What Language must be Included to have a Valid Personal Guaranty in Florida: Part Three of a Three Part Series
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Most of the cases alleging an insufficiently drafted personal guaranty concern corporate officers guarantying corporate debt, and the officer’s subsequent defense that he was signing in a strictly representative capacity. In deciding these cases, courts have also outlined the language requirements for a valid guaranty. This post is the third post in a series of posts analyzing the legal requirements of personal guaranty obligations in Florida.
Florida courts have lent guidance to what must go into a personal guaranty to make it enforceable. For example, in Steele v. Hallandale, Inc., 125 So. 2d 587 (Fla. 2d DCA 1960), a corporate officer who had personally guaranteed the debts of his corporation alleged that he had done so only in his representative capacity, and not in his own personal capacity. In deciding the issue, the court stated that
“As a general rule, so far as the liability on corporate contracts is concerned, directors and officers of corporations are in the same position as agents of private individuals. As is true of agents generally, it is well settled that the officers of a corporation are not personally liable on its contracts if they do not purport to bind themselves individually. On the other hand, if in executing a contract for the corporation, a director or officer employs terms which in legal effect charge himself, he may be sued upon the instrument itself as a contracting party, for the reason that by the use of such terms he has made the contract his own.”.
Thus the court further opines that the liability of the signer of a contract endorsed in corporate and, arguably, individual capacity is governed by the intentions of the parties as derived from the instrument.
Similarly, in Roy v. Davidson Equipment, Inc., 423 So. 2d 496 (Fla. 4th DCA 1992), the president of a corporation signed a personal guaranty for the corporation’s debt. The relevant portions of the guaranty read, “$204,000.00 to be personally guaranteed by [corporate president]” and
“[T]he undersigned, jointly and severally, absolutely guarantee the full and prompt payment of any and every indebtedness, liability, or obligation of [corporation] arising out of [the contract]… In the event of default in payment of any amount due thereunder … by [the corporation] …the undersigned promises to pay the full amount of such indebtedness…The liability of the undersigned shall not be affected by the discharge or release of the indebtedness, liability, obligation of the [corporation].”
In upholding the personal guaranty against the president of the corporation, the court weighed heavily the above-quoted language of the guaranty. It stated that,
“The manner in which the guaranty was signed, standing alone and without more, would be the classic example of a corporate officer signing in a representative capacity only. But here there is much more. The instrument to which the signature was affixed was a guaranty of the corporate indebtedness of [the corporation]. For a corporation to guarantee its own debt would add nothing to its existing obligation and would be meaningless. Furthermore, the guaranty was the joint and several obligation of the undersigned, which obligation was ‘not to be affected by…the discharge or release of the indebtedness, liability or obligation of [the corporation]’, an obvious paradox if [the corporation] were a guarantor. This language specifically negates the signature as having been made in a representative capacity.”
The court was not only giving credence to the idea that to enforce a personal guaranty against a corporate officer there must be language personally identifying him as the guarantor, but was also showing exactly what type of language suffices to personally identify the guarantor and hold him liable for the debt.
The same issue was present in Robert C. Malt & Co. v. Carpet World Distributors, Inc., 763 So. 2d 508 (Fla. 4th DCA 2000), where the court made comparable findings and expounded upon Steele’s rule that the guaranty should have terms that have the legal effect of charging the officer with responsibility for the debt. In Robert C. Malt & Co., a corporation’s president signed a purported personal guaranty stating that his corporation’s net worth would not fall below a certain dollar amount, and that, if it did so, he would personally make up the difference. When the corporate net worth fell below that agreed-upon amount, the other party sued the president to enforce the personal guaranty. In deciding if the guaranty was indeed a valid personal guaranty, the court stated that,
“Generally, a signature preceded by the word ‘by’ and accompanied by descripto personae, that is, language identifying the person signing the document as a corporate officer or something similar, does not create personal liability for the person singing a contract to which he or she is not a specified party. Personal liability may still be imposed, however, where the contract contains language indicating personal liability or the assumption of personal obligations, despite a signature preceded by a corporate name and the word ‘by’ and followed by descripto personae.”
The relevant paragraph of the personal guaranty read, “In the event that the net worth of Carpet World is reduced in excess of 10% … then it is agreed that Richard Susco [the president of the corporation] shall guarantee the shortfall,” and the guaranty then had a signature of the president, followed by the word “president”.
In finding that the president was liable, the court relied on the above paragraph from the guaranty, finding that it satisfied the rule quoted above; that is, the guaranty had specific language enumerating that the president would be personally liable. The guaranty had more than just the president’s signature in his representative capacity; it had language indicating personal liability and the assumption of personal obligations, thus making it a valid personal guaranty and clarifying exactly what type of language is needed to personally charge a corporate guarantor with the debts he has allegedly guaranteed.
These cases make it clear, then, that to have a valid personal guaranty, with regard to a corporate officer, there must be more than just the officer’s signature as personal guarantor; he or she must either be made a party to the contract, or the language of the guaranty must specifically state in clear and unambiguous language that the officer is signing in a personal capacity and not as a corporate representative, such as the “jointly and severally” language in the guaranty in Roy and Fairway Mortgage.
For more on this topic, consider other articles in this series: