Editing Guarantee (section)

==Common law==

===England===
In [[English law]], a guarantee is a [[contract]] whereby the person (the guarantor) enters into an agreement to pay a [[debt]], or effect the performance of some duty by a third person who is primarily liable for that payment or performance. The extent of the debt that the guarantor is liable to this debt is co-extensive to the obligation of the third-party.<ref>Joanna Benjamin, Financial Law, OUP, 2007, Chapter 4.2</ref> It is a collateral contract, which does not extinguish the original obligation for payment or performance and is secondary to the primary obligation.<ref>Chitty on Contracts 32nd edition, Sweet & Maxwell, Volume II Chapter 45-001, ''Lakeman v Mountstephen'' [1865] LR 7 HL 17, also cf Halsbury Laws of England & Wales, Para 1013</ref>  It is rendered null and void if the original obligation fails. Two forms of guarantee exists in England:
#guarantees creating a conditional payment, wherein if the principal fails, the guarantor will pay. Under this form, the guarantee is not enforceable until failure occurs.<ref>Joanna Benjamin, Financial Law, OUP, 2007, Chapter 4.2</ref>
#a "see-to-it" obligation, where the guarantor's obligation is to ensure that the principal will carry out the obligation. Failure of the principal to do so will automatically make the guarantor in breach of his contractual obligation, on which the creditor can sue.<ref>Norwich and Peterborough Building Society v McGuinness [2010] EWCA Civ 1286</ref>

The liabilities of a guarantor in law depend upon those of the principal [[debtor]], and when the principal's obligations cease the guarantor's do too,<ref>Norwich and Peterborough Building Society v McGuinness [2010] EWCA Civ 1286. ''See'' Stacey v. Hill, 1 KB 666 (1901). ''See'' Bateson v. Gosling, 1871 L.R. 7, 14</ref> except in certain cases where the discharge of the principal debtor is by the operation of the law.<ref>''With regard to release of the debtor See'' Finley v Connell Associates [2002] Lloyds Rep PN 62 ''or also In re'' Fitzgeorge ''[[ex parte]]'' Robson, 1 KB 462 (1905)</ref> The [[co-extensive]], secondary nature of the liability of the guarantor along with the fact that the guarantee is a contract to answer default, debt, or miscarriage; crucially differentiates the guarantee from an indemnity.<ref>Norwich and Peterborough Building Society v McGuinness [2010] EWCA Civ 1286 ''Also See'' Joanna Benjamin, Financial Law, OUP, 2007, Chapter 4.2</ref> If, for example, a person wrongly supposes that someone is liable to them, and a guarantee is given on that erroneous basis, the guarantee is invalid by virtue of the law of contracts, because its foundation (that another was liable) failed.<ref>Mountstephen v. Lakeman, L.R. 7 Q.B. 202</ref>

No special phraseology is necessary to form a guarantee. What distinguishes a guarantee from [[insurance]] is not any difference between the words "insurance" and "guarantee", but the substance of the contract entered into by the parties.{{sfn|de Colyar|1911|p=652}}<ref>''Seaton'' v. ''Heath''—''Seaton'' v. ''Burnand'', 1 QB 782, 792, C.A. (1899); ''In re Denton's Estate Licenses Insurance Corporation and Guarantee Fund Ltd.'' v. ''Denton'', 2 Ch. 188 (1899); see ''Dane'' v. ''Mortgage Insurance Corporation'', 1 Q.B. 54 C.A. (1894)</ref>

