wners and employees of a company can create contractual personal liability for themselves if they sign a contract on behalf of the company, but the wording of the contract does not make it clear that the signer is signing on behalf of a company. This often occurs when an employee signs a guaranty on behalf of the company. As this article on guaranty (Links to an external site.)Links to an external site. notes, it can be very difficult for the guarantor do get out of the personal guarantee. The other contracting party must release the guarantor from the agreement.

The Perfect Petal, a florist company, entered into a credit agreement with Flower Supplier, Inc. Flower Supplier, Inc., required Mandy, the CEO of The Perfect Petal, to sign a personal guaranty with a credit agreement. The credit agreement and personal guaranty were very similar to the one here. A few years later, Mandy called Flower Supplier, Inc. and told someone that she was selling The Perfect Petal to Jim, but never heard back from them.

A few years more passed and Flower Supplier, Inc. contacted Mandy to say that The Perfect Petal had racked up a huge bill and that Mandy, as guarantor of the credit agreement, was liable.

Why is a personal guarantee preferable to a lien in this situation? (Hint, is there a type of lien that Flower Supplier could get on Perfect Petal's property?).

Assuming that Mandy did not properly terminate the guaranty, is holding her liable on a credit agreement relating to a company she sold the appropriate outcome? Why are personal guarantys so difficult to terminate? Would this make you think twice about entering into a personal guaranty?