Pfeiffer v First National Bank of SA Ltd

• Jurisdiction: South Africa
• Judgment Date: 28 May 1998
• Citation: 1998 (3) SA 1018 (SCA)

Pfeiffer v First National Bank of SA Ltd
1998 (3) SA 1018 (SCA)

1998 (3) SA p1018

Citation	1998 (3) SA 1018 (SCA)
Case No	230/96
Court	Supreme Court of Appeal
Judge	Smalberger JA, Nienaber JA, Harms JA, Marais JA, Zulman JA
Heard	May 7, 1998
Judgment	May 28, 1998
Counsel	RWF MacWilliam for the appellant; GR De M Hofmeyr (with him JR Whitehead) for the respondent

Flynote : Sleutelwoorde

Principal and surety — Surety — Liability of — For interest — Suretyship providing for two-tier system according to which I liability of principal debtor and surety exactly co-extensive in respect of both balance outstanding and interest thereon as long as indebtedness remaining below certain sum ('X'), but liability of surety limited to X plus interest thereon for as long as indebtedness exceeded it — Only debtor liable for further advances and for interest thereon — Debtor having made several payments over period during which indebtedness exceeded X but thereafter having stopped doing J

1998 (3) SA p1019

so — Surety subsequently having paid X to bank — Surety clearly liable for (compound) interest on X for period from date A of last payment into account to date surety paid X to bank (period A) — Whether surety liable also for interest for period between date on which indebtedness first exceeded X and date on which debtor made last payment into account (period B) — Monthly capitalisation of debt in casu not amounting to automatic novation — Interest accordingly B having retained character as interest — All payments by debtor to have been appropriated first to interest and then to capital — Surety also entitled to benefit of rule of appropriation that secured debts must be paid before unsecured ones — Accordingly, no interest payable by surety in respect of period B.

Headnote : Kopnota

W had opened a current account with respondent bank and was granted overdraft facilities. The appellant bound herself as surety and co-principal debtor in respect of W's account. The appellant's liability, interest apart, was limited to R175 000. W's overdraft exceeded this sum from 25 October 1990 until 1 September 1993, when the D appellant repaid the R175 000 after a demand from the respondent. The bank, however, also insisted that the appellant pay compound interest on the R175 000 from the date on which the overdraft first exceeded R175 000 to the date of payment. The appellant conceded that she was liable for compound interest on R175 000 from the day demand had been made on her (20 April 1993) to the date of payment but denied liability for interest for the period between 25 October 1990 (when W's indebtedness first exceeded R175 000) and the last time W had E made a payment into the account (22 October 1991). The deed of suretyship limited the liability of the appellant in two relevant respects. First there was the R175 000 limitation on the appellant's liability (interest apart) (cap A). Then there was a limitation on interest, cap B, which provided that once cap A was breached, the surety's liability was limited to interest on cap A 'as may from time to time . . . become due and payable by the . . . F debtor'. The appellant lost in the magistrate's court and on appeal to the Provincial Division. On a further appeal to the Supreme Court of Appeal,

Held (per Harms JA, Smalberger JA and Zulman JA concurring; Nienaber JA and Marais JA dissenting), that the practical consequences of the above-mentioned restrictions on the liability of the appellant were the following: G the liability of the debtor and appellant as surety remained fully co-extensive until the limit of cap A was exceeded, but once it was exceeded only the debtor was liable for further capital advances and for any interest thereon and liability was no longer entirely co-extensive. (At 1031B--C.)

Held, further, that the bank was not entitled simply to demand from the surety the amount due by the debtor - it had to perform a separate accounting exercise involving a theoretical division of an otherwise indivisible liability of H the debtor. Under the suretyship the notional interest 'due and payable by the debtor' on the amount of R175 000 had to be determined because it would otherwise be impossible to calculate the cap B interest for which the surety was liable. (At 1031C/D--E.)

Held, further, that the appellant had become liable for cap B interest when cap A was exceeded on 25 October I 1990, but only to the extent of W's liability. The credits exceeded the interest debited in respect of the total account until 22 October 1991, the last date on which any amount had been deposited in the account, and it was clear that the appellant was liable for compound interest on R175 000 from this date until 1 September 1993, the date she had paid the R175 000 to the bank. (At 1031H--1032A/B.)

