For example, the proposed guarantee agreement may stipulate that the secured debt includes the following: A guarantor who does not read the terms of the guarantee agreement requested by a lender or who seeks more appropriate terms may be held directly responsible for the borrower`s obligation. For example, if the lender offers a guarantee agreement that includes language that provides that the guarantor is “directly and primarily” responsible for the obligation, the lender does not have to wait for the borrower to default before suing the guarantor for the debt. Essentially, this language turns the guarantor into a borrower. As mentioned earlier, in the State of Florida, a warranty is considered a general warranty when it is passed on to the successors and assigns of the original party to which it is intended to benefit. Therefore, after the creditor`s name, you must write “his heirs and assignees” or “his successors and assigns” on your guarantee form. In addition, your warranty form must clearly state that there are no conditions attached to performance. The most common condition attached to enforcement is that the creditor must take action against the principal debtor before appealing against the guarantor. Your form must make it clear that submission, notice and claim to the principal debtor and subsequent dishonor are not prerequisites for an action against the guarantor. Continuous Warranties A continuous warranty covers all transactions, including those that occur in the future and that take place with respect to the Contract.
Brann v. Flagship Bank of Pinellas, N.A., 450 Sun. 2d 237 (Fla. 2d DCA 1984). A continuous warranty can be of a general or special nature. It can also be absolute or conditional. The assignee of a special security may not enforce the special guarantee of the debt created by the assignee by lending to the debtor. The assignee of the debt and an associated special guarantee may invoke the guarantee for the debt resulting from a loan granted by the original creditor to the debtor, whether that assigned debt is due or in arrears at the time of the assignment. Id. at p.
219. A perpetual guarantee does not limit a guarantor`s obligation to a specific period or amount. On the other hand, a limited guarantee will only make a guarantor liable up to a certain amount of debt, up to a certain point, or only for certain specific loans. Initially, it is proposed that each form of warranty be called a “Continuous Warranty”. There is no reason why the form should not also indicate in bold that this is also a general, absolute and unconditional guarantee. Therefore, it is recommended that you include the following language in bold under the heading of a warranty contract form: Formulation suggestions If you want a form to achieve a specific purpose, you usually make this clear in the form. Most creditors want their bail forms to offer maximum protection and ease of enforcement. Accordingly, such forms should be formulated in such a way as to be regarded as general, absolute and unconditional continuous guarantees. However, lenders regularly require a small business owner to sign a personal guarantee as a condition of a business loan to the business entity, essentially circumventing legal protections against personal liability. It may be easier for a business to get a loan if several people are willing to secure the company`s debt. For example, the four owners of a small start-up business may agree to give unlimited guarantees to a lender.
However, this does not mean that each guarantor is only responsible for its proportional share (in our example 25%) of the total debt. Most warranties contain “joint and several” liability provisions, and while warranties on the subject are silent, North Carolina law imposes joint and several liability on guarantors. This means that unless the guarantors are liable for a certain amount under a limited guarantee, the lender can hold each individual guarantor liable for the full amount of the borrower`s obligation. In addition, the lender may choose to sue only one or a smaller number than all guarantors for this total amount, so guarantors will have to fight among themselves to ensure that the debt is distributed fairly. Before signing a warranty contract, you should read all the conditions carefully. Collateral agreements can easily bind you to more debt than you anticipated. Before signing, you should always seek independent legal advice from a licensed attorney to ensure that your intentions are adequately reflected or at least that you understand your risks before signing. Otherwise, you may find that you are taking a lot more than you expected. Conclusion The above discussion is intended to be useful in preventing guarantors from successfully defending their obligations under guarantee agreements. Given the types of issues that may arise before they arise, a creditor can adequately protect itself against these contingencies by taking them appropriately into account in its form of security. q If a guarantee agreement grants the lender a right to “set-off”, it means that the lender can “withdraw” funds from the guarantor`s account (with the exception of certain IRS or escrow accounts) without notice to satisfy the borrower`s outstanding debts. .