In the recent case of Davids and Another v ABSA Bank Ltd, heard in the Cape High Court, ABSA's action was based on an unlimited deed of surety signed by Davids. Davids contended that it was an explicit term of a prior oral agreement that his total liability would be limited. Davids also asserted that he had signed the suretyship in the bona fide but mistaken belief that it had encapsulated the terms of such prior oral agreement. In fact, the suretyship had an unlimited ambit. Davids accordingly maintained that the suretyship was void or voidable.
The Court held that Davids had indeed erred with regard to the contents of the specific suretyship, and that a reasonable person in the position of the bank official would have explained the nature and content of the suretyship to Davids so as to ensure that it reflected Davids' true intention. Public interest demanded that a complicated document of this nature had to be explained to the signatory, especially where signing it could have such drastic consequences.
The Court held that the bank official failed to do so and that Davids never intended to bind himself for an unlimited amount.
This decision places a greater duty on the person who represents a creditor when a suretyship is concluded. Creditors should ensure that they explain the precise terms of the suretyship to the debtor, in the presence of the witness. Deeds of suretyship should contain proper translations of the standard legal exceptions, which are commonly recorded in Latin. Although the surety usually acknowledges that the full meaning and effect of the exceptions have been explained, few people actually know and understand the meaning of those exceptions. By making a conscious effort to explain the terms, in the presence of a witness (whose name is included in the deed), and incorporating proper translations of the legal exceptions, a surety will have great difficulty in refuting knowledge of the extent of the undertaking.
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