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Fleet National Bank v. Tuckman

A-3442-03T2 (N.J. Super. App. Div. 2005) (Unpublished)

LOANS; GUARANTEES—A waiver or impairment of collateral in a guaranty is not violative of public policy.

A bank extended a line of credit loan to a company. The loan was guaranteed by the company’s two principals on an absolute and unconditional basis. The guaranty contained the following provision: “The Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Guaranty and any requirement that [lender] exhaust any right or take any action against [company-borrower] or any other person or entity or any collateral.”

The borrower failed to pay the loan. It was subsequently evicted from its warehouse. The lender’s appraiser inspected the company’s warehouse and opined that the borrower’s inventory was virtually worthless. Three months later, the lender again inspected the warehouse finding essentially the same items. It then notified the guarantor that if the guarantor wished to purchase the inventory, the lender would relinquish its interest to the landlord within two days. It did.

The lender sued the guarantors. One guarantor defended the suit, alleging that “the strict liability section of the guarantee was void as against public policy and that [the lender’s] alleged wasting of [the borrower’s] inventory either discharged or reduced the amount of the guarantor’s obligation and that a hearing was required to determine the amount of the reduction.” The lower court rejected those arguments. On appeal, the Appellate Division upheld the lower court’s ruling. It found that the lender had acted in good faith when it offered the guarantor the opportunity to purchase and sell the inventory to reduce his obligation. The lender did not prevent the guarantor or the borrower from selling the collateral. It “merely abandoned its interest in the inventory and left it in the warehouse where it was located.” The security agreement did not require the lender “to pursue the collateral as a condition precedent to pursuing” the guarantors. Further, the Court found that “[e]ven if there were an impairment of the collateral, [the guarantors] expressly and unequivocally waived it as a collateral defense in the guaranty.” The “guaranty language did not violate public policy. This type of waiver is expressly permitted under N.J.S.A. 12A:3-605i of the Uniform Commercial Code.”

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