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What is a guarantee? A guarantee is a basically promise of assurance to someone that in case of default the guarantor will be liable to fulfil the obligations of the principal party in case of default. Guarantee creates the second liability. An indemnity is a promise of assurance to be responsible for another loss and to compensate on the agreed terms. There are three parties involved in the contract of guarantee such as the surety, principal debtor and the creditor. While there are two parties involved in indemnity such as indemnifier and indemnity holder. Relevant law Section 4 of the Venerable Statute of Frauds 1677 requires that a guarantee must be in writing in order to attain the validity. However, there is no such requirement attributed to the indemnity. It is a wise practice that indemnity must be in writing in order to proof the intentions of the parties because it is very hard to proof the oral terms. The courts has also laid down in different case law that the guarantee must be in writing form and oral guarantee has no value in the eye of law. Use of Guarantee Generally, guarantees are used in most of corporate transaction where surety is demanded for the fulfillment of the definite obligations. It is the duty of the guarantor to perform his duty if the contracting party fails to perform his obligations. Assignment of guarantee or Indemnity There is no restriction on the assignment of guarantee of indemnity if the prior consent is obtained from the party or as agreed between the parties in contract. If the agreement is silent or does not allow the assignment then the guarantee or indemnity can be assigned. Nature of liabilities The liabilities of the guarantor come to an end if the contract is void due to some reasons while the liability of the indemnifier does not come to an end in any case. Liability of the indemnifier is of continuous nature. An indemnity constitutes a primary liability. A guarantor’s liability is co-extensive with the principal debtor’s obligation. Reasons for Personal guarantee Personal guarantee is a promise by director (entrepreneur) to personally repay the business loan in case of default by the company. A personal guarantee does not come to an end irrespective of guarantor involvement in the company unless it is terminated. The liability does not come to an end upon the guarantor death but it will pass on to his estate. The personal guarantee may be limited or unlimited. It is advisable that guarantor must carefully read the agreement before signing it and he must understand the nature of his liability. If there is no outstanding amount on the part of the company on the date of termination then the guarantor obligations will be automatically come to an end. A guarantee is a contractual right that creates a right in personem. Personal guarantee is mostly required form the new companies which do not have any credit record. You must consider all relevant factors before giving the personal guarantee because it may have a important affects on your personal sources. Guarantees and indemnities documents Net Lawman provides the following types of guarantees and indemnities documents. Such as: Guarantee of contract performance This is a supplementary contract that brings in a guarantor to a situation where the provider of a service or supplier of goods has failed or is likely to fail to perform his part of the contract. It can be used with any performance contract and can add a personal guarantee for an individual, or bring in another party, such as a business. The key benefit of this document is that the original contract remains unchanged, making this a neat solution to adding a guarantor. Guarantee of contract debt This is a supplementary contract that brings in a guarantor to a situation where the client of a provider of a service or supplier of goods has failed or is likely to fail to make payment when due. It can be used with any performance contract and can add a personal guarantee for an individual, or bring in another party, such as a business. The key benefit of this document is that the original contract remains unchanged, making this a neat solution to adding a guarantor. General indemnity This is an indemnity agreement between any two individuals or businesses. The agreement seeks to absolve one party from any liability or risk caused by the other party. Put another way, an indemnity agreement governs who pays for damage or loss. Miriam Taylor working for Net Lawman UK for providing best quality legal documents, agreements and free legal information for: http://www.netlawman.co.uk/commerce/guarantees-and-indemnity-documents-uk.php http://www.netlawman.co.uk/commerce/guarantee-of-contract-debt.php http://www.netlawman.co.uk/bizdoc/no-competition-agreement.php
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