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guaranty:
n. (16c)

1. GUARANTEE (1).

2. A promise to answer for the payment of some debt, or the performance of some duty, in case of the failure of another who is liable in the first instance; a collateral undertaking by one person to be answerable for the payment of some debt or performance of some duty or contract for another person who stands first bound to pay or perform. — aka contract of guaranty.  *  The term is most common in finance and banking contexts and is often contrasted with warranty.  While a warranty relates to things (not persons), is not collateral, and need not be in writing, a guaranty is an undertaking that a person will pay or do some act, is collateral to the duty of the primary obligor, and must be in writing.  The term is also contrasted with surety.  A guaranty can exist only where there is some principal or substantive liability to which it is collateral.  If there is no debt, default, or miscarriage of a third person either present or prospective, there can be no guaranty. On the spelling of guaranty vs. guarantee, see the quotation at GUARANTEE (2). — aka guaranty contract. See SURETYSHIP.

1. An undertaking or promise, on the part of one person called the guarantor, which is collateral to a primary or principal obligation on the part of another, and which binds the guarantor to performance in the event of nonperformance by such other person, the latter being primarily bound to perform. 24 Am J1st Guar § 3.

Concisely, a promise to answer for the debt, default, or miscarriage of another person, provided such person does not respond by payment or performance. Hickory Novelty Co. v. Andrews, 188 NC 59, 123 SE 314.

     Excerpt from Laurence P. Simpson’s Handbook on the Law of Suretyship (1950):

     “Both guaranty and warranty are undertakings by one party to another to indemnify the party assured against some possible default or defect. But a guaranty relates to the future, as a collateral promise designed to protect the promisee from loss in case another fails to perform his duty. A warranty relates to the present or past, and is an independent promise designed to protect the promisee from loss in the event that the facts warranted are not as the promisor states them to be when the contract is made. A warranty is broken as soon as it is made if the facts are not as represented, and is enforceable though oral; whereas a guaranty is not breached until a future default occurs, and is unenforceable unless in writing.” [4]

     Excerpt from 38 Am. Jur. 2d Guaranty § 1, at 996 (1968):

     “A transaction of guaranty involves at least three parties: a promisor, a creditor (the person to whom the promise is made), and a debtor -although at the time the promise is made, the person denominated the ‘creditor‘ need not have extended the credit to the person denominated as the ‘debtor.’ The usual guaranty situation arises when the promisor makes a promise to the creditor either as to the solvency of the debtor or as to the payment of the debt.” [5]

Related Terms:

guarantor – someone who makes a guaranty or gives security for a debt, either guaranteeing payment or collection if the principal debtor defaults.

Various Types of Guaranties:

absolute guaranty: (18c) 1. An unqualified promise that the principal will pay or perform.  2. A guarantor’s contractual promise to perform some act for the creditor — such as paying money or delivering property — if the principal debtor defaults.

conditional guaranty: (1813) A guaranty that requires the performance of some condition by the creditor before the guarantor will become liable.

contingent guaranty: (1843) A guaranty in which the guarantor will not be liable unless a specified event occurs.

continuing guaranty: (1817) A guaranty that governs a course of dealing for an indefinite time or by a succession of credits. — aka open guaranty.

cross-stream guaranty: (1986) A guaranty made by a company for the obligation of another company when both are owned by the same parent company or individual.

downstream guaranty: (1986) 1. A parent corporation’s guaranty of a subsidiary’s obligations. 2. A guaranty made for a company by a guarantor who is also a partner, member, or stockholder of the company.

general guaranty: (17c) 1. A guaranty addressed to no specific person, so that anyone who acts on it can enforce it.  2. A guaranty for the principal’s default on obligations that the principal undertakes with anyone.

good-guy guaranty: (2004) A limited guaranty by a third-person that leased property or collateral will be kept in good condition and returned to the lessor or lender if a default occurs.  *  Good-guy guaranties are most commonly associated with real-property leases. — Also written good-guy guarantee. — aka good-guy clause.

guaranty of collection: (1843) A guaranty that is conditioned on the creditor’s having first exhausted legal remedies against the principal debtor before suing the guarantor.  See guarantor of collectibility under GUARANTOR.

guaranty of payment: (1811) A guaranty that is not conditioned on the creditor’s exhausting legal remedies against the principal debtor before suing the guarantor. See guarantor of payment under GUARANTOR.

irrevocable guaranty: (1898) A guaranty that cannot be terminated unless the other parties consent.

limited guaranty: (1831) An agreement to answer for a debt arising from a single transaction. — aka noncontinuing guaranty.

revocable guaranty: (1936) A guaranty that the guarantor may terminate without any other party’s consent.

special guaranty: (18c) 1. A guaranty addressed to a particular person or group of persons, who are the only ones who can enforce it.  2. A guaranty that names a definite person as obligee and that can be accepted only by the person named.

specific guaranty: (18c) A guaranty of a single debt or obligation.

upstream guaranty: (1986) A guaranty made by a corporate subsidiary for the parent corporation’s obligations.   guaranty bond. See BOND (2). guaranty company. See surety company under COMPANY. guaranty contract. See GUARANTY (1). guaranty fund. See FUND (1). guaranty insurance. See INSURANCE.

guaranty letter of credit: See standby letter of credit under LETTER OF CREDIT.

guaranty stock: See STOCK.

guaranty treaty: See guarantee treaty under TREATY (1).

References:

Disclaimer: All material throughout this website is compiled in accordance with Fair Use.

[1]: Black’s Law Dictionary Deluxe Tenth Edition by Henry Campbell Black & Editor in Chief Bryan A. Garner. ISBN: 978-0-314-62130-6

[2]: Ballantine’s Law Dictionary with Pronunciations
Third Edition by James A. Ballantine (James Arthur 1871-1949).  Edited by William S. Anderson.  © 1969 by THE LAWYER’S CO-OPERATIVE PUBLISHING COMPANY.  Library of Congress Catalog Card No. 68-30931

[3]: Ballantine’s Law Dictionary Legal Assistant Edition
by Jack Ballantine (James Arthur 1871-1949).  Doctored by Jack G. Handler, J.D. © 1994 Delmar by Thomson Learning.  ISBN 0-8273-4874-6.

[4]: Laurence P. Simpson, Handbook on the Law of Suretyship 23 (1950).

[5]: 38 Am. Jur. 2d Guaranty § 1, at 996 (1968)

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