Nebraska Supreme Court Rejects Effort to Undermine the Enforceability of Personal Guaranties

Henderson State Company v. Garrelts, 319 Neb. 485 (2025)

On July 18, 2025, the Nebraska Supreme Court issued a decision enforcing the plain language of two personal guaranties of bank loans.  The decision rejected the effort of the guarantors to impose obligations on the lending bank beyond those contained in the loan documents.  Baird Holm litigation partner Lindsay Lundholm led the successful representation of the bank in the lawsuit and on appeal. 

Henderson State Bank had advanced $1.5 million to an agribusiness through a business operating line of credit secured by the personal guarantors of three business owners and the managing owner’s spouse.  The agribusiness and several other businesses owned by the managing owner ultimately failed.  The managing member died suddenly and without any remaining assets.  The bank turned to the two surviving business owner guarantors for repayment pursuant to each of their personal guaranties, but the guarantors refused to pay the debt, which led to the lawsuit for breach of the personal guaranties.   

In an effort to avoid repayment of the $1.5 million and accruing interest, the guarantors brought counterclaims for fraudulent concealment, fraudulent misrepresentation, civil conspiracy, and breach of the implied covenant of good faith and fair dealing.  The guarantors argued the bank should have disclosed information related to the financial affairs of the managing member and his business and attempted to utilize unrelated bank records to argue the bank did not follow customary banking procedures in extending the line of credit or managing it.  The lender, in turn, argued that the unambiguous language of the personal guaranties was controlling and did not provide any of the extra-contractual obligations upon it, which the guarantors sought to impose to avoid their obligations to pay the company’s debt. 

The Nebraska Supreme Court rejected the guarantors’ effort to impose additional duties upon a lender that contradicted or expanded the scope of what was set forth in the text of the guaranty.  As in prior cases, the Court reaffirmed its holding that a creditor may assume a surety has obtained information from other sources or assumed the risks involved with guarantying a debt and a duty of disclosure may only arise if the creditor knows or has good grounds for believing: (1) the surety is being deceived or misled, or (2) the surety has been induced to enter the contract in ignorance of facts materially increasing his or her risks, of which the creditor has both knowledge and the opportunity to disclose prior to the surety’s acceptance of the undertaking. 

Finally, the Nebraska Supreme Court squarely rejected the efforts of the guarantors to utilize the implied covenant of good faith and fair dealing to imply an obligation on the part of the bank to follow “customary banking practices” into the personal guaranties as an additional term.  The Court concluded “[a]rguments premised upon customary banking practices exceed the scope of the implied covenant of good faith and fair dealing, which is circumscribed by the terms of the parties’ agreement.  To the extent that the Garrelts argue ‘customary banking practices’ are relevant to their other counterclaims, such practices are similarly inapplicable.”

The Henderson case creates two key takeaways for Nebraska bankers: 1) carefully drafted contractual language specific to the lending activity of a bank is critical for the protection of the bank’s interests in the event of default, and 2) “customary banking practices” that the bank voluntarily undertakes do not give rise to contractual obligations different from or beyond the scope of a personal guaranty, or other contract between a bank and its customer.