Summary
Summary Theme 4 - Security
- Course
- KRG 120
- Institution
- University Of Pretoria (UP)
Detailed and elaborate notes with examples and diagrams to ensure full understanding.
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Disclaimer:The notes below are made using the following textbook:
J. Barnard, A. Boraine, M.M. Botha, R. Brits, H. Coetzee, E.P. Joubert, K.M.
Kern, D.J. Lotz, K. Newaj. 2019. Commercial Law. 6th Edition. LexisNexis.
South Africa.
,Theme 4: Security
1. General Introduction and Suretyship
Real security vs. Personal security
• Why security?
o to protect creditor against possibility of debtor being unable to pay
his/her debt
o Relationship of debt can arise from various sources e.g. contract or
delict
• Two forms of security:
• What is personal security?
o Person binds himself contractually for performance,
o e.g. suretyship: student needs money to pay fees, asks her bank for a
loan. There would be a debt in terms of a loan agreement and the bank
would require a condition that there is another person that binds
themselves in terms of a contract in terms of security for the debt – the
third party would be liable to pay
• What is real security?
o Bind all or part of assets as security for debt
o E.g., Pledge/Mortgage, Hypothecs, and liens
• Real security preferred to personal security. Personal security has certain
advantages: the creditor obtains a personal right against the surety
• In terms of insolvency, a creditor who has real security would enjoy priority as to
the proceeds of the thing over other creditors without such security
security
Why is real security preferred to personal security?
2
, Real security:
• Specific thing/asset is given as security
• An asset has an intrinsic value
• Creditor with real security enjoys priority over other creditors
• Most creditors prefer this form
Personal security/suretyship:
• Creditor obtains merely an additional personal right
• Risk that principal debtor or 3rd party might not be able to pay
Accessory nature of suretyship:
Bank -> creditor granter
Student -> credit receiver
Friend -> security grantor/surety
- student approaches the bank asking for a loan. The third party (the friend) enters
into a contract whereby they are responsible for the payment if the student is
unable to pay. Contract of suretyship
- the relationship between B (credit granter) and F (security grantor) depends on the
existence of the principal debt (the loan) and can only exist while the principal
debt exists
- the debtor does not need to know about the surety
- this is accessory in nature -> the suretyship agreement is dependent on the
principal debt. If the principal debt falls away, then the suretyship falls away
- there should be a valid principal debt
Suretyship contract
• Definition: a contract in terms of which a third party (the surety or co-sureties)
binds himself (or themselves) to the creditor (the principal creditor) for the proper
performance of the whole or part of the debt of another (the principal debtor).
There is no contract between the debtor and the surety
Nature of
suretyship
contract:
3
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