## Facts

- Diamond Z Manufacturing produced industrial “tub grinders” used to grind solid materials into small pieces.
- Zehr Wood & Tire Grinding, Inc. purchased a Diamond Z tub grinder for about $425,000 and still owed $375,000 in late 1996.
- Zehr Wood entered a purchase/leaseback transaction: it sold the grinder to a leasing intermediary (Equipment Leasing Corporation (ELC)) for the outstanding balance, and ELC leased the grinder back to Zehr Wood under a master lease requiring 42 monthly payments totaling $497,448.
- As a condition of the transaction, Diamond Z executed a continuing corporate guaranty guaranteeing Zehr Wood’s lease obligations.
- The guaranty stated Diamond Z’s liability was “absolute and unconditional” and would not be affected by lease modifications, amendments, extensions, or similar changes; it also authorized lease amendments, including substitutions of parties, without Diamond Z’s consent.
- ELC assigned its interest in the lease to Data Sales Co., Inc., an equipment finance company that funded the transaction.
- The lease was later assigned to Breaux Bridge Resources, Inc., which made three payments, defaulted, and filed bankruptcy.
- Data Sales sought to recover the remaining lease balance and pursued Diamond Z based on the guaranty.

## Issues

1. Whether a guarantor may contractually waive suretyship defenses that would otherwise arise from later modifications of the underlying obligation or substitution of obligors without the guarantor’s consent.
2. Whether Restatement (Third) of Suretyship and Guaranty provisions concerning discharge upon modification limit or prevent advance waiver of those defenses.
3. Whether the trial court erred in refusing to set aside a judgment holding the guarantor liable where the guaranty contained broad “absolute and unconditional” and modification/substitution waiver language.

## Decision

- The court affirmed the order denying relief from the judgment and left the guaranty judgment against Diamond Z in place.
- It held that suretyship defenses can be expressly or implicitly waived within the guaranty contract.
- It enforced the guaranty’s terms stating Diamond Z’s liability was unaffected by later lease changes, including amendments and substitutions of parties made without Diamond Z’s consent.
- It rejected the argument that the Restatement barred waiver of the asserted suretyship defenses under these facts.
- Because the guaranty waivers were enforceable and the default was undisputed, the trial court did not err in refusing to set aside the judgment.

## Legal Principles

- A guaranty is enforced according to its contractual terms; broad “absolute and unconditional” language can preserve guarantor liability despite later changes to the underlying obligation.
- Suretyship defenses may be waived by agreement, either expressly or implicitly, including defenses based on modification of the underlying obligation and substitution of obligors without the guarantor’s consent.
- Restatement suretyship rules operate as default principles that may be altered by contract; they do not categorically prohibit a guarantor’s advance waiver when the guaranty clearly allocates the risk of later changes.

## Conclusion

The court enforced the guaranty’s broad waiver provisions and held the guarantor liable despite later assignment and substitution of the lessee, confirming that, in Arizona, suretyship defenses may be waived by the guaranty’s terms even when later changes would otherwise support discharge.


Data Sales Co., Inc. v. Diamond Z Mfg., 205 Ariz. 594, 74 P.3d 268 (Ct. App. 2003)