Personal Suretyship Agreement

April 11, 2021

A guarantee is an incidental contract by which a person is responsible for another person`s debts or financial obligations. For example, when a student borrows a student, the bank requires parents who sign as a surety for the repayment of the student loan, or when a private company asks for a loan, one or more directors usually sign as a payment guarantee if the company does not pay. A bonding contract usually consists of three parties, the creditor (for example. B the bank), the main debtor (for example. B the student) and the warranty (. B for example the parents and parents of the student). The guarantee commits to the creditor that the principal debtor who remains bound will fulfill his obligation to the creditor, and if the principal debtor does not, the guarantee will compensate the creditor. Simply put, the guarantee agrees to follow in the principal debtor`s footsteps if and when the debtor can no longer provide financially for these shoes. In the recent High Court decision of First Rand Bank Ltd/Carl Beck Estates (Pty) Ltd, the Tribunal indicated that the NCA applied to guarantee agreements and clearly fell within the definition of a “credit guarantee” as defined in Section 8.5 of the NCA. However, it would only apply to the extent that the NCA applies to the credit facility or the underlying credit transaction (main liabilities) for which the guarantee is granted. The continuation of guarantee clauses is often included in guarantee agreements, regardless of the potential impact of these clauses.

These clauses can potentially permanently commit the principal debtor`s debt guarantee and link the debt guarantee that may be due at any time in the future, even if that surety is no longer in any difficulty with the debtor. It is important that if you ever sign a guarantee agreement, you must ensure that you fully understand the nature and extent of the debt and how long you can be held responsible. It is also important to ensure that you are exempt from any guarantee agreement that may be signed. A surety contract cannot exist without a principal obligation. Thus, the creditor can only demand the performance of the guarantee commitment if the principal debtor does not meet the principal debt. When signing a contract on behalf of a legal entity with a surety clause, it is not enough to draw a line through the clause and then sign the contract. To confirm your intention not to commit as collateral, you should first proceed in addition to your contract modification and ensure that the creditor recognizes this by also paraphrasing this change. This is all the more important for contracts that contain a “non-variation” clause that requires that salaries be reduced to the letter and recognized by all parties. The principal debtor may use all the usual contractual defences against the creditor, including inability, illegality, inability to work, fraud, coercion, insolvency or insolvency relief.

However, the guarantee may enter into a contract with the creditor which, despite the client`s defence, is held liable, and a surety whom has taken the guarantee informed of the creditor`s fraud or coercion remains bound, even if the principal debtor is dismissed. If the guarantee is addressed to the principal debtor and asks for a refund, the principal can – as he noted – object to him acting in bad faith. Since the definition of statutory credit guarantees requires that such agreements be entered into on the basis of a statutory credit facility or credit transaction, it follows that, for a statutory bonding contract, the underlying transaction must also be subject to the law.