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The
information and procedures set forth in article are subject to constant
change and therefore should serve only as a foundation for further
investigation and study of the current law and procedures related to the
subject matter covered herein. All information, procedures contained herein
should be very carefully reviewed and should serve only as a guide for use in
specific situations. ACKNOWLEDGMENTS These materials are comprised in part of materials prepared by Gene A. Wheeler and other materials previously prepared and presented by Sue Figert Meyer, R. Brock Jordan, Christine Hayes Hickey, and other member attorneys and/or associates of Rubin & Levin, P.C.
Begin at The Beginning: The Credit
Application Process I. Creating Rights and Remedies In the Credit Context A. For most collection claims, litigation is a last resort, when attempts to obtain payment voluntarily and amicably have failed. B. The key to prevailing in a lawsuit depends less on what your lawyer does when the claim hits his/her office, than what you have done in establishing and maintaining the credit account. 1. A good lawyer may recognize what your legal rights are, and his/her actions may provide you with invaluable assistance in having a court enforce them. BUT. . . 2. Generally speaking, neither your attorney nor the court "creates" rights to be enforced. a. In the credit context, legal rights are generally defined by the terms of the agreement between the parties, whether that agreement is based upon a handshake or a lengthy formal writing. b. Note, that the Indiana Supreme Court has observed that competent adults may agree to just about anything, and with some limitations, the Court will enforce the agreement as contemplated by the parties to it. 3. There are exceptions to this generalization, of course: a. In some cases, the legislature (both state and federal) has placed limitations and/or prohibitions on what the law will enforce. b. Courts may not enforce agreements that are unduly oppressive, those which arose out of fraud or other misrepresentation, or other contracts that the court finds are in violation of "public policy."
c. Some contracts have to be in writing to be enforceable.
C. For the most part, it is the substance of the agreement - including who the parties are, what promises are being made, defining the obligations, and describing remedies, among other considerations - which is the foundation of creating enforceable rights in the credit context.
A. One of the most overlooked aspects in creditor/debtor relationships. B. The identity of your debtor determines not only who you can sue, but in many cases, what you may recover. C. "Business" or "Personal": Commercial vs. Consumer Debtors. 1. A consumer debtor is an individual who purchases goods primarily for personal, household or family use. 2. A business or commercial debtor is a sole proprietorship, partnership, corporation, limited partnership, limited liability partnership, limited liability company, professional corporation, etc. that purchases goods for business purposes. 3. The distinction between commercial and consumer is primarily important because both federal and state laws impose limitations on consumer transactions, including the nature of the agreement, the amount of interest or finance charges, use of credit reports, credit reporting, collection activity, etc. that generally do not apply to commercial transactions. 4. Rule of Thumb: If the line is fuzzy, err on the side of "consumer". D. Commercial Debtors: Ownership Structure 1. An Indiana commercial debtor may be a sole proprietorship, partnership, corporation, limited partnership, limited liability partnership, limited liability company, or professional corporation. 2. The business structure or entity of the debtor determines whether the owners are personally liable for the debts of the entities. 3. The debtor's business structure and related documents also determine who has authority to sign the various credit documents to make them legally binding on the commercial debtor. 4. Special note for secured creditors: a. Revised Article 9 of the Uniform Commercial Code (UCC) has been enacted in Indiana. b. Under pre-revision Article 9, the primary consideration in determining where to file the appropriate financing statement to perfect the interest was the location of the collateral. c. Under Revised Article 9, the primary consideration in determining where to file is the location of the debtor. d. A "registered entity,"i.e., a business which must file forms with the state in order to come into legal existence, is generally "located" for purposes of Revised Article 9 in the state of its initial formation, regardless of where it does business. (1) For example, you may have a credit relationship with a corporation who does business in Indiana with a security agreement that covers collateral which is also physically located in Indiana. (2) However, the corporation was actually formed in the State of Ohio. (3) Under pre-revision Article 9, the financing statement generally would have been filed where the collateral was located, i.e., Indiana. (4) Under Revised Article 9, however, perfection of the security interest requires filing of the financing statement in Ohio. A financing statement filed here leaves you unperfected. 5. Creditors can discover the type of business structure and state of formation of customers by: a. Asking the debtor for its official name and state of formation orally or in the credit application. For entities organized under Indiana law, the different types of limited liability entities have entity-specific designations that must be included in their names, which include "Corporation", "Incorporated", "Ltd.", "P.C.", "LP" and "L.L.C". b. Confirming the existence of the entity: (1) The Indiana Secretary of State maintains the records for all registered entities organized under Indiana law as well as records for all "foreign" (organized under the laws of another state) limited liability entities that have registered in Indiana. The Secretary of State's information includes the state of the entity's formation. (2) Confirmation through the Secretary of State of the existence of the entity can be accomplished in two ways: (a) Via the internet, (www.state.in.us/sos), and visiting the web page of the "Business Services". (b) Telephone the Secretary of State's office (317-232-6576) and ask if their records show the entity exists, the state of its information, and other pertinent information. (3) Special note when doing business with corporations who may have been formed in another state: (a) Under Indiana law, a foreign corporation "doing business" in Indiana is required to register with the Indiana Secretary of State. (b) However, "doing business" is a defined term, and certain activities of a corporation, i.e., simply buying goods or services from an Indiana creditor for shipment or use in another state, may not qualify as "doing business" in the state. (c) Some foreign corporations may have decided (correctly or incorrectly) that what they are doing does not qualify as "doing business" in Indiana, or they may be unaware of the registration requirement. (d) Accordingly, the foreign corporation may not be registered with the Indiana Secretary of State, who may not have any information regarding that entity. (e) Note that failing to register when one is required to do so does not render void any act or contract entered by the foreign corporation in Indiana. Failure to register may result in civil penalties for the corporation, however, and it may not bring a lawsuit in Indiana to enforce its rights. (If jurisdiction is otherwise proper in Indiana, it may be sued here, and may be allowed to defend.) (f) Thus, if your debtor indicates it is a corporation or other registered entity, but you cannot find any information at the Indiana Secretary of State's office, it may be a foreign entity. (g) You may still do business with that entity, but, you should confirm through the resources of the state of formation that the entity actually exists. (Most states have a website.) E. "Fictitious" or Assumed Names 1. In Indiana, it is perfectly legitimate for a business, regardless of how structured, to conduct business under a fictitious or assumed name. 2. Under Indiana law, any person or organization is required to file an assumed business name with the county recorder in any county where that organization conducts business, and with the Secretary of State's office. 