Personal Guarantee or Corporate Guarantee
This essay is published for informational purposes only. It is not legal advice, nor is it intended as a substitute for the advice of your attorney.
Many attorneys tell their clients that a personal guaranty should not be included in the body of the credit application. Instead, it should be provided separately to the applicant or customer. If the guarantee is made part of the credit application, the guarantee should appear after the application signature line as a separate section. This section should be conspicuously labeled as a guarantee and there should be a separate signature line. The Credit Application should be signed by an officer of the corporation. The Personal Guaranty must be signed by an individual.
Laws should be reviewed since it may or may not be unlawful for a credit grantor to require a spouse to sign a personal guaranty if that spouse is not directly involved with the business, but a creditor can request that signature of the guarantor's spouse. Care must be taken to make sure that there are policies established for dealing with this that there is not an accidental dark-compliance. The law does permit the requirement for a spouse to sign a personal guaranty if detailed procedures are followed to first verify that the participant spouse does not have the financial credibility or credit wherewithal to support a guaranty.
Once that has been independently established, and if the credit were to then be turned down because of the lack of sufficient creditworthiness of the guarantor, the guaranty of the spouse may then be required. This is a very complicated procedure. Competent legal counsel should be consulted in order to establish the appropriate policies and procedures for each company.
If a guarantee of another corporation, an affiliated corporation, a parent or a subsidiary is obtained, a creditor should always request a copy of the corporate resolution authorizing it. A parent corporation can guarantee the debt of its subsidiary. The official corporate seal should be placed on the documents. Remember, that for the guaranteeing corporation, they assume a contingent liability for the subsidiary, so the ability for a creditor to obtain this document is not always easy.
Checklist for the Personal Guaranty:
- Absolute and Unconditional Guaranty,
- Guarantor(s) agree to seller's/creditor's specified interest rates,
- Guarantor(s) agree(s) to pay all costs of collection (attorneys fees and court costs),
Guarantor(s) agree(s) to the specified governing laws;
- Guarantor(s) agree(s) to be joint and severally liable with the debtor to the seller/creditor,
- Guarantor's consent to jurisdiction (optional),
- Guarantor's waiver of a jury trial (optional),
- Guarantor’s signature.
Sample language can be:
The undersigned individual(s) in consideration of the company’s extension of credit to the applicant hereby agrees to personally guarantee any and all obligations of the applicant and the company. This guaranty shall be continuing and unlimited and may be terminated only on 30 days’ written notice to the company. The company may exercise its rights under this guaranty without first taking any action against the applicant. The undersigned waives notice of default and non-payment, and consents to the extension or modification of credit terms to the applicant without notice.
Dated Witness Guarantor
Sample language can be:
This guaranty is given by the undersigned to seller, in order to induce and extend credit to, sell goods to, or otherwise become the creditor of, the above-named sole proprietorship or corporation.
I hereby guaranty to seller, the prompt payment, in accordance with the terms of credit, of every claim of seller, including claims relating to goods sold, open accounts and accounts stated, against the above-named sole proprietorship, partnership or corporation. This is a continuing guaranty and shall remain in force until revoked by the written consent of seller. This obligation shall cover the renewal of any claims guaranteed by those affected by any surrender or release by the seller of any security held by it for any claim hereby guaranteed.
The undersigned additionally guarantees the payment of interest at the maximum lawful rate on all monies outstanding to seller, by the above-named sole proprietorship, partnership or corporation, together with costs and reasonable attorney fees whether suit be brought or not and any attorneys' fees on appeal, which the seller may incur in the collection of any claims. Further, the undersigned hereby submits himself (or herself) to the jurisdiction of the course of [STATE] in the event suit is brought in connection with any claims by seller regarding the guaranty of payment, and agrees that venue shall be in the county where seller has its principle place of business. It is understood and agreed by the undersigned that this personal guaranty shall remain in full force and effect regardless of whether the above-named corporation, partnership or sole proprietorship files bankruptcy, becomes insolvent or is otherwise dissolved.
The guarantor signature(s) below must be dated and witnessed.
In witness whereof, I/We have signed, sealed and delivered this guaranty for the purposes set forth above on the day of , .
Witness to Guarantor Guarantor (husband), with personal liability
Witness to Guarantor Guarantor (wife), with personal liability
Or, sample language can be:
Please sell and deliver to [applicant name/purchaser], or representatives, pursuant to the terms and conditions of sale contained in this credit application incorporated herein by reference and made a part hereof, such merchandise as they or their management may order or select, and in consideration thereof, the undersigned (Guarantor(s), which shall include guarantor, of only one, and Guarantors if more than one) hereby fully guarantee and agree that the Guarantor(s) shall be personally responsible, jointly and severally for the payment at maturity of the purchase price of all such merchandise so sold or delivered whether by open account acceptance When a drawee acknowledges in writing on the face of the draft that the buyer will pay the draft at maturity., note or otherwise. The Guarantor(s) hereby waive notice of acceptance hereof, amounts of sale, dates of shipments or deliveries, notice of default in payment and legal proceedings against Purchaser.
Guarantor(s) acknowledge that the Guaranty is a condition for the extending credit to Purchaser.
This is intended to be, and shall be construed to be, a Continuing Personal Guaranty (“Guaranty”) applying to all sales made by Seller to Purchaser and shall not be revoked by:
1. The death of the Guarantor(s);
2. The sale or transfer of Purchaser subsequent to the execution of this Guaranty; or
3. The departure, resignation and/or disassociation for any reason, of Guarantor(s) from the Purchaser. This Guaranty shall remain in full force and effect until the Guarantor(s) shall have given notice in writing to Seller to make no further advances on the security of this Guaranty, and until such notice shall have been received by an authorized agent of Seller. Unless Seller agrees in writing otherwise, this Guaranty shall extend to the transactions between Seller and Purchaser, as well as any successor or related business entities or to any other business entity in which the undersigned owns or holds an interest. Guarantor(s) agree to notify Seller in writing of any changes in the form of the Purchaser's business or ownership of Purchaser's business within five days of such change, otherwise this Guaranty shall extend to Purchaser, and any successor companies, individuals or assignees, or related entities, as a condition of maintaining an open account with Seller. The obligation of the Guarantor(s), where more than one, shall be joint and several, and the death, discontinuance or discharge for any reason as to one or more of the undersigned shall not operate as a discontinuance or discharge as to the other or others.
It is understood and agreed that the Guarantor(s) liability under this Guaranty shall be unlimited.
The undersigned consents to an investigation into the creditworthiness of the Guarantor(s) and further agrees to dissemination of credit information about Guarantor(s) to inquiring sources.
In witness whereof, the undersigned hereby executes the Guaranty this day of , .
Do not use corporate or business titles, as they are inapplicable. One final comment: You do not need a personal guarantee from a sole proprietorship because the assets of the business owner are already available to the company's creditors.
Edited by Michael C. Dennis.