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So as I understand a guarantor is liable to pay rent arrears if the tenant is unable, unwilling, or just doesn't pay.
I am wondering if such an occasion arose and the landlord contacted the guarantor to pay, and they did, would the tenant, without a written agreement specific to that occasion, have any inherent legal obligation to repay the guarantor for the arrears.
Does the use of a guarantor give the tenant an automatic legal responsibility to repay them?
Does the use of a guarantor give the tenant an automatic legal responsibility to repay them?
Yes, unless a contract expressly says otherwise.
A guarantor has the right to recover what the guarantor had to pay from the primary person obligated on a debt that are the same as the creditor who the guarantor pays unless a contract or statute says otherwise. This right is called the right to subrogation.
The subrogation rights of a guarantor are a matter of equitable principles set forth in case law precedents (and in the case of promissory note, a statutory right under the Uniform Commercial Code, see, e.g., Colo. Rev. Statutes § 4-3-419(e)), even though best practice is to formally state that in a guarantee agreement. See, e.g., Behlen Mfg. Co. v. First Nat. Bank of Englewood, 28 Colo.App. 300, 472 P.2d 703 (1970). ("‘It is well settled that where one secondarily liable is called on to make good on his obligation and pays the debt, he steps into the shoes of the former creditor. He becomes subrogated to all the rights of the creditor against the principal debtor, including the security given to secure the debt.’").
The law as stated in an insurance context is that:
When an insurer reimburses a victim for damages pursuant to a claim under the victim's insurance policy, the insurer enjoys a right to subrogation, under which he can stand in the victim's shoes and collect the reimbursed amount from the party responsible for the damages. Am. Family Mut. Ins. Co. v. DeWitt, 218 P.3d 318, 323 (Colo.2009). The right can arise pursuant to an express provision in the insurance policy—a “conventional” subrogation right—or under principals of equity—an “equitable” subrogation right. Id.
Ferrellgas, Inc. v. Yeiser, 247 P.3d 1022, 1027 (Colo. 2011).
But, the law of subrogation of guarantors is the same as that of insurers, who are both a subset of people who are called "sureties."
Colorado's common law right is referenced obliquely in its statute governing contribution rights (see below) for sureties:
Nothing in sections 13-50-102 to 13-50-104 affects or changes the right of a surety who has paid his proportionate share of an indebtedness of recovering the same from his principal debtor.
Colo. Rev. Stat. Ann. § 13-50-104.
Similarly, in the case of a release of some but not all joint debtors or guarantors, Colorado has a (widely adopted model) statute which states more affirmatively:
In case one or more joint debtors are released, no one of the remaining debtors shall be liable for more than his proportionate share of the indebtedness, unless he is the principal debtor and the debtor released was his surety, in which case the principal debtor is liable for the whole of the remainder of the indebtedness.
Colo. Rev. Stat. Ann. § 13-50-103.
When there are multiple debtors, or multiple guarantors, the obligation is generally joint and several, so that the entire debt may be collected by the creditor from any one of them, not just their fair share of the debt.
But, there is also a common law and statutory right for guarantors who pay more than their fair share of a guarantee obligation upon which there are multiple guarantors to recover the fair share of any guarantor who did not pay their fair share of the guaranteed debt from that other guarantor in an action for contribution.
It is well established that guarantors paying more than their proportionate share of an obligation are entitled to contribution from other guarantors who are jointly and severally liable for the obligation. Taylor v. Hake, 92 Colo. 330, 20 P.2d 546[.]
Stieben v. Korby, 533 P.2d 530, 531 (Colo. App. 1975).
Incidentally, this is an area of law upon which United States law is generally very uniform, even though it is, as most things are in U.S. law, a matter of state law and not a matter of federal law, in most cases.
Yes. Although the details will depend on the jurisdiction, the wording of any documents signed, and any specific statutes regulating the type of contract in question (eg. residential tenancy legislation), subrogation is an old common law principle which applies generally to guarantees, as explained in this article in the Auckland University Law Review (1990):
Upon payment by the surety of the principal debt he is legally entitled to the full rights of subrogation, thereby stepping into the creditor's shoes. This equitable principle was stated in Craythorne v Swinbume (1807) 14 Ves 160, 162; 33 ER 482, 483:
a surety will be entitled to every remedy, which the creditor has against the principal debtor, to enforce every security and all means of payment; to stand in the place of the creditor … [t]his right of a surety ... stands, not upon contract, but upon a principle of natural justice.
This principle generally applies to both guarantees and indemnities.
The modern cases on subrogation, such as Lord Napier and Ettrick v Hunter [1993] AC 713, are quite complicated and tend to involve insurance rather than guarantees. That is because in the ordinary case of a guaranteed debt, the right of subrogation is usually not worth fighting about in court, because it is the right to sue somebody who has already failed to pay their creditors and is likely to become bankrupt.
The guarantor voluntarily agrees to pay money that someone else owes. Unless there is a contract, there is no obligation for the tenant to pay any money back. There was a recent question, and it seemed that a guarantor might even have problems stopping the guaranteed person from running up more unnecessary cost.
Sometimes you have ways to force payment. If you guarantee for your child, you might tell them “pay back the money or all your inheritance will go to cancer research”. Apart from that, nothing you can do. Even a contract doesn’t help if the person has no money to pay you back.
I strongly recommend never to become a guarantor. It is likely to cause loss of money and loss of a friendship. If you want the person to have your money, and you can afford it, give them the cash and consider it a present. If not, give them nothing.
