Relations between the parties

• A contract of suretyship naturally gives rise to

personal rights between the main parties – the
surety and the creditor.
• It also gives rise to certain rights or entitlements
between the surety and the principal debtor.
• The duties and responsibilities arising in this
arrangement at common law can best be
appreciated by studying the following:
– The so - called rights or benefits of a surety; and
– some of the defences the surety may raise when
called upon to perform.
 Beneficium excussionis
• This is one of the common law rights of surety against a
creditor seeking to enforce the suretyship
• It is a right to demand that the creditor should first attempt to
recover from the principal debtor.
• It follows from the accessory nature of suretyship that this
must be so.
• In Moosa v Mahomed, the Court held that the benefit must
be claimed early in the proceedings.
• Dorfman v Pering is also an illustration of the proposition that
a court will not insist on a fruitless excussion.
• The benefit can and is easily renounced by a surety
undertaking to be liable as surety and co-principal debtor.
 Beneficium divisionis
• This is a benefit or defence that one out of several sureties could
maintain against the creditor’s action.
• The effect would be to require the creditor to divide up the claim,
and recover from each surety the proportionate share of the debt.
• As with excussion, however, this benefit is regarded as renounced
where sureties agree to be liable as “sureties and co-principal
debtors”.
• In Construction Supplies and Services Ltd v Greenwood, the Court
held a surety who agreed to be liable as surety and co – principal
debtor could not claim division. The sureties were , applying Van
der Vyver v De Wayer, liable singuli in solidum. Summary judgment
could therefore be entered against the surety selected for action by
the creditor.
 Beneficium cedendarum actionum
• A surety who pays or arranges for the clearance of the debt is
entitled to a cession of rights, actions and hypothecations by the
creditor so that the surety could proceed against the principal
debtor or other parties liable for the debt.
• In early Roman times, when a surety paid, the debt was so
completely wiped out that the creditor had nothing left to cede to
the surety.
• Courts however began to consider it as equitable that the creditor
ought to give every assistance to the surety to recover.
• The surety was considered as paying in his name to free himself,
and not so as to free the debtor. (For these propositions see
Wessels C.J., African Indemnity and Guarantee Co Ltd v Thorpe,
1933 AD 330, 336-340.)
 Right of recourse
• Even without cession of actions, a surety who pays, or arranges for
the liquidation of the debt, is through the process of subrogation
entitled to recourse, against the debtor, and other sureties.
• This right (of recourse) has effectively rendered the benefit of
cession otiose.
• In Taylor and Thorne NNO v The Master, it was held that the right of
recourse accrues where the obligation secured has been
discharged. It would not suffice if only a claim for payment is lodged
against the surety.
• In Rutowitz’s Flour Mills v The Master, where through negotiations
over seen by the surety, the creditor withdrew his claim from the
estate of the principal debtor, it was held that the surety was
entitled to recourse.
 Recourse against co-sureties
• In modern Roman – Dutch law as well as English law, a
surety who pays would have, de jure, a right of recourse
(contribution) against co-sureties.
• No cession of actions would be necessary.
• This would clearly be so where the sureties agreed to be
liable in one instrument. (Kroon v Enschede 1909 TS 374).
• In Gerber v Wolson remarks in some of the judgments
suggest that there could be contribution where co sureties
do not subscribe to one instrument, but they all renounce
division and excussion, and the one made liable for the
debt takes cession from the creditor.
 Gerber v Wolson
• In Gerber v Wolson, seven co-sureties, subscribed to the same
instrument; they renounced excussion and division; Wolson paid
the entire amount of the debt; took cession of the creditor’s rights;
and claimed from Gerber what he had paid, minus his own
contribution.
• The Appellate Division, reversing a decision of the lower Court,
held that he should recover from Gerber only the latter’s
proportionate share of the debt, i.e. 1/7ths.
• The reasoning is elusive. This was a 4:1 majority decision.
• Some find the minority decision intellectually more appealing.
• Key Roman Dutch authorities canvassed, Voet and Pothier, are
also not in agreement. The majority relied on Pothier, but the
dissenting judge preferred Voet.
