Cengage Advantage Books: Fundamentals of Business Law Today 10th Edition by Roger LeRoy Miller

Exercise 14

FACTS To finance a development project in Delaware, Brandywine Partners, LLC, borrowed $15.9 million from HSBC Realty Credit Corp. (USA). As part of the deal, Brian O'Neill, principal for Brandywine, signed a guaranty that designated him the "primary obligor" for $8.1 million of the loan. Brandywine defaulted, and HSBC filed a suit in a federal district court against O'Neill to recover on the guaranty. O'Neill filed a counterclaim, alleging fraud.
O'Neill based his fraud claim on two provisions in the loan agreement. The first provision expressed the loan-to-value ratio. O'Neill alleged that this clause valued the property at $26.5 million and that HSBC knew this was not the property's real value. The second provision stated that if Brandywine defaulted, HSBC could recover its loan by selling the property. O'Neill argued that this clause represented that HSBC would try to recover on the property before the guaranty.
The court granted HSBC's motion to dismiss O'Neill's counterclaim and issued a judgment in HSBC's favor. O'Neill appealed, still arguing that HSBC had fraudulently induced him to sign the guaranty.
ISSUE Is a guarantor bound to the clear, unambiguous terms of the guaranty?
DECISION Yes. The U.S. Court of Appeals for the First Circuit affirmed the lower court's judgment in favor of HSBC. O'Neill's guaranty was enforced according to its express terms.
REASON The court applied the principle that "reliance on supposed misrepresentations that contradict the terms of the parties' agreement is unreasonable as a matter of law and so cannot support a [fraud] claim." O'Neill's claim was "irreconcilably at odds with the guaranty's express terms." The guaranty stated that O'Neill was familiar with the value of the property and that he was not relying on it as an inducement to sign the guaranty. The guaranty also stated that HSBC made no representations to induce O'Neill to sign and provided that HSBC could enforce its rights against him without trying to recover on the property first.
FOR CRITICAL ANALYSIS-E-Commerce Consideration Do the principles applied to a written guaranty in this case also govern electronically recorded agreements and contracts entered into online? Why or why not?