Borrower Liable to Guarantor for Losses Caused by Borrower's Default Under Loan

Posted: September 17, 2025 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Category Breach of Contract

Borrower Liable to Guarantor for Losses Caused by Borrower's Default Under Loan

On July 29, 2025, Justice Joel M. Cohen issued a decision in Ader v. Ader, et al., Index No. 653917/2024, granting summary judgment against defendant borrower for breach of an agreement between borrower and plaintiff guarantor under which borrower gave guarantor the right to sell borrower's real property if borrower defaulted on the underlying loan guaranteed by guarantor, explaining:

Turning to the merits, Defendants admit that Richard agreed to guarantee all of their obligations to BofA in the amount of $13,000,000 on the condition that Jason and Holdings agreed to perform all obligations under the loan documents, be solely responsible for paying all real estate taxes, insurance premiums, and maintenance for the Property, and treat any payments made by Richard in connection with the loan as loans from Richard to Jason and Holdings with interest at 6% per annum compounded monthly (NYSCEF 109 [Amended Response to SMF] ¶ 7).1 The parties further agreed that if Jason or Holdings failed to repay such loans from Richard within 60 days of a demand for repayment, Richard could invoke specific remedies, including the sale of the Property or Jason’s interest in Holdings, with Jason and Holdings being responsible for taking all actions necessary to effectuate such sales (id.). Defendants admit that these terms were memorialized in writing in the March 2020 Agreement, which further provides that “[f]or the purpose of exercising the rights granted by this Agreement...Jason and Holding hereby irrevocably constitute and appoint Richard...their true and lawful attorneys-in-fact, upon and during the existence of any default by Jason or Holding in his or its obligations hereunder, to execute, acknowledge and deliver any instruments and to do and perform any acts in the name of and on behalf of Jason and Holding” (id. ¶ 10; NYSCEF 5 § 8).

Plaintiff’s first cause of action seeks enforcement of the March 2020 Agreement via a judgment declaring that “(a)…under Paragraph 8 of the March 2020 Agreement, Plaintiff is the true and lawful attorney-in-fact for Defendants for purposes of taking all actions and executing all documents necessary to sell the Property on terms acceptable to Richard’s Estate, i.e., immediately retaining a broker acceptable to Richard’s Estate, with Richard’s Estate having sole control over the timing and terms of any proposed sale of the Property, and with the proceeds of such sale being used to (i) satisfy the $13 Million Loan, transfer taxes incurred in connection with such sale, any third party costs and expenses incurred in connection with such sale of the Property, and reimburse Richard’s Estate for all amounts due and owing under the March 2020 Agreement, with (ii) the remaining proceeds (if any) distributed to such person or persons as are lawfully entitled thereto; or (b) in the alternative, requiring Defendants to take all actions and execute all documents necessary to take the above actions.” This request is consistent with the terms of the March 2020 Agreement, and the undisputed facts demonstrate Defendants’ default and Plaintiff’s entitlement to such relief. Accordingly, Plaintiff has established a prima facie case for summary judgment on this claim.

The court also rejected borrower's defenses based on, among other things, impossibility and unclean hands, holding:

With respect to the purported defense of impossibility, Defendants assert that Jason’s ex-wife and his parents conspired in 2021 to deprive him of funds he needed (and intended) to service the debt. However, Defendants point to no obligation imposed on Richard to ensure Jason maintains sufficient funds to avoid defaulting on the BofA loan. Moreover, as a factual matter, the record demonstrates that performance was not impossible: Defendants continued to meet their obligations until Richard’s death in 2023 (NYSCEF 109 ¶¶ 8, 16) and only thereafter failed to do so. Finally, the defense of impossibility is unavailing because “economic inability to perform [their] contractual obligations, even to the extent of insolvency or bankruptcy, is simply not a valid basis for excusing compliance” with the March 2020 Agreement (Stasyszyn v Sutton E. Assocs., 161 AD2d 269, 271 [1st Dept 1990]).

The unclean hands defense likewise fails. The undeniable core fact is that Richard came to his son’s aid by helping him secure financing and, in the March 2020 Agreement, simply took reasonable measures to ensure he (or his estate) would be made whole if his son failed to repay the loan, which is all Plaintiff seeks in this case. There is nothing remotely “unclean” or inequitable about Richard’s conduct or that of his executor. Defendants’ unsubstantiated theory (which, even if true, is of no legal consequence) that Pamela Ader (the executor of the estate) and Jason’s ex-wife conspired to orchestrate a default on a loan that the estate would be forced to repay defies common sense as well as principles of equity that inform any defense of unclean hands.

It is unremarkable that a guarantor was permitted to recover from the borrower amounts that the guarantor had to pay to the lender, and there are plenty of cases permitting this type of recovery even without an underlying contract between borrower and guarantor. But what is interesting about this case is that the contract between the borrower and guarantor permitted the guarantor to sell the borrower's real property as borrower's attorney-in-fact, and that the court specifically enforced this provision. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning commercial-lending or indemnification matters.