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It's The Law: Contract Guarantee May Not Be Enforceable

Q: A few years ago I was in business with a partner. He took over the business, and now the landlord claims I owe money under a lease because I signed a guarantee. I am not in the business any more so I do not think the landlord should be able to sue me. Am I right?

A: Anyone dealing with a limited liability entity like a corporation is well advised to get the corporation’s obligations personally guaranteed by an individual with money. That helps ensure payment can be obtained if the entity defaults.

Wording of the guarantee and manner in which it is signed become critical at the time enforcement is sought. These factors can create disappointment or happiness for both parties. Review of some recent cases illustrates how things can go awry.

In Fairway Mortgage Solutions, Inc. v. Locus Gardens, Fernando Recalde signed a lease on behalf of a corporate tenant. Directly below the signature line, was printed “Fernando Recalde, President” closer to the bottom of the page, the following was hand printed “note-personal guarantee. The tenant signature above also indicates acceptance of personally guaranteeing this lease…”

The trial court held Mr. Recalde personally liable under the lease. The appellate court reversed, holding that signature preceded by the word “by” and followed by designation as a corporate officer does not create personal liability unless the lease contained language indicating personal liability. Mr. Recalde testified that the handwritten guarantee provision was added after he signed.

In Winter v. Hager, a creditor obtained a summary judgment against a guarantor based upon signature to the last page of a guarantee. Above the signature line appeared “In Witness Whereof, the undersigned has duly executed this guarantee as a sealed instrument the day and year first above set forth.” The alleged guarantor testified he did not realize he was signing a guarantee, but thought he was signing a contract placing a lien on real estate. The appellate court reversed.

In contrast is the case of Great Lakes Products, Inc v. Wojciechowski. In that case, Mr. Wojciechowski signed a credit application, and placed the word “president” in the blank following the word “title.” Immediately below his signature was the following language “I personally guarantee payment on this account and agree to the terms of this credit application which is incorporated into this guaranty.” The court held that adding the word president to his name did not preclude personal liability under the guarantee. The court opined that Florida law is clear and an individual who executes a guarantee as an officer of a corporation by inserting his corporate title after his name on a document cannot defeat the purpose of the guarantee in creating individual liability.

Most guarantees attempt to hold the guarantor responsible for all obligations of the primary debtor. That means language of the primary instrument is as important as the guarantee language.

In the case of Cacciatore v. Fisherman’s Wharf, the court held a guarantor liable for attorney fees of a landlord enforcing a lease, where the guarantee was for all of the tenant’s obligations under the lease. However, because the lease limited fees to those “incurred by purchaser in the enforcement of this contract,” the fees incurred in defending claims other than those under the contract were not recoverable from the guarantor.

General Florida law can also affect liability. Unless the guarantee specifically provides to the contrary, it can be terminated by change in the original obligation guarantee, change in nature of the original debtors business or other factors impacting the original contract. Where the guarantor participates in the change, the guarantee will usually continue.

If there is more than one guarantor, each is generally liable for all of the primary obligation. That means the creditor can collect 100% from a single guarantor. That guarantor may have a claim against the other guarantors for contribution of their proportion, but that is not a defense to action under the guarantee.

The facts of each case and the specific language of contract and guarantee will determine liability. I suggest you discuss the facts of your particular case with an experienced attorney as soon as possible.

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