## Facts

- Chemical Bank provided PIC Motors Corp., an automobile dealership, a revolving “floor plan” inventory-financing line secured by PIC’s vehicle inventory.
- As a matter of bank practice, Chemical Bank periodically inspected inventory and used a curtailment policy requiring paydowns over time on unsold vehicles.
- Aaron Siegel, PIC’s former principal owner and officer, executed a written continuing guaranty “absolutely and unconditionally” guaranteeing payment of all PIC liabilities to the bank, present and future.
- The guaranty broadly allowed the bank, without notice to or consent from Siegel, to extend, modify, renew, compromise, or change PIC’s obligations and to release collateral; it also contained broad waivers of defenses based on the bank’s handling of the debt and collateral.
- Siegel later sold his interest in PIC and resigned, but his guaranty remained in effect during the relevant period.
- PIC became “out of trust”: a substantial portion of financed vehicles were missing from inventory and sale proceeds were not remitted to the bank.
- Chemical Bank declared a default, liquidated remaining inventory, and sued PIC and Siegel for the deficiency.
- Siegel argued he was discharged (in whole or part) because the bank failed to follow inspection/curtailment practices and because alleged bank-employee misconduct (e.g., falsified reports or loans on non-existent vehicles) impaired the collateral.

## Issues

1. Whether an “absolute and unconditional” continuing guaranty with express consents and waivers is enforceable despite allegations that the creditor’s negligence or employee misconduct impaired collateral securing the debt.
2. Whether UCC § 3-606 (discharge for unjustified impairment of collateral) applies to a separate, non-negotiable guaranty of a borrower’s general indebtedness.
3. Whether evidence of a creditor’s prior practices (inspections and curtailment) can modify or contradict an unambiguous, integrated written guaranty.

## Decision

- Summary judgment for Chemical Bank against Siegel on the guaranty was affirmed.
- The court held that Siegel was not discharged by the bank’s alleged failure to inspect, alleged lax enforcement of curtailment, or alleged employee misconduct affecting collateral.
- The court held UCC § 3-606 did not apply to this separately executed general guaranty.
- The court rejected reliance on the bank’s customary practices to alter the guaranty’s express, unambiguous terms.

## Legal Principles

- A guaranty that is absolute, unconditional, and integrated is enforced according to its terms; extrinsic evidence of prior practices cannot vary unambiguous contractual language.
- A guarantor may validly consent in advance to the creditor’s release, compromise, substitution, or impairment of collateral, and may waive related surety defenses; such waivers bar defenses based on collateral impairment and creditor inaction.
- UCC § 3-606’s impairment-of-collateral discharge rule does not govern a separate, general guaranty of indebtedness that is not a secondary obligation on a negotiable instrument.
- Alleged misconduct by creditor employees does not defeat enforcement of an unambiguous guaranty where the guarantor’s liability is defined by the writing and not altered by unauthorized acts or informal dealings.

## Conclusion

The court enforced Siegel’s absolute and unconditional guaranty and held that alleged collateral impairment caused by the bank’s practices or employee misconduct did not discharge the guarantor, particularly where the guaranty authorized the bank’s discretion over collateral and waived related defenses and where UCC § 3-606 was inapplicable to the separate guaranty.


Chemical Bank v. PIC Motors Corp., 87 A.D.2d 447, 452 N.Y.S.2d 41 (1st Dep’t 1982)