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Expressions of Intent to Pay the Debt of Another do not Constitute a Guarantee

Perkins Law obtained summary judgment in favor of its client in a lawsuit where a creditor attempted to use expressions of intent to pay the debts of another person as a means for pursuing a guarantee claim.

The case involved loans between two former friends where the borrower defaulted and went into bankruptcy. The borrower was a member of a LLC that owned ocean front property in Maine. After the loan went into default, the borrower made statements that he intended to use the LLC’s property to repay his debts. When the borrower went bankrupt, the lender sued the LLC claiming a contract of guarantee and negligent misrepresentation.

The Knox County Superior Court (Justice Mallonee) ruled in favor of the LLC and dismissed the creditor’s claims against the LLC. In doing so, the Court found that a declaration of an intention to enter into an agreement upon stated terms in the future is not a binding contract. The Court reasoned that such expressions of intent do not constitute an offer. It is not enough for one party to promise to do something. The other party must also say what it is providing in exchange and there has to be mutual agreement on the terms of the contract.

The ruling is important because there is an inherent danger in all business negotiations that expressions of intent to do something in the future will be used by a disgruntled party to claim a binding obligation