Security

Question 1

Why security?

Answer 1

To protect creditor against possibility of debtor being unable to pay his/her debt.
Relationship of debt can arise from various sources eg contract or delict

Question 2

How is the debt relationship created?

Answer 2

By a delict, a contract, or any of the various legal causes such as negotiorum gestio or enrichment

Question 3

Explain personal security/suretyship

Answer 3

The creditor may require that a third party should bind themselves contractually for the performance of the obligation

Question 4

Explain real security

Answer 4

If the debtor has assets, the creditor may request him to bind all or part of his assets as security for the debt.
If the debtor has personal right or claim (against third party) he may also cede this personal right/claim to the creditor as security

Question 5

What occurs when a creditor merely obtains an additional personal rights against the surety?

Answer 5

It entails he will risk neither get performance from the pincipal debtor nor from the surety (debtor)

Question 6

When is real security referred as personal security?

Answer 6

Due to the advantage it has for the creditor

Question 7

Which security separates specific thing (property) to secure performance of the obligation by the debtor?

Answer 7

Real security

Question 8

Explain accessory nature

Answer 8

Implies that there should be a valid principal obligation between the debtor and creditor for the security right to exist

Question 9

Discuss suretyship

Answer 9

A contract in terms of which a third party ( the surety or co-sureties) binds himself ( or themselves) to the creditor (the principal creditor) for the proper performance of the whole or part of the debt of another (the principal debtor)

Question 10

Discuss the nature of suretyship contract

Answer 10

There should be a valid principal obligation (debt). The contract is an accessory to the principal and can only exist and continue to exist if the principal debt exists. Should the principal obligation come to an end, the suretyship will also lapse.

Question 11

What is the consequences of the nature of suretyship contract

Answer 11

For suretyship to be valid, it is essential that the principal debt must be valid too.

Question 12

What happens if the principal debt did not exist at the time of the conclusion of the contract of suretyship?

Answer 12

The principal envisaged at the time of the conclusion of the suretyship come into being in order to found liability for the surety

Question 13

What is surety based on?

Answer 13

Based on a main (principal) or primary obligation (debt) and a secondary obligation which is dependent on or accessory to the existence of the former. This fact implies a situation involving at least three parties, namely the principal debtor, the creditor and the surety. This latter characteristic distinguishes suretyship from other contracts of indemnity

Question 14

Is the principal debtor usually a party of suretyship?

Answer 14

No, and does not need to be aware of the contract

Question 15

Discuss the formation of suretyship contract

Answer 15

All the requirements for the formation of a contract should be complied with the general requirements for the validity of a contract and a suretyship respectively. Also a surety in conflict with the public interest may be unlawful

Question 16

Can the creditor will be able to rely on suretyship even where a third party induced the surety by fraud or misrepresentation to sign it?

Answer 16

Yes

Question 17

If the principal debtor refuses to concluded the suretyship contract. What happens?

Answer 17

The surety will have no recourse against the principal debtor after rendering performance to the principal creditor

Question 18

In terms of formalities what happened after the General Law Amendment Act 50 of 1956?

Answer 18

It requires that the terms of a suretyship contract to be in writing and signed by or on behalf of the surety in order to be valid.

Question 19

What should the surety contract include?

Answer 19

The name of the debtor, the nature of the secured obligation, and the extent to which the debt is secured and it must be signed by or on behalf of the surety

Question 20

Should any amendments to the contract of suretyship comply with the formalities?

Answer 20

Yes, but it may be cancelled without complying with the prescribed formalities

Question 21

What is the general rule of suretyship in regards to spouses married in community of property?

Answer 21

A written consent of the other spouse to act as a surety except where such as suretyship is undertaken in normal course of career, trade or business

Question 22

Discuss the consequences of suretyship

Answer 22

A surety is a 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 if the surety is entitled to rely on the defence of excussion. But he has also bound himself as co-principal debtor, the surety is liable from the time that the principal debt becomes due and enforceable.

Question 23

Is a surety entitled to rely on any defence available to the principal debtor?

Answer 23

Yes, in the accordance with the accessory nature of suretyship. Except insofar as the defence attaches to the person of the principal debtor such as minority, insolvency or protection in terms of a moratorium (defences in personam)

Question 24

Explain defence regarding the surety’s liability

Answer 24

Relate to the validity or enforceability of the principal obligation and are, in principal, available to the surety

Question 25

Give examples of defences in rem

Answer 25

illegality, duress, misrepresentation, res juridicata and set off

Question 26

What are the benefits of surety?

Answer 26

Benefit of excussion
Benefit of division
Benefit of cession of actions
Recourse against co-sureties
Recourse against principal debtor

Question 27

Explain benefits of excussion

Answer 27

The surety may insist that the principal creditor first demand performance from debtor before claiming performance from him. The surety is presumed to rely on this benefit in the case where he us notified that if he is does not perform, the debtor will be held liable and fails to respond

Question 28

Explain benefits of division

Answer 28

This benefit is an exception to the rule that, if there is more than one surety, they will be liable in solidum (each liable for the whole debt). Any individual surety who is then held liable by the principal creditor for the full debt, may demand that the debt be divided pro rata among the different sureties and that he should only
be held liable for his pro rata share of the debt.

Question 29

Explain the benefit of cession of actions

Answer 29

The surety who has performed to the creditor may demand transfer and cession of all securities and personal rights of the creditors as against the debtor and co-sureties. The surety may even refuse payment to the creditor until such cession or transfer is made

Question 30

Explain recourse against co-sureties

Answer 30

The surety who pays the full principal debt is entitled, by operation of law, to claim a pro rata portion of the debt from each co-surety. This is based on unjustified enrichment .
Co-sureties may agree on the manner and extent to which each will be liable. In such a case the liability of each will be determined by the contractual provision. Co-sureties may even be bound by separate suretyships and need not be aware of each other.

Question 31

Explain recourse against principal debtor

Answer 31

The surety who has fully satisfied the principal obligation is entitled, by operation of law, to claim the amount of his performance from the principal debtor
A surety who has paid the principal debt may lose his right of recourse against the principal debtor if he negligently failed to raise a valid defence, other than a personal one, which the principal debtor had against the creditor or if he negligently failed to inform the principal debtor that he had paid the principal debt, resulting in the principal debtor also paying it.
Where the suretyship is concluded against the will of the principal debtor, the surety does not, in principle, have a right of recourse against the debtor and will need to take cession of actions from the creditor before recovering his expenses from the debtor.

Question 32

Discuss termination of suretyship

Answer 32

The surety contract is of an accessory nature and is dependent on the existence of a valid principal obligation, it logically follows that the extinction of the principal debt also terminates the suretyship contract. Payment or performance by the principal debtor is therefore the obvious way to release the surety