A personal guarantee is a legally binding promise by an individual to assume responsibility for the debt or obligation of another party, typically a corporation or other business entity, if that party fails to perform. When a lender extends credit to a small business, when a landlord leases commercial space to a newly incorporated company, or when a supplier agrees to provide goods on account to a startup with limited trading history, the creditor faces a fundamental problem of risk. The business entity itself may have few assets, no established credit history, and limited capacity to satisfy the obligation if things go wrong. The personal guarantee exists to bridge this gap by attaching the personal wealth and creditworthiness of an individual, usually a director, shareholder, or principal of the business, to the underlying commercial obligation.
The legal foundation for personal guarantees in most of Canada rests on common law principles governing suretyship, which have developed over centuries to define the relationship between creditors, principal debtors, and guarantors. In British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, and the other common law provinces, these principles operate alongside provincial statutes that impose certain requirements for guarantees to be enforceable. The Statute of Frauds, in its various provincial iterations, generally requires that guarantees be evidenced in writing and signed by the guarantor to be enforceable. Ontario's Statute of Frauds, for example, requires written evidence of the guarantee signed by the party to be charged, as of the date of authorship. Similar requirements exist in British Columbia under the Law and Equity Act and in Alberta, Saskatchewan, and other common law provinces under their respective statutes. Quebec operates under an entirely different legal framework. Under the Civil Code of Quebec, suretyship is governed by articles 2333 through 2366, as of the date of authorship, which codify the rights and obligations of sureties, creditors, and principal debtors within Quebec's civilian tradition. The Quebec framework imposes specific requirements about how suretyship must be expressed and limits the extent of the surety's obligation in ways that differ from common law approaches.