WHAT ARE THE LIABILITIES OF A GUARANTOR
Most of the time, guarantors willingly sign the guarantee agreement without fully understanding the potential consequences.
WHAT ARE THE LIABILITIES OF A GUARANTOR
Most of the time, guarantors willingly sign the guarantee agreement without fully understanding the potential consequences. Therefore, it is crucial for a potential guarantor to read and comprehend the contract of guarantee before signing.
Below are some points to explain the liabilities of a guarantor:
The extent of the liability of a guarantor will be as specified in the guarantee document
A guarantor may be held liable for the liabilities of the borrower in accordance with the terms of the guarantee document
A guarantor can only be rendered liable under a guarantee if the borrower is in default of any payment to the financial institution and the financial institution makes a demand on the guarantor
To understand the liabilities of a guarantor, we need to understand the legal characteristics of a ‘guarantee’.
There are three main legal characteristics of a guarantee:
Secondary Obligation
Accessory to a Primary Obligation
Co-Extensiveness
SECONDARY OBLIGATION: Firstly, a guarantee is a secondary obligation. Secondary obligations are obligations that are triggered after one party commits a breach of contract. For a guarantor, in the context of a loan, this means that he is not liable to a lender under a guarantee unless and until the borrower fails to perform its obligations under the original contract.
ACCESSORY TO PRIMARY OBLIGATION: Secondly, a guarantee is an ‘accessory’ to a primary obligation. In simpler terms, in the context of a loan, this means that the liability of a guarantor under a guarantee is dependent on the continued existence and validity of obligations in the agreement between the borrower and lender, which trigger the secondary obligation of the guarantor. If these primary obligations become discharged or void, the liability for the guarantee will not exist.
CO-EXTENSIVENESS: Finally, the liability of a guarantor under a guarantee is ‘co-extensive’. In the context of a loan, this means the liability of a guarantor under a guarantee can be no greater than the liability of the borrower in his contract with the lender.
NB: This article is not a legal advice, and under no circumstance should you take it as such. All information provided are for general purpose only. For information, please contact chamanlawfirm@gmail.com
WRITTEN BY CHAMAN LAW FIRM TEAM
EMAIL: chamanlawfirm@gmail.com
TEL: 08065553671, 08024230080