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BER 220 Law of Security summary
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Summary of law of security (chapters 18, 19 and 20) for Business law 220 (BER 220)
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SURETYSHIPIntroduction
• Debt relationship (obligation) – created by delict, contract, negotiorum gestio, enrichment
• Creditor may demand security to protect against debtor x being able to pay debt
• Personal security (suretyship) = creditor may require 3rd party to bind themselves contractually
for performance of debtor’s obligation
• Real security = debtor has assets – creditor may request them to bind all/part of assets as
security / debtor has personal right or claim – may cede personal right to creditor as security
• Real security preferred:
o Suretyship – creditor merely obtains additional personal right against surety. Creditor still
risk – no performance form principal debtor/surety
o Real security – specific thing identified to secure performance. Creditor w real security
enjoys priority over creditors without such security
• real and personal security = dependent upon the existence of the principal debt/ obligation
o Security = exist as long as the principal debt exists
o ∴ suretyship is of accessory nature = implies that valid principal obligation between debtor
and creditor must exist.
• National Credit Act 34 of 2005 regulates various aspects regarding the granting of credit by
means of credit agreements
Suretyship
• suretyship contract = when 3rd party (surety) binds themself to creditor (principal creditor) for
proper performance of whole/part of debt of another (principal debtor)
• come into being by way of suretyship contract ∴ all requirements for formation of contract
(consensus, contractual capacity, legality, physical possibility)
• principal debtor = x party to surety contract & does not have to be aware of contract
• suretyship contract concluded against will of principal debtor = surety x right of recourse against
principal debtor after rendering performance to principal creditor
• section 6 of General Law Amendment Act 50 of 1956 = suretyship contract in writing as sighed
by/on behalf of surety
• contract = mention identity of principal creditor and surety, name of principal debtor, nature of
secured obligation, extent debt in secured, signed by/on behalf of surety
Consequences of suretyship
• principal debt is due and payable, the creditor may demand performance from either principal
debtor or surety ∴rincipal creditor = x claim from principal debtor first
• Benefits of personal security for the surety:
o Benefit of excussion (beneficium excussionis) – The surety is entitled to insist that the
creditor first demand performance from the debtor before claiming performance by the
, surety. Surety may rely on benefit where they are notified that they do not perform, principal
debtor will be liable, and they fail to respond.
o Benefit of division (beneficium divisionis) – If = more than 1 surety, they will be liable in
solidum (each liable for whole debt). Any surety who is then held liable by principal creditor
may demand that the obligation be divided pro rata among different sureties and that he be
held liable for his pro rata share of debt only.
o Benefit of cession of actions (beneficium cedendarum actionum) – The surety who has
performed may demand transfer and cession of all securities and personal rights of creditor
against debtor and co-sureties. Surety may even refuse payment to creditor until such
cession or transfer is made.
o Recourse against co-sureties – surety who pays principal debt to creditor is by operation of
law entitled to claim pro rata share of debt from co-surety, even though there is no
contractual relationship between co-sureties.
o Recourse against principal debtor – surety who has fully satisfied principal obligation is by
operation of law entitled to claim amount of performance from main debtor.
Termination of suretyship
• suretyship = end when principal debt ends – payment or performance by principal debtor
• surety contract provides for release in specific circumstances – when the suretyship is only for a
certain period of time and that time had expired
• when suretyship contract is altered to surety’s prejudice
• any ordinary way of terminating obligation (completion, compromise, release)
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