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Brae Asset Fund, L.P. v. Newman

A-7169-97T2, 2000 WL 17318 (N.J. Super. App. Div. 1999)

LOANS; GUARANTIES—Those provisions of a loan guaranty that give the lender the almost unfettered right to deal with the collateral are enforceable against a guarantor.

An advertising agency and a related company borrowed from a bank. Each loan was guaranteed by an individual pursuant to a separate Guaranty of Payment. When the borrowers defaulted, the bank filed a collection against the guarantor. In a motion for summary judgment, the guarantor asserted that the bank had wrongfully declared the borrowers’ promissory notes to be in default. The guarantor also claimed that the bank advised the borrowers’ customers to pay the receivables due directly to the bank. Although the borrowers obtained a preliminary injunction restraining the bank from, among other things, interfering with their client relationships, the guarantor claimed, by the time the injunction was issued, the customers had already stopped paying their obligations. Consequently, the guarantor argued that as a result of the bank’s wrongful actions, the borrowers became hopelessly behind in their collections and were driven out of business. The lower court dismissed the guarantor’s arguments as being merely conclusory assertions and granted summary judgment in favor of the bank. The Appellate Division affirmed. The Guarantees were “unambiguous and at least as broad” and as specific as guarantees in prior cases that held against guarantors. The pertinent portions of the guarantees showed that “(a) the obligations were absolute, continuing, and unconditional, (b) the Bank had the right to release, compromise, or settle a claim without affecting the continuing liability of the guarantor, (c) the Bank had the right to release, substitute, or fail to protect or insure any part of the collateral without affecting the liability of the guarantor, (d) the Bank had the right to fail or delay in exercising any rights or remedies against the Borrower and [sic] in the event of default, and (e) in the event of default the bank had the right to proceed directly and without notice against the guarantor without first proceeding against the Borrower or in respect of any collateral held by the Bank.” For that reason, the Court was satisfied that the guaranties, “even as strictly construed and interpreted most adversely against the Bank, preclude [guarantor’s] asserted defenses to their enforcement.”


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