• In the case of Lloyd’s v Harper [1880] 16 Ch D 290, it was established that the death of a guarantor will not end a guarantee. The guarantee agreed can be the subject of a trust.

Facts of Lloyd’s v Harper [1880] 16 Ch D 290

  • Father of D (Harper) wrote a letter to Lloyd’s (C) and gave a guarantee to the committee of C for D’s underwriting engagements as a member there
  • During this time, C were a voluntary association, and one could not be excluded from becoming a member unless they were declared bankrupt/insolvent
  • C then became incorporated
  • The father passed, C were given notice and 2 years later the son had become bankrupt and thus his membership ceased
  • C sought a claim against the guarantee the father had provided

Issues in Lloyd’s v Harper [1880] 16 Ch D 290

  • Did the guarantee the father provided on behalf of his son be enforced after the father’s death?
  • Were the father’s estate accountable for the son’s bankruptcy and subsequent membership loss?

Held by the Court of Appeal

Affirmed the previous decision; substantial damages granted. The father’s death did not end the guarantee, but moved to his estate.

Lord Justice James

There was no a limit to the guarantee. [314]

As to the D’s argument that the Cs suffered no loss and so could only claim for nominal damages, James LJ stated:

  • “That might be true if Lloyd’s were not trustees, but I am of opinion that Mr. Justice Fry was well warranted in the conclusion at which he arrived, that the engagement was made with the committee as trustees for and on behalf of the persons beneficially interested.” [315]

Cs were able to sue despite the argument that they were not the persons with who the contract was made as the Parliament Act which turned them into a corporation and transferred the committee’s dealings to them applied. [315]

Lord Justice Lush

Allowing the son and his father’s estate to walk away from this would disrupt the law of contract:

  • “Lloyd’s, having sustained no damage themselves, could not recover for the losses sustained by third parties by reason of the default of Robert Henry Harper as an underwriter. That, to my mind, is a startling and an alarming doctrine, and a novelty, because I consider it to be an established rule of law that where a contract is made with A. for the benefit of B., A. can sue on the contract for the benefit of B., and recover all that B. could have recovered if the contract had been made with B. himself.” [321]

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