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MAKULUBA v NATIONAL DEVELOPMENT BANK AND OTHERS IN RE: NATIONAL
DEVELOPMENT BANK v MASUNGA MEAT MARKET (PTY) LTD AND OTHERS 2006
(2) BLR 240 (HC)
Citation: 2006 (2) BLR 240 (HC)
Court: High Court, Francistown
Case No: Civ Cause No F998 of 2004
Judge: Mosojane J
Judgement Date: April 5, 2006
Counsel: O Pusoentsi for the applicant. Taunyane for the first and fourth respondents.
Flynote
Contract - Suretyship - Release from - Application for release from suretyship on novation of
agreement - Arrangement between creditor and debtor allowing debtor extension of time to pay - No
novation of contract - Surety not released.
Headnote
The applicant and third respondent were each sued for amounts owing by them in terms of
deeds of suretyship signed by them in respect of a loan made to the second respondent.
The applicant and the second respondent's goods were attached in execution. Thereafter,
the second respondent entered into an arrangement with the first respondent to suspend
the sale of its assets and allow it to liquidate the outstanding amount in instalments. The
applicant applied for a stay of the sale in execution and to be released from his obligations
as surety and co-principal debtor, arguing that the arrangement between the first and
second respondents constituted a novation of the obligation of the principal debtor
which discharged the applicant from his obligation as surety.
Held: (1) Novation was the result of an agreement which extinguished the original
obligation between the parties and replaced it with a fresh obligation. Its effect was to
discharge the old liabilities with all their incidents.
(2) A contract of suretyship was liable to be discharged by any event which
extinguished the principal debt and by any material variation of the principal contract. As a
rule of law, an extension of time given by the creditor to the debtor would not discharge the
surety. Estate Liebenberg v Standard Bank of SA Ltd 1927 AD 502 applied.
(3) Where a surety averred that he had been discharged by reason of a novation,
the onus was on him to satisfy the court that there had been such a novation. The
arrangement between the first and second respondents had had the effect of allowing the
second respondent an extension of time for payment and did not amount to a novation
which entitled the applicant to be discharged from his obligations. Application dismissed.
Case Information
Cases referred to:
Darling v Registrar of Deeds, Cape Town 1912 AD 28
Estate Liebenberg v Standard Bank of SA Ltd 1927 AD 502
Ewers v The Resident Magistrate of Oudtshoorn and Another 1880 Foord 32
Moosa v Mohamed 1939 TPD 271
Neon and Cold Cathode Illumination v Ephron 1978 (1) SA 463 (A)
Ottawa Rhodesia (Pvt) Ltd v Burger 1975 (1) SA 462 (R)
Schoeman v Moller 1949 (3) SA 949 (O)
St Patrick's Mansions (Pty) Ltd v Grange Restaurant (Pty) Ltd and Another 1949 (4) SA 57
(W)
Trust Bank of Africa Ltd v Dhooma 1970 (3) SA 304 (N)
Application to be released as surety. The facts are sufficiently stated in the judgment.
O Pusoentsi for the applicant.
Taunyane for the first and fourth respondents.
Judgement
MOSOJANE J:
By a writ of summons issued on 5 October 2004 the first respondent, National
Development Bank (then the plaintiff) brought an action against the second respondent, the
third respondent and the applicant (then the first, second and third defendants
respectively), claiming a total of P1 011 164.36 being in respect of a loan advanced to the
second respondent, Masunga Meat Market (Pty) Ltd, by the first respondent. The cause of
action against the applicant and the third respondent arose from the respective deeds of
suretyship executed by them individually and in which they bound themselves in solidum
for and as co-principal debtor jointly and severally with the second respondent to the extent
of P430 000 each, at the same time renouncing the benefit of excussion and other benefits.
The amount of P430 000 constituted half of the capital amount loaned to the second
respondent. The applicant and the third respondent were each sued for this amount owing,
by each in terms of the respective deeds of suretyship signed by them.
