The status of a guarantor in a contractual relationship can be better understood by laying a foundation of what a contractual relationship is, in law. The law sees a contractual relationship, or better still a contract as being an agreement between two or more parties creating obligations that are enforceable or otherwise recognisable at law, as established in the case of Emmanuel v. Okoye (2017).

By Bamidele Kolawole

A contract is an agreement between parties, creating mutual obligations that are enforceable by law. The basic elements required for the agreement to be a legally enforceable contract are: mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality.

Note that terms of contract are only enforceable against parties to the contract, thus the doctrine of privity of contract which is a common law doctrine that contract you cannot enforce the benefit of or be liable for any obligation under a contract on a person who is not a party to the contract.A guarantor is a party who help a contracting party to get credit (loan or mortgage) or undertakes to fulfill certain terms of a contract on behalf of a contracting party in event of default.

They undertakes someone else’s liability by promising to perform certain duties which ordinarily ought to be done by the contracting party. Thus, a guarantor is a party to a contract and the terms of the contract can be enforced against him depending on the extent of liability which he undertake to bear in the event of default of the party whom he guarantees.

Thus, the contract recognizes three parties, namely: the creditor, the principal debtor and the secondary debtor (guarantor). Either of two situations could thus arise. Firstly, the guarantor may not primarily undertake to discharge the liability but only if the principal debtor failed in his obligation. Secondly, the guarantor may undertake to make himself the real debtor.

 In the first case, the principal debtor has to default before the liability of the guarantor would arise. In the second case, the principal debtor simply drops out so that the guarantor becomes solely liable.

 Generally a contract of guarantee is said to be independent of the main contract so that a creditor could proceed against the guarantor without joining the debtor as a party to the suit. However, everything depends on the actual contract entered into by the parties.” See the case of South Trust Bank & Ors V. Pheranzy Gas Ltd & Ors (2014) LPELR -22340(CA) (at Pp 44 – 45 Paras E – A).Thus, right of a creditor is not conditional as he is entitled to proceed against the guarantor with or without the default of the Principal debtor. Such is the lot of a guarantor.

The general rules concerning the capacity of parties to a contract of guarantee/suretyship are the same as those governing the formation of ordinary contracts. Every person is competent to enter into contract if there are of legal age according to applicable law (18 years in Nigeria, though there are exceptions).

It is a settled law that where a person personally guarantees the liability of a third party by entering into a contract of guarantee or suretyship, a distinct and separate contract from the principal debtor’s is thereby created between the guarantor and the creditor.

 The contract of guarantee so created can be enforced against the guarantor directly or independently without the necessity of joining the principal debtor in the proceedings to enforce same.

In the case of CROWN FLOUR MILLS LTD & ANOR v. OLOKUN

(2007) LPELR-8534(CA), the Court of Appeal on the meaning and status of “guarantor” “guarantee” held thus;

“In the case of AUTO IMPORT EXPORT VS. ADEBAYO (2005) 19 NWLR (Pt. 959) 44 at 126 lines F – H Ogbuagu J.S.C. in his contribution to the judgment of the apex court had cause to resort to TRADE BANK PLC V. KAHLID BARAKAT CHAMI (2003) 13 NWLR (Pt. 836) 158 where the Court of Appeal defined who was a Guarantor and what a Guarantee means thus: “I will now deal with who is a guarantor and what a guarantee means. … The Court of Appeal, stated/held at page 216 as follows: – “A guarantor is technically a debtor because where the principal debtor fails to pay a debt, the guarantor will be called upon to pay the loan so guaranteed. The guarantor can however, be absolved from liability if he can show that the principal debtor has paid the loan.” Per IGNATIUS IGWE AGUBE, JCA (Pp 50 – 51 Paras D – B).

The status of a guarantor in a contractual relationship can be better understood by laying a foundation of what a contractual relationship is, in law. The law sees a contractual relationship, or better still a contract as being an agreement between two or more parties creating obligations that are enforceable or otherwise recognisable at law, as established in the case of Emmanuel v. Okoye (2017).

