Suretyships are usually harmless-looking documents. However, to treat them as such, may cause extreme injury to your financial health.
A suretyship agreement is an agreement in terms of which one person (the surety) undertakes to a second person (the creditor) to fulfil the obligations of another person (the principal debtor).

What it means in simple terms is that in the event of a family member, business partner or friend for whom you have signed surety being unable to pay their debts, you will be held liable in your personal capacity. This is why you should read the agreement thoroughly before signing.

Of all the hazards to your financial health, two stand out in importance – signing a contract without reading it, and binding yourself as surety for someone else’s debts. Signing a deed of suretyship without reading it is particularly risky.

The Banking Ombudsman has said in the past that consumers who sign banking contracts (including personal surety-ship agreements), without first reading and understanding them, cannot expect the Ombudsman to come to their rescue.

The general rule in contract law is that when you sign a contract you are assumed to know and understand the contents and you are accordingly bound by said content. Signing a surety, or any agreement, without reading it is very risky. You are entitled to, and ought to, negotiate the terms of any personal surety. If you elect to sign personal surety, do so on the best possible terms.

It shocking to practising attorneys how nonchalantly people sign suretyships. Taking on the responsibility for someone else’s debts, by standing surety for them, should be avoided unless it is absolutely necessary. If it is absolutely necessary, have an attorney ensure you are as protected as possible!

Once you have put your signature to a legal document, it is very difficult to escape liability. As Roman law expressed it – caveat subscriptor (meaning, literally, let the signatory beware, but more broadly, anyone who enters into a contract must beware of the legal hazards) and pacta sunt servanda (a legal contract must be honoured).

In a few limited cases, a person who has signed a contract, such as a deed of suretyship, has managed to persuade the court that he is not legally liable under the document but no one who signs a deed of suretyship – or any other legal document – should view these judgements as providing an escape hatch which will enable them to evade the obligations and liabilities imposed on them by the document they have signed.
In almost all suretyship agreements, the creditor would want the person signing surety to also bind themselves as co-principal debtors. This results in the surety being liable in the same manner as the principal debtor, which means the creditor is able to recover the debt owing directly from the surety without first trying to recover from the principal debtor. This especially should be avoided.

The surety’s undertaking may be for a limited or unlimited time. For example, up to a specified amount and provided such debts arose during a specified period. However, in some suretyship agreements, which are the most common, the surety undertakes unlimited liability, which applies to many different transactions that need not be identified separately.

In these cases, the surety’s liability extends to a series of debts and/or transactions. These transactions or debts may relate to some future debt to be incurred or to an existing debt already incurred by the principal debtor.

With this kind of suretyship, it is important to note that suretyship agreements are not automatically cancelled once the debt has been repaid; or when the business for which the surety was originally signed has been sold; or even if the surety dies. The creditor must release the signatory from such an agreement − in writing.
Furthermore, unless the suretyship agreement states that the agreement will terminate when the surety dies, the landlord would still be entitled to claim from the surety’s estate even if the principal debtor defaults after the surety has passed away. Similarly, if the person who signed the suretyship agreement was, for example, the owner of the company and they subsequently sell it to a third party, the surety may find themselves liable for debts incurred by a company they no longer have any influence over − unless the suretyship agreements are cancelled and the surety is released from such agreements.

It is critical that if you ever sign a suretyship agreement, you make sure you fully understand the nature and extent of the debt and how long you can be held liable for it. It is equally important to ensure that you are released from any suretyship agreements that may have been signed.
A suretyship agreement cannot exist without a principal obligation. Thus the creditor can only claim the performance of the obligation from the surety if the principal debtor fails to perform in terms of the principal obligation.

Remember that the intention of the parties must be to conclude a suretyship agreement and a valid suretyship agreement must be embodied in a written document.

The parties must also agree on the extent to which the surety accepts liability and the period for which the surety can be held liable.

Where a suretyship clause is included in an agreement that is still to be signed and you do not wish to bind yourself as a surety and co-principal debtor, your intention needs to be clearly stated and communicated to the other parties, before you sign.

When signing a contract on behalf of a juristic person, which contains a suretyship clause, it is not enough to draw a line through the clause and then sign the contract. To reinforce your intention of not binding yourself as surety you should initial next to your amendment of the contract and ensure that the creditor acknowledges this by also initialling that change. This is even more important in contracts which include a “non variation” clause that requires any edits to be reduced to writing and acknowledged by all parties.

Should you ever find yourself in a situation in which you are called upon to stand as surety for another party, make sure you satisfy yourself as to the identity of the parties concerned, the nature and extent of the debt and the period for which you can be held liable.