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Business Credit Articles |
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A personal guaranty is a common requirement by a credit
professional to reduce credit risk with a sale to a corporate debtor.
A party, usually a principal of the company purchasing the goods (the
guarantor), states to the vendor that if the vendor will sell the corporate
debtor on credit, the guarantor will guarantee the payment. This promise
to pay by the guarantor is an inducement for the vendor to sell the
debtor on open account and the guaranty creates a contract of secondary
liability. A Guaranty From The President?In Dewberry, an individual who was the president of a
company, guaranteed the company's open accounts with the vendor. The
individual signed the guaranty and added the title "President" after
his signature. The president's company name was typed in above the
individual's signature line. The printed words "personal guarantee" were
crossed out from the credit application. The guaranty form referred
to the guarantor only as the "undersigned": Principles of Contract ControlIn Dewberry, the guaranty did not name the individual
guarantor. The guaranty stated that the party signing was to be personally
bound, but the preprinted words were crossed out. The general rule
is that when the signer's identity is otherwise clear from the face
of the contract, the title appearing after the signature is merely
a personal descriptor, and does not prevent personal liability from
attaching. However, the individual guarantor typed in the debtor company
name above the signature line and typed in "President" below the signature
line. Is Your Guaranty Complete?As credit executives are well aware, a guarantor will
always attempt to find ways to challenge the validity of his or her
guaranty. The Dewberry court case reminds credit executives that the
guarantor is not a party to the principal debt. The guarantor's undertaking
is independent of the debtor's promise to pay. Merely because both
contracts are on the same paper -- the debtor's promise to pay for
the vendor's goods or services, and the guarantor's promise to pay
if the debtor does not -- does not change the independence of the agreements. |
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