Lategan and Another NNO v Boyes and Another

• Jurisdiction: South Africa
• Citation: 1980 (4) SA 191 (T)

Lategan and Another NNO v Boyes and Another
1980 (4) SA 191 (T)

1980 (4) SA p191

Citation	1980 (4) SA 191 (T)
Court	Transvaal Provincial Division
Judge	Le Roux J
Heard	June 7, 1979; June 8, 1979
Judgment	July 18, 1980

Flynote : Sleutelwoorde

G Company — Character and class of — Persona distinct from its members — But Courts will brush aside veil of corporate identity where fraudulent use is made thereof — Court on facts declining to apply such principle where defendant's conduct not constituting fraud.

H Contract — Formation of — Consensus ad idem — Loan agreement by company — Agreement subsequently amended by extending date of repayment of capital and increasing rate of interest — Amending agreement signed by director of company — Such director also a surety in respect of loan agreement — Director held to have consented as a surety to the amending agreement.

Principal and surety — Formation of contract — Director of company entering into contract of suretyship in respect of agreement of loan concluded by company — Loan agreement subsequently amended by extending date of repayment of capital and increasing rate of

1980 (4) SA p192

interest — Amending agreement signed by director of company — Director held to have consented as a surety to the amending agreement.

A Principal and surety — Formation of contract — Requirements of s 6 of Act 50 of 1956 — Precise terms of main obligation do not form part of contract of suretyship — Accordingly, a variation of the terms of the principal debt not required to be in writing where there is no prejudice releasing the sureties or where they have consented to the amendment.

B Principal and surety — Discharge of surety — Principal debt alleged to have been varied to prejudice of surety — Date of repayment of capital of loan extended and rate of interest increased — Onus on surety to prove C that he was prejudiced by amendment of principal debt — Surety benefiting by deferred date of payment — Full effect of increase of rate of interest not appearing from evidence — Onus on surety not discharged.

Headnote : Kopnota

Although the principle of the sanctity of a separate corporate personality of a company distinct from its members was enshrined in Salomon v Salomon D & Co 1897 AC 22 (HL), our Courts would brush aside the veil of corporate identity time and again where fraudulent use is made of the fiction of legal personality.

The L company had concluded a written agreement of loan with the late P in terms of which the capital amount of the loan was due for repayment on 31 October 1975 and interest was payable on the capital amount at the rate of E 12 per cent per annum. First and second defendants entered into a contract of suretyship in respect of the loan agreement. By a subsequent written agreement, signed by second defendant in his capacity as director of the L company, the date of repayment of the capital amount of the loan was extended by one year to 31 October 1976 on condition, inter alia, that the rate of interest be increased by 2 per cent to 14 per cent per annum. The L company was later placed in final liquidation. In an action by the F trustees of the trust to which the late P had left the proceeds of the loan for payment of the balance due in terms of the amended loan agreement plus interest, the second defendant pleaded, inter alia, that, as he had only signed the amending agreement in his capacity as director of the L company, he had not, as a surety, consented to the amendment of the principal debt. Plaintiff contended in reply that the Court should "lift the corporate veil" and ignore the fact that second defendant professed to act only in a representative capacity and ascribe personal liability as G surety as well. Second defendant further contended that the amendment of the principal debt by increasing the rate of interest was prejudicial to him as surety and that he was accordingly released from his obligations as surety. Finally, the second defendant contended that the amending agreement did not comply with the formalities required by s 6 of Act 50 of 1956.

H Held, that this was not a proper case for the application of the principle of "lifting the corporate veil": the failure, when signing the amending agreement, to advert to the contract of suretyship was as much, if not to a greater extent, the fault of the attorney acting for the late P, as it was the fault of second defendant and the fact that second defendant, well-knowing what the terms of the amending agreement were, had taken a sharp point on prejudice did not constitute fraud on the plaintiffs, although it offended one's sense of equity.

