Other
AN INTRODUCTION TO THE CONTRACT OF GUARANTEE AND THE EXTENT OF THE LIABILITY OF A GUARANTOR
- Course
- Institution
AN INTRODUCTION TO THE CONTRACT OF GUARANTEE AND THE EXTENT OF THE LIABILITY OF A GUARANTOR
[Show more]
Content preview
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
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller AnswersCOM. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
81849 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now