Deeds of Guarantee and Indemnity

Guaranteeing and Indemnifying Others – High Stakes

Deeds of Guarantee and Indemnity can be considered as a special breed of commercial agreement.

They can be complex and technical, but more importantly, their impact and effect have such far reaching implications that close attention needs to be given to these documents and the proper advice sought as early as possible.

Put simply, a Deed of Guarantee is a binding legal document where a person or company promises or guarantees that the obligations of another party will be met. These are usually prepared in the context of loans and for the repayment of debts, where one party borrows money and another party guarantees that if the borrower does not repay the loan, they will. Of course, such documents can have other applications.

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Again, in its most general sense, a Deed of Indemnity is where one party agrees to be responsible for and cover any loss or damage which has been incurred by another, even though the party covering such loss may not have been the cause of it.

For example, Party A has taken out a loan with a financier and Party B has signed a Deed of Guarantee and Indemnity. The Deed of Guarantee and Indemnity that Party B has signed means that Party B has agreed to ensure Party A repays the loan, or otherwise Party B will be responsible for it and any incidental costs associated with Party A breaching its obligations.

Needless to say, Party A defaults on the loan repayments. The financier now sues Party B directly. It can do this, because Party B has guaranteed the repayment of the loan and fulfilment of the obligations Party A had under the loan. More so, Party B has agreed to cover the loss and damage which the financier may have suffered as a result of Party A’s breach.

Such is the power and consequence of a Deed of Guarantee and Indemnity.

Such Deeds usually work together, but they can certainly be put to multiple uses and used independently of one another.

Sometimes, connected with such documents, whether a clause in the document, or forming an entire agreement itself, there may be Releases. Such agreements release a party from any legal liability or obligation that the actual release deals with. This prevents any demand or action being taken against that person in the context of the release provided.

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A release may be agreed and signed at the start of a relationship, such as when a lease is entered into and sometimes, such documents can be useful as the basis for any negotiations or settlement of disputes to ensure the matter is put to rest fully and completely.

It is important that such terms are worded carefully and specifically, particularly due to their critical nature and the interests they are trying to preserve. In such documents, every word really does count.

They are technical documents which have ongoing implications and risks and as a result advice should be sought as to the specific terms these documents contain and whether they are applicable and suitable for a particular situation. The consequences, powers and restrictions they contain mean they should be treated with utmost caution.

Take Caution with Guarantees and Indemnities

When looking to prepare or you are required to sign Deeds of Guarantee, Indemnities or Releases, Gavel & Page contract and commercial lawyers can assist you in combing through the myriad of risks and considerations. Speak with our commercial lawyers today to arm yourself with information.

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