Moti and Co v Cassim's Trustee

• Jurisdiction: South Africa
• Judge: Innes CJ, De Villiers JA, Kotzé JA, Wessels JA and De Villiers AJA
• Judgment Date: 09 September 1924
• Hearing Date: 27 March 1924
• Court: Appellate Division

Innes, C.J.:

This appeal raises some important and interesting questions. In the magistrate's court of Pietersburg, where the litigation commenced, the respective attorneys, who conducted the case with fairness and ability, agreed upon a statement of facts. In May,1922, a promissory note for £104 was executed by E. Mahomed & Co. in favour of the trustee of the respondent firm. Before delivery to him it was endorsed by the appellants; it was subsequently endorsed below the first endorsement by the trustee, in whose hands it remained. The due date of the note was 19th

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January, 1923; but on 11th October, 1922, the makers filed a Deed of Assignment in terms of Act No. 32 of 1916. This deed was voluntarily signed by the trustee as a creditor, and the assignment was duly accepted. The liability of Moti & Co., who were sued for the amount of the note, must obviously depend upon one or both of two considerations, - the effect of their endorsement, and the result of the assignment. If they became in law ordinary endorsers, there is an end of the matter; their liability is clear. But if their legal position was that of sureties for the maker, then it will be necessary to enquire whether as such they were released by the assignment. The magistrate in an able judgment held that they were sureties, whose obligation remained unaffected. He therefore found for the plaintiff; his judgment was confirmed by the Transvaal Provincial Division; and the correctness of that finding is the matter before us. In dealing with it I propose to consider the two points in their order; but with regard to the first it will be convenient to examine the position under the ordinary law, and then to enquire whether any alteration has been effected by Statute.

Moti & Co. were not parties to the note. By signing as they did they acquired no title to it, and they transmitted none. The only effect of their signature was to constitute an aval. The intervention of sureties in favour of a party to a bill was well recognized by Roman-Dutch practice. The undertaking was sometimes embodied in a separate document, sometimes evidenced by signature upon the instrument itself. In the latter case it was called an aval, which is frequently referred to by the authorities as a borgtocht. (Van der Linden, Inst., 3, 7, sec. 5; Heineccius, Wisselrecht, c. 3, secs. 27-8 and c. 6, sec. 10; Pothier, Change, 1, 4, art. 7, etc.) In the former case the surety was, without doubt entitled, in the absence of renunciation, to the ordinary benefits. But the position created by an aval was not quite so clear. Heineccius himself speaks with an uncertain voice as a comparison of the two passages above cited will show. His annotator, Reitz (c. 6, sec. 10, n. 57) endeavours to reconcile them by suggesting that Heineccius drew a distinction between an aval constituted by a simple signature upon the bill, and one in which the words, "als borg" were added. Reitz himself is of opinion that a surety by aval has no right to the benefits (c. 3, sec. 28, n.57). He refers to the French Ordinance of 1673, and to an

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instructive decision of the Supreme Court of Holland, reported by Neostadius (Decision 12). There a bill had been drawn by S upon G in favour of N. Upon it E wrote and subscribed the following: "Ik M.E. sta voor de Wiszel ende Weer-wiszel als mijn eygen schuldt." The bill was accepted by G but dishonoured on the due date. N then sued E before the local Court of Amsterdam to discharge his promise (ut fidem liberet). E contended that G should be first excused. But the Court gave judgment for the plaintiff on his undertaking to cede to E his action against G. The Court of Holland, where the matter was taken, added an order that security should be given. And this was confirmed on appeal to the Supreme Court. The strong wording of the special subscription might not unfairly have been construed as a renunciation of the benefits. Indeed E is referred to in one part of the report as a co-principal debtor (se correum subscripsit). But the Supreme Court took the view that the requirements of special good faith as between merchants prevented E from demanding the excussion of the principal debtor - a doctrine which Gail (II, Obs. 27,n. 27) would extend to all merchantile transactions. Pothier agrees with Reitz, though strangely enough he cites, Heineccius as his only authority. Van der Keessel (Th. 594) is to the same effect. A third party he says who signs an aval "becomes thereby liable in solidum without the beneficium ordinis or divisionis," and may be sued in the cambial action. He quotes Reitz and also Savary, a writer to whose work I have not had access. There is strong authority therefore for the view that by the practice of Holland an aval rendered the signatory liable to be sued for the full amount guaranteed. But he was bound as a surety who had tacitly renounced the benefits. The basis of liability was the borgtocht (see Van der Linden, Koophandel van Frankryk, 1, 81 sec. 8). That is a point which must be borne in mind throughout this enquiry. But South African practice did not adopt the above view to the extent of regarding the obligation of the surety as liquid. In. Norton v Satchwell (1 Menzies, p. 77) provisional sentence was claimed by the payee of a note against a third party who had signed his name on the back. The defendant objected that his signature did not make him liable as an endorser, and the objection was upheld. The claim was renewed at a later date on the ground that the aval created a liquid liability; it was again refused, the Court holding that the liability must be established

