By OLUSOJI DAOMI
A friend calls you in confidence. A colleague makes an emotional appeal. A relative assures you that the loan is merely a formality and promises to repay within three months. All you are required to do, you are told, is sign as a guarantor.
You sign out of kindness and return to your daily business. Then the borrower defaults. The lender begins calling, sends demand letters and threatens legal action against you. Suddenly, a favour has become a financial nightmare. Welcome to the often-misunderstood world of guarantorship under Nigerian law.
In an economy where rising living costs push households and small businesses towards loans from banks, microfinance institutions, cooperatives and digital lenders, one question deserves serious attention: when another person borrows money, why should you pay for their failure? The answer lies in the undertaking you signed.
A guarantor is not merely a referee who confirms that a borrower is a good person. A guarantor undertakes to answer for another person’s debt or default according to the terms of the guarantee. In Khaled Barakat Chami v. United Bank for Africa Plc, the court recognised that a contract of guarantee creates an enforceable obligation between the guarantor and the creditor. Depending on its terms, the lender may proceed directly against the guarantor without first exhausting remedies against the borrower.
This means that the familiar defence, “I did not collect the money,” may not save you. You may not have received one naira of the loan, but you could still be contractually liable because you agreed to guarantee repayment.
Does this mean the lender can take your house or deduct your salary whenever it chooses? Absolutely not. A creditor must establish the legal basis for the claim and follow the applicable recovery and enforcement procedures. Where judgment has been obtained, the creditor may pursue lawful enforcement measures, which can include proceedings against eligible funds held by a third party or execution against property, subject to the relevant law and the circumstances. A threat to seize assets is not the same thing as lawful authority to seize them.
Nor should a guarantor assume that liability is unlimited. The wording of the guarantee matters. Is there a maximum amount? Does it cover interest, legal costs or additional advances? Is it limited to one loan or does it operate as a continuing guarantee? Does it impose joint or several liability? These are not technical details to be ignored; they may determine the extent of your exposure. In Obikoya v. Wema Bank Ltd, the Supreme Court emphasised that a guarantor’s liability must not be extended beyond the terms of the guarantee.
What, then, should every Nigerian do before signing? First, read the guarantee before signing it. Never sign a blank document or rely solely on a friend’s explanation. Obtain a copy and understand the amount, duration, conditions and consequences of default. Where the terms are unclear or the potential liability is substantial, seek independent legal advice.
Second, investigate the borrower’s repayment capacity. Friendship is not a financial assessment, and affection is not collateral. Ask yourself a difficult but necessary question: if this person defaults tomorrow, can I afford to meet the obligation without jeopardising my family’s welfare?
Third, keep copies of the guarantee, loan documents and relevant correspondence. If the lender contacts you after default, request a statement showing the outstanding debt and examine whether the demand is consistent with the agreement you signed. If you dispute the debt or the amount claimed, obtain legal advice promptly rather than ignoring the demand.
What if you eventually pay the debt? Depending on the circumstances and applicable law, a guarantor who discharges the borrower’s obligation may have a right to seek reimbursement from the borrower. The borrower’s default does not necessarily mean the guarantor must ultimately bear the loss without recourse.
The broader lesson is that financial responsibility must not be confused with social obligation. You can love your brother, respect your colleague and support your friend without automatically accepting their debts.
Lenders are entitled to protect legitimate credit interests, and borrowers must honour their commitments. But guarantors, too, deserve to understand the legal consequences of their signatures before assuming another person’s financial risk.
Before you stand as a guarantor, remember this: you may not receive the loan, but you may be called upon to repay it. Sign only what you understand, guarantee only what you can realistically afford, and never allow pressure, pity or misplaced loyalty to make a financial decision on your behalf. In matters of credit, a signature may be brief; its consequences may last for years.
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