Summary
noting that the terms of underlying financial agreements are not material to a continuing guaranty as such terms are understood to be subject to change over time
Summary of this case from Ingram Micro Inc. v. ABC Management Technology Solutions, LLCOpinion
April 24, 1997
Appeal from an order of the Supreme Court (Cobb, J.), entered February 7, 1996 in Greene County, which, inter alia, granted plaintiff's motion for summary judgment.
In this foreclosure action, plaintiff seeks to recover on a guaranty signed by defendant Sidney Derman and others, by the terms of which they jointly and severally guaranteed payment of a $535,000 loan extended to defendant Highland Associates. The loan was also secured by a mortgage on real property, which was subsequently sold to defendants David N. Sage and Robin Sage for $620,000. At the time of the sale, the Sages assumed liability for the amount then due on Highland's note ($526,840.33), and paid Highland the remainder of the purchase price from the proceeds of an additional loan they obtained from plaintiff's predecessor. Their obligations with respect to the two loans were consolidated by an agreement that also changed the terms of repayment in several respects.
Highland remained secondarily liable for this amount pursuant to the original promissory note.
The Sages ultimately defaulted in making the payments called for in the consolidation agreement, prompting plaintiff to accelerate the amount due, demand full payment thereof, and, when that was not forthcoming, to commence this foreclosure action. Two of the guarantors moved for summary judgment claiming that their obligations had been discharged as a result of the modifications that had been made to the underlying contract; their motion was denied. Two others, including Derman, answered the complaint, asserting the same defense. Plaintiff then moved for summary judgment of foreclosure, to strike the two answers served, and for the appointment of a Referee. Supreme Court granted plaintiff's motion and Derman appeals.
We affirm. The guaranty in question, by its terms, does not purport to relate to a specific loan, but is, rather, a continuing guaranty of any indebtedness of Highland to plaintiff, "of every kind and character", whether then existing or later incurred, to the extent of $535,000. Implicit in such a broad agreement to guarantee payment of all debts, including those not yet in existence, is an acknowledgment that the particular terms and conditions of those obligations are not material, except insofar as expressly or implicitly set forth in the guaranty itself ( see, Delaware, Lackawanna W.R.R. Co. v. Burkard, 114 N.Y. 197, 202-203; cf., 63 N.Y. Jur 2d, Guaranty and Suretyship, § 221, at 303-304).
The rationale for discharging a guarantor when the underlying contract is modified — that the alteration essentially substitutes a new obligation for the old, and "the surety cannot be held responsible for the failure of the principal to perform any other obligation" than that originally guaranteed ( Becker v Faber, 280 N.Y. 146, 149) — suggests that discharge is not warranted where, as here, the guaranty is a continuing one, and the "new obligation" created by the modification, if independently incurred, plainly would have come within the scope of its coverage ( see, Delaware, Lackawanna W.R.R. Co. v Burkard, supra; Merchants' Natl. Bank v. Hall, 83 N.Y. 339, 344; Solomon v. Waterbury Brass Goods Corp., 6 F.2d 990, 993). Had Highland's debt not been modified, but replaced by an entirely new contract containing the terms of which Derman now complains, he would clearly be liable therefor in accordance with the unambiguous language of the guaranty ( see, e.g., Chemical Bank v Sepler, 60 N.Y.2d 289, 294; Citizens S. Comm. Corp. v Catapano, 164 A.D.2d 812, 814; Republic Natl. Bank v. Haddad, 121 A.D.2d 986, 988; Nanuet Natl. Bank v. Rom, 96 A.D.2d 898); thus, to accept his contention that he is now discharged, merely because the changes were made by modifying an existing agreement rather than canceling it and replacing it with another, unacceptably elevates form over substance.
Cardona, P.J., Mikoll, Crew III and White, JJ., concur. Ordered that the order is affirmed, with costs.