In the Supreme Court of Georgia
Decided: September 22, 2014
S13G1711. LAFARGE BUILDING MATERIALS, INC. v. THOMPSON
NAHMIAS, Justice.
On October 23, 2007, Larry B. Thompson executed a continuing guaranty
in favor of Lafarge Building Materials, Inc., as part of an application for credit
submitted by his company, Elite Dwellings, LLC. During 2008, Elite Dwellings
ordered building materials under the account established based on the
application but then failed to pay Lafarge for the materials. In May 2009,
Lafarge sued Elite Dwellings and Thompson, alleging that they were jointly and
severally liable for the debt.1 Lafarge and Thompson eventually filed cross-
motions for summary judgment, and in October 2012, the trial court ruled that
the guaranty satisfied the Statute of Frauds and entered summary judgment
against Elite Dwellings and Thompson jointly and severally for $105,147.
Elite Dwellings did not appeal the judgment, but Thompson did. A
1
Lafarge also sued Greer Chapel Development, LLC, the owner of one of the properties for
which Lafarge supplied building materials. Lafarge recorded a materialman’s lien on that property
and on seven others owned by Elite Dwellings. Greer Chapel is not involved in this appeal.
divided Court of Appeals reversed, holding that the guaranty was unenforceable
because it did not sufficiently identify the name of the principal debtor and thus
failed to satisfy the Statute of Frauds.2 See Thompson v. LaFarge Building
Materials, Inc., 323 Ga. App. 276, 280-281 (746 SE2d 908) (2013). We granted
Lafarge’s petition for certiorari and posed the following question:
Did the Court of Appeals err in holding that the guaranty agreement
at issue here did not identify the principal debtor with sufficient
specificity to satisfy the Statute of Frauds? Compare Capital Color
Printing, Inc. v. Ahern, 291 Ga. App. 101 (661 SE2d 578) (1)
(2008), with Lafarge Building Materials, Inc. v. Pratt, 307 Ga. App.
767 (706 SE2d 131) (1) (2011).
We conclude that the Court of Appeals did err, and we therefore reverse its
judgment.
1. The application for credit and continuing guaranty at issue comprise
two pages, with the guaranty set off in a box at the bottom of the second page.
In the first section on the first page of the application, Elite Dwellings, LLC is
listed as the “Name of Company/Individual,” with Larry B. Thompson listed as
the owner. Three trade references are then listed, as is the Bank of America on
the line for bank references. The application is signed on the second page by
2
Four judges joined the majority opinion, one judge joined in judgment only, and two judges
dissented.
2
Elite Dwellings’s office manager “on behalf of the Applicant.” The “General
Provisions” section on that page provides for Lafarge to investigate the credit
history of the “Applicant,” saying:
This application and the information contained herein is a request
for the extension of credit. The Applicant authorizes Lafarge to
obtain a written or oral credit report from any credit reporting
agency. The Applicant further authorizes any bank or commercial
business with whom the Applicant is doing or has done any type of
business to give any and all necessary information to Lafarge which
will assist in the credit investigation. The Applicant further
authorizes Lafarge to reinvestigate the Applicant’s credit status
from time to time as Lafarge deems necessary. Lafarge reserves the
right to limit or terminate any extension of credit to Applicant.
In the continuing guaranty box, Thompson signed the line for “Signature
of Individual Guarantor.” The guaranty incorporates the application and
describes the party whose debt is guaranteed as the “Applicant,” saying:
In consideration of the credit extended to the Applicant identified
on page 1 of this Application for Credit, the entirety of said
applications [sic] being incorporated herein by reference thereto, . . .
the undersigned guarantor (jointly and severally if more than one),
unconditionally guaranty [sic] the payment when due of all
indebtedness now due or which may become due by Applicant to
LAFARGE . . . .
2. Under Georgia’s Statute of Frauds, a personal guaranty of a debt is
not enforceable unless it is in writing, is signed by the party being charged as the
3
guarantor, and identifies the debt, the principal debtor, the promisor, and the
promisee. See John Deere Co. v. Haralson, 278 Ga. 192, 193 (2004). See also
OCGA § 13-5-30 (2) (providing that “[a] promise to answer for the debt,
default, or miscarriage of another” is not binding on the promisor unless it is in
writing and signed by the promisor). The only disputed issue in this appeal is
whether the principal debtor is sufficiently identified by name.
The Court of Appeals’s majority opinion relied on Pratt and McDonald v.
