How to Guarantee Enforcement of a Guaranty Agreement

If someone borrows money and can’t pay it back, a guarantor is someone else who promises to pay it instead. There are different types of promises to pay, called guaranties. A “general” guaranty can be used by anyone it’s given to, while a “special” guaranty is only for a specific person or company. An “absolute” guaranty has no conditions, while a “conditional” one does. A “continuing” guaranty stays in effect until it’s ended. This is important for understanding who can enforce a guaranty if the borrower doesn’t pay back the money. The cases show that if a guaranty does not have specific language like “heir or assigns” or “successors and assigns,” it can be considered a special guaranty and may have restrictions on its enforcement. In one case, the court decided that a guaranty was a special guaranty and could not be enforced by someone who took over the company it was for. So, it’s important to use the right language in a guaranty to make sure it can be enforced by someone else in the future. In the Brunswick Corporation v. Creel case, a court ruled in favor of a company called Brunswick after they were assigned debts from Flagship Marine. The court determined that the rights under the guaranty contract could be assigned because there was no personal confidence involved and the guaranties were special, not general. This decision expanded creditors’ rights and allowed Brunswick to collect the debts owed to them. In the case of New Holland, Inc. v. Trunk, the court ruled that an assignee of a special guaranty can only enforce the guaranty for debts created by the original creditor, not for new debts created after the assignment. This rule is now widely accepted in Florida. There are also two types of guaranties: absolute, where the guarantor is immediately liable for payment if the debtor defaults, and conditional, where the guarantor is only liable after the creditor has tried to collect the debt from the debtor. A continuing guaranty covers all transactions, even ones in the future that are part of the agreement. It can be general or special and absolute or conditional. If you want to make sure the guaranty form gives maximum protection, it should be titled “Continuing Guaranty” and clearly state that it’s a general, absolute, and unconditional guaranty. This will make it easier to enforce. In Florida, when you sign a guaranty form, make sure it says that the guaranty applies to anyone who takes over the original party’s obligations. Also, it should say that the creditor doesn’t have to try to get the money from the original party before going after the guarantor. If you’re selling or closing a business, the guaranty form should make it clear that the guarantor is responsible for any money owed, even if the business changes hands. This will prevent arguments later on. This article provides advice for creditors to prevent guarantors from avoiding their obligations under guaranty agreements. It suggests that by considering potential issues beforehand and including them in the guaranty form, creditors can protect themselves. The author, Daniel Morman, is an associate at a law firm in Miami, and the article is endorsed by the General Practice, Solo and Small Firm Section of The Florida Bar.

Source: https://www.floridabar.org/the-florida-bar-journal/how-to-guarantee-enforcement-of-a-guaranty-agreement/