When debt creeps into the everyday operation of a business or personal affairs, it may come as a relief for businesses and individuals to receive a personal guarantee by another to pay it off. Because of the implications of debt, it is important to know when that guarantee can be enforced. In Part I of our series on the Ohio statute of frauds, we talked about the importance of placing agreements that cannot be executed within a year in writing. Just as the Ohio statute of frauds can make enforcement of such agreements difficult, promises to pay for another’s debt or other obligation may also be unenforceable if such promises aren’t made in writing.
Ohio Revised Code § 1335.05 states that, “No action shall be brought whereby to charge the defendant, upon a special promise, to answer for the debt, default, or miscarriage of another person * * * unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged therewith or some other person thereunto by him or her lawfully authorized.”
This means that a person who promises to pay for the debt of another or act as a guarantor for another’s obligation cannot be held to their promise, unless the promise is made in writing and signed by the person promising to pay the debt.
A recent Franklin County case shows the consequences of not getting personal guarantees in writing.
Lind Stoneworks entered into an agreement to fabricate countertops for Top Surface. Top Surface began to fall behind on payments. Despite alleged promises by Top Surface’s owner Martindale to “take care” of the delinquent accounts, Lind faced an unpaid balance of nearly $100,000.
The Court of Appeals in Franklin County found the agreement between the parties to be an oral agreement, with no evidence of a written contract. The Court also found that Martindale had no personal liability for the statements he made. In this case, application of the Ohio statute of frauds meant that Martindale, as guarantor, was not required to individually pay the $97,043.02 in unpaid accounts.
This case is a clear reminder of the importance of getting personal guarantees in writing to satisfy the statute of frauds. Not getting such promises in writing can result in potentially huge losses for businesses and individuals alike. While there are some exceptions to the statute of frauds, such exceptions can be complicated and are best discussed with a qualified attorney.
Crumpton Law LLC and its attorneys practice small business law in Columbus, Ohio, and throughout the surrounding counties and cities of Franklin County, Delaware County, Union County, Madison County, Pickaway County, Fairfield County, Licking County, Dublin, Powell, Lewis Center, Worthington, Westerville, New Albany, Gahanna, Bexley, Reynoldsburg, Canal Winchester, Grove City, Hilliard and Upper Arlington.