People form limited liability companies to limit their personal liability, but that goal will not be reached if a person signing legal documents for the LLC does not understand contracts facts of life.  The general rule of LLC law is that if an LLC signs a contract only the LLC is legally bound and the members of the LLC are not liable.  There are exceptions to this general rule and all members and managers who sign contracts for an LLC must understand the contract signature rules or they may find that by signing on the dotted line the signer becomes personally liable to satisfy the obligations of the LLC under the contract.

The case of Ubom v. Suntrust Bank, involved an attorney obtaining a line of credit for his law firm, a Maryland limited liability company.  Mr. Ubom signed a loan agreement which contained a section for a personal guaranty.  Ubom filled in the personal guaranty section with his own personal information including his social security number, personal address, employment information, and financial information.  However, Ubom left the line blank which asked for the “Legal Name of the Guarantor.”

The loan agreement contained two lines for signatures.  The agreement asked for the signature of the “applicant” and of the “guarantor.”  Mr. Ubom signed in both places and after his name he wrote “Managing Attorney.”  Unfortunately, Mr. Ubom’s law business went south and he failed to make the payments on the loan.  The bank brought suit against both Mr. Ubom and his LLC.

The bank argued Mr. Ubom had personal liability, because the language of the loan agreement clearly provided Ubon personally guaranteed the loan.  The language of the loan agreement stated:

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”).

Both the trial court and appellate court agreed with the bank, that this language clearly provided Ubom personally guaranteed the loan.  The court found it insignificant that Ubom left blank the section asking for the “Legal Name of the Guarantor.”  However, the court found it significant Ubom listed his personal financial information.  The court, further, found it would be pointless to have Ubom sign a guaranty in his corporate capacity when the LLC was already obligated to repay the loan.

When signing any contract, the signer must read the contract to determine if the contract obligates the signer in addition to the LLC.  If you are to sign a contract for your LLC and you are not sure if it will cause you to become personally obligated you should  seek the advice of an attorney.

We can learn another important less from this case.  According to Mr. Ubom, his banker told Ubom there was no personal guaranty on the loan.  Ubom took the banker at his word.  The court did not even take this conversation into account because of the personal guaranty found in the agreement and the clear language used to describe the guaranty.  The moral of the story is “if it is not in writing, it never happened.”