Being a guarantor is more than simply providing a reference. Under Section 128 of the Contract Act, a surety’s liability is generally co-extensive with that of the principal debtor, unless the contract provides otherwise.

This may mean that the lender can also seek recovery from you if the borrower defaults. The lender is not necessarily required to sell all of the borrower’s assets first in every case before proceeding against the guarantor. The documents must be examined to determine the extent and continuing nature of the guarantee, as well as any questions concerning variation or discharge.

What should you do now?

1. Before signing, read the maximum liability, interest and duration.
2. Put arrangements in place to stay informed about the loan’s performance and any notices.
3. If you receive a demand, have the guarantee and any available defences reviewed.

Which documents should you keep?

The guarantee deed, loan terms, modifications, statements and demand notices.

Avoid this mistake

Signing blank forms out of friendship or failing to obtain the papers because you consider it “just a formality” is risky.

A hypothetical example

A person who guaranteed a friend’s loan received a demand directly. “Sue my friend in full first” is not an adequate response under every guarantee. Prepare a response after considering the extent of the guarantee deed and the principal liability.

Can a guarantor later claim money from the borrower?

After making payment, applicable indemnity/subrogation rights may be available; check the conditions and the practical prospects of recovery.

Legal basis and useful source

• Indian Contract Act, 1872 — Sections 27, 72–74, 126–128

This is general legal information. Advice may differ depending on your facts, the applicable law and state rules.