Wednesday, May 04, 2011, 2:50 PM

COA: Arbitration Clause in Contract Does Not Apply to Related Guaranty Agreement

Yeserday the COA held that an arbitration agreement in a contract does not apply to a separate indvidual guaranty of the obligations in that contract. The case is D.P. Solutions, Inc. v. Xplore-Tech Services et al.

The plaintiff and defendant corporations entered into a Share Purchase Agreement that contained an arbitration clause. Two individual defendants entered into a Personal Guarantee of the Share Purchase Agreement, which did not contain an arbitration clause. Defendants moved to compel arbitration on issues related to both contracts, claiming that the arbitration clause in the Share Purchase Agreement between the corporations should also apply to the personal guarantee of the individual defendants.

The Cour held that the obligation of a guarantor is separate and independent of the obligation of the primary contracting party. The Court indicated that the outcome may have been different if the guarantors had signed the guaranty specifically in their capacity as corporate officers. Defendants contended they were indeed acting as corporate agents, but the express terms of the guarantee stated that they were acting in their individual capacities.


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