Suretyship
Personal Security
Suretyship
• Contract in terms of which a third party
(surety or co-sureties) binds herself to the
creditor for the performance of the whole or
part of the debt of another – principal debtor.
Nature of Suretyship
• Valid principal obligation (debt)
• Suretyship contract is accessorial to the
principal debts & can only exist if the principal
debt continue to exist.
• 3 parties: principal debtor, creditor & surety
Distinguishing Suretyship from
guarantee
• Guarantee one person would give an
undertaking to another that the price of goods
willn’t increase for a certain period, whilst the
supplier of the goods wouldn’t be part to this
undertaking.
Distinguishing Suretyship from
indemnity
• Indemnity one person would undertake as
against another that he’ll indemnify him
against any damages which he might suffer as
a result of the start of a new enterprise.
Distinguishing Suretyship from
insurance
• Insurance for damages an insurer would
undertake to cover the insured’s damage
arising from a specific event
Distinguishing Suretyship from
delegation
• Delegation of obligations where a debtor
delegates his liability to another person and is
replaced as debtor by the latter.
Surety and co-principal debtor
• Liability of surety is still found in suretyship,
but the effect of such Suretyship is that the
defences of excussion and splitting debts.
• Benefit of excussion – permits surety to
compel the creditor to recover as much as
possible of the due debt from the principal
debtor, before proceeding against him.
Surety and co-principal debtor
• Surety is liable jointly & severally with the
principal debtor to the creditor when the
principal debt becomes due and payable.
• Creditor may elect to claim against the
principal debtor or surety
• See Neon and Cold Cathode Illuminations (Pty)
Ltd v Ephron 1978 1 SA 463 (A)
Formation of suretyship contract
• Compliance with contractual requirements
• General Law Amendment Act 50 of 1956 –
suretyship must be in writing and signed by or
on behalf of the surety in order to be valid.
Spairstein v Anglo African Shipping Co
(SA) Ltd 1978 4 SA (A)
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Identity of the creditor;
Identity of the debtor;
Identity of the surety;
Nature of the principal debt; and
Amount of the principal debt
Fourlamel (Pty) Ltd v Maddison 1977 1
SA 333 (A)
• M defence was that the deed of suretyship
didn’t comply with s 6 Gen Law Amendment
Act 50 of 1956 in that:
• At the time of signing of the deed, the name
of the co-surety didn’t appear on the
document;
Fourlamel (Pty) Ltd v Maddison 1977 1
SA 333 (A)
• Co-surety didn’t sign it; and
• Neither the name of the creditor nor that of
the principal debtor appeared on the
document.
• M claimed that he had effect signed a “blank
form”.
AD outline the rationale behind provisions of s6
of the statute as follows:
- Achieve certainty as to the true terms agreed
upon;
- Avoid fraud;
- Minimise perjury;
- Avoid unnecessary litigation; and to
- Protect consumers (sureties) against
unnecessary liability.
Jurgens v Volkskas Bank Ltd 1993 1 SA
214 (A)
• V from time to time supplied J with blank
printed deeds of suretyship for signature.
After J had signed the, secretaries of the
principal debtor (JL (Edms) Bpk) filled in the
blank spaces for & on behalf of J & returned
forms to V.
Jurgens v Volkskas Bank Ltd 1993 1 SA
214 (A)
• When J was sued as surety by V, he raised the
defence that the deed of suretyship didn’t
comply with s 6 of Act 50 of 1956 because
they had been incomplete at the time of
signature.
•
• In finding in favour of V, the court held that it
is immaterial whether the surety signs the
document before or after completion of the
material terms on his behalf either case the
surety’s signature serves to authenticate the
contents of the document.
ABSA BANK LTD v TRZEBIATOWSKY
AND OTHERS (ECP)
• Contract—Consensus—Mistake—Unilateral
error—Justus error—Avoidance of liability on
grounds of mistake about nature and content
of contract—Where signatory of deeds of
suretyship claiming to have been unaware of
what she was signing.
ABSA BANK LTD v TRZEBIATOWSKY
AND OTHERS (ECP)
• signing—Presumption that signatories to
document intended to enter into transaction
contained therein still valid principle—Party
wishing to avoid liability bearing onus to
show it had no such intention—In
circumstances of present case, where party
not misled by nature of document or by
misrepresentation, defence of justus error
trumped by principle of caveat emptor.
Consequences of suretyship
• Surety is liable as soon as the principal debtor
fails to meet his obligations in terms of the
principal obligation, unless there is an
agreement to the contrary or the surety
entitled to rely upon the defence of excussion.
Benefits of surety
a) Benefit of excussion – beneficium excussionis
• Surety may insist that the principal creditor
first demand performance from the principal
debtor before claiming performance from
her.
• Surety may renounce this defence where she
has bound herself as a surety & co-principal
debtor.
Benefits of surety
b) Benefits of division – beneficium divisionis
• This benefit is available where there are several
sureties in respect of one & the same obligation,
& the creditor attempts to recover from a single
surety the entire debt which is due .
• Surety can insist that the creditor divide her claim
between available sureties, so that her liability is
confined to her proportionate share of the
principal debt.
Benefits of surety
c) Benefit of cession of actions – beneficium
cedendarum actionum
• Surety who has performed to the principal
debtor may demand transfer & cession of
securities & personal rights of the creditor
against the debtor & co-sureties. See
Townsend v Barlows Tractor Co (Pty) Ltd 1995
(1) SA 159 (W)
Benefits of surety
d) Recourse against co-sureties
• Surety who pays the principal debt is by
operation of law entitled to claim a pro rata
portion of the debt from each co-surety.
Benefits of surety
e) Recourse against principal debtor
• Surety who has fully satisfied the principal
obligation is by operation of law entitled to
claim the amount of his performance from the
principal debtor.
• See ABSA Bank Ltd v Scharrighuisen 200 (2) SA
998 (C) para 28.
Termination of suretyship
• Extinction of the principal debt also
terminates suretyship
• Botha v Finanscredit (Pty) Ltd 1989 3 SA 773
(A)
• Pangbourne Properties Ltd v Nitor
Construction (Pty) Ltd 1993 4 SA 206 (W)
Specific circumstances a suretyship
may be released:
a) Where the suretyship is to be for certain
period of time only.
Specific circumstances a suretyship
may be released:
b) Where the original suretyship contract is,
without surety’s consent, materially altered to
surety’s prejudice, which prejudice is the
result of the breach, eg when the principal
debtor who subsequently becomes insolvent.
Specific circumstances a suretyship
may be released:
c) If the suretyship contract between surety &
principal creditor is terminated in any of the
ordinary ways of terminating an obligation or
prescription, surety is released even though
the principal debt still exist.
NCA 34 of 2005 on suretyship
• Section 4 & 8(1) of the NCA
• FirstRand Bank Ltd v Carl Beck Estates (Pty) Ltd
2009 (3) 348 (T)