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When classifying an agreement, it is not the title that is decisive, but what the parties have actually agreed upon — their rights and obligations. For this purpose, the Supreme Court uses a fixed step-by-step plan that closely resembles the “duck test”: if it looks like a duck, swims like a duck, and quacks like a duck, then it is probably a duck — regardless of the label. For anyone drafting a contract, this distinction is of great importance.
What does the classification of an agreement mean?
The classification of an agreement is the legal question of which type of agreement the parties have entered into—for example, an employment contract, a contract for services, a group guarantee, or a suretyship. This classification determines which statutory rules apply. In doing so, the Supreme Court first examines the rights and obligations agreed upon by the parties (interpretation), and subsequently places them in the correct legal category. The name the parties give to the document is not decisive in this regard.
What is the duck test?
The duck testis a form of inductive reasoning that gained prominence during the Cold War. The line of reasoning is simple: “If something looks like a duck, swims like a duck, and quacks like a duck, it is probably a duck.” The reasoning starts from observable characteristics to determine whether something belongs to a category — not from the label.
“Suppose you see a bird walking around in a farm yard. This bird has no label that says 'duck'. But the bird certainly looks like a duck. Also, he goes to the pond and you notice that he swims like a duck. Then he opens his beak and quacks like a duck. Well, by this time you have probably reached the conclusion that the bird is a duck, whether he's wearing a label or not.” — Richard Patterson, US Ambassador to Guatemala
It works exactly the same way with similarities: the label is not decisive, the characteristics are.
Example: group guarantee or suretyship?
A striking example is a case between a non-life insurer and a holding company (ECLI:NL:RBROT:2022:5765). The holding company had allegedly issued a guarantee in favor of the insurer, but a dispute later arose regarding the exact content of that guarantee.
- Insurer's position: it is a group guarantee. Under this type of guarantee, a parent company declares that it will fulfill the obligations of the subsidiary if the subsidiary fails to do so itself. Such a guarantee protects the creditor, for example, against the bankruptcy of the subsidiary.
- Holding company's position: it is a suretyship. A suretyship generally offers the creditor less security, because the guarantor can rely on more defenses.
The agreement contained words such as “guarantee” and “guaranteeing”. Nevertheless, the court ruled that this is not decisive for the classification, any more than the name of the document. It is not about the label, but about the characteristics. And according to the judge, these pointed to a suretyship agreement: for example, the parties had expressly excluded part of the statutory regime for sureties — a typical characteristic of a suretyship, not of a group guarantee. The judge therefore classified the agreement as a suretyship.
Why is the right qualification so important?
A reclassification can have far-reaching consequences, because different legal rules then apply. Consider:
- other defenses and liability (suretyship versus guarantee);
- additional formal or consent requirements (for example, in the case of private suretyship);
- the degree of security that the creditor actually has;
- the tax and accounting treatment.
Anyone who relies on the title above a contract runs the risk that the judge will subsequently view it as a completely different — and less favorable — type of agreement.
Frequently Asked Questions
Is the title of an agreement legally binding?
No. The title is an indication, but not decisive. The judge looks at the content: which rights and obligations have the parties actually agreed upon?
What is the difference between a group guarantee and a suretyship?
In the case of a suretyship, the surety undertakes towards the creditor to fulfill the obligation of another, subject to its own statutory regime and means of defense. A group guarantee is an (often broader) independent obligation of the parent company for the obligations of the subsidiary. For the creditor, a guarantee can offer more security than a suretyship.
Can a judge classify my agreement differently than I intended?
Yes. If the characteristics of the agreement point to a different type of contract, the judge may classify it independently of what the parties called it. Therefore, careful wording is essential.
Have your agreement drafted by an expert
The lesson is clear: it is not the title but the content that determines the legal status of an agreement. Incorrect or unclear wording can cause your contract to fail the “duck test”—with undesirable consequences.
Have your agreement drafted or reviewed by a specialist to ensure the classification aligns with what you truly wish to arrange. View our expertise in contract law or schedule a no-obligation consultation.