Ferguson, 274 Ga. App. 526 (618 SE2d 45) (2005), to conclude that the
principal debtor is not identified because both the guaranty and the incorporated
application “fail[] to define ‘Applicant.’” Thompson, 323 Ga. App. at 280.
Those two cases are, however, factually distinguishable from this one.
In Pratt, the Court of Appeals held that a guaranty using language almost
identical to the language used in the guaranty in question here, including
referring to the principal debtor as “Applicant,” failed to identify the principal
debtor. See 307 Ga. App. at 770. Unlike the guaranty in this case, however, the
guaranty in Pratt did not incorporate the application. See id. That is a critical
difference. Because the party applying for credit was named only in the
application and the application was not incorporated into the guaranty, the name
4
of the applicant in that case was not designated anywhere in the guaranty.
In McDonald, the Court of Appeals held that a guaranty failed to satisfy
the Statute of Frauds because the guaranty identified the principal debtor as the
“applicant” or “entity,” but neither the guaranty nor the application identified
the party that was the “applicant” or “entity,” and the purported principal debtor
was mentioned only in the billing information, making it unclear what party was
the “applicant.” See 274 Ga. App. at 526-527.3 By contrast, in this case Elite
Dwellings is listed on the first page of the application on the blank for “Name
of Company/Individual” located on the first line after the date and amount under
the heading “Application for Credit.” In addition, Elite Dwellings’s office
manager signed the application “on behalf of the Applicant.”
The dissenting opinion below distinguished Pratt and McDonald and
relied instead on Capital Color. See Thompson, 323 Ga. App. at 281 (Boggs,
J., dissenting). In Capital Color, the guaranty identified the principal debtor as
the “customer” and the “purchaser,” and the Court of Appeals held that the
identity of the “customer” and “purchaser” was clear from the incorporated
3
Although it is not clear from the opinion in McDonald whether the application was
expressly incorporated into the guaranty, the guaranty did refer to the application, and the Court of
Appeals considered the full application in its analysis. See 274 Ga. App. at 526 & n.2.
5
application. See 291 Ga. App. at 103, 106. The entity found to be the principal
debtor was listed in the “customer” box on the first page of the application, and
while the application did not label any entity as the “purchaser,” the court
looked to the “usual and common signification” of “customer” and “purchaser”
to conclude that they referred to the same entity. Id. at 106-107. As the court
explained, “no ambiguity exists where, examining the contract as a whole and
affording the words used therein their plain and ordinary meaning, the contract
is ‘capable of only one reasonable interpretation.’” Id. at 106 (citation omitted).
It is similarly appropriate to define the term used to identify the principal
debtor in the guaranty here – “Applicant” – using its usual and common
signification. To understand a contract, we must read and understand the words
used in the contract. And unless the contract indicates otherwise, “we generally
accept that contractual terms carry their ordinary meanings.” Archer W.
Contractors, Ltd. v. Estate of Pitts, 292 Ga. 219, 224 (2012) (citing OCGA § 13-
2-2 (2), which says that “[w]ords [in contracts] generally bear their usual and
common significance”). We reject the view of the majority opinion below that
applying the ordinary meaning of a word used in a contract requires a court to
look outside the contract and extends the guarantor’s liability “‘by implication
6
or interpretation.’” Thompson, 323 Ga. App. at 279 (citation omitted).4 As the
dissent below pointed out, “applicant” is ordinarily defined as “‘one who applies
or makes application.’” 323 Ga. App. at 280 (Boggs, J., dissenting) (citing
Webster’s Unabridged Dictionary (2d ed. 1983)). No argument has been made
that the word “applicant,” as used in the guaranty before us, means anything
different than what it usually means.
When read in conjunction with the incorporated application, and with the
word “applicant” bearing its usual and common meaning, the guaranty here
identifies Elite Dwellings as the party applying for credit, which plainly makes
that company the “Applicant” and therefore the principal debtor. The Court of
Appeals majority erred in holding otherwise. In closing, however, we note that
both sides of the Court of Appeals agreed on one point, to which we add our
agreement as well: the better practice for lenders – the approach that can
forestall extended litigation like this case – is to simply name the principal
debtor directly in the guaranty. See Thompson, 323 Ga. App. at 281 n.11; id.
at 282 (Boggs, J., dissenting).
Judgment reversed. All the Justices concur.
4
The court in Pratt concluded that the application in that case, which was not incorporated
into the guaranty, did not identify any entity as the “Applicant” or define the term “Applicant.” 307
Ga. App. at 770. To the extent that Pratt suggests that the ordinary meaning of “applicant” cannot
be used in construing an application or guaranty, we disapprove that suggestion.
7