Court Upholds Simple Personal Guaranty Leading to Recovery

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Dean Kaplan

We recently won a court case that validated a simple personal guaranty and resulted in our client recovering over $15,000 even though the corporation had ceased operating. Our client uses a one page credit application for all customers.  Immediately before the signature block, it reads:


The signature block requests Signature, Title, Printed Name, and the Date and is the only signature location on the application.

Infographic describing how to determine if you should sue a customer for unpaid B2B invoices Image is attached to email. In this case, the owner of the company had signed the credit application and included his title as President of the corporation.  In court, the debtor argued that because he included his title, he was not signing as an individual but only as an officer.  However, the judge ruled that the title was related to the phrase “to sign on behalf of the company” and that you needed to be an “officer or other authorized” person.  The judge indicated that the language on the credit application made it clear that this was a personal guaranty in addition to a corporate obligation.

This was a critical ruling, as we have had other personal guarantees for other clients invalidated in court simply because the person executing the separate personal guaranty had also included their title and company name in the signature block.  In that case, the judge ruled that it was not clear the signor realized they were signing a personal guaranty since they had included the corporate information.  The judge said that our client should have noticed this confusion and immediately had the person sign a new copy of the guaranty without the corporate title and name.

The simple personal guaranty above has held up in court several times over the past seven years.  It has never been invalidated.  We can’t guarantee it will always be validated.  And we have heard other stories where separate and more complete personal guarantees have been deemed not enforceable.

As explained in a recent article I wrote for CreditToday, commercial collection agencies always prefer to have a personal guaranty.  I explain how it almost always adds value to our clients.  Recently there was a lively discussion on LinkedIn (over 40 comments in the Credit and Collections Professionals group) about personal guarantees, and several credit professionals indicated they were surprised to see how collection agencies were able to utilize guarantees more effectively than they realized.

Not everyone will agree to sign a personal guaranty.  When I was running my manufacturing company, I would have crossed out the words “I Personally Guaranty Payment of the Account” if I had been completing a credit application with the language quoted above.  That vendor would then have had to decide if they wanted to extend credit to my company without the guaranty.  We are not saying that you shouldn’t extend credit without the guaranty.  But, we are saying that it is easy to ask for it and on occasion you are likely to recover money solely because you have the guaranty.

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Continuing the Discussion

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  • avatar Ameripay says:

    This is hit or miss at best. Once case by one lower court does not a precedent make. I don’t know if I would be comfortable asking my client for legal fees to pursue a guarantee construed in this way. If this is appealed it would be interesting to see how it ultimately turns out. I noticed there is no citation to the case in the article.

  • avatar jessie-gomez says:

    Most debtors don’t like giving a personal guarantee when they are applying for business credit. I think all businesses should get a personal guarantee or don’t give business credit because there are a lot of fraud out there with consumers getting a shelf corp and racking up lot of bills and closing down and run around the corner and doing it again.

  • avatar Dean Kaplan says:

    Thanks for commenting. To clarify, there was no written opinion on this case, simply the awarding of a judgment against the company and the guarantor. In the nearly dozen lawsuits for this client, the PG has stood up each time (in challenged and default cases). That’s is not to say it would stand up if challenged more vigorously, but as is, it certainly has paid off for our client. As for fraud, unfortunately we see a lot of it, and even with a personal guaranty, it is hard to collect. That’s why we have shared some of our fraud detection tips in other articles on InsideARM – better to prevent fraud than try to recover.

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