Liability for Forged Personal Guaranties in Florida
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Previously we have explored: a) successful defenses to enforcement of personal guaranties, b) unsuccessful defenses to enforcement of personal guaranties, c) language requirements for personal guaranties, and lastly we will explore the obligation of an alleged guarantor when a personal guaranty is forged.
A third party fraudulently signing a personal guaranty in the name of the guarantor is a unique situation, largely unaddressed by Florida case law. Ruwitch v. First Nat. Bank of Miami, 291 So. 2d 650 (Fla. 3d DCA 1974), however is instructive. There, three businessmen jointly opened a corporation, with the first two men as silent partners and the third as the managing partner. Over time, the silent partner used forged personal guarantees to secure an additional $125,000 line of credit over the $25,000 for which the silent partners had signed on.
When the bank that had extended the line of credit to the corporation attempted to collect on its loans, the silent partners objected due to the fact that the personal guaranties they had allegedly signed had actually been forged, unbeknownst to them, by the managing partner. In holding that the two silent partners were liable for the debt based on their personal guarantees, the court stated, “As between two innocent parties suffering from the fraud of a third, the party whose own negligence or misplaced confidence enabled the third party to consummate the fraud must bear the loss.”
This unique legal concept was also applied in Cheek v. McGowan Elec. Supply Co., 483 So. 2d 1373 (FLA 1st DCA 1985). In that case, a construction company owner signed a personal guaranty for an independent electrical contractor that the owner often used on his projects, so that the contractor could get supplies from a wholesale supplier. The relevant language of the personal guaranty read, “We the undersigned do hereby give our personal guarantee of payment for all debts incurred and any finance charges incurred due to late payments on open account with [supplier] by [contractor]-special account [owner]-job or by us and agree to pay all court costs and [supplier’s] attorney’s fees if legal action should ever become necessary to collect any amounts owing.” No part of the agreement stated that the supplier would “police” the purchases or otherwise ensure that the contractor was only purchasing materials for the owner’s jobs. Further, the owner did not give the supplier a list of current jobs, or jobs for which the contractor would be expected to purchase materials.
When the contractor’s debt to the supplier reached over $22,000, the supplier sought to collect and initiated suit against the owner so as to collect on the debt via the owner’s personal guaranty. The owner asserted as his defenses to the personal guaranty: (1) there were charges on the account that were not of the type authorized by the written guaranty; and (2) that the supplier breached the guaranty by failing to inform the owner of the improper charges by the contractor. In finding that the debt should be apportioned equitably between the owner and supplier, the court cited the rule from Ruwitch, above, that, “[A]s between two innocent parties suffering from the fraud of a third, the party whose own negligence or misplaced confidence enables the third party to consummate the fraud must bear the loss.” (emphasis in original) Because each party, the owner and the supplier, was in the position to discover the fraud, and neither was completely innocent in comparison to the other, the court found that each should bear the brunt of being liable for his fair share. While this ruling did not involve a fraudulent signature on the promissory note, the court nonetheless cited, applied, and upheld the rule that, where fraud occurs with regard to a promissory note, an innocent party will be absolved for liability, and the party most able to discover the fraud is the party against whom the debt will be charged.
Therefore where a third party forges a guarantor’s signature to a personal guaranty, whichever party to the guaranty was in the factual position of being best able to discover and prevent the fraud will be the one liable for the debt related to the guaranty.