Seventh Circuit finds that “waiver of defense” clause in commercial guaranty did not waive statute of limitations

In Hovde v. ISLA Dev. LLC, 51 F.4th 771 (7th Cir. Oct. 24, 2022) a property developer borrowed money from private lenders in 2004 to develop a condominium project. To secure the loan, the developer signed a note and the developer’s principal gave his personal guarantee. The project ultimately failed. More than ten years later the lenders filed suit seeking to recover their funds from the developer and the guarantor. The developer moved for summary judgment arguing that the suit was time-barred. The district court agreed. The lenders appealed and the Seventh Circuit affirmed.

On the claim against the developer, the note provided that the loans would become due in June 2007. However, if an event of default occurred, “the outstanding unpaid principal balance of the Note, … shall automatically become immediately due and payable,” thus triggering the statute of limitations. One such event of default was an “Act of Bankruptcy,” which was defined in the note as an admission by the developer “in writing [of] its inability to pay its debts as they mature.” The reviewing court agreed that two emails sent by the developer to the lenders in August and September 2008 constituted an admission in writing of its inability to pay and therefore was an event of default. Both emails stated that the developer was out of money, detailed the pressing nature of the debts, and requested additional funds from the lenders which was refused. Even though the developer was continuing to seek additional financing, the Court found that the note did not require actual insolvency; it merely required an “admission” of an inability to pay which the emails made plain. Accordingly, the statute of limitations began in September 2008, ten years before suit was commenced.

The Appellate Court also affirmed judgment for the guarantor on the guaranty claim. The lenders argued that the guarantor had waived all defenses, including the statute of limitations. They cited the provision that “[t]his guaranty shall in all respects be continuing, absolute and unconditional, and shall remain in full force and effect with respect to any Guarantor until satisfaction in full of the Borrower’s Liabilities.” They also cited a waiver of defenses clause, whereby the guarantor agreed that “its obligations under this Guaranty shall be unconditional, irrespective of … (viii) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor.”

The Court said that these provisions did not waive the statute of limitations defense. The language in the waiver of defense clause addressed only the preservation of the unconditional nature of the obligation; it did not address defenses unrelated to that issue. But the statute of limitations does not impact the unconditional nature of the obligation. “In fact, it does not impact the obligation itself—unconditional or otherwise—at all. It merely impacts the enforceability in court of that obligation. The language of the waiver is exceedingly narrow, keyed by its terms to prohibit only circumstances that would render the guaranty obligation conditional.” The Court noted that the language in the provision stands in contrast to more expansive language that courts frequently encounter in waivers, in which the language applies not only to defenses as to the obligation itself but also to defenses to liability or enforcement. In sum, these provisions did not waive all defenses to enforcement or to the legal action or to liability; they merely provided that the obligation remained unconditional irrespective of any circumstances that would otherwise constitute a defense or discharge. Accordingly, the district court did not err in determining the claims were barred by the statute of limitations.


  • James Noonan

    Jim is a founding partner of Noonan & Lieberman. Jim has more than 25 years of experience in civil litigation on behalf of creditors, servicers, business and real estate owners.