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Text Box: The case above is cited as Cumberland Bank v. G & S Implement Co., Inc., No. M204-02650-COA-R3-CV, 2006 Tenn. App. LEXIS 528. Bank’s Waiver of Claims Against Borrower Does Not Relieve Guarantor’s Liability For Debt The Michigan Court of Appeals recently ruled that a lender’s waiver of claims against a borrower does not relieve the liability of personal guarantors for the remaining amount of debt owed under the borrower’s loan. Charter One Bank N.A. made loans to ELO LLC and OSB Inc. The business owners, Edwin Osbourn and James Osbourn, personally guaranteed the repayment of the loans. The borrowers defaulted on the promissory notes and subsequently became insolvent. Upon default, Charter One sued the borrowers and, in settling the suit, agreed to release the borrowers from further liability in exchange for their remaining assets. After receiving the borrowers’ assets, Charter One sued on the Osbourns’ guaranty for the remainder of the outstanding debt. At trial, the Osbourns argued that the agreement with the borrower applied to their own continued personal liability for the debt as well as the liability of the borrowers and presented an affidavit from the borrowers’ attorney stating that Charter One intended to waive all future claims against the businesses. On that basis, the trial court ruled that the waiver applied to the Osbourns. On appeal, the Court ruled that the stipulation did not apply to Charter One’s claims against the Osbourns because Charter One did not pursue its rights against the Osbourns in the underlying case. The Court noted, “[T]here is nothing in the agreement or subsequent order…to suggest that [the owners], individually, were parties to the proceedings.” While the Court ruled the affidavit by the borrowers’ attorney was admissible to show that a potential ambiguity existed and to clarify the meaning of the agreement, the Court observed that the affidavit merely showed that Charter One intended to waive its claims against the borrowers’ entire estate. Accordingly, the Court concluded that Charter One did not waive its claims against the Osbourns by joining the stipulation. This case highlights the importance of drafting clear and unambiguous waivers setting forth which parties are being released and which parties remain liable for the debt. This case is cited as Charter One Bank, N.A. v. Osbourn, et al., No. 260497 (Mich. Ct. App. 08/10/06, unpublished). Change of Business Form Extinguishes Guarantor’s Obligations An Arkansas court has determined that a guarantor is not liable for the debt of a partnership consisting of a former sole proprietor after the initial debt has been paid. In this case, Helena Chemical Company extended Jerry Caery, Jr. credit for farming supplies in 1988. His father signed an unconditional guaranty for Caery’s credit, together with any of Caery’s future indebtedness, The guaranty also indicated that it would remain in effect until revoked by the father in writing. In subsequent years, Helena continued to provide Caery with various amounts of credit, including $40,000 in 1995. In 1996, Caery formed a partnership named JLC Farms. In 1998, Caery received credit from Helena in the amount of $250,000, but Helena used the original individual credit application with Caery dating back to 1995. Caery subsequently defaulted on the loan, and in 1999 Helena filed a suit against both Caery and his father for the credit extended to JLC, which was eventually dismissed in January 2000. In February, 2002, Helena filed another suit for the remaining outstanding balance of $167,000, alleging that Caery and his father were jointly and severally liable. The father admitted to signing the continuing guaranty, but claimed he was not liable for