3 Common Personal Guarantee Questions
What is a Personal Guarantee?
A Personal Guarantee is a document whereby a third party agrees to be responsible for the financial obligations of the Debtor to the Creditor, if the Debtor fails to pay the amount owed to the Creditor. For example, David asks Chris for a loan of $100. Chris doesn't know David very well and is hesitant to loan the money. Gerald comes along and explains to Chris not to worry, if David doesn't pay back the $100 then Gerald will repay it on David's behalf. This is a basic, real-world, example of a personal guarantee: Chris is the creditor; David the Debtor; and Gerald the Guarantor.
When can I enforce a personal guarantee?
A personal guarantee is not a primary payment obligation. Instead, a personal guarantee acts as a secondary payment obligation. Using our example of Chris, David, and Gerald from above, the primary payment obligation is from David to Chris – to repay the debt. If, however, David fails to repay the debt, Chris can to turn to Gerald for repayment. Gerald's obligation to repay the debt is secondary to David's obligation. Put simply, the Personal Guarantor is not obligated to pay until the Debtor has defaulted on its payment obligation to the creditor.
Are oral personal guarantees enforceable?
While there are exceptions to almost every rule, a basic premise for personal guarantees is that they are not enforceable unless they are made in writing and signed by the guarantor. Again using our example from above, Chris should have Gerald sign a document stating his promise to pay Chris back should David fail to repay the loan. As a general rule, a personal guarantee is only as good as the paper it is written on.
For assistance drafting, enforcing or defending Personal Guarantee documents, contact Amir H. Afsar, Esq. an attorney and the founder of Afsar Law Group, A.P.C. which represents clients in business, real estate, and construction matters throughout the Coachella Valley including Palm Desert, Palm Springs, La Quinta, Rancho Mirage, Indian Wells, Indio, Bermuda Dunes, Cathedral City, Banning, Joshua Tree, and other cities located within Riverside and San Bernardino County. Mr. Afsar can be reached at Afsar Law Group, A.P.C. at 760.345.3110.
"Mr. Afsar spent the time explaining my options and what effect they would have. He was very experienced in his advice and very easy to understand."Shelly, May 2011
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