The guarantee agreement is therefore intended to limit the risk of losses to the lender, which can occur if the buyer is behind the contractual terms. The buyer is still responsible for his obligations under the loan agreement and the guarantee obligations are only incurred if the buyer does not meet his obligations. The amount the creditor may charge from the guarantee depends on the fact that the guarantee signed the contract binding it for a limited or unlimited amount. Consequently, the importance of concluding a guarantee agreement with a clear understanding of the terms of the contract and its own commitments cannot be overstated. Business letters are generally more formal and are often sent to people we do not know. They must set the right tone, whether it is authority, disagreement, satisfaction or gratitude. South Africa`s general contractual principles require that anyone who signs a document intend to enter into the agreement contained in this document, hence the “attention of the signatories” restriction. The courts have found that a guarantee to be relieved of liability for a guarantee agreement must convince the Tribunal that it did not intend to enter into the bonding agreement. Under our common law, a creditor would first have to claim and claim from the principal debtor all arrears due to the default, which would include principal, interest, administrative and legal fees. In practice, most guarantee agreements expressly provide for the guarantee to be committed “as a lender and co-debtor.” If this is the case, the creditor may make the guarantee liable for the buyer`s debts, even if the creditor has not sought to recover the remaining debts from the principal debtor.
There is a triple investigation used by our courts to determine whether a guarantee can be released from the contract he or she signed: a surety contract is an agreement whose agreement (a third party) is obligatory for the creditor (in the event of a loan would be a financial institution) to fulfill the obligations of the buyer (principal debtor) if he does not.