TeachMeFinance.com - explain guaranty
guaranty -- a promise by one party to pay the debt or perform an obligation of a second party if the second party fails to carry out terms of the obligation to a third party. See guarantee.
Guaranty -- Same as guarantee ; an undertaking by one person
to be responsible for the payment of a debt of another or
for the performance of a contract by another who stands first
bound to pay or perform.
A guaranty is always enforceable in accordance with the
strict meaning of its terms. But a guaranty of payment and
a guaranty of collection impose very different obligations on
the guarantor. A guaranty of collection is an undertaking by
the guarantor that the debt will be paid if and after the creditor
employs all the means within his power to collect it. The
guarantor cannot be held until the principal debtor has been
sued and judgment secured against him and an execution
under that judgment has been returned unsatisfied.
But one who guarantees the payment of an obligation is in
default the moment the debt is due and unpaid. For he has
not guaranteed merely that it can be collected through the
usual processes, but that it will be paid when due. If it is not
so paid suit may be brought against the guarantor, not only
before any suit has been brought against the principal debtor,
but even before any demand of payment has been made upon
him. If the principal does not pay promptly when the debt is
due, without demand, the guarantor immediately becomes
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Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English".
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