[WSBARP] Subrogation Rights of Guarantors?

[Samuel M. Meyler]

Listmates,

 

Entity takes out a loan secured by real property and personal property.  The
loan was personally guaranteed by a sister-company ("Guarantor") of the
borrower.  The Guaranty states that the Guarantor, "absolutely and
unconditionally jointly and severally guarantees prompt payment of and
promises to pay or cause to be paid to the Bank the Obligations. whether or
not the Obligations are valid and enforceable against the Borrower, whenever
the Obligations become due, whether on demand, at maturity or by reason of
acceleration, or at the time the Borrower of the Guarantor shall become the
subject of any bankruptcy or insolvency proceeding."

 

Client had a contract for services with a perfected security interest in the
personal property.  Borrower-entity is dissolved and Guarantor pays off the
debt.  Guarantor asserts that because it paid off the underlying debt it is
subrogated to the lender's first position security interest in the assets,
essentially jumping Client's security interest.

 

The fact that the Guarantor is "absolutely and unconditionally jointly and
severally" gives me pause.  The logic of a subsequent creditor, the
Guarantor, stepping into the shoes of a priority creditor doesn't seem to
fit someone that is already liable for the initial debt.  Does the Guarantor
get the benefit and preferred treatment of stepping into the lender's shoes
because it paid off the debt when the Guarantor was absolutely and
unconditionally jointly and severally liable for the debt already?

 

 

Samuel M. Meyler

Meyler Legal, PLLC 

1700 Westlake Ave. N., Ste. 200

Seattle, Washington 98109

Tel:  206.876.7770

Fax:  206.876.7771

Email:   <mailto:samuel at meylerlegal.com> samuel at meylerlegal.com

  

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