Also known as: guaranty agreements · guarantee agreement · guarantee agreements · guaranty · guarantee contract
Written by attorneys · grounded in primary & secondary sources — see below
A contract under which one party undertakes to answer for the debt or default of another if the primary obligor fails to perform.
Global Dynamics sold its mortgaged warehouse to Greenleaf Farms. The deed stated that Greenleaf Farms assumed the mortgage debt. Global Dynamics later obtained a signed release from the mortgagee stating that Global Dynamics was discharged from all personal liability on the note. When Greenleaf Farms defaulted, the mortgagee could not pursue Global Dynamics because the release eliminated its secondary obligation under the original guaranty agreement.
Grandview Holdings owned an office building subject to a first mortgage held by Harbor Bank. Gordon Gray executed a separate guaranty agreement promising to pay the debt if Grandview Holdings defaulted. After default, Gray paid the bank in full. The bank recorded a satisfaction. Gray then asserted the right to enforce the mortgage against the building in priority to a junior lienholder. Equity treated Gray as subrogated to the bank's position because his payment under the guaranty protected his own exposure.
Select any source to read its text and confirm it supports the definition.
A guaranty agreement creates secondary liability for a third party without transferring the primary obligation. An assumption makes the transferee the principal obligor while the original borrower remains secondarily liable unless released.
Supporting sources
The guarantor is entitled to reimbursement from the principal obligor and may be subrogated to the creditor's security interest in the collateral, preserving the original priority against junior interests.
Supporting sources
Yes. The mortgagee may sue the guarantor on the guaranty agreement immediately upon default unless the agreement or applicable suretyship rules require exhaustion of remedies against the principal.
Supporting sources
An express release given by the mortgagee to the guarantor eliminates the guarantor's personal liability on the underlying obligation.
Supporting sources
A material modification without the guarantor's consent can discharge the guarantor under suretyship defenses because it increases the risk the guarantor originally undertook.
Supporting sources
…proposals are "a particularly dangerous ground on which to rest an interpretation of a prior statute," Pension Benefit Guaranty Corporation v. LTV Corp. , 496 U. S. 633, 650 (1990), reasoning that " [c]ongressional inaction lacks persuasive significance because several equally tenable inferences may be drawn from…