Suretyship Issue 8

The various ways of discharging sureties

Termination of the suretyship obligation

The suretyship obligation may be discharged in the same way as obligations generally (for example, by payment of the principle debt, merger, or expiry of an agreed time limit).

In the case of a continuing suretyship, the surety may, unless otherwise provided in the contract, terminate his or her future liability by giving reasonable notice to the creditor.

Termination of the principle obligation

It follows from the accessory nature of a contract of suretyship that it is automatically terminated when the principal obligation is terminated.

If the liability of the principal debtor is, for instance, terminated by novation or absolution, the surety is accordingly absolved from liability.

If only a part of the principal obligation is discharged, the surety is only released to that extent.

The National Credit Act 34 of 2005

An overdraft facility is NOT a credit agreement.  What is it?

Advocate Clark’s Comment

Liezl this is not totally correct.

An overdraft is a credit agreement, but cannot be a large credit agreement.

Let me begin to explain the terminology of ‘credit agreement’ for the purposes of the NCA.

The umbrella term in the Act is “credit agreement”.  An agreement constitutes a ‘credit agreement’ if it is:

·         A credit facility; or

·         A credit transaction; or

·         A credit guarantee; or

·         Any combination of the above three transactions.

Then further we find that in the above first three forms will have sub-categories on each one of them.

The one we are interested in, in order to answer your question would be the ‘credit facility’.

A credit facility is an agreement in terms whereof the credit provider supplies goods or services, or pays an amount to the consumer, or on his behalf or at his direction.

The consumer’s obligation to pay the prize or to repay the amount is deferred or else he is billed periodically.

The consumer pays a charge, fee or interest in respect of the amount deferred (to a dealer in goods or services, or to a bank on a overdrawn cheque account), or in respect of an amount billed which is not paid within the time agreed upon between the parties.

Let me explain it again:

A credit facility is broadly defined in the Act. Section 8(3) as:

·         An agreement in which a credit provider

undertakes to provide services, money or

goods to a consumer, or at the direction of a

consumer, from time to time and

o   Defers the obligation to pay any part of

the cost of the service provided, or the

money given or the goods supplied, or

o   Bills the consumer periodically for the

service, goods, or money, and

·         Charges a fee or interest for any amount

deferred or any amount not paid within a

stipulated time.

Credit facilities would typically include revolving credit facilities like credit cards, store cards and overdraft facilities.

But you will most probably wonder what this has to do with your question.  You see we first had to embark on a journey to precisely determine what an overdraft is in terms of the NCA.  Now we know, a credit facility.

Next step in the legalistic enquiry is to go and observe the categories in which all of these credit agreements under the NCA are operative.

There are three categories:

Small agreements include the following (Section 9(2) of

the Act):

·         Pawn transactions,

·         A credit facility where the limit under the facility

is R15,000.00 or less,

·         Any other credit transaction, excluding a

mortgage agreement and a credit guarantee,

where the principal amount of the agreement

does not exceed R15,000.00.

Intermediate agreements include the following (Section

9(3) of the Act):

·         A credit facility where the limit under the facility

is more than R15,000

·         Any other credit transaction, excluding a pawn

agreement, mortgage agreement or credit

guarantee, where the principal amount of the

agreement is more than R15,000.00, but less

than R250,000.00.

Large agreements include the following (Section 9(4) of

the Act):

·         A mortgage agreement

·         Any other credit transaction excluding a pawn

agreement where the principal amount of the

agreement exceeds R250,000.00.

Now we have to start with the process of elimination. 

We know that an overdraft is a credit facility.

Let’s go to small agreements and see if we can find credit facilities there!  Yes we do, bur restricted only to under R 15 000.00.  So any overdraft under R 15 000.00 will fall within the Act as a credit agreement under credit facilities within the category of small agreements.

Let’s go to intermediate agreements and see if we can find credit facilities there!  Yes we do, bur restricted to only more than R 15 000.00.  So any overdraft over R 15 000.00 will fall within the Act as a credit agreement under credit facilities within the category of intermediate agreements.

Let’s go to large agreements and see if we can find credit facilities there!  No, not at all and therefore a credit facility via an overdraft will never be able to fall under large agreements.

So to answer your question:

A overdraft is indeed a credit agreement in the form of a credit facility than can only be found in the categories of small and intermediate agreements and never under large agreements regardless of its amount.