Guarantor wavier of defenses does not apply to equitable defenses.
Waiver of defenses is standard in guarantee forms used in bank financing. California Civil Code section 2856 allows a Guarantor to waive defenses in general language. The court, in a case of first impression, held that the statute does not allow waiver of unlawful contracts or any provision that is contrary to public policy. The statute should be read narrowly so defenses outside of the identified categories, including equitable defenses, are not waived by language purporting to waive all defenses. A party is not allowed to benefit from its own fraud or willful misconduct.
In this case, the court found that the Bank had willfully breached the loan agreement thereby causing the borrower’s default. Therefore, it would be inequitable and against public policy to enforce the blanket waiver in the guarantee.