How many times have we all seen a commercial contract which purports to make the corporate officer signing the contract personally liable as a guarantor, even though the contract did not provide a separate signature line for the guaranty? The Tennessee Court of Appeals recently found personal liability under those facts. In Thomas v. Ken Smith Auto Parts, No. E2022-00591-COA-R3-CV, 2023 WL 2575939 (Tenn. Ct. App. Jan. 19, 2023), the president and owner of a corporation signed a one-page application to set up an account with an automobile parts supplier. The last sentence of the contract, which appears just above the signature line, says “I personally guarantee all invoices due to {supplier}.” As one can predict, the corporation defaulted on its account with the supplier and dissolved. Supplier sued the officer/signatory on the guaranty. The officer denied liability on the grounds that he never intended to be a guarantor, and did not notice the guaranty language because it was not conspicuous, i.e., was not capitalized, not bold, not in a different style (italicized), not set off from the general application, did not provide a separate signature line, nor was put in a separate guaranty document.
 
The Tennessee Court of Appeals rejected the officer’s rationale in finding personal liability. The court acknowledged that, in most cases, an entity representative signing a company contract is not personally liable, unless the clear intent of the contract is to bind such representative. In finding such clear intent, the court emphasized that not only was the contract just one page long, but the actual contract language was contained in a single paragraph. In response to the officer’s statement that he “glanced at the form quickly,” the court said: “Respectfully, if he had read the document, it would have been clear that he was agreeing to make himself personally liable…”. Unlike in the case cited by the officer, here the personal guaranty language was not buried within a lengthy or confusing document. The court also seemed impressed by the supplier’s point that the defendant officer’s signature literally almost touches the “personally” on the line above.
 
This case, while not creating new Tennessee law, nonetheless is instructive and a warning that corporate officers and their counsel should not assume that the officer will never be personally liable just because he or she clearly indicates they are signing in their representative capacity.

Ward Nelson serves on the executive council of the TBA Business Law Section. He is an attorney at Miller & Martin in Chattanooga. He focuses in the areas of corporate, health care and transportation law, primarily for merger and acquisition transactions and contract negotiations.