15 Feb 2011
A surety is as binding as if you had signed for the loan yourself. Unless you are prepared and can afford to repay the loan when the borrower defaults, you should not sign surety. This judgment is yet another example of a surety unsuccessfully attempting to escape liability by referring to alleged oral representations made by the bank when the suretyship was signed. The Court confirmed that where the suretyship was reduced to writing, extrinsic evidence cannot later be allowed to vary terms of that document.
ABSA Bank Limited v Groenwald (14249/2010) [2011] ZAGPPHC 5 (14 January 2011) A surety is as binding as if you had signed for the loan yourself. Unless you are prepared and can afford to repay the loan when the borrower defaults, you should not sign surety. This judgment is yet another example of a surety unsuccessfully attempting to escape liability by referring to alleged oral representations made by the bank when the suretyship was signed. The Court confirmed that where the suretyship was reduced to writing, extrinsic evidence cannot later be allowed to vary terms of that document.
The Judgment can be viewed here.
Facts
In this matter, ABSA instituted an action for summary judgment against Groenwald, a surety, for payment of amounts owing to it in terms of two credit agreements (a cheque account and a loan agreement) entered into with Simply Fish (Edenvale) CC and Simply Fish (Edenvale). (The judgment unfortunately does not indicate what the relationship or differences are between Simply Fish (Edenvale) CC, on the one hand, and Simply Fish (Edenvale), on the other.)
Groenwald signed surety in his personal capacity in respect of both loans. (The judgment refers interchangeably to Groenwald as ?his? and ?him?, and as ?hers? and ?her?. For purposes of this summary we have throughout assumed Groenwald is male.) The suretyship was in favour of ABSA and "for the repayment of any sum or sums of money" which Simply Fish (Edenvale) owes or may owe to the Bank from whatever cause arising and the due fulfilment of all liabilities incurred by the Debtor in his own name or in the name of any business under which he may be trading...".
Groenwald defended the claims on the grounds that: (i) He never received the letter of demand because it was sent to the wrong address and that therefore there was no compliance with section 129(1)(a) of the National Credit Act 34 of 2005 ('the NCA'); (ii) During the negotiations with ABSA with regard to the two loan facilities, it was expected of him to sign as surety for the increase of the outstanding bond account of one Steffenini Property Devolvement Trust as additional security for Simply Fish (Edenvale) CC, the former account also being held with ABSA. (Note that the judgment unfortunately offers no detail as to the nature of the relationship between Steffenini Property Development Trust, Groenwald and Simply Fish CC.) The increased bond loan (of Steffenini) would act as security for the loan granted to Edenvale). However, it was never agreed in his presence nor discussed with him that Simply Fish (Edenvale) CC?s cheque account would be overdrawn. Also, because he only earned about R1300.00 per month (after servicing some R16,000 to the existing Steffenini bond), he made it clear to ABSA that he would not be able to afford any further debt. He was however informed that the bond increase was merely cosmetic. As such, he never had the intention to be bound as surety for any liability of Simply Fish (Edenvale) CC; (iii) It was further submitted by Groenwald that he never expressly agreed to an increase of the loan and that ABSA, in allowing such increase, breached the agreement. ABSA replied that: Whilst the initial letter of demand was sent to the incorrect address, it rectified the error and sent a second letter of demand to the correct address, this second letter being delivered by the Sheriff; and With regard to the alleged purpose for which she signed the surety, such an argument was not admissible since it would constitute parol evidence which was inadmissible; and She did not have a bona fide defence to the claim. Held: It is trite that in order to successfully resist a summary judgment application, a defendant must satisfy the court that he has a bona fide defence by disclosing the full nature of his defence as well as the material facts on which he/she relies. Moreover, the defence so disclosed must go to the merits, and not be merely technical. With regard to Groenwald?s contention that there was no express agreement to increase the loan: The deed of suretyship expressly stated that Groenwald bound himself for the repayment "of any sum or sums of money, which the Debtor owes or may owe to the Bank from whatever cause arising and the due fulfilment of all liabilities incurred...". Groenwald cannot now, as he attempted to do, explain what the (alleged) actual terms of the agreement were because this would introduce extrinsic evidence which the parol evidence rule disallows. (This argument suggests that the written agreement does not contain all the terms agreed by the parties and seeks admission of facts that add to the terms thereof. But the rule in our law is that when parties chose to reduce their agreement to writing, the writing is, in general, regarded as the exclusive memorial of transaction and in a suit between the parties no extrinsic evidence to prove its terms may be given apart from the document itself or secondary evidence of its contents. Oral evidence is generally not allowed to contradict, alter, add to or vary the terms of such an agreement, in line with the parol evidence rule. This rule holds that evidence cannot be admitted for the purpose of varying or contradicting written language recording the agreement between two parties. Parol evidence can, however, be considered if the party offering it can establish that the relevant language in the agreement is ambiguous and such language relates to the disputed issue.) Therefore the Court held that Groenwald could not go outside the written contract to explain what was agreed upon and what his understanding of the agreement or intention was when he signed the surety; and he is therefore bound thereto. With regard to the contention that there was no compliance with Section 129(1) of the NCA, our courts have established that if the underlying loan agreement is not covered by the NCA, then the suretyship in respect thereof, is also excluded. The reason for this is that a surety who has bound himself as surety and co-principal debtor, remains a surety whose liability arises wholly from the contract of suretyship. Signing as surety and co-principal debtor does not render a surety liable in any capacity other than a surety. In the present matter, Groenwald?s indebtedness in respect of both claims arises from the fact that he signed as surety for the payment of any amount whatever the source owed by Simply Fish (Edenvale) CC to ABSA. Since the loan agreement here did not fall within the ambit of the NCA (this fact was not in issue and the Court therefore did not indicate why the loan and overdraft fell outside the NCA), so also did the suretyship fall outside. Accordingly, the Court granted summary judgment against Groenwald