Every Guarantor’s Fear: What if the borrower defaults and I have to pay?

When a guarantor pays off the debt of a principal debtor, they are generally entitled to an indemnity from the principal debtor for the amount paid. This means the guarantor can seek repayment from the debtor and typically receive equal contributions from any co-guarantors. However, these outcomes depend on the specific legal and equitable principles in play and are not always guaranteed.

The principal debtor is expected to pay off their own debt, and if the guarantor does so, the guarantor usually has an implied right to reimbursement. This right is based on the contractual intention that the primary responsibility for the debt lies with the principal debtor, while the guarantor's role is secondary. Courts often find evidence of an implied agreement for indemnity when the guarantor provides a guarantee at the debtor's request. While the right of indemnity is often implied, parties can expressly or implicitly exclude it from their agreements.

This discussion pertains to the guarantor's right to reclaim payments from the debtor after settling the debt. Although guarantors may have rights against the debtor prior to payment, these rights come from equity, not common law, and exist to prevent potential financial damage to the guarantor.