Background
Bank of America extended a revolving credit facility to Ztar Mobile Incorporated. During negotiations, bank representative Andrew Walker told Ztar’s president and CEO, Kevin Haddad, that the bank could remove Haddad’s personal guaranty. More than seven months later, however, Haddad signed the final loan documents without reading them or having Ztar’s in-house counsel review them. Those documents expressly required and included a continuing, unconditional personal guaranty from Haddad and contained an integration clause.
Haddad later reaffirmed his guaranty when the parties amended the loan agreement. Before a subsequent amendment, Walker allegedly promised that the bank would extend the loan for at least another year, but the executed amendment extended its maturity by only two months. After Ztar defaulted, the bank sued Ztar and Haddad. The district court entered summary judgment for the bank and awarded $7,141,290.14.
The Court’s Holding
The Fifth Circuit affirmed. Applying Texas law, it held that Haddad and Ztar could not establish justifiable reliance on Walker’s earlier statement about removing the guaranty. The signed documents directly and unambiguously disclosed the guaranty, and Haddad had an opportunity to review them in an arm’s-length transaction. His decision not to read them because he trusted Walker and was in a hurry did not permit a fraudulent-inducement defense.
The court also rejected the defense based on Walker’s alleged October 2021 promise of a one-year extension. That statement conflicted with the later amendment’s express two-month extension. In any event, rescinding that amendment would merely restore the earlier maturity date and would not eliminate Ztar’s repayment obligation under the underlying loan agreement. The appellants’ separate fraud theory failed for the same reasons.
Key Takeaways
- Under Texas law, a party ordinarily cannot justifiably rely on a prior representation that a signed contract directly and unambiguously contradicts.
- Trust in the other party, haste, and failure to read available documents do not excuse a sophisticated party from the terms it signed in an arm’s-length transaction.
- Rescinding an allegedly fraudulently induced amendment does not erase repayment duties imposed by an earlier agreement when rescission would only restore an earlier maturity date.
Why It Matters
The decision underscores that borrowers and guarantors must verify that negotiated changes appear in the final documents. A prior assurance that a term can be removed will not overcome unmistakable contractual language—particularly where the signer had counsel, received the documents, and later reaffirmed the obligation.
It also illustrates the limited value of fraudulent inducement as a defense when the alleged misrepresentation concerns only a later amendment and rescission would leave the underlying debt intact.