Guaranties: What Happens When A Manager Or Partner Leaves A Firm?

Many guarantees are signed incident to a business relationship, such as when partners or managers sign a guaranty of their firm’s payment for goods, services, or a line of credit.  What happens when the manager or partner leaves the firm? In Performance Food Group v. Ariva Hospitality, 2020 IL App (3d) 190409 (May 27, 2020), the appellate court held in a 2-1 decision that if enough time lapsed from the date of leaving to the date when payment was demanded per the guaranty, the guarantor would not be liable. It based its decision on a 1903 case.  The dissent argued that the guaranty was in effect until terminated by the guarantor, meaning that when the manager left employment, he should have notified the guaranteed party that his guaranty was terminated. The lesson: when you quit a job and have signed a guaranty, terminate the guaranty in writing. This won’t get you off the hook for previously incurred charges or loans, but should eliminate liability for future obligations.

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