A letter of guarantee can be
described as some sort of promise, it denotes that the giver of the guarantee
promises to carry out an act on behalf of another. A good illustration will be
a letter of guarantee given to a creditor, by this letter of guarantee, the
guarantor promises/guarantees to settle the debt of the debtor, should there be
a failure on the part of the debtor. Usually, it seeks to assure the creditor
of a return on the loan or debt sum.

A Supreme Court Justice, Per Onnoghen, JSC in Khaled B. Chami v. U.B.A. Plc (2010)6 NWLR
Part 1191, 474
at Page 501
defined a guarantee as –  “a written undertaking made by one person to
another to be responsible to that other person if a third person fails to
perform a certain duty e.g. payment of debt, the guarantor (or surety as he is
sometimes called) becomes liable for the said debt

The above provision of the law is also stated
by Akpata JSC in Royal

Assurance (Nig) Ltd & Ors v. Aswani Textile Industries Ltd (1992) 3 NWLR
Part 2271

at Page
wherein His Lordship held that
“A guarantee is a
written undertaking made by one person to a second person to be responsible if
a third person fails to perform a certain duty, e.g. pay a debt”.

It is settled law that where a person
personally guarantees the liability of a third party by entering into a
contract of guarantee or suretyship, a distinct and separate contract from the
principal debtor’s is thereby created between the guarantor and the creditor.

it is important to note that the contract of guarantee so created can be enforced
against the guarantor directly without joining the principal debtor in the
proceedings. The above –  mentioned
position is further illustrated in the pronouncement of the court in Olujitan v. Oshatoba (1992) 5 NWLR (Pt 241)

One elementary
but fundamental principle of law is that a contract of guarantee must be in
writing in order to be binding on the guarantor. In  F.C.M.B. v. S. A. I. C. Ltd (2007) ALL FWLR
(Pt. 363) 133 at 146 para.s. G – H (CA)
; the court held that
for a
contract of guarantee to be binding, it has to be in writing, evidencing an
agreement between the parties. Furthermore, the
legal nature of a guarantee requires that there be a valid contract of
guarantee between the surety and guarantee as stated in
(Nigeria) Limited v. Intercontinental Bank Limited (2009) LPELR-8275(CA).

For it is the existence of the Contract of Guarantee
that proves a contractual relationship between the parties. In essence, once
there is no privity of contract between the parties, a party cannot enforce
such a contract as held in Union Bank of Nigeria Plc v. Soares (2012)

The lesson therefore is that if one must enter into
a guarantee agreement, for it to be valid, it must be in writing.


Photo Credit – www.ethnews.com