Case Study

AT ISSUE/SUMMARY: Carolina First Bank made a business loan to South Carolina-based women’s clothing manufacturer Stark Inc., which produced clothing under the Dylan Crews label. The company’s president, Marcel Stark, signed as the guarantor for the loan when it began in 1997.

However, after Stark Inc. went bankrupt and defaulted on the loan, Marcel Stark claimed he was not liable on his guaranty. He argued, in essence, that "Stark Inc." and "Stark Inc. d/b/a/ Dylan Crews" were two separate business entities and that he was not personally liable for the debts of the former.

A North Carolina Superior Court ruled that Stark Inc. was liable for the loan, but refused to enforce the guaranty against Marcel Stark.

This was significant because the company no longer had any assets, meaning that if Carolina First was to recover any of its loan, that money would have to come from the guarantor. Womble Carlyle attorneys Mark Henriques and Sarah Motley appealed the Superior Court decision. The appeal—Carolina First Bank v. Stark, Inc., 660 S.E.2d 641, (N.C.App.,2008)—was heard in 2008.

RESULT: The bank argued that "Stark Inc." and "Stark Inc. d/b/a/ Dylan Crews" were the same entity, meaning that Mr. Stark’s guaranty applied to the debt regardless of the company’s operating name at any given time.

The North Carolina Court of Appeals agreed with Carolina First Bank and reversed the lower court’s decision. The Appeals Court found that Mr. Stark had failed to meet his burden of proving that the guaranty did not extend to the future debt incurred over the four-year span of the loans. The Court of Appeals remanded the case to the district court, which entered judgment against Mr. Stark for $635,000.

ABOUT THE ATTORNEYS: Mark Henriques and Sarah Motley are members of Womble Carlyle’s Consumer Finance Team. They have extensive expertise in helping financial institutions resolve disputes with consumers, as plaintiff or defendant.

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