3. Call the county recorder in the county where the debtor transacts business or the Indiana Secretary of State to determine if a "fictitious," "assumed" or "doing business as" name has been filed. The official name of the entity and its type of organization are included in this filing. 4. The Secretary of State's website also can help you locate fictitious name filings. 5. Even though a business fails to file an Assumed Business Name Certificate, this is not grounds to impose personal liability on the owners. 6. This is an important issue on credit applications as credit applications are frequently submitted using the assumed name or the fictitious name, rather than the official name of the business. F. Ownership Structure and Liability 1. Sole Proprietorship. a. A business owned by one individual, it has no separate identity from its owner, but the owner may do business under an assumed name. b. The owner is liable for all trade debts and is ordinarily the only person that can bind the sole proprietorship to contracts. (1) A sole proprietor may have employees or other persons to whom he or she may delegate contractual authority. (2) From the creditor's perspective, you should make it clear who is liable, and who may order goods or enter contracts. 2. Partnership. a. An association of two or more persons to carry on as co-owners a business for profit. b. Each partner is subject to unlimited liability for debts of the partnership (jointly) and torts of their partners committed within the course of the partnership business (joint and several). c. Each partner has an equal voice in management (unless they expressly agree otherwise), ability to act as agent for the partnership, and can incur obligations that will be binding on all the partners. d. Partnerships usually operate using assumed names or trade names. e. Marital partnership v. business partnership. (1) One issue that often arises is in the situation where there are two spouses active in operating a business. (2) Courts have been wary of imposing partnership liability (making both spouses liable for business debts) just because of the existence of the marital relationship. (3) Even where the business is the sole source of income for the household, a court is not likely to find a business partnership where the spouse's involvement is in a limited role. (a) For example, husband owns and operates construction company, but wife does the books, handles payroll, pays the bills, but is not really involved in management decisions. (b) Or, wife owns and operates restaurant, husband works as general manager. (4) Don't assume business partnership because of marital partnership. 3. Corporation. a. An entity based upon principles of centralized management and limited liability for the owners (shareholders) which exists perpetually. b. Indiana corporations are formed by filing Articles of Incorporation with the Indiana Secretary of State. Corporations organized in other states who transact business in Indiana are required to register as "foreign" corporations with the Indiana Secretary of State. c. Indiana corporations are required to use one of the following designations in their official name: "corporation," "incorporated," "company" or "limited" or any abbreviation of these four words. (1) Failure to use these designations in name is not sufficient, in and of itself, to make shareholders and officers personally liable. (2) So long as other corporate formalities are observed, and there is no intent to conceal the identity of the actual entity, then no personal liability. d. Shareholder's risk is limited to their investment in the corporation, which may be lost if the corporation fails. Shareholder is not liable for debts of the corporation, even in the case of sole shareholders, with some exceptions: (1) Shareholders can become liable for their own acts while acting on behalf of the corporation. (2) Corporate "veil piercing", rarely done by courts, in cases of fraud, failure to observe corporate formalities such that the fiction of a legal entity separate from its owners is compromised. (3) Personal guarantees. (4) Some personal liabilities imposed by statute, e.g., withholding taxes. e. As a general rule, persons with authority to bind the corporation to contracts have officer titles such as "president," "vice president," "secretary," "treasurer" and the like. f. Not a bad idea to get a resolution from the board of directors showing the authority of the person you are dealing with to enter into the credit arrangement; most recommended in potential "big dollar" credit arrangements. 4. Limited Partnership (LP). a. A partnership formed by two or more persons which has at least one general partner and one or more limited partners. b. A limited partner has no voice in active management of the partnership, except in certain critical matters. Liability of the limited partners is limited to the partners' capital contributions to the partnership. The general partner(s) may be subject to unlimited liability for the obligations of the LP. c. Indiana LPs are required to file a Certificate of Limited Partnership with the Indiana Secretary of State. This Certificate sets forth the rights and duties of the partners among themselves and identifies the general partner. "Foreign" LPs that transact business in Indiana are required to register with the Indiana Secretary of State.
d. The general partner is ordinarily the person with authority to bind the LP to contracts. Often the general partner is also a legal entity other than an individual, e.g. a corporation, in which case the individuals in that entity with authority to bind the entity are often the persons with authority to bind the LP as a general partner. e. Indiana LPs are required to use either "limited partnership" or "L.P." in their official name. 5. Limited Liability Partnership (LLP). a. A general partnership, association of two or more persons to carry on as co-owners of a business, where all partners have elected to have limited liability, i.e. they are not responsible to pay the debts, obligations and liabilities of the limited liability partnership. In all other respects, these entities operate like Indiana general partnerships. b. Indiana Limited Liability Partnerships are required to register with the Indiana Secretary of State. "Foreign" limited liability partnerships are also required to register with the Indiana Secretary of State if they transact business in Indiana. c. Like general partnerships, each limited liability partner has the ability to act as agent for the LLP and, by signing contracts, can bind the LLP.
