OF SURETYSHIPS AND PRINCIPAL DEBTORS … DEFINITIVE COURT RULING – DENNIS SIBUYI

Tuesday, May 06, 2008
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Wallace, William Francis v 1662 G & D Property Investments CC, Case Number: 8251/2006 (WLD)
 
By Dennis Sibuyi
 
The plaintiff sued the defendant on two suretyships which related to the same principal debt. The suretyships were identical, except that one specified the amount of the principal debt owing at that particular time. The suretyships identified the creditor (plaintiff) and surety (the defendant). However, both suretyships failed to specify or identify the principal debtor.
 
Section 6 of the General Law Amendment Act 50 of 1956 (“the Act”) requires that a suretyship agreement must be in writing. That is, the essential terms of a suretyship must be embodied in a written document. In this case, the court had to decide whether the suretyships were valid, that is, whether the suretyships complied with section 6 of the Act. The parties agreed that the issue of the validity of the suretyships was a question of law which could be determined separately.    
 
It was  common cause between the parties that the suretyships did not identify the principal debtor. In an attempt to cure the defect in the suretyships, the plaintiff pleaded in his particulars of claim that it was an “express, alternatively implied, further alternatively tacit” term of the suretyships that his son, Graham Michael Wallace was the alleged principal debtor in the suretyships.
 
The court reasoned that in a case where an essential term of a suretryship agreement was lacking, for example, the identity of the principal debtor, extrinsic evidence as to the identity of the principal debtor may be led to cure the defect, provided:
 
(a)                   the evidence led did not amount to an attempt to supplement the terms of the written contract by testimony as to some negotiation or consensus between the parties which was not embodied in the written document.
 
By implication, the court found that the requirements of section 6 of the Act may be satisfied if the missing identity of the principal debtor can be established with sufficient certainty through the introduction of admissible extrinsic evidence that is clearly linked to the debtor sought to be identified in the suretyship, but not to a potentially unlimited group of debtors. The court agreed that the identity of the debtor may be established by the incorporation of or cross-reference to another written document referred to or incorporated in the suretyship agreement in question.
 
For example, the court would accept extrinsic evidence where a deed of suretyship incorporated a loan agreement, which loan agreement identified the  principal debtor, despite the deed of suretyship not recording the name of the principal debtor as blank space had been left for the insertion of the name of the principal debtor, and then inadvertently omitted . The loan agreement identified the principal debtor and the amount of the debt which was similar to the amount stated in the suretyship.
 
The court stated that the suretyships in the matter before it did not  identify the debtor and the extrinsic evidence that the plaintiff had to lead in order to identify the debtor was not of an identificatory nature, but constituted evidence of negotiations and consensus between the parties. Effectively, it would mean ascertaining what the parties had in mind when they referred to “the debtor” in the suretyships. The court further stated that this was the type of evidence which section 6 of the Act sought to exclude.
 
The court held that there was no certainty as to the identity of the debtor in this case and that it was not permissible to lead  extrinsic evidence in order to cure the this defect  In addition, the court held that the suretyships did not refer to a written document in which the indebtedness was recorded along with the identity of the debtor. The court concluded that the suretyships fell foul of section 6 of the Act and were invalid as they failed to record the identity of the principal debtor.   
 
Dennis Sibuyi is a senior associate at Bowman Gilfillan.