Opinion ID: 2798985
Heading Depth: 3
Heading Rank: 1

Heading: The loan, pledges, and guaranties

Text: Adamson Apparel, Inc. (Adamson) manufactures and sells clothing and accessories. On April 18, 2002, Adamson took out a multimillion-dollar loan from CIT Group Commercial Services, Inc. (CIT). To secure the loan, Adamson granted CIT a lien on its inventory and accounts receivable. Arnold H. Simon, Adamson’s president and CEO, subsequently entered into two separate agreements with CIT to guarantee the loan: a Cash Collateral Pledge Agreement (the Pledge) and a Limited Guaranty (the Guaranty). In these agreements, Simon took responsibility for Adamson’s debt in the event that Adamson was unable to fully repay the loan. Simon would ordinarily have been entitled to have Adamson reimburse him for any amount that he was obligated to pay on the corporation’s behalf to settle the loan with CIT, but the agreements waived that right to indemnification. (As used throughout this opinion, Simon’s right to “indemnification” encompasses his rights to subrogation, reimbursement, or any other form of repayment.) Over the next 18 months, the Pledge and the Guaranty were revised several times. Both agreements were initially signed on November 12, 2002. The Guaranty was updated on February 11, 2003, then “amended and restated” on April 9, 2003. Both documents were further “amended and restated” on April 25, 2003, then updated again on August 5, 2003. A IN RE ADAMSON APPAREL, INC. 5 letter dated December 2, 2003 increased the amount that had been guaranteed in the August 5, 2003 update of the Pledge. Toward the end of 2003, an entity known as BP Clothing L.L.C. purchased a large amount of merchandise from Adamson. On December 18, 2003, Adamson instructed BP Clothing to transfer the purchase price (specifically, $4,989,934.65) to CIT in partial satisfaction of the debt owed by Adamson to CIT, this being the very debt guaranteed by Simon. Adamson filed for bankruptcy under Chapter 11 of the Bankruptcy Code nine months later. On or about March 31, 2004, Simon paid the balance of the loan, totaling over $3.5 million, from his personal funds.