On 26 November 2004, having received a notice of appearance to defend and acting in
terms of Order 34 rules 1 and 2 of the Rules of the High Court (Cap 04:02) (Sub Leg), the
first respondent launched an application for summary judgment against the applicant. On
10 December 2004 it obtained judgment for P430 000 plus interest and costs against the
applicant before Chinhengo J. Judgment was thereafter obtained against the second and
third respondents by default in terms of Order 30 of the Rules of the High Court.
Thereafter the applicant's goods as well as the goods of the second respondent were
attached in execution. The second respondent then entered into an arrangement with the
first respondent which was to suspend the sale of its assets and allow it to pay an amount
of P15 000 monthly, upon default of which the first respondent would be entitled to proceed
with the sale of the attached property. The second respondent has since defaulted by
failing to pay the agreed instalments. Before that, however, the applicant had launched this
application.
The application sought first, a rule nisi staying the sale in execution of the applicant's
attached goods. I granted that interim order on 17 August 2005. Secondly, the application
seeks that the applicant be discharged from his obligations as surety and co-principal
debtor with the second respondent for the repayment of the sum of P430 000; and thirdly
that he be discharged from his obligations arising out of the summary judgment granted
against him on 10 December 2004. The effect of this is to have his property released from
attachment. The orders being sought are based on the notion that the deal allowing the
principal debtor, that is, the second respondent, to settle the debt by way of instalments
while at the same time proceeding against the applicant constitutes a novation and is
prejudicial to the applicant.
The applicant relies mainly on the case Schoeman v Moller 1949 (3) SA 940 (O) and
Ottawa Rhodesia (Pvt) Ltd v Burger 1975 (1) SA 462 (R) in particular the following dicta,
expressed by Horwitz J in Schoeman at p 956:
'... the obligation of a surety is discharged when the principal obligation between the creditor and the
debtor is novated or when that obligation is materially varied without knowledge of and consent to the
variations by the surety.'
and in the headnote at p 462:
'(when a creditor releases a debtor from liability for part of his claim, he cannot reserve his rights
against the surety in respect of the released part of his claim as such a release deprives the surety of an
effective cession of the creditor's claim against the debtor and the surety is prejudiced because his right of
recourse is rendered valueless. In the case of a creditor releasing a principal debtor, a release is therefore
deemed to discharge the obligation of the surety to the extent of the contribution the latter could have
recovered from the former had the creditor not put it beyond his power to give cession of action against
the released debtor.'
It is accordingly on the basis of these authorities that the applicant contends that the
arrangement made between the creditor and the principal debtor, whereby the latter was
allowed time to liquidate the debt by monthly instalments, brought about a novation of the
obligation of the principal debtor. That, so it is contended on his behalf, discharges the
applicant from his obligation as surety and so also from the judgment of this court granted
on 10 December 2004.
Novation simply defined is the result of an agreement which extinguishes the original
obligation between the parties and replaces it with a fresh obligation. See Wille's Principles
of South African Law (6th ed) at p 365. Its effect is to discharge the old liabilities with all
their incidents, for example interest, real and personal securities, and to purge any
previous mora.
It is trite that a contract of suretyship is liable to be discharged by any event which
extinguishes the principal debt and by any material variation of the principal contract. As an
example, a valid tender of the amount of a debt made by the principal debtor discharges
the surety (St Patrick's Mansions (Pty) Ltd v Grange Restaurant (Pty) Ltd and Another
1949 (4) SA 57 (W). And, if a creditor has released one of the several sureties the rest are
discharged to the extent to which they are thereby precluded from recovering contribution
from the released surety (Moosa v Mohamed 1939 TPD 271). But as a rule of law an
extension of time given by the creditor to the debtor will not discharge the surety (Estate
Liebenberg v Standard Bank of South Africa Ltd 1927 AD 502).
Novation can come about by express agreement of the parties or by implication.
