Published June 23, 2020

What Are Guarantees
and Indemnities?

Written By: Mountain Lawyers

Are you thinking about accepting a contract?

Have you checked that there are no hidden guarantee and/or indemnity clauses in the contract?

Guarantees and indemnities form a key part of contractual transactions. They are often used in a number of different contracts such as lease agreements, loan agreements, and property sale agreements, just to name a few. Agreeing to sign a contract that contains a guarantee and/or indemnity is a very serious one and should only be done after obtaining legal advice.

But what does a guarantee and an indemnity mean?

Introducing the Parties

To have a guarantee and indemnity, you need three parties: Party One, Party Two, and a third party which can be a Guarantor and/or Indemnifier.

 

  • Party One The person who enters the contract with Party Two. Party One has the power, assets, or money needed by Party Two. They can be, for example, a landlord, bank, or seller of a business.
  • Party Two The person seeking something from Party One. This can be, for example, a lease, loan, or money to buy a business.
  • Guarantor A Third Party who guarantees the fulfilment of any contractual obligations owed by Party Two to Party One. A Guarantor can be an individual, company, or an unrelated third party.
  • Indemnifier A Third Party (who is usually the same party as the Guarantor) who agrees to compensate Party One for any losses, damage, and claims suffered because of the actions of Party Two. Like Guarantors, an Indemnifier can be an individual, unrelated third party, or company.

Void Contracts

General principles – void contracts:

 

  1. arise out of a failure to satisfy requirements contained in a statute;
  2. are usually unenforceable;
  3. do not have to be illegal to be void; and
  4. usually do not allow you to make a claim against the person who breached the contract.