Lenders Should Require Guarantors to Sign Loan Commitment Letters
In a recent case, two individuals who guaranteed a loan to an affiliated company and executed and delivered guarantees of the loan but did not sign the loan commitment, argued that provisions in the loan commitment that were not restated in the guarantees should not apply to the guarantors. Specifically, the guarantors objected to the forum selection clause, which was contained only in the commitment letter and not in the guarantees.
The court found that the guarantors had guaranteed the loan and received benefit from the loan. The court noted that the guarantee referred to all the loan documents that evidenced and secured the loan, and therefore absent a contrary provision in the guarantees, the terms of the loan commitment should apply to the guarantors. Furthermore, the loan commitment set forth the requirement that the guarantors guarantee the loan as a condition to closing the loan.
Although the lender ultimately prevailed in this litigation, the lender was delayed in collecting the amount owed from the guarantors and incurred the expense of litigation. Therefore, the obvious lesson is that not only the borrower but all guarantors should execute a loan commitment.
Larry Lerman is a commercial transactions attorney who closes deals for real estate owners and investors, banks, and other businesses throughout the Washington metropolitan area. He structures and documents complex commercial lending arrangements and represents parties who are buying, selling, leasing, and financing commercial real estate. For more information, contact Larry at 301-657-0163 or firstname.lastname@example.org.