Can A Guaranty Contained In An Amendment To A Credit Agreement Be Enforceable Under Kentucky’s Guaranty Statute?

The Kentucky Court of Appeals recently held in an unpublished opinion that an amendment to a line of credit agreement that contains a personal guaranty can satisfy Kentucky’s guaranty statute, KRS 371.065. The line of credit agreement and the amendment were delivered to the guarantor at the same time, and the amendment expressly incorporated the terms of the credit agreement. Thus, the Court held that this satisfies the statute because the guaranty is “written on”  the instrument guaranteed. In this case, the agreement and amendment constitute one and the same instrument. Center Line Development, LLC v. PNC Bank, N.A., Case No. 2013-CA-000945-MR, 2015 Ky. App. Unpub. LEXIS 392 (Ky. Ct. App. June 5, 2015).

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What Does It Mean For A Guaranty To Be “Written On” The Instrument Guaranteed (Per KRS 371.065)?

Under the first prong of KRS 371.065, a guaranty can be enforceable if it is “written on” the guaranteed instrument or instruments:

“No guaranty of an indebtedness which . . . is not written on . . . the instrument or instruments being guaranteed shall be valid or enforceable . . .”

Perhaps the clearest example of such a guaranty would be one included within the very same document (i.e., instrument) creating the principal obligation being guaranteed. But what if the guaranty is included as an exhibit to the instrument? Are these guarantees written on the instrument or instrument being guaranteed? Some cases do suggest that a guaranty that is included as an attachment or an exhibit to an instrument could satisfy the “written on” requirement. See Wheeler & Clevenger Oil Co. v. Washburn, 127 S.W.3d 609 (Ky. 2004); BP Products. N. Am. Inc. v. McGuirk Oil Co., Case No. 1:10-cv-00089-JHM, 2011 U.S. Dist. LEXIS 58897 (W.D. Ky. June 1, 2011).

In Duckett v. Kubota Tractor Corp., Case No. 5:01CV-228-R, 2002 U.S. Dist. LEXIS 28296 (W.D. Ky. Feb. 1, 2002), the court addressed the issue of whether guaranty agreements included in a 16-page booklet containing an agreement, exhibits to the agreement, and a blanket guaranty, were enforceable. The court suggested that the guaranty agreements there could be considered “written on” the agreement, but ultimately determined that the guaranties were nonetheless unenforceable. The agreements, the court concluded, were not the instruments being guaranteed, as the purchase orders that would be made in the future (pursuant to the agreement) were the subject instruments on which the guaranties should have been written.

Thus, unless a guaranty agreement is included within the guaranteed instrument itself, there is risk that it would not comply with the “written on” prong of the guaranty statute.