Legal Framework for Surety Agreements and Guarantor Rights in Nigerian Banking Transactions

Surety agreements, in which third parties guarantee the repayment obligations of bank borrowers, are integral instruments in Nigerian commercial banking yet remain poorly understood by guarantors who often sign without full comprehension of their legal obligations. This study examines the legal framework governing surety agreements in Nigerian banking transactions, evaluating the rights and obligations of guarantors under common law, equity, and applicable banking regulations including the Central Bank of Nigeria's Guidelines on Credit Risk Management. Using a doctrinal methodology supplemented by a survey of 100 guarantors in Abuja and Kaduna who had been pursued for repayment by commercial banks between 2020 and 2024, the research analyses the conditions for the discharge of a surety, the doctrine of subrogation, and the right of contribution between co-sureties. Findings reveal that Nigerian banks routinely obtain surety agreements using standard-form documents that are unclear and disadvantageous to guarantors, without providing adequate pre-execution disclosure. The study further examines judicial attitudes to the discharge of guarantors upon material variations to loan agreements by banks. Recommendations include mandatory plain-language surety disclosure requirements, enhanced judicial enforcement of guarantor protections, and Central Bank of Nigeria regulatory amendments to prevent abusive guarantee procurement practices. Keywords: surety agreements, guarantor rights, banking law, credit transactions, discharge of surety