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Identifying and Negating Successful Defenses to Valid Personal Guarantees
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Identifying and Negating Successful Defenses to Valid Personal Guarantees

July 27, 2010 Banking & Financial Services Industry Legal Blog, Professional Services Industry Legal Blog

Reading Time: 5 minutes


A contract of guaranty is the promise to answer for the payment of some debt or the performance of some obligation by another, such that if the original debtor is unable to pay the debt or satisfy the contractual obligation, for whatever reason, the guarantor is himself liable on the default of the primary obligor.   The guarantor’s knowledge of the execution or delivery of a guaranty is irrelevant, where the contract of guaranty speaks for itself and where the guarantor has not disclaimed knowledge of the guaranty.  See Chris Craft Industries, Inc. v. Van Valkenberg, 267 So.2d 642 (Fla. 1972).

In a typical case, a President, CEO, or other officer signs a personal guaranty for the debts of his corporation and becomes personally liable for the debt upon the corporation’s default.  Florida case law demonstrates that a simple, but well-drafted personal guaranty, which specifically enumerates the personal nature of the debt assurance, is adequate to form a legal and binding personal guaranty.

In order for a guaranty to be valid, certain requirements must be satisfied.  A corporate officer’s signature as guarantor, without more contractual basis, will not create a valid personal guaranty.    An officer of a corporation will not be held personally liable for a contractual obligation or debt, unless the contractual language indicates that he purports to bind himself individually.  Furthermore, to enforce a personal guaranty against a corporate officer, there must be language personally identifying him as a guarantor.  In addition, the guaranty should include terms, which have the legal effect of charging the guarantor with responsibility for the debt; that is, the guaranty should contain language enumerating the personal liability of the Guarantor, if the original debtor or primary obligor is unable to pay its debt or perform its contractual obligation.

The following are examples of common defenses asserted in Florida law, and ways in which those defenses can be negated:

Agreement signed in corporate capacity only– When a corporate representative signs a guaranty for corporate debt, he or she will not be held liable for the debt unless the contract contains language indicating personal liability or assumption of personal obligations.   Thus, in the absence of such contractual language, and as a defense to enforcement of a personal guaranty against him, the corporate representative can assert the defense that upon signing the contract, he was signing in a representative, rather than a personal capacity.   However, such defense would not shield the corporate representative from liability if he were an actual party to the underlying contract.

Fraudulent inducement- A corporate representative will not be held liable for a personal guaranty he has been fraudulently induced into signing.   Under these circumstances, the fraud would negate the guarantor’s assent to be personally liable for the contractual debt. To avoid this defense, companies should make sure that no false or misleading statements are made to the guarantor to induce the assumption of the personal liability.

Revocation- A revocation of guaranty will also serve as a defense to the enforceability of a personal guaranty.  Often this defense arises from former employees or officers that guaranteed obligations of a company. Asserting that the guarantor has left the company whose debts he personally guaranteed alone is not adequate to absolve the guarantor of liability for the debt. Express revocation is required.

In order to assert the defense, the guarantor must show that he revoked his personal guaranty, and he must also provide evidence demonstrating discontinued reliance upon the guaranty by the creditor.  Florida case law holds that a valid revocation can occur via oral and written communication, solely written communication, or by the guarantor’s actions.  If a guarantor’s actions indicate that he no longer intends to personally guaranty a debt, the Court can construe the same in making its determination as to whether or not a revocation has occurred. In all likelihood, however, a successful defense of revocation must be in writing and be further evinced by future actions supporting the act of revocation.

Once the guarantor establishes that he did, indeed, revoke his guaranty, he must then illustrate the creditor’s discontinued reliance upon the guaranty.  Discontinued reliance by the creditor is reflected by, for example, the creditor removing the guarantor from its records of guarantors on the debt or the creditor acknowledging that no further credit will be issued absent further specific action by the debtor. If a guarantor contacts the company to revoke the guaranty, best practices indicate that some consideration should be given for release of the guaranty and such release/revocation should be documented in writing by all parties involved. If a revocation is given, an additional guarantor should be provided by the company in order to continue doing business with the company. Remember, companies are not generally required to release guarantors from their obligations, since the guaranty was an inducing factor to enter into a business transaction.

It should also be noted that based on Nelson v. Ameriquest Technologies Inc., 739 So.2d 161 (Fla. 3d DCA 1999) and Frell v. Dumont-Fla., Inc., 114 So.2d 311 (Fla. 3d DCA 1959), it is apparent that neither selling assests associated with the personally guaranteed debt, nor changing the name of the business that incurred the debt is sufficient to discharge personal liability, especially where the sale or name change is not communicated to the obligor and there is no other action taken to revoke the guaranty by the guarantor.

In conclusion, though it is possible to defend against personal guaranty enforcement, the likelihood of a successful defense is minimal if the correct corporate procedures are followed and the contracts are drafted appropriately. In a time in which corporations are regularly liquidating and going out of business, a personal guaranty can become a treasured asset to a corporate credit department.


By:  Emily C. Williams, Esq.

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