guaranty

1. v.

To undertake collaterally to answer for the payment of another's debt or the performance of another's duty, liability, or obligation; to assume the responsibility of a guarantor; to warrant.

See guaranty noun,

2. n

A collateral agreement for performance of another's undertaking. An agreement in which the guarantor agrees to satisfy the debt of another (the debtor), only if and when the debtor fails to repay (secondarily liable). An undertaking or promise that is collateral to primary or principal obligation and that binds guarantor to performance in event of nonperformance by the principal obligor. Commercial Credit Corp. v. Chisholm Bros. Farm Equipment Co., 96 Idaho 194, 525 P.2d 976, 978.

A promise to answer for payment of debt or performance of obligation if person liable in first instance fails to make payment or perform obligation. An undertaking by one person to be answerable for the payment of some debt, or the due performance of some contract or duty, by another person, who himself remains liable to pay or perform the same. A promise to answer for the debt, default, or miscarriage of another person.

See guaranty of payment.

A guaranty is a contract that some particular thing shall be done exactly as it is agreed to be done, whether it is to be done by one person or another, and whether there be a prior or principal contractor or not. A guarantor of a bill or note is said to be one who engages that the note shall be paid, but is not an indorser or surety. The contract of a guarantor is the guarantor's own separate contract. It is in the nature of a warranty by guarantor that the thing guaranteed to be done by the principal shall be done, not merely an engagement jointly with the principal to do the thing.

See suretyship, contract of; also collateral guaranty, below.

Synonyms:

The terms guaranty and suretyship are sometimes used interchangeably; but they should not be confounded. The distinction between contract of suretyship and contract of guaranty is whether or not the undertaking is a joint undertaking with the principal or a separate and distinct contract; if it is the former it is one of "suretyship", and if the latter, it is one of "guaranty". General Finance Corp. of Atlanta, Northeast v. Welborn, 98 Ga.App. 280, 105 S.E.2d 386, 389.

Guaranty and warranty are derived from the same root, and are in fact etymologically the same word, the "g" of the Norman French being interchangeable with the English "w." They are often used colloquially and in commercial transactions as having the same signification, as where a piece of machinery or the produce of an estate is "guarantied" for a term of years, "warranted" being the more appropriate term in such a case. A distinction is also sometimes made in commercial usage, by which the term "guaranty" is understood as a collateral warranty (often a conditional one) against some default or event in the future, while the term "warranty" is taken as meaning an absolute undertaking in praesenti, against the defect, or for the quantity or quality contemplated by the parties in the subject-matter of the contract. But in strict legal usage the two terms are widely distinguished in this, that a warranty is an absolute undertaking or liability on the part of the warrantor, and the contract is void unless it is strictly and literally performed, while a guaranty is a promise, entirely collateral to the original contract, and not imposing any primary liability on the guarantor, but binding him to be answerable for the failure or default of another.

See warranty.

@ absolute guaranty

An unconditional undertaking by a guarantor that debtor will pay debt or perform the obligation. An unconditional promise of payment or performance of principal contract on default of principal debtor or obligor. Robey v. Walton Lumber Co., 17 Wash.2d 242, 135 P.2d 95, 102.

@ collateral guaranty

A contract by which the guarantor undertakes, in case the principal fails to do what he has promised or undertaken to do, to pay damages for such failure; distinguished from an engagement of suretyship in this respect, that a surety undertakes to do the very thing which the principal has promised to do, in case the latter defaults.

@ conditional guaranty

One which depends upon some extraneous event, beyond the mere default of the principal, and generally upon notice of the guaranty, notice of the principal's default, and reasonable diligence in exhausting proper remedies against the principal. One which is not immediately enforceable against the guarantor upon default of the principal but one in which the creditor must take some action in order that liability arise. Shur-Gain Feed Division William Davies Co., Inc. v. Huntsville Production Credit Ass'n, Ala.Civ.App., 372 So.2d 1317, 1320.

@ continuing guaranty

A guaranty which is not limited to a particular transaction but which is intended to cover future transactions until revoked. Farmers-People Bank v. Clemmer, Tenn., 519 S.W.2d 801, 805.

One relating to a future liability of the principal, under successive transactions, which either continue the principal's liability or from time to time renew it after it has been satisfied.

@ special guaranty

A guaranty which is available only to the particular person to whom it is offered or addressed; as distinguished from a general guaranty, which will operate in favor of any person who may accept it

@ guaranty company

A corporation authorized to transact the business of entering into contracts of guaranty and suretyship; as one which, for fixed premiums, becomes surety on judicial bonds, fidelity bonds, and the like

@ guaranty clause

See guarantee clause

@ guaranty fund

Statutes have made provision for depositors' guaranty funds to be raised, in whole or in part, by assessments on banks and to be used to pay the depositors of an insolvent Noble State Bank v. Haskell, 219 U.S. 104, 31 S.Ct. 186, 55 L.Ed. 112; Shallenberger v. Bank, 219 U.S. 114, 31 S.Ct. 189, 55 L.Ed. 117; Assaria State Bank v. Dolley, 219 U.S. 121, 31 S.Ct. 189, 55 L.Ed. 123; Abilene Nat. Bank v. Dolley, 228 U.S. 1, 33 S.Ct. 409, 57 L.Ed. 707.

Most bank deposits are insured to a specified limit by the Federal Deposit Insurance Corporation (q.v.)

@ guaranty of payment

A party to an instrument who, by adding "payment guaranteed" or equivalent words to signature, affects contract of liability on the instrument such that, regardless of the capacity in which he signs, he "engages that if the instrument is not paid when due he will pay it according to its tenor without resort by the holder to any other party." U.C.C. No. 3-416(1). A person who makes a guaranty of payment is a guarantor, specifically a guarantor of payment

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