Rights and Liability of a Guarantor

In Nigeria, the rights and liabilities of a guarantor in a loan transaction are primarily governed by contract law, banking regulations, and judicial interpretations. Here’s an overview of how the protection of a guarantor’s rights and the extent of liability are typically addressed:

Rights of a Guarantor:

Informed Consent: The guarantor must give informed consent to guarantee the loan. This means understanding the obligations and liabilities involved.

Right to Information: Guarantors have the right to request and receive information about the principal debtor’s financial position and any changes in the loan terms that may affect their liability.

Limitation on Guarantee Scope: Guarantors have the right to limit their guarantee to a specific amount or time frame. This should be clearly stipulated in the guarantee agreement.

Release from Guarantee: A guarantor may have the right to be released from their obligations under certain circumstances, such as when the principal debt is paid off or when agreed-upon conditions are met.

Defenses Available to the Principal Debtor: If the principal debtor has defenses against the creditor, those defenses may also be available to the guarantor.

Extent of Liability:

Primary Liability: In many cases, guarantors in Nigeria have primary liability for the debt, meaning they can be pursued directly by the creditor for repayment if the debtor defaults.

Joint and Several Liability: Guarantors may be jointly and severally liable, alongside the debtor, for the full amount of the debt. This means the creditor can choose to pursue either the debtor or the guarantor(s) for the entire amount owed.

Limitation of Liability: As mentioned earlier, guarantors can sometimes limit their liability to a specific amount or time frame. However, this must be clearly stated in the guarantee agreement and agreed upon by all parties.

Enforceability: Guarantors should ensure that the guarantee agreement complies with Nigerian law regarding enforceability and validity. Illegal or unconscionable terms may not be enforceable.

Legal Framework:

The legal framework for guarantors’ rights and liabilities in Nigeria includes various statutes, such as the Contracts Act, various banking regulations, and relevant case law. Courts in Nigeria generally uphold valid guarantee agreements but also ensure that guarantors are not unfairly burdened beyond their reasonable expectations or contractual obligations.

Take note: Enforcing a guarantee is not a criminal matter. The right way to enforce a guarantee is not to run off to the police station to cause a guarantor to be arrested but the legal way is to sue for breach of contract and enforce the contract. Furthermore, creditor cannot go after both debtor and guarantor at the same time. The guarantor only becomes liable when the debtor has failed to pay his debt or suddenly becomes unreachable. As long as he remains reachable or able to pay, guarantor should not be disturbed.

In summary, while guarantors in Nigeria have certain rights and protections, such as the right to information and the ability to limit their liability, they also face significant potential liabilities if the debtor defaults. It’s crucial for guarantors to understand the terms of the guarantee agreement and seek legal advice if necessary before entering into such agreements.