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Guarantor Liability 101 Guarantor Liability 101 2020 Edition LawPracticeCLE Unlimited All Courses. All Formats. All Year. ABOUT US LawPracticeCLE is a national continuing legal education company designed to provide education on current, trending issues in the legal world to judges, attorneys, paralegals, and other interested business professionals. New to the playing eld, LawPracticeCLE is a major contender with its oerings of Live Webinars, On-Demand Videos, and In-per- son Seminars. LawPracticeCLE believes in quality education, exceptional customer service, long-lasting relationships, and networking beyond the classroom. We cater to the needs of three divisions within the legal realm: pre-law and law students, paralegals and other support sta, and attorneys. WHY WORK WITH US? At LawPracticeCLE, we partner with experienced attorneys and legal professionals from all over the country to bring hot topics and current content that are relevant in legal practice. We are always looking to welcome dynamic and accomplished lawyers to share their knowledge! As a LawPracticeCLE speaker, you receive a variety of benets. In addition to CLE teaching credit attorneys earn for presenting, our presenters also receive complimentary tuition on LawPracticeCLE’s entire library of webinars and self-study courses. LawPracticeCLE also aords expert professors unparalleled exposure on a national stage in addition to being featured in our Speakers catalog with your name, headshot, biography, and link back to your personal website. Many of our courses accrue thousands of views, giving our speakers the chance to network with attorneys across the country. We also oer a host of ways for our team of speakers to promote their programs, including highlight clips, emails, and much more! If you are interested in teaching for LawPracticeCLE, we want to hear from you! Please email our Directior of Operations at [email protected] with your information. Be advised when speaking for LawPracticeCLE, we require you to provide the bellow items related to your course: 1. A Course Description 2. 3-4 Learning Objectives or Key Topics 3. A Detailed Agenda 4. A Comprehensive PowerPoint Presentation CONTACT US 11161 E State Road 70 #110-213 941-584-9833 www.lawpracticecle.com Lakewood Ranch, FL 34202 LAWPRACTICECLE UNLIMITED LawPracticeCLE Unlimited is an elite program allowing attorneys and legal professionals unlimited access to all Law- PracticeCLE live and on-demand courses for an entire year. LawPracticeCLE provides twenty new continuing legal education courses each month that will not only appeal to your liking, but it will also meet your State Bar requirement. Top attorneys and judges from all over the country partner with us to provide a wide variety of course topics from basic to advanced. Whether you are a paralegal or an experienced attorney, you can expect to grow from the wealth of knowledge our speakers provide. COURSE CATEGORIES A View From The Bench Estate Planning Paralegal Studies Animal Law Ethics, Bias, and Professionalism Personal Injury Law Bankruptcy Law Family Law Practice Management & Trial Prep Business Law Federal Law Real Estate Law Cannabis Law Food and Beverage Law Religious Law Construction Law Gun Law Social Security Law Criminal Law Health Law Specialized Topics Cybersecurity Law Immigration Law Tax Law Education Law Intellectual Property Law Technology Law Employment Law Insurance Law Transportation Law Entertainment Law Nonprot Law Tribal Law More Coming Soon ... ACCREDITATION LawPracticeCLE will seek approval of any CLE program where the registering attorney is primarily licensed and a single alternate state. The application is submitted at the time an attorney registers for a course, therefore approval may not be received at the time of broadcasting. In the event a course is denied credit, a full refund or credit for another Law- PracticeCLE course will be provided. LawPracticeCLE does not seek approval in Illinois or Virginia, however the necessary documentation to seek CLE credit in such states will be provided to the registrant upon request. ADVERTISING WITH LAWPRACTICECLE At LawPracticeCLE, we not only believe in quality education, but providing as many tools as possible to increase success. LawPracticeCLE has several advertising options to meet your needs. For advertising and co-sponsorship information, please contact the Director of Operations, Jennifer L. Hamm, [email protected]. CHECK US OUT ON SOCIAL MEDIA Facebook: www.facebook.com/LawPracticeCLE lnstagram: www.instagram.com/lawpracticecle Linkedln: www.linkedin.com/company/lawpracticecle Twitter: www.twitter.com/LawPracticeCLE GUARANTOR LIABILITY: A PRACTICAL PERSPECTIVE Carl D. Ciochon Wendel Rosen LLP Oakland, California www.wendel.com PREFACE My Background: . California