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A Lack of a Written Release Costs a Florida Guarantor in a Multi-Million Dollar Dispute Over a Failed Construction Loan

Recently a dispute over a personal guaranty on a loan went before the Third District Court of Appeal. That the case made it all the way to the appeals court was not surprising, as there were tens of millions of dollars on the line. As with so many commercial litigation matters, the outcome came down to the details of the drafting of the agreement. Given how much every detail can matter in these transactions, one thing to learn from this case is that it is extremely important to be sure you have skilled South Florida commercial litigation counsel on your side.

The transaction that set off the subsequent chain of events, including litigation, was a 2005 agreement for financing. Several entities, of which M.R. was a principal, reached an agreement with a bank for a revolving mortgage note and construction loan. The principal amount was $41 million. The entities intended to develop waterfront condominium homes in the Tampa area. M.R. personally guaranteed the loan.

Unfortunately for M.R. and his entities, the recession and the real estate market crash intervened. Most of the condo purchasers defaulted. By May 2008, the bank declared the loan in default due to non-payment. The bank moved to foreclose, and a $38.9 million judgment of foreclosure was entered. The obligation changed hands a few times and eventually a Tampa-area LLC emerged as the assignee.

The assignee went to court in Miami asking the judge to enforce the judgment against M.R. based on his personal guaranty of the loan. M.R. argued that he was not liable under the personal guaranty at all because he had been released from that obligation. M.R. pointed to language in the original loan agreement stating that the bank would release M.R. from the guaranty if the borrower delivered a set number of pre-construction sales contracts to the bank.

According to the guarantor, that’s exactly what happened. He delivered 125 pre-construction sales contracts to the bank in early May 2005, and that delivery automatically released him and ended his obligation under the guaranty. The assignee’s argument in response was that the guarantor had misconstrued the release provision and that the release was not automatic (but instead required a written release). The bank never gave the guarantor a written release in May 2005 or any other time and, as a result, the obligation of the guaranty remained in force, according to the creditor’s argument.

In this situation, the court decided that the details contained in the agreement document pointed to a need for a written release. Specifically, the court looked at a provision that said that “upon the Borrower’s satisfaction of the Pre-Sales Requirement… Guarantor shall thereafter be released from his obligation.” That wording, in the view of the appeals court, indicated “a sequence of events rather than… a simultaneous and automatic occurrence.”

The guarantor’s position — that the contract was describing a requirement that, once met, would thereafter trigger an automatic release of the guarantor’s obligations under the guaranty — might seem plausible on its face, but it nevertheless failed. M.R.’s lack of success in litigation demonstrates, once again, two essentially important things in any commercial transaction: understanding exactly what it is you have negotiated in your contract (down the smallest detail) and ensuring any contract you sign accurately reflects what you believe you negotiated for.

For wise advice and reliable representation at every step of the way, call upon the skilled South Florida business attorneys at Stok Kon + Braverman. Our experienced team has been helping clients protect their business interests for many years.

Contact us online or by calling (954) 237-1777 to schedule your consultation and find out how this firm can help you.

More blog posts:

What it Takes to Secure (or Stop) the Issuance of an Injunction in Your Florida Commercial Litigation Matter, Florida Business Lawyers Blog, Nov. 30, 2018

Florida Landlord Loses Action Against Guarantor Due to a Failure to Issue a Demand Before Suing, Florida Business Lawyers Blog, June 22, 2018