Guaranty in United States

Guaranty Definition

An undertaking to answer for another’s liability, and collateral thereto. A collateral undertaking to pay the debt of another in case he does not pay it. Shaw, C. J., 24 Pick. (Mass.) 252. 194 111. App. 514. It is distinguished from suretyship in being a secondary, while that is a primary, obligation; or, as sometimes defined, guaranty is an undertaking that the debtor shall pay; suretyship, that the debt shall be paid. The undertaking is essentially in the alternative. A guarantor cannot be sued as a promisor, as the surety may; his contract must be specially set forth. A guarantor warrants the solvency of the promisor, which an indorser does not. 8 Pick. (Mass.) 423. Guaranty, as distinguished from suretyship, is an independent contract, while the surety is bound jointly with his principal. A contract of suretyship is a direct liability for the act to be performed by the debtor, and a guaranty is a liability only for his ability to perform the act. 52 Pa. St. 440. As distinguished from indemnity, in that a principal obligation is essential to guaranty, while indemnity may be a primary contract. Guaranties are either:
(1) General, running to any person dealing with the principal.
(2) Special, to a particular person.
(3) Limited, i. e., covering only a particular transaction.
(4) Continuing, applicable to a class of future transactions.
(5) Absolute, conditioned only on the default of the principal.
(6) Conditional, dependent on some extraneous condition.

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Legal Issue for Attorneys

An undertaking to answer for another’s liability, and collateral thereto. A collateral undertaking to pay the debt of another in case he does not pay it. Shaw, C. J., 24 Pick. (Mass.) 252. 194 111. App. 514. It is distinguished from suretyship in being a secondary, while that is a primary, obligation; or, as sometimes defined, guaranty is an undertaking that the debtor shall pay; suretyship, that the debt shall be paid. The undertaking is essentially in the alternative. A guarantor cannot be sued as a promisor, as the surety may; his contract must be specially set forth. A guarantor warrants the solvency of the promisor, which an indorser does not. 8 Pick. (Mass.) 423. Guaranty, as distinguished from suretyship, is an independent contract, while the surety is bound jointly with his principal. A contract of suretyship is a direct liability for the act to be performed by the debtor, and a guaranty is a liability only for his ability to perform the act. 52 Pa. St. 440. As distinguished from indemnity, in that a principal obligation is essential to guaranty, while indemnity may be a primary contract. Guaranties are either:
(1) General, running to any person dealing with the principal.
(2) Special, to a particular person.
(3) Limited, i. e., covering only a particular transaction.
(4) Continuing, applicable to a class of future transactions.
(5) Absolute, conditioned only on the default of the principal.
(6) Conditional, dependent on some extraneous condition.

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This definition of Guaranty is based on The Cyclopedic Law Dictionary. This entry needs to be proofread.

Practical Information

Note: Some of this information was last updated in 1982

(The term is used interchangeably with suretyship by courts and lawyers as well as laypersons.) A contract of guaranty or of suretyship is a contract whereby one person agrees to be responsible to another for the payment of a debt or the performance of a duty by a third person. It must be in writing and is not enforceable if made orally. The term guaranty (or guarantee) is often loosely used in the sense of warranty (in U.S. law). In a strict legal and commercial sense, it is the essence of a contract of guaranty that there should be a principal, liable directly to perform some act or duty. An agreement by a third party guaranteeing the honest and faithful performance of a contract of sale is a contract of guaranty; an agreement in a sales contract “guaranteeing” the efficient performance of a product for a certain number of years is a contract of warranty. The words guarantee and guaranty are frequently used incorrectly. For the verb, always use guarantee. Business convention has established a specialized use of guaranty as a noun, as illustrated above. However, guarantee is never wrong, even in these expressions. A safe rule to follow is: When in doubt, use guarantee.

(Revised by Ann De Vries)

What is Guaranty?

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Guaranty in State Statute Topics

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Resources

Further Reading

• Information about Guaranty in the Gale Encyclopedia of American Law.