Simple English definitions for legal terms
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A guaranty contract is a promise made by one person to pay a debt or do something if another person fails to do it. It is like a backup plan to protect the person who is owed money. The guaranty must be in writing and is different from a warranty, which is a promise about a product. There are different types of guaranties, such as absolute, conditional, and continuing guaranties. A special guaranty is only for a specific person, while a general guaranty can be used by anyone who is owed money.
A guaranty contract is a promise made by one party to answer for the payment of a debt or the performance of a duty in case another party fails to do so. This type of contract is most common in finance and banking contexts.
For example, if a person takes out a loan from a bank, the bank may require a guaranty contract from a third party who promises to pay back the loan if the borrower is unable to do so.
There are different types of guaranty contracts:
Overall, a guaranty contract is a way for a third party to promise to pay or perform if the primary obligor fails to do so. This provides additional security for the creditor and can help facilitate transactions that might not otherwise be possible.