Guarantees

A contract of guarantee must be in writing and signed by the party to be charged in order to be enforceable. No action may be brought upon any promise to guarantee any liability of another unless the promise upon which such action is brought, or some memorandum or note of the promise, is in writing, and signed by the party to be charged, or by some other person by the party lawfully authorised. Section 56(1) of the Property Law Act 1971 (Qld)

Nature of Guarantee
A contract to answer for the debt, default or miscarriage of another who is primarily liable to the promisee. Yoeman Credit Ltd v Latter

Transactions which are not guarantees

Transactions that are not guarantees will not have to comply with the statutory requirements of formalities. a) Contracts of indemnity In an indemnity, the surety undertakes primary liability, rather than secondary liability, meaning that the surety will be liable notwithstanding that the principal transaction is unenforceable Yeoman Credit Ltd v Latter b) Promise of guarantee made to the debtor It is possible for a person to promise the principal obligator (the debtor), rather than the creditor, that he or she will pay the debt of the debtor. As the promise is not made to the person with whom the principal obligor contracts, the contract is not one of guarantee Eastwood v Kenyon a) Person agrees to take over the debt of another Where a debtor and creditor have entered into a contract of loan, it could occur that a third party agrees with the creditor to take over the debt of the debtor. Such an arrangement is not a contract of guarantee and therefore need not comply with the statutory requirement of formality. Gray v Pearson b) The agreement imposes no personal liability on the person

If a person does not undertake personal liability, but instead proffers his or her property as security to the promisee under the principal transaction it is not a guarantee. Harvey v Edwards, Dunlop & Co Ltd c) Letters of comfort Whether the letter of comfort is binding as a contractual document, so that he third party may be called upon to pay, depends on the construction of the document. Frequently the issue is whether there was an intention by the parties, namely the third party and the lender, to create legal relations. Banque Brussels Lambert SA v Australian National Industries Ltd

Requirement of writing: content

For a contract of guarantee to be enforceable the relevant statutory provision requires either the promise is to be in writing, or some memorandum or not of the promise is to be in writing. The provision does not, however, elaborate on precisely the information that must be contained in the writing to satisfy the statutory requirement. Property Law Act 1974 (Qld) Guidance from case law, in Harvey v Edwards Dunlop & Co, provides that the document must contain all essential terms of the agreement. a) Information particular to the guarantee First, the guarantee must contain the names of the relevant parties: the lender, the debtor and the guarantor. It may happen that the guarantee makes reference to a party without expressly identifying them. Authorities suggest that even if a party is not expressly identified, a description of the party will be sufficient if the description used can be explained by extrinsic evidence without having to resort to evidence to prove the intention of the author. Rosser v Austral Wine & Spirit Co Secondly, the relevant terms of the guarantee must be stated. This would generally require the amount of debt being guaranteed must be specified. If the guarantee is given of the amount advanced by the lender together with interest on that amount, the interest payable by the debtor should also be specified. There are two other important caveats to the general proposition that a guarantee must contain all of these essential terms.

First, while the lender must provide valuable consideration to the guarantor for a valid contract of guarantee to be formed, the nature of that consideration will not be required to be contained in the guarantee. Property Law Act 1974 (Qld) s 56(2) Second, where a material term has been omitted from the guarantee, there may be limited circumstances in which the guarantee will still be enforceable against the guarantor for example, if the term is for the benefit of the lender, the lender will be entitled to waive the benefit of the oral term not reduced to writing to enforce the guarantee as modified (Eg. A waiver to collect interest on the amount owed if details of the interested are omitted) Hawkins v Price b) Acknowledgement of the agreement The writing must contain an acknowledgement of a concluded agreement. Pirie v Saunders Tiverton Estates Ltd v Wearwell Ltd

Requirement of writing: signed by party to be charged or agent

To satisfy the statutory provision, the promise or note or memorandum of the promise must be signed by the party to be charged, or by some other person by the party lawfully authorised. (Upon the debtors default, the lender will seek to enforce the guarantee against the guarantor. Therefore, it is the guarantor who is the party to be charged within the meaning of the provision. To satisfy the formalities requirement, therefore, the guarantee must be signed by the guarantor). Property Law Act 1974 (Qld) To apply this principle in the context of a guarantee, if the guarantors name appears on the guarantee, and it is the guarantors intention that the name authenticates the document, it will be sufficient to satisfy the statutory requirement. Durrell v Evans