No Affirmative Duty to Disclose Materially Increased Risk in Arm’s-Length Surety and Guaranty Transactions

Commentary on Huntington Natl. Bank v. Schneider, 2025-Ohio-2920 (Supreme Court of Ohio)

I. Introduction

In Huntington Natl. Bank v. Schneider, the Supreme Court of Ohio confronted a question that has long divided American jurisdictions: whether, under the “doctrine of increased risk” reflected in §124(1) of the Restatement (First) of Security, a creditor must affirmatively disclose unknown facts that materially increase a surety’s (or guarantor’s) exposure before the obligation is incurred. The Court—speaking through Chief Justice Kennedy—answered no, holding that Ohio’s established contract principles govern: parties dealing at arm’s-length have no duty to disclose material information absent a “special trust or confidence” relationship. Accordingly, the Court reversed the First District Court of Appeals and reinstated summary judgment for Huntington National Bank against guarantor Raymond Schneider.

II. Summary of the Judgment

• Core Holding: Ohio declines to adopt Restatement §124(1). In an arm’s-length transaction, a creditor owes no duty to disclose unknown facts that materially increase the risk assumed by a surety/guarantor, unless the parties have established a fiduciary, confidential, or otherwise “special trust” relationship.
• Disposition: Judgment of the First District reversed; trial court’s grant of summary judgment to Huntington reinstated.
• Vote: 6–1. Justice Brunner concurred in part and dissented in part, advocating a limited duty when the surety is “unsophisticated.”
• Issue Avoided: Whether the contract was a “guaranty” or a “suretyship” was left undecided as unnecessary.

III. Analysis

A. Precedents Cited and Their Influence

1. Blon v. Bank One, Akron, N.A., 35 Ohio St.3d 98 (1988) – Provides the foundational rule that, in arm’s-length business dealings, each party is presumed to have equal opportunity to discover material facts; no duty to disclose arises absent a special relationship. The Court elevates Blon as decisive authority.
2. Umbaugh Pole Bldg. Co. v. Scott, 58 Ohio St.2d 282 (1979) – Recognizes that a bank owes no fiduciary duties to borrowers unless it becomes a “financial advisor.” This demarcation underpins the Court’s refusal to impose new duties on lenders.
3. Groob v. KeyBank, 2006-Ohio-1189 – Reiterates the absence of fiduciary duties between banks and borrowers absent “special repose or trust.” The Court quotes Groob in its reasoning.
4. Cincinnati City School Dist. Bd. of Edn. v. Conners, 2012-Ohio-2447; Nottingdale Homeowners’ Assn. v. Darby, 33 Ohio St.3d 32 (1987); and Dugan & Meyers Constr. Co. v. O.D.A.S., 2007-Ohio-1687 – All reaffirm Ohio’s strong commitment to freedom of contract and the enforceability of voluntarily assumed obligations.
5. Restatement (First) of Security §124(1) – The rejected authority. Many jurisdictions follow it; Ohio now expressly rejects it, aligning with a minority (but growing) trend to leave the matter to legislative, not judicial, modification.

B. The Court’s Legal Reasoning

1. Arm’s-Length Baseline. The Court begins from the premise that commercial guaranties are typically negotiated by sophisticated parties able to protect their own interests. Under Blon, absent a fiduciary or confidential relationship, no disclosure duty exists. For the Court, the guarantor’s status (surety v. guarantor) does not itself create such a relationship.
2. Emphasis on Contractual Freedom. The Court cites a line of cases reflecting Ohio’s robust protection of freedom to contract. Contractual waivers of defenses, like those Schneider expressly signed, must be honored unless positive law or public policy forbids enforcement.
3. Rejection of Restatement §124(1). The Court characterizes §124(1) as an affirmative duty inconsistent with Ohio precedent. Imposing it would judicially craft a novel tort-like obligation. The Court regards such a shift as better suited to legislative action.
4. No Special Relationship Alleged. Schneider and the Bank were commercial adversaries. Nothing in the record suggested fiduciary capacity, inequitable bargaining leverage, or concealment amounting to fraudulent inducement. The guarantor could have investigated partner Sosna’s finances.
5. Summary Judgment Standards. Applying Civ.R. 56, the Court found no genuine disputes of material fact because, even if the Bank knew unfavorable information, it had no duty to disclose it.

C. Potential Impact

• Risk Allocation. Ohio guarantors and sureties must conduct their own due diligence; lenders need not monitor or disclose counterparties’ deteriorating finances absent a special relationship or express contractual duty.
• Lender Certainty. Banks and other creditors receive greater assurance that properly drafted guaranties will withstand post-default defenses premised on nondisclosure.
• Legislative Signal. By stressing that any contrary rule should emanate from the General Assembly, the Court invites—yet places burden upon—legislators to craft statutory protections for sureties if desired.
• Comparative Jurisprudence. Ohio departs from jurisdictions following §124(1), potentially influencing multistate commercial transactions. Choice-of-law clauses may become more consequential where disclosure duties differ.
• Litigation Strategy. Defendants in guaranty enforcement actions can no longer rely on “increased risk” nondisclosure defenses unless they can prove a fiduciary relationship, misrepresentation, or statutory violation.

D. Dissent / Concurrence (Justice Brunner)

Justice Brunner agreed that Schneider lost because he was found to be a sophisticated investor, but would recognize a duty in transactions involving unsophisticated sureties. The majority rejected this middle ground as “too expansive” and “sweeping,” effectively endorsing a bright-line rule. The separate opinion flagged the issue of sophistication as a fact question requiring potential jury resolution—an analytical avenue left unexplored by the majority.

IV. Complex Concepts Simplified

Surety vs. Guarantor

A surety is directly and primarily liable with the debtor; a guarantor is secondarily liable—liable only after the debtor defaults and certain conditions are met. Practically, Ohio treats many modern guaranties as suretyships, but the Court here said: “Even if it is a suretyship, the result is the same—no duty to disclose.”

Arm’s-Length Transaction

A deal in which parties act independently, pursue their own interests, and have no special trust relationship. Courts presume equal opportunity to discover information in such dealings.

Restatement (First) of Security §124(1)

An influential summary of law suggesting that creditors must disclose to sureties any unknown facts that materially increase the surety’s risk. Ohio now expressly declines to follow it.

Check-Kiting

A fraud involving writing checks on accounts with insufficient funds, relying on float time between banks. Sosna’s kiting underscored Schneider’s argument that Huntington knew of deteriorating finances.

Summary Judgment (Civ.R. 56)

A procedural device allowing judgment without trial when no genuine disputes of material fact exist and the movant is entitled to judgment as a matter of law. The Supreme Court reviewed the grant de novo.

V. Conclusion

Huntington Natl. Bank v. Schneider cements Ohio’s commitment to contractual autonomy in the surety/guaranty context. Unless parties voluntarily assume disclosure obligations or stand in a fiduciary relationship, lenders have no affirmative duty to warn guarantors about counterparty risks—even risks that later prove disastrous. The ruling aligns Ohio with a market-oriented, bright-line approach and clarifies litigation strategy for financial institutions. However, the Brunner opinion hints that the conversation is not finished; sophistication of parties could, in future cases, revive debates at the intersection of equity and freedom of contract. Until the General Assembly says otherwise, commercial guaranties in Ohio will be enforced according to their terms, and the onus of due diligence remains squarely on the surety.