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Legal blog > Real estate > Endorsing a loan... not just an additional guarantee for the creditor

Endorsing a loan... not just an additional guarantee for the creditor

When a loan is granted, there are always inherent risks for a lender. That is why, following their analysis, institutional lenders assess their risk.

«Even by following the straight line exactly, it's difficult to avoid the pitfalls of life»
Pierre-Claude-Victor Boiste

When a loan is granted, there are always inherent risks for a lender. That's why, following their analysis, institutional lenders assess their risk. Sometimes, in their financing offer, they require additional guarantees including guarantees in the form of guarantees up to a percentage of the amounts owed to them.

Thus, a shareholder, after guaranteeing his company up to 20% of all sums owed to the creditor, refuses, following the loan recall, to pay the latter the sum of $250,000. He argues that there is ambiguity between the offer letter and the guarantee contract. He claims that the amount he owes should be calculated after the liquidation of the assets of the company and not at the time of the recall of the loan.

Seized with the case, the court* rejects the shareholder's arguments and sides with the creditor by ruling that:

  • the financing offer letter is not incompatible or in conflict with the guarantee contract but on the contrary, they are complementary;
  • the interpretation of the creditor is correct, since the realization of the securities does not have the effect of reducing the portion of a guarantor's obligations;
  • accepting the interpretation of the guarantor would prevent the creditor from filling the gap between the amounts due when the loan is recalled and the proceeds from the realization of the securities.

The signatories of a guarantee contract never anticipate being forced to repay the amounts owed to the creditor one day. They tend to forget that life is a winding path filled with pitfalls.

*C.A. 200-09-009452-175
François Forget, notary and legal advisor as well as the entire Notaire-Direct team, are at your service to ensure the preparation of your legal documents and answer all your legal questions.
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