By Steven M. Katzman

A Fort Lauderdale marine services company has a $2 million revolving line of credit with a regional bank. When the line was opened six years ago, the company’s founder signed a personal guaranty, and so did her husband, at the bank’s request, although he has never worked in the business. Since then, the bank has renewed the line three times, raised it to $3 million, and changed the interest rate. Two years ago, the founder sold 40 percent of the company to a new partner, who did not sign anything. Now the company has defaulted, the bank has accelerated, and a complaint has been served on the company, the founder, and her husband, demanding the full balance, interest, and attorney’s fees.

Is the founder liable for the renewals and the increase she never signed? Is her husband liable at all? Does the bank have to collect from the company, or sell its collateral, first? Can it reach the couple’s house, or the joint brokerage account? Does the new partner owe anything?

For most closely held Florida businesses, the personal guaranty is the document that turns a company’s debt into a family’s problem. Banks, equipment lenders, landlords, suppliers, and factoring companies require them as a matter of routine, and owners sign them as a matter of routine. When the business fails, the guaranty is often worth more to the creditor than the company, and it becomes the real subject of the litigation. This article explains how Florida law treats guaranties, what determines how far they reach, which defenses survive the waivers in a modern form, and what actually decides what a guarantor pays.

What a guaranty is

A guaranty is a promise to answer for the debt or performance of someone else. It is a separate contract from the loan, lease, or supply agreement it supports, and the creditor’s claim against the guarantor is a separate claim from its claim against the borrower. The guarantor’s obligation is secondary in the sense that it depends on the principal obligor’s default, but under most commercial guaranties it is not secondary in the sense of requiring the creditor to pursue anyone else first.

The writing requirement. Florida’s statute of frauds, Fla. Stat. § 725.01, bars an action on any special promise to answer for the debt, default, or miscarriage of another person unless the promise is in writing and signed by the party to be charged. An oral assurance from an owner that “I’ll make sure you get paid” is generally not an enforceable guaranty. Electronic signatures satisfy the writing requirement under Florida’s Uniform Electronic Transaction Act, Fla. Stat. § 668.50, which is how many guaranties are now signed.

Consideration. A guaranty signed as part of the original transaction is supported by the extension of credit itself. A guaranty signed later, after the loan was made, needs its own consideration, which creditors usually supply through a forbearance, a renewal, an extension, or additional credit. A guaranty demanded and signed after default, with nothing given in exchange, may be open to challenge.

Capacity. One of the most common fights is whether the owner signed in a personal or a representative capacity. An owner who signs a document as “John Smith, President” may argue that he signed only for the company. Courts look at the document as a whole. A document titled “Personal Guaranty,” which identifies the signer by name as guarantor and says the guarantor is personally liable, will usually bind the signer personally regardless of the title next to the signature. A loan agreement that the owner signed only once, with a guaranty paragraph buried inside it, presents a closer question.

The kinds of guaranty, and why the label matters

Florida courts enforce a guaranty according to its terms, and the terms vary more than most signers realize.

Guaranty of payment versus guaranty of collection. A guaranty of payment is an absolute promise to pay when the principal obligor does not. The creditor may sue the guarantor as soon as the borrower defaults, without suing the borrower, foreclosing on collateral, or exhausting any other remedy. A guaranty of collection is a promise to pay only what the creditor cannot collect from the borrower after it has made a genuine effort to do so, usually including obtaining a judgment and attempting to execute on it. Nearly every bank and institutional guaranty is a guaranty of payment, and most say so expressly, along with a waiver of any requirement that the creditor proceed against the borrower or the collateral first. Where a guarantor signs the promissory note itself, rather than a separate guaranty, Florida’s version of Article 3 of the UCC, Fla. Stat. § 673.4191, treats the signer as an accommodation party and presumes a guaranty of payment unless the signature unambiguously indicates a guaranty of collection.

Continuing versus specific guaranties. A specific guaranty covers an identified obligation: this note, this lease. A continuing guaranty covers a series of transactions, often “all indebtedness of the borrower to the lender, now existing or hereafter arising, of every kind.” Continuing guaranties are common for lines of credit, trade credit with suppliers, and banking relationships with several loans. A continuing guaranty can typically be terminated as to future debt by written notice, under its own terms, but termination does not release the guarantor from debt already incurred, and many forms also extend coverage to renewals and extensions of that existing debt.

