THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

REPORTABLE

Case No: 482/13

In the matter between

GERHARDUS ADRIAAN ODENDAL & ANOTHER
APPELLANT

and

STRUCTURED MEZZANINE
INVESTMENTS (PTY) LTD

RESPONDENT

Neutral citation: G A Odendal v Structured Mezzanine Investments (482/13)
[2014] ZASCA 89 (30 May 2014)

Coram:
Ponnan, Maya, Leach, Saldulker and Swain JJA

Heard:
13 May 2014

Delivered:
30 May 2014

Summary:
General Law Amendment Act 50 of 1956 - s 6 – deed of
suretyship - validity of.

______________________________________________________________

ORDER
______________________________________________________________

On appeal from:  Western Cape High Court (Gamble J sitting as court of first
instance)

The appeal is dismissed with costs.

______________________________________________________________

JUDGMENT
______________________________________________________________

PONNAN et SALDULKER JJA (MAYA, LEACH and SWAIN JJA
concurring):

[1] This appeal, with the leave of the court below, concerns the validity of a
suretyship. Judgment was granted by the Western Cape High Court (Gamble
J)  in the sum  of R16 631 071,41, together with interest and costs, in favour
of the respondent, Structured Mezzanine Investments Limited (SMI), against
the first appellant, Gerhardus Adriaan Odendal (Odendal) and the second
appellant, Gabriel Joshua Jordaan (Jordaan) in terms of that deed of
suretyship (the suretyship) which had been signed by the appellants and
Francois Basson (Basson), who were the trustees of FXT Property Trust (the
Trust), as security for a loan to the Trust.

[2] On 18 February 2008, SMI, a bridging financier, approved an
application by the Trust for a loan facility in the amount of R10 million to partly
fund a sectional title development by the Trust in Hermanus.  In its letter of
approval, SMI recorded, inter alia, that as security for the loan a second
mortgage bond would have to be registered over erf 10965 Hermanus (the
property), the trustees would have to bind themselves as sureties for all of the
Trust‟s obligations, and an irrevocable guarantee would have to be furnished
on behalf of the Trust to SMI. The terms and conditions recorded in the facility

letter were accepted by Basson on behalf of the Trust by appending his
signature thereto on 7 March 2008. On 16 April 2008 Basson, duly authorised
by the Trustees, signed a power of attorney authorising the registration of a
mortgage bond over the property in favour of SMI as security for the loan. On
the same day Basson signed the suretyship, as a surety and co-principal
debtor in respect „of any sum of money‟ which the Trust may „now owe or in
the future owe‟ to SMI arising from the loan agreement concluded between
SMI and the Trust in April 2008.

[3] On 24 April 2008 the trustees adopted a resolution authorising the
Trust to borrow R10 million from SMI.   Basson was authorised in his capacity
as trustee of the Trust to settle the terms and conditions applicable to the loan
and sign all documentation relating thereto. On the same day the appellants
signed the suretyship, which provided in clause 1:
„The payment on demand of any sum of money together with all costs and charges
including legal costs as between attorney and own client which the Debtor may now
or in the future owe to SMI arising from the Loan agreement concluded between SMI
and the Debtor on or about    April 2008 (a true copy which (sic) is annexed hereto).‟
A further material term of the suretyship was, inter alia:
„4. This suretyship shall remain in force and effect as a continuing covering
suretyship for the present and future indebtedness and obligations of the debtor to
SMI, notwithstanding any interim fluctuation in the extinction (for any period) or of
indebtedness and subsequent incurring of any new indebtedness or obligation by the
Debtor to SMI and nothwithstanding the death or other legal disability of any of us
until terminated in accordance with the terms hereof.‟

[4] On 25 April 2008 Basson, on behalf of the Trust signed a
Memorandum of Agreement (the loan agreement), which recorded the
undertaking by SMI to lend and advance R10 million to the Trust.  The further
material terms of the loan agreement were, inter alia:
„3.1.1 the registration of a First or Second Covering Mortgage Bond by the Borrower
in favour of SMI over the property to the value of R10 000 000.00 (ten Million Rand)
. . .
3.1.2 A Deed of Suretyship signed by Francois, Gabri and Gerhard in terms whereof
they shall jointly and severally have guaranteed the obligations of the Borrower under

