The Statutory Requirements For A Personal Guarantee: Don’t Compromise Your Business’ Rights To Enforce

What are the statutory requirements for a valid and enforceable personal guarantee to answer for the debt of another? Independence Park, Inc. v. Christy’s of Cape Cod, LLC, et al., a recent Massachusetts Court of Appeals case reiterates the legal requirements for a valid personal guarantee.

In Independence Park, Inc. v. Christy’s of Cape Cod, LLC, the Plaintiff brought a civil action to enforce an alleged personal guarantee of a loan by an individual, Christy Mihos. On October 20, 2006, Christy’s executed a promissory note in which it borrowed $925,000 from Independence, secured by a mortgage. Christy’s agreed to make payments on the loan for eleven months, with a final installment payment to be made on October 20, 2007. Christy’s failed to make such payments, and on October 20, 2007, the loan went into default. The Plaintiff Independent alleged that in a letter dated January 19, 2009, the Defendant Christy Mihos wrote to the president of the Plaintiff Independence attempting to refinance the loan. In the one-page letter, Defendant Mihos offered to pay a portion of the loan by January 27, 2009, with subsequent payments made every six months until full payment was made. Notably, Defendant Mihos added that “[t]he mortgage will be personally guaranteed of course.” The letter was signed: “Warmest personal regards, Christy.” Independent took no official action on the letter. In a demand letter dated January 24, 2011, Independence sought from Christy’s full payment on the loan. On June 21, 2011, Independence filed a complaint seeking money damages and equitable relief. Independence obtained judgment against Christy’s and subsequently moved for summary judgment against Defendant Mihos as a personal guarantor of the loan based on the letter dated January 19, 2009 which contained the statement by Defendant Mihos “[t]he mortgage will be personally guaranteed of course.”

In court, Independence argued that the January 19, 2009, letter proposing the refinancing arrangement satisfied the Statute of Frauds, G. L. c. 259, § 1, as to Mihos’s personal guaranty of the loan to Christy’s, and therefore Independence was entitled to summary judgment against Mihos as a matter of law. In response, Mihos filed an opposition and a cross motion for summary judgment, arguing that the letter was insufficient to satisfy the Statute of Frauds. The judge granted summary judgment to Independent finding that the January 19, 2009 letter satisfied the Statute of Frauds, reasoning that it was in writing, and signed by the person to be charged.

On Appeal, the Appeals Court held that summary judgment should not have entered as the record is insufficient to conclude that the letter in dispute was an enforceable guaranty of the loan that was offered by Defendant Mihos personally and accepted by Independence. The Appeals Court remanded the case to the trial court for a trial on the issue.

This case is a reminder to businesses and individuals looking to enforce a personal guarantee that the guarantee must satisfy the Massachusetts Statute of Frauds. The Statute of Frauds requires that the promise to answer for the debt, default or misdoings of another must be in writing and signed by the party to be charged with the guarantee. The only exception to this is where the guarantor receives something from the promisee for his own benefit. Significantly, the guarantee should not only be in writing, but should clearly and concisely define all of the terms of the guarantee. The creditor should unequivocally illustrate acceptance of the guarantee in writing. These proactive steps may save a creditor costly and unnecessary legal fees for a trial if the need arises to enforce the guarantee.

Contact Attorney Mucci if you have questions about drafting a personal guarantee or need a proven litigator to assist in enforcing a personal guarantee.