Michigan National Bank v. Laskowski
228 Mich. App. 710, 580 N.W.2d 8 (1998)
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Rule of Law:
The discharge of a debtor's obligations in a bankruptcy proceeding does not, by operation of law, discharge the independent contractual liability of a guarantor for that debt, as stated in 11 U.S.C. § 524(e). A guarantor's release must be explicitly stated and be an integral part of the confirmed reorganization plan.
Facts:
- Defendant, the president and sole shareholder of Traditions, Ltd., personally guaranteed the repayment of loans made to the company.
- Plaintiff loaned $350,000 to Traditions, Ltd. for business purposes.
- The promissory note and guarantee agreement signed by Defendant stated that he unconditionally guaranteed 'all indebtedness' of Traditions and that the written documents constituted the entire agreement between the parties.
- Traditions, Ltd. defaulted on its loan repayment obligations.
- Traditions, Ltd. filed for Chapter 11 bankruptcy protection, which was eventually converted to a Chapter 7 proceeding.
- After liquidation of Traditions, Ltd., Plaintiff was only able to collect a portion of the original loan amount, leaving a balance due.
- Defendant refused Plaintiff's demand to pay the remaining obligation under the personal guarantee.
Procedural Posture:
- Plaintiff initiated a lawsuit against Defendant in the trial court, seeking to enforce the personal guarantee for the remaining loan balance.
- Plaintiff filed a motion for summary disposition, arguing that there were no genuine issues of material fact and that it was entitled to judgment as a matter of law.
- The trial court granted Plaintiff's motion for summary disposition.
- Defendant, as the appellant, appealed the trial court's order to the Michigan Court of Appeals (an intermediate appellate court), with Plaintiff as the appellee.
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Issue:
Does a debtor corporation's discharge in bankruptcy, confirmed through a reorganization plan that a creditor approved, extinguish the personal liability of a guarantor for the corporation's debt?
Opinions:
Majority - Gribbs, J.
No. The discharge of a debtor in bankruptcy does not discharge the obligations of a guarantor. Federal bankruptcy law, specifically 11 U.S.C. § 524(e), explicitly states that the discharge of a debtor's debt does not affect the liability of any other entity, such as a guarantor, for that debt. The court reasoned that a bankruptcy court's power is limited to the relationship between the debtor and its creditors; it cannot alter the separate contractual obligation of a guarantor. Although some courts have allowed for a guarantor to be released, such a release must be an explicitly bargained-for and 'integral part' of the reorganization plan. In this case, while the plan had conflicting terms, one article expressly retained the plaintiff's right to pursue the guarantee, and there was no clear intention by the parties to bargain away that right. Furthermore, the court rejected the defendant's attempt to use parol evidence (prior oral conversations) to claim the guarantee did not cover the $350,000 loan, because the written guarantee was unambiguous and contained an integration clause making it the complete agreement.
Analysis:
This decision reinforces the durable nature of personal guarantees, even in the face of a primary debtor's bankruptcy. It clarifies for practitioners and parties that a creditor's approval of a reorganization plan does not implicitly waive its rights against a third-party guarantor. For a guarantor to be released, the language in the plan must be express and unequivocal. The case also serves as a standard application of the parol evidence rule, affirming that courts will not look beyond the four corners of a clear, integrated written agreement to consider contradictory prior oral statements.
