Suretyship Issue 9

The various ways of discharging sureties (Continue)

Conduct prejudicial to the Surety

The Surety is released if he or she is prejudiced by the creditor.

Therefore the surety is discharged if the creditor makes his or her liability more arduous, for example, by being too lenient towards the principal debtor, or be neglecting to take reasonable steps to protect his or her rights against the principal debtor.

The surety is also released if the creditor, without the surety’s consent, agrees to a material version of the principal obligation, or departs (or permits a departure) from its terms in a material respect.

The test of materiality in this context is whether the alteration or departure is prejudicial to the interest of the surety and whether the surety would have agreed to become a surety in the absence of the affected provisions.

Mere delay by the creditor in enforcing his or her rights against the principal debtor does not release the surety.

But if the creditor grants an extension of time for payment before the due date, and time is ‘of the essence’, the extension will constitute a material variation which releases the surety.

If a co-surety is released by the creditor, the surety is discharged to the extent that he or she is precluded from recovering a contribution from the co-surety.

The National Credit Act 34 of 2005

With regards to the Pre-agreement phase of intermediate and large credit agreements, there are certain disclosures that the Credit Provider must make in the form a quotation.  Form 20.1 must be used, or the information therein must at least be available to the consumer.  The quote is valid for 5 days.  If the consumer accepts the Terms and conditions of the quotation within the 5 days, a contract between the credit provider and the consumer can be concluded.  But if the interest and costs of credit is MORE than what was initially stated in the quotation, the interest and costs of credit may not exceed the amount in the quotation with more than the “respective prevailing bank rates on the date of the quote and the date on which the agreement was entered into”.  This is on Page 37 of the guide.

What exactly does it mean?

Is “prevailing bank rates” the RR?

Advocate Clark’s Comment

Liezl I think you have quoted that specific paragraph incorrectly.

Let me quote the specific paragraph and explain from there-on.

“If the interest and costs are higher that those stated in the quote, they should not exceed by a margin greater ‘than the difference between the respective prevailing bank rates on the date of the quote and the date the agreement is entered into.’”

I must admit that the grammar in this paragraph is lacking, which could have resulted in you misunderstanding the paragraph’s intention.

Lets start at the beginning:

Repo Rate       -           the repo rate is the interest rate at which the Reserve Bank lends

money to private banks. The governor of the Reserve Bank varies this rate to influence, among other things, inflation.

Prevailing Bank Rates            -           this is usually in the economic sector your normal

Banks we all bank with in terms of the interest rate charged on their overdraft facilities.         

To answer your question, no they are thus not the same and if you phone any bank they will give you both percentages, individually.

Next stage:

Now if you look at the paragraph again you will observe that it is confronting you with a mathematical equation – ‘difference between’, thus a minus (-) calculation should follow to resolve your dilemma.

Let me explain:

Quote interest                                                 -                       2%

Date agreement entered into                          -                       3%

Prevailing interest as on quote date               -                       2.5%

Prevailing interest as on agreement date       -                       3.5%

The first mathematical equation would be the first two which deals with the private contracting parties and the interest they decided upon:

3% - 2% = 1%

The second mathematical equation would be the second two, which deals with bank interests on those specific dates:

3.5% - 2.5% = 1%

So in this example what would the answer be?

You will observe that when the agreement has to be signed the interest between the contracting parties have increased with 1%, which according to the paragraph may not be higher than the difference as set out in the second calculation as instructed by the paragraph also.  The second calculation also comes to 1%, and therefore the first calculation does not exceed the second one.  Therefore it is allowable.  If the first calculation was anything above the 1% of the second calculation then it would have been illegal, for instance 1.5%.  Anything below 1% logically would then be legal and allowable.

Take your time with this, it is indeed confusing!!