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Requirements for a valid Deed of Suretyship

Requirements for a valid Deed of Suretyship

Most prudent creditors require of their debtors to provide a surety, someone who will be bound as co-debtor, in the event of the debtor not performing his obligations in terms of the agreement.

We have, in the past, been forced to advise clients that we would be unable to enforce a deed of suretyship, due to some or other problem with the document. Some years ago, there has been a reported case dealing again with the requirements for a valid deed of suretyship. That case is Astill v Lot 54 Falcon Park CC, delivered in February 2012 in the Pietermaritzburg High Court.

In this matter, a lease was concluded between L, as landlord, and M as tenant. Astill signed a deed of suretyship, in terms of which he bound himself as surety for “The due payment on demand by the Creditor of all monies which the Principal Debtor may now or from time to time hereafter owe to the Creditor and arising from an agreement of lease executed by Principal Debtor with the Creditor.”

Upon expiry of the lease agreement to which the Astill-suretyship was attached, two further agreements were concluded between L and M, and both of those lease agreements had a new suretyship annexed, as A had resigned as a member of the tenant, shortly before the expiry of the lease to which his suretyship was annexed. L attempted to hold Astill liable for rentals and related charges which remained unpaid by M, the tenant.

There are a number of important principles governing deeds of suretyship, which include:

  1. The deed of suretyship has to identify the creditor, the surety, and the principal debtor;
  2. All the essential terms of the deed of suretyship has to be in writing, and signed by the surety;
  3. A deed of suretyship cannot stand alone—it is accessory in nature and therefore requires an underlying, or principal agreement;
  4. The surety cannot be liable for anything more than the principal debtor.

In the Astill-case, the court referred to a long line of decisions, indicating that a deed of suretyship must be interpreted strictly—this means that a court will not hold a surety liable for more than what is expressly provided for in the deed of suretyship. In the event of uncertainty about the meaning of a suretyship, it will be interpreted against the creditor.

In this case, the landlord argued that the words “… all monies which the Principal Debtor may now or from time to time hereafter owe to the Creditor and arising from an agreement of lease …” was sufficient to render the surety liable for any rentals that may accrue under future agreements of lease. The court, however, (in our view correctly) found that the suretyship was limited to first agreement of lease entered into between L and M. In support of this, the court stated that the word “executed” clearly referred to a lease agreement that had already been concluded, and not one to be concluded in the future. Also, the court held that the words “from time to time hereafter” referred to monies due under the original lease agreement, and not monies that may become due under future lease agreements. The court also found that, if the suretyship had to apply to future lease agreements, not yet in existence at the time of conclusion of the suretyship, specific mention had to be made thereof.

We have dealt with a matter where the surety has argued that, where the document refers to “the lease to which this document is attached”, and a written lease as set out in the document is not concluded, the suretyship is unenforceable, notwithstanding the fact that the suretyship was signed. We have argued to the contrary, based on the fact that the unsigned document is in any event incorporated into an Offer to Lease document, signed by the parties. The court followed the strict interpretation, and held that the signed suretyship was of no force or effect. The litigation is, however, continuing on alternative bases for holding the surety liable.

Therefore, where a deed of suretyship is concluded, it is important to ensure that the document is drafted properly, and that all the relevant agreements have been properly signed. Failing this, a court may very well let the surety off the hook, with the result that the benefit of another debtor is lost.