Imagine that you own Steel Blade, a manufacturer of expensive steak knives. You sell your knives to boutique cutlery stores nationwide. Your best seller is the Steel Blade 3000, which can cut through a brick like warm butter and still slice through a tomato. Before you start selling your knives to new retailers, you make the owners sign personal guarantees. After all, when you’re selling high-end knives like the Steel Blade 3000 on credit, you want to make sure that you get paid.
One day, Jack Flanders contacts you. He owns Good Kitchens, a company that does business under the tradename Cutlery Planet. Jack wants to put your knives in his store. “Sure,” you say, “you just have to sign a personal guarantee and we’ll ship the knives right out.”
You send Jack the personal guarantee. He writes “Cutlery Planet” where it has a blank for him to fill in his company’s name. He then signs it and sends it back, and you ship him a lot of knives.
A year or two later, Jack decides to change his store’s name from Cutlery Planet to Blade Runner. His company is still the same. All he does is change the signs on his store. He continues to buy your knives.
Some time after that, Jack’s business runs into financial trouble and stops paying your invoices. Although his business soon gives up the ghost, Jack is OK financially because he’s a Wall Street banker—his cutlery store was just a side business. But you’re out a lot of money and you want to get paid.
You have that personal guarantee that Jack signed. All’s good, right?
Wrong. Georgia’s courts have held that the personal guarantee that you got from Jack is invalid. Why? Because Jack wrote his company’s tradename on it instead of his company’s official name.
Everyone knows that Cutlery Planet was Good Kitchens’ tradename because Jack registered that tradename with the Secretary of State’s office. And everyone knows that Good Kitchens merely changed its tradename from Cutlery Planet to Blade Runner. Jack registered that change with the Secretary of State’s office too. Doesn’t that count for anything? No, say Georgia’s courts.
What can you do to protect yourself? When you go to a store and use a credit card, you’re often asked to present identification so that the clerk can verify that the card that you’re using actually belongs to you. If you’re a business using a personal guarantee to extend credit to other businesses, you need to check the ID of the business that you’re dealing with. You need to see the equivalent of its birth certificate—its certificate of incorporation, existence, or organization—and make sure that its official name is listed on the guarantee. And if that business changes its tradename, the best practice would be to get a new personal guarantee from the owner and make sure that the business’s account is paid in full as of the name-change date before extending any further credit.