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FORM A

FILING SHEET FOR SOUTH EASTERN CAPE LOCAL DIVISION JUDGMENT

PARTIES:

ROYAL CANIN SOUTH AFRICA (PTY) LIMITED APPLICANT

and

RALPH HENRY TERENCE COOPER

SHIRLEEN IRENE GRACE COOPER RESPONDENTS

• Case Number: 1965/07

• High Court: SOUTH EASTERN CAPE LOCAL DIVISION

• DATE HEARD: 8 November 2007

DATE DELIVERED: 15 April 2008

JUDGE(S): NEPGEN J…

LEGAL REPRESENTATIVES –

Appearances:

• For the Applicant(s): Adv Suttner SC

• for the Respondent(s): Mr Spruyt

Instructing attorneys:

• Applicant(s): Messrs Friedman & Scheckter

• Respondent(s): Messrs Spilkin

CASE INFORMATION -

• Nature of proceedings : Civil Matter

• Topic: ………………………

• Key Words:

IN THE HIGH COURT OF SOUTH AFRICA

(SOUTH EASTERN CAPE LOCAL DIVISION)

Case No: 1965/07

In the matter between:

ROYAL CANIN SOUTH AFRICA (PTY) LIMITED Applicant

and

RALPH HENRY TERENCE COOPER First Respondent

SHIRLEEN IRENE GRACE COOPER Second Respondent

_________________________________________________________________________________

JUDGMENT

NEPGEN, J:

[1] This case deals with problems arising from the embodiment of a personal suretyship in a credit application form which has been signed by persons acting on behalf of the applicant for credit. In the present instance the applicant for credit was Ralph Cooper Agencies CC (“the close corporation”). A credit application form, styled “APPLICATION FOR CREDIT FACILITIES” (the credit application), was executed by the close corporation on 20 January 2003. The signatories on behalf of the close corporation were the two respondents. The applicant now seeks a joint and several judgment against the respondents for payment of R 2 227 066,28 based on a suretyship contained in the credit application. It is not in dispute that the handwriting on the credit application is that of the second respondent; that both respondents are identified as the members of the close corporation; and that they both signed it.

[2] The papers disclose that over a period of time the close corporation purchased stock from the applicant , to the value of R 2 782 035.97, for which it failed to pay. This gave rise to a written agreement (“the settlement agreement”) being concluded between the applicant and the close corporation on 7 October 2005. The settlement agreement recorded the abovementioned failure to pay by the close corporation and included a mechanism for establishing the exact liability of the close corporation to the applicant. It is common cause that this resulted in it being determined that R 2 227 066.28 (the amount claimed in this application) was owed by the close corporation to the applicant. It is not disputed that no portion of this debt was paid and that the close corporation was wound up. This has resulted in the present application in which the amount mentioned is claimed from the respondents as sureties. While not disputing their signatures to the document, the respondents contend that the suretyship is invalid and unenforceable.

[3] The credit application comprises two pages. The front page contains details of the close corporation, reflecting the two respondents as members, and has further information relevant to an application for credit facilities. The reverse side of this document sets out the terms and conditions upon which credit is to be granted. There are seventeen clauses in all, each of them being numbered. After clause seventeen the following is contained in the document:

“I/We, the undersigned, warrant that the information given above is true and correct and acknowledge that credit is granted, if at all, on the basis of such information. I/We have read and understood the terms and conditions which will be binding upon the Applicant and ourselves and agree that I/we will be jointly and severally liable as co-principal debtors with the Applicant for all the latter’s obligations and indebtedness to the COMPANY.”

This is followed by a recordal of the place and date of signature, and the names and signatures of the respondents.

