Guarantor Escapes Liability Due to Clerical Error

On November 1, 2011 the Georgia Court of Appeals issued an opinion that essentially allowed a guarantor to escape liability under a written guaranty simply because the guaranty form was not correctly filled out. 

The debtor was a corporation that conducted its business under a trade name. However, in the guaranty form the corporation’s name was nowhere to be found. Instead, the debtor was identified in the guaranty form merely by the corporation’s trade name. When the creditor sued the guarantor on the guaranty, the guarantor defended on the ground that it was not liable because a fictitious company was identified in the guaranty. In turn, the creditor argued that the guarantor was liable under the guaranty because the guarantor promised to pay the debts of the corporation when he signed the guaranty because the trade name was not a legal entity but was merely a trade name descriptive of the corporation. The Court of Appeals held that due to this defect in preparing the guaranty, the guarantor was not liable under the guaranty.

The moral of the story of course is always to take care when preparing legal documents, especially when someone is promising to repay a debt owed to you.