this agreement in such form and subject to such terms and conditions as SMI may
reasonably require; which shall continue to constitute security for all the Borrower‟s
obligations to SMI from time to time including its obligations arising out of this Loan
Agreement.
. . .
4.2 Receipt and approval of a Special Power of Attorney signed by Francois
authorizing the registration of a First or Second Covering Mortgage Bond in favour of
SMI by the Borrower ranking as second charge over the property to the value as set
out in clause 3.1.1 above, upon terms and conditions as registered by the attorneys;
4.3 Receipt and approval of resolution by the Borrower [the Trust] authorizing the
entering into of this agreement and authorizing Francois to sign all documentation
relating hereto on its behalf;
4.4 Receipt of an irrevocable undertaking by the transferring attorneys attending to
the transfer of the Units in the development, to guarantee payment of the net
proceeds of the sale of the Units immediately on date of registration of transfer of the
Units to first transferees, to SMI in settlement of the outstanding capital sum due to
SMI. . .‟

[5] On 8 May 2008 attorneys Jordaan & Associates (per Jordaan)
furnished the irrevocable guarantee sought by SMI in these terms:
„1. We have been instructed that you have agreed to loan and advance an
amount of R10 000 000.00 (Ten Million Rand) plus costs and interest to [the
Trust] on the terms and conditions set out in the Loan Agreement [the loan
Agreement] to be entered into between, inter alia, our client and yourselves.
2. We confirm that we have received a written and irrevocable appointment by
[the Trust] to attend to the opening of the abovementioned sectional title
scheme and to attend to the transfer of the units in the Development from our
client to the purchasers thereof.
. . .
4. We confirm that this undertaking may not be revoked.‟

[6] On 25 May 2008 the loan agreement was signed on behalf of SMI.  On
29 May 2008 SMI advanced the capital sum of R10 million to the Trust.  A
further sum of R1.4 million was advanced by SMI to the Trust on 27 October
2008. When the Trust defaulted in making payments under the loan

agreement, SMI launched application proceedings against it, as well as the
sureties, seeking judgment jointly and severally, for payment in the sum then
outstanding of R16 631 071,41.

[7] In an answering affidavit filed on behalf of the appellants, neither the
existence of the loan agreement nor the suretyship was disputed. The
appellants restricted themselves to two defences, namely, that: „Applicant
[SMI] would be repaid from the development and, although we bound
ourselves as sureties, stood no real risk of being called upon to pay‟; and,
„[t]he interest rate of 1,25% per week, stipulated in the loan agreement,
escalated to 1,5% per week in the event of default, is against public policy and
should . . . not be enforced‟.  When the matter came before Van Staden AJ
both of those defences were abandoned, and for the first time the validity of
the deed of suretyship was placed in issue. Van Staden AJ, who it would
appear entertained some reservations as to the validity of the suretyship,
entered judgment against the Trust but postponed the application against the
appellants and granted leave to the parties to supplement their papers if so
advised.  SMI duly supplemented its papers. The appellants filed answering
affidavits in response, stating that when they signed the suretyship the loan
agreement was not then in existence. The matter ultimately came to be
argued before Gamble J. By that stage, Basson, whose estate had been
sequestrated, had fallen out of the picture. Gamble J found in favour of SMI
and entered judgment against the appellants.

[8] The gist of the argument advanced on behalf of the appellants on
appeal is that the deed of suretyship did not comply with the requirements of s
6 of the General Law Amendment Act 50 of 1956 (the Act), inasmuch as: first,
the principal debt was not in existence at the time of the conclusion of the
suretyship; and, second, clause 1 of the suretyship was not a reference to the
loan agreement that in due course came to be concluded between the parties.
Section 6 is in these terms:
„No contract of suretyship entered into after the commencement of this Act, shall be
valid, unless the terms thereof are embodied in a written document signed by or on
behalf of the surety:‟ (The proviso which is not here relevant has been omitted)

As to the first:
[9] As far as the parties in the present proceedings are concerned, the
suretyship in essence amounts to a promise by each of the appellants to SMI
to guarantee any indebtedness which the Trust may now or in the future incur
to SMI. It is indeed so that a contract of suretyship is accessory in the sense
that it is of the essence of suretyship that there be a valid principal obligation
(that of the debtor to the creditor). But, that the loan agreement between the
Trust and SMI had not yet been concluded, is in and of itself no barrier to the
potential validity of the suretyship contract. As was pointed out by Corbett JA
in Trust Bank of Africa Ltd v Frysch 1977 (3) SA 562 (A) at 584G-H, „…it is not
essential that the principal obligation exists at the time when the suretyship contract
is entered into. A suretyship may be contracted with reference to a principal
obligation which is to come into existence in the future.‟

