This is a 12 page document that explains surety. It covers major topics that are tested and includes applications which help the learner understand certain principles. The document covers real surety, personal surety, surety-ship contract and accessory nature, formation of such contract, consequen...
protect creditor against possibility debtor being unable pay his or her debt
Relationship of debt can arise from various sources = contract or delict
a. Personal surety
∂ person binds himself contractually for performance
∂ e.g. suretyship = person promises a contract of suretyship to pay debt on
your behalf
b. Real surety
ಇ bind all or part of asset as security for debt
ಇ pledge, mortgage, hypothecs and liens
ಇ asset has an economic intrinsic value
ಇ this creditor would be paid first when insolvency happens!
Real surety preferred to personal security
WHY IS REAL SECURITY PREFERRED TO PERSONAL SECURITY?
REAL SECURITY PERSONAL SECURITY/SURETYSHIP
Specific thing/asset is given as security Creditor obtains merely an additional personal
right
Creditor with real security enjoys priority over Risk that principal debtor or 3rd party might not
other creditors be able to pay
ACCESSORY NATURE OF SURETYSHIP:
Debt arises here for a loan agreement between bank and student:
Accessory: relationship between credit grantor and credit receiver is dependent on principal debt
Relationship between B and F dependent on existence of principal debt and can only exist while
principal debt exists
SURETYSHIP CONTRACT
A contract in terms of which a third party (the surety or co-sureties)
Binds himself (or themselves) to the creditor (principal creditor)
For the proper performance of the whole or part of the debt of another (the principal
debtor)
NATURE OF SURETYSHIP CONTRACT
҂ Fundamental to the suretyship contract that there should be a valid principal
obligation (debt). The suretyship contract is accessory to the principal debt & can
only exist & continue to exist if principal debt still exists. Therefore;
҂ Should the principal obligation come to an end, the suretyship will also lapse.
҂ Another consequence of this principal is that, for the suretyship to be vali d, it is
essential that the principal debt must be valid too. The accessory obligation shares
the fate of the principal one
e.g. valid contract of sale or a valid loan agreement but a contract of
sale in terms of which a rhino horn is sold – unlawful & thus invalidate
the surety agreement
҂ although the principal debt need not exist at the time of conclusion of contract of
suretyship, the principal debt envisaged at the time of the conclusion of the
suretyship must come into being in order to found liability for the surety
҂ suretyship is based on main (principal) or primary obligation (debt) & a secondary
obligation which is dependent on or accessory to the existence of the former. This
fact implies a situation involving at least three parties, namely the principal debtor,
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