• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

Is a Guarantor Liable for His Business's Debt?

#1
What is the name of your state (only U.S. law)?

A Florida corporation is operated by one man, Mr. C. His company is sued and the lawsuit names the company and Mr. C., individually and as a guarantor, as defendants.

During the lawsuit proceedings, Mr. C. was dropped as a defendant.

The company that Mr. C. owned was found liable for over $150,000.00 in damages by the court.

At the time the damages were awarded, the company could not pay the damages and the amount remains unpaid even now.

Mr. C. has recently died and his estate will have enough money (acquired from an inheritance from a family member of Mr. C.) to be able to afford to pay this debt.

(My hypothetical question: If Mr. C. was still living and could have afforded to pay off this debt from the inheritance he might have received, was he legally obligated to do so as a guarantor?)

My main question and my most important question is: Is Mr. C.'s estate obligated to pay off this debt?
 


latigo

Senior Member
#2
What is the name of your state (only U.S. law)?

A Florida corporation is operated by one man, Mr. C. His company is sued and the lawsuit names the company and Mr. C., individually and as a guarantor, as defendants.

During the lawsuit proceedings, Mr. C. was dropped as a defendant.

The company that Mr. C. owned was found liable for over $150,000.00 in damages by the court.

At the time the damages were awarded, the company could not pay the damages and the amount remains unpaid even now.

Mr. C. has recently died and his estate will have enough money (acquired from an inheritance from a family member of Mr. C.) to be able to afford to pay this debt.

(My hypothetical question: If Mr. C. was still living and could have afforded to pay off this debt from the inheritance he might have received, was he legally obligated to do so as a guarantor?)

My main question and my most important question is: Is Mr. C.'s estate obligated to pay off this debt?
And the judgment was for $150,000.00 to the penny, right?

You are taxing both your fertile imagination and our patience so please go elsewhere to play your games, DD! Only someone stupid enough to swallow this improbable farce would have "dropped" your phantasmic "Mr. C." as a co-defendant!
 
#3
What does it matter how much the judgment was for? This is a real-life occurrence. The man was nearly bankrupt at the time of his death and the inheritance came afterwards. I have no reason to lie about how the case was titled. Serious replies only, please.
 

HRZ

Senior Member
#4
IT is rather unclear in what all capacities the ndividual was dropped...you post both the ndividually and as guarantor ...but there may be a lot of details in there . ...all beyond me.

But as an aside, in general there is a rigid cut off date to present claims against an estate...so if you think you have a claim and the clock is running .. I d get the claim/ demand into executor like today ..multiple ways/modes with a trail ...and sort it out later....if you have a valid claim filed too late..it's dead ..
 

LdiJ

Senior Member
#5
What is the name of your state (only U.S. law)?

A Florida corporation is operated by one man, Mr. C. His company is sued and the lawsuit names the company and Mr. C., individually and as a guarantor, as defendants.

During the lawsuit proceedings, Mr. C. was dropped as a defendant.

The company that Mr. C. owned was found liable for over $150,000.00 in damages by the court.

At the time the damages were awarded, the company could not pay the damages and the amount remains unpaid even now.

Mr. C. has recently died and his estate will have enough money (acquired from an inheritance from a family member of Mr. C.) to be able to afford to pay this debt.

(My hypothetical question: If Mr. C. was still living and could have afforded to pay off this debt from the inheritance he might have received, was he legally obligated to do so as a guarantor?)

My main question and my most important question is: Is Mr. C.'s estate obligated to pay off this debt?
How long ago did the debt happen and how long ago was the lawsuit where he as an individual was dropped from the case? How long ago did he die as well?
 
#6
My main question and my most important question is: Is Mr. C.'s estate obligated to pay off this debt?
Just on the facts you provided, the answer is likely no. The judgment was against the corporation only. Mr. C was dropped from the lawsuit; there is no judgment against him. You say that he guaranteed the debt. If that was true, why was Mr. C. dropped from the lawsuit? If it could be proven to the court that he guranteed the debt judgment would have been entered against him as well. I can’t imagine the plaintiff voluntarily dismissing Mr. C. from the lawsuit. So it is likely that Mr. C. got dropped because Mr. C. filed a motion to dismiss him as defendant and the court agreed with him. Whether the creditor might be able to sue the estate now to get a judgment and try to collect this debt depends on why Mr. C. was dismissed in that earlier lawsuit. But in any event, until the creditor sues and gets a judgment on the debt against the estate the executor can resist paying the debt. And then there is the issue of whether the debtor may now pursue the debt or whether period allowed by law to do that has expired. The creditor would need to consult a civil litigation and probate attorney to figure out if it has any path here to try to collect from the estate. But at this stage, without a judgment for the debt and the decedent having been dismissed from the earlier suit as defendant, the executor isn’t going to be obligated to pay this.
 
