Suretyship agreements are a commercial necessity in befitting circumstances. Credit providers usually require security/guarantee on their credit facilities, especially on unsecured debt. It is not only on credit facilities where guarantees are required, sometimes parties undertaking business projects require suretyship agreements to secure the timeous completion of their projects. However, the approach taken in this article will assume that the surety agreement is one attendant to a credit facility.
A surety is a party that signs as guarantor in case the debtor fails to honour their obligations. Liability will accrue to the surety to satisfy the obligations of the debtor under the main agreement between the creditor and the debtor. We strongly advise parties to do a great deal of consideration before signing as a surety. In this article we will discuss a few defences that may be available to a surety when defending a claim arising out of a deed of surety.
Building up to the first defence, it is important to point out that a deed of surety must always be in writing as per Section 6 of the General Law Amendment Act, 50 of 1956 (as amended):
No contract of suretyship entered into after the commencement of this Act, shall be valid, unless the terms thereof are embodied in a written document signed by or on behalf of the surety.
As a side note, the Alienation of Land Act 68 of 1981 provides in Section 2 (1) that no alienation of immovable property shall be valid unless reduced to writing. It follows therefore that no alienation of immovable property is valid if it was materially concluded verbally.
In a claim arising out of a deed of suretyship, the Defendant/Respondent may raise the defence of non-compliance with statutory requirements in the event that the deed of suretyship relied upon did not comply. As was held in Stewarts & Lloyds of SA Ltd v Croydon Engineering & Mining Supplies (Pty) Ltd 1981 (1) SA 305 (W) the Plaintiff bears the onus to prove that when the surety signed, the requirements for the validity of the deed of suretyship were present. In the case of Fourlamel (Pty) Ltd v Maddison 1977 (1) SA 333 (A) it was held that a deed of suretyship must contain adequate terms which include but not limited to the identification of the principal debtor, the debt and the sureties.
Secondly, where joint-surety was intended, no obligations arise in the event that other proposed sureties have not yet signed. It is thought that the reason for this is that joint-suretyship is mostly intended to reduce the burden of liability on one party (surety) so that liability may be shared thereby increasing the prospects of the debt being paid up.
In the event, thirdly, that the deed of surety was varied (in writing), altering the terms regarding liability, the Defendant may indeed raise such a defence. Given that the deed of suretyship must always be in writing, it follows therefore that any variation shall also be in writing in order to be valid. The onus is on the Defendant to prove such variation that the defence is premised upon, wary that the terms/provisions thereof shall be key in determining the liability of the surety.
Finally, a surety may be released from the deed of suretyship in the event that the creditor breaches a legal duty and/or obligation, which causes prejudice to the surety. This was noted by the Court in the case of ABSA Bank v Davidson (2000) 1 All SA 355 (A). In that case the Court however upheld that a wide interpretation is not correct and therefore not in all circumstances will a surety be released.
The above are but some of the defences that can be raised by a surety against whom a claim is brought. Each case depends upon its own facts and merits, we are available to consult with parties in suretyship agreement disputes.
Van Deventers and Van Deventers Incorporated assists in civil matters, consumer related disputes, labour and employment law litigation, amongst a wide array of other matters. Our approach is professional, committed and timely.
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The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter. One should not act or refrain from acting on the basis of any content included in this site without seeking legal or other professional advice. The contents of this site contain general information and may not reflect current legal developments or address one’s peculiar situation. We disclaim all liability for actions one may take or fail to take based on any content on this site.
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