GUARANTEE. GUARANTY. (French gctrantir, to warrant.) A guarantee is an undertaking by one person (called the guarantor) given to a banker the creditor), to be answerable for the debt of another person (the debtor) to the banker, upon default of the debtor.
In order to be enforceable at law, a guarantee must be in writing. By the Statute of Frauds (29 Car. I I. c. 3), Section 4, it is enacted that " no action shall he 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 sonic memoran dum or note thereof shall be in writing and signed by the party to he charged therewith, or sonic other person thereunto by him lawfully authorised." A guarantee is a very convenient form of security, and because of the ease with which it can be given a banker should be careful to make clear to a proposed surety the nature of the document he has to sign, so that he may not afterwards plead that he did not understand its contents.
A contract of suretyship should be entered into freely and voluntarily by the guarantor. " Everything like pressure used by the intending creditor will have a very serious effect on the validity of the contract " (Mr. justice Fry in Davies y. London and Provincial Marine Insurance Company, 1S7S. S Ch. D. -169).
In an ordinary case a banker is not obliged to give information, voluntarily, to a proposed surety, regarding the debtor's affairs. " Unless questions are particularly put by the surety to gain this information, I hold that it is quite unnecessary for the creditor, to whom the suretyship is given, to make any such disclosure " (Lord Campbell. in Hamilton v. lralson, 1845, 12 Cl. & F. 109).
If a guarantor inquires as to the extent of his liability upon the account for which he is surety, he is entitled to the information, but a banker should not exhibit the debtor's account to a surety or give details regarding it.
When a guarantor is proposed, it is a banker's duty to consider whether he is sufficient for the liability, and whether from his business and position he is likely to continue, in every way, a satisfactory surety. For instance, could he discharge the guar antee with ease, or would it render him practically penniless to pay the amount ? Is he under any other liabilities to the bank, and is he likely to have signed a guarantee for a friend at any other bank ? When a person signs a guarantee he does not expect that he will ever be called upon to pay it ; but a banker should look upon the trans action from quite the opposite point of view, and should try to realise what the position will be, assuming that the guarantor will be required to meet the liability.
A man may be well able to meet all demands which may be made upon him in connection with his own business or his own private affairs, but it is quite another matter when he has to provide a substantial sum to pay the debts of someone else. In estimating the value of any one as a surety the point is, as George Rac puts it in " The Country Banker " : " Not what you might be able to squeeze out of him by process of exhaustion, but what he could at any time pay, over and above his other engagements, without serious inconvenience or detriment to himself. That is the true meaning of his fitness as a surety ; and if you take him for more than this, you may do him a fatal disservice, and possibly lay the foundation of a bad debt for yourselves." A lady is not, as a rule, regarded as a suitable surety.
A guarantee may take the form of a bond or a guarantee under seal, in which cases an ad valorem stamp of 2s. 6d. per cent. is required. The usual form, however, is a guarantee under hand. The stamp duty on a guarantee under hand is sixpence (see AGREEMENT). The stamp may be either impressed or adhesive ; if adhesive, it must be cancelled by the first person signing the guarantee. If the document has been signed before being stamped, the stamp may be impressed within fourteen days from its date. If a guarantee is sealed by a company, the document is subject to ad valorem duty of 2s. 6d. per cent. (See Bo:cp.) It is essential that a guarantee form should be most carefully drawn so as to create an effective security, and most bankers have now their own printed forms of guarantees drafted so as to meet, as far as possible, the various requirements of a good and complete guarantee.