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Lawbite: Does an oral promise to pay amount to a guarantee?

  • United Kingdom
  • Litigation and dispute management
  • Real estate dispute resolution
  • Real estate litigation - LawBite

16-01-2020

Deepak Abbhi v Richard John Slade (trading as Richard Slade & Co) [2019] EWCA Civ 2175

The Court of Appeal recently unanimously held that an oral promise by a son-in-law to give money to his father-in-law to pay legal fees was an indemnity and not a guarantee, and as such enforceable.

Mr Abbhi’s father-in-law wanted to instruct Mr Slade as his solicitor but could not afford to pay his fees.  Mr Abbhi therefore met with Mr Slade and assured him that he would pay Mr Slade’s fees and disbursements.  The arrangement was that Mr Abbhi would give the money to Mr Singh in time for him to pay Mr Slade’s bills as they arose. The agreement was not put in writing.

Following Mr Singh’s death (leaving an insolvent estate) Mr Slade requested that Mr Abbhi pay his outstanding fees and disbursements in accordance with their agreement. Mr Abbhi refused, however, stating that there was no agreement or, in the alternative, even if there was an agreement, it was an oral guarantee and therefore unenforceable because of s.4 of the Statute of Frauds Act 1677.

Mr Slade successfully argued in the High Court that the agreement did not need to comply with s.4 because it was a funding agreement and fee indemnity rather than a guarantee and the Court of Appeal agreed. 

On the facts, all parties knew that Mr Singh could not afford to pay the legal fees and this was not an arrangement whereby Mr Abbhi promised to pay only if Mr Singh failed to pay. The Court of Appeal pointed out that not every promise to pay the fees of another is a guarantee and could instead be an indemnity or primary obligation.  Such a primary obligation was valid and binding even though it was not in writing or signed.

Key points

  • s.4 of the Statute of Frauds Act renders certain agreements, e.g. guarantees, unenforceable unless they are in writing.  Other forms of oral contracts, e.g. indemnities, however can be enforceable.  The distinction is, therefore, important
  • It is always best to record in writing and sign agreements to limit arguments as to their enforceability but crucial also to appreciate that some types of arrangement require compliance with specific requirements (e.g. signed in a particular way) before they can be binding.