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Sunday, November 27, 2022

Differences between surety and guarantor

Guarantors and sureties are instruments with which you can offer each other more security in a business or agreement between two parties. A guarantor is  generally seen as a stronger form of security than a surety which is accessory in nature as it establishes independent liability for the principal obligation.

Segun Oni, Esq

These two words are often used interchangeably especially in the general parlance. It is generally assumed to mean the same thing but just a matter of semantics. The word surety is very common in court and police station its often used whenever there is the need to release a suspect or an accused on bail while the word guarantor is used in the banking sector, it comes to play when someone is seeking to get a loan facility. A guarantor stands and bears the liability/ liabilities of another person, if the actual person fails to take over the liabilty/ liabilities himself/herself.

Per WALTER SAMUEL NKANU ONNOGEN, J.S.C (P.32.PARAS. B- D) in CHAMI V. UBA PLC (2010) LPELR – 841 (SC):

“ The term has been defined as a written undertaking made by one person to another to be responsible to that other person if the third person fails to perform a certain duty e.g. payment of debt. Where the borrower fails to pay for the money borrowed, the guarantor becomes liable for the outstanding debt. It is trite law that when a person guarantees another, a distinct and unique contract is established with the creditor, this is different from the one established with the real or original debtor/ borrower.”

According to the Ninth Edition of the Black’s Law Dictionary, it defines Guarantor as one who makes a guaranty or gives security for a debt. While a surety’s liability begins with that of the principal, a guarantor’s liability does not begin until the principal debtor is in default. This Dictionary went forward to differentiate a surety from a guarantor, who is liable to the creditor only if the debtor does not meet the duties owed to the creditor; the surety is directly liable.

A surety is a party to the original contract of the principal, he signs his name to the original agreement at the same time the principal signs, he/ she can be compelled to pay the loan in the first instance. There is therefore, no need to establish that the debtor has no ability to pay. A guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor. Guarantor only answers if the debtor cannot fulfill his obligation. Surety is principally liable, he shares the liability with the debtor while that of the guarantor only arises when the debtor defaults in making payment.

Ibrahim Adamu, Esq

The terms guarantee and surety are used interchangeably. However, from a legal point of view, the obligations are clearly different.

Although a surety and a guarantor are both parties who make an express agreement to bind themselves for the performance of an act or the fulfillment of an obligation or duty of another, the distinctions between the contract of the two persons, and the obligations assumed under their contract, can be sharply made.

A surety, as a general rule, is a party to the original contract of the principal, he signs his name to the original agreement at the same time the principal signs, and the consideration for the principal’s contract is the consideration for the agreement of the surety’s.

 The surety is therefore bound on his contract from the very beginning, and he is bound also to inform himself of the defaults of the principal offender, and he is not in any part relieved from his obligations under the contract by the creditor’s failure to inform him of the principal’s default in the contract, for which contract the surety has become the security for. A guarantor, on the other hand, usually does not make his agreement to answer for the principal’s debt or default, contemporaneously with the principal or by the same agreement, but his obligation is entered into subsequently to the making of the original agreement, and his agreement is not the contract that the principal makes, and hence a new consideration is required to support it.

If there is trust between the two contracting parties, a surety offers sound additional protection to the contractual agreement for the beneficiary.

A guarantor is a person that has brought out himself, to stand and take over certain liabilities of another person, if such other person fails to take over the said liabilities. A guarantor is a “Mr. A” that tells “Mr. B” not to worry about a risk or debt owed to “Mr. B” by “Mr. C” and further agrees to pay such debt that “Mr. C” owes “Mr. B”. Allegorically, a guarantor is like the good Samaritan of the good book that picked up a wounded man, took him to the hospital and paid his bills.

A Guarantor is also known as Surety, Secondary Debtor or Undertaker, who agrees to takeover and pay the debts of a third party known as Principal Debtor to a Creditor, once such Principal Debtor fails to pay the Creditor. So, the liabilities of a Principal Debtor is automatically that of a Guarantor once a Principal Debtor fails to pay a Creditor.

In some cases, the Guarantor even undertakes to pay debt directly without giving the Creditor an opportunity to recover such from the Principal Debtor; thereby fully absorbing the Principle Debtor and replacing the Principal Debtor with himself (Guarantor) as the Principal Debtor.

The similarity between guarantees and sureties not only means that business partners offer each other security, but also that both the guarantee provider and the surety provider are exposed to a credit risk in relation to the client. As mentioned, that risk is greater with a guarantee than with a surety.

Where the relationship between the principal debtor and the surety is formed through an agreement and the creditor is party to the contract.

Where the relationship between the surety and the principal debtor has been similarly constituted by way of an agreement, but the creditor is not a party to such.

Where there is no constituted contract to establish a relationship between parties, however, there is a primary and secondary liability expressed for a debt. Should the person with the primary obligation default and the person with the secondary responsibility is forced to make payments, reimbursement of the same from the primary obligor can be sought.

Adeola Turton, Esq

An entrepreneur (or a third party) can act as guarantor and if the entrepreneur is unable to fulfil the obligation, the creditor can claim payment from the guarantor. The guarantor does not always have to be the entrepreneur. Parents, relatives or friends may want to act as guarantors for the entrepreneur.

