Signing Matters!

February 26, 2014

Signing matters! With attorneys, signature lines often reflect the signor’s capacity, i.e., whether the signor signs as an individual maker or as an authorized signor for a business entity, and whether the signor is guaranteeing the debt of another. In form settings—you are leasing a copier, or buying web or Yellow Pages advertising—much gets murkier. And in the guarantee setting, both borrowers and lenders often pay too little attention to the rules. (We’re talking about extending credit here, so lender/borrower terms are used more broadly, and are not terms limited to situations involved traditional loans.)

Here’s on primer on signing:

Form Contracts.  If the contract involves a business matter, and your business operates through a limited liability company (LLC) or corporation, after your signature you need to identify your capacity—Member, Manager, President, etc.—and add “and not individually.” Many form contracts have printed language that says “signing obligates the signor individually” or other similar words. This ploy may or may not work, but you don’t want to spend the money fighting the battle. (You may not get the goods or services if you sign “and not individually” and, then, you must make a business decision.)

  • Guarantees (Catching).  Guaranteeing the debt of someone else makes you responsible for their obligation. Generally, you are responsible even if the main borrower has money, and the lender can come to you first to get paid. (If you pay, you can try to collect from the borrower.) Arizona law gives certain rights to guarantors, but many guarantee documents include waivers of those rights, and some of those waivers may be effective. That’s the bad news! And the good news? Married persons cannot bind their marital community on guarantees. So, if you are married and guaranteeing someone else’s debt—even when that “someone else” is an LLC or corporation you own—don’t volunteer to have your wife sign after you’ve signed. (Observation over 32+ years:  Men will sign almost anything, generally to avoid embarrassment. Women won’t! Go women, and when your husband brings the document home and says “sign here,” go slow. Many a bad outcome has been avoided by following that advice.)
  • Guarantees (Pitching). Contracts involve at least two parties. If you are lending money and relying on a guarantee from a married person, get signatures from both spouses. If you don’t, and if the signing spouse does not have separate property—not many people do—you’ll be waiting until the marital community ends to collect. All marital communities do end, someday, either by marital dissolution or death. Judgments in Arizona expire after five years, and you can renew them every five years during the 90 days before the judgment otherwise expires. That all said, if you didn’t get both signatures, you’re ability to get paid depends on an unhappy marriage or death.

In 32+ years as an attorney, I’ve been involved with at least 20 guarantee disputes where only one spouse signed, and I have been in at least an equal number of situations where guarantors didn’t appreciate the importance of the guarantee. As for the form contracts, I’ve seen those too, but I don’t see as many, mostly because the amounts are usually too small to make hiring me sensible.

Bottom line:  People can be very cavalier about what they sign and how they sign. Signing does matter!   


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