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Personal Guarantees on Commercial Contract Collections

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For many startups, it can be impossible to obtain credit without offering a personal guarantee of an owner or officer. If the business is unsuccessful, and cannot pay its debts, this guarantee can come back to haunt them. 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.

Defending Against Personal Guarantees

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”. Subsequently, 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 you need an attorney to review a personal guarantee contract. Maginnis Howard offers free consultations for all business clients, including a review of any alleged personal guarantee. If you wish to retain the firm, we extend several billing arrangements including hourly, flat rate, and monthly retainer.

Maginnis Howard represents clients throughout the state of North Carolina. To speak with a Raleigh civil litigation attorney regarding your case involving a personal guarantee, call us at (919) 526-0450. You may also send a confidential email inquiry using our contact page.