Representing Businesses and Individuals in Chicago and Northern Illinois

Is Your Guarantor’s Guarantee Still Enforceable?

Changes to a contract might not be enforceable against a guarantor who has not agreed to those changes in writing.

There are a number of ways this scenario could play out. For example, say your company has agreed to provide building materials to your client for a 1 year period in amounts not to exceed $50,000. The credit agreement is signed by your client and by a guarantor. If you and your client agree to extend that duration or increase the credit agreement, it is prudent to have the guarantor also sign a document agreeing to guaranty these changes.

In Demetrios Kozonis v. Ciacomo Tamburello (2016 IL App (1st) 160202), the court stated the “general rule” in Illinois that a “guarantor of a lease, absent its consent, cannot be held liable for the obligations of the lessee incurred during any extended term other than the one secured in accordance with the terms of the lease.” We learn from this case that a guarantor could be released from an existing obligation if the essentials of the original contract have been changed and the performance required of the principal is materially different from that first contemplated. Thus, if the modification amounts to an entirely new obligation, a new guaranty should be executed.

It is a good practice, therefore, to conduct regular audits to confirm that your business has not exceeded the time frames and credit limit amounts agreed to by your client and its guarantor.