When a creditor wants comfort that a debt will be paid, it often looks to a third party to stand behind the debtor. That third party gives either a guarantee or an indemnity — and the choice between them shapes everything that follows: how the obligation is created, whether it must be in writing, when it can be enforced, and when the security-giver is let off. As a solicitor, you will draft, advise on, and dispute these instruments constantly, so knowing how they behave in practice is essential.
This lesson works through the topic in the following order:
- Nature and Distinction of Guarantees and Indemnities — what each one is, and why a guarantee is secondary while an indemnity stands on its own.
- Formation Requirements for a Guarantee — writing, signature, consideration, and why an indemnity escapes these rules.
- Co-Extensive Liability and the Guarantor's Defences — how a guarantor's liability tracks the debt and which defences they can borrow.
- Discharge of a Guarantee by the Creditor's Conduct — the five ways a creditor can accidentally release the guarantor.
- Undue Influence and the Creditor's Duties — when a bank is put on inquiry and the steps it must take.
- Enforcement and the Guarantor's Rights After Payment — proceeding against the guarantor and the rights of subrogation, indemnity and contribution.
- Indemnities, Demand Guarantees and Performance Bonds — primary obligations, payment on demand, the autonomy principle and the fraud exception.