(a) define guarantee and explain how it differs from an indemnity contracts. (b) c and d go into a shop. C says to the shopkeeper ‘let him (d) have the goods, and if he does not pay you, i will. What kind of contract is this? would it make any difference in your answer if c said to the shopkeeper ‘let him (d) have the goods, i will see you paid’.

(a) A guarantee is a contract by one person to be answerable for the debts, de-fault or miscarriage of another, in case the latter should fail to perform his engagement. It differs from an indemnity contract in that:

  1. only two parties are necessary in the case of an indemnity, but three parties in the case of a guarantee,
  2.  an indemnifier assumes primary liability to make good a loss, whereas a guarantor is liable only in the event of a default by the principal debtor and is thus only secondarily liable,
  3. an indemnity may be given verbally, but a guarantee to be enforceable at law it must be evidenced in writing,
  4.  a guarantor has no interest in the transaction apart from his promise.

(b) In the first part of the problem where C says to the shopkeeper ‘Let D have the goods, and if he does not pay you, I will’ is undoubtedly a contract of guarantee, and C would be liable to the shopkeeper if D would fail to pay his debt. The shopkeeper however has to show that the guarantee given by C was in writing.

In the second part of the problem C undertakes to be fully responsible to make good a loss suffered by the shopkeeper. In case D would fail to pay, the shopkeeper would succeed against C even though there is no evidence in writing.

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