Guarantee Agreement
Template — South Africa

Defines whether the guarantee is structured as a conditional guarantee (accessory to the principal debt, requiring proof of the debtor's default before the guarantor is liable), a demand guarantee (independent of the underlying obligation, payable on the creditor's first written demand without proof of default), or a performance guarantee (securing the debtor's non-monetary obligations such as construction milestones or service delivery). Each structure has fundamentally different legal consequences under South African law — the choice determines the guarantor's available defences, the creditor's enforcement process, and the guarantee's survival in business rescue proceedings.

Precisely identifies the obligations guaranteed — whether limited to a specific transaction or debt, covering all present and future obligations of the debtor to the creditor, or extending to a defined maximum amount with or without interest and costs. The scope determination is critical: a guarantee covering "all amounts owing" by the debtor creates open-ended exposure for the guarantor, while a guarantee limited to a specific agreement and capped at a specified amount provides certainty. The section also addresses whether the guarantee extends to obligations arising from renewals, extensions, and amendments of the underlying agreement.

Specifies the cap on the guarantor's total liability, whether the guarantee covers interest and costs in addition to the principal obligation, the treatment of payments received from the principal debtor (do they reduce the guaranteed amount?), escalation provisions that increase the cap in line with the underlying obligation's growth, and the critical distinction between a cap on the guarantee amount and a cap on the guarantor's total exposure (which may include interest, legal costs, and collection charges above the cap). Without a clear monetary cap, the guarantor's exposure is unlimited — a risk that discourages creditworthy guarantors from providing security.

Establishes the process for calling on the guarantee: for demand guarantees, the creditor delivers a written demand in the prescribed form, and the guarantor must pay within the specified timeframe (typically 7-14 business days) without requiring proof of default. For conditional guarantees, the creditor must prove the debtor's default by providing specified documentation (copy of the unpaid invoice, evidence of demand on the debtor, certificate of indebtedness). The section covers multiple and partial demands, the currency of payment, and the creditor's right to make successive demands up to the guaranteed amount.

The co-principal debtor clause binds the guarantor not merely as surety but as co-principal debtor in solidum with the principal debtor. This dual capacity is critically important: as a surety, the guarantor can raise numerous common law defences; as a co-principal debtor, these defences are stripped away. The section includes comprehensive renunciation of: the benefit of excussion (beneficium ordinis seu excussionis) — requiring the creditor to exhaust remedies against the debtor first; the benefit of division (beneficium divisionis) — sharing liability among co-guarantors; and the benefit of cession of actions (beneficium cedendarum actionum) — requiring the creditor to cede its rights to the guarantor upon payment.

Ensures the guarantee remains in force despite changes that would otherwise release a surety under common law. The continuing guarantee provisions address: increases in the principal debt (rent escalation, additional drawdowns), extensions of the payment terms or maturity date, release of co-guarantors or co-sureties, amendments to the underlying agreement, granting of time or indulgences to the debtor, and the creditor's failure to enforce against the debtor timeously. Without these provisions, any material change to the underlying obligation could release the guarantor — a frequently litigated issue in South African commercial law.

Defines the guarantor's rights after paying under the guarantee: the right of subrogation (stepping into the creditor's shoes and acquiring all rights the creditor had against the debtor, including security interests), the right of recourse (claiming reimbursement from the debtor for the amount paid), and the right of contribution (claiming proportionate reimbursement from co-guarantors). Critically, the section addresses the anti-competition provision — preventing the guarantor from exercising subrogation or recovery rights against the debtor while any amounts remain outstanding to the creditor, ensuring the creditor is fully satisfied before the guarantor competes for the debtor's assets.

Specifies when the guarantee terminates: full and final payment of all guaranteed obligations (not merely partial payment), expiry of a defined guarantee period (common in performance guarantees where the guarantee expires on project completion), written release by the creditor, or discharge by operation of law. Addresses the effect of the debtor's business rescue plan or compromise on the guarantee — and whether the guarantee survives the compromise or is released to the extent of the debtor's reduced liability. Also covers the process for returning the original guarantee document upon discharge.

Ensures compliance with the General Laws Amendment Act Section 6 by confirming the guarantee is in writing and signed by the guarantor (or their duly authorised representative). Covers the specific requirements for corporate guarantors: board or shareholder resolution authorising the guarantee, verification that the guarantee falls within the company's capacity under its MOI, and confirmation that the signatory has authority to bind the entity. For trust guarantors: trustee resolution and verification that the trust deed permits the provision of guarantees. These formality provisions are not merely procedural — failure to comply renders the guarantee void.

Addresses the complex interaction between guarantees and the debtor's business rescue or insolvency. The Section 133 moratorium in business rescue prevents the creditor from suing the debtor, but it does not extend to an independent guarantor — the creditor can proceed against the guarantor even while the debtor is under business rescue protection. However, if the business rescue plan compromises the principal debt, the impact on the guarantee depends on its structure: an independent demand guarantee survives the compromise, while an accessory suretyship may be partially released. The section also addresses the guarantor's position in the debtor's liquidation and the guarantor's right to prove a claim in the insolvent estate after paying the creditor.

Where the guarantee secures a credit agreement regulated by the National Credit Act, the guarantee itself may constitute an "incidental credit agreement" under Section 8(5) of the NCA. This triggers additional requirements: if the guarantor is a natural person, the credit provider must conduct an affordability assessment before accepting the guarantee, and the guarantee must comply with the NCA's prescribed forms and disclosure requirements. Failure to comply can render the guarantee unenforceable — a trap that many South African creditors fall into by treating the guarantee as a standalone security instrument without considering its NCA implications.

Specifies that the guarantee is governed by the laws of the Republic of South Africa, establishes the dispute resolution process (typically aligned with the underlying agreement's provisions), and includes domicilium citandi et executandi for the creditor and guarantor. The section also addresses the guarantor's consent to the jurisdiction of the relevant court, acknowledgement provisions (the guarantor acknowledges the amount owing, which can serve as provisional sentence in South African court proceedings), and the costs provision (typically on an attorney-and-client scale, meaning the losing party pays the winning party's actual legal costs, not just the taxed party-and-party costs).