Originally from:
Advising Minnesota Corporations and Other Business Organizations - 2nd Edition - Hardcover
Advising Minnesota Corporations and Other Business Organizations - 2nd Edition - Electronic
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CHAPTER 22
GUARANTIES
Section
§ 22.01 Introduction
§ 22.02 Shareholder Defenses to Liability as Guarantor--Lack of
Consideration
§ 22.03 --Material Alteration
§ 22.04 --Extension of Payments
§ 22.05 Obligations of Guarantor
§ 22.06 Usury
§ 22.07 --“Direct and Primary” Exception
§ 22.08 --“Individual Purpose” Exception
§ 22.09 Summary
§ 22.01 Introduction
Lenders have removed one of the primary advantages of
incorporation for the shareholder in a close corporation--limited
liability--in order to increase the security position of the lender. The
practice of obtaining a guaranty has also become common among trade
creditors, where substantial amounts of credit are advanced. It has long
been common for the majority shareholders of a corporation to undertake
the obligation of guarantor of the corporation’s debt obligations.1
Minnesota has recognized that an unconditional guaranty is a separate
obligation from the principal obligation.2 According to the Minnesota
Supreme Court: "A [guaranty] is an undertaking or promise to pay on the
part of one person that is collateral to a primary obligation and then binds
the guarantor to performance in the case of the default on the one
primarily bound."3 Accordingly, there are several standard contract
defenses to the liability imposed by a guaranty, as well as several
defenses that are particular to guaranties. This Chapter focuses on
guaranties and the defenses that have been recognized in Minnesota.
§ 22.02 Shareholder Defenses to Liability as Guarantor--Lack of
Consideration
All contracts require consideration, and guaranties are no different in
this respect.4 The Minnesota Supreme Court has held that the guarantor
need not receive any personal benefit; all that is needed to constitute
consideration is detriment suffered by the lender.5 Therefore, a lender
will likely argue that, absent the shareholder’s guaranty, the lender would
not have loaned the corporation the funds at issue.6 In all practicality,
shareholders will not be successful in arguing the defense of a lack of
consideration regarding guaranties executed contemporaneously with the
loan documents. Shareholders may have better success where the
guaranty was executed after the loan was made, and with no additional
detriment--such as forbearance--to the lender.
Roger J. Magnuson is a Partner at Dorsey and Whitney, LLP, where he serves as Head of the National Strategic Litigation Group and has practiced since 1973. He has been recognized as one of the top trial lawyers in the United States by major national and international publications, including Chambers International Guide to American Lawyers, which profiles the top 500 trial lawyers in the United States, Best Lawyers in America, Who's Who in American Law, and Who's Who in America. Mr. Magnuson was also recognized by a Journal of Law and Politics' survey for Judge's Choice "Wins Most Cases."
Some high profile cases that he has litigated include representation of the Florida Senate in the Bush v. Gore election controversy in 2000; and representation of the Plaintiffs in the widely publicized and studied Mall of America case. For several years he has represented, among other persons and entities, the Minnesota Twins and Major League Baseball principals and players in litigation; and has litigated national and local cases in federal and state court venues. He has appealed before the Supreme Court in a number of cases; as well as the Minnesota Supreme Court. He has authored several articles and 7 books.
Richard A. Saliterman is a Principal in Saliternan & Siefferman P.C., a full-service firm in Minneapolis established in 1976. Mr. Saliterman is a leading expert on corporate business matters, and is the author of several publications on business start-ups, franchises, and trademarks. Mr. Saliterman is the former National Judge Advocate for the U.S. Navy League, based in Washington D.C.
Contributing Editor:
Amanda Chang
Contributing Authors:
Alecia Anderson
Seth Back
John Baker
Shannon Berg
Constatin Burachek
Benjamin Carpenter
Ryan Check
Carl Christensen
Peter Fear
Michael Frasier
Aaron Hall
Catherine Hanson
Paul Harman
Amy Ithlan
Michael Kern
Chris Kuhlman
