What is the effect of an incomplete deed of suretyship?
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In terms of our law and in particular the General Law Amendment Act No. 50 of 1956 (“the Act”) no contract of suretyship shall be valid unless the terms thereof are embodied in a written document signed by or on behalf of the sureties. There are 5 essential terms which need to be contained in a contract of suretyship, namely the identity of the creditor, the debtor, the surety and the nature and amount of the principal debt. Failure to complete the essential terms of the suretyship agreement would mean that the contract would be invalid for failure to comply with the statutory formalities. In the recent matter of Nedbank Limited vs Wizard Holdings (Pty) Ltd and Others the Johannesburg High Court considered an application or summary judgment by the Bank against the defendants who were sureties for a close corporation. The defendants raised the defence that, as the deeds of suretyship concerned were incomplete at the time of signing in that there was a blank space in each deed relating to the limit of the undertaking, but which blank spaces were subsequently completed when the applicant inserted the word “unlimited” in each case, the contracts did not comply with Section 6 of the Act and were accordingly invalid. The court held that the omission of the word “unlimited” and its subsequent insertion did not affect the validity of the deeds of suretyship and granted summary judgment in favour of the Bank. The limit to the surety’s liability was not one of the essential terms for the coming into existence of a surety relationship. The mere fact that a blank space pertaining to a non-essential term, albeit material, of the suretyship agreement was not completed did not necessarily have the consequence in all instances that the agreement was void for non-compliance with statutory formalities. Clients are advised to ensure that where they are called upon to sign suretyships, the document should be complete in all respects. Obviously, where clients are the creditors of a debtor, which is a legal entity (i.e. a company or close corporation or even a Trust) care should be taken that a complete suretyship is completed and presented to the surety/ies for signing. Adams & Adams can assist in ensuring that the appropriate suretyship is drafted to cater for clients’ needs as far as security of the debt is concerned. Leander Opperman Partner leander-o@adamsadams.co.za |
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| 3/06/2012 | Posted in: Civil Litigation | ||
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The firm practises directly in several Southern African countries and through long-established associates in others.
