When LLC Member May Be Held Personally Liable For Signing Loan Agreement
Take care when you sign a contract on behalf of your LLC that you do not sign in a way that makes you liable as a party to the contract. California LLC law contains the general rule that a California LLC that signs a contract is liable for the obligations created under the contract, not its members. There is a big exception to the general rule. If you will be signing contracts for a California LLC ignorance of how to sign the contract could cost you big bucks.
The Maryland case of Ubom v. Suntrust Bank, involved a a lawyer who obtained a line of credit for his LLC. The member of the LLC signed a loan agreement that included language about a personal guaranty. The member put his personal information such as his social security number and personal address in the guaranty section of the contract, but he did not put anything in the space that asked for the “Legal Name of the Guarantor.”
The loan agreement had a signature line for the “applicant” and a second signature line for the “guarantor.” Mr. Ubom signed one each lien and wrote “Managing Attorney” after his signature. The LLC defaulted on the loan and the lender sued the LLC and Mr. Ubom.
The lender claimed that Mr. Ubom was personally liable as a guarantor because language in the loan agreement stated that he guaranteed the loan. The loan agreement said:
To induce Bank to open the Account and extend credit to the applicant, or to renew or extend such other credit, each of the individuals signing this Application as a “Guarantor” (whether one or more, the “Guarantor”) hereby jointly and severally guarantee payment to Bank of all obligations and liabilities of the applicant of any nature whatsoever and whether currently existing or hereafter arising, including without limitation, all obligations and liabilities under this Application and/or the Account, and reasonable fees and expenses of Bank’s attorney(s) incurred in the collection of such obligations (collectively the “Obligations”).
The court said that based on the language quoted above Ubom agreed to guaranty the debt. The court said it did not matter that Ubom did not put his name in the on the “Legal Name of the Guarantor” line.
Before you sign a contract on behalf of your LLC you must carefully read the contract and make sure it does not contain any language that would obligate you as the signer. If you are not sure that signing a contract for your LLC will not cause you to incur liability ask your attorney to review the contract.