Opinion
No. 78-794
Decided February 15, 1979. Rehearing denied March 22, 1979. Certiorari granted May 21, 1979.
In an action to enforce a continuing guaranty executed by defendant, defendant appealed judgment holding him liable on the guaranty.
Affirmed
1. GUARANTY — Liability of Guarantor — Limited — Terms of Agreement — Reasonably Interpreted — Intent of Parties — Contract — Authorizes Change in Terms — Such A Change — Not Discharge Guarantor. While the liability of a guarantor cannot be extended by implication beyond the express terms or plain intent of the agreement, nevertheless, the guaranty must be reasonably interpreted according to the intention of the parties as disclosed by surrounding circumstances, and although a material alteration of the guarantor's obligation, without his consent, may discharge his liability, where the guaranty contract contains a provision which authorizes a change in the terms of the principal contract, a change within the scope of that authorization does not discharge the guarantor.
2. Changes in Guaranty — Extensions — Interest Rate — Expressly Authorized — Guarantor Remained Liable. Where guaranty expressly authorized extensions and renewals of the indebtedness guaranteed, as well as changes in the interest rate payable thereon, and in light of the fact that the money involved was borrowed before the guarantor revoked his guaranty, the trial court correctly held that no new indebtedness was created by extensions and increase in interest rate applied to the indebtedness; thus, under the terms of the guaranty agreement, the guarantor remained liable.
Appeal from the District Court of the County of Pueblo, Honorable Donald A. Abram, Judge.
Petersen Fonda, P.C., William F. Mattoon, for plaintiff-appellee.
Ware Marroney, David E. Ware, for defendant-appellant.
Defendant, Robert A. Gandy, appeals from a judgment holding him liable in an action to enforce a continuing guaranty executed by him. We affirm.
The relevant facts, which were stipulated, are as follows. Plaintiff transferred $25,000 to U.S. National Mortgage Co. in return for two promissory notes, one for $15,000 due in ninety days, the other for $10,000 due in sixty days. Both notes provided for interest at 11-1/2%. As part of the same transaction, Gandy entered into a written "continuing guaranty" which provided that he would be liable for all "indebtedness" of the mortgage company, up to a maximum of $15,000. The guaranty further provided that:
"Indebtedness includes] that arising under successive transactions which shall either continue the indebtedness or from time to time renew it after it has been satisfied. This guaranty shall not apply to any indebtedness created after actual receipt by Bank of written notice of its revocation as to future transactions. . . . .
Guarantors authorize Bank, without notice or demand and without affecting their liability hereunder, from time to time to . . . renew, compromise, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of the indebtedness or any part thereof, including increase or decrease of the rate of interest thereon. . . ."
Gandy mailed a written revocation of the guaranty and that revocation was received by plaintiff. Subsequently, plaintiff extended the due dates of each note four times. Each extension was for sixty or ninety days, and one extension for each note included an increase in the interest rate to 13%. No principal has been paid on the $15,000 note, and $3,000 of the principal remains unpaid on the $10,000 note.
The issue is whether the extensions and increases in the interest rates, without either notice to or consent of Gandy, and after receipt by plaintiff of Gandy's written revocation, acted to release defendant from liability. This question is one of first impression in this state, and in other jurisdictions there is a diversity of opinion. Compare Jacobson v. Devon Bank, 39 Ill. App. 3d 1053, 351 N.E.2d 254 (1976), with Southern California First National Bank v. Olsen, 41 Cal. App. 3d 234, 116 Cal. Rptr. 4 (1974). See Annot., 100 A.L.R. 1236 (1936).
[1] While the liability of a guarantor cannot be extended by implication beyond the express terms or plain intent of the agreement, Burkhardt v. Bank of America, 127 Colo. 251 256 P.2d 234 (1953), the guaranty must be "reasonably interpreted according to the intention of the parties as disclosed by surrounding circumstances." Continental National Bank v. Dolan, 39 Colo. App. 16, 564 P.2d 955 (1977). And although a material alteration of the guarantor's obligation, without his consent, may discharge his liability, Jackson v. First National Bank, 28 Colo. App. 415, 474 P.2d 640 (1970), "where the guaranty contract contains a provision which authorizes a change in the terms of the principal contract, a change within the scope of that authorization does not discharge the guarantor." First Commercial Corp. v. Geter, 37 Colo. App. 391, 547 P.2d 1291 (1976).
[2] Here, the guaranty expressly authorized extensions and renewals as well as changes in the interest rate. And "indebtedness" expressly included "successive transactions which . . . continue the indebtedness." "It is . . . difficult to conceive of a broader or more inclusive form of guaranty." Jacobson v. Devon Bank, supra. Under these circumstances, including the fact that the money involved was borrowed before defendant's revocation, we agree with the trial court that no new indebtedness was created after defendant revoked his guaranty. Thus, under the terms of the agreement, Gandy remains liable. See Jacobson v. Devon Bank, supra; Corn Exchange Bank Trust Co. v. Gifford, 268 N.Y. 153, 197 N.E. 178 (1935). Cf. First New Jersey Bank v. F.L.M. Business Machines, Inc., 130 N.J. Super. 151, 325 A.2d 843 (1974).
Judgment affirmed.
JUDGE ENOCH and JUDGE VAN CISE concur.