The Hidden Pitfalls of Drafting Personal Guarantees

February 4, 2011

Credit applications which merge credit terms and a personal guarantee are frought with ambiguities and the potential for judicial scrutiny. In this case the credit application failed to carefully lay out the terms of the guarantee which would be borne by the individual who signed on behalf of his company. The district court found that the credit application lacked the specificity and the language to denote a guarantee and therefor enter judgment in favor of the individual on the guarantee itself. However, the facts of the case suggested an ostensible basis for liability by way of alter ego and other equitable claims. These claims kept the individual in as a viable defendant. This case is important in discussing the prerequisites for a guarantee and also a summary analysis of alter ego law in California and Virginia.

View the court’s opinion here