Normally Nebraska businesses are set up as limited liability companies or corporations to protect owners from personal liability for the business debts. However, if the owner signs a personal guranty that can remove the limited liability protection given by the corporation or LLC that was formed.
In the case of Baunger Foods, LLC v. Sears, Braunger Foods sold food product supplies to Hungry's North, a business owned by Michael Sears. Braunger Foods filed this action against Sears and Hungry's (collectively Hungry's), seeking to recover amounts Braunger Foods claimed were due for sales it had made on credit to Hungry's. The district court (1) entered judgment against Hungry's for amounts it concluded were owing to Braunger Foods; and (2) entered no judgment against Sears personally, concluding that a guaranty, by which Braunger Foods sought to hold Sears personally liable for the debt, was ineffective. Braunger Foods appealed the trial court's conclusion that the guaranty was unenforceable against Sears. The court of appeals affirmed. The Supreme Court reversed, holding that the guaranty was enforceable against Sears. Remanded with directions to enter judgment against Sears.
When Hungry’s began falling behind on payments in 2009, Braunger Foods put Hungry’s on cash-on delivery status. Before it would allow Hungry’s to resume buying on credit, Braunger Foods asked the owner, Sears, to sign certain documents that included a separate guaranty designed to obligate Sears personally for all debts to Braunger Foods incurred by Hungry’s.
A guaranty is a contract by which the guarantor promises to make payment if the principal debtor defaults. First Nat. Bank of Unadilla v. Betts, 275 Neb. 665, 748 N.W.2d 76 (2008). To determine the obligations of the guarantor, Nebraska courts rely on general principles of contract and guaranty law. Id. Because a guaranty is a contract, it must be understood in light of the parties’ intentions and the circumstances under which the guaranty was given. Id. When the meaning of a guaranty is ascertained, or its terms are clearly defined, the liability of the guarantor is controlled absolutely by such meaning and limited to the precise terms. Id. In the view of both the district court and the Court of Appeals, the scope and enforceability of the guaranty in this case depended on whether the credit application as a whole was a complete and enforceable contract. Both courts concluded that the credit application was not complete and that therefore, neither the guaranty nor any section of the credit application was enforceable. The Nebraska Supreme Court held that this reasoning was flawed.
Nebraska courts have described a guaranty as a collateral under taking to answer for the payment of debt or the performance of a contract or duty, and Nebraska courts have stated that when a guaranty is unambiguous, courts do not vary its terms by construing it with another instrument. See Builders Supply Co. v. Czerwinski, supra. Courts have further stated that the undertaking of a guaranty is independent of the promise of the principal obligation. See National Bank of Commerce Trust & Sav. Assn. v. Katleman, 201 Neb. 165, 266 N.W.2d 736 (1978). Because a guaranty is a separate and independent agreement, Nebraska courts consider whether the guaranty in this case is itself enforceable, without reference to whether the entire credit application was complete and whether other sections of the application were enforceable.
Viewing the guaranty section as a separate agreement, the Nebraska Supreme Court concluded that it was complete and enforceable against Sears with respect to any indebtedness Hungry’s incurred for goods purchased on credit from Braunger Foods. The language of the guaranty states generally that, in exchange for Braunger Foods’ extending credit to the identified business entity, Hungry’s, the signer will “personally guaranty payment of all obligations of the customer . . . to Braunger Foods.” The guaranty was signed by Sears, and contrary to a statement in the Court of Appeals’ opinion, there was not a space at the bottom of the guaranty for the signature of a Braunger Foods representative.
Nebraska’s statute of frauds, Neb. Rev. Stat. § 36202 (Reissue 2008), provides in part that “every special promise to answer for the debt, default, or misdoings of another person” shall be void unless it is “in writing, and subscribed by the party to be charged therewith.”
In order for Braunger Foods to enforce the written guaranty against Sears, only Sears’ signature was required, and the signature of a Braunger Foods representative was not required to make the guaranty enforceable against Sears.
As a Nebraska business owner keep in mind that if you sign a contract taking away or invalidating any limited liability you have, that contract will be enforced to make you personally liable for debts of your business. If a lawsuit has been filed against you contact Angela Madathil and Madathil Law Office for a free consultation.
Angela Y. Madathil
Madathil Law Office, LLC
Nebraska Business and Employment Attorney
Serving clients throughout Nebraska.
In Omaha In Lincoln
1625 Farnam Street #830 285 South 68th Street Place, Suite 322
Omaha, NE 68102 Lincoln, NE 68510
However, if the owner signs a personal guranty that can remove the limited liability protection given by the corporation or LLC that was formed. employment lawyer Edinburgh
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