Fleet Bank v. Saleh, 91 N.Y.2d 743 (1998)
A guarantor is not relieved of their obligations if the guaranty agreement, when read in conjunction with the underlying promissory note, indicates consent to modifications or extensions of time for payment.
Summary
Saleh guaranteed a promissory note given by JMS Food Corp. to Fleet Bank. The note contained a clause where guarantors agreed to extensions of time for payment. JMS defaulted, and a modification agreement was signed without Saleh’s explicit consent. Fleet Bank sought summary judgment against Saleh as guarantor. The Court of Appeals held that Saleh was still bound by the guaranty because the original note and guaranty, read together, demonstrated his prior consent to such modifications. The Court emphasized that the note and guaranty constituted a single transaction, and Saleh failed to adequately rebut this.
Facts
On September 30, 1994, JMS Food Corp. gave a promissory note to Fleet Bank to pay an existing debt of $305,430, secured by JMS’s property. Saleh and his brother, Samir Saleh, both guaranteed the note in their individual capacities. In March 1996, JMS defaulted. On March 26, 1996, JMS and Samir Saleh signed a modification agreement reducing weekly payments and granting more time to pay the remaining debt of $140,001. Saleh did not sign the modification agreement.
Procedural History
Fleet Bank sought summary judgment against Saleh as a guarantor of the original note. The Supreme Court granted the motion. The Appellate Division affirmed, with one Justice dissenting. The Court of Appeals then reviewed the Appellate Division’s order.
Issue(s)
Whether Saleh, as a guarantor, was relieved of his obligations because he did not consent to the modification agreement, despite the original note containing a clause where guarantors agreed to extensions of time for payment.
Holding
Yes, Saleh was still bound by his guaranty, because the note and guaranty were to be read as one transaction and the note explicitly stated the guarantors agreed to potential extensions.
Court’s Reasoning
The Court of Appeals reasoned that a guaranty is interpreted strictly, and a guarantor’s obligation cannot be altered without consent. However, the Court found that Saleh had provided the necessary consent within the original agreement. The promissory note stated that “the Makers and Guarantors of this Note severally waive demand, presentment, notice of protest and notice of non-payment, and agree and consent that the time for payment may be extended or said Note renewed from time to time.” The Court emphasized that the note and the guaranty were one transaction. Saleh had not adequately argued against this point in prior proceedings. The guaranty itself referenced the “within Note,” indicating an awareness of the note’s provisions. The court stated that “[a]fter respondents made their prima facie showing of the obligation and default, appellant was required to present defenses establishing that he was not bound by his guaranty.” By failing to adequately rebut the Bank’s showing that the note and guaranty formed a single agreement, Saleh was bound by the terms allowing for modifications. The court cited Uribe v Merchants Bank of N.Y., 91 NY2d 336, 341 (1998) stating “a contract should be enforced according to its terms and is ‘not to be subverted by straining to find an ambiguity which otherwise might not be thought to exist’”.