Supplier credit applications are very commonly used in the construction industry. Every year we see credit applications signed by unsuspecting owners, project managers, and project administrators which include both a corporate guarantee for the payment by the firm purchasing the materials, as well as an individual guarantee by the person signing the credit application. In other words, in the event the bills are not paid, both the firm and the individual signing the credit application have legal liability and are financially accountable. This issue was recently decided by a court in Illinois.  The case highlights the risks involved in signing what appears to be a routine and run-of-the-mill type document.[1]

The co-manager of the construction contractor signed a credit application for a ready-mix concrete supplier, both as the agent of the contractor and individually, to purchase concrete and requested a line of credit in the amount of $1,000. The concrete supplier’s application contained a personal guarantee which read as follows:

By signing below, the undersigned acknowledges that, as a principle of the Contractor, the undersigned will benefit financially by [the concrete supplier] extending credit to the Contractor and that, in consideration of [the concrete supplier’s] extending credit to the Contractor under the terms hereof, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to induce [supplier] to extend credit to Contractor, the undersigned hereby agrees to guarantee the payment in full of any amount owing to [supplier] by Contractor at any time.

When the contractor failed to make all payments due and owing to the supplier, the supplier filed suit against both the contractor and its manager who had signed the personal guarantee. The parties agreed that the balance due for concrete sold to the contractor was $5,600.80.  The manager took the position that his personal exposure, pursuant to the personal guarantee, was limited to $1,000-the amount of the original credit application. At trial, the judge found in favor of the supplier, and the contractor and manager appealed.

The appellate court, relying on black letter law[2] stated that this case involved a “continuing” guarantee. A continuing guarantee is a contract in which a person agrees to be a secondary obligor [guarantor] for all future obligations of the principal obligor [in this instance the contractor] to the obligee [in this instance the supplier]. The court held that, in this case, there was no question that the parties contemplated a future course of dealing with the supplier agreeing to supply materials to the contractor on credit over an extended time. The court found that since the manager “signed the contract for ‘payment in full’ of any amount owing to [supplier] … at any time,” his liability was of a continuing nature. The court was not persuaded by the manager’s argument that his liability was limited to $1,000 of the debt because that was the amount sought in the initial credit application.  Rather, because there was no language in credit application limiting the amount of credit to be extended or stating that the $1,000 “limit” was an absolute condition of the manager’s guarantee, the court found the lower court’s decision was proper.

Comment:  The lesson from this case is that credit applications should be reviewed carefully and only executed by those intending to be ultimately responsible for the payment of the debt. Indiscriminate execution of credit applications can, as this case demonstrates, have unintended consequences.


[1] TH Davidson & Co., Inc. v. Eidola Concrete, LLC, 2012 IL.App (3d) 110641, 972 N.E.2d 823 (2012).

[2] Restatement (3rd) of Suretyship and Guarantee § 16. (1996).

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