I have received several messages and phone calls from a microfinance company based in Dar es Salaam that my cousin listed me as a guarantor for a personal loan he took three months ago but has not been able to repay. I was not aware of this transaction and was never consulted when it happened. The company is threatening to take action against me unless my cousin repays the loan. What does the law say about this?
EM, Dar es Salaam
The Law of Contract Act [Cap 345 R.E 2019] provides guidance on this matter. Generally, a ‘contract of guarantee’ is a contract to perform the promise or discharge the liability of a third person in case of his default. Further, the person who gives the guarantee is called the ‘surety’, and the person in respect of whose default the guarantee is given is called the ‘principal debtor’, while the person to whom the guarantee is given is called the ‘creditor’.
It is true that a guarantor for a loan may be held liable in case the principal debtor fails to repay the loan. Courts in Tanzania have, in numerous cases, emphasised the need for guarantors to honour their promises. However, a guarantee is a promise that must be made by way of a contract which according to the law in Tanzania may be either oral or written. This simply means liability as a guarantor is contingent upon voluntarily assuming responsibility through a contractual agreement either orally or in writing. If you did not enter into a contract with the microfinance company and your cousin as a guarantor, you cannot be held liable for any obligations or liabilities arising from such a role. Unless there is information you are withholding from us, there is no action that can be taken against you.