The most commonly used defenses by personal guarantors, and the way to beat them.(REQUIRED READING)

The extension of credit to a business entity can be a risky proposition if you don't take any collateral as security. In order to protect themselves, most creditors insist on obtaining a personal guaranty from someone at the place of business that has adequate personal assets to cover the debt, in the event that the business entities' account were to become delinquent.

It can be financially devastating for a creditor to go through all of the trouble of obtaining a personal guaranty on a corporate obligation, extending credit based on that guaranty, and later discovering that due to a technicality, the guarantor is able to absolve himself of liability and the creditor is left with a large loss. However, this does not need to occur, With a few precautionary measures, the creditor can protect itself from those defenses and ensure that the personal guarantor remains liable for the debt.

One of the most commonly used defenses by personal guarantors is that their signature was forged and that they had no knowledge of the guaranty and did not authorize the signing of it. This presents a problem for the creditor in two respects.

First, if the guarantor is raising this defense knowing full well that he signed the document, the creditor still bears the burden of proof to show that the signature is in fact the guarantor's true signature. This will generally require expensive handwriting experts, which can cost well in excess of $2,000 per questioned signature.

Not only does the creditor have to pay for the handwriting expert, but usually also has to present the handwriting expert with a sampling of true signatures from the guarantor such as canceled checks, tax returns or a driver's license for purposes of comparison. In order for the creditor to obtain these items to give to the expert, the creditor must engage an attorney to conduct extensive discovery to obtain these documents. This process atone is extremely expensive.

Even after spending this money, it may still turn into a battle of the experts if the guarantor hires his own expert to controvert the findings of the creditor's expert. It does appear that for enough money, an "expert" can always be found to testify on what you need them to say, regardless of the truth.

Second, if the guarantor raises the defense of forgery, and it is found that the signature was in fact forged, then the creditor just extended credit based upon a false assumption of security. Either way, this is a situation to be avoided.