## Facts

- Swift & Company sold merchandise to Pine Haven Nursing Home & Sanitarium, Inc. on credit.
- To induce credit sales, Joseph Oscar (Asher) Smigel and Abe Kraig each signed a written continuing guaranty (Nov. 11, 1962) promising to pay Pine Haven’s indebtedness for goods sold and delivered by Swift.
- The guaranty stated it remained in force until ten days after Swift received written notice of withdrawal from the guarantor or the guarantor’s legal representatives.
- On Jan. 16, 1966, Smigel was adjudicated mentally incompetent, and a guardian (his son) was appointed.
- Swift extended credit and delivered merchandise to Pine Haven from Jan. 4, 1967 through Oct. 12, 1967; the deliveries were unpaid.
- For purposes of appeal, Swift was assumed to have lacked knowledge of Smigel’s incompetency during the relevant deliveries.
- After Smigel’s death and Pine Haven’s bankruptcy, Swift filed a claim against Smigel’s estate for $8,509.60 under the guaranty.

## Issues

1. Whether an adjudication of mental incompetency automatically revokes a continuing guaranty as to credit extended thereafter.
2. Whether enforcement of a continuing guaranty after adjudication depends on the creditor’s actual or reasonably imputable knowledge of the incompetency at the time credit is extended.
3. Whether summary judgment for the estate was proper where knowledge (actual or constructive) could be disputed.

## Decision

- The Appellate Division reversed the summary judgment entered for the executor and remanded for further proceedings.
- The court held that adjudicated mental incompetency does not, by itself, automatically revoke a continuing guaranty as to subsequent credit extended without the creditor’s actual or reasonably imputable knowledge of the incompetency.
- The court directed that liability should turn on whether Swift knew, or should have known in the exercise of reasonable care, of Smigel’s incompetency at the time of each credit advance under the guaranty.
- The New Jersey Supreme Court affirmed the Appellate Division’s judgment in a brief per curiam disposition.

## Legal Principles

- A continuing guaranty that by its terms remains effective until withdrawal notice is not automatically terminated by the guarantor’s adjudicated incompetency as to later extensions of credit made without the creditor’s knowledge (actual or imputable).
- The decisive factor for post-adjudication credit is the creditor’s knowledge or notice (including knowledge reasonably chargeable to the creditor) of the incompetency at the time each item of credit is extended.
- Traditional offer-and-acceptance incapacity rules are not mechanically controlling where a written continuing guaranty is designed to induce ongoing reliance and includes an express termination-by-notice mechanism.
- Summary judgment is improper when application of the governing standard depends on fact questions concerning the creditor’s knowledge or constructive notice.

## Conclusion

The court held that an adjudication of incompetency does not automatically revoke a continuing guaranty; instead, enforceability for later credit depends on whether the creditor extended credit without actual or reasonably imputable knowledge of the incompetency, requiring remand for factfinding on that point.


Swift & Co. v. Smigel, 115 N.J. Super. 391, 279 A.2d 895 (App. Div. 1971)