When, Why And How Can A Guarantor/Surety Be Held Liable For Debt Guaranteed

DAILY LAW TIPS (Tip 380) by Onyekachi Umah, Esq., LLM.
ACIArb(UK)

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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