Ask An Attorney

November 2013

For any of our potential customers that are requesting payments terms other than cash or credit card, we ask them to fill out a credit application. On that application, we have wording that indicates a personal guarantee. Often, our customers will send their application back to us with 'See Attached' written on it and accompanying documents that contain the information that we requested on the credit application. Our application is sometimes signed, but sometimes it is not signed. My question is whether or not we have a binding agreement (including the personal guarantee) if we do not have their signature on our application but we do have their submitted company information on their form. This month's question is submitted by Jim Ragatz
Accounting Manager
Midstates, Inc. Print & Media Solutions of Aberdeen, South Dakota.

Generally, sales of goods for the price of $500 or more need to be in writing and signed by the party to be bound. See NC Gen. Stat. §25-2- 201. However, there are exceptions to this general rule. For example, if an unwritten or unsigned contract is valid in other respects, it is still enforceable with respect to goods for which payment has been made and accepted or which have been received and accepted. Also, if the line of credit to be extended on open credit exceeds $50,000, then the agreement must be in writing and signed. See NC Gen. Stat. §22-5. The personal guaranty will not be binding unless it is signed by the party to be bound. See NC Gen. Stat. §22-1. In short, the better practice is to always obtain a signature of an authorized representative of the customer on the agreement. However, the agreement may still be valid even it is unwritten or unsigned. At the very least, such an agreement will show the terms and conditions governing the course of dealings between the parties in the event the supplier has to file a lawsuit, on an account stated theory, to recover the balance owed. However, a personal guaranty must be signed in order to be effective. Michael B. Stein Bernhardt and Strawser, P.A. Charlotte, NC

If it's not signed, you don't have a guarantee. If you want a personal guarantee it must be stated clearly and not be vague. Kenneth A Rosen, Esq. Lowenstein Sandler LLP New York City, NY

Although Illinois has adopted the electronic signature act the scenario you provided in this month's question is lacking in establishing a valid Personal Guaranty. The documents being sent back via fax or as an email attachment with the guarantee not signed does not establish a binding agreement. It is the creditor's decision to extend the credit at this stage without the signed Personal Guaranty. My suggestion is to be proactive run a search to know who you are dealing with before extending the credit. If the agreement is not signed and as a creditor you don't feel comfortable extending credit without the Personal Guaranty call the client up and ask them to sign the personal guaranty. Michael S. Baim, Esq. The CKB Firm Chicago, Illinois

I argued something like this many years ago: In Minnesota, the Statute of Frauds requires any contract for the sale of goods for over $500.00 to be in writing along with every "special promise to answer for the debt, default or doings of another." Minn. Stat. §§336.2-201(1) and 513.01(2). Minn. Stat. §336.1-201(a)(37) defines "signed" as including "using any symbol executed or adopted with present intention to adopt or accept a writing." The Uniform Commercial Code Comment to Minn. Stat §336.2-201(a)(37) makes it clear that any symbol, partial signature, whether printed, stamped or written, whether initials or a thumbprint is the "intention to adopt or accept" the writing. It further comments that in appropriate cases, such signature may be found in a billhead or letterhead. The key is whether the symbol was executed or adopted by the party "with the present intention to adopt or accept the writing."

Arguing that an attached "credit application" on the poten tial customer's letterhead clearly is a signature meeting the statute of frauds. However, without an actual signature in some way of the guarantor, a court would be pressed to extend such attachment as a signature of the personal guaranty on the actual credit application. Even if the attached letter on the customer's letterhead was signed by an officer, a court would be unlikely to extend such signature as a guaranty under the Minnesota Statute of Frauds absent a showing of present intention for it to be a guaranty. Heidi L. Staloch Manty & Associates, P.A. Minneapolis, MN

In a strict contractual sense, there is no "meeting of the minds" on all the extras unless the customer adopts the client's requirements and signs the Credit Application without change. Any alteration to the form should be immediately discussed with the potential customer in terms of how it will impact their credit worthiness in the client/seller's eyes.

If the parties do business after the submission described in the question, it is nothing more than an arms-length transaction. It will not entitle the seller to recover finance charges or collection costs and/or attorney fees from buyer. If there is no prior
written agreement for the extra charges, the courts will not award them.
You cannot have an effective Guaranty without a signature. Most courts require a separate and distinct signature, if the guaranty is part of a larger Credit Application that requires its own signature adopting all of the other Terms & Conditions of Sale. The guaranty language section must be clearly defined to be effective in New York. Elliott M. Portman Roe Taroff Taitz & Portman, LLP Bohemia, NY

There are several reasons Credit Grantors need one a credit application.

