How binding is a suretyship agreement contained in the terms and conditions of an application for credit?

Typically the credit application contains a clause like this:

By his/her signature hereto, the signatory hereby interposes and binds himself as surety and co-principal debtor in solidum for the due faithful and punctual performance of all obligations undertaken by the abovenamed Applicant in favour of the Creditor, under renunciation of the legal exceptions of excussion and division, the full meaning and import of which he is fully conversant with.

The Consumer Protection Act requires a credit provider to:

·        Provide consumers with prior written notice of clauses in agreements that may constitute a potential risk or liability to consumers.

·        Specifically draw the fact, nature and potential effects of risks to the attention of consumers, in a conspicuous manner and form, to which the consumers accordingly accept responsibility.

On that basis, the terms and conditions should have a preamble in bold, something like this:

IMPORTANT NOTICE. The CLIENT’s attention is drawn to the penalty for early cancelation in paragraph 5, the authority to increase the debit order amount in 6.4, the indemnity in paragraph 7.4 and the surety provisions contemplated in paragraph 7.6.

The CPA came into effect in 2010. Before that, in the matter of Brink v Humphries & Jewell (Pty) Ltd 2005 (2) SA 419 the Supreme Court of Appeal held that the suretyship was invalid as the signatory had not known, or been informed that the document embodied a personal suretyship.

The Court was of the view that:

(1)  The suretyship agreement must have a prominent heading which proclaims that it is such.

(2)  The clause containing the suretyship must be conspicuous.

(3)  The form must identify that the signatory is signing in their capacity as surety.

(4)  The signatory must sign as surety.

The CPA reinforces that decision.