Guarantee as a Security under Nigerian Legal System

Abstract

Security is very important in any business endeavour requiring credit. Sometimes a borrower may not have the
necessary collateral to use as security. A lender in such a situation could fallback to personal security, such as a
guarantee. Personal security could be in the form of guarantee or indemnity, but this paper focused on guarantee as
a security. A Guarantee gives the creditor a claim against a particular person who assumes liability as surety for the
principal debtor, rather than a claim upon any specific asset. The aim of this paper is to examine Guarantee as a
security and to understand its effectiveness as a security. This paper explored the creation of guarantee, the legal
nature of guarantee contract, the differences between a guarantee and an indemnity, credit guarantee companies
and the challenges of guarantee as a security. The research methodology adopted in this paper is the doctrinal. This
paper observed that Guarantee is not merely routine procedure in loan transaction; rather, it is actually a form of
security just like a mortgage, even though a personal security. The paper also found that Guarantee as a security
has some advantages over real or tangible security, as it is not affected by problems associated with tangible
security, such as obsolescence, depreciation, verification, perfection and foreclosure. The paper recommends that
Guarantors should be screened or investigated to ascertain their suitability to play the role of a Guarantor, in order
to enhance its effectiveness as a security.