Langeberg Koöperasie Bpk v Inverdoorn Farming and Trading Company Ltd

• Jurisdiction: South Africa
• Judge: Beyers JA, Ogilvie Thompson JA, Holmes JA, Williamson JA and Potgieter AJA
• Judgment Date: 09 March 1965
• Citation: 1965 (2) SA 597 (A)
• Hearing Date: 24 November 1965
• Court: Appellate Division

Beyers, J.A.:

The Inverdoorn Farming and Trading Company Limited (hereinafter called the 'Company') was placed in liquidation in December, 1961. Shortly before its liquidation it entered into an agreement with the appellant in terms of which it bound itself as surety A and co-principal debtor for a sum of money owing to the appellant by the Standard Finance Corporation of South Africa Ltd. (hereinafter called the 'Corporation'). The agreement is recorded in a power of attorney in which the Company, described therein as the mortgagor, authorised its attorney

'to appear at the office of the Registrar of Deeds . . . and . . . to acknowledge a debt due by us to Langeberg Koöperasie Beperk (hereinafter B called the mortgagee) in the sum of R237,918.95 arising from and being in respect of the amount of R236,418.95 an amount owing by Standard Finance Corporation of South Africa Ltd. to the mortgagee in respect of certain bills of exchange made by the said corporation in favour of the mortgagee and for the payment of which amount the mortgagor has bound itself as surety and co-principal debtor, and in respect of the amount of R1,500 being so much money lent and advanced, and to pass a bond for the said amount . . .'.

C There follows a description of the Company's farm property over which the bond was to be passed. The power of attorney is dated the 24th July, 1961. The bond was duly passed on the 8th August, 1961.

Upon the liquidation of the Company the appellant claimed that it was entitled to prove a claim against the Company in liquidation by virtue D of the said agreement, and to rank as a secured creditor by virtue of the said bond. The liquidators resisted this claim on the ground that the above agreement was, in terms of sec. 26 of the Insolvency Act 24 of 1936, a disposition of property not made for value. They succeeded in thereafter obtaining an order of the Cape Provincial Division setting aside

'(a)

The disposition by which Inverdoorn Farming and Trading Company E Ltd. bound itself as surety and co-principal debtor for the indebtedness of Standard Finance Corporation of South Africa to the defendant, and

(b)

mortgage bond No. 8444 dated 8th August, 1961, in favour of the defendant for the sum of R237,918.95, in so far as it purports to secure the indebtedness of Inverdoorn Farming and Trading Company as surety and co-principal debtor to defendant.'

F It is not disputed that the liabilities of the Company exceeded its assets immediately after the passing of the said mortgage bond.

Two points arise for decision in the appeal now brought against the above order, namely whether the suretyship agreement was a 'disposition of property' within the meaning of sec. 26 of the Insolvency Act, read G with the definition of 'disposition' in sec. 2 of the Act, and, if so, whether it was a disposition not made for value. In granting the said order the Provincial Division (DIEMONT, J.) decided both points in favour of the respondent.

In terms of sec. 2 of the Act a disposition of property means

'any transfer or abandonment of rights to property and includes a sale, lease, mortgage, pledge, delivery, payment, release, compromise, H donation or any contract therefor, but does not include a disposition in compliance with an order of the Court'.

In Estate Jager v Whittaker and Another, 1944 AD 246, WATERMEYER, C.J., after setting out the above definition, says at p. 250:

'This definition is important. It shows that a disposition may take the form of a contract which creates rights and obligations and may also take the form of an alienation of property.'

In the words of INNES, C.J., in National Bank of SA Ltd v Hoffman's Trustee, 1923 AD 247 at p. 251, the definition

Beyers JA

'includes a contract for the transfer of property as well as the transfer itself'.

Thus we also find, in sec. 26 of the Act, which deals with the legal effect of dispositions without value, a reference to dispositions which A were 'uncompleted by the insolvent' at the time of his insolvency. This would clearly include a reference to contracts for the transfer of property, in which no delivery has yet taken place.

Counsel for the appellant submitted that the contract between the parties is one of suretyship and, that being the case, it is not included in the above definition, in which no mention is made of suretyship.

