How to guarantee enforcement of a guaranty agreement.

• Author: Morman, Daniel
• Position: Florida

A frequent area of dispute that arises after the default of a debtor is the liability of a guarantor on the underlying debt. A contract of guaranty is the promise to answer for the payment of some debt or the performance of some obligation by a third person on the default of that third person. The law distinguishes between types of guaranties. The various types of guaranties to be considered include general vs. special; conditional vs. absolute and continuing. A "general" guarantee may be enforced by any party to whom it is presented. A "special" guaranty is one addressed to a particular person, firm, or corporation. An "absolute guaranty" is one that does not attach conditions for enforcement. A "conditional" guaranty is one which is not enforceable until certain conditions precedent have been met. A "continuing" guaranty is one that remains in effect until revoked. A discussion regarding the types of guaranties will ensue, followed by a discussion of drafting tips.

General and Special Guaranties

Two cases provide insight regarding the language necessary to create a general guaranty. In Rizzi v. Service Development Corp., 354 So. 2d 898 (Fla. 4th DCA 1978), it was held that a guaranty that is part of an original lease and is for the benefit of "lessor, his heirs and assigns" is to be treated as a general guaranty. As a general guaranty, which runs to the lessor and his assigns, the court held that such guaranty was enforceable by any person to whom the principal underlying obligations and guaranty might be transferred. Therefore, when such lease was transferred to a new lessor via purchase and assignment, the purchaser-assignee was entitled to all past, present, and future rents. Id.

The recent case of Greene v. Bursey, 733 So. 2d 1111 (Fla. 4th DCA 1999), is also worth mentioning. In Greene, it was held that a guaranty that was premised on an original promissory note and mortgage and ran unconditionally to the mortgagee, its successors, and assigns, was a general guaranty that could be enforced by the mortgagee's assignee.

Both of the above cases provide instruction on proper wording for guaranties. They show that, to qualify as a general guaranty and thus fall outside the restrictions on enforcement following assignment which are imposed upon special guaranties, the guaranty should contain language such as "heir or assigns" or "successors and assigns" following the name of the party to whom the guaranty is designed to benefit. In the event that a guaranty does not qualify as a general guaranty, restrictions imposed upon holders of special guaranties will apply.

The law regarding enforcement of special guaranties has evolved in the state of Florida. In an early case worthy of note, Lee v. Rubin, 117 So. 2d 230 (Fla. 2d DCA 1960), the defendants executed a personal guaranty in favor of three corporations: Miami Tile Distributors, Inc., Miami Terrazzo Distributors, Inc., and South Florida Tile & Terrazzo...