The statutory requisites of a guarantee are, in England, prescribed firstly by the [[statute of frauds]], which provides in section 4 that "no action shall be brought whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriages of another person, unless the agreement upon which such action shall be brought, or some [[memorandum]] or note thereof, shall be in writing and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorized".{{sfn|de Colyar|1911|p=653}} This in effect means that a guarantee is not invalid but are merely unenforceable through a ''chose in personam''.{{clarify|date=November 2022}} The requirement for a signature in writing was clarified in ''Elpis Maritime Co'' v. ''Marti Chartering Co Inc'' (the "Maria D") [1992] 1 AC 21<ref>Swarbrick, D., [https://swarb.co.uk/elpis-maritime-company-limited-v-marti-chartering-company-limited-the-maria-d-hl-1991/ Elpis Maritime Company Limited v Marti Chartering Company Limited (The Maria D): HL 1991], accessed 8 November 2022</ref> and ''J Pereia Fernandes SA'' v. ''Mehta'' [2006] EWHC 813 (Ch). In the former, an agreement had been signed by a party purporting to have signed only as an agent, but this fact was considered insignificant. In the latter, it was held that a contract was enforceable either by written agreement signed by the guarantor or his agent OR; if the guarantee was oral, a separate note or memorandum of the agreement could make the guarantee similarly enforceable. In the former, the court held it was sufficient that it was written or printed by the guarantor, an initial within an email was sufficient but a standard header name in an email was not. The court believed that the minor action was sufficient to engage the Statute as it had long been held that a single fingerprint, or "X" was sufficient. The [[Electronic Communications Act 2000]] created a power to issue statutory instruments to modify legislation so as to be congruent with modern use of electronic communications. This is congruent with Article 9 of the [[Directive on electronic commerce|EU Directive on Electronic Commerce 2000]], this specifically allowed exceptions to the 'in writing' requirement of a guarantee. It has even been held that clicking a button to confirm personal details sufficiently discharges the Statute of Frauds requirement.<ref>Beale and Griffiths (2000) LMCLQ 467, 473</ref>

The second requisite is [[Lord Tenterden's Act]] ([[9 Geo. 4]]. c. 14),<ref>[[9 Geo. 4]]. c. 14 §6</ref> which enacts that "no action shall be brought whereby to charge any person upon or by reason of any representation or assurance made or given concerning or relating to the character, conduct, credit, ability, trade or dealings of any other person, to the intent or purpose that such other person may obtain credit, money or goods upon unless such representation or assurance be made in writing signed by the party to be charged therewith".<ref>i.e. "upon credit", Lyde v. Barnard, 1 M. & W. 104</ref> Lord Tenterden's Act, which applies to [[incorporation (business)|incorporated]] companies and to individual persons,<ref>Hirst v. West Riding Union Banking Co., 2 K.B. 560 C.A. (1901)</ref> was rendered necessary by an evasion of the statute of frauds, treating the guarantee for a debt, default or miscarriage, when not in writing as a fraudulent representation, giving rise to damages for a [[tort]].{{sfn|de Colyar|1911|p=653}}<ref>''Pasley'' v. ''Freeman'', 3 T.R. 51</ref><ref>In Scotland, where a guarantee is called a "cautionary obligation", similar enactments to those just specified are contained in the [[Mercantile Law Amendment Act (Scotland) 1856]] §6.</ref>

====Statute of frauds====
{{Main|Statute of frauds}}
The statute of frauds does not invalidate a verbal guarantee, but renders it unenforceable. It may therefore be available to support a [[defense (legal)|defense]] to an action, and money paid under it cannot be recovered.  An [[indemnity]] is not a guarantee within the statute, unless it contemplates the primary liability of a third person. It need not, therefore, be in writing when it is only a promise to become liable for a debt if the person to whom the promise is made should become liable.{{sfn|de Colyar|1911|p=653}}<ref>''Wildes'' v. ''Dudlow'', L.R. 19 Eq. 198; ''Harburg India-Rubber Co.'' v. ''Martin'', 1902, 1 K.B. 786; ''Guild'' v. ''Conrad'', 1894, 2 Q.B. 885 C.A.</ref>

