SW Legal Educational Publishing

Business Partners Must Make Good as Guarantors of Business Debt
Description Partners co-signed a business loan and guaranty agreement. Appeals court affirmed verdict in favor of partners whom, when their business defaulted on loan, covered on behalf of partner who failed to contribute. The paying partners had the right, on the guaranty, to foreclose against other property of the non-paying partner.
Topic Negotiable Instruments/Commercial Paper
Key Words Guaranty; Partners
C A S E   S U M M A R Y
Facts Williams, Sandman and Walker were partners in a business called Pavilion. All three signed a letter of credit and a security agreement to obtain a bank loan for Pavilion. Beside each of them signing guaranty agreements, they all pledged their interest in another business they owned together as collateral. When Pavilion defaulted on payment to the bank, the bank demanded payment from the three partners. Sandman and Walker paid; Williams would not. To cover Williams' share, Sandman foreclosed on Williams' interest in the other business and bought Williams' interest at a public sale. Williams sued Sandman and Walker for their actions. The trial court held for defendants; Williams appealed.
Decision Affirmed. Williams contends that the only action Sandman and Walker could take is to sue him for his contribution on the loan to Pavilion; that they could not foreclose on his other partnership interest. That is incorrect. Williams signed a guaranty. A guaranty of payment is an obligation separate and distinct from the original letter of credit. Under state law, Sandman and Walker could thereby foreclose on the collateral promised in the guaranty.
Citation Williams v. Sandman, - F.3d - (1999 WL 598213, 4th Cir.)

Back to Negotiable Instruments/Commercial Paper Listings

©2000  South-Western, a division of Cengage Learning, Inc. Cengage Learning is a trademark used herein under license.