d. Indiana LLPs are required to use one of the following in their name: "Limited Liability Partnership," "L.L.P.," or "LLP." 6. Limited Liability Company (LLC). a. An Indiana LLC is a hybrid of a corporation and a partnership whose owners (called "members") enjoy the "limited liability" of a corporation but may have the organization and taxation of a "general partnership". b. An Indiana LLC is formed by filing Articles of Organization with the Indiana Secretary of State. A "foreign" LLC is required to register with the Indiana Secretary of State if it transacts business in Indiana. c. LLCs can elect to be managed by a manager or by their members. This election is important to creditors because it determines who is authorized to sign contracts that bind the LLC. If managed by a manager, only the manager, and not members, is authorized to bind the LLC. If managed by the members, any member can bind the LLC. The LLC is required to designate in its Articles of Organization filed with the Indiana Secretary of State whether it is managed by a manager or by the members. d. Indiana LLCs are required to use one of the following in their name: "limited liability company," "L.L.C." or "LLC." e. Extending credit to an LLC: (1) Exercise a basic credit risk analysis applicable to any business. (2) Obtain a credit application. (3) Obtain written information on who is authorized to bind the LLC. In addition to being required to file the election of being managed by a manager or members with the Indiana Secretary of State in the Articles of Organization, Indiana LLCs can adopt an Operating Agreement which can detail the authority of the various members or managers. (4) Treat an LLC like a corporation; that is, obtain personal guaranties because the members of the LLC are not personally liable for the LLC's debts. 7. Professional Corporation (PC). a. A PC is a type of Indiana corporation that can be formed by individuals who practice particular professions, including, accountants, architects, engineers, attorneys, health care professionals, veterinarians, and real estate professionals. b. The only persons who can be shareholders of a P.C. are persons who are in the practice of the profession. c. The primary difference between a regular corporation and a PC is that the liability of the professional individually, (the owner of the PC), is not limited when they act in their professional capacities (such as malpractice), but is limited in all other transactions, such as trade debt. d. In addition to registering with the appropriate professional boards, the Indiana PC must file Articles of Incorporation with the Indiana Secretary of State. If a "foreign" PC transacts business in Indiana, it is required to register with the Indiana Secretary of State. e. Like regular corporations, PCs have officers authorized to sign binding agreements with non-professional creditors. f. Indiana PCs are required to use one of the following in their name: "Professional Services Corporation", "Professional Corporation", PSC or P.C. III. Creating or Describing Rights and Remedies Through Credit Applications and Contracts A. Article 2 of the Uniform Commercial Code governing sale of goods; Article 2A governing personal property leases; Article 9 governing personal property secured credit; and other statutes, provide that while some of their provisions are not alterable by agreement, certain provisions of those statutes control transactions thereunder, "unless otherwise agreed by the parties." 1. In other words, with regard to certain contractual relationships, the statute controls, and certain portions of the statute cannot be avoided. 2. But, certain provisions of the statute can be avoided by the parties, who agree to be bound by "law" of their own making in the contract, which a court will enforce. 3. Put it another way, certain rules pertain to all contracts made under the statutes. Other rules set forth in the statute may be replaced by rules agreed upon by the parties. 4. If the contract is silent on a particular issue, then the provisions of a particular statute, such as the UCC, may kick in, and become part of the contract, whether you intended the consequences of such provisions or not. B. Of course, after a credit account is established, the parties may do most of their transacting by telephone or at least, informally. 1. So the question arises, "What is the contract, and what are its terms?" 2. The answer: A credit application can establish the terms of the contract at the outset. IV. Things that may or should be part of a credit application. 1. Properly signed by debtor. a. If debtor is a corporation, any document signed by the debtor should show the corporate name and the individual signing with their corporate capacity, e.g. president, vice-president, authorized agent. (1) If a document does not reflect the name of the corporation and reflects only the name of the individual, the individual may be liable. (2) But what if the individual files bankruptcy, but his corporation keeps operating? Make sure the corporation is on the contract. (There are other ways to get personal liability.) b. If the debtor is a partnership, the general rule is that any partner can sign the credit application and bind the partnership. c. If debtor is an LLC, the credit application may be signed by any member if the LLC is managed by its members, or by the manager if the LLC is managed by its manager. The manager need not be a member of the LLC. Because the LLC may place restrictions on the authority of the member or manager to sign a particular contract, the Operating Agreement can be examined to determine the specifics. d. If the debtor is an LP, the general partner must sign the credit application. If the general partner is an entity other than an individual, for example, a corporation, then the rules applicable to that type of entity apply to determine who is required to sign the credit application. e. If the debtor is an LLP, generally the signature of any partner on the credit application will bind the LLP. f. If the debtor is a corporation or other entity, and you are also seeking a personal guaranty of the principal, have separate unambiguous signature block for the person signing in his representative capacity and another for that person signing in his individual capacity. (1) For example, (a) "ABC Company", by \s\ Robert Jones, President and (b) \s\ Robert Jones, Individually As Guarantor (2) Some credit applications have just one signature line for both the authorized corporate signature and for the personal guarantor (granted, sometimes it's the same person.) (3) But this introduces an ambiguity into the document (e.g., in what capacity was the person signing) that is often the subject of protracted litigation. 2. Interest Rate. a. State law generally governs the interest rate that can be charged. As a general rule, different limitations are placed on commercial and consumer rates. Charging more interest than allowed by law is called "usury." The penalties for usury vary and can include: forfeiture of the excessive interest, forfeiture of all interest, forfeiture of multiples of all interest, forfeiture of the right to repayment of principal, criminal sanctions and voiding of the contract. b. It is therefore crucial to determine the applicable usury rate when extending credit.
c. If your credit application does not provide for an interest rate, then you may recover prejudgment interest in Indiana at the rate of 8% per annum. d. If you are charging an interest rate on delinquent accounts higher than 8%, normally a document (such as a credit application) should be signed by debtor providing for the higher interest rate. e. On non-consumer matters, if invoices or statements of account state interest will be charged at a rate higher than 8% per annum and you regularly send these invoices and statements to debtor, if there is no objection, the debtor may be liable for the higher interest rate . f. As a general rule Indiana does not have a usury law applicable to commercial/business credit. The Indiana Uniform Consumer Credit Code places restrictions on interest rates that can be charged for consumer/retail credit which also apply to extensions of credit of $50,000.00 or less to sole proprietorships. At this time, the maximum consumer rate is generally 21% per annum simple interest in Indiana. g. Note: if you charge twice the legal limit or more (42% or more) on a consumer contract, you are guilty of loansharking, can be held criminally liable, and the contract is void. 3. Attorney's Fees. a. The normal rule in Indiana is that each party in litigation pays their own attorney's fees, unless there