Contract – Guaranty – Magazine Advertising

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A publishing company that provided magazine advertising to a business, “California Closets,” cannot collect on the contract from an hourly employee who signed a personal guaranty that was part of the advertising contract, as the publishing company has not shown that the employee received any consideration for her personal guaranty, in this case from Henrico County Circuit Court.

The guaranty portion of the contract provided, “I personally guarantee the performance of the Contract and payment of any obligations under the contract by the Advertiser.” Defendant signed as “Marketing Manager,” with the address of California Closets. When California Closets failed to pay in full, the publishing company looked to defendant on the guaranty. Defendant testified without contradiction that she was an hourly employee earning $12 per hour, and she was not authorized to sign the contract without approval of the business owner.

The general rules of agency apply. An agent is generally not liable and not a party to a contract unless the agent and the third party agree otherwise. A duly authorized agent acting in behalf of his principal is not personally responsible on the contract when the third party knows he acts in the name and on behalf of the principal. Clearly defendant here was not bound on the contract, and the only obligation that could have arisen was from the language of the guaranty.

To prove a contract to pay the debt of another, plaintiff bears the burden to introduce sufficient evidence of consideration for the guaranty, apart from the underlying consideration for the contract to publish advertising. A guaranty is a separate, collateral and secondary undertaking to answer for the debt of another in event of his default.

At trial there was no evidence of any benefit to defendant for giving credit to plaintiff. No one testified that defendant was required to extend her personal credit in order to keep her job. There was no testimony for any forbearance by plaintiff, or any other independent consideration exchanged for the guaranty.

This court concludes that plaintiff has not proved that sufficient consideration supported the formation of a guaranty contract.

Cape Fear Publishing Co. v. Phillips (Hammond, J.) No. CL09-876, April 5, 2010; Henrico County Cir.Ct.; Edward S. Whitlock III, Robert R. Dawson for the parties. VLW 010-8-069, 3 pp.