When is a promise to pay someone’s bills not a guarantee? (Court of Appeal)
The Court of Appeal (King LJ, Richards LJ and Flaux LJ) has held that an agreement by a son-in-law to give his father-in-law money to pay legal fees was not a guarantee but a primary obligation. As Mr Singh could not afford to pay the legal fees it was agreed by his son-in-law, Mr Abbhi, at a meeting with their solicitor, Mr Slade, that Mr Abbhi would pay these. To avoid becoming liable for any cost order arising from litigation, Mr Abbhi agreed to transfer the funds to Mr Singh for the purpose of paying legal fees as they arose. The agreement was not put in writing.
When Mr Singh died his estate was insolvent, and there were substantial legal fees owing to Mr Slade. Mr Abbhi argued that the arrangement to pay the legal fees constituted an oral guarantee and was, therefore, unenforceable as it did not comply with the requirements of section 4 of the Statute of Frauds 1677.
The court unanimously held that the agreement was not a guarantee because it was known at the outset that Mr Singh could not cover the fees, and Mr Abbhi would, in fact, be providing the funds. There was never any suggestion of Mr Singh being capable of paying the fees himself. Therefore, the agreement constituted a primary obligation because Mr Abbhi’s obligation to pay the fees did not rely on any default by Mr Singh. As the agreement was a primary obligation, not a guarantee, it was valid and binding even though it was not in writing (or recorded in writing) or signed.
The most obvious message of this case is to put agreements like this in writing and ensure that they are signed so that arguments over whether they amount to an indemnity and so are enforceable despite not being in writing are avoided. This case is also a reminder that the distinction between a guarantee and an indemnity is an extremely fine one. (Abbhi v Slade (trading as Richard Slade And Company)  EWCA Civ 2175.)