Legal Question in Business Law in California

Re: Former Employee liable?

If he co-signed for (or guaranteed) the leases, then the lessors can come after him. Pressuring the corporation, as you suggest, would be beside the point. The corporation has no authority to take your husband's name off of these documents even if it wants to. A co-signor was required to protect the interests of the lessors, not those of your husband's business. The lessors do not have to forfeit that protection just because your husband's circumstances have since changed.

If the company is now credit-worthy and agrees to assume full responsibility for the leases, the lessors will probably go along. They would probably also accept someone else as co-signor or guarantor as long as that person is also credit worthy. But neither the lessors nor the business is obliged to do either of these things.

They say there is a price for everything, though, and there may be a way your husband can buy his way out of these agreements. If he wants his name off of the documents, he is probably going to have to strike a deal with his former company.

Re: Former Employee liable?

Without actually seeing the documents your husband signed I cannot say for sure that they amount to a personal guarantee, but given that his SSN was also asked for, it is very likely he did indeed give a personal guarantee.

Individuals who sign personal guarantees can and are held liable on them, irrespective of the fact that the primary debtor might be a corporation; indeed, this is the purpose of the guarantee and the primary reason that young corporations without credit history and a solid D&B rating are often unable to get credit without personal guarantees of the insiders.

Corporation law protects shareholders from personal liability for the corporation's debts, but executing a personal guarantee creates an additional debtor-creditor relationship that is personal, not corporate.

Further, the existence and continuing validity of the personal guarantee is almost certainly not conditioned upon your husband's continued connection with the corporation. That too would defeat the creditor's purpose.

This doesn't mean you shouldn't expect the corporation to pay the debts, nor that you are without recourse if it does not. Getting the leases re-written is one possibility, but I can see that as being very difficult, since the lessors have no duty and no incentive to do so. Possibly the lessors would accept a substitute guarantor, e.g., another officer of the corporation. The better possibility is to put pressure on the corporation to pay its bills.

If your husband ends up stuck having to make good on the guarantee, he can probably sue the corporation to recover what he has to pay, but at such a time the corporation is probably going to be in financial hot water and any judgment he got might be uncollectable.

Re: Former Employee liable?

If your husband is still a shareholder, he may want to consider getting back on the board, where he'll have more say. A consultation with a business attorney, who can review the lease, personal guarantee, and corporate documents may be helpful in determining his options.

Re: Former Employee liable?

If he signed a personal guaranty, or signed as a party to the lease, he can be held personally liable on the lease. The limited liability aspects of corporate law would not come into play. Absent the personal guaranty, or your husband being a party (personally) to the lease, your husband would likely be in the clear. Further, you cannot pressure the corporation to replace your husband's name on the lease. The landlord has rights and you cannot unilaterally change those rights without the landlord's permission. The corporation will likely owe your husband indemnity (reimbursement) for the liability, however. This is a good thing if the corporation is a viable business or has money/assets. Otherwise, it's of probably no benefit.

Have your husband contact our office. Although we are located in Newport Beach, we handle a lot of real estate matters like the one you are experiencing. We negotiate leases, buyouts, early terminations, and settlements in this area on a routine basis.