In the case of MidCountry Bank v. Rajchenbach, et al. pending before U.S. District Court Judge Susan R. Nelson (D. Minn.), MidCountry Bank lent money to SK International, Inc. and MidCountry Bank required that humans step up as guarantors of the loan to SK, as is extremely common when lending money to businesses.
Banks generally like to be repaid (repaid on time and with interest, no less). So when they make loans, they prefer that humans agree to insure against a borrowing business’ default. It is often easier for businesses to go out of business (that is, to default on debts and, insolvent, dissolve) than it is for rich humans to do the same.
When SK International fell behind on its payments MidCountry Bank proceeded against the guarantors, bringing a declaratory judgment action — a lawsuit seeking a declaration from the Court that, if SK does not come up with all of the money owed to the bank, the guarantors would be on the hook for the balance (plus attorneys’ fees for requiring legal action to collect on the debt).
The lawyers for the guarantors objected to the declaratory judgment action, arguing that MidCountry Bank could not bring it. Seeking a declaration that one has breached a contract is a just a breach of contract action, they argued, not properly a declaratory judgment action.
So MidCountry Bank amended its complaint to add a breach of contract action against the guarantors.
That should settle things, you might think, but you would be wrong.
Of course, if SK were sending in a few bucks here and a few bucks there to the bank to pay down the loan, then MidCountry Bank could not possibly identify its damages with precision. The bank’s damages could change at any time (and every day with interest accruing, lawyers’ fees growing). In theory, the bank could be repaid every last nickle by SK tomorrow.
Can this really mean that the Bank cannot pursue its claim against the guarantors? Could the guarantors’ challenge really release them from their obligations?
No, I do not think so.
It seems to me that the SK guarantors, facing significant potential liability, are simply buying time with their repeated challenges to MidCountry Bank’s complaint. Delaying the inevitable through civil litigation is a very expensive debt management strategy but it is surprisingly common.