The recent decision in Pioneer Drill and Blast (Pty) Ltd v Deysel is a reminder of the legal consequences for individuals that have entered into suretyship agreements.
In this matter, the High Court reaffirmed that a person who enters into an agreement as surety cannot later avoid liability by claiming ignorance of the document’s legal consequences. Herein, the surety was held liable for payment of R3.6 million as surety, applied for leave to appeal the decision on the basis that he was unaware he had signed a suretyship agreement and that he did not understand the legal implications of the suretyship as it was not explained to him. The surety argued that the creditor had a duty to explain the legal consequences to him and that, due to his limited legal knowledge, he should not be held liable.
The court rejected this argument as having no merit, and held that there is no legal duty on a creditor to explain the consequences of a suretyship agreement to the person signing it.
The law assumes that a person who signs a legal document has done so with knowledge of its contents, or at the very least, has taken reasonable steps to inform themselves.
The court went further to state that the suretyship agreement in question was clear and unambiguous. It could not be described as misleading or deceptive. The fact that the surety later claimed he did not understand what he had signed did not constitute a valid defence.
Key Takeaways for Sureties
A suretyship is an accessory contract by which the surety undertakes to the creditor of the principal debtor, that the principal debtor, who remains bound, will perform his obligations to the creditor, and that if and so far as the principal debtor fails to do so, the surety will perform it, or failing that, indemnify the creditor.
Being an accessory contract simply means that for there to be a valid suretyship, there has to be a valid principal obligation between the principal debtor and the creditor. Simply put, every suretyship is conditional upon the existence of a principal obligation.
A sureties liability arises from the time the principal debtor is in default. This means that the creditor can then sue the surety directly for the principal debt.
Unless the debt limited in the agreement, the surety will be liable for payment of:
- The full outstanding debt;
- Interest of the principle debt;
- Legal costs; and
- Any other chargers that the principal debtor would have been liable for.
Contact the experts at RSW Law to comprehensively advise you on your rights as, and against a surety, to draft your suretyship agreements, and to represent you instituting or defending litigation involving a surety.