In a prior post, we discussed a grantor’s continuing liability under a promissory note that is renewed without his notice or consent where the guaranty is a continuing guaranty, meaning it contemplates revisions or extensions of time. In this post, we discuss the additional argument that a guarantor remains liable for a renewed promissory note, even absent notice or consent, where the revisions to the promissory note are not adverse to the guarantor’s interests.

The generally accepted rule is that a guarantor will be released from his guaranty by a material alteration, made without his consent, of his original obligation or duty.  Causeway Lumber Co., Inc. v. King, 502 So. 2d 80, 81 (Fla. 4th DCA. 1987); Miami Nat’l Bank v. Fink, 174 So.2d 38, 40-41 (Fla. 3d DCA 1965). A modification to increase the interest rate applicable to the note has been deemed a material alteration that releases any guarantor. Miami Nat’l Bank, 174 So.2d at 40-41. That said, Florida courts have found that an alteration is not “material” and does not release any guarantor, where it does not operate to the detriment of the guarantor. See Rizzi v. Serv. Dev. Corp., 354 So. 2d 898, 900 (Fla. 4th DCA 1978); see also Anderson v. Trade Winds Enterprises Corp., 241 So.2d 174, 178 (Fla. 4th DCA 1970) (additionally noting that the alteration was not reduced to writing, but was merely an indulgence granted to avoid litigation); Quarngesser v. Appliance Buyers Credit Corp., 187 So.2d 662, 665 (Fla. 3rd DCA 1966) (same); Clark v. United Grocery Co., 69 Fla. 624, 68 So. 766, 769 (1915) (same).

For example, in Rizzi, the guarantors of a commercial lease agreement argued that they were released from their obligations when the lessor lowered the rent due from the lessee corporation in an effort to prevent further default. 354 So.2d at 899-900. The court rejected this argument on the ground that the rent reduction operated to mitigate the damages against the guarantors, so that it was in their favor and not “material.” Id. Likewise, in Anderson, the guarantors of a promissory note argued that they were released from their obligations because the noteholder accepted partial payments when the note went into default, rather than bring immediate suit on the note. 241 So. 2d at 178. The court refused to release the guarantors, reasoning that the extensions of time did not adversely affect the guarantors. Id.

Notably, the majority of the above-cited cases are silent with respect to whether the guaranty in question was a continuing guaranty. Only in Causeway Lumber Co., Inc., did the fact that the creditor was not obligated to notify the guarantor regarding its transactions with the  debtor figure heavily in the court’s analysis. See 502 So. 2d at 81.  In Rizzi, the court acknowledged that the guaranty was a continuing guaranty – it stated, “This guaranty shall be a continuing guaranty, and the liability thereunder shall in no way be affected or diminished by reason of any extension of time or sub-lease that may be granted by the Lessor to Lessee” – but explicitly declined to address whether this fact affected its analysis, as the parties had not raised the issue.  354 So.2d at 899-900.

Accordingly, where an argument can be made that the terms of a renewed note improve the guarantor’s position, then the guarantor should not be able to successfully argue that he is released from his obligation under the original note – even when the note was renewed without the guarantor’s notice or consent. Most modifications done in order to prevent default will operate to benefit a guarantor of the note. This argument that the modification is not “material” can be advanced in conjunction with an argument that the guaranty is a continuing guaranty, but it appears that it may work when advanced on its own as well.