The Efficacy of Guaranty Contracts in Sophisticated Commercial Transactions

Even though contracts of guaranty are not subject to uniform standards of interpretation throughout the states, both case law and statutory development have tended to evidence a strong sympathy for the guarantor. In spite of this trend, Professor Alces suggests that creditors\u27 counsel can, through careful drafting, do much to assure the enforceability of the guaranty contract. A scrupulously structured guaranty contract, one that anticipates possible defenses to liability in explicit terms, may well be upheld, even in cases in which guarantors occupied weak negotiating positions vis-a-vis creditors. Moreover, the attack on the guaranty as a fraudulent conveyance under section 548 of the Bankruptcy Reform Act of 1978 can also be successfully avoided. In this instance, the creditor should be prepared to make the argument that solvency of the guarantor is to be assessed on the basis of a going concern value. Thus, careful anticipatory drafting, and well-reasoned analysis of value in the case of a fraudulent conveyance attack, may assist the creditor who seeks to enforce a contract of guaranty