Commercial Division Blog

Posted: July 20, 2016 / Categories Commercial, Contracts

Modification of Agreement Cannot Increase Obligation of Guarantor, But Does Not End It

On June 27, 2016, Justice Bransten of the New York County Commercial Division issued a decision in Toyota Tsusho America, Inc. v. Kaye Refining Corp., 2016 NY Slip Op. 31236(U), holding that the modification of an agreement between a debtor and a creditor did not affect a guarantor's obligations:

It is well-established that a guaranty is to be interpreted in the strictest manner and cannot be altered without the guarantor's consent." Moreover, a guarantor should not be bound beyond the express terms of his guarantee.

While Toyota concedes that it never informed Javash of its agreement to exceed the $300,000 limit set forth in the November 3, 1995 Letter Agreement, Toyota maintains that it was not required to do so. Paragraph 11 of the Letter Agreement provides that the agreement may not be modified except in writing signed by Toyota and KRC. Thus, according to Toyota, since the Letter Agreement speaks to the possibility of modification, Javash was on notice that the Agreement could be modified and therefore should be deemed to have given its consent to an indefinite expansion of the amounts covered by the Guaranty - even expansion of the guaranteed amount by up to twenty times.

The Court disagrees. Interpreting the Guaranty in the strictest manner, it clearly pertains only to the November 3, 1995 Letter Agreement, which was cited in paragraph one of the agreement and, for further clarity, was attached as an exhibit. Nothing in the Guaranty states - or could be construed to state - agreement by Javash to guarantee any additional amount above and beyond the $300,000 cap contained in paragraph 6 of the Letter Agreement.

. . .

While Javash cannot be held surety to the modified agreements, Javash likewise cannot use the modified agreements as an excuse to disclaim his original guaranty. The liability of a surety cannot be extended beyond the plain and explicit language of the contract, a surety is not entitled to any particular tenderness in the interpretation of the language of his contract. Here, the Guaranty unambiguously provides for Javash's guaranty of KRC's liability under the November 3, 1995 Letter Agreement. The subsequent modifications entered into by KRC and Toyota do not bind Javash; however, they likewise do not terminate the obligation that Javash knowingly and explicitly assumed under the Guaranty. Although guarantor should not be bound beyond the express terms of his guarantee, a surety nonetheless may be held to the terms of its agreement.

(Internal quotations and citations omitted).