Suretyship Issue 5

The Rights of the Surety (continue)

The benefit of cession of actions

This privilege allows a surety, who has rendered performance of the principal obligation, to demand that the creditor transfer all rights which the latter may enjoy against the principal debtor and the co-sureties.

This means in understandable language that if you are the surety and you have paid the parties debt you stood surety for, you are entitled to the rights the creditor had against that party, meaning you can amongst other remedial recourses most probably sue that party to the amount you paid on his behalf to the creditor in your capacity as surety.

How-ever it should be mentioned that even in the absence of a cession of actions, a surety who has settled the principle debt will always enjoy a right of recourse against the principle debtor and co-sureties.

Cession of actions to him or her still remains of value, since it may confer more comprehensive rights on the surety against the principle debtor than his or her right of recourse might embody (for example security which the creditor may have held).

The surety may refuse to pay the creditor where the latter is unable to affect cession, for instance where the creditor has allowed his or her rights against the principle debtor to be destroyed.

Here I am thinking as an example of prescription, where the creditor waited too long to institute action against the principle debtor or surety and due to that delay the action has prescribed in law.

The surety’s right of recourse against the principal debtor

A surety that has discharged his or her obligation to the creditor, has a right of recourse against the principle debtor for the amount paid, as well as for any costs reasonably incurred.

As was stated above, this right arises automatically on payment.

Therefore no cession of actions by the creditor is required.

The right of recourse is excluded if the surety carelessly neglected to raise a (non-personal) defence which was available to the debtor, or if, after paying the debt, he or she negligently failed to inform the debtor of payment, with the result that the latter also paid the amount to the creditor.

A surety who has not yet discharged his or her obligation to the creditor, may in certain circumstances compel the principal debtor to pay the principal debt to obtain his or her (the surety’s) release from the contract of suretyship.

These situations are:

·         Where the debtor and the creditor have allowed the principal debt to remain un-discharged for an unreasonable time;

·         If the debtor is recklessly squandering his or her assets;

·         Where the creditor has obtained judgement against the surety.

Biblical Perspective

Five Biblical Facts about Suretyship

·         Command against Surety – Proverbs 22:26

·         Command to get out of Suretyship as quickly as possible – Proverbs 6:1-5

·         Suretyship is a sign of lack of understanding – Proverbs 17:18

·         Suffering and disappointment are what is promised in suretyship – Proverbs 11:15

·         To refrain from suretyship is the only safe way – Proverbs 11:15

The National Credit Act 34 of 2005

Liezl de Jager had a few questions from the view of Debt Councillors which I will start to answer on my blog.

Her first question was:

Individuals who meet the criteria of:

·         having 100 or more credit agreements

·         having principal debt owed to them of R 500 000 or more

has to be registered as credit providers.

Does this apply to businesses as well?   Is the same criteria applicable?

Advocate Clark’s Comment

Dear Liezl first of all I observed you utilizing the word “Individual” and that creates the first investigative route to embark upon.  I presume that your training manual used this word due to the fact that as a Debt Councillor you will always work with Natural persons because only they can approach a Debt Councillor to solve their financial problems.

In the future it would serve best to first read what the Act has to say and then of course the words used by the Act itself.  Indeed section 40(1)(a) and (b) uses the word "person" that in law has a greater meaning than just “individual”.  Person in law and in this act specifically would refer to the two only legal entities in law namely: Natural Persons and Juristic Persons.  So if the section uses “Person” it would not only mean “individual” which is a Natural Person but also Juristic Person which would be a business.  So the word person becomes a group terminology including both the Natural and Juristic person components.

Therefore in conclusion it does include businesses and yes the same criteria will be applicable within this section to both entities – but only natural persons can be found to be over-indebted and therefore not juristic persons in their capacities of course as “Consumers”.

This section however only refers to these two entities in their capacities as credit providers in terms of registration.

But then why use the word persons?

Because Natural and Juristic Persons both can be businesses (Credit Providers).

Here are a few examples:

Natural Person “Individual”

·         Man on the street

·         Sole Proprietor

·         And more.

Juristic Person

·         Close Corporation

·         Private Company

·         Public Company

·         And more.