A New York state court recently held that the president of Hooper Home Construction Corporation (“HHCC”), Dale R. Hooper (“Hooper”), was personally liable to plaintiff Wells Fargo Bank, N.A. (“Wells Fargo”) for the default on the company’s Business Line Credit Agreement (“BLCA”). In Wells Fargo Bank NA v. Hooper Home Construction Corp., N.Y.L.J., July 1, 2010, at 26 (col. 3) (Sup. Ct. N.Y. Co. June 17, 2010), the court determined that, while Hooper had signed the loan agreement only as President of the borrower, the fine print terms of the agreement provided that he was personally liable.
When HHCC applied for the loan, Hooper signed on behalf of HHCC as its president, with the word “President” typed under his signature. The application did not contain a separate signature line for him to sign in his personal capacity as guarantor, and he did not sign a second time.
Immediately above the line on which he signed as President was the following language: “I certify that I have read and agree with the Terms and Conditions on the reverse side, including the personal guaranty.” The reverse side was two paragraphs long, and provided in relevant part:
By signing the front of this Quick App® application, I accept on behalf of the Business named on reverse (‘Applicant’) the terms and conditions of this offer, including the terms and conditions of the Customer Agreement that will be sent to the Applicant . . . I also accept in my individual capacity the terms of guaranty appearing below. I also, in my individual capacity (even though I may place a title or other designation next to my signature), jointly and severally unconditionally guarantee and promise to pay to Bank all indebtedness of the Applicant at any time arising under or relating to this application and/or the Customer Agreement…. (Emphasis added.)
Wells Fargo initiated suit against HHCC and Hooper premised upon HHCC’s alleged default of the BLCA agreement. Hooper moved for summary judgment dismissing the complaint, and Wells Fargo cross-moved for summary judgment against both HHCC and Hooper. After the court granted Wells Fargo’s motion for summary judgment with respect to HHCC, Wells Fargo renewed its motion as against Hooper and provided, at the court’s direction, a legible copy of the guarantee.
The court explained that “[o]n a motion for summary judgment to enforce written guaranties, the creditor is required to prove absolute and unconditional guaranties, the underlying debt and the guarantor’s failure to perform under the guaranties,” citing City of New York v. Clarose Cinema Corp., 256 A.D.2d 69 (1st Dept. 1998). The court found that plaintiff had provided documentation of the underlying debt, and that it was undisputed that Hooper had not paid the debt. Therefore, the only issue was whether Hooper had personally guaranteed the loan.
In opposing personal liability, Hooper relied on the New York Court of Appeals decision of Salzman Sign Co., Inc. v. Beck, 10 N.Y.2d 63, 67 (1971). In that case, the Court of Appeals found that, where the signing officer was also assuming personal liability, “the nearly universal practice is that the officer signs twice—once as an officer and again as an individual.” The Salzman court stated: “There is great danger in allowing a single sentence in a long contract to bind individually a person who signs only as a corporate officer.”
The court here, however, determined that Salzman was factually distinguishable. The court explained that, in contrast to Salzman where the personal guaranty was a single sentence buried in the body of the a long contract, the terms of the BLCA here were only two paragraphs long, the guaranty was “clearly and unequivocally worded,” and “the signature line alerts the signatory to the existence of the guaranty.”
Hooper additionally argued that he did not intend to be personally liable, he did not know or expect that Wells Fargo would hold him personally liable, and—for the first time in opposition to the renewed summary judgment motion—that he had oral confirmation from Wells Fargo that there would be no personal liability. The court rejected these arguments holding that Hooper was “obligated to exercise ordinary diligence to ascertain the terms of the document he signed” and therefore his allegations did not defeat Wells Fargo’s claims for summary judgment.
Finally, Hooper argued that he should be insulated from personal liability because he included his corporate title with his signature. The court flatly rejected this argument as contrary to the express words of the guaranty and relevant case law, citing PNC Capital Recovery v. Mechanical Parking Systems, Inc., 283 A.D.2d 268, 271 (1st Dep’t 2001), for the proposition that a corporate title is “merely descriptive.”
Some New York precedent provides protection for corporate officers who make it clear that they are signing only in their corporate capacity and do not add a second signature. As this case demonstrates, however, such protections can be trumped by unequivocal provisions of the loan agreement that make it clear that the corporate officer who signs is assuming personal liability. This case demonstrates the need for corporate officers to read the fine print of loan documents— or, for that matter, any corporate contract.