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Be careful what you say when promising to pay someone else's debt

By Telise Kelly - 10 May 2019

Many people aren't aware that, in certain circumstances, you can be held legally responsible for other people's debts just on a simple promise to pay - whether given verbally, in a text or an email.

Most people are familiar with the term 'guarantor'. This is someone who 'guarantees' to pay for someone else's debt. That debt might be a loan, credit contract, or even an invoice which has not been paid. If you agree to be a guarantor then you are taking on a serious risk and will be responsible for paying a debt if the creditor (borrower) can't or won't. Most people are familiar with the idea of family members agreeing to be a guarantor on a home loan - the bank will insist that the guarantor sign a lengthy guarantee document and receive independent legal advice on it.

A guarantee is just like any contract - it can be created by offer, acceptance and the exchange of value:

  1. No special words are necessary to create a contract of guarantee. Words like " I'll see you paid" have been held to be an offer of guarantee.
  2. Value can be almost anything. A guarantee might be offered in circumstances where a head contractor has gone under and the homeowner is desperate to keep their subcontractors on-site. If the subcontractor agrees to stay on-site because of the homeowner's offer to make sure the subcontractor is paid, the homeowner has received value for their promise to pay (keeping the subcontractor) and a contract can be shown.
  3. The guarantee cannot be entered into under "duress" - that is, the party giving the guarantee cannot be put in a position where they are effectively forced to do so.

So be careful what you promise! It might feel like a friendly or 'off the cuff' comment, but promising to cover someone else's debt might cause you significant financial pain.

If you think you may have an enforceable promise to pay contact Telise Kelly.

 

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