California Court of Appeal Strictly Enforces Carveout Guaranty

In “what appears to be an issue of first impression, not only in California, but in the entire country,” the California Court of Appeal in Series AGI West Linn of Appian Group Investors De LLC v. Eves (June 14, 2013) addressed the following question in its opinion: “If a surety specifically excludes a specified asset from a continuing guaranty, are the proceeds from the sale of that asset still excluded when the surety is called to answer for the guaranty?” In enforcing the guaranty in favor of the lender, the court relied strictly on the plain language of the guaranty and refused to “revise [the] agreement in the guise of construing it.”

Series AGI involved a loan of $3.1 million to a limited partnership, VCP-OR, for the development of a “commercial marketplace” in Oregon. At the time of the loan, defendant Eves executed a “Continuing Guaranty” by which he “promise[d] to pay Lender [Series AGI] … any and all indebtedness … of Borrower [VCP-OR].” (p. 2) A “Guaranty of Loan Addendum” excluded from the Continuing Guaranty, among other things not at issue, “the personal residence of Robert J. Eves at Via Regina, 27 Moltrasio, Como, Italy[,] and its contents.” (p. 2–3) In the summer of 2011, Eves sold the Como residence. After the senior lender foreclosed on the loan, Eves refused to honor the guaranty and Series AGI applied for a pre-judgment order of attachment. Eves opposed, claiming that the proceeds from the sale of the Como house were excluded from any attachment. (pp. 4–5) The trial court denied Eves’s claim of “exemption” and the court of appeals affirmed.

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