Successful Defenses to Enforcement of a Personal Guaranty in Florida: Part One of a Three Part Series

A personal guaranty is a contract signed by an individual wherein the guarantor affirms his or her personal obligation on a loan or some other debt obligation, such that if the original debtor becomes unable to pay the debt, the guarantor is personally liable for that debt and is legally responsible for its repayment. In a typical case, a president, CEO, or other officer signs a personal guaranty for the debts of his or her business and becomes personally liable for the debt if the business defaults. Florida case law demonstrates that a simple, but well-drafted, personal guaranty that specifically enumerates the personal nature of the debt assurance is adequate to form a legal, binding personal guaranty. This blog post seeks to identify successful defenses utilized in Florida case law to consider when drafting or seeking to enforce personal guarantees.

The following have been utilized as successful defenses to enforcement of a personal guaranty:

A. Guaranty Executed in Official Business Capacity—Not Personal Capacity

In determining the enforceability of a personal guaranty, parties can assert various defenses to the enforcement of the obligation. One such defense is that the guarantor was signing in an official business capacity, and not in an individual capacity, thus negating the personal nature of the instrument.

In Fairway Mortgage Solutions v.  Locust Gardeners, 988 So. 2d 678 (Fla. 4^th DCA 2008), for example, the plaintiff landlord brought suit against its tenant, a corporation, for defaulting on a commercial office space lease, where the corporation’s president signed the lease on behalf of the corporation.   Directly beneath the signature line was hand-printed the president’s name and position within the corporation. Additionally, the following phrase was hand-printed beneath the signature line as well: “The tenant signature [sic] above also indicates acceptance of personally guaranteeing this lease and is being freely given as per section “G” of this lease”.  Summary judgment was entered in favor of the landlord, and the tenant appealed.

On appeal, the court found that there was a genuine issue of material fact as to whether the president was personally liable for the debt incurred by the corporation under the lease agreement. In so finding, the court made this important statement:

“A signature, preceded by  the  word  ‘by’   and  accompanied by… language  identifying  the  person signing the document as a corporate officer or something similar does not create personal liability for the person signing the contract to which he or she is not a specified party, unless the contract  contains  language indicating personal  liability  or  assumption  of personal obligations.”[1]

The court’s basic logic, as reflected by the above quote, is that merely putting one’s corporate title, when signing a guaranty for corporate debt, is insufficient to make that employee liable for the debt. Therefore, absent specific or contractual language serving to bind the employee in a personal capacity, if a corporate officer, who is not himself a party to the underlying contract, signs a personal guaranty, he can assert as a defense to the enforcement of the personal guaranty against him the fact that he was only signing in a representative, rather than personal capacity.

B. Fraudulent Inducement

Fraudulent inducement has been recognized as a valid defense to a personal guaranty. While  Checkers  Drive-in  Restaurants. Inc.  v.  Tampa  Checkmate  Food Services, Inc. 805 So. 2d 941 (Fla. 2d DCA 2001), deals with appeals from the trial court’s ruling as to personal liability of certain corporate officers, one issue not appealed was the trial court’s finding that the appellee was not liable for a personal guaranty he had been fraudulently induced into signing. In reversing the personal liability of the corporation’s president as to the fraudulent inducement, but maintaining the liability of the corporation itself, the court affirmed the idea that one is not personally liable for a guaranty that he was fraudulently induced into signing. Id  at 943. 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.

C. Revocation of Guaranty

Finally, courts have recognized as a defense to the enforceability of a personal guaranty a guarantor’s purported revocation of the guaranty coupled with discontinued reliance upon the guaranty by the creditor.   Valid revocation can occur via oral and written communication,  or  solely  written  communication,  to  the  creditor  that  the guarantor  is  no  longer  guaranteeing  the  debt.    Revocation can also occur if the guarantor’s actions reflect that he is no longer guaranteeing the debt.    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, such as furnishing other security on the guaranty and/or providing detailed financial statements of the guarantor’s financial status.

In Wiskeman v. First Bank of Hollywood Beach, 405 So. 2d 1044 (Fla. 3d DCA1981), the court found that summary judgment for the defendant-creditor was inappropriate where the plaintiff showed he had revoked the personal guaranty and the defendant bank had discontinued its reliance on the guaranty. While the court did not specifically rule on the sufficiency of the defense, it did acknowledge that it had some merit, as it was sufficient enough to overcome summary judgment. In making its ruling the Wiskeman court cited, Miami Nat. Bank v. First Intern. Realty Inv. Corp., 364 So. 2d 873, which involved an investment corporation that took out a sizable loan from a bank, backed by a promissory note personally guaranteed by the corporation’s president.  The  duration  of  the  original  promissory  note  was  90  days, renewable in 90 day terms.  The bank subsequently renewed the guarantees several times. During  the  second   renewal   period  and   before  the  execution   of  the  third  90-day promissory note, the bank president, orally and in writing, informed the bank that he was no longer personally  guaranteeing  the promissory  note.   The bank president also subsequently revoked the personal guaranty a third time, again in writing.   Based upon  these facts, the court found that the president had validly revoked the guaranty, and awarded him summary judgment  in the enforcement  action  against  him stemming  from  the bank’s attempt  to enforce the personal guaranty.

Similarly, in Burt v. Community  Nat. Bank of Bal Harbour, 142 So. 2d 118 (Fla. 3d DCA 1962) the court there found that a personal guaranty had been discharged  by the guarantor’s communicating  that he was no longer a guarantor of the debt and the creditor discontinuing  its  reliance  on  the  guaranty.  The  creditor  bank  issued  a  loan  to  the company for which the guarantor worked, backed by his personal guaranty.  The original loan was paid off by the corporation  and the bank then informed the company  that if it was to receive further funds under the original agreement then the guarantor  would have to either furnish certain securities to shore up the strength of the guaranty or provide the bank  with  certain  certified   financial  documents   regarding  the  guarantor’s  personal financial status. The guarantor refused to take either of those actions, and the bank nevertheless continued making loans under the original agreement.

In declining  to hold  the guarantor  personally  liable for  the company  debt, the court found that the guarantor had expressed his refusal to further guaranty the debt when he  refused  to  either  furnish  additional  security  for  the  guaranty  or  provide  certified financial documents detailing  his personal financial status.   Though  the guarantor  made neither an oral nor a written communication, the court construed his actions in refusing to meet the conditions the bank put on the company’s obtaining further funds as expressing that he was no longer guaranteeing the debt.  Further, the court also construed  the bank’s actions in making further loans conditional on certain acts by the guarantor as evidencing an intent to discontinue reliance upon the guaranty if the guarantor did not meet those conditions,  which  the  guarantor  did  not.    Therefore,  because  the  guarantor’s actions reflected  that he was no longer guaranteeing  the debt of his company,  and  because the bank’s  actions  reflected  that  they  would  no longer  be  relying  upon  the  guaranty,  the guarantor was not held personally liable for the debt at issue.

Therefore,  on the basis of these three cases, it appears  that written,  or oral and written,  communication   or  a  party’s  course  of  action  may  reflect  a  revocation  of  a personal guaranty.