is a statute or a written contractual provision to the contrary. b. All credit applications should provide for creditor to recover attorney fees and all costs of collection if it is necessary to turn the account over to attorneys for collection or if litigation is necessary to enforce the creditor's rights. c. Beware of "percentage" attorney fee's clauses. (1) A savvy debtor may assume that on a relatively small debt, the amount you would pay an attorney to pursue the claim may exceed the debt. (2) The whole purpose of having an attorney's fees clause is to shift the risk of financing litigation to the debtor. In other words, if you have to chase the debtor, he or she is going to pay for it. (3) On a highly contested matter, a percentage attorney's provision will cap your recovery of fees. (a) For example, if you have a $10,000 debt, and a 25 percent attorney's fees provision. (b) If your attorney expends $10,000 worth of time and prevails, will only receive $2,500 in attorney's fees. (4) On contingency matters, this may not seem significant. But, if a counterclaim is filed, that is usually handled on an hourly basis. You want to recover those fees too. (5) If you must use a percentage, then your language should be, for example, "reasonable attorney's fees not less than 25% of the principal balance due and owing." 4. Jurisdiction/Venue Provision. a. Normally a lawsuit must be brought in the state and county where the debtor resides or has its major place of business. b. A jurisdiction and venue provision in a credit application providing that jurisdiction and preferred venue for a suit in a particular state and county in commercial cases is usually enforceable, because the law permits a commercial debtor to waive personal jurisdiction and venue. c. In consumer cases, however, under federal law (the Fair Debt Collection Practices Act) and Indiana law (the Uniform Consumer Credit Code) suit may only be brought in the county where the debtor resides at the time the suit is brought or where the contract was signed. d. Be aware of the differences between a choice of law provision and a jurisdiction/venue provision. A choice of law provision says only that a particular state's law will apply to the transaction. A jurisdiction/venue provision determines where any lawsuit is to be filed. e. Note that by statute, some lawsuits have to be filed in a particular place. (1) For example, under Indiana law, a suit to foreclose a mechanic's lien may only be heard in the county where the real estate lies. (2) Consider putting this language in your credit application: "The undersigned agrees that in the event legal action becomes necessary, jurisdiction and preferred venue shall be in [your city], [your county], [your state], or any other Court of competent jurisdiction as determined in the sole discretion of the Creditor." 5. Arbitration Provisions. a. Requiring disputes to be arbitrated rather than litigated has pros and cons. If the creditor decides arbitration is an appropriate dispute resolution procedure, both the creditor and debtor must agree to arbitration in a written document such as the credit application, security agreement, promissory note, etc. b. Because the appropriateness of arbitration is somewhat fact sensitive, it is suggested that the arbitration clause give the creditor the sole discretion to either proceed with arbitration or litigation. 6. Exclusion of Warranties a. A seller of goods cannot negate an express warranty by a writing. b. Oral representations may constitute express warranties, so be careful what salespersons are informing customers. Just as importantly, models, drawings, and other "representations" as to what constitute the product or service you are selling may create an express warranty. c. The Uniform Commercial Code (UCC) permits a seller to exclude implied warranties from its contract with the buyer. The two basic implied warranties are the warranties of merchantability and fitness for a particular purpose. d. The implied warranty of merchantability provides that the goods pass without objection in the industry; are fit for the ordinary purpose for which such goods are used; are adequately labeled and packaged; and conform to the promises made on the label. e. The implied warranty of fitness for a particular purpose arises when the seller, at the time of the sale, has reason to know any particular purpose of which the goods are required that the buyer is relying on the seller's skill or judgment to select suitable goods. Under these circumstances, and unless excluded, an implied warranty arises that the goods shall be fit for this purpose. f. To be valid, the disclaimer of the implied warranty of merchantability must specifically mention "merchantability." The disclaimer may be oral, but if in writing, the disclaimer must be conspicuous. g. An oral disclaimer is not sufficient to exclude the implied warranty of fitness for particular purpose. The particular purpose disclaimer must be in writing, and the writing must be conspicuous. However, the word "fitness" need not be specifically mentioned in the writing. h. Note, if the goods are sold "as is" or "with all faults," no implied warranties of any kind arise. However, this language does not exclude express warranties. 7. Consider adding to your credit application the following or similar language "Creditor makes no warranty beyond those provided by the manufacturer or expressly given. There is no warranty of merchantability, nor are there any implied warranties; all goods are sold as is. Creditor is not responsible for any claims of consequential or incidental damages, including but not limited to: lost profits, lost product or loss of opportunity." 8. Modification of Remedies a. Equally important as the exclusion of warranties in a contract is the modification or limitation of remedies. The UCC specifically permits the parties to limit or alter the remedies otherwise available under the Code. b. The Code also allows the parties to limit or exclude consequential damage recoveries unless the limitation or exclusion is unconscionable. (1) Incidental damages include the buyer's costs of inspecting, transporting, caring for goods rightfully rejected and any commercially reasonable charge with effecting cover and any other expense incident to the delay or breach. (2) Consequential damages include any loss resulting from the general or specific requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably have been prevented by cover or otherwise. The most important consequential damage is lost profits. (a) Limitation of consequential damages for injury to the person in the case of consumer goods (goods used or bought for use primarily for personal, family or household purposes) is presumed unconscionable. (b) However, where the loss is only pecuniary (i.e., financial), there is no presumption that a disclaimer or limitation on damages clause is unconscionable, and the buyer must prove that the clause is in fact unconscionable. (3) You can also limit remedies for even the breach of express warranties. For example, repair or replacement of defective goods. (4) If the contract expressly makes the limited remedy the sole remedy, then the debtor is not entitled to any other remedies which might be provided by statute, unless the sole remedy "fails of its essential purpose." 9. Risk of Loss a. The UCC contains provisions that provide which party, the buyer or seller, bears the loss where the goods are damaged or destroyed prior to delivery without fault of either party. b. If the parties provide in their agreement at what point the risk of loss shifts from the seller to buyer, their agreement controls. However, if the parties have not agreed who will bear the risk of loss, the following rules apply: (1) If the contract authorizes or requires the seller to ship the goods to the buyer via common carrier (as opposed to delivering them in the seller's own vehicles), who bears the risk of loss depends on whether the contract is a "shipment" or "destination" contract. (2) A "shipment contract" merely requires seller to place the goods in the hands of a carrier; it does not require the seller to deliver them at any particular destination. In such a contract, the risk of loss passes to the buyer on delivery of conforming goods to the carrier. The following types of contracts are "shipment contracts": F.O.B. (Free On Board) origin, F.A.S. (Free Along Side) vessel. (3) A "destination contract" requires the seller to deliver the goods to a particular destination. In such a contract, the risk of loss passes to the buyer only when the goods arrive at the destination and are duly tendered to the