January 2014

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Reading time (1-10 minutes): 2

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On the subject of guarantees, here’s a precedent you could use for a clause to slot into an agreement between you and a customer. Get legal advice on it before you use it. And of course make sure that it fits the agreement (eg getting the parties’ details right; you, for example, are ‘us’).

1. Guarantee and indemnity

1.1 In consideration of us entering into this agreement, [guarantor] guarantees to us that whenever [customer] does not pay any monies, debts and liabilities of any nature from time to time due or owing from or incurred by [customer] to us (Guaranteed Obligations) as and when they fall due [guarantor] shall make due and punctual payment to us on demand.

1.2 If the Guaranteed Obligations are, or become, unenforceable, invalid or illegal, [guarantor] agrees to indemnify and keep indemnified [us] in full and on demand from and against all and any losses, costs and expenses suffered or incurred by us arising out of, or in connection with, any failure of [customer] to perform or discharge the Guaranteed Obligations.

1.3 [Guarantor] as principal obligor and as a separate and independent obligation and liability from its obligations and liabilities under clause 1.1 agrees to indemnify and keep indemnified us in full and on demand from and against all and any losses, costs and expenses suffered or incurred by us arising out of, or in connection with, any failure of [customer] to perform or discharge the Guaranteed Obligations.

1.4 This guarantee is and shall at all times be a continuing security and shall cover the ultimate balance of all monies payable under this agreement, irrespective of any intermediate payment or discharge in full or in part of the Guaranteed Obligations.

1.5 The liability of [guarantor] under this guarantee shall not be reduced, discharged or otherwise adversely affected by:

(a) any act, omission, matter or thing which would have discharged or affected the liability of [guarantor] had it been a principal debtor instead of a guarantor or indemnifier; or

(b) anything done or omitted by any person which, but for this provision, might operate or exonerate or discharge [guarantor] or otherwise reduce or extinguish its liability under this guarantee.

1.6 [Guarantor] waives any right it may have to require us (or any trustee or agent on our behalf) to proceed against or enforce any other right or claim for payment against any person before claiming from [guarantor] under this clause.

1.7 [Guarantor] shall on a full indemnity basis pay to us on demand the amount of all costs and expenses (including legal and out-of-pocket expenses and any value added tax on those costs and expenses) which we incur in connection with:

(a) the preservation, or exercise and enforcement, of any rights under or in connection with this guarantee or any attempt so to do; and

(b) any discharge or release of this guarantee.

1.8 Until all amounts which may be or become payable by [customer] under or in connection with this agreement have been irrevocably paid in full, and unless we otherwise direct in writing, [guarantor] shall not exercise any security or other rights which it may have by reason of performance by it of its obligations under this clause, whether such rights arise by way of set-off, counterclaim, subrogation, indemnity or otherwise.

1.9 This guarantee shall be in addition to and independent of all other security which we may hold from time to time in respect of the discharge and performance by [customer] of the Guaranteed Obligations.

This document has been executed as a deed and is delivered and takes effect on the date stated at the beginning of it.