When a Guaranty Is Not a Personal Guaranty

Author: Ronald E. Lyons Date: 05/31/2011

Categories: Corporate and Business Law

A recent case from the Maryland Court of Special Appeals addressed the issue of whether the guaranty of a managing partner of a limited liability company triggered personal liability. In the case of Uduak J. Ubom v. SunTrust Bank, the Court focused on the nature of the signature by the managing partner of the LLC under its line of credit with SunTrust Bank (the “Bank”). In this case, the LLC applied for a line of credit and signed the Loan Agreement in two places: once on the signature line for “Applicant” and once on the signature line for “Guarantor”. Following both signatures, the individual signing added his title of “Managing Partner”.

Some years later, when the loan was in default and the Bank sued both the LLC and the individual on the Loan Agreement, the Managing Partner argued that his signature on the Loan Agreement was solely in his capacity as Managing Partner of the LLC and not in his individual capacity. The Managing Partner further alleged that the Bank loan officer advised him that he could avoid personal liability by writing his title of “Managing Partner” after his signature on the personal guaranty.

The Court was called upon to decide whether the Managing Partner signed his name in his capacity as an officer of the LLC or whether it was a personal guaranty. The Managing Partner argued that the Court should allow him to introduce evidence of the oral statements allegedly made to him by the Bank’s loan officer. Typically, the Courts follow a principle to objectively interpret a contract and will only allow additional evidence of the intention of the parties when the contract is ambiguous.

In a similar case from 1991 (L & H Enterprises, Inc. v. Allied Building Prod. Corp.) the Court found that there was no personal liability because it determined that there was intent to only bind the corporation. In the earlier case, there was only one place for the parties to sign. In the SunTrust case, however, the Court found that there were two separate signature lines: one for the LLC and one for the guarantor. Moreover, the Managing Partner also completed the personal information under the “Guarantor Information” section of the Loan Application. The Court noted that if the Managing Partner had only signed the guaranty in a representative capacity, it would render the guaranty inconsequential and add nothing to the Loan Agreement of the Bank that it did not already have with the signature of the LLC. Accordingly, the Court concluded that the language of the Loan Agreement was clear and unambiguous. Based on those facts, the Court determined that the Managing Partner was not relieved of his personal liability merely by adding his title to the signature line.

Eliminating ambiguity can save a lot of money and aggravation. Before signing loan agreements, always be sure to have an attorney carefully review the document to identify the parties to the loan as well as the parties responsible for repayment.