buyer in a manner sufficient to enable the buyer to take delivery. This covers F.O.B. destination contracts, as well as C.I.F. contracts, which means the purchase price includes the Cost of the goods, the Insurance and the Freight to the named destination. There are also C&F contracts, which do not include the cost of insurance, but nonetheless place the risk of loss on the seller until delivery of the goods at the named destination. (4) Unless the contract expressly contains an "F.O.B. destination" delivery term or the equivalent, it will be construed as a shipment contract, so that the seller's risk ends on delivery to the carrier. (5) If at the time the contract is made, the goods are in the hands of a professional bailee (e.g. a carrier or warehouser) and the goods are to be sold without being moved, the risk of loss passes to the buyer as follows: (a) If at the time of the sales contract the goods are covered by a negotiable document of title (e.g. an order bill of lading or a negotiable warehouse receipt) then risk of loss passes to the buyer only on receipt of the negotiable document of title covering the goods. (b) If the goods are covered by a non-negotiable document of title, then risk of loss passes to the buyer upon receipt of the non-negotiable document of title or other written directions from the seller to the bailee authorizing delivery of the goods to the buyer. (c) If the goods are not covered by any document of title, then risk of loss passes from the seller to the buyer when the bailee tenders the goods or otherwise acknowledges that the buyer is entitled to immediate possession of the goods. (d) In all other situations in which neither party was in breach of the contract at the time of the accidental damage or destruction of the goods the "Catch-all Rule" applies. The "Catch-all Rule" states that the risk of loss in such cases passes to the buyer only when the buyer actually receives the goods if the seller is a merchant; if the seller is not a merchant, risk of loss passes to the buyer on the mere tender of delivery by the seller. (e) The rules are different if the seller or buyer is in default at the time of the accidental damage or destruction of the goods. i) If the goods shipped by the seller failed to conform to the contract so as to give the buyer the right to reject them, the risk of loss remains with the seller until cure or acceptance. ii) When the buyer discovers the defects in the goods only after accepting them, and the defects are so substantial that they justify the buyers revocation of the acceptance, the risk of loss is treated as having been on the seller from the beginning. a) Where the seller has shipped conforming goods, but the buyer has wrongfully repudiated (or otherwise breached before the risk of loss has passed to the buyer) and the goods are damaged and not covered by the sellers insurance, the seller may treat the risk of loss as resting on the buyer "for a commercially reasonable period of time." b) The preceding rule applies only where the seller is uninsured and has otherwise acted in a commercially reasonable manner. 10. Battle of Forms under the Uniform Commercial Code a. Often business transactions are conducted largely by forms. For example, a buyer may send a purchase order to a seller which contains certain terms favorable to the buyer. The buyer may then respond with a written acceptance or confirmation which contains terms additional to the terms in buyer's purchase order. The UCC Battle of Forms provision answers two important questions raised by the scenario described above. Do the buyer and seller described above have a contract? If they do have a contract, what are its terms? b. Do the parties have a contract? (1) The general rule is that if the offeree's response is a definite and seasonable expression of acceptance, it operates as an acceptance of the offer despite the fact that the response contains terms additional to or different from those in the offer. (2) Note, this general rule applies only to transactions for the sale of goods. (3) This general rule does not apply if the offeree expressly makes the acceptance conditional on the offeror's assent to the additional or different terms. c. What are the terms of the contract between these parties? (1) If the offeree's response includes additional terms, and one of the parties is not a merchant, these new terms are construed as mere proposed additions to the contract. They do not become part of the contract unless the new terms are separately accepted. If the additional terms are not separately accepted, the contract is formed under the terms contained in the offer. However, the parties' course of performance might show that the new terms were impliedly accepted by the original offeror. (2) If both parties are merchants, additional terms in an acceptance automatically become a part of the contract. There are three exceptions to this rule. If the original offer objected in advance to the addition of terms or if the original offeror objects to the new terms within a reasonable time after notice of them is received, the new terms are not a part of the contract. The third exception to the rule is that if the new terms would materially alter the original terms, only the terms which would materially alter the original terms are stricken and do not become a part of the contract. Any additional terms that do not materially alter the original terms become part of the contract absent objection in advance to the addition of terms or notice of objection to additional terms within a reasonable time. d. The UCC is not clear about whether its battle of the forms rules apply to different terms. An example of forms that contain different terms is a purchase order that specifies one delivery date and a responding acknowledgment form that changes the date. The courts have responded to this difficulty in three ways: (1) Some courts hold that if the different term in the responding form is stricken if it materially alters the original offer or if the original offeror objects to it. (2) Other courts find that when there are different terms in the forms both parties have objected to the differing terms, so that the contract is concluded without agreement on the matter, and the gap-filler provisions of the UCC fill in the term on the disagreed matter. (3) If the disagreement concerns a major term of the contract, some courts will find that no contract ever arose. However, if in spite of this disagreement, the parties begin to perform the contract, a contract will arise containing the terms on which the writings agree. e. You may wish to consider adding the following language to your purchase orders, quotations and/or credit applications:[Company] is [buying/selling] product pursuant to [Company's] standard terms and conditions attached hereto. Please note that any terms either proposed by you and/or contained within any documents supplied by you, which are in addition to and/or different from [Company's] terms and conditions are deemed by [Company] to be a material alteration of our agreement, and you are hereby notified that [Company] both objects and rejects the additional and/or different terms. 11. Guaranty a. A guaranty obligates a person or entity other than the person or entity primarily responsible for an obligation to pay a debt of that other person or entity. (1) Guaranties are used to obligate the owners of limited liability entities (corporations, limited liability partnerships, limited partnerships, limited liability companies, and professional corporations) to pay the debts of the entities they own. They can also be used when the person applying for credit does not qualify for the credit sought. (2) When attempting to collect a debt, a guaranty often means the difference between success or failure because the entity primarily responsible for the debt is out of business or insolvent. (3) A guaranty is not necessary to hold individuals responsible for the debts of their business when their business is not one of the entities that enjoys limited liability, , e.g., a sole proprietorship or a general partnership. (4) Both debtors and creditors, however, make mistakes in determining what type of entity is involved and requiring personal guaranties on every application simplifies the credit application. (5) Consider obtaining guaranties even when you believe you are not dealing with a limited liability entity. However see the discussion herein dealing with Regulation B under the Equal Credit Opportunity Act which limits the circumstances under which a creditor may require a non-owner spouse to sign guaranties of debt owed by their spouse's business.
