THE ENFORCEABILITY OF A SINGLE SURETYSHIP UNDER MULTIPLE AGREEMENTS

In a recent appeal before the Supreme Court, the court was called to rule on the enforceability of a suretyship agreement.

A and B concluded a sale agreement. Thereafter they concluded a dealer agreement. When the second agreement was concluded C guaranteed A’s obligations to B as a surety. The surety agreement was an annexure to the second agreement.

The suretyship read as follows: “We the undersigned, (Sureties”) each bind ourselves jointly and severally to the Creditor (KMSA) as sureties for and co-principal debtors jointly and severally with each and every one of the other Sureties, in relation to each of the undertakings as surety and co-principal debtor for the performance on demand of all obligations of whatsoever nature and howsoever arising (whether in contract or delict or any other cause whatsoever) which the Dealer (“the Debtor”) may presently or in the future owe to the Creditor whether jointly or severally or to their successors in title or assigns.”

A clause in the second agreement referred specifically to the suretyship agreement (as an annexure) in saying: “The sureties as set out in Annexure 4 hereto do thereby interpose and bind ourselves as Sureties and Co-Principal Debtors, jointly and severally and each in solidum to KSMA DISTRIBUTORS (PTY) LTD T/A KAWASAKI MOTORS SOUTH AFRICA it[s] order or assigns for fulfilment of any of the Dealer[’s] obligations or duties under this agreement.”

When B sued C under the sale agreement, the question arose as to whether the suretyship given at the time that the second agreement was concluded covered the obligations which arose under the first agreement.

The SCA found that –

  1. a suretyship is by nature an accessory obligation, it relies on another obligation for its existence and must therefore be interpreted together with the accessory obligation, in this case the second agreement;
  2. the wording of the dealer agreement contemplated that the suretyship would only cover obligations arising under the second agreement even though the wording of the surety itself could be interpreted in isolation to cover the obligations arising under both agreements.

Care should therefore be taken in drafting principal agreements where the sureties given thereunder are intended to cover past or future obligations.