Guarantor’s Liability on Partially Secured Debts – The Impacts of Pay Down Provisions in Serpanok Construction Inc. v. Point Ruston, LLC et al.

Businessman throws money in air

The published portion of this case focused on whether an entity involved in a real estate development, Point Ruston LLC, was discharged from its guaranty obligation following a foreclosure sale where the proceeds did not cover the entire debt owed to a subcontractor.

October 24, 2021
Margarita Kutsin - Ahlers Cressman & Sleight

In Serpanok Construction, Inc. v. Point Ruston, LLC, Division Two of the Washington Court of Appeals decided an issue of first impression in Washington—whether a guarantor of a partially secured debt remains liable until the last dollar of the entire debt is paid off. After examining cases from other jurisdictions, the court held that that a guarantor is liable until the underlying debt is paid in full unless the agreement contains an express pay down provision. A pay down provision sets forth the guarantor’s right to reduce its obligation to the extent of any payment toward the debt, and it establishes that the guaranty applies only until an amount equivalent to the guaranteed amount is paid off.

The Serpanok decision addressed several other issues, but the published portion of this part-published case focused on whether an entity involved in a real estate development, Point Ruston LLC, was discharged from its guaranty obligation following a foreclosure sale where the proceeds did not cover the entire debt owed to a subcontractor. Point Ruston LLC, Point Ruston Phase II LLC (“Phase II”), and Century Condominiums (“Century”) were affiliated entities (collectively “Point Ruston parties”) that constructed retail and residential structures on a site in Point Ruston. Serpanok Construction Inc. (“Serpanok”) entered into subcontract agreements with Phase II and Century to perform concrete and steel work on a parking garage and movie theater for the project. Point Ruston LLC was not a party to either subcontract.

Ms. Kutsin may be contacted at margarita.kutsin@acslawyers.com



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