Litigator . More Commonly Represent Guarantors Caveats: . Rules Vary from Jurisdiction to Jurisdiction; Differences may be Outcome Determinative . Guaranties are Creatures of Contract; the Specific Contract Terms Matter TODAY’S PROGRAM I. Guaranty Basics II. Negotiating & Drafting the Guaranty III. Advanced Topics IV. Guaranty Defenses and Litigation V. Recap GUARANTY BASICS Guaranty, Defined Cal. Civ. Code § 2787: “A surety or guarantor is one who promises to answer for the debt, default, or miscarriage of another, or hypothecates property as security therefore.” Substance Over Form The substance of the transaction, rather than its form, determines whether an instrument is a Guaranty. No “magic words” are required. Accordingly: 1. Simply labeling a document “Guaranty” will not necessarily create a meaningful obligation. 2. Conversely, a promise may qualify as a guaranty even if it is not expressly labeled as such. The parties may unintentionally create a guaranty and thus invoke the law of suretyship, including suretyship defenses. Common Guaranty Scenarios . Real Estate Secured Debt (guaranty of Borrower’s repayment) . Real Estate Lease (guaranty of Lessee’s performance) . Equipment Lease (guaranty of Lessee’s performance) Terminology 1.Debtor (aka Borrower, Lessee, Buyer) 2.Creditor (aka Lender, Lessor, Seller) 3.Guarantor In many situations, the Creditor will – for practical and/or legal reasons – prefer to pursue recovery against the Guarantor before or even in lieu of pursuing the Debtor. The Creditor’s Preferred Structure* . Debtor: Single Purpose Entity (SPE) which holds Property or Operates Business . Guarantor: SPE’s Principals (primary owners/managers) These are Two Separate Contractual Relationships. If Required to Perform, the Guarantor will have Equitable Rights (Indemnity, Contribution, Subrogation) against the Debtor. These may be Limited by the Terms of the Guaranty * But see River Bank v. Diller (supplemental materials) SURETYSHIP DEFENSES Suretyship Defenses: . Are creatures of State Law. They may be statutorily enumerated (e.g., Cal. Civil Code §§ 2806-2855) or established by common law. Will automatically apply to any promise that qualifies as a Guaranty. Are Powerful. They may limit the Guarantor’s liability, or even eliminate it entirely. May be Waived. Common Suretyship Defenses: 1. Guarantor may require that Creditor proceed first against the Debtor, before seeking to enforce Guaranty. 2. Guarantor may require that Creditor apply Debtor’s security first, before seeking to enforce Guaranty. 3. Guarantor’s obligation may be neither larger nor more burdensome than the Debtor’s obligation. 4. Alteration of the obligation exonerates the Guarantor. 5. Guarantor may be exonerated to the extent Creditor’s actions prejudice Guarantor’s rights and remedies against Debtor. Waiver of Suretyship Defenses . Suretyship defenses may, as a matter of contract law, be waived. Two common issues: 1. Is the waiver enforceable? 2. What is the scope of the waiver? . California. Union Bank v. Gradsky and the Gradsky Waiver (Civ. Code § 2856). Is express waiver of equitable defenses also required? . New York: “Absolute and unconditional guaranty,” despite “any other circumstances which might otherwise constitute a defense.” . Waiver of Anti-Deficiency Protections Contrasted. Recent decisions in Arizona (no) and Texas (yes). SUMMARY OF KEY CONCEPTS . The Guaranty is a contract. State law rules of contract formation, interpretation, and enforceability apply. The Guaranty is a separate and independent obligation. The Creditor’s preferred deal structure will maximize the ability to recover from the Guarantor, independent of any claim against the Debtor. Suretyship defenses will apply unless waived. Creditor’s counsel should take care to ensure the Guaranty contains a broad and effective waiver. NEGOTIATING & DRAFTING THE GUARANTY Goals: Creditor’s Counsel: Ensure your client’s ability to recover in full, without obstacle or delay. Guarantor’s Counsel: Limit your client’s exposure, avoid unlimited, continuing liability, preserve legitimate defenses. Specific Issues & Terms Necessity of a Writing . A Guaranty is within the Statute of Frauds and must be in writing. If the Guaranty is not signed by a Guarantor, it will generally not be enforceable against that Guarantor. E.g., 73-75 Main Ave., LLC v. PP Door Enterprise, Inc., 991 A.2d 650 (Ct. App. 2010) (declining to enforce guaranty where there was no evidence signature was that of the putative guarantor). Exceptions: Will depend on applicable state law. Guaranties treated no differently from other contracts that must be within the statute. If applicable, the usual exceptions to the statute of frauds will apply. Consideration . A Guaranty executed at origination does not
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