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Posted: April 29, 2016

Guaranty Waiving All Affirmative Defenses Precludes Statute of Limitations Dismissal

On April 11, 2016, Justice Kornreich of the New York County Commercial Division issued a decision in Sotheby’s Inc. v. Mao, 2016 NY Slip Op. 30708(U), holding that a guaranty that waived all affirmative defenses waived a statute of limitations defense.

In Sotheby’s, the defendant business owner guarantied a loan from the plaintiff to his business. The guaranty provided that the guarantor’s “obligations hereunder shall be absolute and unconditional, shall not be subject to any counterclaim, setoff, deduction or defense the Company may have against [the plaintiff] or any other person . . . .” (Emphasis added). When the company defaulted on the loan, the plaintiff sought, among other things, to collect on the guaranty. The guarantor moved to dismiss on, among other grounds, the statute of limitations. The court refused to dismiss on that ground, explaining:

The Guaranty, unlike the Agreement, is absolute and unconditional and waives all possible affirmative defenses, including the statute of limitations. As recently reiterated by the Court of Appeals: Guaranties that contain language obligating the guarantor to payment without recourse to any defenses or counterclaims, i.e., guaranties that are absolute and unconditional, have been consistently upheld by New York courts. Absolute and unconditional guaranties have in fact been found to preclude guarantors from asserting a broad range of defenses. Indeed, as the Court noted, the guarantor may not raise as a defense the expiration of the statute of limitations against the primary obligor. Hence, while dismissal of [the plaintiff’s] claims under the Agreement may ultimately be required by the statute of limitations, such dismissal would not absolve [guarantor] of liability. In other words, the subject guaranty effectively provides that, even if the principal is able to escape liability, the guarantee is still enforceable.

(Internal quotations and citations omitted).

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