Personal Guarantees on Commercial Contract Collections

For many startup businesses, it can be impossible to obtain credit without offering a personal guarantee of an owner or officer. If the business is not successful, and cannot pay its debts, this guarantee can come back to haunt the owner or officer. Most creditors’ attorneys will file suit on a breach of contract claim against both the company and the guarantor. If you find yourself being sued on a personal guarantee or if you are a supplier with accounts receivable that may require a collections attorney, you need an experienced civil attorney familiar with North Carolina guarantee law. The Raleigh business litigation lawyers of Maginnis Howard have successfully represented both Plaintiffs and Defendants in cases involving personal guarantees. To speak with one of our Raleigh civil litigation attorneys, contact the firm at 919.526.0450 or 919.480.8526.

When defending against a personal guarantee claim, the first thing a business owner should know is that, pursuant to North Carolina’s statute of frauds, all guarantees must be in writing. There is no such thing as an oral guarantee in North Carolina. Additionally, as recently confirmed in the North Carolina Court of Appeals case Tucker Materials, Inc. v. SafeSound Acoustics, Inc., there must be two separate signatures – one on behalf of the corporation or limited liability company and one on behalf of the guarantor individually. No matter the contract language, if there is only one signature, the creditor will likely be unable to prove a personal guarantee and will be limited to recovering from the assets of the company.

In Tucker Materials, the contract specifically provided “[t]he undersigned personally guarantees payment of applicant’s past due accounts . . .” The applicant in the contract was the company – SafeSound Acoustics, Inc. Presumably, Tucker Materials wanted SafeSound owner, Sherri Noble, to be personally liable. The Court of Appeals noted, however, that on the signature block, Sherri Noble had only signed once and, under her name was the title “President.” The Court found this was insufficient to establish a personal guarantee because “the nearly universal practice in the commercial world is that the corporate officer signs twice, once as an officer and again as an individual.” The Court entered Summary Judgment in favor of Ms. Noble, which meant the question of whether she was personally liable did not even go to trial.

The Tucker case is a prime example of why anytime a personal guarantee is involved, you are well served to have an attorney review the contract. Maginnis Law offers free consultations for all business clients, and our attorneys will review any alleged personal guarantee during the course of the consultation. If you wish to retain the firm, we extend several billing arrangements to our business clients including hourly, flat rate, and monthly retainer.

Maginnis Law represents clients throughout the RTP area, including Raleigh, Durham, Cary, Morrisville, Apex, Chapel Hill, Clayton, Garner, and Wake Forest. To speak with a Raleigh civil litigation attorney regarding your case involving a personal guarantee, call the firm at 919.480.8526 or 919.526.0450. You may also send a confidential email inquiry using our contact page.