Business Owners: Be Careful of Continuing Personal Guarantees

ALERT: Sit down with your business clients and immediately inventory any unrevoked personal guarantees that may be lingering out there . . .

Generally, in Ohio, a personal guarantor of business debt is liable on a continuing guaranty unless he or she revokes the guaranty agreement in the mode specifically anticipated by the agreement. Importantly, notice to a creditor that an individual guarantor has severed his/her connection with the business whose obligations were the subject of the guaranty does not constitute revocation of the guaranty where the guaranty was not expressly conditioned on the guarantor’s status as an officer or shareholder of the corporation. Therefore, unrevoked personal guarantees can last in perpetuity, potentially coming back to haunt the personal guarantor years after his or her relationship with the former business terminated.

In the case of KeyBank v. Correct Custom Drywall, Franklin Co. Common Pleas Case No.

09-CV-016408, Luper Neidenthal & Logan successfully litigated the issue of whether such personal guarantees can be released by the creditor when the creditor’s conduct is inconsistent with an intent to enforce a personal guaranty, under a waiver by estoppel theory, even where anti-waiver and waiver of defenses language exists in an instrument. Under the particular facts of this case, an Ohio Court of Common Pleas determined that a personal guaranty can be revoked by conduct inconsistent with a lender’s intent to enforce a personal guaranty, to the personal guarantor’s detriment.

While the precedential value of this decision is obviously very limited to the facts involved, this nevertheless represents a strategy to consider if you find yourself with a client faced with the “gift that keeps on giving” of an unrevoked personal commercial guaranty which a lender is attempting to enforce perhaps years, or decades, after it was first made.

To read the case, CLICK HERE

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