DAILY LAW TIPS (Tip 380) by Onyekachi Umah, Esq., LLM. ACIArb(UK)
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WHEN, WHY AND HOW CAN A GUARANTOR/SURETY BE HELD LIABLE FOR DEBT GUARANTEED.
A guarantor/Surety is technically a debtor because where the principal debtor fails to pay a debt, the guarantor will be called upon to pay the loan he/she guaranteed. The guarantor can however, be saved from liability if he/she can show that the principal debtor has paid the loan.
”In matters of guarantee of this nature, there is sometimes the need to recognize the three parties, namely: the creditor, the principal debtor and the secondary debtor or guarantor. Either of two situations could thus arise. One is that the guarantor may not primarily undertake to discharge the liability but only if the principal debtor failed in his obligation. There is the other situation where a person by his undertaking makes himself the real debtor.”
“It is settled that the liability of a guarantor becomes due and mature immediately the debtor/borrower becomes unable to pay its/his outstanding debt. The guarantor’s liability is then said to have crystallised. A Surety or Guarantor, is bound by the written agreement it/he entered into.”
“The fact that the obligation of a guarantor arises only when the principal has defaulted in his obligations to the creditor does not mean that the creditor has to demand payment from the principal or from the surety or give notice to the surety before the creditor can proceed against the surety. Nor does he have to commence proceedings against the principal, whether civil or criminal unless there is an express term in the contract requiring him to do so.”
“A creditor is entitled to proceed against a guarantor immediately the debtor or borrower becomes unable to pay his outstanding debt. The guarantor is bound by the written agreement he entered into.”
In summary, when you stand or sign as a guarantor for any person, you have accepted to bear the liabilities and debts that such a person owes or may owe someone else. And, once the person you guaranteed fails to pay, it becomes your duty pay and going to court against you is an option. A guarantor is never free until the person he guaranteed pays all debts guaranteed or he pays such himself.
My authorities are the judgements of the Supreme Court and Court of Appeal in the following cases;
1. CROWN FLOUR MILLS LTD. V. OLOKUN (2007) ALL FWLR (PT. 393) 24 AT 62, PARAS. G – H (CA)
2. FORTUNE INTERNATIONAL BANK PLC V. PEGASUS TRADING OFFICE (GMBH) & ORS. (2004) LPELR-1288(SC)
3. CHIEF PETER AMADI NWANKWO & ANOR V. ECUMENICAL DEVELOPMENT CO-OPERATIVE SOCIETY (EDCS) U.A(2007) LPELR-2108(SC)
4. AFRICAN INSURANCE DEV. CORP. V. NIGERIAN LIQUIFIED NATURAL GAS LTD. (2000) 4 NWLR (PT. 653) 494.
5. ALHAJI IBRAHIM GAJIMI v. FIRST BANK OF NIGERIA PLC (2018) LPELR-43996(CA)
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