Personal guarantee/indemnity disputes

Personal guarantee and indemnity claims

Personal guarantees and indemnities can play an important role within the context of commercial transactions, but they have important differences to each other.

A guarantee is effectively an agreement or a promise by one party to perform someone else’s obligations owed to another party. Personal guarantees often arise in circumstances where a contracting party may not have sufficient financial strength to satisfy the other contracting party that they will comply with their payment obligations so another party may promise to perform their obligations in the event of their default (e.g., a landlord may require the directors of a new corporate tenant to personally guarantee the performance of the company of its commercial lease obligations).  There are formal requirements to be followed in order to create a personal guarantee. Once formed, a personal guarantee does not absolve the other party from performing their obligations, though. It just provides the third party with another target to demand performance from in the event that the principal has not performed their obligations.

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Whereas personal guarantees make provision for a party to perform someone else’s obligations owed to a third party, indemnities can be distinguished from personal guarantees as there are no prescribed formalities in order to create one (aside from the usual requirements for there to be a valid contract) and they do not provide for a performance of someone else’s obligations owed to another. Instead, an indemnity can be agreed informally between parties and if a party agrees to provide an indemnity, then they have agreed to pay for a cost or reimburse a loss incurred by someone else.

Although in principle personal guarantees and indemnities are independent of each other, it is very common in practice for guarantees and indemnities to be provided at the same time in the same commercial transaction. Nevertheless, the differences between the two are substantive and can be very important to bear in mind if a dispute arises concerning the nature of the obligations provided by each of them, such as which liabilities they cover, any limitation issues, and if the primary obligations are enforceable.

If you need advice with regard to personal guarantees and indemnities, our team of experienced dispute resolution solicitors can support your needs. Whatever the size of your business, we can offer you a bespoke service, and we will always aim to settle disputes as efficiently as possible.

For more information or to have an initial discussion with a member of the team, please call please call 0333 323 5292 or fill in our enquiry form and we will be happy to help.

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