Suretyship Agreement In South Africa

Oct 10 2021

A surety contract is a contract in which the guarantor (a third party) undertakes vis-à-vis the creditor (in the case of a loan, it would be a financial institution) to fulfill the obligations of the buyer (the principal debtor) if he does not do so. Therefore, the importance of concluding a guarantee contract cannot be assessed with a clear understanding of the contractual conditions and obligations them own. There is a triple survey that is used by our courts to determine whether a guarantor can be exempted from the treaty he has signed: due to the extensive use of guarantee agreements in South Africa, certain conditions have been standardized by years of repeated application. However, it is questionable whether the frequency of use has led to an oversimplification of certain concepts, which has resulted in some guarantee agreements remaining below the most fundamental principles of the right of early guarantee. Eight persons signed separate but identical guarantee contracts in which they linked themselves to Liberty as guarantors and accomplices in solidarity with the ECE for the payment of all funds that might be owed in the future to the former of the latter. Contracts in which commissions were paid to the JTS were either cancelled, terminated or terminated for non-payment of premiums to Liberty. This meant that commissions paid in advance by Liberty to the EC were repayable by the JTS under the agreement and by the guarantees relating to the guarantee instruments. The agreement between the insurer and the ECE was subsequently terminated. The SCA then analysed Kilroe-Daley against Barclays National Bank [1984] 2 All SA 551 1984 (4) SA 609 (A) (Kilroe-Daley). In this case, the complementary nature of the guarantee to the agreement in principle was stressed. The use of the word “principal debtor” did not transform the security into another contractual form.

One of the additional difficulties that warranties can face is that warranty agreements can be unlimited in terms of liability and time. It is acceptable for the parties to enter into security agreements in which the guarantor`s liability is unlimited and the creditor`s agreement is necessary for the release of a surety. A guarantee contract comprising an unlimited standard term, an unlimited liability clause and a clause limiting the release of the surety would in fact make a guarantor liable for unlimited obligations, of an unlimited amount and of unlimited duration. The combination of those concepts would undermine the nominal value of the protection envisaged at Fourlamel by guarantees and would null and neas the intention of the legislature to adopt s 6 in order to render theoretically an ad infinitum guarantee liable. . . .

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