It is quite common for lenders to require certain loans (such as those where the borrower is a new entity, one without a track record with a bank or those single purpose entities created for particular building projects) be personally guaranteed by one or more of the principals.  Long established case and statutory law permit lenders to pursue the guarantors if the original borrowers do not pay.  Towards that end, lenders require the guarantors upfront to waive all of the statutory defenses which a guarantor would normally possess.  However, lenders' ability to pursue guarantors if the borrowing entity defaults, though often perceived by lenders as limitless, does indeed have its limits.  

Take for instance a recent court of appeals case, California Bank & Trust v. Del Ponti, in which a limited liability company created for the sole purpose of developing a townhome project obtained a construction loan for the project, which the lending bank required be personally guaranteed by two of the llc's principals.  Over a year into the construction project, the lender refused to make payments even though the borrower's payment applications had been approved.  With no payments, the contractor was forced to stop work, the borrower defaulted, the lender foreclosed and the lender sued the guarantors who argued that since the guarantors had waived all of their defenses, case closed.  

Not so fast said the trial court, which found that the bank itself materially breached the loan contract when it refused to honor the approved payment applications.  That was willful misconduct, which led the trial court to find for the guarantors.  On appeal by the lender, the court of appeal affirmed, finding that though a guarantor may indeed waive statutory defenses that would otherwise be available to him, a guarantor does not waive equitable defenses and that public policy required an interpretation of the statute which provides for the waiver of defenses that prohibits its interpretation in favor of the lender when the lender itself willfully breaches the loan agreement which led to the borrower's default.  In other words, when a lender breaches the loan agreement itself and that breach leads to the borrower's default, the court will not countenance such a breach and reward the lender with a judgment against the guarantors.  To do so would permit the lender to capitalize on its own fraud or willful misconduct which violates public policy.