ALI-ABA Course of Study Commercial Real Estate Defaults ...

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California Civil Code § 1698(c) provides that "[u]nless the contract
otherwise expressly provides, a contract in writing may be modified by an
oral agreement supported by new consideration." 53
3.3.8 If the spouse of a principal of the Borrower has joined in a guarantee
consider application of the Fair Credit Opportunity Act 54
3.3.9 Develop information on financial condition of guarantors.
3.3.10 Review choice of law and venue provisions of guarantee and confirm law
of controlling jurisdiction.
3.3.11 §365(e) of the Bankruptcy Code 55 has been held not to protect guarantor
from liability conditioned on bankruptcy of mortgagor. 56
3.3.12 Consider possible right of a guarantor under Sections 9.207(i), 102(3), 9-
504(3) and 9-507 of the UCC. 57
3.4 Legal and Any Other Closing Opinions
The opinions of the debtor's closing counsel oftentimes focus attention on
documentation deficiencies, and possible limitations on enforceability of
document provisions. This preliminary review of the opinions of closing counsel
is generally not for the purpose of focusing on possible attorney liability but rather
for the purpose of possibly identifying issues and defenses. 58
53 See Conley v. Matthes, 66 Cal.Rptr.2d 518, 526 (Cal.Ct.App.1997).
54 15 U.S.C. §1691(b) - See discussion at items 5.4 and 7.1.7(1) below.
55 See Item 8.24 below.
56 First Nationwide Bank v. Brookhaven Realty Ass., 223 A.D. 2d 618, 637 N.Y.S.2d 418 (N.Y.App.Div. 2nd Dept.
1996). App. Dis. 88 N.Y. 2d 963, 670 N.E. 2d 1347, 647 N.Y.S. 2d 715 (1996).
57 See Morris v. Shawmut Bank, 1997 WL 772920 (Conn Super 1997)
58 An interesting real estate workout case is Hetos Investments, Ltd. v. Kurtin, 2003 WL 21498918 (Cal. App. June
30, 2003) in which the California Appeals Court, as a matter of law, denied the lender's motion to have the
attorney for the borrower disqualified on the ground that an attorney who prepared the note cannot later challenge
its validity - the lender alleged violation of ethical rules and the appearance of impropriety for giving advice
inconsistent with usury laws. Here, the borrower's counsel had been instructed by the lender to prepare the note at
the borrower's expense, there was no legal opinion issued by borrower's counsel at closing and the borrower
subsequently sued (using the same attorney) alleging the note to be usurious. The California court noted that the
lender and not the borrower was violating usury laws and stated that "[w]hile it may be awkward for [attorney],
having prepared the promissory note, to turn around and argue in a court of law that one of its provisions violates
the usury laws, it is not apparent how it could affect the outcome of the proceedings whether the usury argument is
made by attorney's firm or by replacement counsel following attorney's disqualification." Query whether the
outcome would have been different had the borrower's attorney issued an opinion at closing. What ethical issues
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DSC:767996.2
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