Tesven CC and Another v South African Bank of Athens

The respondent bank (plaintiff) sought summary judgment against the appellants (defendants) based on: (1) a deed of suretyship signed by the second appellant (second defendant) on 13 January 1995 on behalf of the first appellant (a close corporation of which she was the sole member), binding the first appellant as surety and co-principal debtor with her husband Michael Gaganakis for his debts to the bank, limited to R500,000 plus interest and costs; (2) a covering mortgage bond registered on 11 January 1995 over Erf 898, Parkwood Township, registered in the first appellant's name; and (3) a deed of suretyship signed by the second appellant personally on 29 September 1994, binding herself as surety and co-principal debtor with her husband, also limited to R500,000 plus interest and costs. The plaintiff alleged that the second appellant's husband was indebted to it in R237,772.28 under an acknowledgment of debt dated 15 November 1991, and R1,363,021.81 being the overdrawn balance on his banking account as at 31 May 1996. The husband's estate was provisionally sequestrated on 16 January 1996 and finally sequestrated on 20 February 1996. The second appellant resisted summary judgment, alleging that the deeds of suretyship and mortgage bond required rectification to reflect the parties' common continuing intention, which was not properly recorded due to the use of standard form documents.

• Whether the parol evidence rule precludes evidence of a prior oral agreement or common continuing intention in support of a claim for rectification
• Whether rectification is available where parties are mistaken not as to the words recorded in a document, but as to the legal effect of those words
• Whether the defendants disclosed a bona fide defence sufficient to resist summary judgment under Rule 32(3)
• Whether the court has discretion to refuse summary judgment even where the opposing affidavit does not strictly comply with Rule 32(3)

1. Appellant's failure to file the record of appeal timeously was condoned. 2. Respondent was ordered to pay the costs of the application for condonation. 3. The appeal was allowed with costs. 4. The costs of including the application for leave to appeal in the appeal record were disallowed. 5. The order of the trial court was set aside and substituted with an order refusing summary judgment, granting the defendants leave to defend the action, and leaving over the costs of the application for summary judgment for decision by the trial court.

The binding legal principles established by this case are: (1) The parol evidence rule does not exclude evidence of a prior oral agreement or common continuing intention which a party seeks to lead in support of a claim for rectification. (2) Rectification is available where parties are mistaken not as to what words are recorded in a document, but as to the legal effect of those words - specifically, where parties erroneously believe that their prior oral agreement will continue to operate despite the terms of the written document. To allow the words actually used to override the parties' prior agreement or common intention is to enforce what was not agreed, contrary to the basis on which contracts rest in South African law. (3) In summary judgment applications, even where a defendant's affidavit does not strictly comply with Rule 32(3) in terms of fully disclosing all material facts, the court retains discretion to refuse summary judgment if there is doubt as to whether the plaintiff's case is unanswerable and there is a reasonable possibility that the defendant's defence is good in law.

The Court made several observations: (1) It noted that some credence was lent to the second appellant's version by the fact that her husband was already indebted to the plaintiff under an acknowledgment of debt and had been operating an overdrawn account since 1984, suggesting his total indebtedness likely exceeded R500,000 when the suretyships were signed. If a guarantee for R500,000 was to be issued, the limitation clauses in the suretyships would tend to support the second appellant's allegations. (2) The Court observed that the principal sum in the mortgage bond (R750,000) matched the amount referred to in the home loan letter, supporting the second appellant's allegation that the bond was intended to secure only the home loan. (3) The Court commented on the unreasonableness of the plaintiff's refusal to agree to an extension of time for filing the record, where the delay was caused by the need to reformat pages to comply with the registrar's requirements. (4) The Court noted that defendants need not formulate their opposition with the precision required of a plea, nor does the court examine it by pleading standards, citing Maharaj v Barclays National Bank Ltd 1976 (1) SA 418 (A).

This case is significant in South African contract law and civil procedure for several reasons: (1) It clarifies the relationship between the parol evidence rule and the remedy of rectification, confirming that the parol evidence rule does not preclude evidence of prior oral agreements or common continuing intention when seeking rectification. (2) It confirms and applies the principle established in Mouton v Hanekom that rectification is available not only where parties are mistaken as to what words are recorded in a document, but also where they are mistaken as to the legal effect of the words used - i.e., where parties erroneously believe that their prior oral agreement will operate alongside or override the written document. (3) It provides guidance on the application of Rule 32(3) in summary judgment applications, confirming that while defendants must disclose their defence with sufficient particularity, courts retain discretion to refuse summary judgment even where strict compliance is lacking, if there is doubt as to whether the plaintiff's case is unanswerable and a reasonable possibility that the defence is good. (4) It reinforces the "extraordinary and drastic nature" of summary judgment and the principle that it should only be granted where the plaintiff's case is unimpeachable and the defendant's defence is bogus or bad in law.