Be Careful What You Sign

I counsel my clients to always put agreements in writing. The reason is that when two or more people enter into a contract, it is always best to set forth the key points. Then the parties know their responsibilities, the timelines that must be met, and the ramifications if one party does not follow their responsibility.

I also counsel my clients you must be careful what you are signing. Once you sign a contract, then you are bound by the terms. People think that having a limited liability company or corporation will protect them from liability. However, often, you may have to sign a personal guarantee.

A personal guarantee is simple: if the LLC or corporation does not honor the agreement, you are personally liable. This situation arises when there is debt involved. The person/entity loaning the debt wants someone behind the business to be responsible for that debt if the entity fails to pay.

Essentially this happened in National Lumber Company v. Peter Miranda, Jr., et. al. (20-P-613). The Defendants argued that their agent could not bind them to contracts. While the Defendants did not sign the contract, they had acted in a manner over time that bound them to the contract their agent signed (they also never stated the agent had no authority). The Defendants failed to pay, and National Lumber Company went after the Defendants directly. It didn’t matter there was a Trust, the contracts allowed for a personal guarantee of the trustees.

The same applies to LLCs and corporations. If you are going to sign an agreement on behalf of your business and a personal guarantee is involved, let me review to ensure that you understand your rights and what happens if a default occurs.