Liability as co-signer on bank note
As VP of company I co-signed a promissory note & security agreement. Owner/president put up his house,wife's bus & all company equip as collateral. Note signed by owner, his wife, his uncle & me. I am no longer with the company. I still have 25% stock in company. I want my name off the note. If the board of directors agrees, can the bank legally take me off the note? The banker said they could if his board okayed it. I am willing to put up my company shares in exchange for getting off the note. If the company were to declare bankruptcy, what happens to the collateral? Are those assets frozen? I'm sure they would come after me immediately. Some of the equipment pledged is no longer at the company eventhough nothing could be sold without the banks knowledge. Would that possible fraud on the part of the owner void the loan agreement if he put the equipment up that he didn't even own at the time he signed the note. I just signed off on the note as an officer of the company and now, I just want this nightmare to end. I have no reason to believe that the company is going to declare bankruptcy and they are current on their payments. I just don't want this hanging over my head for the next 7 years until the note is paid.
1 Answer from Attorneys
Re: Liability as co-signer on bank note
You are not personally liable if you signed the note solely as an agent for the corp. If you signed the note in your personal capacity, you will be liable if the company fails to pay or otherwise breaches the terms and conditions. Your comments indicate that the company may have breached the agreement by disposing of encumbered property but the bank has not yet discovered the breach. It is legal for the bank to relieve you of any responsibility for the note if you are not one of the bank's officers or directors. If the company declares bankruptcy, the bank retains its rights to sell the security. If the bank filed a financing statement on the equipment, anyone who received it has rights inferior to the bank's right to sell it.
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