Vertalis Business Law Glossary
Formation & Liability
Personal Guarantee
Also called: Personal Guaranty.
By Tim Nichols
Modern Counsel for Growing Companies
In plain English
A separate promise by an individual to answer for specified obligations of a business or another borrower. If the covered obligation is unpaid, the creditor may pursue the guarantor under its terms. Forming an LLC does not remove this voluntarily assumed liability, and selling or closing the business does not automatically release it.
Types and key distinctions
Continuing Guarantee
A guarantee that can cover an ongoing series of obligations, rather than only a single identified debt. Its language may reach renewals, future advances, or other credit extended to the borrower. Any cap, expiration, or revocation right must be assessed under the document and applicable law.
Guarantee of Payment
A guarantee under which the guarantor promises payment when the covered debt becomes due and unpaid, subject to its terms. It may allow the creditor to proceed against the guarantor without first exhausting remedies against the borrower or collateral. Any notice requirements, limitations, and defenses require separate review.
Guarantee of Collection
A guarantee that conditions the guarantor's payment obligation on specified collection efforts or other prerequisites involving the borrower. The creditor may need to pursue the borrower before seeking payment from the guarantor. The document's actual terms determine the required steps, regardless of its heading.
Joint and Several Liability
Liability allowing a claimant, where applicable, to recover the full covered amount from any one of multiple responsible parties, subject to limits on total recovery. Contribution rights may allocate the burden among those parties afterward. Equal ownership does not necessarily mean equal collection exposure under a guarantee.
Deficiency
The unpaid balance remaining after collateral proceeds or other credited recoveries are applied to a debt and permitted charges. A borrower or guarantor may remain responsible for it, subject to the documents and applicable defenses. Selling the collateral does not necessarily satisfy the entire obligation.
Acceleration Clause
A contract provision allowing a creditor to declare future installments immediately due after a specified event, commonly a payment default. Acceleration may require notice or an opportunity to cure. It concerns the timing of debt repayment, which is different from accelerating the vesting of equity.