[4] As is apparent from what has been set out above, the applicant contends that the respondents bound themselves as sureties and co-principal debtors. The circumstances under which the respondents came to affix their signatures to the credit application was set out in the answering affidavit deposed to by first respondent and confirmed by second respondent, which allegations must for purposes of this application be accepted. I proceed to set out the allegations made in this regard. An employee of the applicant, one Dalene, contacted second respondent and informed her that she was forwarding a credit application form by telefax. Dalene asked second respondent to complete it; to have it signed by the members of the close corporation; and to return it to the applicant. At that time there was an ongoing trade relationship between the applicant and the close corporation pursuant to a written distribution agreement. Second respondent was told to make sure that all the members of the close corporation signed the credit application. The details thereon were completed by second respondent. Both respondents signed it on 20 January 2003. Up until that stage neither of the respondents had executed a suretyship in favour of the applicant or its predecessor; no suretyship was ever requested prior to or at the time that the respondents were asked to complete the credit application; and the suretyship was not pointed out to them and appears in fine print in the last two lines of the credit application. It is averred that the respondents …… “are lay people and would never have realised that the document contained such a clause by reading it in the ordinary course….”. Respondents go on to contend that the suretyship “has been disguised and embedded in the document in order to elicit personal liability in circumstances that are completely unreasonable and untoward”.

[5] In support of their contention that the suretyship was invalid and unenforceable the respondents sought to rely on Brink vs Humphries & Jewell (Pty) Ltd, 2005(2)SA 419(SCA). In this regard the respondents sought, both in the heads of argument filed on their behalf and during argument before me, to highlight what were alleged to be similarities between the facts of the Brink case and the present matter; with it finally being contended that in the present instance the concealment of the suretyship is even greater than that of the suretyship in the Brink case and ( I quote from the heads of argument)

“…….that any argument outside of the document itself does not assist the applicant. The document itself constitutes the misleading representation causing the error and that, by itself, renders the suretyship obligation void ab initio”.

[6] It is understandable that the respondents seek to rely on the decision in the Brink case. However, in that case it was not held, as the respondents appear to contend it was, that the suretyship in the document should be held to be invalid without considering “any argument (sic) outside of the document itself”. It was also not decided that a suretyship clause, in any particular format, which is contained in an application for credit is unenforceable. That case dealt with the principle of justus error. The consideration of the document containing the suretyship clause was done with a view to ascertaining whether the error relied upon by the surety came about as a result of a misrepresentation by the creditor and was reasonable. It is quite clear that the finding of invalidity in the Brink case was based not only upon a consideration of the document itself, but upon a consideration also of the evidence given by the surety regarding his approach to the document. This is clear from the summary of the surety’s evidence at 423 J-424B, which was to the following effect:

“He saw that, according to the heading, the form was an application for credit by the company and he also saw that he was required to sign the form on behalf of the applicant for credit, i.e the company; but he did not read through the form, he did not realise that it contained a personal suretyship clause and he did not expect it to do so. The appellant also testified that, had he realised that the form contained a personal suretyship clause, he would not have signed it - he said that he had refused to provide a suretyship in the case of a previous supplier of goods to the company.”

It was on the basis of such evidence that the court concluded that the creditor’s conduct in furnishing a misleading form induced a fundamental mistake on the part of the signatory to the form; for he thought, not having read the form, that he was only signing a credit application form on behalf of a company. That conclusion led to the decision that the suretyship obligation was void ab initio.

[7] The question that must therefore be decided is whether the allegations made by the respondents indicate that as a result of a misrepresentation made by the applicant they were reasonably misled into believing that the document was an application for credit and nothing more. I have no doubt that the document is misleading in the extreme. There is nothing to indicate that it contains a suretyship clause. In fact, as was pointed out on behalf of the respondents, the suretyship obligation is contained in a sentence which commences with an acknowledgement that the terms and conditions, being those numbered 1 – 17, have been read and understood. Apart from the words that follow, there is no indication that any further obligation is being imposed upon the signatories thereof. I also agree with the submission that the document is more misleading than that with which the Brink case was concerned.

