Appellate Law

CA1: guarantors gotta pay

By S. COTUS

Wheeler v. Blumling, No. 07-1992.  A loan broker became a guarantor on a loan with a ?breathtaking? interest rate  ? over 1000% per annum.  The guaranty agreement specified a maximum amount that he would be liable for.  The guys that wanted the guarantee were ?indicted in the Southern District of New York on charges of conspiracy and wire fraud.?  The loan defaulted.  The broker/guarantor later signed a forbearance agreement, waiving defenses. He didn?t pay on that, either.   

You.  Read.  On.

The broker says it isn?t fair, or in law talk, ?frustration of purpose of the contract and modification of the guaranty by oral agreement.? Applying Kentucky law, the First says ?Suffice it to say, none of the authorities cited by Blumling stands for the rule that a borrower's (or his guarantor's) obligation to repay borrowed money depends on the success of the venture on which he spent the money.?

There is some discussion of how some discussions did not constitute an oral modification, but rather ?assertions of prior oral negotiations that contradict the written instrument he executed.?  Then, I the First starts talking about the parol evidence rule.  ?Blumling does not argue that the whole contract was obtained by fraud or that the parties meant it as a sham contract; instead, he only wants to contradict particular terms of a contract which has already been performed on Wheeler's side and of which Blumling has already enjoyed the benefits (fleeting though they were). This is exactly what the parol evidence rule forecloses.?  However, at first blush, the way the First words it, it might be jumping to the conclusion that the parol evidence rule applies, when to do so, you would have to conclude that it was not a modification.

Full post as published by Appellate Law and Practice on March 25, 2008 (boomark / email).