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AN INTRODUCTION TO THE CONTRACT OF GUARANTEE AND THE EXTENT OF THE LIABILITY OF A GUARANTOR
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AN INTRODUCTION TO THE CONTRACT OF GUARANTEE AND THE EXTENT OF THE LIABILITY OF A GUARANTOR
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AN INTRODUCTION TO THE CONTRACT OF GUARANTEE AND THE EXTENT OF THE LIABILITY OFA GUARANTOR
1. WHAT IS CONTRACT OF GUARANTEE?
A contract of guarantee can be described as an assurance to a creditor that if the principal debtor
fails to pay, the guarantor or surety would repay the debt1.
The court of appeal in WEMA BANK PLC. & ANOR v. ALARAN FROZEN FOODS AGENCY NIGERIA
LIMITED & ANOR2 relying on Halsbury's Laws of England, 4th Edition Vol. 2, at paragraph 101
defined contract of guarantee thus:
"A guarantee is an accessory contract by which the promisor undertakes to be answerable
to the promise for the debt, default or miscarriage of another person whose primary
liability to the promise must exist or be contemplated."
Under a contract of guarantee, one person contract with another to pay some debt or perform
some act or duty owed by a third person who nevertheless remains primarily liable for such
payment or performance, i.e. the person giving the guarantee becomes liable only on default of
the third person. Thus, without a principal obligation, there can be no accessory of guarantee.3
What is a guarantee?
A guarantee is a written undertaking made by one person to a second person to be responsible
if a third person fails to perform a certain duty.4 A guarantee can also be defined as the assurance
that a contract or legal act will be duly carried out. It is something given or existing as security,
such as to fulfill a future engagement or a condition subsequent.
Black's Law Dictionary, 5th Edition at page 634, defines guarantee as a collateral agreement for
the performance of another's undertaking. An undertaking or promise that is collateral to the
primary or principal obligation and that binds the guarantor to performance in the event of non-
performance by the principal obligor. A promise to answer for the payment of debt or
performance of an obligation if the person liable in the first instance fails to make the payment
or perform the obligation... A promise to answer for the debt, default, or miscarriage of another
person.5
1
Gold Link Insurance Company Ltd V. Petroleum (Special) Trust Fund (2008) LPELR-4211(CA)
2
(2015) LPELR-25980(CA)
3
The Encyclopedia of forms and precedent - fifth edition 17(2) Gifts, Guarantee and Indemnities, health and safety
at work
4
Ibid
5
Commercial Credit Corp. v. Chisholm Bros Farm Equipment Co. 96 Idaho 194525 p, 2d 976, 978.
, A guaranty is both collateral and contingent. It is intended to secure the performance of another
contract, the non-performance of which is a condition precedent to the guarantor’s liability.6
• Parties to a contract of guarantee
A contract of guarantee often involves the giver of the guarantee termed the “guarantor”. The
person receiving the guarantee called “the creditor”, and the person primarily liable called “the
principal debtor”.
A guarantor is a person or a firm that endorses a three-party agreement to guarantee that
promises made by the first party (the principal) to the second party (client or lender) will be
fulfilled and assumes liability if the principal fails to fulfill them.7
In SENATOR (MRS.) EME UFOT EKAETE v. UNION BANK OF NIGERIA PLC8, the Court of Appeal
defined a guarantor as one who makes a guarantee or gives security for a debt.
A guarantor technically is a debtor because where the principal debtor fails to pay a debt or fulfill
a certain obligation, the guarantor will be called upon to pay the debt so guaranteed or fulfill the
obligation so promised.
2. WHEN DOES THE LIABILITY OF A GUARANTOR CRYSTALLISE?
The liability of a guarantor may arise upon the failure of the principal debtor to fulfill or perform
his part of the contract or obligation he owes the creditor.
In NWANKWO & ANOR V. ECUMENICAL DEVELOPMENT CO-OPERATIVE SOCIETY (EDCS) U.A9
the Supreme Court in answering the above question held as follows:
“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 crystallized.”
IN MCMURRAY V. NOYES10 it was held as follows:
"fundamental distinction between a guaranty of payment and one of the collection is that
in the former, the guarantor undertakes unconditionally that the debtor will pay and the
creditor may upon default proceed directly against the guarantor, without taking any step
to collect from the principal debtor, and the omission or neglect to proceed against him is
6
The Virginia Law Register Vol. 2, No. 2 (Jun., 1896), pp. 78-81 (4 pages) - Liability of a Guarantor -
J. Baldwin Ranson
7
http://www.businessdictionary.com/definition/guarantor.html accessed on 3/8/2020
8
(2014) LPELR-23111(CA)
9
(2007) LPELR-2108(SC). See also A.I.D.C. V. NIGERIA L.N.G. LTD(2000) 4 NWLR (Pt.653) 494
10
(N.Y) 28 Am. Rep. 180
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