Personal Loan Guarantee

Now the cats were in their element. They were going to use someone else’s money (PeeWee’s) and property (the Jackrabbit’s) to go into business. They just needed to borrow about $30,000 to meet their start up expenses, but without tax returns they would need a co-borrower to guarantee payment in order to get a loan from the bank. I saw the cats peer around the entry to the laundry room as I was cleaning their litter box, but they turned away, knowing that there was no way that I would agree to be responsible for their debts. The cats meowed by the door leading to the deck, and I let them out. They needed to clear their heads with some cold, bracing air, and as they glanced over the hedge to the property next door they spied Bowser chewing on a toy bone in his back yard.

Bowser, sweet, gullible, obedient, old Bowser, with income that he no doubt reported on a tax return. The cats went to their toy box and retrieved one of his toy bones that they had stolen last summer. They put the bone in a small cardboard box from the recycling bin in the garage. Then they wrapped the box in discarded holiday wrapping that they found in the trash, and they put a bow on it, which they retrieved from the same source. Next, they put on their collars with bells that they had removed and hidden from me. Now they were ready to present Bowser with the opportunity of a lifetime.

Bowser was flattered with the attention showered on him by the cats, and he saw no reason why he shouldn’t co-sign and guarantee payment of a bank loan to the cats, especially since the cats offered him a 5% ownership of their business in exchange for his personal guarantee of the loan. The cats went to Bowser’s bank, which was impressed with Bowser’s good credit history and reported earnings and approved the loan, for which the cats and Bowser co-signed. The loan documents gave Bowser’s bank a lien on Bowser’s business and personal accounts at the bank.

The cats put the loan proceeds in their account at a different bank, and then withdrew the funds by writing four checks for $7,500 each, which they then cashed at four different banks. They would operate on a cash basis, which to them had a slightly different meaning than cash basis accounting.

When the first loan installment was not made by the cats, Bowser received a notice of nonpayment. When the second installment was not paid he received a demand for payment. With the third nonpayment, he received a notice that the loan was being called due and that the bank had attached his accounts. I knew none of this until Bowser’s owner came to our front door, irate, demanding to see the cats. The cats, however, were not home as they are spending the month of January at a resort in Mexico.

Allen Drescher has practiced law in Ashland and Southern Oregon Since 1973. His practice areas include real estate and business law, estate planning and elder law.

© Allen Drescher