Lawrence v. Fox.
Citation: 20 N.Y. 268; 1859 N.Y. LEXIS 192
The Plaintiff, Holly decided to loan the money to a person on the guarantee of the defendant, and therefore, the defendant is obligated to pay the amount because the contract that she helped create did not materialized as intended so she had to bear the costs of her actions. The defendant’s side however claimed that he does not have to do anything about the issue of nonpayment because he was not a direct and contributing party to the contract, and therefore , the motion against qualify as a wrongly developed case. The contractual obligation the plaintiff is claiming to have on the defendant is void.
The legal issues at stake appeared to be very simple at the first glance, and the court summarized that the defendant acted as a guarantor during the creation of the contract, and upon nonpayment he became responsible for compensating the injured party (Summers, 196) because the person placed trust on the defendant, and by look of the affairs, the contract actually occurred between the defendant and plaintiff. The element of trust is the cornerstone of every contract, and that was present between the two abovementioned parties while the development of the contract was taking place.
The court argued that the defendant was indeed a party to the contract, and therefore, he had the ethical and legal duty to compensate the injured party because the lending party decided to go ahead with the agreement due to forceful and trusted presence of the defendant that he is right now not willing to acknowledge (Landa, 356). However, he has to accept his responsibility in this regard, and he has to pay the principle amount along with due interest in order to provide for the capital losses those the plaintiff may have suffered during the conduction of legal proceedings of the case.
Opinion of the Court
The court held to the view that the guarantor does qualify as the party to the contract that he helped during the creation, and his involvement made a defining impact on the intentions of lending party, and now, the defendant cannot escape from his duties in the light of an agreement that is forcible by law as well. The judge also acknowledged that major parties of the affair were debtor and creditor, but upon breach of the contract the compensational responsibilities shifted from the shoulders of debtor to guarantor.
The third party acting as a guarantor in this regard has a legal obligation because he bind the two parties together, and according to contractual law, one who is binding the two parties together has to prepare himself to face obligations due to problems in the exercise of the established contract. Additionally, the person may have to face ordinary damages those can be extended with reference to the pain and physical losses the injured party had to sustain as a result of a poor conduction of the agreement.
The court has to entertain the presence of social consequences of the contract, and in the given set of circumstances, the practice of guaranteeing would die away with the passage of time, and the arrangement of contractual relations would become near to impossible because the parties would simply not trust each other. The guarantor has to assume the role of an arbitrator in order to mitigate conflict rather shouldering the financial burden of the debtor. The guarantor had to act as a facilitator who can rearrange the nature of the agreement to make it acceptable for the both parties. Secondly, he can use his political power to gently force the debtor to repay, but the mediator does not have any legal duty to pay the amount in debt from his own pocket.
Second Dissenting Argument
The contract was actually created between the debtor and the creditor. The basic unit of any agreement that is referred to as consideration did not move from the lending party to the guarantor nor it has to proceed from him to the real owner of the money. The identities of the parties have to remain static, and the third party may not have to sustain extra burden in this regard.
Personal Opinion by the Student
I do not agree with both of the dissenting statements because the guarantor has promised to help the lending party in getting their money back, and now he just got away with that without paying a penny. The court ruling in this regard is unfair, and a person should not make a promise that he simply cannot keep so in my view, the court’s decision has to be overturned, and the defendant either impress the debtor to pay off his debt or the guarantor has to do it by himself. However, the defendant can run a lawsuit against the debtor because the party did not proceed with his obligations, and the potential plaintiff can claim extraordinary damages as he has to earn a fair bit of return on the undue investment.
Landa, Janat T. "A Theory of the Ethnically Homogeneous Middleman Group: An Institutional Alternative to Contract Law." The Journal of Legal Studies 10.2 (1981): 349-362. Web. 22 June 2015.
Summers, Robert S. ""Good Faith" in General Contract Law and the Sales Provisions of the Uniform Commercial Code." Virginia Law Review 54.2 (1968): 195-267. Web.22 June 2015.