In financial matters, "guaranty," or "form of guaranty," usually means the printed or written form, properly signed, upon a security, whereby some party, not originally issuing the security, promises its payment; that is, guarantees the same.
A "guaranty" may not appear upon the bond or stock itself, as explained under " Guaranteed by Indorsement." The form of "guaranty" either appearing upon the security, or set forth in some separate contract, must have careful consideration on the part of the investor. For instance, in the case of a bond, the form of "guaranty" should be such that the guaranteeing company must live up to its guarantee, if necessary to do so, by paying the sum called for into
The Hands Of The Trustee Of The Mortgage, So that the coupons will be paid as presented and properly cancelled by the trustee. This is to prevent the guaranteeing company from purchasing the coupons and holding them as a claim against the mortgaged property. A simple wording of a "guaranty" of this kind is as follows: "For value received the Ohio & Florida Railway Co. guarantees and assures the payment of the principal and interest of the foregoing bond at the office of the Penn Trust Co., in the city of Philadelphia, Pa., as and when same respectively come due."
The form above is that part of the form of "guaranty " which compels the guaranteeing company to pay the interest and principal of the bond at the office of the trust company, which is the point it is intended to emphasize here.
Also see that the property guaranteed is of sufficient value in earning capacity and otherwise to the guaranteeing company so that there may never in the future be occasion for the latter to try to evade its liability. In other words, do not purchase a guaranteed security merely because it bears the " guaranty" of some other strong corporation. Ignore such "guaranty" for the time being, and consider the value of the property independently and its value to the guaranteeing company. Faith in guaranteed railway stocks has been somewhat shaken since the Boston & Maine reorganization when the "leased-line stockholders" were induced to accept inferior securities while the Boston & Maine stockholders were not compelled to make any contribution.