LEGACY COMMUNITIES GROUP INC v. BRANCH BANKING TRUST COMPANY (2012)

This case concerns, among other claims, Branch Banking & Trust Company's claim that the 2008 guarantors¹ are liable under guaranties they executed in 2008, in connection with several loans the bank was contemporaneously making to Tampa Investment Group, Inc. (“Tampa Investment”), for three loans the bank made in 2005 to Legacy Investment Group, LLC (“Legacy Investment”).² See Legacy Communities Group v. Branch Banking & Trust Co., 310 Ga.App. 466, 713 S.E.2d 670 (2011) (“Legacy I ”). In ruling on the parties' cross-motions for partial summary judgment, the trial court determined, inter alia, that the 2008 guaranties were effective under the Statute of Frauds, OCGA § 13–5–30(2), to make the 2008 guarantors liable for the 2005 loans to Legacy Investment. See Legacy I, 310 Ga.App. at 468, 713 S.E.2d 670. The trial court granted the bank's motion for partial summary judgment and denied the 2008 guarantors' motion on this issue, and the 2008 guarantors appealed to this Court. See id. Contrary to the trial court's ruling, we concluded in Division 2 of our opinion in Legacy I that the 2008 guaranties did not identify the pre–2008 notes with the specificity required for a promise to answer for another's debt to be binding on the guarantor under the Statute of Frauds. Id. at 474(2), 713 S.E.2d 670. We concluded, however, that the 2008 guarantors were estopped from asserting a Statute of Frauds defense to the enforcement of the guaranties by the bank's performance of its obligations under the guaranties. Id. at 474–475(2), 713 S.E.2d 670. Accordingly, we affirmed the trial court's order in favor of the bank. Id. at 476(2), 713 S.E.2d 670. Our holding regarding estoppel made it unnecessary to reach the 2008 guarantors' alternative contention that the 2008 guaranties did not sufficiently identify Legacy Investment as the principal debtor on any pre–2008 notes and that, therefore, the guaranties were unenforceable under the Statute of Frauds as to Notes 25, 26, and 23/28. Id. at 476(2), 713 S.E.2d 670.

The Supreme Court of Georgia granted the 2008 guarantors' petition for writ of certiorari, which was docketed as Case No. S11G1729. The Supreme Court determined that we erred in holding that “the 2008 guaranties did not sufficiently identify any pre–2008 notes” to be enforceable against the guarantors under the Statute of Frauds. Tampa Investment Group v. Branch Banking & Trust Co., 290 Ga. 724(2), 723 S.E.2d 674 (2012) (“Tampa ”). Further, the Supreme Court determined that we erred in holding that the 2008 guarantors were estopped from asserting a Statute of Frauds defense to the bank's claims against them on pre–2008 notes. Id. The Supreme Court therefore reversed our judgment in Division 2 of Legacy I, and remanded the case, directing this Court to consider the issue of whether the 2008 guaranties sufficiently identify Legacy Investment as the debtor on Notes 25, 26, and 23/28. Tampa, 290 Ga. at 731(2), 723 S.E.2d 674.³ Accordingly, we vacate Division 2 of our previous opinion, Legacy I, 310 Ga.App. at 471–476(2), 713 S.E.2d 670, and take up that issue now.

As the Supreme Court explained, under the Statute of Frauds and cases applying the Statute, a promise to answer for another's debt is only enforceable against the promisor if it identifies the debt, the principal debtor, the promisor, and the promisee. Tampa, 290 Ga. at 728(2), 723 S.E.2d 674. It is well settled that a guaranty must identify the principal debtor by name. See Builder's Supply Corp. v. Taylor, 164 Ga.App. 127, 128, 296 S.E.2d 417 (1982) (Because “a contract of guaranty ․ [is] required to [be] entirely in writing under the Statute of Frauds[,]” a contract of guaranty that omits the name of the principal debtor “has no validity[,]” and parol evidence is not admissible to prove the identity of the principal debtor, even where the guaranty is manifestly intended to indemnify the promisee from loss and is otherwise complete and unambiguous and where the putative guarantor admits executing the document.) (citations omitted; emphasis supplied).