A surety alone offers little security in itself. If the surety cannot offer concrete securities, creditors will have to wait and see whether they can reclaim the money. That is why a surety is preferably linked to a security.

When someone stands as surety for the another and possess excess value in his home, this underlying security can be used to draw value from the surety.

A guarantor is independent and privately committed to the principal party. This is different from a surety.

The guarantor must fulfil their obligation irrespective of complications that may arise around a deal (the contract). They can only get out of doing so when there is clear evidence of abuse.

Conversely, the similarity between guarantors and sureties not only means that business partners offer each other security, but also that both the guarantor and the surety are exposed to a credit risk in relation to the client. As mentioned, that risk is greater with a guarantor than with a surety.

Mostly in judicial proceeding, when sureties enter a formal engagement (such as a pledge) given for the fulfillment of an undertaking to ascertain trust and confidence between the two contracting parties, a surety offers sound additional protection to the contractual agreement for the beneficiary.

Fajulugbe Tomisin Esq.

From the legal stance, both sureties and guarantors lead to one fact, they stand as a form of security for a kind of transaction, matter or suit. 

The law defines surety as  a person who agrees to execute a bond, a fixed sum of money on behalf of another person to produce the other as and when required by the police or court. Surety is one who undertakes to pay money or to do any other act in the event that his principal fails to appear in court.

Similarly, it has been pronounced that a surety is someone who ensures the attendance of an accused person or a suspect, in court or at the police station or such other place or places as may be recognised by law, upon such terms and conditions as may be appropriate in each circumstance.

Thus, flowing from the aforesaid, the bail of an accused person, or so to say is inextricably linked to the provision of a reliable surety, and one recognized by law. On the other hand, a guarantor is someone one who gives security for a debt.

It is a term used to describe an individual who undertakes to pay a borrower’s debt in the event that the borrower defaults on his loan obligation by pledging his assets as collateral against the loan.

This definition was given judicial recognition in the case of Auto Import Export v Adebayo (2005) 19 NWLR (Pt. 959) 44, From the abovementioned, it is apposite to state that whilst the work of both a guarantor and a surety is almost the same thing, the difference exists in the mode of liabilities to be borne by each.

In the case of a surety, whilst the liability of a surety starts to come up as from the time the person to whom they are standing surety for shows tendency or begins to exhibit traits of jumping bail, a guarantor’s liability does not begin until the principal debtor/borrower is in default.

The liability of the guarantor crystallizes immediately the third person is unable to pay its outstanding debt.

Similarly,  in a suretyship agreement, the surety may exercise the exceptions and objections of the principal debtor against the creditor, whereas the guarantor of a guarantee agreement may not exercise the exceptions and objections of the principal debtor against the principal creditor

As an entrepreneur, your customer wants to be sure that you keep to your agreement and vice versa. Guarantees and sureties are instruments with which you can offer each other more security in a business deal.

A guarantor is someone who promises to fulfill another party’s obligation if the other party fails to perform, while the surety is the guarantee of the debts of one party by another. A surety is a person that assumes the responsibility of paying the debt in case the debtor policy defaults or is unable to make the payments.

Olugbenga-Ibitade-Esq.

A surety is a legal term for a person who takes responsibility for another person who is being accused for a criminal offence to forfeit a certain sum of money or property in case of failure of the accused person to attend subsequent court proceedings while a guarantor is the general name for any person who undertakes to be held responsible for any inaction or misdeeds of another, especially in an apprenticeship or money lending situation.

The difference between the two lie in the availability of the benefit of excussion. The guarantor cannot be compelled to pay the creditor unless the creditor has exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor.

To summarize, a surety is one who directly, equally, and absolutely binds himself/herself with the principal debtor for the payment of the debt. In contrast, the contract of guaranty is its subsidiary character. The guarantor only answers if the debtor cannot fulfill his obligation, unless he waives the benefit of excussion. A surety is principally liable, while a guarantor is only secondarily liable.

J.O. Sebiotimo Esq

A surety is a person or party that takes responsibility for the debt, default or other financial responsibilities of another party. A surety is often used in contracts where one party’s financial holdings or well-being are in question and the other party wants a guarantor. A surety is equally used by law enforcement agencies or court and the essence is to guarantee the attendance of a suspect or defendant whenever he’s needed.

       Where such suspect who the surety stands for fails to show up when needed, the surety can be made to forfeit what we call bail sum contained in the bail bond he signed and as such, it will be a quasi-criminal case against such surety, he will be made to show cause why the bail sum should not be forfeited.

A guarantor is equally used in contracts but not by law enforcement agencies. The liabilities of a guarantor and surety seemingly look alike but with little differences.

The difference between a guarantor and surety is the time they incur liability. Under contract, the surety is *solidarily* liable with the principal debtor, thus its liability is primary. In surety, once the principal debtor defaults in his obligation, the creditor can automatically require the surety to pay the loan obligation. On the other hand, the guarantor is *subsidiarily* liable with the principal debtor. Thus, it is only secondarily liable. In guaranty, once the principal debtor defaults in his obligation, the creditor must first exhaust all the debtor’s assets before it can impose liability against the guarantor.

Both surety and guarantor are independent or third party who has an obligation to perform sequel to the failure of the party they stand for to perform the obligations expected from him, they are more or less same with little difference as to usage, time they incur liabilities.

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