THOUGHT OF THE WEEK Liable for the suretyship that your spouse signed for his company?
Updated: Apr 7, 2020
In commercial transactions it is common for one contracting party to require from the other to provide personal suretyship as security for the performance of the obligations under the agreement. Whilst the persons providing the suretyship often have no objection to signing the document in order to reap the benefits of the underlying contract, case law is rife with instances where the validity of the suretyship is attacked when the suretyship is enforced.
How? One arm of attack comes from ‘home’, in the instance where the surety is married in community of property. In such marriages, the law provides that spouses generally have equal powers, including with regards to incurring debts. However, the law does not provide free reign to any spouse acting on his own and imposes limitations where the well-being of the joint estate is involved. Section 15(2)(h) of the Matrimonial Property Act specifically provides that a person married in community of property may not, without the written consent of the other spouse, bind him- or herself as surety.
Section 15(6) of the same Act however creates an exception and allows such a spouse to sign a suretyship in the ordinary course of that spouse’s business, without the necessity to obtain spousal consent. A spouse married in community of property can therefore be bound to a suretyship even though he/she was unaware of the dealings of his/her spouse or disagreed.
What constitutes ordinary course of that spouse’s business? For example, signing a suretyship may not be in a surety’s ordinary business if he/she is a salaried employee, having no commercial interest in the business’ success or failure. However, a person who holds a number of non-executive directorships that are the principal source of their income may well, when executing a deed of suretyship for one of those companies, be acting in the ordinary course of his/her business.
The facts in Strydom v Engen Petroleum Limited are illustrative of the difficulties that can arise. Strydom, who was a director of a company, signed an unlimited personal suretyship in favour of Engen for the debts of the company to Engen. The company was later liquidated. Engen obtained judgment against Strydom in the High Court based on the suretyship. Strydom appealed the judgement to the Supreme Court of Appeal on the basis that he was married in community of property and his wife had refused her consent to him signing the suretyship. The appeal was unsuccessful, the Court concluding that Strydom was a director of the company and worked at the very core of the business. He was unable to show that the suretyship was not executed in the ordinary course of his business, trade or profession at the company and that section 15(6) did not apply. In other words, the suretyship was not invalid simply because his wife had not consented to it.
Different facts will be relevant in different situations, for example when the person is a salaried employee or non-executive director.