Legal Definitions - special guaranty

A special guaranty is a legal promise made by one party (the guarantor) to a specific individual or entity (the beneficiary) that they will be responsible for the debt or obligations of another party (the principal debtor) if that principal debtor fails to fulfill their commitment.

The defining characteristic of a special guaranty is its limited scope: it is directed and restricted to a particular named party. This means that the promise generally cannot be transferred or assigned to anyone else without the guarantor's explicit consent, making it distinct from a general guaranty, which is made to anyone who might extend credit to the principal debtor.

• Example 1: Landlord-Tenant Agreement

  When a college student, Maya, wants to rent an apartment from "Campus Living Properties," the landlord requires a guarantor because Maya has no established credit history. Maya's aunt, Susan, signs a document promising Campus Living Properties that she will pay Maya's rent if Maya fails to do so. This is a special guaranty because Susan's promise is made specifically to Campus Living Properties. If Campus Living Properties were to sell the building to a new owner, "University Housing LLC," Susan's guaranty would not automatically transfer to University Housing LLC without her explicit agreement, as her original promise was limited to the original landlord.

• Example 2: Small Business Loan

  John is launching a new bakery, "The Daily Loaf," and secures a business loan from "Community Bank." The bank requires John to personally guarantee the loan. John signs a document stating that he will personally repay the loan amount to Community Bank if The Daily Loaf defaults. This is a special guaranty because John's personal promise to repay is made solely to Community Bank. If Community Bank later sold the loan to another financial institution, "Regional Credit Union," John's guaranty would not automatically extend to Regional Credit Union unless the terms of the original guaranty specifically allowed for such assignment or John agreed to a new guaranty.

• Example 3: Supplier Credit for a Subsidiary

  A newly formed subsidiary company, "Green Tech Innovations," wants to purchase specialized components on credit from a supplier, "Advanced Materials Inc." Due to Green Tech Innovations' lack of credit history, Advanced Materials Inc. requests a guaranty from the parent company, "Global Holdings Group." Global Holdings Group signs a guaranty promising Advanced Materials Inc. that it will pay for any components Green Tech Innovations orders on credit if Green Tech Innovations fails to pay. This is a special guaranty because Global Holdings Group's promise to pay is directed specifically to Advanced Materials Inc. If Green Tech Innovations later decided to purchase components from a different supplier, "Precision Components Ltd.," the guaranty from Global Holdings Group would not apply to purchases from Precision Components Ltd., as the original promise was limited to Advanced Materials Inc.