It basically means that a person (the guarantor) has signed a written undertaking to a second person to be responsible if a third person fails to perform a certain duty. Thus, such a person becomes technically the debtor to the lender in whose favour the undertaking is signed where the original debtor/borrower fails to pay off the debt. Afrikbank (Nig) Ltd v Moslad Enterprises Ltd (2008) All FWLR (Pt. 421) Pg. 877 @ 898 Para C - F
No, the creditor has the right to approach the court in order to recover the debt sum from the guarantor even without any previous notice to the said guarantor, the moment the debtor defaults in paying loan. MOSCHI V. LEP Air Services Ltd. (1973) AC 331, 348
Yes, where the variation is against or prejudicial to the guarantor, the guarantor will not be liable and will be subsequently discharged, from the contract of guarantee. For instance, a guarantor ‘X’ who guarantee’s a loan advance of N20m given by ‘Y’ to ‘Z’ will be discharged from liability if ‘Y’ proceeds to withhold N10m of the loan advanced as settlement of a previous loan given to ‘Z’ even when ‘X’ was not a party to such previous loan. First Bank of Nigeria V. Pan Bisbilder (1990) 2 NWLR (Pt. 134) 647
Yes, the guarantor can recover the money back from the debtor. The guarantor’s right to recover is founded on the implied contract between him and the principal debtor that where the guarantor offsets the loan of the debtor, the debtor is obligated to pay back. **Onwukeme V. Onwuegbu (1970) NCLR 399 **
Yes, a creditor can proceed to institute an action in court to recover a debt sum from a guarantor without first demand for the debt from the debtor except there is a clear provision in the contract of guarantee that the creditor must first demand for payment of the debt sum from the debtor. African Cont. Bank v. Terasell (Nig.) Ltd. (1975) 1 CCHCJ 35; MOSCHI V. LEP Air Services Ltd. (1973) AC 331, 348
No, a guarantor cannot be made liable for loan in excess of what he contracted to guarantee. A guarantor will only be liable to that particular amount he had contracted to guarantee. Standard Bank of Nigeria V. Bolohor Enterprises Ltd. (1980) FNR 114
The guarantor of a loan or overdraft credit facility will not become bound by the contract of guarantee in the following instances:
a) Where the guarantor request for information on the account of the debtor and the creditor refused. However, for this to be valid it is the duty of the guarantor to ask for this information and same cannot be denied him by the creditor. It is not the creditor’s duty to disclose the financial standing of the debtor except upon request by the guarantor.
b) Another instance where a guarantor will not become bound to a contract of guarantee is where the circumstance surrounding the loan or overdraft agreement is so “extra ordinary” that it becomes logical for the creditor to disclose the information surrounding the circumstances of the loan or overdraft agreement. For instance, it will be un-logical for a guarantor to guarantee an overdraft credit facility or loan which the creditor has already granted to the debtor without the guarantor knowing that the account of the debtor is already overdrawn to an extent greater than the limit of the guarantor and the creditor knowing that the guarantor is unaware deliberately conceal this fact. This however depends on the fact and the nature of the contract. Lee V. Jones (1864) 144 ER 194; African Cont. Bank V. Wogu (1965) NCLR 164; Ikomi V. Bank of West Africa (1965) All NLR 40
Yes, the creditor has the right to retain goods, chattel, or securities of the debtor until the debtor discharge his indebtedness to the retainer of the goods. Lien could be general or particular. It is a general lien when the creditor retains the security or document of the debtor until the whole debt is discharged. However, it becomes a particular lien when the creditor retains the goods, chattel or security of the debtor until the particular debt secured is discharged. Alabi V. Standard Bank of Nig. (1974) 4 ECSLR 574; Davis V. Bowsher (1794) 5 TR 488, 491
No, ‘Y’ is wrong to have kept the title Deed as a lien for the previous loan advanced. Except where it is agreed that there shall be a lien over a property from previous loan advanced, the creditor has no right to create a lien on a property for a loan it already advanced. Cooperative Bank of Eastern Nig. V. Eke (1979) 2 FNR 190
A contract of guarantee involves an agreement to answer for the liability of the principal debtor while an indemnity is simply money given as compensation or re-imbursement for loss. However, the major distinction between an indemnity and a guarantee is that while a guarantee must be in writing, and under seal for it to be valid, a contract of indemnity need not be. Furthermore, in a contract of guarantee, where the contract is invalid against the debtor, the guarantor is discharged from liability. However, the fact that a contract is invalid might not be enough to discharge an indemnifier in a contract of indemnity. Bent Worth Finance (Nig.) Ltd. V. Ibrahim (1969) NCLR 272, 277; B.B Apugo& Sons Co. Ltd. V. African Cont. Bank (1989) 1 CLQR 87
No, a contract of guarantee need not tie the liability personally on the guarantor for it to be valid. Where the memorandum of guarantee limits the liability of the guarantor for instance to certain properties itemised in the contract of guarantee, then the guarantor will not be personally liable and the contract will still be valid. Edu V. National Bank of Nigeria (1971) NSCC 276; Smith v. Wood (1928) All ER Rep 229.
