Personal Guaranties in Florida: When a Business Debt Becomes the Owner's Debt

The customer was a limited liability company. It bought on credit for three years, fell behind, and then closed its doors owing a balance large enough to matter to your business. The company has no assets worth pursuing. Its owner, meanwhile, drives a new truck and has opened another business down the street. Whether you are ever paid now turns on one page in the file: the credit application the owner signed on the first day, and whether its second signature line made him personally responsible.

A personal guaranty is the simplest way around the wall the law places between a company's debts and its owner's assets. It is also among the most heavily litigated documents in commercial collections, because so many are signed without being read and enforced years later. Here is how Florida courts treat them, from both sides of the signature.

What is a personal guaranty?

It is a promise by one person to pay the debt of another if that other does not. In business, the usual form is an owner promising to pay what the company owes. The guaranty is a contract separate from the underlying debt, and a creditor can sue on it directly. It appears in credit applications, commercial leases, loan documents, supply agreements, and equipment financing, often as a single paragraph above a second signature. Without one, the owner of a corporation or limited liability company is generally not liable for the company's contract debts, absent fraud or abuse of the corporate form.

Does a guaranty have to be in writing?

Yes. Florida's statute of frauds requires a promise to answer for the debt of another person to be in writing and signed by the person making it. A spoken assurance, such as "I'll make sure you get paid," is generally not enforceable as a guaranty, however sincerely it was given. An electronic signature satisfies the requirement. The document does not need to carry the word "guaranty" in its title; what counts is language showing that the individual agreed to be personally responsible.

What if the owner says he signed only as an officer?

This is the most common defense. The owner points to the word "President" beside his signature and argues that he signed for the company, not for himself. Florida courts read the document as a whole. Where the text clearly says the signer personally promises payment, a corporate title next to the signature generally does not defeat it, because a company promising to pay its own debt would add nothing. Where the document is unclear, with one signature block and no plain statement of personal liability, a court may consider outside evidence of what the parties intended, and the creditor may lose. Creditors should use a separate signature line for the guarantor, with the name alone and the word "individually." Owners should read whatever sits above the second line before signing it, every time.

How far does a guaranty reach?

As far as its words. A continuing guaranty covers future credit as well as the first transaction, and it remains in force until the guarantor revokes it in writing. A limited guaranty caps the amount or the period. A guaranty of payment, often called absolute or unconditional, lets the creditor proceed against the guarantor as soon as the company defaults. A guaranty of collection requires the creditor to exhaust its remedies against the company first. Most forms include interest, attorney's fees, and costs. And a guaranty does not end when the owner sells the business. Former owners are regularly sued for debts the buyer ran up, because nobody revoked the guaranty or obtained a release at closing.

What defenses do guarantors raise?

Several, and some of them work. A material change to the underlying deal made without the guarantor's consent, such as a much larger credit line or a new debtor, can discharge the guaranty, although most forms contain advance consent language written to defeat that argument. A written revocation ends liability for debts incurred afterward. The statute of limitations for an action on a written contract in Florida is five years. Guarantors also contest the signature itself, the amount owed, and how payments were applied. One protection lies outside the document: property a married couple holds as tenants by the entireties cannot be reached for a debt only one spouse backed, which is why lenders often ask both to sign. Florida's homestead and other exemptions apply to an individual guarantor as they do to any other debtor.

Can a creditor sue the guarantor without suing the company?

Under a guaranty of payment, yes. In practice creditors usually name both in one lawsuit. If the company files for bankruptcy, the automatic stay that halts collection against the company generally does not protect a guarantor who has not filed, so the case against the individual can go forward. Dissolving the company does not end the guaranty either. A judgment against the guarantor is collected from personal assets, subject to the exemptions Florida gives individuals.

What should each side check before a dispute starts?

Creditors should find the signed original or a clean copy. Confirm that the company named in the guaranty is the company that owes the debt, since guaranties of the wrong entity are a recurring problem after reorganizations and name changes. Confirm that the debt arose while the guaranty was in force, look through the file for any revocation letter, and obtain new guaranties whenever ownership changes. Owners should take inventory of what they have signed, especially old credit applications and leases. Revoke in writing when you sell or leave, and ask for a written release. When selling a business, require the buyer to replace you on every guaranty. And before signing a new one, negotiate: a cap on the amount, or an end date, is easier to obtain than most owners assume.

Salomon Smith PLLC represents businesses enforcing personal guaranties and collecting commercial debts across South Florida, and advises owners facing claims on guaranties they signed. If an unpaid account in your files carries an owner's signature, call (305) 297-1018 for a free consultation, or learn more about our commercial collections practice.

This article is for general informational purposes only and is not legal advice.