Be careful signing suretyships! and what to do when things go wrong.

Surityship_smlR16,6m – that’s how much (plus interest and costs) the High Court recently ordered two sureties to cough up in their personal capacities. The sureties had, as trustees of a property development trust, signed surety for the trust’s loan from a money-lender.

The problem with suretyships of course is that you tend to sign them at the start of a venture, when it seems like a safe and sensible thing to do. It’s only later, when the principal debtor unexpectedly runs into financial difficulty, that you start panicking – and by then it’s too late.

Three things to do before you sign

  1. Understand fully and accept the risk you are taking when you sign personal suretyship for anything. Our law reports are full of failed attempts by sureties to escape their liabilities. In this case for example, although the suretyship agreement itself was unclear as to the nature and extent of the trust’s debt, the moey-lender was allowed to introduce additional evidence to remedy that.
  2. If you have no choice but to sign suretyship, at least read and understand everything before you sign, and try where you can to limit your liability as much as possible.
  3. Most importantly, take legal advice upfront – if things go wrong, it will pay handsome dividends later on.

Your suretyship is called up: what now?

The basic requirements for validity of a contract of suretyship are simple – it must be in writing, it must embody the terms of the suretyship, and it must be signed by you (or by your authorised agent). But there are times when you will be able to challenge the validity of a claim against you – so take advice before you pay anything (or commit to doing so).

Ashersons Attorneys

Ashersons Attorneys

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