Also known as: guaranty agreements · guarantee agreement · guarantee agreements · guaranty · guarantee contract
Written by attorneys — see sources 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.
In 1988, the Internal Revenue Service assessed $482,446 in unpaid income tax liabilities against Don Craft for his failure to file federal income tax returns for the years 1979 through 1986. At that time, Don Craft and his wife, respondent Sandra L. Craft, owned a piece of real property in Grand Rapids, Michigan, as tenants by the entirety. After notice of the federal tax lien was filed, the Crafts jointly executed a quitclaim deed purporting to transfer Don Craft's interest in the property to Sandra Craft for one dollar. When Sandra Craft later attempted to sell the property, a title search revealed the lien. The IRS agreed to release the lien to allow the sale on the condition that half of the net proceeds be held in escrow pending determination of the Government's interest. Sandra Craft then brought an action in the United States District Court for the Western District of Michigan to quiet title to the escrowed proceeds. The District Court granted summary judgment to the Government. On appeal, the United States Court of Appeals for the Sixth Circuit held that the tax lien did not attach to the property under Michigan law and remanded for consideration of the Government's fraudulent conveyance claim. On remand, the District Court found that the conveyance itself was not fraudulent but that the use of nonexempt funds to pay the mortgage constituted a fraudulent act, and it awarded the IRS a share of the proceeds. The Sixth Circuit affirmed that determination on the lien issue as law of the case. The Supreme Court granted certiorari to consider whether Don Craft had a separate interest in the entireties property to which the federal tax lien attached.
View caseA 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.
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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.
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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.
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An express release given by the mortgagee to the guarantor eliminates the guarantor's personal liability on the underlying obligation.
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A material modification without the guarantor's consent can discharge the guarantor under suretyship defenses because it increases the risk the guarantor originally undertook.
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…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…