TeachMeFinance.com - explain guarantee
guarantee -- a promise, especially in writing, that something is of specified quality, content, benefit, or that it will provide satisfaction or will perform or produce in a specified manner. In the thrift industry, one such guarantee is the promise of the issuer of mortgage-backed securities that the issuer will pay principal and interest to investors in those securities, even if borrowers of the underlying mortgage loans default. See guaranty.
guarantee -- This is a contract whereby one person, who is called indifferently the guarantor or the surety, undertakes to be answerable to another person for any loss in respect of a debt, default, or act of a third party. Before there can be any question of guarantee, there must be a legally binding contract existing between two parties other than the guarantor or surety, and the guarantor is only called upon to fulfil his part in the transaction if the obligation between the others has not been carried out. This statement must be taken subject to an exception when the principal debtor is an infant. Suppose that an infant enters into a contract for goods other than necessaries. This, of course, is not a contract binding upon the infant ; but if a surety guarantees the payment, he will be held responsible, because he would either be estopped from setting up the contractual incapacity of the infant principal, or he would himself be treated as the principal.
As a guarantee is a contract, the ordinary rules of offer and acceptance apply, and therefore the guarantee must be given by the guarantor to the principal creditor and accepted by him, and not to the debtor, for it is to the former that the guarantor binds himself.
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