contract of guarantee

From the finance company's point of view a contract of guarantee is the less satisfactory, for two reasons.

Section 4 now provides that contracts of guarantee (surety for another's debt) are unenforceable unless evidenced in writing.

Now, where a contract is unenforceable against someone merely because he is a minor, a contract of guarantee is enforceable against the guarantor.

Secondly, a contract of guarantee is enforceable only if the principal contract is valid (i.e. the one between the finance company and the customer).

Thus the difference between a contract of guarantee and one of indemnity was vital until section 2 of the Minors' Contracts Act 1987 changed the law.

An example of the latter being the requirement that contract of guarantee be evidenced in writing that is found in the Statute of Frauds.

For example, in a contract of guarantee, the guarantee will often provide that the guarantor either waives their right of subrogation, or agrees not to exercise it unless the bank has completely been paid in full.

Section 6 of the Mercantile Law Amendment Act Scotland 1856 was derived from those parts of section 4 of the Statute of Frauds (1677) which relate to contracts of guarantee and from section 6 of the Statute of Frauds Amendment Act 1828.