III. Guaranties

– Western Surety Company v. FutureNet Group, Inc., 2017 WL 227957 (E.D. Mich. 2017) – The defendant in an action on an indemnification agreement, which the court had preliminarily enjoined from transferring of any of the collateral for its obligations outside the ordinary course of business, would not be permitted to factor $997,500 in receivables for $750,000. Such a transaction would effectively be a loan at a 24.9% interest rate, would not be in the ordinary course of business, and was not shown to be necessary.

–   Firestone Financial, LLC v. Meyer, 2017 WL 714110 (N.D. Ill. 2017), appeal filed, (7th Cir. 2017) – The lender that provided loans to finance the acquisition of equipment was entitled to summary judgment against the guarantor of those loans even if, as the guarantor alleged, the lender failed to fulfill an oral promise to make additional loans and that failure led to the demise of the borrower’s business. The alleged oral promise was too vague to be enforceable because it did not indicate the interest rate or the repayment period. Moreover, it was not reasonable for the guarantor, a former businessman and disbarred attorney, to relyon the alleged promise because it entailed funding new equipment purchases without further question, the signing of documents, or any further review of the guarantor’s finances, all of which the lender had done prior to making the earlier loans.

– Regions Bank v. Thomas, 2017 WL 4585612 (Tenn. 2017) – A secured party that failed to provide the guarantors with notification of its planned disposition of the collateral did rebut the resulting presumption that no deficiency was owning by submitting evidence that disposition proceeds exceeded the fair market value of the collateral at the time of the disposition. However, because the secured party still has the burden of proof on what deficiency is owing, the guarantors could submit evidence that, with notification, they would have satisfied the secured obligation. The guarantors lacked standing to seek recovery of a surplus, even if a proper disposition would have yielded a surplus.

– Walker v. Probandt, 902 N.W.2d 468 (Neb. Ct. App. 2017) – An individual who signed a promissory note as an accommodation party was liable for the unpaid portion of the note to the entity to whom the note was assigned when another accommodation party entered into a settlement with the payee. The claim was not an action for contribution, but an action on the note by the assignee.

– Vaneiser, LLC v. Nebraska Bank of Commerce, 2017 WL 1229931 (Neb. Ct. App. 2017) – The bank with a security interest in the assets of an LLC and which, pursuant to a settlement agreement, conducted a public sale of the assets, was entitled to apply some of the sale proceeds to pay the LLC’s obligation, under a guaranty, for the deficiency remaining on the debt of a sister entity following foreclosure of a deed of trust. The settlement agreement did not release the LLC of its liability on the guaranty. The bank could not, however, use any of the sale proceeds to pay a $12,500 auction fee that the bank charged, even though the settlement agreement provided for the LLC to pay “costs associated with . . . the auction.”

– Sterling Savings Bank v. Thornburgh Resort Co., 694 F. App’x 568 (9th Cir. 2017) – Although the owner of real property that gave a bank a deed of trust on the property to secure a third party’s debt thereby acquired suretyship status, the owner did not perform its secondary obligation until the bank foreclosed. Consequently, even if the bank impaired the owner’s suretyship status by releasing cash collateral, that occurred before, not after, the owner performed. Because performance was with knowledge of the impairment, the owner had no defense based on the impairment.*

– Ford Motor Credit Co. v. Orton-Bruce, 2017 WL 1093906 (S.D.N.Y. 2017) – The continuing guaranties that the owner of a car dealership and his wife provided to an automobile manufacturer, and which provided for termination with respect to future indebtedness by providing notification sent by registered mail, remained in effect after the owner sold the dealership to his son. Neither guarantor sent notification of termination. It did not matter that the manufacturer had approved the sale.*

– York v. RES-GA LJY, LLC, 799 S.E.2d 235 (Ga. 2017) – A mortgagee that judicially foreclosed on several items of real property but was denied judicial confirmation of the sales because it failed to prove that it had obtained the fair market value of the properties sold was nevertheless entitled to judgment against the guarantors of the debt. The guarantors, by expressly waiving in the guaranty agreements “all rights or defenses based on suretyship or impairment of collateral including, but not limited to, any rights or defenses arising by reason of . . . ‘anti-deficiency’ law” had effectively waived the protection of the state confirmation statute, which is a defense based on suretyship and based on an “anti- deficiency” law.

– G & W Warren’s, Inc. v. Dabney, 218 Cal. Rptr. 3d 75 (Cal. Ct. App. 2017) – A written guaranty executed in connection with the sale of a motorcycle dealership and which covered the obligations under the promissory note and lease did not cover the buyer’s obligations under a noncompete agreement or two consulting agreements. Although the guaranteed “Purchase Price” was expressly stated to be in exchange for, in part, goodwill, there was nothing in the transaction documents to support the seller’s contention that goodwill included the compensation allocated to the noncompete and consulting agreements.*

– The Coastal Bank v. Martin, 2017 WL 5564525 (11th Cir. 2017) – A bank was entitled to obtain a deficiency judgment against the guarantors of a mortgage loan even though the bank had purchased the property at the foreclosure sale and had not obtained a court order confirming that the foreclosure sale price constituted the fair market value of the property because even thought a debtor cannot waive the confirmation requirement, guarantors can under Georgia law and they did in this case.

– Gensco, Inc. v. Johnson, 2017 WL 3589251 (Wash. Ct. App. 2017) – The individual who signed a continuing guaranty of the obligations of a corporation and later rescinded the guaranty remained liable for the obligations incurred prior to rescission. The guaranty was not limited either to debts incurred at only one of the debtor’s locations or to the amount of the desired credit limit in the initial application because the guaranty covered “all existing and future indebtedness.” The creditor’s allocation of a portion of payments received after rescission to the newly incurred debts was effective because the credit agreement expressly stated that the creditor” may apply payments at its own discretion,” unless contrary instructions were provided by the debtor.

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2017-2018 Commercial Law Developments

I. PERSONAL PROPERTY SECURED TRANSACTIONS 
II. REAL PROPERTY SECURED TRANSACTIONS
III. GUARANTIES
IV. FRAUDULENT TRANSFERS AND VOIDABLE TRANSACTIONS
V. CREDITOR AND BORROWER LIABILITY
VI. U.C.C. – SALES AND PERSONAL PROPERTY LEASING
VII. NOTES AND ELECTRONIC FUNDS TRANSFERS
VIII. LETTERS OF CREDIT, INVESTMENT SECURITIES, AND DOCUMENTS OF TITLE
IX. CONTRACTS
X. OTHER LAWS AFFECTING COMMERCIAL TRANSACTIONS