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Pre-divorce Guarantee of Loans Applies to Post-divorce Loans Based On Language in WBA Continuing Guaranty Form

In a recent case before the Wisconsin Court of Appeals, language in the WBA continuing guaranty (unlimited) form helped the Bank obtain a court victory against a guarantor.  In this case, Daniel, the guarantor, signed a WBA 151 Continuing Guaranty (Unlimited) in December, 2005, to guarantee the Bank’s loans to Carol, who was married to Daniel at the time.  Carol and Daniel later divorced in July, 2010, and Carol subsequently remarried.  After the divorce and remarriage, Carol continued to execute promissory notes to the Bank.  Carol defaulted on a note and the Bank enforced the guaranty against Daniel.  Daniel disputed the enforceability of the guaranty.  The Court of Appeals nevertheless determined the guaranty was enforceable against Daniel.  So what legal arguments were made by the guarantor and what language in the WBA continuing guaranty form helped the Bank win this case? 

The case is Bank Mutual, Plaintiff-Respondent, v. Daniel Bohringer and Sammy’s Taste of Chicago, Inc., Defendants-Appellants (Court of Appeals No. 2015AP2357, decided May 17, 2017).  In this case, Daniel unsuccessfully made several legal arguments in his attempt to diminish the enforceability of the guaranty against him. 

  1. Daniel argued that his guaranty was not enforceable because Carol became a
    “different legal entity” after Carol and Daniel were divorced and Carol remarried and it was not his intent, he said, to guarantee her loans following the divorce. The Court did not accept this argument, stating “there is nothing ambiguous about the guaranty’s language.”  The WBA continuing guaranty states that it “shall continue in full force and effect notwithstanding any change in structure or status of Debtor, whether by a merger, consolidation, reorganization or otherwise.”  The WBA continuing guaranty also instructs the guarantor “you are being asked to guarantee the past, present and future obligations of Debtor (Carol in this case).  If the Debtor does not pay, you will have to.”  The WBA continuing guaranty further states that it is “a complete and exclusive statement of its terms” and “intended [by the parties] as a final expression of this Guaranty.”  According to the Court, based on this language in the WBA continuing guaranty, the fact that Carol was Daniel’s wife at the time he signed the guaranty and that her status subsequently changed does not relieve Daniel of his obligations to the Bank under the guaranty. 
  2. Daniel also argued that the Bank waived its right to enforce the guaranty against him when it did not enforce the guaranty before he and Carol were divorced. The Court concluded this argument “is at odds with the unambiguous language of the guaranty” which states that the Bank may, without notice to the guarantor, determine when it will “realize upon any of the Obligations or to proceed against any Debtor or any guarantor or surety”.  In addition, based on language in the WBA continuing guaranty, Daniel waived “under the guaranty all other legal and equitable surety defenses.”  This language in the WBA continuing guaranty helped persuade the Court not to agree with this argument by Daniel. 
  3. Finally, Daniel argued that the transactions between Carol and the Bank implicated the Bank’s duty of good faith and fair dealing to him. Like the other arguments made by Daniel, the Court was not persuaded.  According to the Court, “under the guaranty, Bohringer [Daniel] waived notice of future loans to Sherman [Carol], the bank could determine when it would realize on the obligations of either Sherman or Bohringer, and Bohringer guaranteed Sherman’s past, present and future obligations to Bank Mutual.”  The Bank acted in conformity with these provisions of the WBA continuing guaranty and, based on another Wisconsin case, the Court determined it could not see how there can be any breach of good faith and fair dealing by the Bank where the acts of the Bank were specifically authorized in the guaranty.  M&I Marshall & Ilsley Bank v. Schlueter, 258 Wis.2d 865, 655 N.W.2d 521.

The Court concluded Daniel’s guaranty was enforceable.  It should be noted, however, that the Court determined that its decision would not be formally published and therefore may not be cited as precedent in other cases.  Nevertheless, the decision is instructive to banks using continuing guaranty forms and confirms the intent of this long-standing language in the WBA continuing guaranty.

DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.

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