In simple terms, a suretyship is an agreement in which one person (surety) undertakes to be liable for another person’s debt or obligation (principal debtor) if that person fails to pay or perform. In practice, it often appears as a standard formality when a bank, landlord, supplier, or creditor wants extra security. However, signing as surety is not a small administrative step. It can create real personal financial exposure, including the risk that the creditor may pursue the surety’s own assets if the principal debtor defaults.

What does it mean to bind yourself as surety?

When you bind yourself as surety, you agree that the creditor may hold you liable if the principal debtor does not meet the underlying obligation. The suretyship is usually accessory to the main debt, meaning that it depends on the existence of a valid principal obligation. Although it is linked to the main debt, it is also a separate contract between the creditor and the surety, with its own wording and consequences.

This means that if the principal debtor falls into arrears, becomes insolvent, closes down, or simply refuses to pay, the surety may be called upon to settle the debt. Depending on the terms of the document, liability may include the capital amount, interest, collection costs, legal costs and other charges. A surety should therefore understand that the obligation is personal and can have direct consequences for their income, property and broader financial position. 

Common situations where suretyships are required

Suretyships are common in both commercial and personal transactions. They are often required in business finance arrangements, overdraft facilities, supplier credit applications, commercial leases, residential leases, vehicle or equipment finance agreements and other credit transactions. In the business context, directors, members or shareholders are frequently asked to sign surety for the debts of a company, particularly where the company is new, thinly capitalised or does not have a long trading history.

Can a creditor claim directly from the surety?

Whether a creditor may claim directly from the surety depends primarily on the wording of the suretyship. Many suretyship documents provide that the surety is bound jointly and severally as surety and co-principal debtor. This wording is significant because it usually strengthens the creditor’s ability to pursue the surety without first exhausting all remedies against the principal debtor.

Suretyship agreements also commonly include a waiver of certain common-law benefits, including the benefits of excussion and division. The benefit of excussion would, in broad terms, require the creditor first to proceedagainst the principal debtor before claiming from the surety. The benefit of division may be relevant where there is more than one surety and would otherwise allow a surety to insist that liability be divided among co-sureties. Where these benefits are waived, the surety’s protection is reduced.

Does a suretyship have to be in writing?

Yes. Under South African law, a contract of suretyship must comply with the formal requirements in section 6 of the General Law Amendment Act 50 of 1956. In essence, the terms of the suretyship must be embodied in a written document and signed by or on behalf of the surety. The law requires certainty because a suretyship can expose a person to substantial liability for someone else’s debt.

The written document should make it possible to identify the creditor, the surety, the principal debtor and the nature and extent of the principal debt. If the essential terms are missing, unclear or not properly recorded, enforceability may become a live issue. For this reason, signing blank, incomplete or poorly drafted suretyship documents can be especially risky.

Can you cancel or withdraw from a suretyship?

A surety cannot assume that they can simply withdraw from a suretyship by notifying the creditor that they no longer wish to be bound. The answer depends on the wording of the agreement, the nature of the underlying debt and whether the creditor agrees to release the surety. In many cases, especially where the suretyship is described as a continuing covering suretyship, liability may continue until the debt has been settled or the creditor gives a formal release.

Where ongoing credit is involved, a surety who wishes to limit future exposure should obtain legal advice and communicate carefully with the creditor. Even then, cancellation may not affect debts that already arose before the notice or before the creditor agreed to the release. A properly drafted release or variation is usually the safest way to avoid uncertainty.

What happens when the principal debtor is a company?

A company is a separate legal person. This means that, as a general rule, a director or shareholder is not automatically liable for the company’s debts merely because of their position in the business. However, that position changes if the person signs a suretyship in favour of the creditor. By doing so, they may create a separate personal obligation to pay if the company does not.

This distinction matters for entrepreneurs, directors, and shareholders. Limited liability protects shareholders from automatic responsibility for company debts, but it does not protect a person from a suretyship they voluntarily signed. Before signing, the individual should consider whether the business can realistically service the debt and whether the personal risk is commercially acceptable.

What should you check before signing?

Before signing, a prospective surety should read the document carefully and check the extent of the liability. Important questions include whether the amount is capped or unlimited, whether interest and legal costs are included, whether the suretyship applies only to a specific debt or to future debts as well, and whether it continues until formally cancelled or released.

The surety should also confirm exactly who the creditor is, who the principal debtor is, what underlying agreement creates the debt, and whether they are signing only as surety or also as co-principal debtor. Particular care should be taken where the document contains broad wording, cross-references to other agreements, waivers of common-law benefits or clauses allowing the creditor to vary arrangements with the principal debtor without the surety’s further consent.

Can a surety defend a claim by the creditor?

A surety may have defences to a creditor’s claim, but these are highly fact-specific. Possible issues may include whether the suretyship complies with the required formalities, whether the principal debt is valid and enforceable, whether the person who signed had authority, whether the creditor is the correct party, and whether the debt claimed falls within the scope of the suretyship.

Other potential issues may include material variations to the principal agreement, disputes about the amount claimed, prescription, compliance with demand or notice provisions, and whether any statutory protections apply. Because suretyship disputes often turn on the document's precise wording and the facts surrounding the debt, early legal advice is essential before admitting liability, making payment arrangements, or signing an acknowledgement of debt.

Conclusion

A suretyship should never be treated as a mere formality. Once signed, it can expose the surety’s own assets to a claim and may remain in force long after the original transaction was concluded. Anyone asked to sign as surety should understand the document, the underlying debt, the duration of the obligation and the practical consequences of default before signing.

Written by Janet Mc Intosh, Attorney: Civil and Commercial Litigation, SchoemanLaw Inc