Summary of a Recent
Judicial
Development in
Finance & Credit
Guarantor of Original Loan is Liable for Subsequent Unpaid Loans
under a Continuing Loan Guaranty Agreement
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In Rabo AgServices, Inc. v. Dallas Collins Farm Partnership, No. 07-1547, 2009 WL 139496 (Iowa Ct. App. Jan. 22, 2009), the Iowa Court of Appeals held that a guarantor of a loan was liable for unpaid amounts from a subsequent loan even if he did not sign the second loan documents, because the original guaranty agreement he signed was a continuing guaranty that was not restricted to any particular time or amount.
Background
Szigeti, Greenberg, and Collins decided to start their own business and borrowed money from Rabo AgServices (Rabo) to construct a cold-storage facility and engage in potato farming in March 2002. Id. at *1. Each signed a "Master Promissory Note" for $500,000 and a document titled "Unlimited Guaranty," which listed Dallas Collins Farm Partnership as the debtor. Id. In October 2002, after the original loan was paid in full, Collins borrowed another $500,000 from Rabo and signed a new "Master Promissory Note" and "Unlimited Guaranty," which also showed Szigeti's signature. Id. Szigeti testified that he did not sign any documents other than the original promissory note and guaranty, and there was evidence that Collins had signed Szigeti's name on the new documents. Id. After the later promissory note went into default, Rabo sought to enforce its agreement and obtained a judgment against all three men. Id. The district court found that the men had formed a partnership, and held that Szigeti was personally liable under the "Unlimited Guaranty" agreement. Id. Szigeti appealed. Id.
Arguments
Szigeti argued that the court erred in finding that his original obligations as guarantor of the first loan extended to the second loan because his obligations had terminated once the original loan was paid, and that because the borrowers had not formed a partnership, he was not responsible for the debt as a partner. Id. at *2.
Analysis and Holdings
The court found that Szigeti's obligations had carried over to the second loan because the language of the "Unlimited Guaranty" constituted a continuing, rather than a restricted, guarantee; it provided that the signators would guarantee payment of any loans "now or hereafter existing, or due or to become due" and stated that it was a "continuing guaranty" that was "not limited to any particular period of time." Id. at *4. The court further held that "Szigeti's liability under the March 2002 guaranty [was] unaffected by whether or not he was a partner with Collins and Greenberg at the time he signed the guaranty, or whether or not he signed the October 2002 documents," and therefore it affirmed the judgment of the district court. Id. at *4-5.
The case was decided on January 22, 2009.