However, in the absence of express agreement to novate, the intention to do so will be
inferred. But, as in the case of waiver, an intention to novate an existing right is not readily
inferred, and where such an intention is sought to be established by implication, the
intention must be clear and unequivocal. See Trust Bank of Africa Ltd v Dhooma 1970 (3)
SA 304 (N). See further, Darling v Registrar of Deeds, Cape Town, 1912 AD 28 at p 35
where Lord De Villiers, CJ following Ewers v The Resident Magistrate of Oudtshoorn and
Another 1880 Foord 32 at p 35 held that the intention to effect a novation cannot, in the
absence of any express declaration by the parties, be held to exist except by way of
necessary inference from all the circumstances of the case.
Where a surety pleads or avers that he has been discharged by reason of a novation of the
principal obligation prejudicial to him, the onus is on him to satisfy the court that there has
been such a novation. The applicant relies principally, if not solely, on the said
arrangement entered into between the first respondent and the second respondent
whereby the latter was given extended time to settle the debt.
The onus is therefore on him to show that that arrangement or agreement constitutes
novation of the second respondent's obligation to the creditor. But as already observed a
creditor is not held to novate his debt merely by allowing his debtor an extension of time for
payment. That arrangement or agreement between the first respondent and the second
respondent did not therefore create a novation entitling the applicant to be discharged from
his obligation as surety and co-principal debtor. I would therefore dismiss this point.
There is yet another point to be settled, and that seems to be the reason that motivated this
application. Upon granting the second respondent a loan the first respondent took security
for the repayment thereof over the second respondent's property as follows:
(1)
A first mortgage bond over Tribal lots 12 and 13 situated at Masunga.
(2)
A first mortgage bond over Tribal lot 1112 situated at Masunga.and
(3)
A deed of hypothecation over the meat processing and butchery equipment
in the second respondent's shop at Masunga.
The applicant now points at these securities and contends that the first respondent is not
entitled to proceed against his property without first realizing these securities. In the
present case, however, the applicant did not just bind himself as a surety but also as a coprincipal debtor, and expressly renounced the benefit of excussion.
The law, as I understand it, is that ordinarily a surety is entitled to require the creditor to
realize any real security which he may have for his debt before pursuing the surety upon
his personal obligation. But this benefit cannot be set up by a surety who has bound
himself as a co-principal debtor or has expressly renounced the benefit of excussion
(beneficium ordinis sive execussionis). Caney at p 116 para 4 of his book The Law of
Suretyship (4th ed) expresses a similar view. He states clearly there that a surety is entitled
to demand that the principal debtor be first excused, by which is simply meant that the
creditor must, before suing the surety, exhaust his legal remedies against the principal
debtor for performance and payment. This he can do, the author continues, only where he
enjoys the benefit of excussion and not where he has renounced, or otherwise does not
enjoy, that benefit.
The distinction between liability as a 'surety' and liability as a 'surety and co-principal
debtor' was clarified in Neon and Cold Cathode Illumination (Pty) Ltd v Ephron 1978 (1) SA
463 (A). It was held there that 'generally the only consequence that flows from the surety
also undertaking liability as a co-principal debtor is that vis-È-vis the creditor he thereby
tacitly renounces the ordinary benefits available to a surety, such as those of excussion
and division, and he becomes liable jointly and severally with the principal debtor.' In the
final analysis therefore there is very little difference, if any, between liability as a 'coprincipal debtor' and liability as a 'surety' who has renounced the benefits of excussion and
division. In sum when a surety has executed such nature of deed, as the applicant has
done in the instant case, he is, to the same degree, just as liable to the creditor as the
principal debtor and the creditor is entitled to proceed against him even without proceeding
against the principal debtor, and unless he can show that he has been discharged from
liability he cannot stop any action against him by the creditor.
He, however, retains the right, on paying the creditor, to obtain a cession of the latter's
rights and securities in order to recover the full amount from the principal debtor. The
applicant in this case has failed to show that he has been discharged from his obligation.
The first respondent is entitled to proceed against him the way it has done and he has no
defence whatsoever against the actions of the first respondent.
The application therefore fails with costs to the first respondent.
Application dismissed.