The opinion of the court was delivered by: Griesa, District Judge.
First Fidelity's motion is granted. Tyrnauer's cross-motion
On November 4, 1988 First Fidelity made a loan of $950,000 to
Hudson Petroleum, Inc. in order for that company to purchase a
fuel oil storage facility in Columbia County, New York.
Tyrnauer and Latsinik were each 50% shareholders and officers
of Hudson. In addition, Tyrnauer and Latsinik were each 50%
shareholders of Best Petroleum, which had been formed for the
purpose of being the lessee and operator of the facility.
Hudson gave First Fidelity a promissory note, calling for
monthly payments of $3,958.34, plus interest, to be made from
January 1, 1989 until November 1, 1989, when the unpaid balance
was to be paid in full. First Fidelity requested and received
unconditional written personal guarantees of the note from
Tyrnauer, Latsinik and Best Petroleum. Additional security was
obtained in the form of a $161,500 certificate of deposit.
Tyrnauer supplied the funds for this. Finally, First Fidelity
took a first mortgage on the fuel storage facility.
Tyrnauer contends that his guarantee was improperly demanded
by First Fidelity and is invalid. Relying on the Equal Credit
Opportunity Act, 15 U.S.C. § 1691, Tyrnauer contends that First
Fidelity could not lawfully require his guarantee unless Hudson
lacked creditworthiness. First Fidelity contends that the
statute is not applicable and that in any event Hudson had
sufficiently serious credit problems to justify the request for
guarantors under the statutory standard. The following facts
bear on this issue.
First Fidelity conducted a credit investigation prior to
granting the loan to Hudson. Before the oil storage facility
was purchased by Hudson, it was owned and operated by Ajax
Hudson Terminal, Inc., an entity affiliated with Latsinik. It
had an operating loss of $176,000 for 1987 and continued to
show an operating loss in 1988. The facility's balance sheet
reflected poor liquidity and high leverage. Moreover, Hudson,
the new owner, and Best Petroleum, the company which was to
operate the facility, were both recently formed closely held
corporations which possessed no credit history or financial
track record at the time of the loan. An officer of First
Fidelity states in an affidavit submitted on the present motion
that the history of the storage facility and the risks inherent
in the fuel oil industry made it prudent for the bank to
require the guarantees of Best Petroleum, Latsinik and Tyrnauer
before it would grant the loan to Hudson.
In connection with the loan application, Tyrnauer and
Latsinik were at all times represented by a New Jersey law
firm, which reviewed the guarantees and other loan documents
and issued an opinion letter, dated November 4, 1988, in which
it stated that the guarantees were valid and enforceable legal
Commencing on or about May 1, 1989 Hudson defaulted on its
obligations under the note. First Fidelity accelerated the
principal unpaid balance of $934,166.64.
On October 26, 1989 the instant action was commenced to
recover on the guarantees. All three defendants were duly
Best Petroleum and Latsinik have not answered, moved or
otherwise responded. According to the docket sheet, defaults
were entered against Best and Latsinik on February 26, 1990.
Tyrnauer filed his answer on December 27, 1989. He admits
that he signed a guarantee of the Hudson note.