What Is The Effect Of Including A Termination Date In A Guaranty (Per KRS 371.065)?

One way a guaranty can be enforceable under KRS 371.065 is for the guaranty to include a maximum aggregate liability term and a termination date. But what is the effect of including such a termination date? Does the passing of the termination date completely absolve the guarantor of liability under the guaranty? The statute addresses this in Section (1):

Termination of the guaranty on that date [the termination date] shall not affect the liability of the guarantor with respect to:

(a) Obligations created or incurred prior to the date; or

(b) Extensions of renewals of, interest accruing on, or fees, costs or expenses incurred with respect to, the obligations on or after the date.

The statute provides that, even after the passing of the stated termination date, the guarantor continues to be liable for obligations that are created or incurred prior to the termination date. Further, subsection (b) provides that extensions or renewals of the obligations and interest, fees, and costs for the obligations on or after the termination date are also enforceable against the guarantor.

Thus, including a termination date gives the guarantor notice of the date on and after which any new obligations are not included under the guaranty. For example, if the termination date is December 1, a debt incurred on November 30 should be covered under the guaranty (including any interest and costs accruing on or after December 1). But a new debt incurred after December 1 should not be covered by the statute.

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