Furthermore, there is the need to mention that the constituent of a valid contract remains the offer, acceptance, consideration and the intentions to enter into legal relations. However, there is the need to state that in some contractual relationships, there exists the guarantor’s status which flows along in such relationship.

 The question then is- what is the legal status of the said guarantor in such contractual relationship? The legal status of a guarantor can be better seen or evidenced in a contract of guarantee which the guarantor undertakes to be answerable to the promise for the debt, default or miscarriage of the principal. {Moschi v. Lep Aor Services Ltd. (1973)}. As such, there is the need to point out that a guarantor is a person who guarantees or gives assurance for the performance of an obligation, especially a loan.

By guaranteeing the performance of a contractual obligation, a guarantor takes the position of the principal obligor where the principal obligor fails in the performance of his/her obligation under a contract. As such, a guarantor becomes the secondary obligor whose liability to the obligee arises immediately the principal obligor fails in the performance of his obligation under the contract. Thus, flowing from this, in any form of agreement being a contractual one and enforceable under law, the guarantor’s status is well illustrated in the case of CBN v. Interstella Comm Ltd. where the court noted that:

“A guarantor is technically a debtor because where the principal debtor fails to pay his debt, the guarantor will be called upon to pay the money owed. However, the fact that the obligations of the guarantor arises only when the principal debtor has defaulted in his obligations to the creditor does not mean that the creditor has to demand payment from the principal debtor or from the guarantor or give notice to the guarantor before the creditor can proceed against the guarantor; nor does the creditor have to commence proceedings, whether criminal or civil, against the principal debtor unless there is an express term in the contract requiring him to do so.”

As such, anyone willing to stand in the place of a guarantor for another must be aware of the fact that in the event of a default, he or she bears the liability in the event that the principal party to the contract or whom he or she is guaranteeing fails to perform his role in the contract.

A contract is an binding agreement between two or more persons or two or more parties. A contract can either be entered into orally or in writing but a legal contract is usually and must be in writing for the terms of the contract to be ascertainable.

Who is a guarantor ?

A guarantor is a party in an agreement that undertakes to secure the assurance for the fulfillment of a condition in a contract or an agreement between two or more parties.

A guarantor is a person or entity that assumes the financial obligation of another party in the event that the original party is unable to fulfill their obligation. In the context of lending, a financial creditor may require the borrower (debtor) to find a guarantor who will co-sign the loan agreement or if the agreement involves debt.

The guarantor acts as a secondary source of repayment in case the borrower defaults on the loan.

However, a guarantor has no claim to the asset purchased by the borrower or the loan acquired .

If the borrower defaults on their loan, then the guarantor is liable for the outstanding obligation, which they must meet, otherwise, legal action may be brought against them to secure the liability of the guarantor and payment of the outstanding liability ( DEBT).

The guarantor to a facility automatically becomes liable to the creditor upon the default by the borrower, and it is well established that failure of the borrower to liquidate the facility as agreed crystallizes the right of the creditor against the third person guarantor. In the case of C.B.N v Interstella Comm. Ltd.

A guarantor is typically over the age of 18 and resides in the country where the payment agreement occurs. Guarantors generally exhibit exemplary credit histories and sufficient income to cover the loan payments if and when the borrower defaults, at which time the guarantor’s assets may be seized by the lender in lieu of the borrower.

The role of a guarantee in an agreement is well-established legally in Nigeria. If the party (the debtor) is unable to fulfill its obligations, the guarantor assumes responsibility for doing so.

The following are some crucial factors to consider while determining the position of guarantors in Nigeria:Contractual Obligations: A contract of guarantee specifies the obligations of a guarantor. If the principal debtor defaults, this contract establishes its enforceable responsibility to repay the debt or fulfill the commitment.