Limited and capped guaranties. Some guaranties are capped at a dollar amount, limited to a percentage of the debt, or set to “burn off” after a period of timely payments or once the borrower meets financial covenants. Whether a cap applies to principal alone or also to interest, collection costs, and attorney’s fees is a frequent point of dispute.

Lease guaranties. Commercial leases are often backed by a guaranty of rent, sometimes limited by a “good guy” provision that ends the guarantor’s liability if the tenant gives notice, pays through a surrender date, and leaves the premises in good condition. Our guide to commercial lease disputes in Florida covers lease guaranties and the tenant-bankruptcy cap that does not protect a guarantor.

Nonrecourse carve-out guaranties. Commercial real estate loans are often nonrecourse, meaning the lender agrees to look only to the property, but they come with a “carve-out” guaranty, sometimes called a “bad boy” guaranty, under which a sponsor becomes liable for losses, or for the entire loan, if certain events occur. Typical triggers include fraud, misapplication of rents or insurance proceeds, unpermitted transfers, voluntary bankruptcy filings, and, in some forms, violations of separateness covenants or the borrower’s insolvency. Full-recourse springing provisions can turn a technical covenant violation into personal liability for the whole debt, and those clauses are often enforced as written. Anyone signing one should know exactly which events trigger loss liability and which trigger full recourse.

Completion and performance guaranties. Construction lenders and project owners often require a guarantor to complete a project or perform a contract, not just pay money. Damages for breach of a completion guaranty can be very different from the outstanding loan balance, and the measure is often litigated.

How far a guaranty reaches

Most guaranty disputes are not about whether the guarantor signed. They are about whether what the creditor is now demanding is within what the guarantor signed.

Renewals, extensions, increases, and new loans. A guaranty of “the note dated March 1” covers that note. Whether it also covers a renewal note, a modification that increased the principal, or a different loan made later depends on the guaranty’s language. Continuing guaranties with broad “all obligations” clauses, and specific guaranties that expressly extend to “renewals, extensions, modifications, and refinancings,” usually reach much further than signers assume. A guaranty with a cap reaches only to the cap no matter how broad its definition of the guaranteed debt.

Assignment and successor creditors. Loans are sold. A well-drafted guaranty runs to the lender and its successors and assigns, and a loan purchaser that acquired the guaranty with the note can generally enforce it. The purchaser must prove it owns both. Missing assignments, gaps in the chain of title, and guaranties that were not expressly transferred with the loan are recurring issues when debt is sold in bulk, and they can be decisive.

Changes in the borrower. When ownership of the borrower changes, the original guarantors usually remain liable unless the creditor releases them in writing. A guarantor who sells the business without obtaining a release of the guaranty, as the founder in the opening example did with part of her interest, generally still owes whatever the guaranty covers, including, under a continuing guaranty, debt the borrower incurs under the new owners. The new partner who signed nothing is generally not liable at all, absent a separate basis such as fraud or an alter ego theory, which our guide to piercing the corporate veil in Florida explains.

Interpretation. A guaranty is a contract, interpreted under ordinary Florida contract principles: its plain language controls, it is read as a whole, and genuine ambiguities may be construed against the party that drafted it. Our guide to breach of contract in Florida covers those principles. Because creditors almost always draft the guaranty, careful reading of the definition of the guaranteed obligations, any cap, and any termination provision is the first step in every case.

The defenses, and the waivers that usually defeat them

Florida law has long recognized defenses that belong to guarantors and sureties because their obligation depends on someone else’s. Modern commercial guaranties waive most of them in advance, and Florida courts generally enforce those waivers between commercial parties. The question in most cases is therefore not whether a defense exists in the abstract, but whether the guaranty waived it.

Material alteration of the underlying obligation. The traditional rule is that a guarantor is released when the creditor and borrower materially alter the guaranteed obligation without the guarantor’s consent, for example by increasing the interest rate, extending the maturity, or increasing the principal, at least where the change is prejudicial to the guarantor. Florida courts have generally treated changes that do not harm the guarantor as non-material. But nearly every institutional guaranty contains the guarantor’s advance consent to renewals, extensions, modifications, rate changes, and releases of collateral or other guarantors, and that consent usually forecloses the defense. Older, short-form, and handwritten guaranties, and guaranties drafted by non-institutional creditors, are where the alteration defense still wins cases.

Impairment of collateral. A guarantor may also argue that the creditor released or failed to protect collateral that would have reduced the debt, such as by releasing a lien, failing to perfect a security interest, or letting insurance lapse. Under general suretyship law, an unjustified impairment discharges the guarantor to the extent of the resulting loss. Guaranties typically waive this defense too, with varying degrees of success depending on the clarity of the language.

