What Is a Personal Guarantee?
A personal guarantee is a separate, individual promise to pay a debt if the primary borrower — typically a business entity — fails to do so. Lenders and landlords routinely require guarantees from business owners before extending credit or signing a commercial lease, precisely because it defeats the liability protection an LLC or corporation would otherwise provide.
RV Litigation Group PC defends individuals in San Jose, San Francisco, Palo Alto, Oakland, and throughout Santa Clara County and San Francisco County who have been sued personally on a guarantee after their business defaulted.
What the Law Says
Civil Code 2787 — Guarantee Defined
"A surety or guarantor is one who promises to answer for the debt, default, or miscarriage of another..." — California Civil Code Section 2787
California's suretyship statutes (Civil Code 2787-2856) govern personal guarantees and provide certain protections for guarantors — but most commercial guarantee agreements are drafted specifically to waive many of these statutory defenses. Whether a defense survives depends on the exact waiver language in the document you signed.
Payment vs. Collection Guarantees
A guarantee of payment allows the creditor to sue the guarantor immediately upon the borrower's default, without first pursuing the borrower. A guarantee of collection generally requires the creditor to exhaust remedies against the borrower first. Nearly all commercial lender and landlord guarantees are drafted as guarantees of payment, which significantly increases a guarantor's exposure and the speed at which a lawsuit can be filed.
Real-World Examples
A small business owner personally guaranteed her company's retail lease. When the business closed early, the landlord sued her individually for the remaining lease term. Counsel reviews the guarantee language and the landlord's duty to mitigate damages by re-letting the space, narrowing the amount actually owed.
A business partner co-signed an equipment financing agreement for his company. After the business defaulted, the lender sold the repossessed equipment at a below-market price and sued him for the deficiency. Counsel challenges whether the disposition was conducted in a commercially reasonable manner.
A guarantor learns the lender materially modified the underlying loan — extending the term and increasing the interest rate — without his knowledge or consent after he signed the guarantee. Counsel evaluates whether this material alteration discharges or reduces his obligation under the guarantee.
What's at Stake
| Issue | Governing Law | Practical Impact |
|---|---|---|
| Guarantee Enforcement | CC 2787-2856 | Personal liability for the full guaranteed amount plus interest and fees |
| Contract Statute of Limitations | CCP 337 (written) / CCP 339 (oral) | 4 years written / 2 years oral from date of breach |
| Judgment Enforcement | CCP 680.010 et seq. | Wage garnishment, bank levy, and property liens if judgment entered |
How We Help
1. Guarantee Document Review
We closely examine the guarantee language, waiver provisions, and the underlying loan or lease documents to identify defenses specific to your situation.
2. Damages Challenge
We scrutinize the creditor's calculation of damages, including its duty to mitigate and whether collateral was disposed of in a commercially reasonable manner.
3. Settlement Negotiation
Many guarantee disputes resolve through a negotiated payment plan or reduced settlement, particularly when the creditor's damages calculation is vulnerable to challenge.
4. Litigation Defense
When settlement isn't achievable, we defend the lawsuit through discovery, motion practice, and trial to minimize your personal exposure.
Frequently Asked Questions
Yes. A personal guarantee is a separate contractual promise you make as an individual, apart from the business entity. Signing a guarantee means the lender or landlord can pursue you personally for the debt, regardless of the liability shield that would otherwise protect you as an LLC member or corporate shareholder.
A guarantee of payment allows the creditor to pursue the guarantor immediately upon default, without first attempting to collect from the primary borrower. A guarantee of collection generally requires the creditor to exhaust remedies against the borrower first. Most commercial guarantees are drafted as guarantees of payment, which is far less favorable to the guarantor.
Possibly. Common defenses include improper notice of default, material alteration of the underlying loan terms without the guarantor's consent, release or impairment of collateral that increased the guarantor's risk, and, in some cases, fraud or duress in obtaining the guarantee. Most commercial guarantees also contain broad waiver language designed to eliminate many of these defenses, so a careful review of the specific document is essential.
If a creditor obtains a judgment against you personally on a guarantee, California law allows judgment enforcement remedies including bank levies, wage garnishment, and liens against real property. Some California homestead exemptions can protect a portion of home equity from a forced sale, but a recorded judgment lien can still complicate a future sale or refinance.
