A personal guarantee (also referred to as personal guaranty) is when a person agrees to pay the debts or obligations of another person or business entity. Creditors and landlords typically require personal guarantees, especially in the case of a newly formed business entity or a business that does not have substantial assets to secure the debt or obligation. Except under certain circumstances pursuant to California law, the personal guarantee must be in writing and signed by the guarantor.
The extent of liability of the guarantor depends on the written terms of the personal guarantee. The guarantee is unconditional unless the terms of the personal guarantee contain a condition precedent to the liability of the guarantor. The guarantor is liable to the creditor immediately upon the default of the principal and without demand or notice. A conditional guarantee may contain conditions precedent to the obligations of the guarantor arising such as the creditor first make effort to collect against the principle.
The personal guarantee may also include waivers of rights and defenses. It can include a waiver of rights of subrogation, reimbursement, indemnification, contribution, and any other rights or defenses available to the guarantor pursuant to California Civil Code §§2787-2856.
Whether you are a personal guarantor or a creditor it is vital to have a properly worded personal guarantee to protect the respective rights and interests of the parties.