Thursday, November 18, 2010

Is your Texas Guaranty Waiver language up-to-date?

If you have ever seen a typical loan guaranty, you probably know that it takes about one sentence to say that the guarantor guarantees certain indebtedness on behalf of the borrower and several paragraphs (perhaps several pages) for the guarantor to waive many of the defenses to such guaranty and many of the rights of the guarantor.   A lender relying on such guaranty certainly hopes that it has covered all of its basis with respect to such waivers.

For example, Section 43.002 of the Texas Civil Practice and Remedies Code provides that upon a lender having a right of action against a brorrower (such as for the borrower's failure to repay a loan in a timely manner), the guarantor may require the lender to "without delay bring a suit on the contract."  If the lender fails to promptly sue the borrower, the guarantor may be discharged from liability under the guaranty.  As you might expect, it is not unusual for the lender to seek a waiver of this right from the guarantor. 

This right of the guarantor to require the lender to promptly sue the borrower could previously be found in Section 34.02 of the Texas Business and Commerce Code until it (and several similar provisions) were moved to the Texas Civil Practice and Remedies Code effective April 1, 2009.

Texas lenders would be wise to update their guaranty forms to ensure that references to the old Chapter 34 of the Texas Business and Commerce Code now reference Chapter 43 of the Texas Civil Practice and Remedies Code instead.

Special thanks to my colleague, Paul Hendry, who brought this statutory change to my attention.

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