The Article 9 rights a guarantor cannot waive in advance. When the guaranteed debt is secured by personal property collateral, such as equipment, inventory, receivables, or vessels, Florida’s version of UCC Article 9 gives guarantors protections that a pre-default guaranty cannot take away. A guarantor is a secondary obligor under Article 9. Under Fla. Stat. § 679.611, a secured party that intends to dispose of collateral after default must send a reasonable authenticated notification of the disposition to the debtor and to any secondary obligor. Under § 679.610, every aspect of the disposition, including its method, manner, time, place, and terms, must be commercially reasonable. Under § 679.602, those rights generally cannot be waived or varied in advance; under § 679.624, a guarantor can waive the right to notice of disposition only in an agreement authenticated after default.

If the creditor fails to give proper notice or conducts a commercially unreasonable sale, § 679.626 applies a rebuttable presumption rule in commercial transactions: the deficiency is limited unless the creditor proves that a proper disposition would have produced no more than it actually received. In a case where equipment was sold quickly, privately, and cheaply, and the guarantor was never told, that rule can sharply reduce or eliminate the deficiency claimed against the guarantor. Defending a deficiency claim should always begin with the collateral file.

Real property collateral and the deficiency. Where the guaranteed loan is secured by a mortgage, the lender may foreclose and seek a deficiency judgment against the borrower and guarantors, or sue the guarantors separately. Under Fla. Stat. § 702.06, entering a deficiency judgment in a foreclosure is within the court’s discretion. The difference between the foreclosure sale price and the property’s actual value is often a central issue, particularly where the lender bought the property at its own sale for a nominal bid.

Fraud in the inducement and lender misconduct. A guarantor who was induced to sign by a misrepresentation may have a fraud defense or counterclaim, subject to integration and non-reliance clauses that most guaranties contain. Claims that the lender breached its own obligations under the loan documents, for example by wrongfully refusing to fund, can sometimes be asserted defensively. Most forms waive setoff and counterclaims against the lender in the guarantor’s own case, and courts usually enforce those waivers as to defenses that belong to the guarantor alone. Our guide to business torts in Florida covers the fraud claims that can survive those clauses.

Payment, credits, and the amount. Even where liability is clear, the amount frequently is not. A guarantor is entitled to credit for every payment, every collateral recovery, and every recovery from co-guarantors, and to challenge default interest, late charges, and fees that the documents do not support. Creditor payment histories are often incomplete, particularly after a loan has been sold.

Spousal guaranties and the Equal Credit Opportunity Act

The husband in the opening example raises a specific issue. Under the federal Equal Credit Opportunity Act and its implementing rule, Regulation B, 12 C.F.R. § 1002.7(d), a creditor generally may not require the spouse of an applicant to guarantee a loan when the applicant individually qualifies for the credit. A spouse may choose to serve as an additional party, but the creditor may not require it.

Whether a spouse whose guaranty was obtained in violation of that rule can use the violation as a defense to enforcement of the guaranty, rather than only as a claim for damages, has divided the courts. Federal appellate courts reached opposite conclusions, and when the question reached the U.S. Supreme Court in Hawkins v. Community Bank of Raymore, 577 U.S. 495 (2016), the Court affirmed by an equally divided vote, without an opinion, leaving the split unresolved. Florida courts have addressed the issue as well. A spousal guarantor who had no role in the business should raise the question early, along with the facts about why the lender required the signature and whether the borrower and the other guarantor qualified on their own. ECOA claims for damages have a statute of limitations that frequently has expired by the time a guaranty is enforced, which is one reason the defensive question matters.

Confession of judgment

Some guaranties, particularly those drafted for use in other states, include a warrant of attorney to confess judgment, allowing the creditor to obtain a judgment against the guarantor without a lawsuit or notice. Fla. Stat. § 55.05 declares void any power of attorney for confessing or suffering judgment that is executed before the action is brought. A Florida court will not enter judgment on such a clause. Judgments confessed in other states under such clauses raise separate questions of full faith and credit and due process if a creditor tries to domesticate them in Florida.

The borrower’s bankruptcy

When the borrower files bankruptcy, guarantors often assume that the case protects them too. It generally does not.

