Personal Guaranty Defense
Signing a guaranty is not the end of the analysis. It is the beginning of a careful reading of what you actually guaranteed, which is often less than the funder is claiming.
- Return date is in the notice of motionCPLR 3213
- Oppose before the return dateCPLR 3213
- Scope is a question of contractGeneral Obligations Law
Many MCA guaranties do not guarantee repayment of the advance
This is the single most misunderstood document in the file. Merchants assume that signing a personal guaranty means personally owing the full advance if the business cannot pay. Many MCA guaranties do not say that. They guarantee the merchant's performance of its obligations under the agreement: the representations, the covenants, the promise not to change processors, not to encumber the receivables, not to shut the business down.
The distinction is decisive. If the merchant's obligation was to remit a stated percentage of its receipts, and receipts genuinely declined, then remitting less is performance, not breach. Where there is no breach of the guaranteed obligation, there is nothing for the guaranty to capture. Funders sue on these guaranties as though they were unconditional payment guaranties, and a close reading of the instrument they attach is frequently where the complaint is weakest.
Guaranty of payment, or guaranty of performance?
A guaranty of payment makes the guarantor liable for the debt. A guaranty of performance makes the guarantor liable for the merchant's breach of specified obligations. Many MCA guaranties are the second kind, sometimes with a defined list of triggering events, and if none of those events occurred, the guaranty is not triggered.
Bring the guaranty. Not just the funding agreement: the guaranty itself, including the page with the defined terms.
Defenses that remain available
The guaranteed obligation is itself unenforceable
A guarantor's liability generally rises and falls with the underlying obligation (lawyers call it derivative). If the underlying transaction is void, for example as a criminally usurious loan following reclassification under the LG Funding factors and Adar Bays, LLC v. GeneSys ID, Inc., 37 N.Y.3d 320 (2021), the guaranty of that obligation does not stand on its own.
The funder's own breach
Where the funder refused or ignored contractual reconciliation, called the whole balance due without a contractual basis, or double-debited, its breach bears directly on whether the merchant breached anything the guaranty covers.
Scope, conditions precedent, and the amount claimed
Guaranties frequently cap exposure, condition liability on notice or demand, exclude consequential items, or engage only on enumerated events. The complaint's demand routinely includes default interest, an attorney-fee percentage and bounced-payment (NSF) charges that the guaranty does not reach. Cutting the claim down to what the guaranty actually covers is worth the fight even where liability exists.
Fraudulent inducement and lack of consideration
Where the broker's representations about cost, term or reconciliation diverge materially from the documents, or where the guaranty was signed after the advance funded without separate consideration, those are live issues. Broad waiver clauses do not automatically dispose of them.
Material modification without the guarantor's consent
Under settled suretyship principles, a material alteration of the guaranteed obligation without the guarantor's consent can discharge the guarantor, meaning release you entirely. Refinancings, restructurings and “add-on” advances documented as amendments are worth examining closely for exactly this.
The writing itself
General Obligations Law § 5-701(a)(2) requires a promise to answer for the obligation of another to be in writing. Missing signature pages, unexecuted counterparts, and guaranties whose signature block names a different entity or person are more common than they should be.
The 2019 amendment protects individuals too
Funders routinely take confessions of judgment from the guarantor personally alongside the entity. The 2019 amendment to CPLR 3218 bars entry against a defendant who did not reside in New York when the affidavit was executed, and that protection runs to the individual guarantor, not only to the business.
If you are an out-of-state owner with a New York judgment in your personal name, start with our confession of judgment page.
Protecting personal assets while the claim is live
A judgment against you individually reaches personal property and, in principle, real property. New York provides exemptions that matter and that are frequently overlooked: CPLR 5206(a) exempts a homestead up to a statutory amount that varies by county and is adjusted periodically; CPLR 5205 exempts categories of personal property; and CPLR 5222-a protects direct-deposited exempt funds and a minimum balance in a natural person's bank account. Marital property, tenancy by the entirety (a form of joint ownership open to married couples), and retirement accounts each have their own treatment.
What we will not advise is moving assets to defeat a creditor. That invites a fraudulent conveyance claim, which is often worse than the underlying exposure, and it converts a defensible commercial dispute into a credibility problem in front of the judge whose discretion you need.
