ABSA Bank Limited v Davidson

ABSA Bank (as successor to Trust Bank) sued John Garrick Davidson on an unlimited deed of suretyship he had signed in 1989 for the debts of Whistlers Interiors (Pty) Ltd. Davidson had sold his shares in Whistlers to his co-director, Myburgh, in 1990 under an agreement that Myburgh would procure Davidson’s release from all suretyships, but no written release was ever obtained from the bank. Whistlers was later liquidated. Davidson raised defences that (a) the bank was estopped from enforcing the suretyship because it allegedly represented that he had been released, and (b) the bank had prejudiced him as surety by allowing Whistlers’ account to be debited for payments relating to Myburgh’s personal Ferrari and by increasing Whistlers’ overdraft after knowing Davidson wished to be released. The trial court upheld the prejudice defence and dismissed the bank’s claim.

The appeal succeeded. The judgment of the court a quo was set aside and replaced with judgment in favour of ABSA Bank for payment of R372 101,89, interest at prime plus 2% capitalised monthly from 21 May 1992, and attorney-and-client costs, including the costs of two counsel.

The case is an important authority on the limits of the so-called prejudice principle in South African suretyship law. It confirms that a surety is not released merely because the creditor’s conduct causes prejudice; the conduct must amount to a breach of a legal or contractual duty. The judgment reinforces the enforceability of unlimited suretyships and creditors’ contractual discretions in banking relationships.