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The first President of the USA had a bit of a problem when he was a mere boy. It all had to do with a cherry tree; someone had taken a chopper to it. Young Washington's pa made a bee-line for George, took hold of him by the ear, thrust a Bible into the boy's fist and threatened to knock his block off if he didn't tell the truth. The (apocryphal) story goes that the future president replied: "I cannot tell a lie; it was me."

In Actionstrength (trading as Vital Resources) vs International Glass Engineering and Saint-Gobain Glass UK, 10 witnesses were lined up to see if anyone was telling a fib. It was a simple question: did Saint-Gobain promise Actionstrength that it would pay up for the work done if its Italian main contractor didn't?

But the trial isn't going ahead, because the law insists that, unlike young George, people can and will tell porkies. The reason has to do with an act of parliament dated 1677, which is still very much in force: we are still worrying about people who might tell a whopping great lie.

Two years ago, the French glass manufacturer Saint-Gobain decided to build a float glass factory at Eggborough, Yorkshire. The main contractor, Italy-based International Glass Engineering (known as Inglen), has been in that game since 1935. It, in turn, engaged subcontractor Actionstrength to provide all the labour and plant including, no doubt, a cherry picker or two.

Inglen was tardy in making payments to its subcontractor, which soon threatened to pull out. By then £197,000 was owed. The subbie went to see the employer, Saint-Gobain, which made it a proposition. In short, it was claimed that in exchange for Actionstrength staying put, Saint-Gobain would "ensure it would receive any amount due to it by the Italian main contractor if necessary by redirecting to Actionstrength payments due to the main contractor". Satisfied with its position under this alleged guarantee, Actionstrength pressed on.

If we can have oral contracts of any size, from building buildings to buying socks, then we must be able now to have oral contracts of guarantee

The bill quickly reached a whopping £1.3m. But it came to pass that Inglen couldn't pay and Saint-Gobain wouldn't. The disappointed subcontractor sued both. Inglen shrank back into Italy and went into liquidation. Saint-Gobain said it never agreed to guarantee and even if it is proved at trial that it did, no claim can be made because parliament said in 1677 that an oral contract to accept liability for another person's debt or future debt will not be enforced by a court.

Saint-Gobain was convinced that there was no signed piece of paper tucked away in a drawer anywhere. So it went to court to have that simple point tested … and won. The Court of Appeal decided (10 October 2001) that on the assumed facts as put by Actionstrength, such a "contract" fell within the 1677 Statute of Frauds and was no contract at all. The subbie had done £1.3m of work but wouldn't get a penny from Saint-Gobain, whether there was an oral agreement or not. It has to pursue Inglen as an unsecured creditor. Oh dear.

When the act first appeared 324 years ago, it required a variety of agreements or promises to be put in writing and signed, including ordinary sale of goods, contracts in contemplation of marriage, any agreement to be performed more than one year hence, and so on. We took the axe to most of the statute. But the part relied upon by Saint-Gobain survived because "there was a danger of contracts of particular kinds being established by false evidence, or by evidence of loose talk, when it was never really meant to make such a contract".