Signing a suretyship (or any legal document) without reading it is foolhardy
Two major hazards to your financial health are signing a legal document without reading it, and binding yourself as surety for someone else's debts. The fact that you did not realise the contents of the document is usually irrelevant. In a few reported judgements, however, the foolish signatory has been able to prove that he ought not to be held to the document that he has signed.
You signed a suretyship without reading it - can you wriggle out of it?
Of all the hazards to your financial health, two stand out in importance - signing a contract without reading it, and binding yourself as surety for someone else's debts.
In combination, these two actions are particularly toxic - that is to say, signing a deed of suretyship without reading it.
It is a continual surprise to practising attorneys how casually otherwise sensible people sign suretyships. After all, it is hard enough to pay your own debts. Taking on yourself the responsibility for someone else's debts as well, by standing surety for them, is to be avoided unless it is absolutely unavoidable.
Once you have put your signature to a legal document, it is very difficult to escape liability. As Roman law expressed it - caveat subscriptor (meaning, literally, let the signatory beware, but more broadly, anyone who enters into a contract must beware of the legal hazards) and pacta sunt servanda (a legal contract must be honoured).
Yet, in a few cases that have come before our courts, a person who has signed a contract, such as a deed of suretyship, has managed to persuade the court that he is not legally liable under the document.
One such case was Prins v ABSA Bank Ltd, a 1998 judgement of the Cape High Court.
Prins's sister had purchased a plot of ground on which she wanted to build a house. The United Building Society agreed to give her a bond to finance the building of the house, but there was going to be a delay of a few months before the money came through.
So she asked the bank to give her an overdraft of R10 000 for six months. The bank was willing to do so, provided that someone stood surety for the loan.
She asked her brother, Prins, if he would stand surety for her, in an amount of R10 000, for six months. He agreed, and called at his sister's bank to sign the necessary documentation.
He was presented with a deed of suretyship for his signature, and told the bank official that he had come to sign the documents "for bridging finance for six months". The back page of a document was then presented to him for signature, and he duly signed it.
He did not read the first page of the document, but - given the background events - he was under the impression that what he was signing was a suretyship for R10 000 for six months, to secure his sister's temporary overdraft.
It turned out that the deed of suretyship he had signed was not for R10 000 but was for an unlimited amount, and that it was not for six months, but was unlimited in duration.
Prins's sister ran into financial trouble with the bank, which issued summons against her for R142 000 in respect of two overdrawn accounts.
Prins's sister had no defence to the bank's claim, and the bank took judgement against her.
In the same summons, the bank sued Prins as surety for his sister, and applied for judgement against him for the same amount.
Prins admitted that he had signed the suretyship, but said that he had never seen the first page of the suretyship, and that his "arrangement" with the bank was that he would stand surety for his sister for an amount of R10 000 only, and that the suretyship was to last for only six months.
Prins said that he had signed the unlimited suretyship "by mistake".
He also claimed that the bank official who had supervised the signing of the suretyship knew that he was under the misapprehension that what he was signing was a suretyship limited in amount and limited in duration.
Prins argued that the bank official's failure to alert him to the true contents of the suretyship meant that he was not bound by it.
The case first came before the magistrates' court which held that Prins was liable under the suretyship that he had signed. The matter then went on appeal to the Cape High Court.
The bank was unable to call as a witness the person who had supervised the signing of the suretyship by Prins, and was unable to contradict his version of events.
On the evidence placed before it, the court found that there were grounds for it to accept that the loan of R10 000 which the bank had provided to Prins's sister was for a limited period, and that this supported Prins's testimony that he signed the suretyship "on the clear understanding" that he was signing a suretyship that was limited to R10 000 and that was for a period of only six months.
In its judgement, the Cape High Court ruled that
- "it behoved the bank to alert [Prins] to the true nature of the document. This it clearly failed to do where, in the circumstances, there should have been a duty on it to ensure that the prospective surety was under no misunderstanding as to the nature of the obligations he was undertaking."
The court held that Prins had succeeded in proving that it would be unreasonable for the bank to rely on the signed document as an unlimited suretyship.
Some lawyers would view this as a judgement that stretches the concept of "mistake" in the law of contract beyond its proper limits.
Certainly, no one who signs a deed of suretyship - or any other legal document - should view this judgement as providing an escape hatch which will enable them to evade the obligations and liabilities imposed on them by the document they have signed.