“There Can Be No Serious Dispute” That An Absolute Guaranty Is Strictly Enforceable

Another important opinion about the enforceability of guaranties was published on June 6, 2016, by Division I of the Washington Court of Appeals, and we again represented the prevailing party in the case.  It is Union Bank v. Blanchard, No. 194 Wn. App. 340.  Members of an LLC guaranteed a real property development loan made by Frontier Bank.  Frontier Bank was closed in 2010, and the FDIC sold most of Frontier Bank’s assets to our client, Union Bank, including the guaranties.

After the real estate development was sold by a Chapter 7 bankruptcy trustee following a state court receivership, over $40 million remained due on the guaranteed loans. Union Bank sued the guarantors, who defended by alleging that the guaranties were not enforceable.  The trial court rejected the defenses and granted summary judgment to Union Bank.The guarantors appealed unsuccessfully to the Washington State Court of Appeals, which held:

  1. “There can be no serious dispute that that express terms of the guaranties make them unconditional guaranties of payment and waive nearly all counterclaims and defenses, except payment.”
  2. The statute of frauds, RCW 19.36.110, prevents a guarantor from using fraudulent inducement as a defense unless the defense is proved by a written document that has been signed by the lender.  The documents presented by the guarantors were not signed by the lender.
  3. Because Union Bank bought the guaranty from the FDIC, Union Bank was entitled to rely upon the FDIC’s rights under 12 U.S.C. § 1823(e) and the D’Oench Doctrine, which bar a guarantor’s defenses based on fraudulent schemes or arrangements unless they are proved by writings signed by both the guarantor and the lender.
  4. The guarantors cannot defend by complaining that the lender is acting in bad faith when the lender seeks specific performance of the guaranties’ terms.
  5. The guarantors’ complaints about actions taken in the receivership by the receiver, and in the bankruptcy case by the trustee, cannot be attributed to the lender, and also fail because the guarantors actively participated in both the receivership and the bankruptcy and are bound as a result.

The Court of Appeals also awarded Union Bank its attorneys’ fees and costs on appeal.

The opinions expressed in this article are those of the authors and do not necessarily reflect the views of Riddell Williams or its clients.  This article is for general informational purposes and is not intended to be, and should not be taken as, legal advice.

The Riddell Williams Financial Services and Creditors’ Rights Group covers the entire field of creditor and debtor law; including bankruptcies, receiverships, foreclosures, workouts, loan documentation and collections. Our attorneys assist clients from the United States and numerous other countries in bankruptcy and creditors’ rights matters throughout the U.S. We work in close cooperation with other practice areas in the firm to advise on secured and unsecured financing, commercial and real estate transactions, the purchase and sale of financially troubled companies, technology licensing, corporate matters and a multitude of other business situations.