You signed a personal guaranty and the franchisor is now looking at you

Almost every franchise agreement is personally guaranteed, usually by every owner and often by their spouses. Most people sign it without reading it, because it is handed over at closing as a formality.

It is not a formality. It is the document that puts your personal assets into the case. This page explains what these guaranties do under Florida law, which defenses are real, what happens when you sell, and the one clause that is genuinely worth attacking.

What the guaranty covers

Read yours before assuming anything, but franchise guaranties are typically drafted three ways at once. Continuing, meaning they reach future obligations and renewals. Absolute and unconditional, meaning the franchisor does not have to pursue the operating company first. And full of waivers, meaning they expressly give up notice and most of the defenses a guarantor would otherwise have.

Florida gives that language effect. A Florida appellate court has held that where a guarantor absolutely and unconditionally guaranteed the principal's obligations, the guarantor's affirmative defenses were foreclosed once the principal's liability was established.

The exposure is also usually not limited to what is past due. It commonly reaches accelerated future royalties or a liquidated damages formula, the franchisor's attorney's fees, and lease obligations where the franchisor or an affiliate is the landlord.

The rule that runs in your favor

A guaranty is strictly construed. Where its terms are clear it is construed strictly in the guarantor's favor, and where they are ambiguous it is construed against the party who drafted it, which is the franchisor.

That is a real principle and it is the first thing to work with. But understand its limits. It operates on what the document actually says, and these documents say a great deal. In the leading Eleventh Circuit case stating the Florida rule, the guarantor still lost, held liable on an unconditional guaranty for more than the principal borrower could have been made to pay.

One correction, because it circulates widely and appears on Florida law firm websites: the line that "a guarantor is a favorite of the law" is Texas law, not Florida law. Do not rely on it.

The defenses Florida actually recognizes

The underlying obligation was materially changed without your consent. This is the real one. Florida appellate courts recognize that a guarantor is discharged where the creditor materially alters the principal's obligation, to the guarantor's detriment, without the guarantor's consent. The leading case is Miami National Bank v. Fink, 174 So. 2d 38 (Fla. 3d DCA 1965), and the rule has been restated since.

In franchising this is worth looking for. Agreements get amended. Terms get extended. Royalty rates change. New agreements get signed for additional units. Payment arrangements get restructured. Very often the guarantor is never asked to reaffirm anything. Each of those is a candidate.

And here is the limit, which is the whole battleground: the defense is defeated where the guaranty itself consents in advance to alterations, and franchise guaranties are drafted with exactly that consent language. So the real question is not whether something changed. It is whether the consent language in your particular guaranty actually reaches the change that happened. That is a close reading question, and it is where the work is.

The obligation was satisfied. Where the guaranteed debt has actually been paid or satisfied, the guaranty ends with it. Note the distinction: actual satisfaction discharges you, but the fact that the principal cannot be made to pay does not.

The guaranty does not reach this obligation. Strict construction again. A guaranty of the franchise agreement dated March 2014 may not reach the 2021 successor agreement. A guaranty signed by one owner may not reach a different entity's obligations.

It is conditional rather than absolute. If the guaranty is conditional, the conditions have to be met. Most franchise guaranties are not conditional, but it is the first thing to check.

One defense that does not work in Florida: the spousal guaranty and the ECOA

Franchisees often ask whether a franchisor could lawfully require a spouse to sign. There is a federal law, the Equal Credit Opportunity Act, that restricts requiring a spouse's signature where the applicant independently qualifies for credit.

In Florida, that argument is closed for guarantors. In Regions Bank v. Legal Outsource PA, 936 F.3d 1184 (11th Cir. 2019), the court held that a guarantor is not an applicant under that statute, because a guaranty is not itself a request for credit. Florida sits in the Eleventh Circuit, so a spousal guarantor here does not have that claim, whatever the answer may be elsewhere.

We mention it because this argument turns up in franchisee-side material and it will not work here.

The clause worth attacking: accelerated royalties and liquidated damages

Many franchise agreements provide that on termination the franchisor can recover the royalties that would have been payable for the rest of the term, or a formula sum, and the guarantor is on the hook for it. Those numbers are frequently the largest item in the claim.

Florida tests such a clause under Lefemine v. Baron, 573 So. 2d 326 (Fla. 1991). The clause is enforceable only if the damages from a breach were not readily calculable when the contract was signed, and the stipulated sum is not so grossly out of proportion to the damages that could reasonably be expected as to show the parties only meant to force performance.

And there is a specific trap in that case worth knowing about. The clause failed as a penalty not because the number was unreasonable, but because the contract let the non-breaching party choose between the stipulated sum and suing for actual damages. The Florida Supreme Court held that having the choice negated any intent to liquidate damages at all.

Franchise agreements very frequently contain that exact choice, giving the franchisor liquidated damages or, at its election, actual damages. If yours does, that is a serious argument against the whole clause, and it does not depend on whether the number is reasonable.

We should be candid that we have not found a Florida or Eleventh Circuit decision applying that test to a franchise acceleration clause specifically. The test itself is binding Florida Supreme Court law. Its application here is not yet settled.

There is also a causation argument, and it comes from the franchisors' own case law. A court in this district denied a franchisor's claim for more than ten million dollars in future lost profits, reasoning that the franchisor's own decision to terminate, rather than the franchisee's breach, is what caused those profits to be lost.

Does the guaranty survive when you sell the franchise?

Only if the franchisor releases you, and only in writing.

A continuing guaranty by its nature reaches obligations arising after the moment you thought you were finished. Assume the guaranty survives a transfer unless a signed release says otherwise, and make that release an express condition of the sale, negotiated at the same time as everything else.

This is the most avoidable exposure in franchising and one of the most common. A franchisee sells, walks away, and finds out two years later that the buyer defaulted and the franchisor is looking to the original guarantor. Get the release in writing. See transfer and sale approval disputes.

Talk to an attorney, and do it before you sign, not after the demand

If you are being asked to sign a guaranty now, an hour of review is the cheapest protection available to you, and some terms are negotiable even in a system that says nothing is.

If a demand has already been made, the analysis is document by document: whether the obligation is within the guaranty's terms, whether anything was changed without your consent, and whether the damages number can be attacked.

Consultations on franchise matters are free. Bring the guaranty, the franchise agreement and every amendment.

Request a free consultation or call 305.615.1617.

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This page is general information about Florida and federal franchise law. It is not legal advice, it does not create an attorney-client relationship, and it cannot account for the terms of your particular agreement. Read more about our franchise practice.