James had known John for years. They had been friends since childhood, and when John needed a loan to support his business, he turned to James for help. James agreed to stand as guarantor. He was given the relevant documents, but because he trusted John and had always understood a guarantee as something the lender would turn to only after exhausting its options against the borrower, he did not pay much attention to the finer terms.
Some months later, James received a call from the lender informing him that John had defaulted. Before long, he received a writ of summons. To his annoyance and surprise, the lender had sued him for the recovery of the loan. John, the actual borrower, was not even a party to the suit. James could not understand it. If John had borrowed the money, why was the lender coming after him?
Unfair as the situation may sound to James, it raises an important question as to whether the lender must first sue the borrower before proceeding against the guarantor when a person guarantees another person’s debt.
The Rights and Liabilities of a Guarantor
A guarantor is a person who undertakes to answer for the debt or obligation of another. In simple terms, the borrower receives the money, while the guarantor gives the lender an assurance that the borrower’s obligation will be performed or the debt paid if the circumstances contemplated by the guarantee arise.
Guarantees are common in banking, savings and loans, microfinance and other credit arrangements. They provide the lender with an additional layer of security. The lender is not relying solely on the borrower’s promise to repay; there is another person who has undertaken a legal obligation in relation to that debt.
The law treats that undertaking seriously. Section 14 of the Contracts Act, 1960 (Act 25) generally requires that an agreement by which a person guarantees the payment of a debt or the performance of another obligation be made in writing. Thus, an oral guarantee is typically void, unless recognised by customey law. The wisdom in the written requirement is perhaps not far-fetched.
A person does not become a guarantor merely because he tells a friend, “I will support you.” The enforceable obligation arises from the legal undertaking that he makes. Once that undertaking is properly made, it can have consequences far beyond the friendly conversation that produced it.
Ordinarily, the guarantor’s obligation becomes relevant when the principal debtor fails to perform the obligation guaranteed. But this does not necessarily mean that the lender must first exhaust every possible remedy against the borrower before turning to the guarantor. The terms of the guarantee are therefore crucial to understanding the full extent of the guarantor’s liabilities.
The guarantor is, however, not without rights. If the guarantor eventually pays the debt, the law does not simply leave him to bear the loss of having paid another person’s debt. Under section 16 of Act 25, the guarantor can, in appropriate circumstances, take over the rights the lender had against the borrower. This means that after paying the lender, the guarantor can pursue the borrower for the money paid and can also benefit from any security the lender held for the debt. In legal circles, this is called the guarantor’s right of subrogation.
COCOBOD v Unique Insurance: Suing the Guarantor Directly
Whether a lender must first proceed against the borrower before turning to the guarantor is a question the Accra High Court recently had occasion to consider in Ghana Cocoa Board v Unique Insurance Ltd. [2026] GHAHC 38 (5 February 2026). In that case, Ghana Cocoa Board (COCOBOD) had provided seed money of GHS1.5 million to Farmers Alliance Company Limited, a Licensed Buying Company, to enable it purchase cocoa beans from farmers for delivery to COCOBOD during the 2020/2021 cocoa season.
As a condition for the financial assistance, Farmers Alliance was required to provide a guarantee from an acceptable financial institution. Unique Insurance Limited subsequently issued a Credit Guarantee Bond in favour of COCOBOD. Under the guarantee, Unique Insurance undertook to pay any debt owed by Farmers Alliance to COCOBOD, subject to a limit of GHS5 million. Farmers Alliance, however, failed to deliver the required quantity of cocoa beans. Its indebtedness to COCOBOD eventually stood at GHS748,747.67.
COCOBOD sought payment from Unique Insurance. When the matter reached court, however, Unique Insurance took issue with the manner in which the claim had been brought. COCOBOD had sued Unique Insurance alone. Farmers Alliance, the principal debtor, had not been joined to the action. Unique Insurance argued that Farmers Alliance ought to have been made a party to the suit. It also challenged the basis of the amount claimed and raised issues concerning the notices said to have been given in relation to the debt.
COCOBOD’s position was essentially that it was not obliged to sue Farmers Alliance before enforcing the guarantee against Unique Insurance. Farmers Alliance had defaulted, and Unique Insurance had undertaken to guarantee the debt.
The Court’s Decision
The Court found that Farmers Alliance had indeed defaulted. The evidence included Farmers Alliance’s own letter acknowledging an outstanding debt and its statement of account. The existence of the guarantee was also not seriously in dispute.
The central question, therefore, was whether COCOBOD could proceed against Unique Insurance without first suing Farmers Alliance. The Court answered in the affirmative. It held that a guarantor is jointly and severally liable with the principal debtor and that a creditor can choose to pursue the guarantor alone without joining the principal debtor to the suit.
The Court found that the evidence established the debt owed by Farmers Alliance and that the guarantee entitled COCOBOD to make its claim against Unique Insurance. The fact that Farmers Alliance had not been joined to the proceedings did not prevent COCOBOD from enforcing the guarantee against the insurer.
The Court was also mindful that the guarantor was not without a remedy against the principal debtor. It noted that Unique Insurance had a right of subrogation against Farmers Alliance and that nothing prevented it from proceeding against Farmers Alliance. The Court consequently entered judgment in favour of COCOBOD against Unique Insurance for Farmers Alliance’s indebtedness together with interest at the prevailing commercial bank rate from July 2022 until judgment.
Look Before You Leap, O You Guarantors
Nothing is more obvious than a lesson for the potential guarantor to read before he guarantees. People often become guarantors because they trust the borrower. That trust may be entirely genuine, but the lender is not relying on the friendship between the two. The lender is relying on the guarantor’s legal promise. A prospective guarantor should therefore understand the terms of the guarantee before signing.
The second lesson is that a guarantor should not assume that the borrower must necessarily be sued first. Ghana Cocoa Board v Unique Insurance Ltd. demonstrates that where the terms of the guarantee and the circumstances of the default permit it, a creditor may proceed directly against the guarantor.
At the same time, becoming liable to the creditor does not mean that the guarantor has no rights. A guarantor who pays may have a right of subrogation and may pursue the principal debtor using the remedies available to the creditor. The guarantee therefore creates obligations, but it also creates rights.
A guarantee is not merely a favour to a friend. It is a legal commitment. And before making that commitment, the prospective guarantor should understand precisely what he is undertaking.
