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Individual’s Credit Card Authorization To Cover Company’s Unpaid Invoices Opened Door To Personal Liability

Lesson. Personal guaranties come in all shapes and sizes. The document need only evidence a conditional promise to answer for the debt of another upon the debtor/borrower’s failure to pay.

Case cite. Innovative Water Consulting LLC v. SA Hosp. Acquisition Grp. LLC, 2023 U.S. Dist. LEXIS 3178 (S.D. Ind. 2023)

Legal issue. Whether an individual’s credit card authorization form signed in conjunction with a company contract constituted a personal guaranty of the company’s debt.

Vital facts. Plaintiff alleged that Defendant company breached a services contract related to COVID test kits. Another of the defendants (Alleged Guarantor) purportedly signed a personal guaranty of the contract by completing a “Credit Card Authorization Form” (Authorization) allowing Plaintiff to charge his credit card for any outstanding invoices. The Authorization, which Alleged Guarantor signed above the line “Customer Signature,” stated:

I, [Alleged Guarantor], authorized representative of [Defendant company] and authorized signer of the credit card reference [sic] above (the "Card") authorize [Plaintiff] to process payment[s] due from [Defendant company] to [Plaintiff] via such Card. Such authorization shall apply to any payments due. I understand that the Card may be saved in [Plaintiff’s] records and periodically charged for any invoice exceeding its due date by 10 (ten) days due [Plaintiff] from [Defendant company], unless/until [Defendant company] provides written notice of de-authorization to [Plaintiff’s] Account Manager, at least three (3) business days before any payment becomes due.

Plaintiff later billed Defendant company for delivered test kits, but the company failed and refused to pay. Alleged Guarantor did not provide Plaintiff with a written notice of de-authorization of the Authorization. Plaintiff’s subsequent efforts to charge Alleged Guarantor’s credit card were declined.

Procedural history. Alleged Guarantor filed a Rule 12(b)(6) motion to dismiss Plaintiff’s claim against him.

Key rules. To prevail, Plaintiffs must show: (1) the existence of a guaranty agreement; (2) a breach of that agreement; and (3) damages.

In Indiana, "[a] guaranty is a conditional promise to answer for the debt or default of another person, such that the guarantor promises to pay only if the debtor/borrower fails to pay." No specific words are required to form a binding guaranty. A guaranty "must consist of three parties: the obligor, the obligee, and the surety or guarantor."

To determine whether a person signs in his personal or official capacity, courts “must interpret the [relevant document] as it would any other contract under Indiana law.”

Holding. The U.S. District Court for the Southern District of Indiana dismissed, without prejudice, Plaintiff’s claim against the Alleged Guarantor. Notably, the Innovative Water Consulting opinion did not arise out of a trial or even a summary judgment motion, but rather a preliminary pretrial motion to dismiss that merely challenged the allegations in the complaint. Although the Court dismissed the complaint, it was seemingly on a technicality related to the damages allegations. The Court permitted the Plaintiff to file an amended complaint to address the deficiency, and the case against the Alleged Guarantor continues today.

Policy/rationale. The takeaway from the Court’s decision is that the Alleged Guarantor may end up being on the hook. Ultimately, any ambiguity regarding the Authorization has to be resolved through summary judgment or trial, however.

The Alleged Guarantor’s first argument was that he signed the Authorization on behalf of Defendant company only. However, “references to the guarantor's official title are not conclusive of the capacity in which he signed.” The Court cited to Indiana precedent and reasoned that, because Defendant company was already obligated under the contract, the Court could “reasonably infer” that Alleged Guarantor signed in his personal capacity.

The Alleged Guarantor’s second contention was that the face of the Authorization itself disproved the notion that he agreed to answer for his company’s debt. Neither the word “guaranty” nor the phrase “personally guaranteed” appeared on the Authorization. The Court was unwilling to accept that position, however, at least at the pleadings stage:

Here, drawing all reasonable inferences in [Plaintiff's] favor, the Authorization appears to contain [Alleged Guarantor's] conditional promise to answer for [Defendant company’s] overdue payments, and it identifies the three necessary parties: [the obligor, the obligee, and the guarantor].

The Alleged Guarantor’s final point was that the parties to the Authorization did not sign the “guaranty” in writing as required by the underlying contract, which provided that “all waivers and amendments to this Agreement must be signed in writing by each party.” The Court rejected this theory on the basis that the Authorization was not a waiver or amendment to the underlying contract but rather a separate agreement.

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I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.