franchise-personal-guaranty

# Personal Guaranty of Franchisee

Drafts an enforceable personal guaranty binding individual principals to all franchisee obligations, providing maximum credit enhancement for the franchisor. Defaults to unlimited, unconditional guaranty unless the franchisor requests a cap.

## Prerequisites

1. **Franchise Agreement** — date, parties, territory/location, key financial terms
2. **Franchisee entity** — legal name, jurisdiction, entity type, ownership structure
3. **Guarantor(s)** — full legal names (as on government ID), residential addresses, relationship to franchisee
4. **Governing jurisdiction** — state law; flag community property states for spousal consent
5. **Franchisor preferences** — exclusive vs. non-exclusive jurisdiction, notarization, jury waiver policy

## Quick Start

1. Gather prerequisites above
2. Run pre-drafting research (extract obligations, check jurisdiction requirements)
3. Draft all 16 sections in order
4. Verify jurisdiction-specific enforceability (suretyship waivers, jury waiver)
5. Add spousal consent if community property state
6. Mark all variable information with [BRACKETS]

## Pre-Drafting Research

Extract from uploaded documents before drafting:

| Item | Source |
|---|---|
| All obligation categories (fees, royalties, advertising, technology, training, transfer, indemnification, post-termination) | Franchise Agreement |
| Notice clauses, cure periods, renewal/extension terms | Franchise Agreement |
| Spousal consent requirement | Governing state law |
| Notarization/witnessing requirements | Governing jurisdiction |
| Enforceability of suretyship defense waivers | Governing jurisdiction case law |
| Jury waiver enforceability | Governing jurisdiction |

Community property states requiring spousal consent: AZ, CA, ID, LA, NV, NM, TX, WA, WI.

## Document Sections

Draft all 16 sections in order:

### 1. Header & Preamble
Title **PERSONAL GUARANTY** (centered, bold, all caps). Include effective date, guarantor/franchisor names and addresses. Use present-tense commitment language: "does hereby unconditionally and irrevocably guarantee." State guaranty is material inducement for franchisor entering the Franchise Agreement.

### 2. Recitals
WHEREAS clauses referencing Franchise Agreement with specificity (date, parties, location/territory). State guarantor's relationship to franchisee, inducement, guarantor's familiarity with franchisee's financial condition, and consideration acknowledgment transitioning to "NOW, THEREFORE..."

### 3. Scope of Guaranty
Enumerate all guaranteed obligation categories explicitly:

| Category | Examples |
|---|---|
| Initial fees | Franchise fee, training fees, opening costs |
| Continuing payments | Royalties, advertising fund, technology fees |
| Purchase obligations | Products, supplies, equipment from designated suppliers |
| Operational costs | Audit costs, inspection fees, underreporting fees |
| Transfer-related | Transfer fees, costs of proposed transfers |
| Breach/default | Liquidated damages, indemnification |
| Post-termination | De-identification, inventory sell-off royalties, lease obligations |
| Collection costs | Attorneys' fees, court costs |

Extend to renewals, extensions, modifications (with or without guarantor's knowledge/consent). Cover obligations accruing after default or termination.

### 4. Guaranty of Payment and Performance (Not Collection)
Primary, direct, immediate obligation — guarantor treated as principal debtor. No requirement to first proceed against franchisee or exhaust remedies. Joint and several liability. Franchisor may pursue guarantor without prerequisite actions.

### 5. Waivers of Defenses
Draft comprehensive waivers of:

- [ ] Notice of acceptance, default, dishonor, acceleration, protest
- [ ] Defense based on failure to pursue franchisee or exhaust collateral
- [ ] Release/discharge of franchisee or other guarantors
- [ ] Modifications/amendments/extensions to Franchise Agreement
- [ ] Compromise or forbearance with franchisee
- [ ] Franchisee bankruptcy/insolvency
- [ ] Franchisee disability, incapacity, lack of authority
- [ ] Invalidity/unenforceability of franchisee's obligations
- [ ] Statute of limitations defenses
- [ ] All other suretyship defenses

State guarantor's obligations are independent of franchisee's obligations.

