforegoing, I am satisfied that SMI has established,
on a balance of probabilities, that the suretyship is valid
and
binding. The short-comings in the document, as to the nature and
extent of the principal debt, have been remedied by the
extrinsic
evidence.
I would add that both in these proceedings and in the sequestration
proceedings of the Trust, the trustees have acknowledged
unequivocally that they stood surety on behalf of the Trust in
respect of its aforesaid obligations to SMI. In addition, there
has
been no suggestion by them that there was any other agreement of
loan between SMI and the Trust other than that finally signed
by SMI
on 25 May 2008.
In light of these findings it is unnecessary to consider the
alternative claim for rectification of the agreement.
ORDER
In the circumstances there will be judgment in favour of the
Applicant against the Fifth and Sixth Respondents, jointly and
severally, the one paying, the other to be absolved, for:
Payment of the sum of R16 631 071,41.
Interest on the aforesaid amount at the rate of 1,5% per week,
calculated from 29 August 2009 until date of payment.
The Fifth and Sixth Respondents are ordered, jointly and severally,
the one paying the other to be absolved, to pay the costs
of this
application subsequent to the order of Van Staden AJ, on the scale
as between attorney and client.
___________
GAMBLE,
J
GAMBLE, J: ORDER: 24 APRIL 2013
In
the circumstances there will be judgment in favour of the Applicant
against the Fifth and Sixth respondents, jointly and severally,
the
one paying, the other to be absolved, for:
Payment of the sum of R16 631 071.41
Interest on the aforesaid amount at the rate of 1,5% per week,
calculated from 29 August 2009 until date of payment.
The Fifth and Sixth Respondents are ordered, jointly and
severally, the one paying the other to be absolved, to pay the costs
of this application subsequent to the order of Van Staden AJ, on the
scale as between attorney and client.
………………………
..
L. VAN BILJON
24 APRIL 2013
JUDGE :
P.A.L.
GAMBLE
FOR APPLICANT :
Adv.
J.F. Pretorius
INSTRUCTED BY :
Sim
and Botsi Attorneys
c/o Smit Rowan
Attorneys
FOR RESPONDENTS :
Adv. L.M. Olivier (SC)
INSTRUCTED BY :
Jordaan and Associates
c/o Visagie Vos and
Partners
DATES OF HEARINGS :
14 March 2013
DATE OF JUDGMENT :
24 April 2013
1
See
Nedbank Ltd v Bestvest 153 (Pty) Ltd
2012 (5) SA 497
(WCC)
2
African
Farms and Townships Ltd v Cape Town Municipality
1963 (2) SA 555
(A) at 563 F;
Erasmus
, Superior Court Practice Vol 1, B1-53.
3
The
attorney’s name is Jacques Odendaal but he will be referred to
hereinafter as “SMI’s attorney” to
avoid confusion
with the Fifth Respondent
4
Evidently,
Jordaan requested that seven days’ written notice be given
before SMI was entitled to take any legal action.
5
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A)
at 634I-635C.
6
Sapirstein
v Anglo African Shipping Company SA Ltd
1978 (4) SA 1
(A) at 12B
7
Fourlamel
(Pty) Ltd v Maddison
1977 (1) SA 333
(A) at 345F
8
See
for example
Van Wyk v Rottcher’s Saw Mills (Pty) Ltd
1948 (1) SA 983
(A) at 990-991;
F.J. Mitrie (Pty) Ltd v Madgwick
1979 (1) SA 232
(D);
Johnston v Leal
1980 (3) SA 927
(A) at
937H;
Hartland Implemente (Edms) Bpk v EnalEiendomme BK en Andere
2002 (3) SA 653
(NC) at 667E- 668D-H;
Industrial Development
Corporation of SA (Pty) Ltd v Silver
2003 (1) SA 365
(SCA);
Christie and Bradfield: Christies Law of Contract in SA
(6
th
ed) p131
9
T
rust
Bank of Africa Ltd v Cotton
1976 (4)
SA 325
(N)
10
Trust
Bank van AfrikaBpk v Sullivan
1979 (2) SA 765
(T)
11
Trust
Bank of Africa Ltd v Frysch
1977 (3) SA 562
(A) at 584G-H
12
At
p12A