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Bankruptcy | Case Law | Guarantors
GUARANTORS
In re SNTL Corp., 380 B.R. 204 (9th Cir. BAP 2007), aff’d, 571 F.3d 826 (9th Cir. 2009).
A debtor’s previously released liability as a guarantor of an affiliate’s obligation is revived
when the creditor compromised a preference action against it.
Star Phoenix Mining Company v. West Bank One, 147 F.3d 1145 (9th Cir. 1998)
Creditor that fails to preserve deficiency claim against debtor does not forfeit its right to
collect remaining deficiency from guarantor
In re Alcock, 50 F.3d 1456 (9th Cir. 1995)
3-606: SBA’s change of priority on real estate without notice discharged guarantor. No
waiver of defense in loan documents.
Effectiveness of Guarantor Waivers.
1) Guaranty agreement was not enforceable after creditor non-judicially foreclosed on real
estate collateral for the principal note. Citing Cathay Bank v. Lee, 14 Cal.App.4th 1533 (1993),
the Court held that waiver of the ”Gradsky” defense must inform the guarantor that the guarantor
has rights of subrogation and reimbursement and that these rights will be destroyed by foreclosure.
Despite express language in the guaranty (that lender may foreclose by nonjudicial sale, that such
foreclosure would not affect the guarantor’s liability, and that guarantor waives any defense based
on loss of subrogation or reimbursement against borrower), this was held not to be an effective
waiver. Resolution Trust Corp. v. Titan Financial. Corp., 22 F.3d 923 (9th Cir. 1994)
2) Guaranty agreement held to be a sufficient waiver of the Gradsky defense where it stated
that upon default the lender may elect to nonjudicially foreclose even if the effect is to deprive the
guarantor of the right to collect reimbursement from the borrower. In re Pon, 164 B.R. 322
(Bankr. N.D. Cal. 1994) (Carlson, J.) (Decided before Titan Financial. Corp.)
3) The California legislature sought to put an end to this bickering over effective waivers.
A waiver of a suretyship defense is effective whether or not it refers to statutory sections or
judicial decisions. Moreover, the statute sets forth language which is deemed to be an effective
waiver of the Gradsky defense based on the creditor’s election of remedies. Cal. Civ. Code §2856
(effective 1/1/95).
In re Teerlink Ranch, Ltd., 886 F.2d 1233 (9th Cir. 1989)
Payment of a debt extinguishes guarantee.
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HESCA–CAL. CIVIL CODE § 1695 et seq.
Hoffman v. Lloyd, 572 F.3d 999, 1001 (9th Cir. 2009)
“To effectuate its purpose, HESCA obligates a buyer of property that is in foreclosure to
provide to the seller, among other things, notice of the seller’s right to rescind the sale contract. . . .until a buyer complies with this obligation, the seller may cancel the sale contract.” [Citations omitted]. A general release of all known and unknown claims under Cal. Civil Code § 1542 does not vanquish the buyers right to rescind the contract of sale under HESCA. 200