Held, further, as to whether the appellant was also liable for interest on the J

1998 (3) SA p1020

R175 000 for the period 25 October 1990 and 22 October 1991, that although it was possible to conceive of a A situation in which capitalisation would amount to a novation (thereby converting the interest element into capital), it was hardly likely that either party had intended that this exercise should amount to a novation. Nor did the agreed facts suggest an automatic monthly novation. If the capitalisation of interest was not a novation, the B interest element never lost its character as such. The payments credited during the above-mentioned period were not allocated by W or the bank so that all credits had to be appropriated first to the interest element and then to capital. The effect was that no interest on the R175 000 was due and payable by the debtor for this period. (The C agreement provided that once the R175 000 limit was reached, the appellant's liability for interest was limited to the interest due and payable by W on the R175 000.) (At 1032A/B--E.)

Held, further, that the surety was in any event also entitled to the benefit of the rule of appropriation that secured debts had to be paid before unsecured debts. (It was not necessary to decide whether there was any reason in principle or fairness why this rule should not apply where the debt was partially secured.) (At 1032F/G--H.) D

Held, accordingly, that the magistrate had erred in ordering appellant to pay interest from 25 October 1990 instead of from 22 October 1991. (At 1033A.)

Harms JA pointed out that the difference between his approach and that of Nienaber JA was that he, Harms JA, E attached more weight to the wording of the suretyship agreement and furthermore did not agree with Nienaber JA's view that, once cap A was reached, the surety's liability rested squarely on the terms of her contract with the bank and was no longer co-extensive in any further respect. Other differences between the two concerned the legal effect of capitalisation (particularly whether it could differ according to the context) and the surety's entitlement to the benefit of the rule of appropriation referred to above. (At 1032H--J.) F

The decision in the Cape Provincial Division in Pfeiffer v First National Bank of Southern Africa Ltd reversed.

Cases Considered

Annotations

Reported cases

LTA Construction Bpk v Administrateur, Transvaal 1992 (1) SA 473 (A): referred to G

Millman and Another NNO v Masterbond Participation Bond Trust Managers (Pty) Ltd (under Curatorship) and Others 1997 (1) SA 113 (C): referred to

The National Bank of South Africa v Graaff and Others (1904) 21 SC 457: dictum at 462--3 applied H

Neon and Cold Cathode Illuminations (Pty) Ltd v Ephron 1978 (1) SA 463 (A): referred to

Northern Cape Co-operative Livestock Agency Ltd v John Roderick & Co Ltd 1965 (2) SA 64 (O): dictum at 73F--H applied

SA General Electric Co (Pty) Ltd v Sharfman and Others NNO 1981 (1) SA 592 (W): referred to I

Saambou-Nasionale Bouvereniging v Friedman 1979 (3) SA 978 (A): referred to

Snaid v Volkskas Bank Ltd 1997 (1) SA 239 (W): referred to

Standard Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (in Liquidation) 1998 (1) SA 811 (SCA): referred to

Trust Bank of Africa Ltd v Senekal 1977 (2) SA 587 (W): referred to

Zietsman v Allied Building Society 1989 (3) SA 166 (O): referred to. J

1998 (3) SA p1021

Case Information

Appeal from a decision in the Cape Provincial Division (King J and Farlam J). The facts appear from the judgment of Nienaber JA.

R W F MacWilliam for the appellant.

G R de M Hofmeyr SC (with him J R Whitehead ) for the respondent.

Cur adv vult . B

Postea (May 28).

Judgment

Nienaber JA:

This is a matter of some interest. The appellant stood surety for the debts of one Wilson to the respondent bank. As such she was the defendant in the magistrate's court, Wynberg, the appellant in the Cape Provincial Division and is now, with the leave of that Court, finally the appellant in this Court. Wilson, trading as C Galerie Interieur, operated a current account at the respondent's Rondebosch branch. He was granted overdraft facilities. It was in respect of that account that the appellant, on 25 July 1986, bound herself as surety and co-principal debtor in favour of the bank. In the deed of suretyship the appellant is the surety, the bank is the creditor and Wilson is described as 'the said debtor'. A photostatic copy of the first page thereof is annexed D hereto. [*] Those terms of the deed of suretyship which are of special significance to this appeal have been highlighted in the margin.

The surety's liability, interest apart, is expressly limited to R175 000. On 25 October 1990 Wilson's overdraft (taking into account cheques drawn against it, interest calculated at the bank's prime rate from time to time E calculated daily but capitalised monthly and bank charges, as well as credits passed) exceeded R175 000. Thereafter it consistently...