Cape Produce Co (Port Elizabeth) (Pty) Ltd v Dal Maso NO and Another

Cape Produce Co (Port Elizabeth) (Pty) Ltd (CPC) held claims against Alberti Livestock (Pty) Ltd, whose debts were guaranteed by two individuals as sureties and co‑principal debtors. In December 1996 CPC and Alberti concluded a subordination agreement under which CPC subordinated its claims against Alberti in favour of Alberti’s other creditors until such creditors were paid in full. CPC later sued the sureties for payment of R15 million. The sureties contended that CPC’s claim was premature because the subordination agreement rendered the debt unenforceable until conditions in the agreement were met. Evidence showed, however, that Alberti had no creditors other than CPC at the relevant time.

The appeal succeeded with costs. The decisions of the trial court and the Full Court were set aside. Judgment was granted in favour of CPC against the sureties, jointly and severally, for R15 million with interest and costs.

The case clarifies the effect of subordination agreements on the liability of sureties and rejects a rigid application of the defences in rem / in personam dichotomy in this context. It confirms that the enforceability of a subordinated debt depends on the operative scope and purpose of the subordination agreement and on the wording of the suretyship.