### 6. Continuing Guaranty & Reinstatement
Effective until all obligations indefeasibly paid in full. Automatic reinstatement if any payment rescinded, avoided, or returned (including bankruptcy preference avoidance). Continues through renewals/extensions. Survives transfer unless express written release.

### 7. Joint and Several Liability
Each guarantor liable for full amount. Franchisor may proceed against any guarantor without joining others. Waiver of contribution, reimbursement, and subrogation rights among guarantors until all obligations satisfied. Release of one does not affect others.

### 8. Representations and Warranties
Guarantor represents: adequate financial resources independent of franchise income; has read and understands Franchise Agreement and FDD; opportunity to consult counsel; no conflicts with existing agreements; guaranty is legal, valid, and binding; all financial information true, accurate, complete with no material adverse change.

### 9. Financial Disclosure Covenants
Personal financial statement at execution. Annual updates within 30 days of year-end. Updates on request (10 days' notice). Credit report authorization. Prompt notice (10 days) of: material adverse change, bankruptcy filing, judgments/liens exceeding $[threshold], defaults on material obligations.

### 10. Events of Default & Remedies
**Triggers:** franchisee default | guarantor breach | guarantor bankruptcy/insolvency | assignment for benefit of creditors | material adverse change | death/incapacity | dissolution.

**Remedies:** immediate acceleration | full payment demand | specific performance | setoff rights | enforcement cost recovery | all legal/equitable remedies. Remedies cumulative. No waiver by delay; waivers must be written and signed.

### 11. Subordination
All franchisee indebtedness to guarantor subordinated to franchisor's claims. No payments from franchisee while obligations outstanding. Payments received in violation held in trust for franchisor. Waiver of subrogation, reimbursement, and contribution until all obligations satisfied.

### 12. Jurisdiction, Venue & Procedural
Consent to exclusive jurisdiction in [franchisor's preferred county/state]. Service by certified/registered mail. **JURY TRIAL WAIVER** in ALL CAPS, conspicuous format.

### 13. Governing Law & Interpretation
Governing state law without conflicts-of-law principles. Amendments only by written instrument signed by franchisor. No modification by course of dealing or trade usage.

### 14. Miscellaneous
Severability (modify to minimum extent or sever). Binding on heirs, executors, administrators, successors, assigns. Franchisor may assign without consent; guarantor may not. Cumulative security (supplements other guaranties). Entire agreement on subject matter.

### 15. Acknowledgment of Understanding
Guarantor acknowledges: material inducement; valuable consideration; opportunity to consult counsel; voluntary execution without duress; franchise risk and potential substantial liability; adequate independent financial resources; important legal rights being waived (enumerate key waivers).

### 16. Signature Block
Separate signature line for each guarantor (name, signature, date, address). Separate pages if executing remotely. Include notary acknowledgment if required. Include **CONSENT OF SPOUSE** section with spouse signature block in community property states.

## Pitfalls and Checks

- **Scope maximization** — enumerate obligation categories explicitly; do not rely solely on catch-all language
- **Community property states** — always include spousal consent for guarantors in AZ, CA, ID, LA, NV, NM, TX, WA, WI
- **Jury waiver conspicuousness** — must be ALL CAPS or bold; verify enforceability in governing state
- **Bankruptcy reinstatement** — automatic reinstatement clause is critical for preference avoidance; never omit
- **Unlimited guaranty** — draft without dollar cap unless franchisor specifically requests one
- **Defined terms** — use consistent terms: "Franchise Agreement," "Franchisee," "Franchisor," "Guarantor," "Guaranty"
- **Placeholders** — mark all variable information with [BRACKETS] and clear labels
- **State suretyship statutes** — some states (e.g., CA Civil Code §§ 2787-2855, NY GOL § 13-101) have specific waiver requirements; research governing jurisdiction before finalizing
- **FTC Franchise Rule** — guaranty must be disclosed in Item 22 of the FDD; flag if relevant but compliance is outside this document's scope