 Defences
• In additions to the so called benefits, which can easily be
renounced, a surety called upon to perform can raise a
number of defences.
• Interesting cases have arisen in the recent past with regard to
the exceptio doli generalis defence, and terms or agreements
contrary to public policy.
• First, however, it needs to be noted that the surety may raise
any contractual defence that would be available to the
principal debtor.
• Thus in Arend and Another v Astra Furnishers, 1974 (1) 298
the defence of duress was open to both the principal debtor
and the surety.
 Any defence available to principal
debtor?
• In Goldberg v Grosvenor Finance 1950 (4) SA 154, it was held
that a surety was entitled to benefits under a Usury Act
conferred upon a borrower.
• In Worthington v Wilson 1918 TPD 104 the court held that the
surety could be availed of a defence arising upon the
obligation itself, but not upon some personal privilege
conferred upon the debtor. So, the surety could not avail
himself of a moratorium on recovery of debts for persons
enlisted for active military service.
• In Barclays Bank Ltd v Chingapane [2002] 1 BLR 511,
Lesetedi ,J. cited Worthington v Wilson with approval , but
held that on the peculiar facts of the case, the surety had
absolutely no defence to the creditor’s claim.
 Exceptio doli generalis (1)
• This is a plea of lack of good faith in the creditor’s claim against the
surety.
• The exception may be pleaded where, for example, the suretyship
is invoked for a purpose different from that for which it was
granted.
• In Rand Bank Ltd v Rubenstein, the surety undertook to be liable
for payment by the debtor “of all his obligations of whatever nature
“ to the creditor; and for payment by the debtor “of each and
every amount which he may hereafter owe the creditor, however
such indebtedness may arise.”
• The suretyship was provided in support of financing a township
development in 1972. It was invoked in respect of a lean
transaction extended in 1975 . The defence was successfully raised.
 Exceptio doli generalis (2)
• Although the Court in Rand Bank Ltd appeared to expand possibilities of
application of the excepti doli generalis defence, it recognised that this is “
a last ditch defence”.
• In Neuhoff v York Timbers Ltd the Court reiterated the narrow scope of
the defence.
• It was applicable only in a context favouring its invocation, where the
exigency was mot clearly covered by the contract.
• A deed covered debts that a company “may now or at any time owe or
… become liable to perform”. It also provided that the suretyship shall
remain in force “as continuing covering security” notwithstanding
fluctuations in levels of indebtedness, and until cancelled by the creditor.
• The deed was signed in Feb 1978. the Court held that it was not in bad
faith to invoke it in respect of liabilit5y incurred 10 months after the
surety had ceased to be a director and shareholder of the principal
debtor.
 Public policy arguments (1)
• At common law a contract or a clause in a contract may be
declared unlawful and unenforceable on grounds of being
contrary to public policy.
• A question that has arisen is whether unfair or
unconscionable terms should be so declared.
• In Sasfin v Beukes, a clause in a deed of cession providing it
shall remain of full force and effect at all times ,
notwithstanding any intermediate discharge, or settlement
of fluctuation in the obligations of the creditor, was held to
be unconscionable , incompatible with public interest , and
unenforceable
• This appeared to be an exciting development in the regulation
of unfair contract terms at common.
 Public policy arguments(2)
• If Sasfin v Beukes appeared to open the floodgates to litigation on
public policy grounds, the gates were shut in Botha v Finanscredit
Pty Ltd.
• The Court reiterated also prefers upholding of contractual bargains.
If there is a sound commercial reason for restricting the surety’s
right to cancel the contract without the creditor’s input, the
contract would have to be enforced.
• In Pangbourne Properties Ltd v Nitor Construction Ltd, the Court
held, in the light of Botha’s case, that renounciation of the benefit
of error in calculation (errore calculi) in a deed of suretyship was
not contra bonos mores.. It further held that if a clause restricting
the surety’s right to cancel the contract was unlawful, then, only
that clause could be struck off from the agreement.