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Legal Definitions - contingent guaranty
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Definition of contingent guaranty
A contingent guaranty is a type of guarantee where the guarantor will only be liable if a specific event occurs. It is commonly used in finance and banking contexts.
- A father guarantees to pay his son's rent if the son loses his job. The father's liability is contingent on the son losing his job.
- A bank guarantees to pay a loan if the borrower defaults. The bank's liability is contingent on the borrower defaulting.
These examples illustrate how a contingent guaranty works. The guarantor is only responsible for fulfilling their obligation if a specific event occurs, such as the borrower defaulting on a loan or the son losing his job. Until that event happens, the guarantor is not liable.
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Simple Definition
A contingent guaranty is a promise made by one person to pay a debt or perform a duty if another person fails to do so. This type of guaranty only becomes effective if a specific event happens. For example, if a person guarantees a loan for someone else, they will only have to pay if the borrower defaults on the loan. A guaranty is different from a warranty because it is a promise to pay or do something, it is collateral to the primary obligation, and it must be in writing.
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