The automatic stay under 11 U.S.C. § 362 protects the debtor and its property. It does not ordinarily stop a creditor from suing a non-debtor guarantor, and creditors often sue guarantors the week after the borrower files. Bankruptcy courts can extend the stay or enjoin creditors from pursuing a guarantor in unusual circumstances, typically where the guarantor’s liability is so intertwined with the debtor’s reorganization that pursuing it would undermine the case, but that relief is the exception. A borrower’s discharge or plan does not, by itself, discharge a guarantor.

Bankruptcy can also make a guarantor’s position worse. Payments the borrower made to the lender within the year before bankruptcy that benefited an insider guarantor can be targets for preference litigation, and most guaranties include a reinstatement clause providing that if any payment is later avoided and returned, the guarantor’s liability for that amount revives. A guarantor who arranged for the company to pay down a guaranteed loan as the business was failing should expect those payments to be examined.

If the guarantor files bankruptcy individually, the guaranty debt is generally dischargeable like other unsecured debt, subject to the usual exceptions, including claims for fraud.

Collecting from a guarantor: what is actually at risk

A judgment against a guarantor is only as valuable as the guarantor’s non-exempt assets, and Florida’s exemptions are among the most protective in the country. Our guide to collecting a judgment in Florida covers enforcement in detail. For guarantors, the points that most often decide the outcome are these:

Homestead. Article X, section 4 of the Florida Constitution protects a debtor’s homestead from forced sale without any dollar limit, subject to acreage limits.
Tenancy by the entireties. Property owned by a married couple as tenants by the entireties generally cannot be reached by a creditor of only one spouse. In Beal Bank, SSB v. Almand & Associates, 780 So. 2d 45 (Fla. 2001), the Florida Supreme Court held that a bank account titled in the names of both spouses is presumed to be held as tenants by the entireties, unless the account documents expressly disclaim that form of ownership. This is why creditors ask both spouses to sign. If only one spouse signed, entireties property is often out of reach. If both signed, it is not.
Wages, retirement, and insurance. Fla. Stat. § 222.11 protects a head of family’s wages, § 222.21 protects qualified retirement accounts and IRAs, and § 222.14 protects the cash value of life insurance and annuities.

Transfers after trouble starts. A guarantor who retitles assets, moves money to a spouse, or funds a new entity after the borrower’s business begins to fail invites a claim under Florida’s Uniform Fraudulent Transfer Act, Chapter 726. Transfers made with actual intent to hinder, delay, or defraud a creditor, or for less than reasonably equivalent value while insolvent, can be unwound. The Act defines a creditor’s “claim” to include contingent and unmatured rights to payment, so a creditor holding a guaranty is generally treated as the guarantor’s creditor from the time the guaranty is signed, not only from the time of default or judgment. Legitimate asset protection planning is done before liability exists, with advice, and in the open. What a guarantor does in the months between default and judgment is usually the most heavily scrutinized conduct in the case.

Attorney’s fees, interest, and forum

Nearly every guaranty includes a provision making the guarantor liable for the creditor’s attorney’s fees and collection costs. Under Fla. Stat. § 57.105(7), a one-sided fee clause is reciprocal in Florida, so a guarantor who prevails can recover fees under the same clause. That reciprocity changes settlement dynamics in close cases. Guaranties also frequently contain jury trial waivers, which Florida courts generally enforce when they are knowing and voluntary, and forum selection and choice-of-law clauses. Our guide to attorney’s fees in Florida business litigation covers fee clauses and proposals for settlement.

The deadline

An action on a written guaranty is generally subject to the five-year limitations period for actions on written contracts in Fla. Stat. § 95.11(2)(b). When the period begins to run depends on the guaranty’s terms. For a guaranty of payment, it is usually the borrower’s default or the creditor’s acceleration of the debt; where the guaranty requires a demand on the guarantor, it may be the demand. For installment debt that is not accelerated, each missed payment can carry its own period. Renewals, partial payments, and written acknowledgments can complicate the analysis, and a guarantor should not assume an old guaranty is unenforceable without checking the dates.

If you are being asked to sign a guaranty

The best time to limit a guaranty is before signing it. Lenders and landlords refuse many requests, but they agree to more than most borrowers assume, especially for strong borrowers and in competitive markets. Consider asking for:

A cap, expressed as a dollar amount or a percentage of the debt, that covers fees and interest as well as principal.
A burn-off after a period of timely payments or upon meeting financial covenants, or a good guy limitation on a lease.
A specific guaranty of a defined obligation, rather than a continuing guaranty of everything the business will ever owe.
A release of the guaranty if you sell your interest in the business, or a requirement that the creditor accept a substitute guarantor.
Notice and consent before the creditor increases the debt or extends new credit under a continuing guaranty.
Narrowly defined triggers in a nonrecourse carve-out guaranty, limited to losses rather than full recourse wherever possible.
No spousal signature where the spouse is not involved in the business and the borrower qualifies without it.

