The small print-how bad can it be?

Example 1: Indemnities

Have you ever wondered what the difference is between a guarantee and an indemnity in an agreement?  No.  Ok then, I will make this quick.

A guarantee is a promise to be responsible for another's debt or contractual performance.  It is the sort of thing that parents are asked to do when their adult children obtain a bank loan or more usually several bank loans.

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An indemnity is a promise to basically insure someone if an adverse event happens.  Insurance companies do it for say fire and theft.

An indemnity can be a real bonus or a bombshell, depending on which side you are on.

Here are two examples:

  1. You move to bigger office premises and someone else takes over your lease. An indemnity allows the landlord to come after you if the new tenant doesn’t pay or goes bust.
  2. Unbeknown to his wife, your accountant has a secret life involving fast cars, woman, gambling and drunkenness.  You sell the story to a newspaper.  Understandably, you are wrong.  If you have an indemnity from the newspaper they will pay all your damages and the costs of the defamation action.  If not, you are stuffed.

With a bit of imagination you can get people to indemnify you for all sorts of unlikely consequences of a contract.  This is very useful as there is always some nutcase out there (no offence to any readers) who may just add you to a court action as a scatter gun tactic.

Indemnities are quite common in agreements for say selling shares or a business, or when you assign intellectual property.  But, usually the event indemnified does not happen so no one takes any notice.

How often would lawyers sneakily stick an indemnity into an otherwise innocent agreement? Answer: all the time if they think that it will give their client an edge if something unexpectedly goes wrong.

© Paul.Brennan 2009. All rights reserved.  


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