Unenforceable Personal Guarantees

As long as a personal guarantee is put together correctly, once signed, individual(s) receiving the loan will be unable to get out of it in the event of the contract being breached.

However, unenforceable personal guarantees can come into play if certain criteria haven’t been satisfied before the agreement was signed, or if particular limitations have been exceeded during the period of the contract. 

Knowing what to look for can prove difficult if you are not experienced in dealing with personal guarantee law, and if you suspect you may be in possession of an invalid agreement it is worth having it checked through by professionals. 

What is an unenforceable personal guarantee?

When you agree to take out a personal guarantee you should also be aware that there is a limitation period attached to the agreement. This means should the contract be breached at any point, there is a limit on the amount of time when legal proceedings can be introduced to court. 

The time limit will vary from contract to contract, and it may also feature restrictions that dictate when the creditor can actually make their claim. As with all the legal details involved with a personal guarantee, you should be made aware of these before making a commitment to any type of personal guarantee business loan. 

There are some general laws that typically apply to most agreements. When it comes to normal contracts, there is usually a 6 year period from the date the breach took place. For deeds, this is doubled to 12 years from the date of the breach.

Given the lengthy time allowed in both scenarios, it is often unlikely that the creditor will miss the allowed period. However, there have been cases where this has happened, which has resulted in unenforceable personal guarantees being legally challenged. 

It should also be noted that there are unlimited personal guarantees that do not place a limit on the amount of money the creditor can recover in the event of a default. This is something to seriously consider inserting into the contract before it is signed (known as a limitation or exclusion clause) as this could offer you valuable protection further down the line. 

Can a Personal Guarantee be unenforceable?

Personal guarantee law may be able to offer help of some sort, depending on the type of agreement you have signed. Although, that is not the only way unenforceable personal guarantees come into effect. 

The conduct of the creditor also plays a big role in ensuring the agreement remains valid, and in order to get out of a personal guarantee business loan it is worth checking whether:

  • You have been misled by the creditor due to inappropriate influence or even fraud before you signed the agreement
  • Someone else has signed the contract instead of the correct guarantor 
  • The contract has not been accepted by the creditor in agreement with the guarantor
  • False assurances were provided that led to the guarantor signing the guarantee
  • The guarantor has not been provided key information by the creditor that has a direct impact on the relationship between creditor and debtor
  • There is sufficient evidence to support the alleged balance associated with the guarantee
  • The creditor has given the debtor more time to pay, or increases the amount of debt in a way the guarantor did not expect
  • A condition precedent was inserted into the contract but not fulfilled, effectively making the agreement void

Getting help with unenforceable personal guarantees

Unenforceable personal guarantees are not industry-specific and as such, we continue to successfully help individuals from a wide range of sectors who believe their agreement is open to contention. 

In order to assess whether or not the personal guarantee business loan you have taken out is potentially invalid, we first review the paperwork held by the creditor to understand whether there are any areas of exposure we can explore further. 

We will also want to find out the circumstances surrounding the signing of the guarantee. If the creditor behaved in an inappropriate manner before the agreement was confirmed, this could be open to further investigation and potentially lead to it becoming unenforceable. 

The challenging of any personal guarantee does not only come down to the seriousness of the breach of contract, but also the involvement of the guarantor and how they have attempted to find an acceptable resolution that suits both parties. 

We’re experts in personal guarantee law, so whether a creditor is calling in their loan, or you think your agreement has been breached in some way, we can offer an in-depth assessment and the appropriate solution to suit you.

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6 Essential Tips to Resolve Your Personal Guarantee Issues – lots of helpful guidance to start the process and keep you informed. Download our 8-page PDF now.