“He who puts up security for another will surely suffer” (a)Those words spoken by King Solomon over 2000 years ago hold true today, particularly wherecomplex documents and legalese preclude a clear understanding of what you are signing.Suretyships are generally furnished by people in an unequal bargaining position and are usuallyautomatically part of the pack of documents requiring signature in order to obtain credit or banking facilities.Our common law in this regard has developed to a sophisticated degree. As part of thisdevelopment, the law recognises certain safeguards or defences for sureties. Suretyshipdocuments these days inevitably record that the surety waives various of these defences (oftendescribed by their Latin names) and, equally inevitably, also solemnly records that the surety"knows and understands the meaning and full force and effect of..." the defences he is waiving.Although the law relating to suretyships is fairly complex, the following is intended to serve as aquick guide to the defences (sometimes also called exceptions or benefits) that sureties arerequired to waive:
beneficium ordinis seu excussionis
(the benefit of excussion) is an exception open to asurety by which he can compel the creditor to proceed against the principal debtor first and toobtain all he can from such debtor's estate before proceeding against the surety. Therenunciation of the 'benefit' has the effect of permitting the creditor to proceed directly againstthe surety, before excussing the principal debtor, should he so wish. It should be noted that inlaw a surety who binds himself as co-principal debtor is taken to have tacitly renounced thisbenefit. Notwithstanding this, and possibly as evidence of the ignorance of the draftsman, it willbe found in almost all suretyships, irrespective of the way in which the surely binds himself.
(the benefit of division) allows a co-surety to demand that the debt bedivided between all sureties (excluding insolvent sureties or sureties who are outside the jurisdiction of the Court) and that he or she be held liable only for his or her pro rata share of thetotal liability. The surety loses this right upon renunciation of the benefit. It is also important tonote that a surety who binds himself as co-principal debtor is deemed to have renounced thisbenefit.
beneficium cedendarum actionum
(The benefit of cession of actions) allows a surety whohas paid the principal debt in full to demand that the creditor cedes its rights and securities,which it has against the principal debtor and other sureties, to the surety who has paid. If ittranspires that the creditor is unable, by reason of its own conduct, to give effect to such acession, the surety is released from any liability. A surety is in any event entitled to such acession, even where this benefit has been denounced, and the effect of the benefit (where ithas not been waived) is simply to enable the surety to delay payment to the creditor.
de duobus vel phuribus reis debendi
- When this benefit is renounced, it has the effect of making two or more sureties jointly and severally liable (that is, either of them can be sued for the whole debt).
The exceptio non numeratae pecuniae
is an exception which may be taken by a debtor onthe grounds that, although he has signed an acknowledgement of debt, the amount was never paid over to him. The renunciation of this exception shifts the burden of proof to the defendant(i.e. the debtor) who will have to prove that he did not receive the money.
The exceptio non causa debiti
is usually renounced in suretyships securing debts arisingotherwise than from loans of money. The purpose of getting a debtor to renounce this benefit islikewise to shift the burden of proof onto the debtor. In the context of a suretyship, it wouldmean that the surety would have to prove that the principal debt for which he undertook liabilitydoes not exist. (b)While it is unlikely that a creditor will agree to the deletion of clauses where the surety waiveshis benefits and various exceptions and benefits, it would be wise to understand what youagree to in signing a surety, and even better not to sign at all.(a) Proverbs 11:15 New International Version Bible(b) Extracted from ‘To sign or not to sign’ by Francis Newham published in Accountancy SASeptember 2002