• Guaranty of Note’s Recourse Provisions
  • February 22, 2018 | Author: Edward J. Levin
  • Law Firm: Gordon Feinblatt LLC - Baltimore Office
  • In Suryan v. CSE Mortgage, L.L.C., No. 0452, Sept. Term, 2016, 2017 WL 3667657 (Md. Ct. Spec. App. Aug. 25, 2017), the Court of Special Appeals held that a guarantor was not liable for attorneys’ fees incurred by a lender in collateral litigation.

    Frank Suryan had guaranteed the recourse obligations of a promissory note made by Villa Partners in favor of CSE Mortgage, L.L.C. and Capital Source Finance, LLC (collectively, “Capital Source”). After the note was repaid, Villa Partners sued Capital Source in the Circuit Court for Montgomery County, claiming breach of the right of first refusal provisions in the documents. Capital Source filed a counterclaim for attorneys’ fees. Capital Source prevailed in the litigation and on appeal.

    Capital Source then demanded payment on its judgment from Villa Partners and Suryan. It moved for summary judgment on the basis that its claim was under one or two of the recourse provisions of the note. The guaranty provided for liability to the guarantor, Suryan, for the recourse obligations under the note. The circuit court agreed with Capital Source, but the Court of Special Appeals disagreed and reversed.

    When it analyzed the two provisions of the note on which Capital Source relied, the Court of Special Appeals held that Capital Source’s claim did not fall within either of the covered categories. The court held that in the context of the note, the term “insolvency” meant being involved in an insolvency proceeding, not just having liabilities in excess of assets. Also, the provision of the note that permitted Capital Source to collect attorneys’ fees following a default did not allow recovery of the claimed fees, which were incurred in connection with obtaining the judgment and hence were before the default that occurred upon the non-payment of the judgment.