Page:EB1911 - Volume 12.djvu/677

 widespread medium of communication, and in a corrupted form is still the common language in Paraguay.

GUARANTEE (sometimes spelt “guarantie” or “guaranty”; an O. Fr. form of “warrant,” from the Teutonic word which appears in German as wahren, to defend or make safe and binding), a term more comprehensive and of higher import than either “warrant” or “security,” and designating either some international treaty whereby claims, rights or possessions are secured, or more commonly a mere private transaction, by means of which one person, to obtain some trust, confidence or credit for another, engages to be answerable for him.

In English law, a guarantee is a contract to answer for the payment of some debt, or the performance of some duty, by a third person who is primarily liable to such payment or performance. It is a collateral contract, which does not extinguish the original liability or obligation to which it is accessory, but on the contrary is itself rendered null and void should the latter fail, as without a principal there can be no accessory. The liabilities of a surety are in law dependent upon those of the principal debtor, and when the latter cease the former do so likewise (per Collins, L.J., in Stacey v. Hill, 1901, 1 K.B., at p. 666; see per Willes, J., in Bateson v. Gosling, 1871, L.R. 7 C.P., at p. 14), except in certain cases where the discharge of the principal debtor is by operation of law (see In re Fitzgeorge—ex parte Robson, 1905, 1 K.B. p. 462). If, therefore, persons wrongly suppose that a third person is liable to one of them, and a guarantee is given on that erroneous supposition, it is invalid ab initio, by virtue of the lex contractûs, because its foundation (which was that another was taken to be liable) has failed (per Willes, J., in Mountstephen v. Lakeman, L.R. 7 Q.B. p. 202). According to various existing codes civil, a suretyship, in respect of an obligation “non-valable,” is null and void save where the invalidity is the result of personal incapacity of the principal debtor (Codes Civil, France and Belgium, 2012; Spain, 1824; Portugal, 822; Italy, 1899; Holland, 1858; Lower Canada, 1932). In some countries, however, the mere personal incapacity of a son under age to borrow suffices to vitiate the guarantee of a loan made to him (Spain, 1824; Portugal, 822, s. 2, 1535, 1536). The Egyptian codes sanction guarantees expressly entered into “in view of debtor’s want of legal capacity” to contract a valid principal obligation ( Egyptian Codes, Mixed Suits, 605; Native Tribunals, 496). The Portuguese code (art. 822, s. 1) retains the surety’s liability, in respect of an invalid principal obligation, until the latter has been legally rescinded.

The giver of a guarantee is called “the surety,” or “the guarantor”; the person to whom it is given “the creditor,” or “the guarantee”; while the person whose payment or performance is secured thereby is termed “the principal debtor,” or simply “the principal.” In America, but not apparently elsewhere, there is a recognized distinction between “a surety” and “a guarantor”; the former being usually bound with the principal, at the same time and on the same consideration, while the contract of the latter is his own separate undertaking, in which the principal does not join, and in respect of which he is not to be held liable, until due diligence has been exerted to compel the principal debtor to make good his default. There is no privity of contract between the surety and the principal debtor, for the surety contracts with the creditor, and they do not constitute in law one person, and are not jointly liable to the creditor (per Baron Parke in Bain v. Cooper, 1 Dowl. R. (N.S.) 11, 14).

No special phraseology is necessary to the formation of a guarantee; and what really distinguishes such a contract from one of insurance is not any essential difference between the two forms of words insurance and guarantee, but the substance of the contract entered into by the parties in each particular case (per Romer, L.J., in Seaton v. Heath—Seaton v. Burnand, 1899, 1 Q.B. 782, 792, C.A.; per Vaughan Williams, L.J., in In re Denton’s Estate Licenses Insurance Corporation and Guarantee Fund Ltd. v. Denton, 1904, 2 Ch., at p. 188; and see Dane v. Mortgage Insurance Corporation, 1894, 1 Q.B. 54 C.A.) In this connexion it may be mentioned that the different kinds of suretyships have been classified as follows: (1) Those in which there is an agreement to constitute, for a particular purpose, the relation of principal and surety, to which agreement the creditor thereby secured is a party; (2) those in which there is a similar agreement between the principal and surety only, to which the creditor is a stranger; and (3) those in which, without any such contract of suretyship, there is a primary and a secondary liability of two persons for one and the same debt, the debt being, as between the two, that of one of those persons only, and not equally of both, so that the other, if he should be compelled to pay it, would be entitled to reimbursement from the person by whom (as between the two) it ought to have been paid (per Earl of Selborne, L.C., in Duncan Fox and Co. v. North and South Wales Bank, 6 App. Cas., at p. 11). According to several codes civil sureties are made divisible into conventional, legal and judicial (Fr. and Bel., 2015, 2040 et seq.; Spain, 1823; Lower Canada, 1930), while the Spanish code further divides them into gratuitous and for valuable consideration (art. 1, 823).

In England the common-law requisites of a guarantee in no way differ from those essential to the formation of any other contract. That is to say, they comprise the mutual assent of two or more parties, competency to contract, and, unless the guarantee be under seal, valuable consideration. An offer to guarantee is not binding until it has been accepted, being revocable till then by the party making it. Unless, however, as sometimes happens, the offer contemplates an express acceptance, one may be implied, and it may be a question for a jury whether an offer of guarantee has in fact been accepted. Where the surety’s assent to a guarantee has been procured by fraud of the person to whom it is given, there is no binding contract. Such fraud may consist of suppression or concealment or misrepresentation. There is some conflict of authorities as to what facts must be spontaneously disclosed to the surety by the creditor, but it may be taken that the rule on the subject is less stringent than that governing insurances upon marine, life and other risks (The North British Insurance Co. v. Lloyd, 10 Exch. 523), though formerly this was denied (Owen v. Homan, 3 Mac. & G. 378, 397). Moreover, even where the contract relied upon is in the form of a policy guaranteeing the solvency of a surety for another’s debt, and is therefore governed by the doctrine of uberrima fides, only such facts as are really material to the risk undertaken need be spontaneously disclosed (Seaton v. Burnand—Burnand v. Seaton, 1900, A.C. 135). As regards the competency of the parties to enter into a contract of guarantee, this may be affected by insanity or intoxication of the surety, if known to the creditor, or by disability of any kind. The ordinary disabilities are those of infants and married women—now in England greatly mitigated as regards the latter by the Married Women’s Property Acts, 1870 to 1893, which enable a married woman to contract, as a feme sole, to the extent of her separate property. Every guarantee not under seal must according to English law have a consideration to support it, though the least spark of one suffices (per Wilmot, J., in Pillan v. van Mierop and Hopkins, 3 Burr., at p. 1666; Haigh v. Brooks, 10 A. & E. 309; Barrell v. Trussell, 4 Taunt. 117), which, as in other cases, may consist either of some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. In some guarantees the consideration is entire—as where, in consideration of a lease being granted, the surety becomes answerable for the performance of the covenants; in other cases it is fragmentary, i.e. supplied from time to time—as where a guarantee is given to secure the balance of a running account at a banker’s, or a balance of a running account for goods supplied (per Lush, L.J., in Lloyd’s v. Harper, 16 Ch. Div., at p. 319). In the former case, the moment the lease is granted there is nothing more for the lessor to do, and such a guarantee as that of necessity runs on throughout the duration of the lease and is irrevocable. In the latter case, however, unless the guarantee stipulates to the contrary, the surety may at any time terminate his liability under the guarantee as to future 