2SuretyshipContract 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.
3Nature 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
4Distinguishing 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.
5Distinguishing 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.
6Distinguishing Suretyship from insurance Insurance for damages an insurer would undertake to cover the insured’s damage arising from a specific event
7Distinguishing Suretyship from delegation Delegation of obligations where a debtor delegates his liability to another person and is replaced as debtor by the latter.
8Surety 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.
9Surety 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 suretySee Neon and Cold Cathode Illuminations (Pty) Ltd v Ephron SA 463 (A)
10Formation of suretyship contract Compliance with contractual requirementsGeneral 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.
11Spairstein v Anglo African Shipping Co (SA) Ltd 1978 4 SA (A) Identity of the creditor;Identity of the debtor;Identity of the surety;Nature of the principal debt; andAmount of the principal debt
12Fourlamel (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;
13Fourlamel (Pty) Ltd v Maddison 1977 1 SA 333 (A) Co-surety didn’t sign it; andNeither 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”.
14AD 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 toProtect consumers (sureties) against unnecessary liability.
15Jurgens 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.
16Jurgens 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.
17In 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.
18ABSA 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.
19ABSA 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.
20Consequences 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.
21Benefits of surety 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.
22Benefits 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.
23Benefits of suretyc) Benefit of cession of actions – beneficium cedendarum actionumSurety 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)
24Benefits 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.
25Benefits 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.
26Termination of suretyship Extinction of the principal debt also terminates suretyshipBotha v Finanscredit (Pty) Ltd SA 773 (A)Pangbourne Properties Ltd v Nitor Construction (Pty) Ltd SA 206 (W)
27Specific circumstances a suretyship may be released: Where the suretyship is to be for certain period of time only.
28Specific 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.
29Specific 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.
30NCA 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)