advances, &c. The consideration for a guarantee must not be
past or executed, but on the other hand it need not comprise a
direct benefit or advantage to either the surety or the creditor,
but may solely consist of anything done, or any promise made,
for the benefit of the principal debtor. It is more frequently
executory than concurrent, taking the form either of forbearance
to sue the principal debtor, or of a future advance of money or
supply of goods to him.
By the Indian Contract Act 1872, sect. 127, it is provided that the consideration for a guarantee may consist of anything done or any promise made for the benefit of the principal debtor by the creditor. Total failure of the consideration stipulated for by the party giving a guarantee will prevent its being enforced, as will also the existence of an illegal consideration. Though in all countries the mutual assent of two or more parties is essential to the formation of any contract (see e.g. Codes Civil, Fr. and Bel. 1108; Port. 643, 647 et seq.; Spain, 1258, 1261; Italy, 1104; Holl. 1356; Lower Canada, 984), a consideration is not everywhere regarded as a necessary element (see Pothier’s Law of Obligations, Evans’s edition, vol. ii. p. 19). Thus in Scotland a contract may be binding without a consideration to support it (Stair i. 10. 7).
The statutory requisites of a guarantee are, in England, prescribed by (1) the Statute of Frauds, which, with reference to guarantees, provides 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,” and (2) Lord Tenterden’s Act (9 Geo. IV. c. 14), which by § 6 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” (i.e. “upon credit,” see per Parke, B., in Lyde v. Barnard, 1 M. & W., at p. 104), “unless such representation or assurance be made in writing signed by the party to be charged therewith.” This latter enactment, which applies to incorporated companies as well as to individual persons (Hirst v. West Riding Union Banking Co., 1901, 2 K.B. 560 C.A.), was rendered necessary by an evasion of the 4th section of the Statute of Frauds, accomplished by treating the special promise to answer for another’s debt, default or miscarriage, when not in writing, as required by that section, as a false and fraudulent representation concerning another’s credit, solvency or honesty, in respect of which damages, as for a tort, were held to be recoverable (Pasley v. Freeman, 3 T.R. 51). In Scotland, where, it should be stated, a guarantee is called a “cautionary obligation,” similar enactments to those just specified are contained in § 6 of the Mercantile Law Amendment Act (Scotland) 1856, while in the Irish Statute of Frauds (7 Will. III. c. 12) there is a provision (§ 2) identical with that found in the English Statute of Frauds. In India a guarantee may be either oral or written (Indian Contract Act, § 126), while in the Australian colonies, Jamaica and Ceylon it must be in writing. The German code civil requires the surety’s promise to be verified by writing where he has not executed the principal obligation (art. 766), and the Portuguese code renders a guarantee provable by all the modes established by law for the proof of the principal contract (art. 826). According to most codes civil now in force a guarantee like any other contract can usually be made verbally in the presence of witnesses and in certain cases (where for instance considerable sums of money are involved) sous signature privée or else by judicial or notarial instrument (see Codes Civil, Fr. and Bel. 1341; Spain, 1244; Port. 2506, 2513; Italy, 1341 et seq.; Pothier’s Law of Obligations, Evans’s ed. i. 257; Burge on Suretyship, p. 19; van der Linden’s Institutes of Holland, p. 120); the French and Belgian Codes, moreover, provide that suretyship is not to be presumed but must always be expressed (art. 2015).
The Statute of Frauds does not invalidate a verbal guarantee, but renders it unenforceable by action. It may therefore be available in support of a defence 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 a mere promise to become liable for a debt, whenever the person to whom the promise is made should become liable (Wildes v. Dudlow, L.R. 19 Eq. 198; per Vaughan Williams, L.J. in Harburg India-Rubber Co. v. Martin, 1902, 1 K.B. p. 786; Guild v. Conrad, 1894, 2 Q.B. 885 C.A.). Neither does the statute apply to the promise of a del credere agent, which binds him, in consideration of the higher commission he receives, to make no sales on behalf of his principal except to persons who are absolutely solvent, and renders him liable for any loss that may result from the non-fulfilment of his promise. A promise to give a guarantee is, however, within the statute, though not one to procure a guarantee.
The general principles which determine what are guarantees within the Statute of Frauds, as deduced from a multitude of decided cases, are briefly as follows: (1) the primary liability of a third person must exist or be contemplated as the foundation of the contract (Birkmyr v. Darnell, 1 Sm. L.C. 11th ed. p. 299; Mountstephen v. Lakeman, L.R. 7 Q.B. 196; L.R. 7 H.L. 17); (2) the promise must be made to the creditor; (3) there must be an absence of all liability on the part of the surety independently of his express promise of guarantee; (4) the main object of the transaction between the parties to the guarantee must be the fulfilment of a third party’s obligation (see Harburg India-rubber Comb Co. v. Martin, 1902, 1 K.B. 778, 786); and (5) the contract entered into must not amount to a sale by the creditor to the promiser of a security for a debt or of the debt itself (see de Colyar’s Law of Guarantees and of Principal and Surety, 3rd ed. pp. 65-161, where these principles are discussed in detail by the light of decided cases there cited).
As regards the kind of note or memorandum of the guarantee that will satisfy the Statute of Frauds, it is now provided by § 3 of the Mercantile Law Amendment Act 1856, that “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 therewith, 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.” Prior to this enactment, which is not retrospective in its operation, it was held in many cases that as the Statute of Frauds requires “the agreement” to be in writing, all parts thereof were required so to be, including the consideration moving to, as well as the promise by, the party to be charged (Wain v. Walters, 5 East, 10; Sounders v. Wakefield, 4 B. & Ald. 595). These decisions, however, proved to be burdensome to the mercantile community, especially in Scotland and the north of England, and ultimately led to the alteration of the law, so far as guarantees are concerned, by means of the enactment already specified. 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 (per Lindley, L.J., in In re Hoyle—Hoyle v. Hoyle, 1893, 1 Ch., at p. 98). 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 memorandum or note of agreement, or else should sign another paper referring thereto; and that, when the note or memorandum is made, a complete agreement shall exist. Moreover, the memorandum must have been made before action brought, though it need not be contemporaneous with the agreement itself. 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, being
