Guarantee or indemnity? — a useful tale

A guarantee is a promise between two parties (X and Y) to fulfil an obligation of a third party (Z) — X’s liability as guarantor usually only arises if Z fails to pay Y and is secondary to Z’s primary liability.

By contrast, under an indemnity, X agrees to be responsible for any loss to Y, independently of the obligations of Z to Y; X is treated as having a primary liability to Y.

In a recent case — ABN AMRO Commercial Finance plc v McGinn and others [2014] EWHC 1674 — an invoice discounter purchased the debts of a company whose directors signed an indemnity in the discounter’s favour. The company went into administration and many debts were disputed…

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