[WSBARP] Subrogation Rights of Guarantors?

Tue Feb 18 16:15:48 PST 2020

Nestor,

There is likely a written agreement between borrower and guarantor but I
have not been provided with it.  There is a corporate resolution of the
guarantor authorizing the guaranty and there is obviously the guaranty, but
these are for the benefit of the bank rather than the borrower.

The debt was paid off in full by the guarantor.  Equitable subrogation is
recognized and followed in Washington in the context of funds from one loan
being used to pay off a first position deed of trust.  “We adopt § 7.6 of
the Restatement (Third) and hold WFB West is equitably subrogated to
Washington Mutual's first-priority lien, regardless of either its actual or
constructive knowledge of intervening interests.”  Bank of Am., N.A. v.
Prestance Corp., 160 Wash. 2d 560, 582, 160 P.3d 17, 29 (2007).  

To state the obvious, this is a different situation because the guarantor
was ultimately liable for the debt whereas in that case WFB West funded a
new loan that was used to pay off the first-priority lien.  If the guarantor
was already liable for the debt, are they not being unjustly enriched by
giving them the benefit leapfrogging the second-position lien holder in
order to liquidate the collateral and get paid?  

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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From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com>
On Behalf Of nestor at pplsweb.com
Sent: Tuesday, February 18, 2020 10:39 AM
To: 'WSBA Real Property Listserv' <wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] Subrogation Rights of Guarantors?

Subrogation is typically an insurance concept. However there is the concept
of reimbursement or contribution (see Honey v Davis Washington Supreme Court
case). There was also an article a couple of years ago in the Real Property,
Trust And Estate Law Journal by a Seattle lawyer that discussed this issue. 

In this case, was there a written agreement between guarantor and borrower?
In addition, was the debt paid off or did the Guarantor request an
assignment of the existing debt and the security interest?

Other states have applied the doctrine of “equitable subrogation” to avoid
an “unfair” result in a transaction. 

Nestor Gorfinkel, Attorney at Law

Licensed in Washington & Florida

Florida Civil-Law (International) Notary

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From: wsbarp-bounces at lists.wsbarppt.com
<mailto:wsbarp-bounces at lists.wsbarppt.com>
<wsbarp-bounces at lists.wsbarppt.com
<mailto:wsbarp-bounces at lists.wsbarppt.com> > On Behalf Of Samuel M. Meyler
Sent: Tuesday, February 18, 2020 9:34 AM
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Subject: [WSBARP] Subrogation Rights of Guarantors?

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

NOTICE:

This electronic message contains information which may be Confidential or
Privileged and constitutes an electronic communication within the meaning of
the Electronic Communications Privacy Act 18 USC 2510. The information is
intended to be for the use of the individual or entity named above.  If you
are not the intended recipient, please be aware that any disclosure,
copying, distribution or use of the contents of this information is
prohibited.  If you received this transmission in error, please notify the
sender and delete the copy you received together with any attachments.
Thank you.

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