If you are the guarantor and the creditor is calling

Get every document: the guaranty, every version of the loan documents, every renewal and modification, every assignment, and the payment history.
Read the guaranty’s definition of the guaranteed obligations before conceding that any particular debt is covered.
Find out what happened to the collateral, whether you received notice of any sale, and whether the sale was commercially reasonable.
Do not move assets without advice. Transfers made after default are the easiest for a creditor to attack.
Evaluate a negotiated resolution early. Creditors often accept a discounted payment from a guarantor, particularly where exemptions protect much of the guarantor’s wealth, and a release negotiated before litigation costs accumulate is often worth more than a defense that might succeed.

If you are the creditor

Confirm you can prove ownership of the loan and the guaranty, with every assignment in hand.
Send proper Article 9 notices to every guarantor before disposing of personal property collateral, and conduct the sale in a commercially reasonable way.
Sue the guarantors promptly and in the same action as the borrower where the documents allow, and consider a pre-judgment remedy where assets are moving.
Investigate entireties and exempt property before deciding how much to invest in pursuing a particular guarantor.

Frequently asked questions

Am I personally liable for my company’s debts? Generally not, if the company is a properly maintained corporation or LLC. You are liable for any debt you personally guaranteed, and the guaranty’s terms decide how much and which debts. Many owners have signed more guaranties than they remember, often in loan, lease, and credit application documents.

Does the bank have to go after my company or the collateral before coming after me? Usually not. Most commercial guaranties are guaranties of payment and expressly waive any requirement that the creditor first pursue the borrower or the collateral. A guaranty of collection is different, but they are uncommon in commercial lending.

The bank renewed and increased the loan without asking me. Am I still liable? Possibly, and often yes. Most guaranties contain your advance consent to renewals, extensions, and modifications, and many continuing guaranties cover any debt the borrower owes the lender. Whether your guaranty reaches the increase depends on its language and on any cap. Older or informal guaranties that lack consent language may support a defense that a material change released you.

I sold my interest in the business. Does my guaranty end? Not automatically. Unless the creditor released you in writing or the guaranty terminates on its own terms, your liability generally continues, and a continuing guaranty may cover debt incurred after you left. Send a written termination notice as to future debt if the guaranty allows one, and ask for a release.

My spouse signed a guaranty for my business. Is that enforceable? It may be. If the lender required your spouse’s signature even though you qualified for the credit on your own, federal law may have been violated, and courts are divided on whether that violation can be raised as a defense to enforcement. The answer can determine whether property you own together as tenants by the entireties is reachable.

Can the creditor take my house? Not if it is your Florida homestead, which is protected from forced sale without a dollar limit, subject to acreage limits and narrow exceptions. Other assets may be exempt as well, and property owned with your spouse as tenants by the entireties is generally protected from a creditor of only one spouse.

How long does a creditor have to sue on a guaranty? Generally five years under Florida’s statute of limitations for written contracts, starting when the guarantor’s obligation is breached, which is usually the borrower’s default, acceleration, or a required demand on the guarantor.

Talk to a Florida commercial litigation attorney

Guaranty cases are decided by documents that are usually signed quickly and read for the first time years later: the definition of the guaranteed debt, the waivers, the cap, the assignments, and the collateral records. On the other side of the ledger are Florida’s exemptions and the guarantor’s conduct after default, which often decide what a judgment is actually worth. Guarantors who understand those rules early negotiate from a stronger position, and creditors who respect them avoid deficiency claims that collapse on a missing notice.

KWBR’s complex commercial litigation, business transactions, and financial damages practices represent lenders, landlords, suppliers, business owners, and guarantors in guaranty enforcement and defense, deficiency litigation, and related fraudulent transfer claims, in state and federal court and in arbitration, from our Boca Raton, Fort Lauderdale, and Orlando offices. If you are being asked to sign a guaranty, or a creditor has made demand on one you signed, contact us before you respond.

This article is for general informational purposes and is not legal advice. Statutes and case law change, guaranty terms vary widely, and every matter turns on its own facts; consult a qualified Florida attorney about your situation.

Personal Guaranties in Florida Business Litigation: What You Signed, What It Covers, and the Defenses That Still Matter