As to the second:
[10] In this instance, in terms of the suretyship, the appellants are potential
principal debtors and potential sureties. As sureties, they are liable to SMI for
the principal debt created by the suretyship, namely the debt arising from the
loan agreement between SMI and the Trust. But, contend the appellants, that
agreement, being the one giving rise to the principal debt, is not the one to
which reference is made in the suretyship. The suretyship refers to an already
concluded loan agreement. But it is undisputed that at the time of the signing
of the suretyship and despite the reference therein to an already concluded
agreement no such agreement had in fact been concluded. In Sapirstein &
others v Anglo African Shipping Co (SA) Ltd 1978 (4) SA 1(A) at 12B-D,
Trengove AJA stated:
„What s 6 requires is that the “terms” of the contract of suretyship must be embodied
in the written document. It was contended by counsel for plaintiff that this meant that
the identity of the creditor, of the surety and of the principal debtor, and the nature
and amount of the principal debt, must be capable of ascertainment by reference to
the provisions of the written document, supplemented, if necessary, by extrinsic
evidence of identification other than evidence by the parties (ie the creditor and the
surety) as to their negotiations and consensus. I agree with this contention. In my

view, there can be no objection to extrinsic evidence of identification being given,
either by the parties themselves, or by anyone else, unless the leading of such
evidence can be said to amount to an attempt to supplement the terms of the written
contract “by testimony as to some negotiation or consensus between the parties
which is not embodied in the written agreement” (see Van Wyk v Rottcher’s Saw
Mills (Pty) Ltd 1948 (1) SA 983 (A) at 991).‟

[11] It is contended by SMI that what saves the suretyship, despite its
deficiency, from extinction, was the reference to the loan agreement ultimately
concluded, which, it was said, was incorporated by reference into the deed of
suretyship. Incorporation by reference, as the name implies, occurs when one
document supplements its terms by embodying the terms of another. It is now
settled that a deed of suretyship that omits essential terms may nonetheless
be saved from invalidity by virtue of the doctrine of incorporation by reference.
(See Fourlamel (Pty) Ltd v Maddison 1977 (1) SA 333 (A); Industrial
Development Corporation of SA v Silver 2003(1) SA 365 (SCA).) Scott JA
observed in  Industrial Development Corporation, para13 that: „Extrinsic
evidence identifying the loan agreements as the one referred to is all that
would be required and is therefore admissible.‟

[12] The deed of suretyship in this case identifies the principal obligation by
direct reference to the loan agreement. Much evidence was placed before the
high court as forming part of the background facts relevant to and proper for
consideration in relation to the question now being considered, namely,
whether the requirements of s 6 were met. All of that evidence served,
moreover, to identify the acknowledgement of debt referred to in the
suretyship. Thus in his supplementary affidavit filed on behalf of SMI, Du
Plessis stated (as summarised by Gamble J):
„27.1
On 16 April 2008 Basson attended on the offices of SMI‟s attorneys in Cape
Town.
27.2
At a meeting with SMI‟s attorney that day, Basson “signed all the documents,
including the loan agreements and the deed of suretyship” in the presence of the
attorney.

27.3
Basson explained to SMI‟s attorney that he would meet with Odendal and
Jordaan (who could not make the meeting) for purposes of procuring their signatures
on the various documents, including the loan agreement and the suretyship.
27.4
Sometime between 16 and 24 April 2008 Basson contacted a director of SMI
and proposed three minor amendments to the draft loan agreement. It is contended
that these were not contentious and that SMI agreed thereto. SMI also instructed its
attorneys to make the necessary amendment to the draft loan agreement.
27.5
A copy of the loan agreement in its form prior to these three amendments,
and as signed by Basson on 16 April 2008, was annexed by Du Plessis to the
supplementary affidavit.
27.6
On 25 April 2008 SMI‟s attorney met Basson at the latter‟s office and was
handed a number of documents by Basson. These included the signed deed of
suretyship, the loan agreement as already signed by Basson on 16 April 2008 (in its
unamended form), and the unsigned amended loan agreement.
27.7
During the aforesaid meeting with SMI‟s attorney Basson informed the latter
that Jordaan had informed him, when signing the deed of suretyship the previous
day, that he wanted a further amendment to be made to the draft agreement viz.to
clause 9.1.1 thereof which governs the procedure to apply on default by the debtor.
27.9
Du Plessis says that according to Basson SMI‟s attorney was amenable to
that amendment and a manuscript alteration was made to clause 9.1.1 of the
amended draft of the loan agreement. This alteration is visible on the signed loan
agreement filed with the founding affidavit.
27.10 On the same day (25 April 2008) Basson handed to SMI‟s attorney the
trustees‟ resolution referred to above, which also bore the signatures of Odendal and
Jordaan. Du Plessis draws attention, once again, to the fact that the resolution
identified both the nature and the amount of the principal debt.‟

