SW Legal studies in Business

Debt Guarantee Must Comply with Statute of Frauds to Be Enforceable
Description

Appeals court held that a personal guarantee of a debt was not enforceable because it did not comply with the statute of frauds. The alleged guarantee was a separate sheet of paper and did not identify all key parties to the debt or the sum involved. It could not be corrected by parol evidence.

Topic Contracts
Key Words

Statute of Frauds; Debt; Guarantee; Parol evidence

C A S E   S U M M A R Y
Facts

Pamela Dabbs worked for Key Equipment. Her boss asked her to sign a preprinted lease agreement (#1) of equipment for 51 months at $2,473. Key executed a second, identical, lease (#2) the same day for the same equipment, identifying Key as the owner, but obligating Dabbs’ boss as liable for 51 monthly payments of the same amount. Ten days later, Key executed a third, identical, lease (#3) of the same equipment, listing CIT as the owner and obligating Key to make 51 monthly payments of the same amount. The guarantee agreements in the leases were not signed. After the leases were signed, Key gave Dabbs a copy of the guarantee clause in the three leases. They were then signed by Dabbs, her boss, and another employee. Two years later, the boss quit making payments (#2 lease), so Key demanded Dabbs make good on the guarantee. She refused, so Key sued. The trial court held for Key, ordering Dabbs to make the payments. She appealed.

Decision

Reversed. The statute of frauds requires that a promise to pay another’s debt, to be binding on the promisor, must be in writing and be signed by the party to be charged for the debt. The guarantee must identify the debt, the principal debtor, the promisor, and the promise. Here, the supposed guarantee forms were not incorporated into the leases; they were separate sheets of paper with a guarantee statement alone that left off many of the terms of the debts involved in the lease. Parol evidence is not admissible to supply any missing essential elements of a contract that are required to be in writing by the statute of frauds.

Citation Dabbs v. Key Equipment Finance, ---S.E.2d--- (2010 WL 1346812, Ct. App., Ga., 2010)

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