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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. historic definition... 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 liable. About the author Mark McCracken 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". Copyright © 2005 by Mark McCracken, All Rights Reserved. TeachMeFinance.com is an informational website, and should not be used as a substitute for professional financial or legal advice. TeachMeFinance.com and its owner recommend consultation with a professional financial advisor prior to any investment or financial decision. Please read our disclaimer.