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In the case of a prospective and continuing guaranty, the creditor must not only show that he advanced his money, or parted with his goods, on the faith of the letter of guaranty, but that he also seasonably notified the guarantor that he accepted his guaranty, and intended to act upon its security. It is not enough for the creditor to simply present a claim for a sum due and owing and a document which purports to bind an individual for the debt of the third person. The creditor must prove that the guarantor bound himself for that debt. The contract of guaranty is by its nature an accessory contract depending on the existence of a principal obligation. La. Civ. Code Ann. art. 1913. At least two conditions must generally be satisfied before a suretyship agreement exists, first, the principal debtor must be bound in contract to the creditor and, second, the contract in question must be valid.
The plaintiff, Cardinal Wholesale Supply, Inc. (Cardinal), filed suit against Kenneth Chaisson (Chaisson), Norbert Kreig (Kreig), and Curtis Delahoussaye (Delahoussaye), to enforce certain personal guaranties signed by the defendants to secure the open account of CMD, Inc. (CMD). Chaisson filed a third-party demand against Stephen J. Genuso, d/b/a Hub City Enterprises, d/b/a Hub Crest Carpets. The third-party demand was dismissed by the parties. The trial court rendered judgment in favor of Cardinal and against Chaisson for the principal amount of $12,347.18, but dismissed Cardinal's suit against Kreig and Delahoussaye. According to the trial court, the guaranties were given to secure an extension of credit by Cardinal, but no credit was extended at the time the guaranties were given. The trial court found that this constituted non-acceptance of the guaranties which vitiated the instruments. The trial court further held that Cardinal never relied on the two guaranties in extending credit to CMD in 1976. Cardinal appealed the dismissal of its suit against Kreig and Delahoussaye.
Under the circumstances, did Kreig and Delahoussaye extend guaranties to the creditor, under which Cardinal could base its claim?
The court agreed with the trial court that there was never an acceptance of the guaranties that would have completed the contract. Completion of the contract of guaranty, that is acceptance, would have resulted from action by the creditor in extending an open line of credit on the faith of the two personal guaranties. The purpose of the personal guaranties was to induce the creditor to extend credit, but it was not extended. Absent a principal obligation created by the contemporaneous extension of credit, no accessory obligation arose. It was not error for the trial court to find that the creditor extended credit in 1976 without relying on the two personal guaranties. Their effectiveness could not be resurrected by filling the blank spaces and making demand on the parties. The creditor was unaware of the existence of the guaranties during the time that the two businesses conducted business on credit. The court found it unreasonable to believe that the documents evidenced the requisite intent of the two guarantors to be bound for the debts, in perpetuity, and dependent upon the creditor extending credit at some indeterminate time in the future.