#7
Thank you, Taxing Matters, for the clarification.

September 2014--Mr. C. "dissolved" the company (filed through the Secretary of State) but I don't know if the plaintiff was aware of this or whether it absolves the company from financial liability.

October 2014--Plaintiff asked that Mr. C. be dropped from the lawsuit according to Florida Rules of Civil Procedure 1.250(b), about "Dropping Parties".

December 2014--Judgment was awarded against the company.

August 2015--Mr. C. dies in a nearby county different from where the lawsuit was conducted.
 
#8
The man was nearly bankrupt at the time of his death and the inheritance came afterwards.
I don’t know if anybody else asked this but how does a dead person inherit anythng?

October 2014--Plaintiff asked that Mr. C. be dropped from the lawsuit according to Florida Rules of Civil Procedure 1.250(b), about "Dropping Parties".
Was he dropped as a party in both his individual capacity and as guarantor of the business debts?
 
#9
I don’t know if anybody else asked this but how does a dead person inherit anythng?

Was he dropped as a party in both his individual capacity and as guarantor of the business debts?
If he was dropped as a party that means that all claims against him in that lawsuit ended. If one or more claims were to survive the dismissal then the court would have only dismissed the certain claims that could not be litigated and kept the other claims.

I don’t know if anybody else asked this but how does a dead person inherit anythng?
The exact sequence of events matters. But for one example, suppose Amy dies and in her will she gives $10,000 to Becky. Before Amy’s estate is actually distributed, however, Becky also dies. In that case, assuming no will provision or state law addresses it, Amy’s $10,000 gift to Becky will go to Becky’s estate. Some states, like those in which I practice, have a provision that that the beneficiary must survive the decedent by a certain period of time, e.g. 5 days, in order to get the bequest or devise unless the will provides something different. I generally recommend to my clients that they consider putting a requirement that the beneficiary survive them by at least 30 days.
 
Last edited:
#10
If he was dropped as a party that means that all claims against him in that lawsuit ended. If one or more claims were to survive the dismissal then the court would have only dismissed the certain claims that could not be litigated and kept the other claims.



The exact sequence of events matters. But for one example, suppose Amy dies and in her will she gives $10,000 to Becky. Before Amy’s estate is actually distributed, however, Becky also dies. In that case, assuming no will provision or state law addresses it, Amy’s $10,000 gift to Becky will go to Becky’s estate. Some states, like those in which I practice, have a provision that that the beneficiary must survive the decedent by a certain period of time, e.g. 5 days, in order to get the bequest or devise unless the will provides something different. I generally recommend to my clients that they consider putting a requirement that the beneficiary survive them by at least 30 days.
The first question was simply for clarity. I understand and agree with your statement

As to the second issue; if the beneficiary predeceases the testator, unless the will addresses it, generally it is treated as the beneficiary didn’t exist. In short, a dead person (dead at the time of the testator/benefactor dies) cannot inherit anything. In your example the beneficiary was alive at the time of the testator death. Generally if the beneficiary is alive at the time of the death of the testator, barring law or a statement in the will requiring a time post death a bene must survive, of course the asset does go to the estate.

In the states I’ve read law concerning probate, assets devolve to the heir, devisee, or legatee at the time of death of the owner of the estate.

And of course, this is why I asked the question I asked.


I see no purpose for your 30 day survival requirement though. It seems a very arbitrary number.
 
#11
The first question was simply for clarity. I understand and agree with your statement

As to the second issue; if the beneficiary predeceases the testator, unless the will addresses it, generally it is treated as the beneficiary didn’t exist. In short, a dead person (dead at the time of the testator/benefactor dies) cannot inherit anything.
That is true.

In your example the beneficiary was alive at the time of the testator death. Generally if the beneficiary is alive at the time of the death of the testator, barring law or a statement in the will requiring a time post death a bene must survive, of course the asset does go to the estate.
Also correct. My example was to give a situation that might fit what the OP was trying to say. His/her facts are far from clear. What does seem evident, however, is that Mr. C’s estate has the funds to pay this debt, apparently from Mr. C inheriting from someone else. It doesn't really matter how Mr. C’s estate got the money, however, which is why I didn’t ask the OP to clarify how the estate got from an inheritance when Mr. C. was dead.

