Guarantee Claims

What Is a Guarantee?

A useful definition of a guarantee is found in Western Dominion Inv. Co. v. MacMillan, [1925] 2 D.L.R. 442 (Man K.B.).

Reduced to its simplest terms a guaranty is a promise of one man to pay the debt of another if that other defaults. In every case of guaranty there are at least two obligations, a primary and a secondary. The secondary—the guaranty–is based upon the primary, and is enforceable only if the primary defaults. It is so completely dependent upon the unchanged continuance of that primary, that if any, even the slightest, unauthorized changes are made in the primary, as e.g., by extension of time for payment, or by reducing the chances of enforcing payment, as, e.g., by releasing any part of the securities,–the secondary thereby falls to the ground. In other words, the secondary is not only collateral to, but is exactly co-extensive with, the primary, as the primary existed when the secondary came into existence. Lastly, if the secondary obligor pays the debts he is entitled, as of right, to step into the creditor’s shoes.

Guarantee Must Be In Writing

Section 59 of Law and Equity Act, R.S.B.C. 1996, c. 253 requires that both a contract respecting the disposition of land and a guarantee be evidenced in writing:

(3) A contract respecting land or a disposition of land is not enforceable unless

(a) there is, in a writing signed by the party to be charged or by that party’s agent, both an indication that it has been made and a reasonable indication of the subject matter,
(b) the party to be charged has done an act, or acquiesced in an act of the party alleging the contract or disposition, that indicates that a contract or disposition not inconsistent with that alleged has been made, or
(c) the person alleging the contract or disposition has, in reasonable reliance on it, so changed the person’s position that an inequitable result, having regard to both parties’ interests, can be avoided only by enforcing the contract or disposition.

(6) A guarantee or indemnity is not enforceable unless

(a) it is evidenced by writing signed by, or by the agent of, the guarantor or indemnitor, or
(b) the alleged guarantor or indemnitor has done an act indicating that a guarantee or indemnity consistent with that alleged has been made.

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