[8] Were the respondent misled? On behalf of the applicant it is contended that the respondents do not in fact allege that they were misled nor that the document induced the mistaken belief that it was an application for credit and nothing more. This is indeed so, but there is an allegation, in paragraph 36 of the answering affidavit, that they were never aware of any suretyship. This statement is in reply to the applicant’s averment that the respondents’ attorney requested a copy of the suretyship. One would have expected the respondents to have stated more explicitly that they were not aware that they were incurring any suretyship obligation, but the fact of the matter is that this allegation has been made. The next question that arises, however, is whether it can be said that such unawareness on the part of the respondents was reasonable. In this regard I consider it significant that it is not alleged by the respondents that the document, nor even the part thereof which contains the suretyship obligation, was not read by them. What one does find is an indication to the contrary, and in this regard I refer to the respondents’ averment that they “are lay people and would never have realised that the document contained such a clause by reading it in the ordinary course”. It seems to me to be implicit in this that what they state is that they did read it, but being lay people did not understand what it meant. If the document had not been read one would have expected an express statement to that effect. I accordingly conclude that it must be accepted that the respondents did read the document. This being so, they must have realised that by agreeing that they would be “jointly and severally liable as co-principal debtors” they were incurring some form of liability (or obligation). If they did not understand precisely what it was then, if they had acted reasonably, they should have sought legal advice as to what liability they were incurring. That, in my view, is what a reasonable person would have done. Such person would then have been informed of the nature of the obligations they were incurring by signing the document. The respondents failure to have done anything to determine the nature and the extent of the liability which they agreed to undertake was in my view unreasonable. In the circumstances the respondents’ mistake, accepting that it existed, was not justifiable. Furthermore, it is significant that there is no allegation by the respondents that they would not have signed the form if they realised that it contained a personal suretyship provision. Accordingly the defence based on justus error cannot succeed.

[9] Further defences are raised arising from the conclusion of the settlement agreement. If I correctly understand the arguments advanced, it is contended, firstly, that the amount claimed arises from the settlement agreement, which settled a dispute arising from a distributorship agreement and not “ the credit facilities agreement” (the terminology used in the heads of argument). In this regard it is pointed out that the settlement agreement records that the close corporation purchased stock to the value of R 2 782 035.97 “(i)n terms of an oral distributorship agreement”; that the close corporation had failed to pay the said amount; and that the close corporation had agreed to settle its outstanding debt and to terminate the distributorship agreement. Relying on these facts, it is contended that the applicant’s cause of action is based on the settlement agreement; that the indebtedness in terms thereof arose pursuant to some unknown oral distributorship agreement; and that the cause of action is accordingly not related to the credit facilities agreement. The second contention advanced in this regard is that the settlement agreement “novated the entire Credit Application and as a consequence ……… the Suretyship (which is in dispute) is pro non scripto”.

[10] It seems to me that the abovementioned contentions of the respondents fail to take into account the nature of the obligations undertaken by them as sureties. The credit application regulated the terms and conditions under which credit would be granted to the close corporation. The respondents bound themselves as co-principal debtors with the close corporation for the close corporation’s indebtedness arising out of the granting of credit. In my view it does not matter whether credit was granted pursuant to some “unknown” oral distributorship agreement or in terms of any other arrangement between the applicant and the close corporation. Clearly the indebtedness referred to in the settlement agreement arose as a result of stock having been delivered (or distributed) to the close corporation on credit. Had this not been the case, one would have expected the respondents to have said so. The fact that the applicant and the close corporation agreed to terminate the distributorship agreement and provided for a mechanism to determine the extent of the close corporation’s liablility to the applicant did not and does not have any bearing on the respondents’ obligations as sureties. In fact, the respondents were not even parties to the settlement agreement. I according find that the further defences sought to be relied upon have no merit.

[11] It follows that the applicant is entitled to the relief which it seeks. In sofar as costs are concerned, the credit application specifically provides for these to be paid on the scale as between attorney and client .

[12] I make the following order:

Judgment is granted in favour of the applicant against first respondent and second respondent, jointly and severally, the one paying the other to be absolved, for

1. payment of the sum of R 2 227 066.28;

2. interest on the aforesaid amount at the rate of 15.5% per annum from 5 December 2005 to date of payment ; and

3. costs of suit, on the scale as between attorney and client.

J J NEPGEN

JUDGE OF THE HIGH COURT

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