If You Guaranty a Contract For Your Company, Can You Become Liable For Its Breach?

On July 23, 2010, the Superior Court of Connecticut was presented with the following question: if someone signs a contract on behalf of a corporation, under what conditions will that person be individually liable as a guarantor if the corporation defaults? The Court determined that the answer had to do with whether or not the provision of the contract providing for the guaranty was clear and unambiguous.

    In this case, the provision read as follows: “the signer of this agreement does by his execution personally and individually undertake and assume the full performance hereof including payments of amounts due hereunder.”  The Court in Yellow Book Sales & Distribution Company, Inc. v. Valle, –A.2d— 2010, WL 3326845 (Conn. Super.) held that this provision was too ambiguous to be enforced.

    Connecticut General Statutes § 52-550(a)(2), the codification of the statute of frauds in Connecticut, provides in relevant part that “[n]o civil action may be maintained in the following cases unless the agreement, or a memorandum of the agreement, is made in writing and signed by the party, or the agent of the party, to be charged.”  Id. at 2.  Applying that law, the Court reasoned: 

 

"It is well established that an agent, by making a contract only on behalf of a competent disclosed or partially disclosed principal whom he has power so to bind, does not thereby become liable for its nonperformance.  If a contract is made with a known agent acting within the scope of his authority for a disclosed principal, the contract is that of the principal alone, unless credit has been given expressly and exclusively to the agent, and it appears that it was clearly his intention to assume the obligation as a personal liability and that he has been informed that credit has been extended to him alone.  When these two principles are read together, the law presumes that where a writing contains the signature of a duly authorized agent, the party to be charged is the principal and not the agent because the agent individually is not a party to the agreement.  Instead, the principal is the party to the agreement.  Otherwise, every agreement signed by an agent on behalf of his principal would be admissible as a promise by the agent individually to answer for the debt of his principal."

Id. at 4.

"In the present case, when looking at the document as a whole, the agreement is ambiguous as to whether the defendant was individually a party thereto.  On the one hand, [the provision] attempts to make the Signer a party to the agreement by requiring the Signer to undertake a personal obligation to secure the debts of the principal.  Nevertheless, the rest of the agreement excludes the Signer entirely and specifically provides that the agreement is between Yellow Book and Moving America.  In other words, all of its provisions except for [the specific] paragraph relate exclusively to the duties and obligations of Moving America and Yellow Book.  The parties' signature also indicates that the agreement is between Yellow Book and Moving America because it is signed by the defendant in his capacity as President of Moving America."

Id. at 5.

The Court held that because the writing is ambiguous as to whether the defendant individually was a party to the agreement, it did not furnish a complete agreement as to its terms.  Id. at 8.  Further, it did not satisfy the statute of frauds as a matter of law.  Accordingly, the Court granted the defendant's motion for summary judgment and denied plaintiff’s. 

Comments/Questions: ljm@gdnlaw.com

© 2009 Nissenbaum Law Group, LLC

Please visit our website at www.gdnlaw.comand our other blogs at www.nissenbaumlawblog.com; www.foreclosuredefenselawblog.com; www.saleofbusinesslawblog.com; www.internetdefamationlawblog.com; www.constructionlawinfoblog.com; www.filmproductionlawblog.com; www.internetlawinfoblog.com; and www.njbusinesslawblog.com