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A suretyship agreement involves three parties: a principal debtor (A), a creditor (B) and a surety (C). The agreement works in essence as follows: B loans A an amount of money and should A be unable to pay back the money, then B can claim the money from C. The obligation between A and B is called the principal obligation and if this obligation no longer exists, then the obligation of C towards B also falls away.
Requirements
The requirements for a suretyship agreement are the following:
- There needs to be a principal obligation;
- The agreement needs to be in writing and;
- the parties need to have intended to conclude a suretyship agreement.
It is of the utmost importance that you ensure abovementioned requirements are met.
Intention
One of the principles in South African contract law is the caveat subscriptor principle. According to this principle anyone who signs a document has the intention of entering into an agreement as contained within the document i.e you agree to the terms and conditions of the agreement.
If the surety seeks to be released from liability in terms of the suretyship agreement the surety will have the onus to prove that he/she had no intention of entering into the suretyship agreement. Furthermore, if the creditor was innocent and unaware of the surety’s mistake (that he/she did not have the intention), the surety will not be able to escape liability.
When does the suretyship agreement come to an end?
The suretyship agreement will come to an end once the principal obligation, mentioned above, has been extinguished. This can be when the debtor has paid the debt in full or when the agreement is terminated.
Conclusion
Once you have signed as surety it can prove extremely difficult to be released from your liability in terms of the suretyship agreement. For this reason, we cannot stress enough how important it is to read the agreement. Seek the assistance of an attorney to help you understand the terms and conditions of the agreement before you sign the agreement.
Anye Jansen van Rensburg, SchoemanLaw Inc (Cape Town)
Tel: +27 (0) 21 425 5604
Email : enquiries@schoemanlaw.co.za
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