Trial court rejects guarantor's attempt to utilize a claim of negligent loan administration as an affirmative defense

William Serangeli Iowa Banking Law Iowa Commercial Litigation Law  Dickinson Law Des Moines Iowa

Posted on 04/13/2015 at 10:45 AM by William Serangeli

On April 8, 2015, Chief Judge Arthur E. Gamble issued his Findings of Fact, Conclusions of Law and Judgment in Case No. EQCE075195. In those Findings of Fact, Chief Judge Gamble specifically rejected a Guarantor's affirmative defense that the guaranty should not be enforced because the lending bank was negligent in its loan administration. Specifically, the Guarantor had attempted to utilize the bank's own internal policies and requirements for financial covenants as evidence of negligent loan administration. Chief Judge Gamble ruled that 'If after pleading for forbearance and extensions of credit, a customer could use a bank's waiver of internal policies and controls against the bank to defeat liability on a loan or guaranty, there would be a chilling effect on the availability of credit. Banks would be reluctant to cooperate with customers to work out problem loans if their forbearance could be used against them in a collection action. The Court concluded that in the absence of expert testimony or published banking standards, a claim for negligent loan administration, if permitted, could not rest on the Bank's internal policies alone.

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