Mrs Solly signed as a surety for her nephew that wanted to start a panel beating company.Mrs Solly’s nephew has being lying about his business doing poorly and continuously borrowsmoney from Mrs Solly. Due to this lie, Mrs Solly does not want to fulfil her obligations in terms of the Suretyship Agreement. Legally advise Mrs Solly on the following:
1.1 The nature of a Surety Agreement
1.2 The benefits available to a Surety
1.3 The various ways in which a Surety Agreements may be
terminated
A surety ship requires the principal debtor to whom the surety
is bound by way of ancillary obligation of segregate identity from
obligation between the debtor & creditor. The suretyship does
bind the surety to the creditor, inasmuch as the latter is vested
with the right to proceed against the former to collect the credit
in lieu of proceeding against the principal debtor for the same
obligation. At the same time, there is also a legal tie created
between the surety and the principal debtor to which the creditor
is not privy or party to. The moment the surety fully answers to
the creditor for the obligation created by the principal debtor,
such obligation is extinguished. At the same time, the surety may
seek reimbursement from the principal debtor for the amount paid,
for the surety does in fact “become subrogated to all the rights
and remedies of the creditor.”
Benefits to a surety: the surety will always have the right of
subrogation where the surety can step into the shoes of the
principal & use the contractual rights of the surety in order
to recover the cost of making the payment or performing on behalf
of the principal even in case of no express agreement between the
principal & the surety.
If the principal debtor is aware that his debt is going to become
due & starts disposing his properties in order to prevent the
surety from seizing the surety can compel the principal to settle
the debt & release him from the obligation to make the debt
payment.
Surety or guarantee can be terminated in various ways:
Guarantor’s death: the guarantor will not be in force on receipt of
notice of his death by the bank.
Revocation by guarantor: the guarantor can cancel the continuing
guarantee by notice the creditor as future transaction.
Debtor’s death: the surety gets automatically terminated on
debtor’s death. The creditor can receive the amount from debtor’s
estate. In case of default by legal heir amount can be demanded
from the guarantor.
Insanity f the surety: if the creditor comes to know the surety’s
sanity, the agreement gets terminated.
Fraud: guarantee obtained by fraud or misrepresentation is
invalid.
Debt payment: if the debtor himself makes the payment on due date
the agreement gets terminated.
Agreement changes: when the creditor makes agreement changes with
the debtor then guarantee is discharged.
Negligence of the creditor: if creditor does any act which is to be
done for benefit of the surety & doesn’t do, the surety will be
discharged.
Unauthorized time extension: if the creditor provides time to the
debtor for payment without the knowledge of the surety, the surety
becomes terminated.
Discharge of debtor: By any agreement between the creditor and
debtor or any act if the principal debtor is discharged then surety
will be automatically discharged.
Bank amalgamation: If two or more banks amalgamate the guarantee
will cease for all future transactions unless there is an
agreement.
Mrs Solly signed as a surety for her nephew that wanted to start a panel beating company.Mrs Soll...
Question 1 (20 Marks) -Commercial law Mrs Solly signed as a surety for her nephew that wanted to start a panel beating company. Mrs Solly’s nephew has being lying about his business doing poorly and continuously borrows money from Mrs Solly. Due to this lie, Mrs Solly does not want to fulfil her obligations in terms of the Suretyship Agreement. Legally advise Mrs Solly on the following: 1.1 The nature of a Surety Agreement (5 marks) 1.2 The benefits available...