Delaware Business Litigation Report

Delaware Superior Court Clarifies When The Duty Of Acting In Good Faith Applies To Enforcement Of A Guarantee

Comvest Capital II, L.P. v Selkoe, C.A. N15C-08-110 JRJ CCLD (April 26, 2016)

This is a novel decision because it deals with when a guarantor can defend against enforcement of his guarantee by claiming the company whose obligations he guaranteed was wrongly put out of business by the plaintiff who is trying to enforce the guarantee. The Court held that there was a duty to act in good faith and fairly to permit that company to first fulfill its obligation to the guaranteed party, before it could enforce the guarantee against the guarantor. Whether this defense will win, of course, remains to be seen. However, the decision is a caution that it is important to not prejudice the ability of a party who has given a guarantee to have his guarantor pay off the debt..

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