The Efficacy of Guaranty Contracts in Sophisticated Commercial Transactions

Citation data:

61 North Carolina Law Review 655-683 (1983)

Publication Year:
1983
Usage 6461
Downloads 6359
Abstract Views 102
Repository URL:
https://scholarship.law.wm.edu/facpubs/302
Author(s):
Alces, Peter A.
Tags:
Bankruptcy Code of 1978 (11 U.S.C. 544(B)); Guarantees; Contracts; Notice; Law; Sureties; Uniform Commercial Code; Bankruptcy Law; Commercial Law
article description
Even though contracts of guaranty are not subject to uniform standards of interpretation throughout the states, both case law and statutory development have tended to evidence a strong sympathy for the guarantor. In spite of this trend, Professor Alces suggests that creditors' counsel can, through careful drafting, do much to assure the enforceability of the guaranty contract. A scrupulously structured guaranty contract, one that anticipates possible defenses to liability in explicit terms, may well be upheld, even in cases in which guarantors occupied weak negotiating positions vis-a-vis creditors. Moreover, the attack on the guaranty as a fraudulent conveyance under section 548 of the Bankruptcy Reform Act of 1978 can also be successfully avoided. In this instance, the creditor should be prepared to make the argument that solvency of the guarantor is to be assessed on the basis of a "going concern" value. Thus, careful anticipatory drafting, and well-reasoned analysis of "value" in the case of a fraudulent conveyance attack, may assist the creditor who seeks to enforce a contract of guaranty.