b. Guarantor Signatures (1) In Indiana, the guaranty must be in writing and signed by the guarantor, the person or entity who agrees to pay or perform the obligation in lieu of the person or entity primarily responsible to pay or perform, called the principal (2) A guarantor has a right to be released from liability on the guaranty if there is a material change in the terms of the underlying obligation. (a) Some typical changes include extending additional credit to the principal, accepting or authorizing payment delays, releasing collateral, etc. (b) In order to prevent this release of the guarantor, a well drafted guaranty will waive these defenses. (c) Note that a well-drafted guaranty effectively waives the debtor's right to be discharged by material alteration of the underlying obligations, and are routinely upheld by Indiana courts. (3) A guaranty can be "continuing" in that it continues in effect to guarantee payment or performance of future obligations of the principal, or it can be "limited" in any fashion, for example limited to payment of a particular debt or a maximum dollar amount, or for a fixed period of time. (4) (5) A guarantor can terminate the application of a continuing guaranty to any obligation incurred after the time of revocation. A well drafted guaranty will require that any revocation be written and mailed to a particular address and actually received at that address before it is valid. This gives the creditor the opportunity to require another guaranty before the extension of additional credit. (6) Guaranty Strictly Construed Against Creditor. (7) The law strictly construes the words of the guaranty against the creditor. A guaranty is usually only in favor of the creditor to whom it is given and not in favor of the creditor's sister corporations, parent corporations or subsidiaries unless specifically so stated. (8) The guarantor usually only guarantees the debts of the customer named in the guaranty. Verify the name and legal entity status of the customer and establish a system to deal with customers when they change their legal status. This system should prompt the obtaining of guaranties when a sole proprietorship incorporates as well as obtaining new guarantees when an existing limited liability entity changes its name or is sold to another entity who continues to do business at the same address. (9) It is best to use a broad definition of "indebtedness" to include all past obligations unpaid and owing from seller to buyer, including amounts presently owed, amounts due for present and future purchases, and all obligations of every nature. If the guaranty guarantees only the payment of a promissory note, it will not apply to other types of indebtedness such as open account. (10) Generally, a guarantor is obligated to know the terms of the agreement he is signing and cannot avoid his obligation under a guaranty due to a failure to read it. However, if the creditor employs misrepresentation to induce the other party to sign the contract, then the guarantor is not bound to the terms of his agreement. Make certain that your documents are clear that an individual is signing a guaranty. (11) Normally for a contract to be enforceable there must be some consideration or benefit given to the obligor. However in a guaranty, it is not necessary for a guarantor to derive any benefits from the principal contract or the guaranty for consideration to exist. If the guaranty is made at the time of the principal contract, sufficient contractual consideration exists. (12) Likewise, there is sufficient consideration to support a guaranty, even though the co-guarantor signed after the execution of the principal contract, or the note was restructured with the understanding it would be supported by guarantees from co-guarantors. c. Guarantors of indebtedness are not discharged from obligations existing prior to corporate reorganization, merger and renaming of the creditor. 12. Security Interests a. Overview (1) A security interest is a consensual and contractual lien against personal property (as opposed to real estate) of the debtor used to secure repayment of a debt. (a) A creditor with a validly perfected security interest in a debtor's assets can look either to the property, the debtor, or both for payment of the debt. (b) Thus, the secured creditor receives preferential treatment over other creditors, at least with regard to the property securing the debt (the collateral.) (c) Having a security interest in debtor's property that is granted and perfected prior to the filing of a bankruptcy petition is the best manner to ensure repayment if the debtor seeks bankruptcy protection. (2) Security interests and their perfection are governed by Article 9 of the Uniform Commercial Code, but "Article 9" has undergone drastic changes with the adoption in all fifty (50) state of a "Revised" uniform statute. (a) The law became effective in Indiana and in most other states on July 1, 2001. (b) Several other states did not implement the provisions of Revised Article 9 until January 1, 2002. (c) An in-depth discussion of the changes in Article 9 are beyond the scope of these materials. (d) We do urge all credit managers to become familiar with Revised Article 9 insofar as it effects your existing and future credit practices. b. Revised Article 9 affects the content of the two major security interest documents, the security agreement and financing statement, by adding new types of collateral to its coverage, e.g. bank accounts and securities, by changing some of the general collateral definitions, e.g. some general intangibles are now accounts, by adding "all personal property" as a valid collateral designation in the financing statement but not the security agreement, and by changing the form of the financing statement so it can be filed electronically. Revised Article 9 also alters certain methods of perfection, e.g. securities, bank accounts and goods in possession of bailees. Perhaps the most pervasive change is the place a financing statement is filed to perfect the security interest when the debtor is a registered entity. c. Choice of Law - Are you using Indiana's "Article 9" or some other state's? (1) Revised Article 9 has been adopted in every state, but each state might have some variations to the uniform act. Thus, you have to decide which state's version of Article 9 is applicable to your transaction. (2) 9.1-301. Generally, the law governing the perfection of security interests, the effect of perfection, and priority in both tangible and intangible collateral, is controlled by where the debtor is located. There are several exceptions. (3) Generally though, the local law of the jurisdiction where the debtor is located governs perfection of security interest in: (a) Negotiable instruments (b) Goods (c) Instruments (d) Money (e) Tangible chattel paper. (4) But, (a) if perfected by possessory interest, then the law where property located governs perfection of a security interest. (b) if security interest is in as-extracted collateral, then the local law of the jurisdiction of the wellhead or mine head governs. (c) in timber to be cut and perfected by filing in fixture file, then local law of jurisdiction where collateral is located governs. (d) farm products, then the local law where farm products are located governs. (e) in goods covered by certificate of title, then the law of the jurisdiction where the certificate of title is issued governs. (f) in deposit accounts, the local law of the bank's jurisdiction governs perfection, effect of perfection and priority of deposit account. See 9.1-304. (g) in investment property, see 9.1-305. (h) in letter of credit rights, see 9.1-306. (5) How do I determine where the debtor is located to determine which rule of law applies for purposes of perfection and priority? General rules applicable for choice of law: (a) If the debtor is an individual, then he is located in the state of his principal residence. (b) A debtor that is an organization and which has only one place of business is located at that place of business; if more than one place of business, the location of its chief executive office. BIG EXCEPTION that swallows the rule if the debtor is a registered organization, as discussed below. i) A registered organization is located in its "jurisdiction of organization." For example, a corporation, an LLC, or a limited partnership would be located in the state of its organization. ii) A debtor that is not a registered organization (e.g. a general partnership), in the state of its chief executive office. (c) As a practical matter, you need to know your debtor better than ever if you are preparing security agreements or filings. i) You need legal names of organizations (not trade names, not even registered assumed names.) ii) Should probably get a copy of Articles of Incorporation or Certificate of Incorporation. (d) Remember, if your debtor is not "located" in Indiana, then Indiana