Legal enforceability: In Nigeria, guarantees are enforceable in court. If the primary debtor defaults, creditors may seek payment of the debt or performance of the guaranteed duties from guarantors.

Protection of Guarantors’ Rights: Nigeria understands the value of preserving guarantors’ rights. In loan transactions, in particular, there are legal safeguards to promote fairness and avoid unfair practices against guarantors.

Capacity to Contract: Like any other contractual relationship, the guarantor must have the legal capacity to enter into the contract. They must be of sound mind and meet the legal requirements for the capacity to contract in Nigeria.

Written Agreements: Some contracts of guarantee may need to be in writing to be enforceable. While oral agreements are generally valid, certain types of guarantees, especially those involving significant sums of money, should be in writing to comply with Nigerian contract law.

Analysis and Understanding: It’s essential for guarantors in Nigeria to thoroughly analyze the terms and conditions of the guarantee contract and fully understand the extent of their obligations.In conclusion, guarantors in Nigeria have a legally recognized status and obligations outlined in a contract of guarantee.

These contracts are enforceable, and there are legal safeguards to protect the rights of guarantors.

It is crucial for individuals considering the role of a guarantor to seek legal advice and have a clear understanding of their responsibilities before entering into such agreements.

For an agreement to be enforceable in law, the terms of the agreement must be mutually agreed upon by the parties thereto, which is why Contract. Consequently, a Contract is defined in the Black’s Law Dictionary (9th edition) at page 365, an “agreement between two or more persons creating obligations that are enforceable or otherwise recognizable at law.”

One of the pivotal types of contract is a Contract of guarantee which is the crux of this piece. In page 773 of the Black’s Law Dictionary (9th edition), Guarantee is defined as “the assurance that a contract or legal act will be duly carried out.”

A guarantor on the other hand is defined as “One who makes a guarantee 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.”

By implication, there are three parties in a contract of guarantee namely: The Creditor (lender); The Principal debtor (borrower) and the Guarantor (or Surety), and such agreement may be oral or written.

However, the best form of contract of guarantee is the written one, wherein the duties and obligations of a guarantor are clearly spelt out, and when such contract is entered into, a “Guarantee Clause” is usually incorporated.

The Supreme Court (Per Ogbuagu, JSC) observed in the case of Nwankwo & Anor v Ecumenical Development Co-operative Society (EDCs) U.A (2007) LPELR-2018 (SC) that “where a person personally guarantees the liability of a third party by entering into a contract of guarantee or suretyship, a distinct and separate contract from the principal debtor’s is thereby created between the guarantor and the creditor.” However, the liability of a guarantor becomes due and mature immediately the debtor/borrower becomes unable to pay its/his outstanding debt.

When this occurs, the creditor’s right to enforce the contract is activated. He can therefore enforce the contract by suing the guarantor directly or independently without the necessity of joining the principal debtor in the proceedings to enforce same. See: Dragetanos Construction (Nig) Ltd V. Fab Madis Ventures Ltd (2011) 16 NWLR (Pt. 1273) 308 @ P. 400.

In a nutshell, the guarantor is more at a disadvantaged position as he stands the risk of forfeiting the property used by him for collateral. Notwithstanding, the guarantor would be absolved from liability if he can show that the principal debtor has paid the loan.”

A guarantor is a person who agrees to take responsibility for the debt or obligations of another person. In other words, a guarantor is someone who promises to pay a debt or perform an obligation if the original debtor is unable to do so. The guarantor is not the original debtor, but rather a separate individual who pledges to take on the debt or obligation in the event of default.

 This arrangement is typically made in writing, as part of a separate contract between the guarantor and the creditor . In the case of Chanmi v. U.B.A Plc {2010}  6 NWLR {Pt. 1191}474 at 478 Ratio 1, the Supreme Court of Nigeria held: “Guarantee has been defined as a written undertaking made by one person to another to be responsible to the other if a third person fails to perform a certain duty, e.g. payment of debt…”As against the common means of debts recovery by creditors, In the case of Ogbonna Vs Ogbonna (2014) LPELR – 22308 CA; (2014) 23 WRN 48 , “The Court of Appeal stated that it is not the role of the police to assist parties in settling debts or recovering money owed.”

