In general, the guarantor may exercise defences against a contract that would have been available to the principal debtor (e.B. breach of the creditor; impossibility or illegality of performance; fraud, coercion or misrepresentation on the part of the creditor; Limitation period; Refusal of the creditor to accept offers or services from debtors or guarantors).) In addition, the warranty has some defenses of its own. Common defenses raised by guarantors are as follows: The FTC offers the following advice to individuals who have agreed to sign a contract of suretyship: A creditor who needs security to fulfill an obligation may receive that security in various forms. For example, the creditor may require the debtor to provide effective security in the form of a lien on its movable property or an assignment of the debtor`s assets in securitatem debiti to the creditor. Alternatively, the debtor may provide personal security by ensuring that a third party is related to the creditor, so that if the debtor does not fulfil its obligations to the creditor, that third party is responsible for the performance of the debtor`s obligations. This personal guarantee may be provided in several ways, including through the provision of a guarantee and/or compensation by the third party in favour of the creditor or by the conclusion of a guarantee agreement between the creditor and the third party. In both cases, the third party binds to the creditor and is responsible for the debtor`s obligations. A collateral arrangement is a legally binding agreement whereby the signatory assumes responsibility for another person`s contractual obligations, usually the payment of a loan if the primary borrower defaults or defaults. The person who signs this type of contract is more often called a co-signer. While the common law has historically distinguished co-signatories (those who sign surety contracts) from guarantors, U.S. law makes the two terms virtually identical. In light of the above discussions, it is clear that the provisions of the Act have had a significant impact on warranty contracts. As explained above, the law qualifies collateral arrangements concluded on the basis of a credit agreement as collateral and makes the law applicable accordingly.
It is clear that the law on surety contracts has the effect of making the performance of the guarantee provided for in such a contract more onerous for the creditor. As a result, this may result in collateral arrangements being disposed of when it comes to securing credit facilities or transactions. Continuous assurance of warranty clauses is often included in warranty agreements without regard to their possible effects. These clauses may be able to definitively bind the guarantor for the debts of the principal debtor and bind the guarantor to debts that may become due at any time in the future, even if this guarantor is in no way related to the debtor. Specifically, a guarantee can only exist for a valid agreement. The guarantor can therefore avail himself of all the exceptions of the principal debtor. This also means that if a guarantor is claimed, the guarantor can oppose the payment in case of disagreement and will only continue the payment if there is a final court decision in favor of the beneficiary or if the principal has defaulted and is no longer able to fulfill his obligations. A contract of guarantee is an agreement under which one assumes responsibility for the obligations of another whose obligations arose as a result of a legitimate underlying case. In other words, it is an agreement ancillary to a valid primary obligation, in which one (the guarantor) guarantees the obligations of another (the principal debtor) by binding itself to the creditor. Therefore, if the principal debtor fails to fulfil its obligations to the creditor without a legitimate reason, the guarantor will comply with those obligations. The ancillary nature of the guarantee contract was underlined by the Constitutional Court in Shabangu v Land and Agricultural Development Bank of South Africa e Others 2020 (1) SA 305 (CC), which concluded that a guarantee cannot continue if the underlying obligation is invalid. It has become convenient for guarantors to bind themselves to creditors both as guarantors and as co-debtors.
In such cases, the guarantor will have committed himself as co-debtor, but his responsibility derives from the warranty contract. The conclusion of the contract as a co-debtor results in the guarantor waiving the common law benefits of debt relief and sharing and is jointly and severally liable for the obligations of the principal debtor. Notwithstanding the fact that their obligation remains ancillary, the surety is also entitled to the defences attached to the principal obligation itself and to the means available to the principal debtor, with the exception of those which are personal to the principal debtor. In view of the fact that a surety is entitled, under the common law, to the means available to the principal debtor, with the exception of those that are personal to the principal debtor, it would follow that a surety would be entitled to the protection afforded by law to consumers. This would include, inter alia, the lender`s defence of a reckless loan or the illegality of the underlying credit agreement. In addition, before the creditor can consider the guarantor as his contractual obligations, he should follow the procedure provided for in the law on the performance of a credit agreement, including the mandatory notices provided for by law. The creditor would have to follow the collection procedures set out in the Act and, if the guarantor were over-indebted, he would have the right to invoke the provisions of section 79 of the Act. All of the above implications make a legally regulated collateral arrangement a weaker title than in common law. It is also more expensive for credit providers. The General Law Amendment Act 1956, 50, stipulates that a valid warranty agreement must be included in a written document signed by or on behalf of the guarantor. Both the guarantor and a guarantor assume a credit risk for the investor in order to exercise his right of recourse. This risk is greater in the case of a guarantee than in the case of a guarantee.
Unlike the guarantor of a guarantee, the guarantor of a guarantor is not placed in the rights of the creditor or ignored even during payment, which obviously increases the risk of the former. The conditions for granting the grant will therefore be different for the two species. Signing a guarantee contract is not always in the best interest of the co-signer, but the risks can be mitigated by proper preparation. The guarantee is the second of the three main types of consensual security measures mentioned at the beginning of this chapter (security of personal property, guarantee, real estate security) – and a common type. Creditors often ask owners of narrowly owned small businesses to guarantee their loans to the business, and parent companies are also often guarantors of their subsidiaries` debts. The first guarantors were friends or relatives of the principal debtor, who agreed – free of charge – to lend their guarantee. Today, most guarantors in business transactions are insurance companies (but insurance is not the same as guarantee). If two or more persons have engaged as guarantors for the same debtor and for the same principal claim, they are called co-guarantors and are liable singuli in solidum (i.e. each guarantor is bound to joint and several liability). Unless the guarantor has expressly waived the benefit of partition, this does not mean that the guarantor cannot require the creditor to share the debts among the guarantors. Creditors often require not only the guarantee of the debtor`s guarantee, but also that the debtor enters into a guarantee. .