Held, further, however, that second defendant had to be taken to have read the amending agreement and he could not now be heard to say that he only read it in his capacity as director of the L company: in the absence of any objection at the time or of an indication that the late P would have been prepared

1980 (4) SA p193

to grant the extension of time for payment without the continued liability of the sureties, second defendant had to be held to have consented also as surety and as an agent acting for the first defendant.

A Held, further, that it was at least doubtful whether prejudice to second defendant had been proved: the sureties had received a tremendous boon through the deferred date of payment which could not be accurately assessed on the facts before the Court and, in regard to the stipulation relating to the increased interest and its rendering the liability of the sureties more onerous, the full picture never appeared in regard to all the affairs of the defendants and their companies.

B Held, further, in any event, that the onus rested on the surety to prove that he was prejudiced by the amending agreement and this onus had not been discharged by the second defendant.

Held, further, in regard to the question relating to the requirements of s 6 of Act 50 of 1956, that the precise terms of the main obligation do not form part of the contract of suretyship for the purposes of the section and an amendment thereof could take place without a consequent amendment of the deed of suretyship.

C Held, further, that the law did not require the parties to go to the lengths of so amending the deed of suretyship once it was clear that no prejudice releasing the sureties had resulted from the amending agreement or where they had consented to the amendment, as the Court found that they had done.

Held, accordingly, that the plaintiffs were entitled to judgment against the defendants jointly and severally, the one paying the other to be absolved. D

Case Information

Action for the payment of certain amounts in terms of a deed of suretyship. The facts appear from the reasons for judgment.

C Botha for the plaintiffs.

No appearance for the first defendant.

Second defendant in person.

Cur adv vult. E

Postea (July 18). F

Judgment

Le Roux J:

The plaintiffs, in their capacity as trustees of a testamentary trust, created by the late Evert Frederik Johannes Pretorius, instituted an action against the defendants, jointly and severally, for the recovery of the balance of a loan said to be due to the trust by a company, G Liverken (Pty) Ltd ("Liverken") and secured by a mortgage bond registered over certain properties belonging to the principal debtor. It is alleged that the defendants signed a written deed of suretyship in which they undertook, jointly and severally, to be liable for the due performance of all Liverken's obligations under the bonds still to be registered, towards the bondholder, the said E F J Pretorius.

H A mortgage bond, dated 10 November 1972, was duly registered over 34 properties all forming part of the original farm, Liverpool No 202, in the district of Pilgrim's Rest, to secure a capital sum of R115 000, and interest at an annual rate of 12 per cent. Provision was further made for the release of some or all of the properties under mortgage on payment of certain stipulated sums. The capital sum was due for repayment on 31 October 1975. By a written agreement, dated 21 October 1975, this date was extended for one year to 31 October 1976 on condition that R15 000 of the outstanding balance be repaid by 31 October 1975 and that the

1980 (4) SA p194

Le Roux J

interest rate be increased by 2 per cent per annum to 14 per cent. Only the second defendant, in his capacity as director of Liverken, signed the amending agreement.

A On 22 October 1976, a few days before the capital sum secured under the bond became payable in terms of the amending agreement, Pretorius died. He left the proceeds of the loan in trust to Volkskas Bpk, who in turn appointed the plaintiff as trustees. During April 1977, Liverken was placed in final liquidation and a dividend of some R15 000 was eventually B received from the insolvent estate by the trustees. The sum presently outstanding amounts to R79 435,05 which is the amount now claimed by the plaintiffs, together with interest and costs.

Only the second defendant opposed the relief claimed by the plaintiffs. He originally raised two basic defences, affecting the validity of the deed C of suretyship and, alternatively, his liability as a surety thereunder. These defences were already reflected in his affidavit filed in opposition to an application for summary judgment. Shortly stated, these were:

(a)

that the deed of suretyship was invalid because of non-compliance with the formalities prescribed by s 6 of Act 50 of 1956; and

(b)

that the amending agreement of 21 October 1975 between Liverken and Pretorius constituted a material D variation of the principal debt which made the position of the sureties more onerous and, as they did not give their consent to this variation, they were therefore discharged.

By a subsequent amendment to defendant's pleadings a...