It is true that suretyship is not mentioned eo nomine in the definition. B Counsel engaged in the present case were agreed - notwithstanding the fact that the definition does not purport to be exhaustive - that, if suretyship is to find a place therein, it must be sought in the clause which reads -

'and includes a sale, . . . donation or any contract therefor'.

C It is necessary to consider briefly the implications of a contract of suretyship. As stated by Wessels, Law of Contract, para. 3788, a person who binds himself as surety

'undertakes to perform that, and that alone, which was promised by the debtor. This, and the other salient features of the surety's obligation, are brought out by Pothier, both in his Pandects and in his treatise on Obligations. 'Fidejussor est qui alieno creditori id, quod ei debetur, promittit, stipulatione interveniente, et eo animo ut debitoris D obligationi accedat'. (Pand. 46.1.1) - 'The engagement of a surety is a contract by which a person obliges himself on behalf of a debtor to a creditor, for the payment of the whole, or part of what is due from such debtor, and by way of accession to his obligation' (Pothier Oblig. sec. 365 (Evans' translation))'.

In the present case the Company bound itself not only as surety, but as E co-principal debtor as well. In such a case, as far as the creditor is concerned, the surety is a debtor (Wessels, para. 4087). Moreover, as will be seen later, the Company, by entering into the present agreement, assumed liability for a debt which was already due for payment. The agreement is a composite one, embracing both an obligation to pay and an F obligation to pass a mortgage bond. It is, in the first place, like any other suretyship contract, essentially a contract for the payment of money. It is, in addition, a contract for a mortgage. Both 'payment' and 'mortgage' are recognised in the above definition as constituting dispositions of property. In order to meet the argument that there is a place to be found for this agreement in the definition, under one or G other or both of these heads - as a contract for payment, or a contract for a mortgage - counsel for the appellant argued that the words 'or any contract therefor', appearing at the end of the definition clause, should be read as governing only the one word immediately preceding them, namely 'donation'. He submitted that sale and lease, for example, were in themselves contracts and that inasmuch as it would be H inappropriate to speak of a contract for a sale or a contract for a lease, the words 'or any contract therefor' were not intended to be of general application to the transactions mentioned in the clause. This, it seems to me, is too flimsy a warrant for the proposition contended for. A further argument which was addressed to us, based upon the punctuation of the clause as indicating the limited scope of the qualifying words, is in my view equally tenuous. In my opinion these words, appearing as they do at the end of the clause, govern all the transactions enumerated therein and not merely the last of them. If

Beyers JA

the limited application of the words contended for on behalf of the appellant had been intended it is inconceivable that the clause would have been drafted in this way. The draughtsman, if he had in accordance with the Legislature's intention desired to limit the operation of the A qualifying words to some only of the items appearing in the clause, would have interposed the qualifying words between those items which were earmarked for qualification and those which were not. Thus, if it had been the intention in the present case to place donation in a category of its own, he would have arranged the sequence of the words in the phrase as follows -

B 'and includes a donation, or any contract therefor, sale, lease, mortgage . . .'

Or he would have retained the sequence of the items, concluding the phrase with the words 'donation, or any contract for a donation'.

Suretyship is a commonplace agreement in the world of commerce, and the C fact that it is not mentioned by name in the definition is admittedly surprising.

It is however

'always ancillary and subsidiary to the contract between the principal debtor and the creditor'

(see note to para. 3791, Wessels, Law of Contract), and it may well be - it is not necessary for me to express a definite opinion in the D matter - that it is because it is an ancillary form of contract that suretyship has been relegated in the definition to the status of a 'contract for payment'.

The learned trial Judge, after pointing out that the Company had in E terms of the agreement bound itself not only as surety, but also as co-principal debtor, expressed the conclusion arrived at by the Court in the following trems:

'There can be no doubt that the Company entered into a contract in terms of which it agreed to bind itself as surety, to pass a first mortgage bond over its property, and to make payment of money on the happening of certain events. As this is a contract both for payment and to mortgage, F I think it is clear beyond dispute that the transaction falls within the definition of a 'disposition'.'

I agree with this conclusion.

The appellant joined issue with the respondent, on the question whether the Company received value for binding itself as surety...