LEGAL PRINCIPLE: CONTRACT LAW — Guarantee — Liability of Guarantor Independent of Principal Debtor Default
PRINCIPLE STATEMENT
In matters of guarantee, two situations may arise: the guarantor may undertake to discharge liability only if the principal debtor fails, or the guarantor may make himself the real debtor. In the latter situation, the creditor is entitled to proceed against the guarantor without or independent of the default of the principal debtor.
RATIO DECIDENDI (SOURCE)
Per Uwaifo, JSC, in Fortune International Bank Plc v. Pegasus Trading Office & Ors (2004) NLC-1442001(SC) at p. 10; Paras C–E.
"In matters of guarantee of this nature, there is sometimes the need to recognize the three parties, namely: the creditor, the principal debtor and the secondary debtor or guarantor. Either of two situations could thus arise. One is that the guarantor may not primarily undertake to discharge the liability but only if the principal debtor failed in his obligation. There is the other situation where a person by his undertaking makes himself the real debtor. … The creditor is now entitled to proceed against the guarantor without or independent of the incident of the default of the principal debtor."
EXPLANATION / SCOPE
A guarantee may create either secondary liability (guarantor pays only after principal debtor defaults) or primary liability (guarantor makes himself the real debtor). Where the guarantor assumes primary liability, the creditor may proceed directly against the guarantor without first demanding payment from or proving default of the principal debtor. This serves giving effect to the parties’ intentions as expressed in the guarantee agreement. The court cannot impose a requirement of prior demand against the principal debtor where the guarantor has made himself primarily liable.