SURETYSHIPS - SOME THINGS YOU SHOULD KNOW

Our common law in this regard has developed to a sophisticated degree. As part of this development, the law recognises certain safeguards or defences for sureties. Suretyship documents these days inevitably record that the surety waives various of these defences (often described 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 a quick guide to the defences (sometimes also called exceptions or benefits) that sureties are required to waive:

• beneficium ordinis seu excussionis (the benefit of excussion) is an exception open to a surety by which he can compel the creditor to proceed against the principal debtor first and to obtain all he can from such debtor’s estate before proceeding against the surety. The renunciation of the ‘benefit’ has the effect of permitting the creditor to proceed directly against the surety, before excussing the principal debtor, should he so wish. It should be noted that in law a surety who binds himself as co-principal debtor is taken to have tacitly renounced this benefit. Notwithstanding this, and possibly as evidence of the ignorance of the draftsman, it will be found in almost all suretyships, irrespective of the way in which the surety binds himself.

• beneficium divisionis (the benefit of division) allows a co-surety to demand that the debt be divided 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 the total liability. The surety loses this right upon renunciation of the benefit. It is also important to note that a surety who binds himself as co-principal debtor is deemed to have renounced this benefit.

• beneficium cedendarum actionum (The benefit of cession of actions) allows a surety who has 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 it transpires that the creditor is unable, by reason of its own conduct, to give effect to such a cession, the surety is released from any liability. A surety is in any event entitled to such a cession, even where this benefit has been denounced, and the effect of the benefit (where it has 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 on the 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 arising otherwise than from loans of money. The purpose of getting a debtor to renounce this benefit is likewise to shift the burden of proof onto the debtor. In the context of a suretyship, it would mean that the surety would have to prove that the principal debt for which he undertook liability does not exist. (b)

While it is unlikely that a creditor will agree to the deletion of clauses where the surety waives his benefits and various exceptions and benefits, it would be wise to understand what you agree 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 SA September 2002