Suretyship Issue 6

The Surety’s right to a contribution from co-sureties

Normally there is no contractual relationship between co-sureties.

A surety is, however, entitled by operation of law to recover a proportionate contribution from each of the solvent co-sureties if he or she has discharged the principal debt fully.

This right is not dependant on any cession by the creditor.

It arises even where the co-sureties undertook liability independently or in ignorance of each other.

If the surety has indeed obtained cession of actions from the creditor, he or she enjoys all the rights and privileges of the creditor, and all defences available against the creditor may be used against the surety (the cessionary or person to whom the right has been ceded).

If the paying surety has been reimbursed in part by the principle debtor, his or her claim against the co-sureties is reduced proportionately.

It is uncertain whether a co-surety has a right to a contribution where he has only partially discharged the principle debt.

Since a right to a contribution is based on enrichment (the co-sureties are released from their obligations to the creditor by the paying surety’s performance and are therefore enriched at the expense of the paying surety), it seems to follow that a surety who has paid more than his or her proportionate part of the debt, should have a contribution claim against the co-sureties in respect of that excess amount.

The paying surety has no right to a contribution if he or she negligently failed to raise a defence in rem (a non-personal defence) which was available to the debtor.

If the surety failed to raise the benefit of excussion when this defence was open to him or her, a contribution cannot be demanded until the surety has excused the principal debtor.   

Biblical Perspective

Psalms 119:122

“Be surety for thy servant for good: let not the proud oppress me”

Meaning

The first part means to be a guarantee for my good and the second part going on to mean not to leave me to the mercy of my enemies.  This is the only place where a surety is utilized in the Word of God in a positive manner.  Clearly this is not a commercial surety being referred to.

The National Credit Act 34 of 2005

Continuing with the questions asked by Liezl de Jager:

Is this the correct understanding of an Incidental credit agreement?

“an incidental credit agreement is an agreement that was initially NOT a credit agreement.  Eg. a cell phone contract: it is not a credit agreement, but a cash transaction – you make calls and get an account at the end of each month.  The account has to be paid by a certain date.  If the consumer is in default with such payment FOR 20 DAYS, the agreement is then considered to be a credit agreement.”

Advocate Clark’s Comment

Yes indeed it is Liezl.

A few important things to remember here are:

·         An Incidental credit agreement for the purposes of the NCA must display characteristics the same as would be found in normal credit agreements, for example a contract for a certain period of time and monthly payments to be made;

·         The 20 workings days or 30 normally days must elapse as from the date on the last statement before interest is charged on the overdue account – nothing under these amount of days would suffice due to it not being a deferred (postponed) payment if the days are less.