First, to secure the Identity of the prospective Credit Grantee/Debtor.

Second, to make it clear the Credit Grantor sets forth terms and conditions demanded as a condition of doing business.

Third, that timely payment of Invoices "...is of the Essence", i.e., that each invoice after 30 days shall incur interests charges at the rate of 1.5% per month and/or 18% per annum.

Fourth, that in the event the Credit Grantor must institute collections proceeding, Credit Grantee/Debtor agrees to pay all costs including "reasonable attorney's fees."

Fifth, that Credit Grantee/Debtor authorizes Credit Grantor to secure "credit reports."


Other Important Provisions:
- That the Officers of the Credit Grantee/Debtor will notify the Credit Grantor of any adverse changes to Credit Grantee/Debtor's financial condition.

- Clear language/wording that indicates a Personal Guarantee.

- Signature is required, the absence of which places Buyer on C.O.D. The absence of a signature is equal to no Credit Application. Joseph A. Marino, Esq. Marino, Mayers & Jarrach, LLC. Clifton, NJ

The question posed in my view would not give rise to a personal guarantee in New York, that is to say informational material attached to a unsigned credit application is simply that "information material" it may provide the creditor with valuable information that may be needed later on i.e. bank account information etc., however, in the absence of a signature by the party to be charged our courts would give no comfort to a creditor without a signed document. Particularly with regard to personal guarantees the New York view is evolving but it is evolving in a manner that is not friendly to the creditor's point of view. Our courts are taking the position more and more that a personal guarantee must "hit home" to the signator that one not only signing a credit application, but in close proximity to the signature, which should be separate from the signature for the debtor entity, should be a separate and distinct signature line with language in bold print clearly stating "personal guarantee" or other such language but again there are of course exceptions to every rule but if client wants to be confident that the personal guarantee would be given credence by the courts it not only should be signed, it should be signed in such a way that leaves no doubt on the part of the signatoree that personal liability will result. Lester P. Taroff, Esq. Roe Taroff Taitz & Portman, LLP Bohemia, NY

The question is whether or not there is a binding agreement, including a personal guaranty, if the customer/debtor does not sign client's application, but they submit all the information on their own form.

First of all, the best practice is to follow up immediately with a request that the customer/debtor sign your credit application along with the personal guaranty before you start business with them. Even though you have the information, it's the best practice to have the customer/debtor's signature. If you are unable to obtain the signature, you should immediately respond to the customer/debtor that you received the information and that you are granting them credit based upon the information provided and based upon their agreement that the terms and conditions of your credit application and personal guaranty are binding upon the company and upon the officers individually. You should advise the customer/debtor that if they do not object to this within seven days, you will proceed with processing and granting the credit as requested. Obviously, if the customer/debtor does respond and object, then there’s a problem and you will have to decide whether you want to grant credit on that basis, or again request that they sign your credit application, or you simply move on to the next customer.

If you have an existing situation where the credit application has not been signed, but the information has been returned to you by your customer on their own form, you must preserve all accompanying information, including any e-mails, letters or other correspondence. If those documents are signed and they are in response to your request for credit information and the personal guaranty, you may be able to use the totality of the response as a basis for pursuing your customer/debtor at a later date under the terms of your credit application and the personal guaranty. At the point when the customer/debtor is not paying, the matter may very well end up in the hands of the customer/debtor's attorney and may become a disputed matter.

Courts are reluctant to expand on contracts between parties, especially those that are initiated and drafted by the party trying to enforce them, if there is no signature. Although you can use other documents or the customer/debtor's failure to object to a confirming e-mail or letter agreeing to proceed with the credit application and personal guaranty, you will, in most cases, be facing a contested lawsuit that, depending upon the amount in dispute, may result in a trial and even an appeal to the appellate court. In other words, you may be able to prevail if you do not have the signatures on the documents, but the cost of prevailing may be very expensive and very time-consuming.

The best practice is to make sure the customer/debtor signs all the documents submitted. It is also very important that you preserve all documents in conjunction with the credit application, as these documents will be the basis for an attempt to pursue enforcement of a contract between the parties if there is no signed credit application or personal guaranty. William A. Rinehart Rinehart, Scaffidi & Mathews Milwaukee, WI 53211

You have a binding contract. You do not have a binding guaranty unless they sign the guaranty. Scott Haskell Haskell & Ayer Amesbury, MA

 

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