July 2015 Business Transaction Newsletter

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CONTRACTS NEED TO BE SIGNED IN THE APPROPRIATE CAPACITY WITH INTENTIONALITY

     Cases continue to be reported by Tennessee Appellate Courts with disputes over how parties sign the contract and in what capacity.  Such was the issue in Wise Northshore Properties v. Three Dollars Media.  The issue in the Three Dollars Media case was whether the Chief Executive Officer of Three Dollars Media signed a Lease as a personal guarantor.  The facts in the case were that there were two signature lines, one signature line was preceded by the words:  “PERSONALLY GUARANTEED BY:”  and followed by the words “Three Dollars Media, Inc.”  The CEO executed the second signature line as “Gary E. Burns, CEO.”  Additionally, paragraph 33 of the Lease provided that Exhibit C was a personal guaranty.  However, Exhibit C did not exist.

     The Trial Court ruled that the evidence was not clear that there was an intent to impose individual liability on the Defendant and found him not liable on the personal guaranty.

     The Court of Appeals reversed the Trial Court and found the Defendant personally liable on a guaranty of the Lease.  The Court of Appeals wrote that its duty is to ascertain the intention of the parties.  The Court of Appeals cited a Tennessee Supreme Court case wherein the Tennessee Supreme Court wrote that a representative who signs a contract may be personally bound when the intent is clear to bind the representative.  The Court of Appeals wrote in the Three Dollars Media case that the signatures were signed by Mr. Burns in two places.  The first signature line clearly intended to bind Three Dollars Media, Inc. to the contract.  The second signature line executed by the Defendant which appears directly below the first signature line is preceded by the words “PERSONALLY GUARANTEED BY.”  The Court wrote that the words “personally guaranteed by” were clear and unambiguous and intended to personally bind the person signing the contract.

     MY RECOMMENDATION:  If you are the party intending to bind a guarantor, make the signature blocks very specific and intentional so that there is no ambiguity as to the capacity in which the individual is signing.  Also, oversee the signature process, or have that done by counsel, to be sure that the document is signed in the appropriate manner and by the appropriate capacity of the parties.

     If you are the party from whom the guaranty is sought, and you do not intend to be personally bound, be cautious in the way contracts are signed and notice specifically the capacity in which you are signing.

Yours very truly,

RAINEY, KIZER, REVIERE & BELL, P.L.C.

 William C. Bell, Jr., Attorney at Law