Indemnity Agreement

By David Gass

Indemnity Agreement is a contractual agreement made between two parties, one of whom signs a legal document proclaiming to be a guarantor for a corporation or a company, and a representative of the company such as its president also signs the document. These agreements are drawn when the company has no assets as such to pledge or use as collateral for a loan and another person or company signs an indemnity agreement to be a guarantor for the loan. Insurance companies will indemnify a policyholder for any loss or damage for any property or asset the policyholder had insured.

The Guarantor and the Indemnified Corporation:

The indemnity agreement is signed between two parties, the guarantor and the indemnified company. The guarantor, if it is a corporation, has to provide sufficient document proofs that it has the corporate power, authorization, consent and approval needed to carry on its usual business and enter into the agreement. The corporate officers who are authorized to bind the company in this agreement have to sign the agreement. They are authorized to execute, deliver and perform under the terms of the agreement on behalf of any non-corporate guarantor. Signing the agreement should not violate or constitute a default under any provision of applicable law or regulation or of its charter, certification of incorporation or its bylaws or any agreement, injunction, judgment, decree or order to which it may be subject.

Conditions

The guarantor has to agree to certain provisions. If the guarantor is a company or a partnership, this agreement binds each partner or party who has a beneficial interest in the guarantor. Each party has to agree to be bound jointly and severally to the indemnity agreement. The guarantor cannot terminate the agreement as long as the indemnified company provides a replacement bond assuming all outstanding liabilities and in amounts not less than that provided by them. They have to give at least 90 days notice in order to terminate the agreement.

In the indemnity agreement, both the parties have certain rights and certain duties to carry out. The guarantor must be reasonably protected against default by the indemnified company and the indemnified company has to act in good faith to the trust the guarantor has shown in them and not cause any damage to the reputation of the guarantor. The guarantor needs proof from the indemnified company that its board of directors has good business acumen and can assure to serve their end of the bargain effectively. Some companies indemnify their directors or officers to ensure their good conduct and good management while the company has itself been indemnified. The directors or officers may refuse to continue to hold their position in the company until they themselves are adequately protected. The company will protect its directors or officers and pay any expense incurred through a lawsuit or such against its officers, until the officer has proved that he had been acting in the best interest of the company and is not guilty of any fraud. If he is guilty of causing harm to the company, the company may nullify its indemnity agreement it had drawn with its employee.

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