law may not apply to determine whether you are perfected, what it means to be perfected, nor to the priority of your claim. (6) What if your debtor moves or ceases to be? Savings provisions: (a) If a person or unregistered organization ceases to have a residence or a place of business, they are deemed to be located in the applicable jurisdiction prior to cessation of residency or doing business (b) Registered organization continues to be located in state of organization despite suspension, lapse, revocation, dissolution, or forfeiture. (7) How does security interest attach (or, how do I create a new valid security agreement after July 1, 2001? (See 9.1-203) (8) Generally, the requirements for a valid security agreement are similar to the Requirements of the Current Article 9; i) Creditor has given value; ii) Debtor has rights in the collateral iii) And one of the following: a) "authenticated" security agreement describing the collateral, or if timber to be cut, the land. "Authenticated" does not necessarily mean "signed" (although it can be signed). See 9.1-102(7). Can be electronically encrypted, etc. (facilitates electronic filing) b) the collateral is subject to possession (not a certificated security) and the secured creditor has possession; c) collateral it is a certificated security and has been delivered to secured party pursuant to I.C. 26-1-8.1-301 d) the collateral is deposit accounts, electronic chattel paper, investment property or letter of credit rights and the secured creditor has "control" (9) Contents of Security Agreements (10) (a) A security agreement (SA) is the contract in which a debtor grants a creditor a security interest in some or all of the debtor's personal property or fixtures and establishes the obligations and rights between the debtor and the creditor. The SA and financing statement (FS) are separate documents, and the better practice is to use both documents. The following are the necessary provisions that must be in every SA: i) Identification of the parties: Any SA must contain provisions for identifying both the debtor (legal name, not a dba) and the secured party. Mailing addresses are not required in a SA, but should be included. ii) Granting clause: The law requires the use of words which expressly grant a present security interest in the collateral described in the security agreement to secure the obligation secured. iii) Collateral description: The SA must include a description of the collateral. An attachment to the SA which lists th collateral may be used, but it must be referred to in the SA. The collateral may be described in specific or general terms in the SA. A specific description example is "a 1994 Chevy S-10 Pickup with identification 123456FTC890M." General terms are the categories described in Article 9, such as "accounts" and "inventory." Because these category types as defined in Article 9 may be defined differently in Revised Article 9 and may differ among the states, the applicable Article 9 should be consulted to determine their appropriateness. Examine your existing SAs to determine if they describe the collateral in general terms "as defined under Article 9 as it may be amended from time to time" or as defined in "Article 9." This later reference may be interpreted to mean Article 9 as it existed on the date the SA was executed. If so, determine whether this needs to be changed to comply with the new definitions in Revised Article 9. While Revised Article 9 permits the use of the super generic term "all assets" or "all personal property" in the FS, it does not permit their use in the SA. In order for the SA to include collateral obtained by the debtor after signing the SA, a virtual necessity for inventory and accounts, "after acquired" language is added to the SA. Although it is not necessary to include "proceeds" of collateral, i.e. what collateral can become, e.g., normal proceeds of inventory are cash or accounts, it is recommended that "proceeds," and when necessary "accessions" or "replacements," be included with the collateral description. iv) Obligation description: The security interest is granted in collateral to secure a particular obligation of the debtor to the creditor. A standard obligation description is "all present and future indebtedness of the debtor to the creditor." The description can also be more specific, such as repayment of an installment note dated January 1, 2000 in the principal amount of $100,000. v) Signature: The SA must be signed by the debtor. Under Revised Article 9, the SA must be "authenticated" by the debtor which includes both manual signatures as well as other means of assent that are accepted practice, such as facsimile signatures (and arguably, e-mail or electronic signatures.) (b) The following are some other provisions that are included in SAs although they are not required: i) Debtor's warranties, covenants and agreements: The UCC gives the parties great latitude in creating documentation to suit their particular needs, and it does not require the debtor to warrant that it owns the collateral or require the SA contain any specific events of default. However, a typical form SA contains provisions setting out assorted warranties, such as the debtor owns the collateral and gives a comprehensive list of events of default, acceleration clauses and anti-waiver clauses. ii) References to financing statement fundamentals: Normally SAs contain information used to determine the appropriate place to file a financing statement, permit the secured creditor to file financing statements without the debtor's signature, if permitted under the applicable state law, and require the debtor to inform the secured creditor of changes that can change the creditor's secured status or change the appropriate filing place for financing statements a) For example, because FSs under Old Article 9 were filed in the state of the debtor's principal place of business for some collateral, existing SAs contain representations related to the debtor's principal place of business. b) Because FSs on inventory under Old Article 9 were filed where the inventory is located, the debtor makes representations regarding the location of the inventory as well as a promise not to move it without notice to the secured creditor. c) Because Revised Article 9 requires filing in the registered entity debtor's state of organization, a SA under the revision might contain a representation that the debtor is registered or required to register as an entity under the laws of a particular state. (11) Perfection - Financing Statement Contents and Where to File (a) Preliminary Questions - i) First question - What is my debtor (a corporation, an individual?) ii) Second question - Where is my debtor located (as discussed above?) iii) Third question - What is the collateral, and is it the type where the law of the collateral's location is relevant (as discussed above)? (12) The General Rule is perfection by filing (a) Under the New Article 9, just like the Old Article 9, the General Rule calls for perfection by filing in the appropriate office (9.1-310) (b) There are myriad exceptions to the General Rule, however, such that a filing is either unnecessary or ineffective to perfect a security interest. (c) Where to file in particular jurisdiction? See 9.1-501 i) In Indiana, it's the secretary of state's office for just about everything. ii) Fixture filing is still local (recorder's office) iii) Farm filing is still local, but local filing is being phased out and should be completely central (SOS ) within five years. (13) Contents of the Financing Statement (a) The major difference in the form of the FS under Article 9 and Revised Article 9 is that under Revised Article 9 no signatures are required on FSs. The debtor must, however, authorize the filing in an authenticated document. The best practice is to grant authority to the secured creditor to file any and all necessary FSs in the SA. "Authenticate" is a new term that includes the debtor's signature as well as any other means used by the debtor to accept the particular contract. This includes fax signatures. While getting the debtor to physically sign the SA will remain the better procedure, certainly fax signatures or other electronic means of signing can be used if necessary. (b) Oral authentication is not acceptable because of the difficulty of proving it in court. d. Procedure. (1) If you are going to take security interests in debtor's assets you should have an established procedure. All personnel involved in the steps of obtaining the SA and FSs and filing the FSs should be aware of the applicable procedures and the reasons behind the procedures. (2) Because Revised Article 9 and its transition rules are new and may require both changes in existing procedures and changes to existing secured transactions, now is the time to become familiar with Revised Article 9 so any necessary changes occur now. V. FEDERAL REGULATION OF CREDIT TRANSACTIONS A. Regulation B. 1. Regulation B is the implementing regulation of the federal Equal Credit Opportunity Act. The purpose of the regulation is to promote the availability of credit to all credit-worthy applicants without regard to race, color, religion, national origin, sex, marital status, age, that all or part of the applicant's income is derived from public assistance programs, or that the applicant has in good faith exercised any right under the Consumer Credit Protection Act (includes Truth in Lending, Fair Credit Billing, Fair Credit Reporting, Consumer Leasing, Fair Debt Collection Practices and the Equal Credit Opportunity Acts). 