I see no purpose for your 30 day survival requirement though. It seems a very arbitrary number.
Any time period picked, whether the state’s 5 days or my 30 days is somewhat arbitrary. :D The idea here is to balance things so that it will be extremely rare that an estate will pay out to a beneficiary who dies shortly after the testator but not pick a period so long that it materially slows probate. I and other lawyers who do wills and probate have seen situations, in particular common accidents (i.e. testator and beneficiary are both in the same accident), where the beneficiary survived more than the 5 days provided in state law but not a whole lot longer, which then necessitated passing assets through two estates, with the costs (and potentially taxes) that go along with it. That could have been avoided with a longer survival period. While it is of course possible that someone might survive such an event for a little longer than 30 days and then die, that is much less likely. Thus it is fairly common practice here to recommend 30 days as a survival period; I didn’t originate the idea myself, but I do think it is a worthwhile provision to include.
 
#12
e. It doesn't really matter how Mr. C’s estate got the money, however, which is why I didn’t ask the OP to clarify how the estate got from an inheritance when Mr. C. was dead.
But given the statement op made;

The man was nearly bankrupt at the time of his death and the inheritance came afterwards.
It suggests the claimed inheritance may not even be valid. As I stated, assets generally devolve at the time of death so any inheritance or gift from another party was actually property of the decedent in question at the time of his death. That means he wasn’t near bankruptcy due to the inheritance already being his regardless of it not being distributed yet.

Not that it would truly alter the answer to the question at hand, it could be beneficial information to the op in general. If the estate was being processed as if it was bankrupt (or near), the fact is wasn’t could radically affect how the estate is dealt with.


not a whole lot longer, which then necessitated passing assets through two estates, with the costs (and potentially taxes) that go along with it. That could have been avoided with a longer survival period. While it is of course possible
the money will almost always pass through a successive estate whether it be recieved less than 30 days before the recipients death or 30 years after. It may have been passed along several times before it is include in somebody’s estate but more likely than not, eventually it will be an asset of somebody’s estate. I see the time limit to actually inhibit the intended benefit of the gift; enrich the legatee or devisee and as such, prevent the legatee or devisee from passing that gift to their heirs.
 
#13
It suggests the claimed inheritance may not even be valid. As I stated, assets generally devolve at the time of death so any inheritance or gift from another party was actually property of the decedent in question at the time of his death. That means he wasn’t near bankruptcy due to the inheritance already being his regardless of it not being distributed yet.
As I said, the facts are unclear. If the estate lacks the money to pay the judgment then of course that would make a difference to whether it is fruitful to try to get a good claim against the estate. If the OP is banking on the estate getting money that it has not yet obtained then the old saying “don't count your chickens before they hatch” would certainly be appropriate here. But if the estate already has the money then it is not really relevant how it got the money.

the money will almost always pass through a successive estate whether it be recieved less than 30 days before the recipients death or 30 years after. It may have been passed along several times before it is include in somebody’s estate but more likely than not, eventually it will be an asset of somebody’s estate. I see the time limit to actually inhibit the intended benefit of the gift; enrich the legatee or devisee and as such, prevent the legatee or devisee from passing that gift to their heirs.
That depends on the estates at issue. In the situations where a husband and wife have mirror wills such that their beneficiaries are the same the issue is very much just one of cost: you don’t want to have the assets of the first spouse to die to pass through the estate of the second spouse to die when their deaths occur only a short time apart just to get the assets to their kid who would take either way. In other situations it is both a concern of reducing costs and ensuring the person to whom the testator really wants to get his stuff will have it long enough for him/her to actually enjoy it. In my experience and that of my colleagues, the 30 limit has seemed to work quite well, but of course a client is free to opt for something different if he or she chooses. My job is to explain the way things work and why the state has the rule it does, and why I recommend something different and then the client decides what he or she wants. At least once they decide they are doing so fully informed of how things work so they can get the results they want, and that’s what estate planning is all about. :) I have not yet had a client who decided they wanted anything different; they all seem to like the 30 day survival provision.
 
#14
Thank you, justalayman, for asking the pertinent question: "How can a dead man inherit?"

There has been no estate set up and he was not married and had no children. It looks like his siblings will get this money.

I was erroneously thinking that somehow the estate might be liable for paying this debt out of his personal funds, but I conclude that only company money should be used to pay off this debt.
 
Top