Business Article

Personal Guaranty of a Commercial  By Martin B. Greenbaum, Esq.
Credit Application California Collection Attorney
Greenbaum Law Group, LLP 


Personal Guaranty of a Commercial Credit Application

A typical commercial credit application frequently has a Personal Guaranty provision, either built-in to the principal form or on an accompanying sheet.  When the principal account debtor goes into default, collection action against the account and the guarantors is the best practice.   But is there a lurking problem with the form of the Personal Guaranty?  

A debt Guaranty is a contract to be liable for the debt of another.  Almost all jurisdictions have a version of the “Statute of Frauds”.  The Statute of Frauds requires that the promise to be liable for the debt of another must be in writing and must be signed or marked by the person or entity making the promise.  Generally the law does not support claims or oral guaranties of debts.    

Anyone, or any entity, can be a guarantor.  One or more corporations can guaranty the debt of another corporation.   One or more individuals can guaranty the debt of another individual or of a corporation or LLC.  A letter of credit is a form of guarantee.  A payment bond is a form of guarantee.  But these have specific terms and conditions.  The contract terms of a guaranty are crucial when a default occurs.   

A commercial debt can be guaranteed by a simple statement such as “I personally guarantee the debts and obligations of (debtor) to Creditor” with a signature following.  But like most legal documents, the comprehensive ones get wordy.  Generally the provisions of a lengthy guaranty are designed to prevent the guarantor from raising various defenses or dilutions to the guaranty.  

Classic examples of guarantors claiming defenses are the following:

1.       The creditor didn’t pursue the principal debtor first.

2.       The creditor didn’t give notice to the guarantor of new extensions of credit.

3.       The creditor didn’t pursue all of the guarantors

4.       The creditor didn’t give prompt notice of the default

5.       The creditor didn’t release the guarantor when the creditor knew the guarantor was no longer associated with the business.  

The wordiness of guarantees often seeks to avoid these claims.  Look for terms like:  

“guarantor waives all notice of default, any obligation to pursue the principal debtor first or at all, notice of any change in terms, obligation to pursue all obligors jointly and any obligation to monitor guarantors association with the principal obligor”  

If a guaranty agreement provides for advance notice before filing suit, it is best to give such notice.  But even without notice, the guarantor must prove that he/she/it was harmed by no notice.  That’s generally hard. 

Guarantors often complain that they should only pay a share of the debt.  A guaranty imposes joint and several liability (everyone owes it all until all is paid).  Guarantors have actions against each other for contribution toward the debt but that doesn’t impact the creditor.  

When trying to collect from a guarantor, be sure to read the terms of the guaranty.  Be prepared for the usual excuses and know the proper responses.  Don’t engage guarantors on “fairness” claims.  Don’t be sucked into conversations outside the specific terms of the guaranty.  Collection from guarantors is frequently the strongest tool a collector has.  Use it well.  


For a California Commercial Collection contact Martin Greenbaum, Greenbaum Law Group LLP at


©Martin Greenbaum,  June 2013

About Martin B. Greenbaum

MARTIN B. GREENBAUM is the senior attorney with the law firm of Greenbaum Law Group, LLP and limits his practice to collection and loss recovery.  Mr. Greenbaum is rated "AV" by Martindale-Hubbell Law Directory, the highest rating given by the most prestigious attorney rating directory in the United States. 

He attended UCLA for both his undergraduate and law degrees. He acquired intensive trial experience while serving as Deputy District Attorney with the Los Angeles District Attorney's Office for almost five years. Since then, he has been engaged in collection, enforcement of judgments, and debt recovery.  Greenbaum Law Group LLP has its’ principal office in Newport Beach, California with satellite locations in San Diego, Beverly Hills and San Francisco                       




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