2. A creditor shall not discriminate against an applicant on a prohibited basis regarding any aspect of a credit transaction. Treating applicants differently on a prohibited basis is unlawful if the creditor lacks a legitimate nondiscriminatory reason for its action, or if the asserted reason is found to be a pretext for discrimination. 3. Application under the act means an oral or written request for an extension of credit that is made in accordance with procedures established by a creditor for the type of credit requested. 4. Except as permitted, a creditor may not request any information concerning the spouse or former spouse of the applicant. Permissible applications include the following: a. The spouse will be permitted to use the account. b. The spouse will be contractually liable on the account. c. The applicant is relying on the spouse's income as the basis for repayment. d. The applicant resides in a community property state or property which the applicant is relying as a basis for repayment of the credit requested is located in such a state. e. The applicant is relying on alimony, child support or separate maintenance from his spouse or former spouse as the basis for repayment of the credit requested. 5. Regulation B also applies when the creditor takes adverse action with respect to a business customer. Adverse actions include: a. Refusal to grant credit to the business customer in substantially the amount or terms requested. b. Termination of the credit of an existing business customer or unfavorably changing the terms of the account, and the termination or change does not affect all or a substantial portion of the creditor's similar accounts. c. Refusal to increase the credit limit when requested. 6. With respect to applications for trade credit or for business credit [trade credit is defined as being limited to the financing arrangement that involves a buyer and a seller - such as a supplier who finances the sale of equipment, supplies or inventory] from a business with gross revenues in excess of one million dollars in its previous fiscal year, the creditor shall: a. Notify the applicant orally or in writing within a reasonable time of the adverse action taken. Thirty days is probably "reasonable time." b. Provide a written statement of the reasons for an adverse action and the ECOA Notice if the applicant makes a written request for the reasons within sixty days of being notified of the adverse action. The ECOA Notice is as follows: The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant's income derives from any public assistance program or because the applicant has in good faith exercised any rights under the Consumer Credit Protection Act. The federal agency that administers compliance with the law concerning this creditor is [consult appendix A to Regulation B for the name and address of the appropriate agency to insert here.]. 7. Acceptable reasons for Denying Credit include: a. Insufficient credit references. b. Unable to verify credit references. c. Value of collateral insufficient. d. Type of collateral insufficient. e. Lack of established earnings record. f. Slow or past due in trade or loan payments. 8. Record Retention for trade credit or for business credit from a business with gross revenues in excess of one million dollars in its previous fiscal year is as follows: a. A Creditor is required to retain the initial credit application for a period of 60 days and to have the records available in the event the credit applicant seeks the reason for credit denial. b. In the event the credit applicant does request and is sent a written specific reason for denial, creditor must retain those records for 12 months. 9. Credit Application "No-Nos": a. In the initial credit application to be filled out by the credit applicant, questions with respect to sex, marital status, race, color, religion, national origin or age should be omitted. Although creditor cannot generally request the marital status of a credit applicant, in the event the credit applicant lives in a community property state, and the applicant is relying on community property to establish its credit worthiness, creditor can inquire about the marital status. b. In the event a credit applicant relies upon property owned in part by others to satisfy the requirements for issuance of credit, creditor can inquire regarding the ownership rights in, or the name of any co-owner of the property. For example, if a corporation is applying for credit but relying upon assets held by its sole owner, director, or officer, creditor can inquire into the ownership rights of that individual in the property upon which granting the credit is based. c. Commercial loan applicants whose business annual gross revenues are less than $1 million must be given advance notice of their right to a written statement of the reason for denial of credit. The notice can be oral if the credit application is made by phone. In all other cases the notice must be in writing on a form retained by the commercial loan applicant (i.e. it can be part of the loan application only if the applicant retains a copy after completing the application). This advance notice does not have to be given by trade creditors including factors. d. Do not automatically require one spouse to guaranty debts of entities owned by the other spouse. A guaranty should only be required if the financial information supplied does not qualify the entity for credit based on the assets of the entity and the assets of the owners. e. The statutory penalty for violation of the Equal Credit Opportunity Act includes actual and punitive damages, costs and attorney fees. There is a cap placed on punitive damages of $10,000 in a lawsuit brought by an individual and $500,000 or 1% of the creditor's net worth in a class action suit. 10. Fair Credit Reporting Act 1. The Federal Trade Commission has recently stated that in accordance with the Fair Credit Reporting Act, a consumer credit report may not be used for any purposes, nor may be obtained for any purpose, even a business transaction, without the prior written consent of the consumer. 2. The language of the Federal Trade Commission letter is unequivocal and the Fair Trade Commission's view supports the letter's conclusion. Therefore, you should review carefully policies and procedures with your credit departments to make certain that in connection with the extension or continuation of credit to a sole proprietorship or when seeking a personal guaranty in a business transaction, that written permission is obtained from the consumer before using or obtaining the consumer report. We suggest that your credit applications have the following language: "Having obtained all necessary authority, the Applicant (the undersigned) authorizes Creditor and its agents, attorneys and employees to investigate the credit standing, financial circumstances and responsibility of Applicant (Buyer) and all owners, partners and officers listed on this application, and authorizes and instructs all persons having information concerning Applicant's credit standing, financial circumstances and responsibility to release such information to Creditor, its agents, attorneys or employees. This includes, without limitation, authorization for Creditor and its agents, attorneys and employees to request, obtain and use for all purposes which Creditor deems necessary, a copy of any credit bureau or consumer credit report for the entities/persons listed herein at any time." As to personal guaranties, you may use the following language: "Guarantor and Co-Guarantor, if applicable, authorizes Creditor to investigate Guarantor's and Co-Guarantor's personal credit standing, financial circumstances and responsibility and authorizes and instructs all persons having information concerning Guarantor's or Co-Guarantor's credit standing, financial circumstances and responsibility to release such information to Creditor, its agents, attorneys or employees. This includes, without limitation, authorization for Creditor and its agents, attorneys and employees to request, obtain, and use for all purposes which Creditor deems necessary, a copy of any credit bureau or consumer credit report for the Guarantor and Co-Guarantor at any time." |
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