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in the principal case. In other words, the Court was not satisfied that the aval necessarily involved a renunciation of the benefits, and rendered the liability of the surety such that provisional sentence could be claimed against him. The principle of that decision was adopted and acted upon by South African Courts for more than half a century (see Coetzee v Tiran, Foord p. 42; Klopper v Van Straaten, 11 S.C p. 94; Randall v Lawrence's Trustee, 5 E.D.C p. 174). And a doctrine thus authoritatively laid down and acted upon in regard to so important a subject matter should not be interfered with by the Courts. But is is suggested that the position has been altered by legislation. The Cape Act No, 19 of 1893 was founded upon the English Bills of Exchange Act of 1882, and was practically taken over by Transvaal Proclamation No. 11 of 1902, the provisions of which are those to be regarded in this enquiry. But for present purposes the three Statutes may be regarded am identical. They all contain definitions of a "holder" and of a "holder in due course" (the statutory equivalent according to FLETCHER MOULTON, L.J., of the old

"bona fide holder for value" - see 1907, 1 K.B at p. 806). And they all provide that "where a person signs a bill otherwise than as drawer or acceptor, he or she thereby incurs the liabilities of an endorser to a holder in due course." (Proclamation 11 of 1902, see. 54). The contention is that the payee of the promissory note sued upon is a holder in due course within the meaning of the Proclamation, and that the outsider who placed his name upon the back before negotiation is liable to the payee as an ordinary endorser. If that be so, then the contract of aval, whether regarded from the point of view of Roman-Dutch or of South African practice has been abolished. And we are asked to arrive at that result by piecing together certain statutory definitions and reading sec. 54 in the light of them. Such a conclusion, however, would be directly opposed to several South African decisions. In Klopper v Van Straaten, the note in suit had been signed before, but the case was heard after, the passing of the Cape Bills of Exchange Act of 1893; and DE VILLIERS, C.J., in drawing attention to that fact remarked that the Statute was not intended to alter the law upon the point now under consideration. He dealt with the matter more fully in Maasdorp v Graaff-Reinet Board of Executors (19 C.T.R at p. 500), where it was sought to recover the amount of a note

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from a married woman who had signed a special undertaking of suretyship upon the back of the instrument. The provisions of sec. 54 of the Act, and the statutory definition of a holder in due course, were relied upon, but in giving judgment for the defendant the CHIEF JUSTICE said: "It has been repeatedly decided in this Court that the payee of a note endorsed by a stranger is not entitled to sue the person so endorsing it, as if he were an ordinary endorser. In the case of Klopper v Van Straaten it was held that the liability incurred to the payee of a note by the defendant, who endorsed it before the payee or anyone else had so endorsed it, was that of a surety, and not of an ordinary endorser." A pronouncement directly opposed to the contention of the present respondent. The same principle had been laid down several years before by the Transvaal Court in Ullman v Railton (1903, T.S. p.596). The circumstances there were similar to those before us, and the same provisions of the Statute were discussed. It was held that the payee in that case was not a holder in due course and that the stranger who had signed the note was a surety and not an ordinary endorser. No South African decision to the contrary was quoted to us, though there are one or two, to which reference may be hereafter necessary. But reliance is placed upon certain dicta of English judges. Now in considering the English cases it must be borne in mind that an aval in the sense in which that term was used in the practice of Holland is not recognized by English law. (Byles on Bills, 17th ed., p. 176; and see remarks of Lord BLACKBURN in Steele v McKinlay, 5 A.C. at p. 772).

The idea that the blank signature of an outsider upon a bill or note could entail a...