Neither does the statute apply to the promise of a [[del credere]] agent to make no sales on behalf of his principal except to persons who are absolutely solvent, and renders the agent liable for any loss that may result from the non-fulfilment of his promise. A promise to give a guarantee is within the statute, though not one to procure a guarantee. The general principles which determine what are guarantees within the statute of frauds are: (1) the primary liability of a third person must exist or be contemplated;<ref>''Birkmyr'' v. ''Darnell'', 1 Sm. L.C. 11th ed. 299; ''Mounistephen'' v. ''Lakeman'', L.R. 7 Q.B. 196; L.R. 7 H.L. 17</ref> (2) the promise must be made to the creditor; (3) there must be no liability by the surety independent of an express promise of guarantee; (4) the main object of the parties to the guarantee must be the fulfilment of a third party's obligation;<ref>See ''Harburg India-Rubber Comb Co.'' v. ''Martin'', 1 K.B. 778, 786 (1902)</ref> and (5) the contract entered into must not amount to a [[sales|sale]] by the creditor to the promiser of the security for a debt or of the debt itself.{{sfn|de Colyar|1911|p=653}}<ref>See de Colyar's ''Law of Guarantees and of Principal and Surety'', 3rd ed. pp. 65–161, where these principles are discussed in detail.</ref>

As regards the kind of note or memorandum of the guarantee that will satisfy the statute of frauds, "no special promise to be made, by any person after the passing of this act, to answer for the debt, default or miscarriage of another person, being in writing and signed by the party to be charged, or some other person by him thereunto lawfully authorized, shall be deemed invalid to support an action, suit or other proceeding, to charge the person by whom such promise shall have been made, by reason only that the consideration for such promise does not appear in writing or by necessary inference from a written document."<ref>Mercantile Law Amendment Act 1856 §3</ref> Any writing embodying the terms of the agreement between the parties and signed by the party to be charged is sufficient; and the idea of agreement need not be present to the mind of the person signing.<ref>''In re'' Hoyle - Hoyle v. Hoyle, I Ch., 98 (1893)</ref> It is, however, necessary that the names of the contracting parties should appear somewhere in writing; that the party to be charged, or his agent, should sign the agreement or another paper referring to it; and that, when the note or memorandum is made, a complete agreement shall exist. The memorandum need not be contemporaneous with the agreement itself.{{sfn|de Colyar|1911|p=653}}<ref>As regards the stamping of the memorandum or note of agreement, a guarantee cannot, in England, be given in evidence unless properly stamped. [[Stamp Act]] 1891. A guarantee for the payment of goods, however, requires no stamp. Nor is it necessary to stamp a written representation or assurance as to character within [[9 Geo. 4]]. c. 14.  If under seal, a guarantee may require an [[ad valorem]] [[Revenue stamp|stamp]]; and, on certain prescribed terms, the stamps can be affixed any time after execution. Stamp Act 1891, 15, amended by 15 of the Finance Act 1895</ref>

===United States===
In the United States, but not apparently elsewhere, there is a distinction between a '''surety''' and a '''guarantor'''. A surety is usually bound with the principal, at the same time and on the same [[consideration]], while the contract of a guarantor is his own separate undertaking and the guarantor is not liable until [[due diligence]] has been exerted to compel the principal debtor to make good any default. There is no [[privity of contract]] between a surety and the principal debtor. Rather, the surety contracts with the creditor and is not jointly liable to the creditor.{{sfn|de Colyar|1911|p=652}}<ref>''Bain'' v. ''Cooper'', 1 Dowl. R. (N.S.) 11, 14</ref>

===Other common law jurisdictions===
In India, a guarantee may be either oral or written,<ref>[[Indian Contract Act, 1872]], §126</ref> while in [[Australia]], [[Jamaica]] and [[Sri Lanka]] it must be in writing.

The [[Law of the Republic of Ireland|Irish Statute of Frauds]]<ref>7 Will. 3. c. 12 (Ir.)</ref> has provisions identical to those found in the English Statute of Frauds.{{sfn|de Colyar|1911|p=653}}