Legal Literacy

Guarantees as a form of security for the payment of a debt


Many a time parties enter into loan agreements without the lender ensuring that he has recourse to other means of getting his money in the event that the borrower fails to repay the amount.

Guarantee is one form of Security which a person may use to ensure the performance of an act, i.e. the payment of the loan taken under a loan agreement.

By definition, a Guarantee is a contract, which arises where one person agrees with another person to pay a debt or perform an act owed to the second person by a third party. Thus, although the Guarantor contracts to pay the debt or perform the act, the third party remains primarily liable. The Guarantor thus becomes personally liable only where the third party fails to pay the debt or perform an act and the lender has recourse to the Guarantor in case of such default.

It must also be noted that since the liability of the Guarantor is co-extensive with that of the principal debtor, the discharge of the latter will entail the discharge of the Guarantor/Surety. A contract of Guarantee must be in writing and duly executed (signed) by the person giving it. A contract of Guarantee will thus be unenforceable where it lacks the writing requirement, or where it is exacted from a person under undue influence.

Where more than one person executes a Guarantee, they may be bound either jointly, or jointly and severally.

Under Guarantees, where two or more persons execute a contract of Guarantee only jointly, it means simply, that they will all be held liable for the repayment of the amount specified thereon or the performance of a specified act. One person cannot be held solely responsible for such repayment or performance; they are jointly liable. However, where a guarantor is only jointly bound with his co-guarantor, his liability under the Guarantee terminates upon his death.

Where on the other hand, when a guarantor is jointly and severally bound to his co-guarantor, then liability passes to his personal representatives upon his demise.

A contract of Guarantee therefore has the advantage of giving the lender other means of recovering his money, where he cannot do so from the borrower.