Recent Developments Regarding Personal Guarantees

By: James C. Busch

On May 27, 1994, the Georgia Court of Appeals rendered a decision regarding personal guarantees in the case styled Charles S. Martin Distributing Co., Inc. v. Bernhardt Furniture Co., A94A0717.

Bernhardt Furniture Co. (“Bernhardt”) sold furniture on open account to Charles S. Martin Distributing Co., Inc. (“CSM”). The open account became past due and Bernhardt filed suit against CSM and William Martin as personal guarantor. The trial court granted Bernhardt’s Motion for Summary Judgment and CSM and Martin appealed.

Martin contended that the trial court erred in its ruling because he had not signed the personal guarantee. The court records revealed a single page document entitled “Personal Guarantee”. No signatures appear on that page but the last line of the document stated “The guarantor hereby claims the benefit of all Homestead Exemption laws. See addendum attached hereto”. Attached to the personal guarantee is a document labeled “Addendum to Personal Guarantee”. The addendum provided that “By accepting this Guaranty of Individual, Bernhardt Furniture Company will evidence its agreement that if Bernhardt Furniture Company should ever obtain judgment on the obligations evidenced by this Agreement, Bernhardt Furniture Company will not initiate levy and execution on the residence of the undersigned and the contents therein at 1984 River Forest Road, Atlanta, Georgia as part of its efforts to obtain satisfaction of its judgment”.

Martin admits he signed this addendum, but claims he does not recall seeing the guarantee until after signing the addendum because the papers were not attached to each other.

In the State of Georgia, the Statute of Frauds requires that a promise to answer for the debt of another be in writing and signed by the party making the promise of payment. However, the Statute of Frauds does not require that all the terms of the contract should be agreed to or written down at one and the same time, nor on one piece of paper; but where the memorandum or the bargain is found on separate pieces of paper, and where these papers contain the whole bargain, they form together such a memorandum as will satisfy the statute, provided the contents of the signed paper make such references to the other written paper as to enable the court to construe the whole of them together as containing all the terms of the bargain, Industrial Welding v. CIT Corp, 157 Ga.App. 611 (1981).

The papers Martin signed referenced the personal guarantee and the guarantee referenced the attached addendum. The trial court was, therefore, able to construe the papers together as containing all the terms of the personal guarantee. Beckworth v. Beckworth, 255 Ga.App. 241 (1985).

Martin could not avoid those terms by claiming that he failed to see the entire document he signed. “There are few rules of law more fundamental than that which requires a party to read what he signs and to be bound thereby. It is well established that a party who can read must read, or show a legal excuse for not doing so, such as an emergency which excused the failure to read; or fraud by the other party not merely as to what is in the document, but by some trick or devise which actually prevented him from reading it.” Fincher v. Dempsey, 209 Ga.App. 222 (1993).

It its ruling in Bernhardt, the Georgia Court of Appeals confirmed and clarified its position regarding requirements for personal guarantees and the parties to a personal guarantee’s respective obligations.

Certainly, Bernhardt indicates the need to carefully prepare and execute documents. If the personal guarantee and addendum had both been executed by Martin, this case never would have been appealed and thereby caused unnecessary legal expense and loss of time.

When obtaining personal guarantees, it is critical that the language be proper and complete, that all guaranteeing parties execute, that all blanks be completed, that no corporate titles be listed after signatures, and that the guarantee be dated. If all personal guarantees follow the above guidelines, very few personal guarantees will be challenged and less time will be spent collecting on the personal guarantee. It is very important that those preparing personal guarantees not provide defenses to the personal guarantee by poorly or incompletely preparing or allowing the personal guarantee to be improperly executed.

Mr. Busch is an attorney specializing in commercial and construction litigation for Busch, Reed, Jones & Leeper, P.C. in Marietta, Georgia