SW Legal studies in Business

Waivers of Contribution by Co-Guarantors of Loans May Be Valid
Description Alabama high court held that unless there was evidence that co-guarantors of a loan, which had to be paid by the guarantors, had an agreement of joint contribution, then the waiver of rights to joint contribution in the loan documents they signed would be binding and the guarantors who contributed nothing could not be liable for contribution.
Topic Negotiable Instruments and Credit
Key Words Loan; Guaranty; Default; Contribution
C A S E   S U M M A R Y
Facts Harris, Lovell and Shelton were co-guarantors of several loans owed by the Milling Company, a restaurant, to First Commercial Bank. The loan guaranty agreements contained a clause waiving each guarantor's rights to contribution. After Milling defaulted on the loans, Harris and Lovell (Harris) paid the total amount due, which discharged the obligation. Shelton contributed nothing. Harris then sued Shelton for contribution on the loan. The trial court dismissed the suit. Harris appealed.
Decision

Remanded. While it is unclear on the evidence presented, if the language of separate guaranty agreements contains express waivers of each guarantor's right to contribution, the waiver is enforceable by one guarantor against another so long as all guaranty agreements can be read together as a single, integrated contract. If, as Harris claims, there was an oral agreement among the guarantors that they would all be responsible, and it can be shown that the parties did not intend the separate guaranty agreements to replace their oral understanding, then all parties are liable for contribution. The trial court must determine the facts are on that matter.

Citation Ex parte Harris, --- So.2d --- (2002 WL 227941, Sup. Ct., Ala., 2002)

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