CSE, Inc. v. Kibby Welding, LLC, Record No. 1438-22-3 (Va. Ct. App. June 13, 2023)
Here, the court explores the enforceability of a guaranty.
Facts. Tabitha Kibby was the 22-year-old daughter of the owner of Kibby Welding LLC. Tabitha was a sales manager for Kibby. In 2018, Kibby subcontracted with CSE, Inc. to provide heavy machinery and operators for work Kibby was performing on the Transcoast Pipeline. Since Kibby was not paying for the equipment and operators in advanced, CSE required that Kibby complete a credit application and offer a personal guaranty of credit.
Tabitha had no authority to sign checks, pledge Kibby’s credit, or sign contracts on Kibby’s behalf, but she completed the required credit application, signing on Kibby’s behalf as its “Sales Manager.” In very fine print, the application included a promise by the application signatory—here, Tabitha—to personally guarantee Kibby’s credit. Tabitha did not understand that she was personally guaranteeing Kibby’s credit by signing the application, and CSE did not know who signed the application.
Kibby ultimately failed to pay the full amount of the contract, so CSE sued Kibby for breach of contract and Tabitha for breach of her guaranty. After a bench trial, the trial court found for CSE on its contract claim against Kibby, but found for Tabitha on the guaranty claim, reasoning that CSE had not relied on Tabitha’s credit as a basis for extending credit to Kibby. CSE appealed; on appeal Tabitha argued that because CSE had not relied on her credit, the guaranty was not supported by consideration.
Issue. Whether a creditor must subjectively rely on a guaranty when extending credit to be able to enforce the guaranty.
Holding. No. The parties’ “external manifestation,” not their “undisclosed mental state,” determines whether consideration is adequate.
Notes. A guaranty is an independent contract by which a guarantor agrees to be answerable for a debt or other obligation. It must be supported by adequate consideration, which can include the extension of credit. The motive for extending credit is not relevant to whether a guaranty is supported by consideration. Rather, it is the parties’ intent “as manifested to one another” that determines whether consideration is adequate. Here, Tabitha signed the credit application that included a promise to personally guarantee Kibby’s credit, manifesting an intention to induce CSE to extend credit to Kibby. CSE extended credit to Kibby, manifesting an intention to provide consideration for Tabitha’s promise.