Legal Question in Business Law in California

Re: Corp suing Corp w/guarantor small claims

While it would probably behoove you to have an attorney on retainer to help you with such situations, this doesn't really answer your question.

If I get you correctly, you are wondering if you should: 1) sue the corporation and then sue the guarantor for the remaining money (since the total is more then the smail claims limit), 2) attach him to the original suit, knowing that 5,000 is the most you can recieve.

While it would probably behoove you to have an attorney on retainer to help you with such situations, this doesn't really answer your question. Further, if you remove to civil court, and do not get reimbursed for attorney�s fees, you will most likely receive little more (if at all) then you would receive through small claims.

If I get you correctly, you are wondering if you should: 1) sue the corporation and then sue the guarantor for the remaining money (since the total is more then the small claims limit), 2) attach him to the original suit, knowing that 5,000 is the most you can receive.

What you need to realize is that a claim in small claims court is a claim, regardless of how many defendants are responsible for "paying" the claim. Meaning that it won't do you any good to try to get more then the maximum by suing each individually, the court will see both actions as part of the same claim (especially in this situation). Don't interpret this as legal advice since I don't know all of the facts involved.... but most likely your best bet is to sue the corporation and attach the president as a defendant. This will allow the same action to give you the right to collect from either the President or the Corporation. Since you are most likely unable to receive amounts in excess of the limit anyways, this will save you time, effort and expense. Furthermore, the President will most likely be an indispensable party in the suit, so they need to be present anyways.

Re: Corp suing Corp w/guarantor small claims

While economics may dictate that you limit yourself to a small claims action (since the cost of hiring an attorney to collect an $8,000 debt would eat up more than the difference between the $8,000 and the small claims jurisdiction, unless your contract had a provision allowing you to recover attorneys' fees, you should bring both parties into the same action. The guarantor is jointly and severally liable with your corporate customer, and your corporate customer's debt will be replaced by the judgment. Thus, if you collect the full $5,000 from the customer, the guarantor will be exonerated. If you collect the $2,500 from the guarantor, the customer will claim credit against its $5,000 for that collection. By bringing them both in, you get all you can in small claims court, and save yourself the time, trouble, and costs of having to go to court twice.

You should have an attorney review your contract forms to make sure they are protecting you fully in the future.

Re: Corp suing Corp w/guarantor small claims

The better question is, why didn't you hire an attorney to write a standard contract that provides for your attorney fees, interest, and costs of collection? Why don't you find out for sure whether you can sue a guarantor for more than $2500? I haven't researched this, but what's the point of a personal guarantee if all you can sue for is $2500? I would drop the small claims case and file a limited civil case for $8000 naming both the corporation and the individual. One advantage of doing it this way is, you could get 100% of what's owed, plus the corporation will have to hire an attorney to defend it. On the other hand, your corporation will have to hire an attorney. Maybe it's more economical to stay in small claims court, but you should at least get to know a lawyer -- you hope to grow your business and you will have larger transactions, right? -- and get authoritative answers to your questions.

Re: Corp suing Corp w/guarantor small claims

You need a lawyer to help you avoid these types of messes. Our CA member firm can do that for you.