Personal Liability of Officers for Corporate Guarantees

Last January, the 1st District Court of Appeals issued a noteworthy opinion reinforcing the personal liability for loan guarantees made by corporate officers while acting within their capacities as officers of the company.  The court’s ruling in 84 Lumber Co. v. Powers, No.-01009-00986-CV, 2012 Tex. App. LEXIS 590 (Tex. App.—Houston [1st Dist.] Jan. 26, 2012, no pet.), will likely force many corporate officers, including those in larger corporations, to now rethink placing their own necks on the line for those companies to which they owe fiduciary responsibilities.

David Powers, acting within his capacity as president of his company David Powers Homes, Inc., signed a statement that he “UNCONDITIONALLY AND IRREVOCABLY PERSONALLY GUARANTEE[D] [THE] CREDIT ACCOUNT….”  Mr. Powers took the position that he no longer possessed any personal liability for the loan because he signed the guarantee as a corporate officer and he no longer held that position.

In rejecting Mr. Powers’ stance that his personal liability was precluded by the statute of frauds (which requires the guaranty to be in writing and signed by the person to be charged), the court held that liability remained on Mr. Powers, individually, and not merely with the office of president of his company.  As the court noted, generally speaking a guarantor of a debt is an individual who willingly stands for the debt of another.  The court reasoned that had it ruled in favor of Mr. Powers, it would essentially render a guarantor agreement meaningless because personal liability would thereby reside in the same person—i.e., the company would then become both the account debtor and the guarantor of the corporate debt.

Ultimately, the court determined that Mr. Powers remained liable for his “unambiguous” guarantee of personal liability for the company’s debt, largely due to the fact that Mr. Powers was the owner of the company.  The court did, however, leave open the question regarding liability under situations involving more ambiguous contractual terms or where the corporate officer-guarantor owned minimal or no shares in his or her company.

Authored by Scott A. Meyer and John Sokatch.

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Chalker Flores, LLP provides intellectual property, business, corporate and litigation legal services to individuals, inventors, entrepreneurs, start-ups, spin-offs, universities, research institutes, and small to large public and private companies and businesses.  Founded by Dr. Edwin Flores and Daniel Chalker, additional partners include Scott Meyer, Chainey Singleton and Tom Jacks.  The lawyers of Chalker Flores, LLP provide big-firm expertise with boutique service and pricing.

If you would like more information about Chalker Flores, LLP, or to schedule an appointment please contact us at 214-445-4040.  Please follow us on Twitter at @chalkerflores.

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EDWIN FLORES, Ph.D., J.D. OF CHALKER FLORES, LLP IS AWARD RECIPIENT

The law firm of Chalker Flores, LLP is pleased to announce that Edwin Flores, Ph.D., J.D. was recently selected as the 2012 Food for Thought Award Recipient.

Each year the Food for Thought steering committee honors a local civic leader with an Award for significant contributions of service to our community. Prior award recipients include Daryl “Moose” Johnston, former NFL fullback and FOX game analyst; Ebby Halliday, founder and chairman of Ebby Halliday Real Estates, Inc.; and Jim Keyes, the CEO of Blockbuster, Inc.                    

Dr. Flores was born and reared in Mexico City, Mexico and is fully bilingual and bicultural. After completing high school at the American School in Mexico City, Dr. Flores earned his bachelor’s degree in Microbiology from the University of Texas at Austin and his doctoral degree from Washington University in St. Louis in Immunology, both before the age of 26.  Dr. Flores earned his law degree from The University of Texas School of Law.

From May 2005 to June 2012, Dr. Flores served on the Board of Trustees of the Dallas Independent School District representing District 1.  During his tenure on the Dallas School Board, Dr. Flores chaired Committees on Employment Practices and Mediation, Policy, Board Ethics, Business and the STAR Employee Commission.  He also served as the co-chair of the Human Resources briefing where he was responsible for completely revamping the Human Resources division of the school district and the development of a new, comprehensive Teacher Evaluation System. Dr. Flores also served as the 2nd Vice-President of the Board.  Dr. Flores authored the district’s Ethics Policy, Transparency Policy, Schools Closing Policy and Sustainability Policy and co-authored a revised Reduction in Force policy and Leveling policies, which are the first in the State of Texas to allow Dallas ISD to retain its best teachers based on performance.

From December 2005 – December 2008, Dr. Flores served on the Advisory Council of the National Institute of General Medical Sciences of the National Institutes of Health (NIH). Dr. Flores has also recently completed a 4-year term on the prestigious Council of Councils of the NIH.

Dr. Flores has served on numerous community boards, including, the SMU Tate Lecture Series, The Tower Center Board, the Boy Scouts Circle 10 Council, Medical City Hospital Dallas, Good Shepherd Episcopal School and the Dallas Assembly, the Dallas Museum of Nature and SImagecience, the Dallas Historical Society, the Southwestern Medical Foundation.

Dr. Flores is the managing partner and founder of the Intellectual Property law firm of Chalker Flores LLP in north Dallas where he focuses his practice on biotechnology patent law.  Dr. Flores and his wife Jesica (also an attorney) have two children that attend Dallas ISD schools.

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About Chalker Flores, LLP:

Chalker Flores, LLP provides intellectual property, business, corporate and litigation legal services of the highest quality.  Founded by Dr. Edwin Flores and Daniel Chalker, additional partners include Scott Meyer, Chainey Singleton and Tom Jacks.  The lawyers of Chalker Flores, LLP provide big-firm expertise with boutique service and pricing.  Clients include individual inventors, start-ups, spin-offs, major national universities, research institutes and medium to large corporations.

If you would like more information about Chalker Flores, LLP, or to schedule an appointment please contact Cynthia Minchillo.