Tuesday, December 16, 2014

Business Dispute Attorney - Lawsuit to Enforce Personal Guarantee Dismissed

Last week, I won an appeal in Solco Plumbing v. Hart.  This was one of the very rare cases where someone was able to defeat a claim on a personal guarantee.   My client ended a partnership years earlier and sold his share in the business, but his former business partner continued operating under the same name.  When the business later dissolved, a creditor owed hundreds of thousands of dollars attempted to collect against my client based on a personally guarantee he had signed more than a decade earlier.

This could have been an enormous problem.  Personal guarantees are often unconditional and remain valid unless and until explicitly revoked. In this case, however, the guarantee included the phrase "being financially interested in the above customer."  The creditor argued that this was merely a description of his status at the time of signing, but there is a rule of contract interpretation that any ambiguity is interpreted against the drafter (which is applied even more strictly in personal guarantees).  So, I successfully argued, among other things, that this phrase must be interpreted to mean that liability under this particular guarantee automatically ended upon his financial interest ending.

This case highlights the importance of using a qualified attorney for business matters, both litigation and transactional.  A slight change in how their form contract was worded may have led to a more favorable result for the plaintiff on this issue, and handling the transfer of his business interest differently could have avoided the issue entirely and saved my client from years of litigation.