The Conversion of Guarantee Contracts
| Published date | 01 September 1966 |
| Date | 01 September 1966 |
| DOI | http://doi.org/10.1111/j.1468-2230.1966.tb02258.x |
THE
CONVERSION
OF
GUARANTE,E
CONTRACTS
I.
GUARANTEE
AND
INDEMNITY
MOST
of the discussion about the topic of contracts of guarantee
concerns the ticklish distinction between them and contracts of
indemnity.
This
article does not attempt to deal with this defini-
tively, but to discover some of the tests used
in
that distinction and
apply them
to
a
related but little explored distinction, that between
contracts of guarantee and contracts of insurance.
It
is proper, however, to start with indemnity for two reasons.
First,
it
is
in
this
realm principally that questions concerning
guarantee have come to be tried,
and
so
decisions and dicta deflning
their nature and scope recorded. And second, most contracts
of
insurance operate
in
practice
as
indemnities, and
so
the distinction
becomes
a
necessary part of the analysis.
The most important practical effect of the distinction,
as
is
well
known,
is that guarantee contracts fall under the Statute of
Frauds
1677,
8.
4,
requiring evidence in writing and signed by the
other party before they can be enforced in the courts. Indemnities,
on the other hand, require
no
such evidence, and can be enforced
even when parolly made.
There are some cases where the distinction between them can be
easily made. The editor of Sutton and Shannon solves the problem
with apparent ease.'
"A
guarantee is
a
promise made by
a
guarantor
to
a
creditor
that
if
the debtor does not pay
a
debt,
the guarantor
will
pay
it."
*
('
Contracts of indemnity are contracts
in which the promisor undertakes
a
primary and not
a
secondary
liability.
.
. .
To
put
it
another way,
a
promise to
an
actual or
prospective
debtor
to be answerable for his debt is not within the
statute."
8
From this succinct passage
it
is possible to draw out two different
tests.
Was
the
promisee the debtor
or
the creditor in the prior transaction
?
The
case of
Eastwood
v.
Kengon
is
a
good example of this com-
paratively simple test. In the words
of
Lord Denman:
The first relates to thc shape of the contract.
1
6th od., pp.
u)4-!?QB.
2
Ibid.
p.
u)4.
M
itelice.
.8
Ibid.
p.
u)S.
ditty
07,
Contraoh
(Sand od., para.
1026)
makoe
a
eimilar
statement of tho law. A romiee
to
be liable for
B
dobt
conditionall
on
tho principal debtor making gelault
ie
a
guarantoo.
.
.
.
On
the
other land
a
promiee
to
be liable for
a
dobt whonovor the poreon
to
whom the promiee
was modo should bocomo liable ie
a
contract of indemnity."
4
(1840) 11
Ad.
&
El.
488.
622
To continue reading
Request your trial