Yes, an oral guarantee is not known to law. For a creditor to enforce a contract of guarantee, it must be in writing. A memorandum or a note signed by the party will be enough. National Bank of Nigeria v. Bamidele (1979) 1-3 CCHCJ 118
A guarantee to pay the debt of another must normally be under seal for it to be valid. However, where such guarantee is supported by valuable consideration, it need not be under seal. A consideration will be valuable where the guarantor persuades the creditor to for bear his right to sue the debtor to recover loan granted. Younis V. Chidiak (1970) NCLR 26
No, generally the creditor is not obligated to disclose any fact to the guarantor. A contract of guarantee is not a contract of issuance as such non-disclosure on the part of the creditor is not enough ground for the guarantor to avoid liability except it is shown that the non-disclosure amounts to fraud or misrepresentation. United African co. Ltd. V. Jazzar (1940) 6 WACA 208, 210
The obligation of a guarantor in a contract of loan agreement is to see to it that the debtor performs his own obligation to the creditor. The first duty of the guarantor is not to pay the debt to the creditor but an obligation to see to it that the debtor does something. MOSCHI V. LEP Air Services Ltd. (1973) AC 331, 348
Where the directors of a company signs a guarantee form in order to secure a loan for the company, such directors by signing the guarantee form act as the guarantors for such loan. Where the company becomes unable to repay the loan because it is ultra vires or against the official authority and powers of the company and as a result invalid, the directors become personally liable for the specific sum guaranteed. Standard Bank of Nigeria V. Bolokor Enterprises Ltd. (1980) FNR 114
A contract of guarantee will only be valid upon the advance of loan which is usually the consideration. However, a pre-existing advance does not constitute a good consideration. You cannot secure a valid contract of guarantee for a previous loan advanced. A contract of guarantee must be made with respect to loans for it to be valid. Barclays Bank V. Okotie-Eboh (1972) NCLR 174
No, a contract of guarantee made orally is not void or a nullity because it is not in writing. Such oral contract of guarantee is merely incapable of proof until a memorandum is drafted complying with the Statute of Fraud Act 1677. This memorandum may be signed at a later date and them becomes available to prove the original contract. United African co. Ltd. V. Jazzar (1940) 6 WACA 208, 210
Generally, a creditor is not expected to depart from his contract with the guarantor without the guarantor’s consent except it is contained in the express term of the guarantee itself. However, where there is no express term in the guarantee and the creditor deviates from the term of his contract with the guarantor and such deviation is substantial so as to constitute an alteration of the guarantor’s obligation, then the guarantor can avoid the contract of guarantee on this ground. Awolesi V. National Bank of Nigeria (1962) ANLR 174
No, in fact, it is fraudulent for the creditor to contemplate such. Where the creditor is guilty of this, a guarantor can rightly refuse liability on the account guaranteed. A creditor (banker) is not entitled where an account is guaranteed to a limited extent to split that account during the continuance of the guarantee and attribute all payments into the unsecured account. Re Sherry (1884) 25 ChD 692 P 700; Awolesi V. National Bank of Nigeria (1962) ANLR 174.
A guarantor will not be discharged from the liability of his contract notwithstanding that the creditor varies the term of the overdraft with the principal debtor without the consent of the guarantor as long as such variation is not supported by consideration from the principal debtor. The implication is that, such variation between the creditor and the debtor is not a new agreement in itself as it lacks consideration to make it a binding contract. Oluboye V. Ketting (1972) NCLR 464
No, where ‘A’ agrees to a guarantee because he believes ‘B’ will be part of such guarantee and ‘B’ refuses to sign after ‘A’ might have signed the contract of guarantee, ‘A’ will not be liable where the debtor defaults in the repayment of the debt except ‘A’ is aware of the non-intention or refusal of ‘B’ to sign the contract guaranteeing the loan advanced and ‘A’ being aware of his right consents to waive it. Arab Bank Nig. Ltd. V. Dantata (1977) NCC 403; Leaf V. Gibbs (1880) 4C & P466; Evans V. Brembridge (1855) 69 ER 74; Hansard V. Lethbridge (1892) 8 LTR 346
Yes, this right is a right of set-off which exists between two parties in a contract whereby each of whom under an independent contract may owe an ascertained amount to the other, to set off their respective debts by way of mutual deduction. British & French Bank V. Owodunni Trading Co. (1956) NSCC 3