A guarantor is, in general, an individual who has agreed, in writing, to pay a debt if the original debtor is unwilling or unable. If you are in the business of supplying goods or services based on an underlying credit agreement, you should touch base with the debtor’s guarantor on a regular basis.
I have seen companies who provide goods based on guarantees that they haven’t checked in years. When it came time to sue on the underlying debt, the company learned that the guarantor named on the credit agreement had long ago left the employment of the debtor and is nowhere to be found.
If the guarantor cannot be located, then the sheriff will not be able to serve a complaint, and you will not be able to move forward with the collection litigation.
In addition, under common law, a guarantor of a continuing guaranty has the right to revoke the guaranty at any time, as long as they provide proper notice and the contract does not expressly limit the right to revocation. (See Ccp Ltd. Partnership v. First Source Fin., 856 N.E.2d 492, 368 Ill. App.3d 476, 305 Ill.Dec. 687 (Ill. App. 2006)).
Put in practice, what can happen is a guarantor may send a notice to your credit department of their intention to revoke their guaranty. If that occurs, the guarantor’s liability will only be limited to transactions occurring pursuant to the guaranty before the notice of revocation. If this notice is simply placed in the customer’s file with no follow up, then you may be left with no guarantor for future debt.
It is a good practice, therefore, to conduct a regular check of the accuracy of the information provided regarding your guarantors and to confirm that they have not given notice that they have revoked their guaranty.