This is the second installment of the five ways lenders make their collection actions more difficult.
RULE #2: STICK YOUR CUSTOMER’S UNCONDITIONAL AND UNLIMITED GUARANTY IN THE FILE AND DON’T WORRY ABOUT IT AGAIN UNTIL IT’S TIME TO SUE
The Iowa Supreme Court complicated the lives of Iowa lenders in 2003 when it declared that it was the “custom and practice” of the banking industry to provide a guarantor with written notice of the terms of any new loan that the lender considers to be covered by a prior guaranty. Beal Bank v. Siems, 670 N.W.2d 119 (Iowa 2003). In that case, the Supreme Court found that a lender had “abandoned” a written guaranty due in part to its failure to give such written notice to the guarantor. Any lender who fails to give such notice to its guarantors now has the pleasure of explaining to a judge (or jury) why it is not following industry custom and practice.
The Beal Bank case also illustrates the importance of Rule #1. In Beal, the Bank’s form of guaranty did not include the notice language of 535.17. There was some language in the guaranty which generally provided that “no alteration of or amendment to this Guaranty shall be effective unless given in writing and signed by the [parties].” However, because that language was not in boldface ten-point type, the Court found it was not sufficiently conspicuous to make 535.17 applicable.
For more information contact Jon P. Sullivan of Dickinson Mackaman Tyler & Hagen, P.C.
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