[13] Earlier in that affidavit, Du Plessis asserted (para 23):
„From the above it is evident that, although the loan agreement in its final signed form
as attached to the founding affidavit was not in possession of Odendal and Jordaan
at the time they signed the deed of suretyship, they were in fact in possession of a
copy of the loan agreement in the exact same terms save for the four amendments
referred to above, which amendments were effected subsequently. It is further
evident that the four amendments did in no way whatsoever affect the principal debt.
Accordingly, the document which was attached to the deed of suretyship at the time it
was signed by Odendal and Jordaan properly and sufficiently identified the principal

debt for which they signed surety. Furthermore, the four amendments which were
effected were in fact proposed by Basson and Jordaan, ostensibly after consultation
with Odendal. I reiterate that those amendments did not in any way whatsoever affect
the extent or nature of the principal debt.‟
The supplementary answering affidavit filed by the appellants in response, like
its predecessor, was scant. Odendal, who deposed to that affidavit stated:
„The Suretyships and resolution were signed by Jordaan and myself at Jordaan‟s
offices on 24 April 2008 after Basson handed it to Jordaan for signature. The loan
agreement was definitely not handed to us nor attached to any document we signed.
We were asked to sign the suretyships at that stage and were told that the loan
agreement would be concluded later. I did not even read the terms of the suretyship
due to the factors set out above. 6th Respondent and I are not aware what happened
at the meetings between the meetings between Applicant and First Respondent nor
what was said between them.‟

[14] Gamble J observed:
„I am satisfied that Du Plessis‟s summary of events in the supplementary affidavit,
and the conclusions to be drawn therefrom as set out in the said paragraph 23, are a
correct and accurate reflection of the state of play at the time the suretyship was
signed. To the extent that there are disputes of fact put up by Odendal in the
supplementary answer, I do not believe that such disputes survive the test in
Plascon-Evans: they are fanciful and designed to be apparent rather than real. The
question that then arises is whether this additional evidence is admissible in light of
the parole evidence and integration rules.‟
The learned judge accordingly concluded:
„I have already found that the denial by Odendal and Jordaan that the partially
signed, unamended agreement was annexed to the suretyship is not worthy of
serious credence. But even if I am wrong in this regard, it matters little to my mind
that the document was not attached: it was readily capable of identification by the
parties, was in existence at the time the suretyship was signed, had been signed by
Basson on behalf of the trust and the material terms thereof had been agreed upon.‟

[15] In our view this evidence is decisive with regard to the identification of
the loan agreement referred to in the suretyship. Moreover, the appellants
were not strangers to either transaction - qua trustees, they had: resolved to
borrow the money from SMI on behalf of the Trust; authorised various actions

to secure the loan, including, but not limited to, the signing of the suretyship
agreement, the registration of a mortgage bond over the property and the
furnishing of an irrevocable guarantee. In addition, the terms of the loan
facility approval of February 2008, which Basson signed on behalf of the
Trust, mirrored in material respects those of the loan agreement. Tellingly, in
Jordaan‟s application for the sequestration of the Trust, he recorded that he
and Odendal regarded themselves as indebted to SMI by virtue of the deed of
suretyship that they had concluded in respect of the Trust‟s indebtedness to
SMI. That was consistent with their initial approach in these proceedings,
when the validity of the suretyship was not placed in issue. It is thus difficult to
resist the conclusion that the defence, which came to be raised midstream in
these proceedings, was contrived.

