Mahomed v Lockhat Brothers & Co Ltd

• Jurisdiction: South Africa
• Court: Appellate Division
• Judge: Watermeyer CJ, Tindall JA, Centlivres JA, Feetham JA and Greenberg JA
• Judgment Date: 18 December 1943
• Citation: 1944 AD 230
• Hearing Date: 21 October 1943

Tindall, J.A.:

I This dispute arose out of a compromise effected by M. R. Naidoo (who may be referred to as the debtor) with some of his creditors, of whom the plaintiff company was one. The defendant Mahomed (now the appellant) had signed the agreement of compromise as "co-surety and joint principal debtor" but he was in fact the sole surety, and it is common cause that his liability is that of a surety and co-principal debtor. It appears that one of the debtor's creditors on 4th April, 1941, obtained an order for the provisional sequestration of his estate and R. T. Duff was appointed provisional trustee. During the operation of that order the agreement in question, which is stated to be entered into between the debtor of the first part, R. T. Duff (called the trustee) of the second part, the defendant (called the guarantor) of the third part and the several creditors of the debtor, of the fourth part, was drawn up. After it had been signed by the debtor, Duff and the defendant, the agreement was signed by 42 creditors including the plaintiff and the defendant, the amount of each creditor's claim being inserted opposite his signature, save that in six cases the words "plus costs" were added. The creditors who signed had done so prior to 28th May, 1941, on which date the provisional order of sequestration was discharged. The agreement is in the following terms:

Tindall, J.A.

"The debtor finding himself in: financial difficulties makes the, following offer to his creditors, namely:

1. That he will pay all preferent claims and administration expenses in full, and twelve shillings and sixpence in the £ in twenty four equal monthly instalments commencing ninety days after acceptance.

2. Such instalments shall be payable to the Trustee who will make, a distribution to creditors every four months.

3. The guarantor by his signature hereto binds himself as co-surety and joint principal debtor for the due payment by the debtor of the above-mentioned 24 monthly instalments.

4. The creditors by their signature hereto agree to accept the, offer made by the debtor and undertake that while the said monthly instalments are being regularly paid, they shall not institute any proceedings whatsoever against the debtor."

Though clause 1 omits express mention of the concurrent creditors, it is common cause that the effect is that the debtor will pay 12s. 6d. in the £ in respect of the claims of the concurrent creditors who accept the offer. The record contains mention of several creditors who did not sign the agreement of these one was paid in full by the defendant on 16th June, 1941; payments in full to, or settlements with, the rest of these creditors were made, the defendant providing the money for the purpose. It appears that at the date of the provisional order the debtor was carrying on two businesses as a general dealer, one at Rossburgh and the other at Greenwood Park, Durban. As a result of the, agreement and the withdrawal of the provisional order the business at Greenwood Park was handed over to the defendant on 16th July,. 1941. Duff stated in evidence that he did not know of any consideration passing between the debtor and the defendant. Possibly the, consideration was the guarantee given by the defendant or the liquidation of the claim which the defendant had against the debtor for £680 13s. 4d. or both of these.

On 28th February, 1942, Duff wrote to the defendant enclosing a first and final liquidation and distribution account (as he described it) showing the sum of £1,760 6s. 3d as dividends due to creditors (at the rate of 12s. 6d. in the £ mentioned in the agreement), plus £152 13s. 5d. for costs which amount included a commission of £124 6s. 6d. claimed by Duff. The sum of £1,760 6s. 3d excludes the claims of five creditors who signed the agreement, namely the defendant, Ismail Jamal, Hooper Motors (Pty.) Ltd.,

Tindall, J.A.

Livingston, Doull and Dumat and Five Roses Tea and Coffee Works, and the account shows that these five creditors were "paid direct", the first two at the rate of 12s. 6d. in the £ and the remaining three in full. The expression "paid direct" is not explained in the evidence but the inference is that the payments in question were not paid through Duff but direct by the defendant or the debtor to the, four last-mentioned creditors and also that the claim of the defendant (who was the largest individual concurrent creditor) was set off against the debtor's Greenwood Park business which the defendant took over.

As a result of a demand by Duff of payment of the arrear instalments due under the compromise agreement, the attorney for the debtor and the defendant wrote on the 22nd May, 1942, intimating that they disputed two claims amounting to £1,040 and alleged that four other claims amounting to £72 had been paid. The attorney accordingly suggested that Duff should amend his accounts. The latter replied that he could not exclude the disputed claims until he received letters from the creditors concerned either reducing or withdrawing their claims. No payments having been made under the agreement, the plaintiff company issued summons on 4th November, 1942 in the magistrate's court, Durban, in which it alleged the execution of the agreement, that it was a concurrent creditor for £161 18s. 6d. and signed the, agreement, that in terms thereof the first instalment fell due on 30th November, 1941, that neither the debt nor the defendant had made any payment to Duff or to the concurrent creditors as stipulated and that there was due in respect of the plaintiff's claim the sum of £48 7s. 1d., being the instalments which fell due for payment during the period 30th November, 1941 to 30th October, 1942. The prayer of the summons in its original form claimed "an order that defendant shall within seven days pay to the said Duff the sum of £48 7s. 1d. for distribution to plaintiff, failing which payment of the said sum of £48 7s. Id and costs." The defendant took an objection to the summons on the ground that the magistrate's court had no jurisdiction inasmuch as the claim was for specific performance without an alternative claim for damage. The magistrate upheld the objection. The plaintiff did not appeal against that decision but amended, the claim to read: Wherefore the plaintiff claims payment of the said sum of £48 7s. 1d and costs. It must be mentioned here that the defendant also excepted to the summons

Tindall, J.A.

in its original form on the ground that it did not disclose a cause of action. The magistrate dismissed this exception. The plea, without mentioning any special defence, put the plaintiff to the proof of his claim against the debtor and denied liability in law for the sum of £48 7s. 1d or any portion thereof; but at the trial the original indebtedness of the debtor to the plaintiff in the sum of £161 18s. 6d. was admitted. The evidence led disclosed the facts summarised above. It may be mentioned also that Duff in cross-examination took up the attitude that he himself had no power to sue. The magistrate gave judgment for the plaintiff for £48 7s. 1d and costs. It appears from the magistrate's reasons that the defendant's attorney raised two defences before him depending on questions of law, namely (1) that there was no vinculum juris between the plaintiff and the defendant because the debtor promised to pay Duff, that the defendant undertook to pay Duff if the debtor failed to do so and that therefore the plaintiff was not the proper person to sue,; (2) that the agreement was illegal because of the provisions of the Insolvency Act.

The defendant appealed to the Natal Provincial Division, the grounds in the notice of the appeal to that Court being threefold. The first was the plaintiff failed to discharge the onus of proving that...