Contracts of Guarantees in Nigeria: An Analysis of the Effect of Arbitration Clauses on Contracts of Guarantee in Nigeria

Abstract

Generally contracts of guarantee could be rightly perceived as tools used by parties in contracts to ensure that their interests in such agreement are secure, so that, in an event where there is a breach of such contract an action could be maintained against both the erring contracting party and the guarantor or the guarantor alone. Guarantees are agreements by which the Guarantor accepts the responsibility for a debt owed by someone (the borrower) to someone else (the lender) if the borrower fails to do so. The Guarantor can then claim the money back from the borrower. However contracts of guarantee are much more than an ‘insurance policy’ in favour of lenders or creditors, they could also be used as tool for ensnaring an unsuspecting “deep pocketed” guarantor into bearing eventual liability for the sins of an untrustworthy party, or instruments used to vouch for the credibility of a party. This has been used by parties in different forms from complex bank loans guarantees to guarantees in simple tenancy agreements all in the bid to create an alternative party to pursue in an event of breach. Whatever the reason for its execution maybe, it constitutes a contract and thus governed by the law of contract and therefore when executed by parties in the absence of any vitiating element it remains binding notwithstanding the motive of any party to the agreement. It is against this backdrop that this paper seeks to analyse the effect of arbitration clauses on contracts of guarantee in Nigeria. To achieve this it explains the concept of guarantees, it further proceeds to give a detailed overview of the nature of guarantees and finally it embarks on an academic voyage giving an analysis of the effect of arbitration clauses on the rights of parties under a contract of guarantee.