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This distinction between indemnity and guarantee was discussed as early as the eighteenth century in Birkmyr v Darnell. [6] In that case, concerned with a guarantee of payment for goods rather than payment of rent, the presiding judge explained that a guarantee effectively says "Let him have the goods; if he does not pay you, I will." [7]
A personal guarantee, by contrast, is often used to refer to a promise made by an individual which is supported by, or assured through, the word of the individual. In the same way, a guarantee produces a legal effect wherein one party affirms the promise of another (usually to pay) by promising to themselves pay if default occurs.
The distinction between the two is that a guarantee is a secondary obligation to pay whilst an indemnity is a primary obligation. [94] [95] Guarantees or Performance bonds: Performance bonds are similar to a promissory note, this turns again upon the primacy of the obligations.
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The economic value of bond insurance to the governmental unit, agency, or other issuer of the insured bonds or other securities is the result of the savings on interest costs, which reflects the difference between yield payable on an insured bond and yield payable on the same bond if it was uninsured—which is generally higher.
The bond typically includes an indemnity agreement whereby the principal contractor or others agree to indemnify the surety if there is a loss. [19] In the United States, the Small Business Administration may guaranty surety bonds; in 2013 the eligible contract tripled to $6.5 million. [20]
The demand guarantee bridges the "gap of distrust" that exists between the parties. When the bank issues the demand guarantee, the beneficiary deals with a party whose financial strength he can trust and a party which would pay upon first demand regardless of an existing dispute between the parties on the performance of the underlying contract. [5]
When one co-signs a loan for another, they both become solidary obligors in relation to the debt owed. In regard to liability of the obligors between themselves, the proportions owed by each obligor in a solidary obligation stemming from a contract are deemed to be equal unless a provision in the agreement states otherwise.