Legal obligations of a surety

ASURETY is a person who gives assurance that they will pay or fulfil a duty owed by a principal debtor.

Sometimes the surety can be an entity. A suretyship is an accessory agreement between a surety and a creditor of the principal debtor in terms of which the former makes himself liable to the latter for the proper discharge by the debtor of his or her duties to the creditor.

A suretyship serves as a protective mechanism for creditors, providing them with an added level of security. It allows the surety to step into the shoes of the principal debtor and fulfil their obligations should the debtor fail to do so. The suretyship agreement is a legally binding contract subject to the principles and requirements of contract law, ensuring fairness, clarity and legal enforceability for all parties involved.

The essence of suretyship

At the heart of suretyship lies the fundamental concept that the surety’s obligation is contingent upon the existence of the principal debtor’s primary obligation.

In a suretyship arrangement, the primary obligation refers to the debtor’s core responsibility towards the creditor. It serves as the foundation upon which the surety’s obligation is built. The surety’s role is considered secondary or “accessory” to the principal debtor’s obligation.

Essentially, the surety’s commitment is derived from and dependent upon the existence and validity of the principal debtor’s obligation. If the principal debtor fails to fulfil their obligations, whether wholly or partially, the surety steps in to assume responsibility and perform those obligations on their behalf. It is important to note that the surety’s liability is directly linked to the principal debtor’s default or failure to meet their obligations. The surety’s role is not standalone but rather intertwined with the principal debtor’s undertaking, creating a symbiotic relationship between the two parties within the suretyship contract. By understanding the essence of suretyship as the accessory nature of the surety’s obligation to the principal debtor’s primary obligation, one can grasp the essential interplay and dependency among the parties involved in this contractual arrangement.

Parties to suretyship

A suretyship is a legal arrangement that involves three essential parties: the creditor, the principal debtor and the surety. It operates as a contract between the surety and the creditor, establishing mutual obligations and responsibilities.

This means a suretyship agreement can only be entered into if there is a contract between the creditor and principal debtor. It is, therefore, an additional agreement to the one between the creditor and principal debtor. They are two separate agreements entered into between the creditor and principal debtor, and between the creditor and the surety.

In this contract, the surety willingly assumes the role of a guarantor, undertaking to fulfil the obligations of the principal debtor to the creditor in the event that the debtor fails, either wholly or partially, to meet their commitments. By binding themselves to this agreement, the surety provides an additional layer of financial security and assurance to the creditor. Suretyship operates under the governing principles of contract law. It is crucial to note that the same legal principles and requirements applicable to any other type of contract also apply to suretyships. These principles include mutual consent, capacity of the parties involved and lawful object.

Additionally, suretyships often require the presence of specific provisions, such as limitations on the surety’s liability, notice requirements in case of default or provisions for the discharge of the surety upon the fulfilment of certain conditions. These provisions seek to define the rights, duties and limitations of each party involved, safeguarding their interests and ensuring a fair and equitable arrangement. The legal implications of suretyship extend to various areas of law, including contract law, surety law and even bankruptcy law. It is crucial for all parties involved in a suretyship to fully understand their rights, obligations and potential liabilities as outlined by these legal frameworks.

Legal requirements for suretyship

The requirements of suretyship are as follows: the identity of all the parties (creditor, principal debtor and surety), and the nature and amount of the principal debt. A surety, therefore, agrees to make himself liable to the creditor for the principal debtor’s debt. It is important to note that all three parties must be different; a person cannot stand surety for his own debt. (See Ronald Bakari v Total Zimbabwe (Private) Limited SC 226 of 2016). They cannot stand surety for a debt in which they are the principal debtor. It does not make sense that a borrower can also be the surety.

One cannot say if I fail to pay you as the principal debtor, I will pay you as a surety. Failure to pay as the principal debtor will result in failure to pay as surety because the resources of the same person will be used to satisfy the debt.

I am, therefore, satisfied that a borrower cannot secure his own debt as a surety. It is not legally possible for a borrower to stand as the surety of his own debt. See the cases of Standard Bank of SA Ltd v Lombard and Anor 1977 (2) SA 808 (W) at 813 F-H and Litecor Voltex (Natal) (Pty) v Jason 1988 (2) SA 78 D.

In the case of Standard Bank (supra), doubt was raised on the propriety of a partner standing surety for a partnership’s debt. In my view, that situation can be arguable. It is different from that of a debtor being the surety of his own debt.

In the case of Litecor Voltex (Natal) (Pty) v Jason (supra), Didcot J, at page 81 B, commented on a debtor standing surety for his or her own debt as follows: “To guarantee the payment of your own debt is a futile exercise, to say the least, neither underwriting nor reinforcing the obligation to pay it rests on you in any event. Failing the basic test for a suretyship, it does not amount to such. Nor does it accomplish anything else. It is not worth, in short, the paper on which it is written.”

In terms of common law, a surety gets discharged whenever the principal obligation is terminated, such as when the principal debtor performs, when performance by the principal debtor is impossible or when the debt is declared invalid. Even if the major duty between the principal debtor and the creditor is still in effect, a suretyship may be dissolved if the accessory obligation between him and the creditor is cancelled. It is key to note that a written surety agreement is also necessary for its legal effectiveness. LEGAL DISCLAIMER: The material contained in this article is set out in good faith for general guidance in the spirit of raising legal awareness on topical interests that affect most people on a daily basis. They are not meant to create an attorney-client relationship or constitute solicitation. No liability can be accepted for loss or expense incurred as a result of relying in particular circumstances on statements made in the article. Laws and regulations are complex and liable to change, and readers should check the current position with the relevant authorities before making personal arrangements.

◆ Arthur Marara is a practising attorney, author, human capital trainer, business speaker, thought leader, law lecturer, consultant, legal proctor (UZ), notary public and conveyancer.