Is it a Suretyship or a Guarantee?
A suretyship is as an agreement in terms of which a third party, namely the
surety, agrees to be liable towards a creditor for the proper performance of a given obligation. A surety may agree to be fully or partially liable for the performance of a debtor. Typically, suretyship agreements are concluded in pursuance of a credit transaction whereby a surety agrees to settle all debts (or a portion thereof) should the principal debtor fail to do so.
A suretyship is not to be confused with a guarantee although a guarantee may amount to a contract of suretyship (see List v Jungers 1979 (3) SA 106 (A)). What clearly distinguishes a guarantee from a suretyship is that a guarantee does not need to be in writing, and the special rules relating to suretyship do not apply. The legal effect of a guarantee depends on its terms and surrounding circumstances.
For purposes of the National Credit Act 35 of 2005 ("the NCA"), if a person undertakes or promises to satisfy upon demand any obligation of another consumer in terms of a credit facility or a credit transaction to which the NCA applies, such undertaking will be regarded as a "credit guarantee" in terms of the NCA. The NCA further provides that a credit guarantee amounts to a suretyship agreement.
A suretyship will be governed by the NCA if the underlying credit agreement falls within the ambit of the NCA. If the credit agreement is exempt, the underlying suretyship is likewise exempt.
The Formalities of a Suretyship
The General Law Amendment Act 50 of 1956 makes it a requirement for the terms of a suretyship to be embodied in a written document signed by or on behalf of the surety.
The Suretyship Agreement must identify the creditor, the surety and the principal debtor. In addition, the nature and amount of the principal debt must be capable of ascertainment by reference to the provisions of the written document supplemented, if necessary, by admissible extrinsic evidence.
Its possible to supplement a suretyship agreement by incorporating another document in order to comply with the statutory requirements. If a suretyship agreement does not comply with a statutory provision then it possible to effect the necessary rectification.
Matrimonial Property Act 88 of 1984
A person married in community of property may not (without the written consent of his or her spouse) bind himself or herself as surety unless the deed is entered by the spouse in the ordinary course of his or her profession, trade or business (See Strydom v Engen Petroleum Ltd 2013 (2) SA 187 (SCA)).
Business Rescue
In the absence of a specific provision in business rescue plan for sureties, their liability remains unaffected by business rescue, and they cannot claim the benefit of the moratorium (See Nedbank Ltd v Zevoli 208 (Pty) Ltd 2017 (6) SA 318(KZP))
Future Debts
A person may continue to stand as surety in respect of future debts (See Trust Bank of Africa Ltd v Frysch 1977 (3) SA 562 (A)).
Close Corporation
For a suretyship to be binding on a close corporation the written consent of all the corporation's members is required. Consent does not have to be prior consent. Therefore its possible to obtain consent from all members of the close corporation after the conclusion of the suretyship agreement (See Hanekom v Builders Market Klerksdorp (Pty) Ltd 2007 (3) SA 95 (SCA)).
Justus Error
An undertaking to stand surety is often contained as a clause in a contract such as an application for credit. Unless the suretyship clause is properly highlighted or brought to the attention of the signatory, the surety may be able to rely on the defence of justus error (or "just error"). The onus is on the surety to prove the just error (Brink v Humphries & Jewell (Pty) Ltd 2005 (2) SA 419 SCA).
Waiver
If a creditor waives a portion of the debt, naturally, the surety is discharged to the extent of that waiver.
Prescription
When the principal debt becomes prescribed the surety is released. If the principal debt is kept alive by a judgment against the debtor, the surety's accessory obligation continues to exist. Interruption of prescription of the principal debt interrupts prescription of the debt of the surety.
*Ntobeko Maphanga is a practicing advocate and a member of the National Bar Council of South Africa. For more information about the author visit NtobekoMaphanga.co.za