Where [a] guaranty omits the name of the principal debtor, of the promisee, or of the promisor, the guaranty is unenforceable as a matter of law. Even where the intent of the parties is manifestly obvious, where any of these names is omitted from the document, the agreement is not enforceable because it fails to satisfy the [S]tatute of [F]rauds. Moreover, a court must strictly construe an alleged guaranty contract in favor of the guarantor. The guarantor's liability may not be extended by implication or interpretation. And parol evidence is not admissible to supply any missing essential elements of a contract required to be in writing by our [S]tatute of [F]rauds. Thus, this Court is not authorized to determine the identity of the principal debtor, of the promisee, or of the promisor by inference as this would entail consideration of impermissible parol evidence.

(Citations, punctuation, and footnotes omitted.) Dabbs v. Key Equip. Finance, 303 Ga.App. 570, 572–573, 694 S.E.2d 161 (2010).⁴

In this case, the 2008 guaranties entirely failed to refer to Legacy Investment by name. On the issue of those debts of another, in addition to notes that were being contemporaneously executed by Tampa Investment, for which the 2008 guarantors agreed to answer under the 2008 guaranties, the 2008 guaranties provided, in pertinent part, as follows:

[The] Bank has previously made numerous loans (collectively the “Prior Loan”) to various borrower entities owned (directly or indirectly) or controlled by [the 2008 guarantors]. Such borrower entities (individually “Borrower” and collectively “Borrowers”) include those entities whose names are set forth on Exhibit “A” attached hereto and made a part hereof, but shall also include other entities whose names are not on Exhibit “A”, and for purposes of this Guaranty Agreement, which are owned or controlled (directly or indirectly by [the 2008 guarantors] (“controlled” as used herein meaning direct or indirect ownership of more than 50% of the ownership interests of such entity) and which, as of the date hereof, have outstanding indebtedness or other obligations or liability under the Prior Loan owed to [the] Bank.

Although Tampa Investment was listed in the attached Exhibit A, Legacy Investment was not. It is undisputed that, when the 2008 guarantors executed the guaranties, one of them, Legacy Communities, owned or controlled Legacy Investment, directly or indirectly, and that, at that time, Legacy Investment had outstanding indebtedness or other obligations or liability under notes owed to the bank, that is, Notes 25, 26, and 23/28. See Legacy I, 310 Ga.App. at 475(2), n. 21, 713 S.E.2d 670. One can infer that Legacy Investment was one of the unnamed borrower entities so described, however, only by considering evidence extrinsic to the 2008 guaranties, such as the deposition testimony of Stephen R. Been and Stephen F. Been, the two individuals who were Legacy Communities' officers and only shareholders. Such parol evidence is not admissible to supply the name of the principal debtor under Builder's Supply Corp. v. Taylor and its progeny cited above.⁵ Because the 2008 guaranties omitted the name of Legacy Investment, the guaranties are unenforceable against the guarantors for any preexisting debt of Legacy Investment because they fail to satisfy the Statute of Frauds to that extent.⁶

We recognize that this ruling may fail to effectuate the parties' actual intent in executing the 2008 guaranties and may, therefore, represent a windfall to the 2008 guarantors.⁷ We are bound, however, by the longstanding bright-line rule that a guaranty that omits the name of the principal debtor is unenforceable as a matter of law and by the Supreme Court's direction that, “if [the] Court [of Appeals] determines that the 2008 guaranties do not fully satisfy the Statute of Frauds with respect to the 2005 notes executed by [Legacy Investment],” which we have done, we “should not again apply the ‘part performance’ exception to the Statute of Frauds.” Tampa, 290 Ga. at 729(2), 723 S.E.2d 674. For the reasons explained herein, the 2008 guarantors are entitled to judgment as a matter of law with regard to the bank's claims against them for the satisfaction of Notes 25, 26, and 23/28, and the trial court's order granting the bank's motion for partial summary on judgment on this issue must be reversed in this respect.

Judgment affirmed in part and reversed in part, and case remanded.

ELLINGTON, Chief Judge.

DOYLE, P.J., and MILLER, J., concur.