Warning
Info
Warning
Info
Simple English definitions for legal terms
guaranty contract
Read a random definition: potentia
A quick definition of guaranty contract:
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 more thorough explanation:
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:
- Absolute guaranty: an unqualified promise that the principal will pay or perform.
- Conditional guaranty: a guaranty that requires the performance of some condition by the creditor before the guarantor will become liable.
- Contingent guaranty: a guaranty in which the guarantor will not be liable unless a specified event occurs.
- Continuing guaranty: a guaranty that governs a course of dealing for an indefinite time or by a succession of credits.
- General guaranty: a guaranty addressed to no specific person, so that anyone who acts on it can enforce it.
- Guaranty of collection: a guaranty that is conditioned on the creditor's having first exhausted legal remedies against the principal debtor before suing the guarantor.
- Guaranty of payment: a guaranty that is not conditioned on the creditor's exhausting legal remedies against the principal debtor before suing the guarantor.
- Irrevocable guaranty: a guaranty that cannot be terminated unless the other parties consent.
- Limited guaranty: an agreement to answer for a debt arising from a single transaction.
- Revocable guaranty: a guaranty that the guarantor may terminate without any other party's consent.
- Special guaranty: a guaranty addressed to a particular person or group of persons, who are the only ones who can enforce it.
- Specific guaranty: a guaranty of a single debt or obligation.
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.