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Corporate Officers Held Personally Liable On Guaranty In Absence Of Title Designation

In Key Equipment Finance v. South Shore Imaging, Inc. ___ N.Y.S.2d ___, 2010 WL 190205 (2d Dept. 2010), the New York State Appellate Division, Second Department explained that under a guaranty provision, officers can be held personally liable for the contractual obligations of a corporation. In this case, Key Equipment Finance leased a copier to South Shore Imaging, Inc. After South Shore failed to pay the lease, Key Equipment Finance sought to enforce a guaranty provision of the lease agreement. The provision provided that the guarantors unconditionally and irrevocably guarantee the payment and performance of all obligations of South Shore. The guarantors further agreed that all liability was joint and several. The original guaranty contained the corporate titles of the defendants, but the final guaranty portion of the lease did not state the corporate titles. The Fourth Department reversed a summary judgment order dismissing the complaint and determined that the plaintiff’s made a prima facie case.

The court explained that generally officers or agents are not personally liable on corporate contracts as long as the officers do not purport to bind themselves individually. However, when a guaranty constitutes a deliberately stated, unambiguous, and separate expression personally obligating an individual, that individual may be held liable under a contract.

The individual defendants contested that they did not intend to be held personally liable on the contract. However, the court indicated that the change between the first and second guaranty are contrary to this assertion. The first guaranty was unacceptable to the plaintiffs because it included the defendants’ corporate capacities. So, the document was re executed, demonstrating that the defendants understood that they were personally liable.

This case is a good example of how a court looks at a guaranty agreement signed by corporate officers. While it is generally the corporation, not the individual officers who are liable under a corporate contract, a guaranty would be worthless if it was not enforced against the individual officers who sign such an agreement. In this case, it would mean that if South Shore defaulted, South Shore would be liable under the contract. Such a result would, as the court states, be completely illogical.

However, the Second Department did not universally declare that corporate officers are always individually liable. Citing Florence Corp. v. Penguin Constr. Corp., 227 A.D.2d 442, 443, 642 N.Y.S.2d 697), the court explained “if a plaintiff attempts to trap an unwary corporate officer into making an unintended assertion of personal liability by inserting an obscure clause in the midst of a lengthy and complex contract,” an officer is not personally liable. While that did not happen in this case, it is important to remember the exception to the general rule holding individual corporate officers liable under a guaranty.

Matthew J. Kibler, Esq.

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This page contains a single entry from the blog posted on March 1, 2010 12:28 PM.

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