SA General Electric Co (Pty) Ltd v Sharfman and Others NNO

• Jurisdiction: South Africa
• Judge: Boshoff JP
• Judgment Date: 17 October 1980
• Hearing Date: 15 September 1980
• Court: Witwatersrand Local Division

Boshoff JP:

In this action the plaintiff, the South African General Electric Co (Pty) Ltd, to which I shall refer as General Electric, is claiming an amount of R56 717,29 from the defendants in their capacities as co-executors in the estate of the late Morris Michael Sharfman, who died on 18 August 1977. The claim is based on a deed of suretyship signed by the late Morris Michael Sharfman, to whom I shall refer as the deceased, during his lifetime on 28 October 1974. The deceased was at all relevant times the chairman, director and shareholder of a company known as Airflo Conditioning (Pty) Ltd, to which I shall refer as Airflo, which company dealt in air conditioning equipment and did a fair amount of

Boshoff JP

business on a credit basis with General Electric, a supplier of electrical and air conditioning equipment. In the deed of suretyship the deceased A had interposed and bound himself as surety and co-principal debtor in solidum with Airflo, the debtor, for

"the due payment by the debtor of all such sum or sums of money as may now or may at any time in the future be due and payable by the debtor to General Electric".

During the period March 1977 to April 1978 and at the specific instance and request of Airflo, General Electric sold and delivered goods at B agreed prices to various branches of Airflo at Springs, Vanderbijlpark and Parow to the value of R321 973,04. During that period payments were made to General Electric by or on behalf of Airflo, and/or Airflo became entitled to certain credits in the total sum of R265 255,75, leaving a C balance of R56 717,29 due and payable by Airflo to General Electric. This is the amount which General Electric is now claiming from the defendants.

The undisputed facts in broad outline are that the deceased in his lifetime was a competent and prudent businessman and was held in greater esteem as a businessman by the executives of General Electric than N Varvarigos, the managing director and shareholder of Airflo. General D Electric consequently traded extensively on a credit basis with Airflo on the strength of the business acumen of the deceased. The deceased and Varvarigos held the entire shareholding of Airflo in equal shares.

By reason of the proprietary interest of the deceased in Airflo, he had bound himself as surety for the debts of Airflo and, by reason of his office and shareholding in Airflo during his lifetime, he had knowledge and could control the extent of credit purchases of Airflo.

E The position of Airflo was materially altered with the death of the deceased on 18 August 1977. The shareholding of the deceased was transferred to Varvarigos within a month of his death. The credit line of Airflo with General Electric with the security of the suretyship was R90 F 000. Within two weeks of the death of the deceased, General Electric reviewed the credit rating of Airflo and found that Airflo was barely solvent. Its nett worth was in the vicinity of R5 000 and had very little creditworthiness. Indeed, without the suretyship, the Airflo account was regarded by General Electric as a high-risk account.

On 16 September 1977 the attorneys of General Electric wrote a letter to the defendants in which they referred the defendants to the deed of G suretyship and asked them to maintain sufficient assets in the estate of the deceased to meet any liability to General Electric which might arise in the future.

On 11 October 1977 the defendants replied to this letter and referred to a certain understanding that was reached between General Electric and Airflo, to which it is now not necessary to refer. The letter, however, H contained the following passages:

"The executors are satisfied that the accounts owing to your clients to the date of death will be properly and timeously paid in full by Airflo. As the estate will have no further participation in the management of Airflo, it is understandable that the estate is not prepared to continue to provide security for business done between your clients and Airflo after date of death....

Mr Varvarigos has informed me on Friday that, until such time as a proper formal release and new arrangements are made, he will not purchase any further goods from your clients and accordingly we hereby request that your clients be advised that no further goods are to be supplied to Airflo by your clients,

Boshoff JP

whereby they rely on the security given by the deceased. This basis for business must be regarded as cancelled with immediate effect."

On 14 October 1977 General Electric wrote to Varvarigos as follows:

A "This letter will confirm our recent conversations with respect to Airflo credit arrangements and release of the Sharfman suretyship.

At this time, Sage (General Electric) is prepared to grant Airflo a R50000 credit line upon fulfilment of the following:

1.

Finalization of the pending Airflo reorganization and communication of same to Sage. In addition to the capital and share-owner structure of all companies, Sage would like clarification of the relationships between Airflo Conditioning, Cape and Vaal (eg which assets will be carried in which companies).

2.

B Sage to receive personal suretyships, unlimited in amount, from the new directors of Airflo. Sage would also require personal financial statements from the new directors.

3.

A cession to Sage from Airflo Conditioning in respect of the life insurance and disability policy on N Varvarigos. The cession would be limited by the amount of indebtedness of Airflo to Sage at the time of default.

4.

C Airflo Conditioning to grant a notarial bond in favour of Sage over all movable assets.

In addition, Sage is prepared to release the Sharfman estate from the late Mr Sharfman's suretyship upon finalization of the...