This Chapter 13 case is before the court upon the Objection to Claim of Kentucky National Bank (“Kentucky National”) filed by the debtor on February 28, 2005.  That claim is in the amount of $57,705.28 and is based upon a guaranty and mortgage executed by the debtor in favor of Kentucky National guaranteeing the debt of Lowes Construction Group (“Lowes Construction”) which is owned by the debtor’s son and daughter-in-law.  The parties have now briefed their positions in the matter and it was submitted to the court for decision on July 28, 2005.

Lowes Construction executed a note in favor of Kentucky National on November 1, 2000 for a line of credit in the amount of $40,200.00.  The note bears interest at the rate of 14% per annum and matured on January 2, 2001.  In conjunction with the execution of this note, the debtor executed, on November 1, 2000, a Guaranty agreement which is attached to the claim of Kentucky National.  The debtor also executed a mortgage on that date giving Kentucky National a lien against her home to secure the obligation. 

The Guaranty executed by the debtor provided that it would terminate on January 2, 2001.  The instrument provided that the debtor guaranteed to the lender the payment and performance of the debt and identified the note in question.  It provided that the termination of the agreement would not affect debtor’s “...liability with respect to obligations created or incurred prior to the termination date, or extensions or renewals of, interest accruing on, or fees, costs, or expenses incurred with respect to such obligations on or after the termination date.”  It also contains the following language on the reverse side:

“6.   Whether or not any existing relationship between the Undersigned and Borrower has been changed or ended and whether or not this guaranty has been revoked, Lender may, but shall not be obligated to, enter into transactions resulting in the creation or continuance of indebtedness, without any consent or approval by the Undersigned and without any notice to the Undersigned.  The liability of the Undersigned shall not be affected or impaired by any of the following acts or things (which Lender is expressly authorized to do, omit or suffer from time to time, both before and after revocation of this guaranty, without notice to or approval by the Undersigned):”




“(ii)  Any one or more extensions or renewals of indebtedness (whether or not for longer than the original period) or any modification of the interest rates, maturities or other contractual terms applicable to any indebtedness;”



On January 2, 2001 an Amendment Agreement was executed by Lowes Construction and Austin Lowe, debtor’s son, and Joann Lowe, debtor’s daughter-in-law, as owners of Lowes Construction, amending the note to provide the maturity date should be extended to February 15, 2001 and that Lowes Construction could continue to draw against the line of credit up to the original amount.  It further provided that various security for the loan should remain as such during the extended period of time.  The debtor did not execute the Amendment Agreement and there is no evidence in the record to determine if she was aware of it.  Kentucky National has recited that, at the time of the extension, the same date upon which her Guaranty expired, Lowes Construction had drawn $30,312.80 against the note.  Kentucky National has recited that Lowes Construction made additional draws against the note after the January 2, 2001 date for a total of $38,729.91 drawn against the note.

The debtor contends that the execution of the Amendment Agreement without debtor’s knowledge or permission has relieved debtor of any obligation on her guaranty.

A question has arisen as to the applicability of KRS 371.065 entitled “Requirement for valid, enforceable guaranty” to the Guaranty executed by the debtor.  That statute provides:

“(1)            No guaranty of an indebtedness which either is not written on, or does not expressly refer to, the instrument or instruments being guaranteed shall be valid or enforceable unless it is in writing signed by the guarantor and contains provisions specifying the amount of the maximum aggregate liability of the guarantor thereunder, and the date on which the guaranty terminates.  Termination of the guaranty on that date shall not affect the liability of the guarantor with respect to:


(a)            Obligations created or incurred prior to the date;


(b)            Extensions or renewals of, interest accruing on, or fees, costs or expenses incurred with respect to, the obligations on or after the date.


 (2)            Notwithstanding any other provision of this section, a guaranty may, in addition to the maximum aggregate liability of the guarantor specified therein, guarantee payment of interest accruing on the guaranteed indebtedness, and fees, charges and costs of collecting the guaranteed indebtedness, including reasonable attorneys’ fees, without specifying the amount of the interest, fees, charges and costs.”           

This statute, enacted in 1986, applied only to guaranties of commercial paper until it was amended in 1990 to, apparently, apply to other instruments.  APL, Inc. V. Ohio Valley Aluminum, Inc., Ky. App., 839 S.W.2d 571 (1992) (1990 amendment broadening statute’s applicability to all guaranties was irrelevant on appeal of a guaranty signed in 1989); Intercargo Ins. Co. v. B. W. Farrell, Inc., Ky. App., 89 S.W.3d 422 (2002) (legislature intended to expand statute to more than just guaranties of commercial paper but not indemnity agreements).  The court concludes that the statute applies to the guaranty in question here.                        

The agreement clearly contemplates extension or renewal of the indebtedness involved in the two portions of the Guaranty above recited.  By the terms of the document, the liability of debtor continued after the termination date under the terms of the Guaranty which she signed.  The statute clearly permits these actions.  The execution of an Extension Agreement by other parties appears within the terms of the agreement which the debtor executed in guaranteeing the debt.  It does not appear to amend any term of the original indebtedness except the maturity date.  As such, this court views the Amendment Agreement as merely an extension of the maturity date of the original loan.

With respect to the amount of liability of the debtor, as of the date her guaranty expired, there was due and owing on the note, for draws made, $30,312.80.  In addition to this sum, in accordance with the terms of the Guaranty executed by the debtor, the debtor would owe interest, fees, charges and other costs incurred in collecting the amount she owes.  Those amounts are not itemized for the court and an Amended Proof of Claim will be necessary to set out the amounts owed by the debtor.  The additional draws made against the note after January 2, 2001 are not liabilities of the debtor since she did not consent to the Extension Agreement.  Her liability for the principal sum became fixed upon the date of expiration of her Guaranty Agreement.


1)            That the Objection to Claim #1 herein filed by Kentucky National Bank of Pikeville be, and the same hereby is, SUSTAINED as to all amounts exceeding the sum of $30,312.80 plus interest, fees, costs and expenses accruing thereon as set out in the Guaranty executed by the debtor;

2)            That the claimant, Kentucky National Bank of Pikeville, shall file an amended claim consistent with the within Opinion within fifteen (15) days from the date of this Order.



Franklen K. Belhasen, II, Esq.

P. Frank Heaberlin, Esq.

Beverly Burden, Esq.