Abstract

The liability of Z as purchaser under numerous credit-sale agreements was ostensibly secured by a surety agreement concluded with six sureties more than a year before the first instalment sale was concluded by Z with M. That surety agreement provided:

“We the undersigned … do hereby interpose and bind myself /ourselves jointly and severally as surety for and co-principal debtor in solidum with SA Zero Waste Pty (Ltd) (‘the debtor’) for the due and punctual payment by the Debtor to Mercedes-Benz Financial Services South Africa (Pty) Ltd (‘the Creditor’) of all sums of money which the Debtor may now and from time to time hereafter owe or be indebted to the Creditor, its successors, order and assigns from whatsoever cause arising whether such indebtedness be incurred by the Debtor solely, jointly or in partnership with any other person, firm or company, and further for the due, punctual and faithful performance by the Debtor of any obligation of whatsoever nature, whether actual or contingent and whether in contract or in delict, which he may now or in the future owe to the Creditor” (judgment bundle 206– emphasis added).

It is submitted that notwithstanding the alleged practice of accepting “continuing suretyships” to cover unspecified and uncertain future claims by the creditor against the principal debtor, such a contract is in contravention of the accessory principle that governs all forms of real and personal security agreements. Suretyship is an accessory obligation – it is accessory to the transaction that creates the obligation of the principal debtor.

M subsequently ceded all its rights and obligations (sic) founded on its credit agreements with Z to D without informing Z of the cession. More than four months later, M entered into an agreement of voluntary surrender and termination of the initial agreements with Z as debtor whereby all vehicles purchased were returned by Z to M. The parties agreed that Z would be liable to M for any outstanding liability not covered by the revenue of the sale of the vehicles to third parties. Thereafter Z was finally liquidated. Almost two years later D claimed performance from the six sureties for the amount still outstanding.

It is submitted that the judgments discussed leave some serious questions unresolved. It is doubted whether M as cedent could have the competency to enter into a cancellation agreement with Z cancelling the claim that had been ceded to D more than four months earlier – nemo plus iuris. Also discussed is the extent to which the sureties who were not party to the cancellation agreement can be held liable as sureties for a claim that apparently cannot be founded on the cancelled original agreements given that it originated only some five years after the surety agreement was concluded. M’s claim, founded on the cancellation agreement, was not secured by a new surety agreement at all.

The supreme court of appeal should carefully reconsider the validity of so-called continuing suretyships where, as in this instance, the agreement provides for liability ad infinitum founded on whatever contract or delict that may come about in clear contravention of the accessory principle.