Contract Law - Personal Guaranty Enforced in Illinois

The case is a routine collection case for $5,000.  The legal issue is important: the enforceability of a personal guaranty.

TH Davidson and Company v. Eidola Concrete, LLC and Thomas E. Kilbride, 2012 Il App (3d) 110641.

The case originated in small claims court.  Plaintiff sought to recover on a line of credit for $5,600.80.  The trial court entered judgement in that amount against Plaintiff, and against Kilbride, who signed a personal guaranty.

Kilbride appealed on the ground that his guaranty was limited to $1,000.  He based this argument on the original credit application, which he signed as a personal guarantor.  The original credit application was for $1,000.  Later, the parties, through a course of dealing, increased the credit limit to $5,600.

The trial court and the appellate court found that the guaranty was a continuing guaranty.  The opinion at Paragraph 11 quotes the Restatement (Third) of Suretyship and Guaranty § 16: "A continuing guaranty is a contract pursuant to which a person agrees to be a secondary obligor for all future obligations fo the principal obligor to the obligee."  Because the parties contemplated a "future course of dealing" the guaranty was for the maximum amount of credit extended.

Kilbride could have also limited the guaranty by inserting express language into the credit application.  He did not.  Therefore, the guaranty was unlimited.

Comment: clients should never sign a continuing guaranty.  Limiting language should always be inserted.  That being said, my experience is that clients sign these documents all the time and do not consider the consequences until it is too late.

Edward X. Clinton, Jr.

www.clintonlaw.net