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Waiver of Defenses Eliminates Defenses Against Discharge of Debt
Description A major shareholder personally guaranteed loan to corporation. When the corporation defaulted, the shareholder placed all assets with a brokerage firm in the name of another company he owned. Appeals court held that because loan guarantee contained a waiver of all defenses against collection, he could not avoid responsibility to pay.
Topic Negotiable Instruments/Commercial Paper
Key Words Guarantee Agreement; Waiver of Defenses
C A S E   S U M M A R Y
Facts Prodipe borrowed money from CFC to develop a resort in Mexico. Payment was guaranteed by Prodipe's major shareholders. The guarantee agreement was governed by New York law and contained a general waiver of defenses. When Prodipe defaulted and CFC attempted to collect, one shareholder, Weinstock, directed Merrill Lynch to hold his assets in marketable securities in the name of a company he owned. When Weinstock would not pay CFC, it sued Merrill Lynch, which claimed Weinstock's assets could not be reached. District court ruled against CFC, holding that Merrill Lynch was not affected by the loan agreement. CFC appealed.
Decision Reversed. The guarantee agreement waived "all legal or equitable ... defense[s]." Hence, the waiver of defenses reached all transactions related to the obligations that existed under the loan. The fact that CFC took over Prodipe's operations did not affect the debt obligations.
Citation Compagnie Financiere de CIC et de L'Union Europeenne v. Merrill Lynch, - F.3d - (1999 WL 594901, 2nd Cir.)

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