While it's not common for a lender to require an individual guaranty in order to extend commercial credit to an operating business1, when such a requirement arises, the individual providing a guaranty should not take such a requirement lightly. If the guaranty is structured as a full recourse guaranty, it will create an obligation whereby the individual guarantor is responsible to repay the loan from his or her own personal assets. Individuals who convince themselves that a guaranty is just a lender formality and hope to rely on their relationship with their lender should a problem arise with the loan, may find their sense of comfort to be misplaced. A recent decision from the Southern District of New York serves as a reminder that well-drafted guarantees can and will be enforced.
In White Oak Glob. Advisors LLC v. Clarke, No. 24-CV-2128 (JSR), 2025 WL 2113436 (S.D.N.Y. July 29, 2025), Thomas and Ana Clarke (the "Clarkes") each signed individual guarantees in favor of White Oak Global Advisors LLC ("White Oak") in connection with loans that White Oak made to businesses indirectly owned by the Clarkes. The loans matured in 2023 and a total of over $200 million was outstanding at maturity. The parties agreed in the guaranty documents that the maximum liability of each guarantor under their respective guarantees was to be capped at $20 million per guarantor. The underlying dispute focused on whether the guarantees were applicable to a promissory note (the "Note") that had been amended and restated numerous times and if so, whether the guarantees were unconscionable.
Precedent that sets forth the following principles guided the Court in determining the Clarkes' outcome: (i) the terms of a guaranty are to be strictly construed and a guarantor should not be found liable beyond the express terms of the guaranty; (ii) a guarantor's obligation cannot be altered without its consent; (iii) a guarantor may give such consent by means of a provision in the guaranty that expressly allows for an underlying contract or obligation to be modified; and (iv) guarantees that expressly provide that a guarantor's obligations are not discharged by a modification of the underlying contract are enforceable.
The Clarkes argued that their guarantees did not apply to the Note because of multiple changes to the Note during the course of the loan. The Court determined that the Clarkes' had consented to the third iteration of the Note and entered into a reaffirmation and consent agreement, which provided that each of the Clarkes "... (b) consents to the amendment and restatement of the Existing Note as set forth in the Amended Note; (c) acknowledges and reaffirms its obligations owing to the Agent under the Personal Guarantee(s) to which it is a party; (d) agrees that each of the Personal Guarantees to which it is a party is and shall remain in full force and effect and that the 'Note' referred to in the definition of 'Guaranteed Obligations' in such Personal Guarantee(s) shall refer to the Amended Note; and (e) represents and warrants that it has read and understands the Amended Note and this Reaffirmation and Consent, has consulted with and been represented by independent legal counsel of its own choosing in negotiations for and the preparation of such documents, has read such documents in full and final form, and has been advised by counsel of its rights and obligations hereunder and thereunder."
Ultimately, relying on the plain meaning of the language in the Note and the guarantees and the reaffirmations, the Court found that the Clarkes gave express advance consent to further amendments to the Note and their individual guarantees applied to the Note as amended and restated.
The Clarkes also argued that the personal guarantees that they made were unconscionable and therefore unenforceable. The Court disagreed and found that the Clarkes waived the defense of unconscionability as the guarantees expressly precluded the Clarkes from raising "any defense of illegality or unenforceability." The Clarkes did not allege unequal bargaining power or lack meaningful choice in signing their guarantees and even testified to being well counseled and experienced in negotiating and executing personal guarantees.
As a result, the Court concluded that the Clarkes' guarantees were enforceable and that each Clarke was responsible for up to $20 million.
Recently, Charles Cohen ("Cohen"), a New York real estate developer, found himself in a similar situation to the Clarkes2. Cohen personally guaranteed part of a loan made by Fortress Investment Group ("Fortress") to his business and when the business defaulted, Fortress found that the value of the collateral fell short of what it was owed. Fortress took legal action to enforce Cohen's guarantee, including seizing personal assets from his homes. Cohen, who had a decades long business relationship with Fortress, stated that he believed he had a handshake agreement with Fortress for another extension of the loans. Fortress disagreed. The New York State Supreme Court ruled in favor of Fortress.3 The litigation between Fortress and Cohen is ongoing.
The law of guarantees has been settled for a long time. Well-drafted guarantees will be enforced by courts. Guarantees that include the standard litany of defense and suretyship waivers along with up-front consents to various lender actions during the course of administering the loan will be upheld by the courts absent extraordinary circumstances, most often with a court exercising equitable powers. Lenders and well counseled guarantors know this. Individuals who provide personal guarantees to support a commercial loan should assume that a lender will seek to enforce the guaranty should the need arise and absent extraordinary circumstances or a defect in the guaranty document, the lender should prevail regardless of any personal relationship that the individual guarantor has with the lending institution.
Footnotes
1 Personal guaranties are more often seen in connection with a commercial real estate loan.
2 Peter Grant, A Real-Estate Tycoon's Loan Went Bad. Then They Came for His Ferraris and Fine Wine, WALL ST. J. (July 21, 2025), https://www.wsj.com/real-estate/commercial/a-real-estate-tycoons-loan-went-bad-then-they-came-for-his-ferraris-and-fine-wine 06505640?gaa_at=eafs&gaa_n=ASWzDAjG1pioVpTmJjBz3Y9O1SnFckPkX2X8Fk-I9AhR4bKPwwcKETM7rhWc&gaa_ts=6892774e&gaa_sig=aNsfq32KbGtPaTYJogySbOehecvIsEXA1ZVt0sVTZhAMe60COpcG-MW35jlQo-oQcuhYctgva5Kwt-UinmsEiw%3D%3D
3 Fortress Credit Corp. v. Cohen, 235 A.D.3d 553, 229 N.Y.S.3d 115, 2025 N.Y. Slip Op. 01060.
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