THE NATIONAL CREDIT ACT AND SURETY SHIP AGREEMENTS

Amongst the many unresolved and uncertain issues relating to the National Credit Act 34 of 2005 (hereinafter referred to as “the NCA”) one comes across the complex issue of suretyship agreements and applicability of the NCA  to such agreements.

For clarity purposes, a suretyship agreement can be defined as an accessory agreement, by which a person binds himself for another already bound (the principal debtor), either in whole or in part, as for his debt, default or miscarriage.

The leading authority on the above issue, namely Firstrand Bank Ltd (Pty) Ltd // Carl Beck Estates & another, read with the relevant provisions of the National Credit Act in respect of surety ship agreements signed as security for credit agreements establishes the following principles:

Section 8 (5) of the NCA, states the following:

8(5)An agreement, irrespective of its form but not including an agreement contemplated in subsection (2), constitutes a credit guarantee if, in terms of that agreement, a person undertakes or promises to satisfy upon demand any obligation of another consumer in terms of a credit facility or a credit transaction to which this Act applies. (own emphasis)

Because of the wording “....to which this Act applies”, the surety will only be protected by the provisions of the NCA if the NCA applied to the initial agreement between the credit provider and the principal debtor (in most cases the juristic person.)

If one has regard to Section 4 (2) (c) of the NCA, which deals with the application of the NCA,  it is evident that the following questions must be asked to determine whether the NCA is applicable to a certain surety agreement:

1.    Q:    Is the agreement in respect of a large agreement, which is defined as an 
agreement in which the principal debt is R 250 000 or more, alternatively an agreement in respect of a mortgage loan?

A:    If the answer is yes to either of the above the NCA is not applicable to the
principal agreement and accordingly the NCA does not apply to the surety
agreement.  No further criteria need to be looked at.

2.    Q:    If the agreement is not one defined as a large agreement, continue by
considering whether the asset value or annual turnover equals or exceeds
R 1  000 000.00 (being the present threshold in this regard).

A:    If the answer to the above is that the asset value or annual turnover does equal or
exceed R 1 000 000.00 the principal agreement is not governed by the NCA
and accordingly the NCA will also not govern the surety agreement.

If the answer is negative, in that the asset value or annual turnover does not equal or
exceed R 1 000 000.00, the principal agreement will fall within the ambit of
the NCA and consequently so shall the surety agreement.
The case of Carl Beck Estates supra has now been confirmed by ABSA v Dircon Industrial Properties (Pty) Ltd and Others (24064/2009) and the above principles are presently the prevailing view in respect of the suretyship agreements and the NCA.