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Entering into an agreement which contains an indemnity or a personal guarantee is a very serious affair. Clauses in agreements that contain indemnities and personal guarantees may give rise to significant liabilities to parties to those agreements. Generally, any person entering into a contract should obtain legal advice on the nature of the contractual provisions and their effect on the parties’ rights and interests. This is especially true of clauses that create indemnities and provide personal guarantees.

An indemnity is a creature of Contract Law which means that the indemnifying party assumes a liability in the event that the liability would ordinarily attach to something or somebody else. For example, a person can indemnify another person in the event that an actionable cause of action arises and that other person would have to ordinarily answer for it.

A guarantee is likewise an assumption of liability. A classical case of a guarantee would be one where a third party guarantees the debts accrued by one party to a contract. If that one party cannot pay the debt, the other party can chase the guarantor for the outstanding monies owed. Sometimes, people thoughtlessly enter into contracts and become guarantors, and are not aware of the fact that the party whose debts they are guaranteeing may default. The guarantor can sometimes find himself in the situation where he also cannot pay the debt, and faces the hardship associated with having to negotiate with the creditor.

An additional risk is associated in what are known as an “all monies guarantee”, which means that the person whose debt is guaranteed is not limited to a certain amount, but can grow over time, as the guarantee is usually expressed to be broad enough to catch “all monies” due and payable on “any account” by the borrower to the lender or provider of credit. This can give rise to a situation where an individual gives a guarantee for a debt that grows over time into something that the guarantor cannot conceivably settle in the event the debtor defaults and the debt is called upon by the creditor.

In summary, if a person is a guarantor of a debt, or has provided an indemnity to a creditor, the creditor can then prosecute on that guarantee or indemnity and pursue that person for the debt owed.

If you have provided a personal guarantee and/or an indemnity and you require legal advice in relation to your options and your position, Navado Lawyers & Solicitors can assist by properly assessing and considering all of the circumstances, documents and the factual matrix, before providing you with specific legal advice. 

If you need legal assistance in relation to a personal guarantee and/or indemnity legal matter, you may wish to speak to a Bankruptcy & Insolvency Solicitor at Navado Lawyers & Solicitors. To make an appointment, please contact us by telephone on (02) 9233 4048 or email to info@navado.com.au.

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This webpage (and any material or wording appearing on this webpage) is provided for general information purposes only and does not constitute any Legal Advice. It does not take into account your objectives, your instructions or all of the relevant facts and/or circumstances. Navado accepts no responsibility to any person who relies on the information provided on this website. We further refer you to our Disclaimer.

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