Q: UPDATED: Guarantor responsibility when borrower SUFFERS unforeseeable illegal actions that result in impossibility
Thank you for responses. Added missing info. Small business gets loan, guaranteed by third party guarantor, for early operations (almost all went to into fixtures) with understanding loan would be repaid from cashflow. Services offered ONLY at facility, which must be permitted. Signed 10-yr lease and got permit (location-specific, not portable). Shortly after, Borrower is victim of illegal actions by landlord which led to eviction (court found fraud + breach). Losing facility rendered its business completely impossible (not just impracticable, or temporarily impossible ), so it can no longer operate (and cannot pay loan with no cashflow). Does ceasing operations excuse it from the loan/is note void? Will this unforeseen impossibility excuse guarantor of the NOTE, since impossibility extinguished the note? So, canceled lease --> impossibility --> loan void --> note canceled --> guaranty of note extinguished?
A:
When a borrower is unable to repay a loan due to unforeseeable and illegal actions by a third party, the doctrine of "impossibility" could potentially be invoked. However, this generally does not automatically void the loan or the promissory note. The borrower may still be responsible for the debt unless a court determines that the specific circumstances legally excuse them from repayment.
For the guarantor, their liability typically depends on the terms of the guaranty agreement. If the agreement includes language that excuses the guarantor in cases of impossibility or similar situations, the guarantor may have a defense. However, most guaranty agreements are written to ensure that the guarantor remains liable, even if the borrower faces unforeseen difficulties.
It is important to closely examine the loan documents, guaranty agreement, and any court rulings on the landlord's illegal actions. A legal determination may be required to establish whether impossibility of performance applies and how it affects both the borrower’s and guarantor’s obligations. You may want to seek legal guidance to understand your specific rights and responsibilities under California law.
A: Impossibility is an affirmative defense you will need to raise in court if the creditor seeks to enforce the contract. The judge will determine if it is impossible under the law based on the specific facts.
Justia Ask a Lawyer is a forum for consumers to get answers to basic legal questions. Any information sent through Justia Ask a Lawyer is not secure and is done so on a non-confidential basis only.
The use of this website to ask questions or receive answers does not create an attorney–client relationship between you and Justia, or between you and any attorney who receives your information or responds to your questions, nor is it intended to create such a relationship. Additionally, no responses on this forum constitute legal advice, which must be tailored to the specific circumstances of each case. You should not act upon information provided in Justia Ask a Lawyer without seeking professional counsel from an attorney admitted or authorized to practice in your jurisdiction. Justia assumes no responsibility to any person who relies on information contained on or received through this site and disclaims all liability in respect to such information.
Justia cannot guarantee that the information on this website (including any legal information provided by an attorney through this service) is accurate, complete, or up-to-date. While we intend to make every attempt to keep the information on this site current, the owners of and contributors to this site make no claims, promises or guarantees about the accuracy, completeness or adequacy of the information contained in or linked to from this site.