Defensive Line for Ekuban: Statute of Frauds
TheFifth Circuit recently affirmed a bankruptcy court determination that a seriesof 36 identical loan guaranty agreements did not satisfy theTexas statute of frauds and, therefore, werenot enforceable against the guarantor.
EbenezerEkuban is a professional football player (defensive end for Denver Broncos). In August 2000, he decided to purchase a blockof thirty-six condominiums in Pasadena, Texas. Ekuban securedfinancing. The transaction wasstructured as thirty-six separate purchases. On August 14, 2000, in Ekuban’scapacity as president of EBCO (the holding company for hisinvestments), he executed thirty-six sets of promissory notes and relatedclosing documents. At aseparate time, Ekuban received and executed thirty-six identical guarantyagreements, which stated:
GuarantyAgreement
FOR VALUE RECEIVED, I, EBENEZER EKUBAN, individually,do hereby guarantee payment of the hereinabove described note, according to theterms thereof, both as to interest and as to principal, and I do hereby waivedemand, all notices including notice of intention to accelerate the maturity,notice of non-payment, presentment for payment, protest, notice of protest,suit, diligence and any notice of or defense on account of the extension of thetime of payments or change in methods of payments and consent to any and allrenewals and extensions in the time of payment hereof.
The guaranty agreements did not refer to a specific loan or accountnumber that would associate the guaranty with the
The condominiums turned out the be a badinvestment, and EBCO defaulted on its loans in the spring of 2002. Ekuban didnot honor the alleged guaranty, and both EBCO and he filed for Chapter 7bankruptcy protection. The lender fileda timely Proof of Claim for the money loaned in the amount of $1,641,000. Ekuban moved for summary judgment, on theground, among other things, that the guaranty documents were unenforceablepursuant to the Texas statute of frauds. The bankruptcy courtgranted Ekuban’s motion for summary judgment, which both the District Court andthe Fifth Circuit affirmed. The Fifth Circuit held:
The guaranty agreements in the instant case cannot satisfythe statute of frauds because they lack the “essential elements” of a guaranty.The essential terms of a guaranty agreement are “(1) the parties involved, (2)a manifestation of intent to guaranty the obligation, and (3) a description ofthe obligation being guaranteed .” * * * While these guaranty agreementsmanifest Ekuban’s intention to guarantee an obligation, they are in every otheraspect deficient. Save Ekuban himself, the guaranties do not identify theparties involved in the transaction or their roles. Nor do the agreementsprovide a description of the note to be guaranteed or such basic information asdates and the amount of the loan.
The court rejected the lender’s argument thatthe court should look beyond the text of guaranty agreements to determinewhether they satisfied the statute of frauds:
We decline to do so, noting thatalthough the Texas Supreme Court has in the past looked to multiple documentsto determine whether a contract comports with the statute of frauds, it hasonly done so where, “[a]ll of the instruments were a necessary part of the sametransaction, without any one of which the transaction was not complete.” * * * [Thelender] asserts that the guaranty was necessary to effectuate the transaction,but as a matter of contractual interpretation, the
Pasadena transaction was complete without aguaranty. Further, the guaranty agreements make no reference to the closingdocuments, and the closing documents do not contemplate the existence of aguaranty. To construe the guarantee agreements as part of the larger financialtransaction would thus violate the principle that “where an oral contract ismemorialized in more than one writing, one of the writings must refer to theothers in order for the writings to be read together.”* * * The bank’scontention that the guaranties were an indispensable part of the transactionfinds no support within the language of the contracts themselves.
In re Ekuban, 2006 WL 1049130 (5th Cir. Apr. 19, 2006).
[Meredith R. Miller]