Exploring Suretyship - Capacity, Liabilities, and Types of Sureties.
Submitted by: Riaan Basson, SchoemanLaw Inc. Save to Instapaper
In legal practice, any individual who can contract can enter into a suretyship agreement. However, if the person acting as the surety lacks the necessary mental capacity to contract, the suretyship will be deemed invalid. In situations involving minors, a guardian may take on the surety obligations on behalf of their minor ward. It is important to note, however, that an emancipated minor generally cannot serve as a surety, as their capacity to contract is restricted to their affairs and does not extend to the responsibilities of others.
Mutual sureties
Two individuals, known as mutual sureties, can each agree to be responsible for the other's debt. This arrangement is commonly found among businesspeople, even if they are not partners, and serves as a way to provide mutual assistance, especially in securing banking services like loans. Similarly, co-debtors can also act as sureties for one another.
Co-surety
It is common for two or more individuals to act as sureties for the same principal debtor and obligation. These individuals are known as co-sureties, regardless of whether their commitments are documented separately, made independently, at different times, or without their knowledge of one another. Each co-surety is jointly and severally liable for the entire debt of the principal debtor.
Surety and portion of debts
Individuals who provide surety for only a specified portion of a debt are not considered co-sureties. Similarly, if a surety only covers a part of the debt while others secure the entire amount, that surety does not qualify as a co-surety. The distinction between co-sureties and ordinary sureties is essential. Co-sureties can share the liability among themselves unless there is a different agreement in place. If one co-surety pays off the debt, they have the right to seek contribution from the other co-sureties.
Co-principal and surety
An individual who acts as a surety may also take on the obligations of a co-principal debtor. This dual role can be clearly outlined in the suretyship agreement. However, if there is no explicit provision stating this, determining whether the individual serves as both a surety and a co-principal debtor requires an evaluation of the language in the document and the surrounding circumstances.
Even if the individual signs a promissory note as the maker, this does not automatically confirm that they are a principal debtor. Additional evidence may be necessary to clarify the true nature of the relationship between the parties and their respective obligations.
Fideiussor indemnitatis
A fideiussor indemnitatis, or indemnity surety, is a specialized form of suretyship. Under the terms of the contract with the creditor, the commitment is solely to compensate for any loss or deficiency the creditor suffers due to the principal debtor's failure to perform. This liability is thus limited to the shortfall incurred once the creditor has excused the debtor or once events occur that relieve the creditor from the debtor's non-performance unless the contract explicitly provides otherwise.
Conclusion
In conclusion, a surety is liable to indemnify the creditor immediately when the principal debtor's obligation becomes due and remains unfulfilled. This fundamental difference means that an indemnity surety retains the right to have the creditor first establish the extent of the loss by excusing the principal debtor before proceeding to claim payment, whereas a complete surety does not enjoy this preliminary right.
If you need any assistance or advice regarding the content and implications of a contract in relation to suretyship, contact an attorney at SchoemanLaw.
Riaan Basson | SchoemanLaw Inc
Candidate Attorney
SchoemanLaw Inc Attorneys, Conveyancers and Notaries Public is a boutique law firm offering its clients access to high quality online legal documents and agreements, together with a wide range of legal services. The firm has an innovative and entrepreneurial mindset that distinguishes it from other law firms. We apply our first-hand understanding of the challenges facing entrepreneurs (regardless of their business size) to develop proven, practical solutions incorporating legal compliance, risk aversion and business sense. We achieve this by offering clients tailored, yet holistic support comprising of legal gap analysis, the design of tailored legal solutions and the practical implementation thereof through training and automation. With your personal interests in mind, our ultimate aim is to implement measures that protect the results of your hard work as effectively as possible.
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