[16] It must follow that the defence raised that the deed of suretyship is
invalid for lack of compliance with s 6 of the Act must fail, for reading the
written loan agreement as incorporated into the suretyship, which expressly
refers to it, the requirements of that section are satisfied. In the result the
appeal must fail.

[17] The appeal is dismissed with costs.

_________________
VN PONNAN
JUDGE OF APPEAL

_________________
HK SALDULKER
JUDGE OF APPEAL

APPEARANCES
For appellant:
L M Olivier SC

Jordaan & Associates, Somerset West

Rossouw & Conradie, Bloemfontein

For respondent:
J F Pretorius

Sim & Botsi Attorneys, Johannesburg

Smit Rowan Attorneys, Cape Town

Symington & De Kock, Bloemfontein
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:
30 May 2014
Status:
Immediate

Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.
Odendal & another v Structured Mezzanine Investments (Pty) Ltd
The Supreme Court of Appeal (SCA) today  dismissed an  appeal against a judgment of the
Western Cape High Court  ordering Gerhardus Adriaan Odendal (Odendal) and  Gabriel
Joshua Jordaan (Jordaan) (the appellants) to honour the terms of a deed of suretyship which
they had signed together with Francois Basson, in their capacity as trustees of FXT Property
Trust (the Trust), as security for a loan from Structured Mezzanine Investments Limited
(SMI) in favour of the Trust.  SMI, a bridging financier approved an application by the Trust
for a loan facility in the amount of R10 million to partly fund a sectional title development by
the Trust in Hermanus.  In its letter of approval, SMI recorded, inter alia, that as security for
the loan: a second mortgage bond would have to be registered over ERF 10965 Hermanus
(the property); that the trustees would have to bind themselves as sureties for all of the
Trust’s obligations; and, that an irrevocable guarantee would have to be furnished on behalf
of the Trust to SMI. The terms and conditions recorded in the facility letter were accepted by
Basson on behalf of the Trust. On 16 April 2008 Basson, duly authorised by the Trustees,
signed a power of attorney authorising the registration of a mortgage bond over the property
in favour of SMI as security for the loan. On the same day Basson signed the suretyship, as a
surety and co-principal debtor in respect ‘of any sum of money’ which the Trust may ‘now
owe or in the future owe’ to SMI arising from the loan agreement concluded between SMI
and the Trust in April 2008.

The appellants contended on appeal  that the deed of suretyship did not comply with the
requirements of s 6 of the General Law Amendment Act 50 of 1956 (the Act), inasmuch as:
firstly, the principal debt was not in existence at the time of the conclusion of the suretyship;
and, secondly, clause 1 of the suretyship was not a reference to the loan agreement that in due
course came to be concluded between the parties.  It was contended by SMI that what saves
the suretyship, despite its deficiency from extinction was the reference to the loan agreement
ultimately concluded which it was said was incorporated by reference into the deed of
suretyship.

The SCA held that the suretyship in essence amounted to a promise by each of the appellants
to SMI to guarantee any indebtedness which the Trust may now or in the future incur to SMI.
It is indeed so that a contract of suretyship is accessory in the sense that it is of the essence of
suretyship that there be a valid principal obligation (that of the debtor to the creditor). But,
that the loan agreement between the Trust and SMI had not yet been concluded was held, in
and of itself, to be no barrier to the potential validity of the suretyship contract.  The SCA
held further that the appellants are potential principal debtors and potential sureties, and as
sureties, they were  liable to SMI for the principal debt created by the suretyship, namely the
debt arising from the loan agreement between SMI and the Trust.

The SCA held that the deed of suretyship in this case identifies the principal obligation by
direct reference to the loan agreement. The appellants were not strangers to either
transactions-qua trustees, they had resolved to borrow the money from SMI on behalf of the
Trust, authorised various actions to secure the loan, and the terms of the loan facility approval
mirrored in material respects those of the loan agreement. Tellingly, in Jordaan’s application
for the sequestration of the Trust, he recorded that he and Odendal regarded themselves as
indebted to SMI by virtue of the deed of suretyship that they had concluded in respect of the
Trust’s indebtedness to SMI. The SCA held that it must follow that the defence raised that the
deed of suretyship was invalid for lack of compliance with s6 of the Act  must fail, for
reading the written loan agreement as incorporated into the suretyship, which expressly refers
to it, the requirements of that section were satisfied.