The dates that govern
| Event | Governing rule | Timetable |
|---|---|---|
| Appearance in an action on the guaranty | CPLR 320(a) | 20 days if personally delivered in New York; 30 days for any other method of service. |
| Motion for summary judgment in lieu of complaint | CPLR 3213 | Funders often use this on guaranties. The notice of motion sets the return date and the time to serve answering papers. Read it immediately, because this procedure is faster than an ordinary action. |
| Pre-answer motion to dismiss | CPLR 3211(e) | Before the responsive pleading is due. |
| Vacating a confession of judgment in your personal name | CPLR 3218, CPLR 5015(a) | Move promptly; where the clerk lacked authority to enter it, the one-year excusable-default window is not the operative limit. |
| Restraint on a personal account | CPLR 5222, CPLR 5222-a | One year from service. The Exempt Income Protection Act (EIPA) notice and exemption-claim procedures apply to a natural person's account and impose their own timetable. |
| Action on a written guaranty | CPLR 213(2) | Six years for breach of contract, subject to accrual and any contractual provision. |
CPLR 3213 moves faster than a normal lawsuit
Where a guaranty qualifies as an instrument for the payment of money only, a funder can move for summary judgment in lieu of a complaint. Your response time is set by the motion papers, not by CPLR 320, and it is frequently shorter than merchants expect. If what you were served with is a notice of motion rather than a complaint, treat it as urgent.
General information, not advice on your guaranty. Whether a guaranty is one of payment or of performance, whether any defense applies, and what your actual deadline is depend on the instrument you signed and what you were served with. Exemption amounts change. Send us the documents.
What to send us
- The personal guaranty, complete, including the definitions and signature pages.
- The funding agreement it relates to, and any amendment, refinancing or add-on.
- Whatever you were served with. Tell us whether it is a complaint or a notice of motion.
- Any confession of judgment you signed in your individual name.
- Bank statements and the remittance history showing what was actually paid.
- Any reconciliation request you made and the funder's response.
The first three days, and day 21
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Hour 0
Read the guaranty
Payment or performance? Capped or uncapped? Conditioned on what? The guaranty, the agreement and the remittance history come in together.
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Before the return date
Oppose the CPLR 3213 motion
Summary judgment in lieu of complaint moves fast. The opposition goes in on time, with the defenses to the underlying obligation preserved.
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After
Protect what is exempt
Enforcement against personal assets is addressed on its own track while the merits of the guaranty and the funding agreement are litigated.
Frequently asked
Not automatically, and sometimes not at all. Many MCA guaranties guarantee the merchant's performance of specified obligations rather than repayment of the advance. If the obligation was to remit a percentage of receipts and receipts genuinely declined, remitting less is performance rather than breach, and a performance guaranty is not engaged by the absence of a breach. The answer is in the instrument, so send the guaranty itself.
Generally the guarantor's liability is derivative of the principal obligation, so if the underlying transaction is void, for instance as a criminally usurious loan after reclassification, following Adar Bays, LLC v. GeneSys ID, Inc., 37 N.Y.3d 320 (2021), the guaranty of that obligation does not stand on its own. Funders argue otherwise from waiver and independent-obligation language, so it is litigated rather than conceded.
Probably a motion for summary judgment in lieu of complaint under CPLR 3213, available where the guaranty is an instrument for the payment of money only. It compresses the case dramatically: your time to respond is set by the motion papers and it is often shorter than the ordinary appearance period. Treat it as urgent.
A judgment against you individually can, in principle, reach real property, subject to exemptions. CPLR 5206(a) exempts a homestead up to a statutory amount that varies by county and is adjusted periodically, and how title is held, tenancy by the entirety in particular, matters a great deal. This is a fact-specific analysis and worth doing early rather than after a levy.
No, and we will tell you no. Transfers made to defeat a creditor invite a fraudulent conveyance claim, can leave you worse off than the original claim would have, and destroy your credibility with the judge whose discretion you are about to ask for. There are legitimate structures and legitimate exemptions. Use those.
It may. If the deal you guaranteed was materially changed without your consent, that change can release you from the guaranty. Refinancings, restructurings and add-on advances papered as amendments are worth examining specifically for whether the guarantor consented to what actually changed.
Send the guaranty, all of it.
Definitions page, signature page, and every amendment. Whether you owe anything personally is usually decided by language most merchants have never read closely.