The United States Court of Appeals for the Fifth Circuit recently rejected an individual guarantor's ("Lockwood") fraudulent inducement and duress claims and held that the guaranty he entered was enforceable and that he waived any defenses to the same in subsequent forbearance agreements. See Lockwood Int'l, Inc. v. Wells Fargo, Nat'l Ass'n,, 2021 WL 3624748 (5th Cir. Aug. 16, 2021). In 2015, some of Lockwood's companies had entered into revolving credit notes totaling $90 million. After the borrowers breached some of their obligations in 2016, the lenders restructured the deals and Lockwood provided a personal guaranty. After further defaults, Lockwood and the borrowers entered into a forbearance agreement where he acknowledged his obligations on the loans and waived all defenses. After even more defaults, they entered a second forbearance, again acknowledging the obligations and waiving defenses. Finally, after more defaults, the lenders accelerated and this lawsuit followed. The lenders moved for summary judgment on the guaranty, and Lockwood opposed, arguing defenses of fraudulent inducement, duress, unclean hands, and equitable estoppel. The District Court granted the lenders' motion, ordering Lockwood to pay $58,710,456.26, plus interest, attorneys' fees, and costs.
On appeal, the Court affirmed. It first held that "[t]o avoid enforcement of the guaranty, Lockwood needs a hat trick: He must show that the guaranty, the first forbearance agreement, and the second forbearance agreement are all voidable." The Court then found that "[e]ven if the guaranty itself is voidable—something we doubt but need not resolve—the first forbearance agreement ratified its terms." Despite Lockwood's claims, the Court found that the lenders did not fraudulently induce Lockwood into executing the forbearance, because he was aware of all material terms ahead of executing it. Additionally, the Court rejected Lockwood's claims of duress: "No doubt Lockwood feared the looming prospect of the banks' demanding the tens of millions of dollars that he and his companies owed. The banks used that leverage to seek something they wanted . . . But using leverage is what negotiation is all about. And difficult economic circumstances do not alone give rise to duress. If they did, then many loans would be voidable." Accordingly, the Court found the guaranty was enforceable against Lockwood.
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