Security agents are not supposed to act in the capacity of debt recovery agents. Furthermore on the status of a guarantor, in the case of C.B.N v Interstella Comm. Ltd. {2018}7 NWLR {Pt.1618}Page 294 at 308, the Supreme Court of Nigeria held that; “A guarantor is technically a debtor because where the principal debtor fails to pay his debt, the guarantor will be called upon to pay the money owed.

However, the fact that the obligations of the guarantor arise only when the principal debtor has defaulted in his obligations to the creditor does not mean that the creditor has to demand payment from the principal debtor or from the guarantor or give notice to the guarantor before the creditor can proceed against the guarantor, nor does the creditor have to commence proceedings whether criminal or civil, against the principal debtor unless there is an express term in the contract requiring him to do so.

It was held in UBA Plc v Chami (supra) Page 479 Ratio 2 where the Court held as follows; Where a person personally guarantees the liability of a third party by entering into a contract of guarantee or suretyship, a distinct and separate contract from the principal debtor’s is thereby created between the guarantor and the creditor.

A contract of guarantee is an agreement between a creditor and a third party (the guarantor or surety) in which the guarantor agrees to be liable for the debt if the debtor defaults.

In other words, the guarantor promises to pay the debt if the original debtor is unable to do so.The rights of a guarantor may conflict with those of the beneficiary of the guarantee.

Therefore, guarantee documents often contain exclusions or restrictions on the application of these rights. This is to ensure that the guarantee can be enforced in accordance with the wishes of the parties involved.

One of the most common security for loan in Nigeria is Guarantee. The term “guarantee” means a written undertaking made by one person to another to be responsible to that other if a third person fails to perform a certain duty e.g payment of debt. Where a borrower that is a third party, fails to pay an outstanding debt the guarantor or surety, as he is sometimes called, becomes liable for the said debt. CHAMI Vs. U.B.A Plc (2010) 6 NWLR (pt. 1191)

 In the case of AUTO IMPORT EXPORT VS. ADEBAYO (2005) 19 NWLR (Pt. 959) 44 at 126 lines F – H Ogbuagu J.S.C. in his contribution to the judgment of the apex court had cause to resort to TRADE BANK PLC V. KAHLID BARAKAT CHAMI (2003) 13 NWLR (Pt. 836) 158 where the Court of Appeal defined who was a Guarantor and what a Guarantee means thus: “I will now deal with who is a guarantor and what a guarantee means. … The Court of Appeal, stated/held at page 216 as follows: – “A guarantor is technically a debtor because where the principal debtor fails to pay a debt, the guarantor will be called upon to pay the loan so guaranteed. The guarantor can however, be absolved from liability if he can show that the principal debtor has paid the loan.” Per IGNATIUS IGWE AGUBE, JCA (Pp 50 – 51 Paras D – B) .

Also, a guarantor’s liability does not begin until the principal debtor/borrower is in default. The liability of the guarantor crystallises immediately the third person is unable to pay its outstanding debt.

Therefore, in a contract of guarantee there is an expectation that the primary debtor will pay the debt. The liability of the guarantor is collateral and arises upon failure of the principal debtor to pay the debt. The effect of the guarantee is not to discharge the original debtor from his liability. The liability of both parties is continuing until such a time as the debt is retired by either party. Therefore, in case of litigation both the original debtor and the guarantor ought to be joined as Defendants to the action and the claim against them should be joint and several.

It is worthy of note that a contract of guarantee is in law a separate contract from the underlying contract that led to it. In as much as it is advisable to sue the debtor and the guarantor jointly and severally in cases of default, the Lender still reserves the right to proceed only against the Guarantor and once he establishes the default of the borrower, the guarantor will be found liable.