Why do formalities exist
• Originates from Statute of Frauds 1677
o UK legislation
o "Party to be charged" = the party who is denying existence of contract
o Inability to prove case coz couldn't submit evi in your favour = bogus claims of
contract
• Protect people from fraud by requiring certain agreements to be in writing
• Property Law Act 1974 (Qld) based on UK legislation
o PLA = property law act
o Requires contracts considering guarantees and sale/disposition of land to be in
writing (or if implied must have written evi of it) and signed by party to be charged
• S56 = guarantees
• S59 = disposition of an interest in land
o If not the contract isn't enforceable
• Doesn't mean there's no contract
Guarantee
• Statutory requirement for contract of guarantee to be in writing and signed by PTBC to be
enforceable
o S56(1) of PLA illustrates provisions
• No action may be brought upon promise to guarantee liability of another
unless the promise the action is brough (or some memorandum or note of
promise) is in writing, signed by PTBC or by some party lawfully authorised
What is it
• Contract of guarantee = "contract to answer for debt, default or miscarriage of another who
is to be primarily liable to the promisee".
o Yeoman Credit Ltd v Latter [1961] 1 WLR 828, 831
• Primary liability = borrower
• Guarantor
o Provides guarantee
o Aka surety
o Accept secondary liability for failure to make repayments and meet loan
• Satisfies financier - backup for recovering debt should primary liability party
not be able to pay
• 2 separate transactions where guarantee is given
o Principal transaction - guarantee given of a person's obligations under contract of
loan
• Loan contract entered into between lender and debtor
• Debtor = primary liable under contract of loan
o Secondary transaction - contract of guarantee entered into between lender and
guarantor
• Guarantor = secondarily liable to lender
• Liability of guarantor arises if principal transaction is valid and there has
been default under principal transaction
▪ If not, transaction cannot be enforced against debtor and guarantor
isn't liable under guarantee
• Guarantor promises lender that if debtor defaults, they will pay lender the amount due
• Obtained when creditor is concerned debtor may be unable to meet their contractual
liability under principal transaction
, What is not a guarantee
Indemnity
• Same effects as guarantee
• Diff = indemnity - guarantor undertakes primary liability
o Guarantor may be liable notwithstanding principal transaction is unenforceable
o Yeoman Credit v Latter
A promise of guarantee made to debtor
• Person promising principal obligor (debtor) that they will pay their debt
o Promise not made to person whom principal obligor contracts (lender) = not
guarantee
Person agrees to take debt of another
• Debtor and creditor entered into contract of loan and 3P agree w/ creditor to take over debt
of debtor
o Not guarantee
o Gray v Pearson
Agreement that imposes no personal liability
• Guarantee = guarantor is personally liable if principal transaction
• Not guarantee = no personal liability but proffers their property as security to promisee
under principal transaction
o Harvey v Edwards, Dunlop & Co Ltd (1927) 39 CLR 302 - HC case
Letter of comfort
• When 3P not prepared to provide lender with guarantee = compromise
o 3P provide lender w/ assurance about likelihood of debtor meeting obligations
under principal contract
• Assurance = letters of comfort
o Given by director/shareholder where advance is made to company OR by holding
company where advance is made to a subsidiary company
o Contains info
• 3P is aware of facility lender is providing debtor
• Terms of facility are accepted with consent and knowledge of 3P
• It is policy of 3P (if its holding company and advance is to subsidiary
company) to ensure debtor is at all times in position to meet liabilities when
they fall due
o Letter being binding depends on construction of document
• Being bound = 3P may be called upon to pay pursuant to letter
• Issues w/ intention to be legally bound
• Originates from Statute of Frauds 1677
o UK legislation
o "Party to be charged" = the party who is denying existence of contract
o Inability to prove case coz couldn't submit evi in your favour = bogus claims of
contract
• Protect people from fraud by requiring certain agreements to be in writing
• Property Law Act 1974 (Qld) based on UK legislation
o PLA = property law act
o Requires contracts considering guarantees and sale/disposition of land to be in
writing (or if implied must have written evi of it) and signed by party to be charged
• S56 = guarantees
• S59 = disposition of an interest in land
o If not the contract isn't enforceable
• Doesn't mean there's no contract
Guarantee
• Statutory requirement for contract of guarantee to be in writing and signed by PTBC to be
enforceable
o S56(1) of PLA illustrates provisions
• No action may be brought upon promise to guarantee liability of another
unless the promise the action is brough (or some memorandum or note of
promise) is in writing, signed by PTBC or by some party lawfully authorised
What is it
• Contract of guarantee = "contract to answer for debt, default or miscarriage of another who
is to be primarily liable to the promisee".
o Yeoman Credit Ltd v Latter [1961] 1 WLR 828, 831
• Primary liability = borrower
• Guarantor
o Provides guarantee
o Aka surety
o Accept secondary liability for failure to make repayments and meet loan
• Satisfies financier - backup for recovering debt should primary liability party
not be able to pay
• 2 separate transactions where guarantee is given
o Principal transaction - guarantee given of a person's obligations under contract of
loan
• Loan contract entered into between lender and debtor
• Debtor = primary liable under contract of loan
o Secondary transaction - contract of guarantee entered into between lender and
guarantor
• Guarantor = secondarily liable to lender
• Liability of guarantor arises if principal transaction is valid and there has
been default under principal transaction
▪ If not, transaction cannot be enforced against debtor and guarantor
isn't liable under guarantee
• Guarantor promises lender that if debtor defaults, they will pay lender the amount due
• Obtained when creditor is concerned debtor may be unable to meet their contractual
liability under principal transaction
, What is not a guarantee
Indemnity
• Same effects as guarantee
• Diff = indemnity - guarantor undertakes primary liability
o Guarantor may be liable notwithstanding principal transaction is unenforceable
o Yeoman Credit v Latter
A promise of guarantee made to debtor
• Person promising principal obligor (debtor) that they will pay their debt
o Promise not made to person whom principal obligor contracts (lender) = not
guarantee
Person agrees to take debt of another
• Debtor and creditor entered into contract of loan and 3P agree w/ creditor to take over debt
of debtor
o Not guarantee
o Gray v Pearson
Agreement that imposes no personal liability
• Guarantee = guarantor is personally liable if principal transaction
• Not guarantee = no personal liability but proffers their property as security to promisee
under principal transaction
o Harvey v Edwards, Dunlop & Co Ltd (1927) 39 CLR 302 - HC case
Letter of comfort
• When 3P not prepared to provide lender with guarantee = compromise
o 3P provide lender w/ assurance about likelihood of debtor meeting obligations
under principal contract
• Assurance = letters of comfort
o Given by director/shareholder where advance is made to company OR by holding
company where advance is made to a subsidiary company
o Contains info
• 3P is aware of facility lender is providing debtor
• Terms of facility are accepted with consent and knowledge of 3P
• It is policy of 3P (if its holding company and advance is to subsidiary
company) to ensure debtor is at all times in position to meet liabilities when
they fall due
o Letter being binding depends on construction of document
• Being bound = 3P may be called upon to pay pursuant to letter
• Issues w/ intention to be legally bound
