bank and trust company called Citytrust and three affiliated entities (the "Lenox Hill parties") the combined assets of which comprised a radiology practice. On October 14, 1987, Diasonics guaranteed payment on the Loans to the extent of $ 725,000 as an inducement to Citytrust to loan to the Lenox Hill parties, who were planning to use a portion of the proceeds to purchase equipment from Diasonics.
By 1991, both Citytrust and Diasonics were replaced by other entities as parties to the Diasonics guaranty. In August 1989, Toshiba America Medical Systems assumed Diasonics' obligations under the guaranty in connection with Toshiba's purchase of certain of Diasonics' assets. In August 1991, the FDIC became Citytrust's receiver when the latter became insolvent.
On May 8, 1992, the FDIC sued the Lenox Hill parties under the Loans and Toshiba under the guaranty after the Lenox Hill parties defaulted. On April 12, 1993, the FDIC and the Lenox Hill parties signed a settlement agreement under which the Lenox Hill parties agreed to a certain schedule of payments which, when completed, would satisfy the Loans as between them and the FDIC. The April 12 agreement was largely superseded by another agreement dated December 31, 1993, which called for a one-time settlement payment in an amount less than the aggregate principal amount of the Loans. This settlement payment was in fact made prior to the execution of the December 31 agreement. The effect of the agreement was therefore to release the Lenox Hill defendants from their obligations under the Loans.
Toshiba makes two related arguments in support of its motion. First, it contends that the FDIC and the Lenox Hill parties designed the April 12 and December 31 agreements in such a way that if Toshiba is liable under the guaranty it will be without any recourse against the Lenox Hill parties and that the arrangement is so infused with bad faith that it ought not be enforced. Second, Toshiba maintains that once the Loans were extinguished by the December 31 agreement, the guaranty ceased to have effect because, at that point, there was no longer any debt to secure.
The FDIC grounds its arguments in Connecticut law as well as the language of both the guaranty and the April 12 and December 31 agreements that resulted in the Lenox Hill parties' release from their obligations under the Loans. The FDIC contends that (1) Toshiba contractually waived the defenses it raises here, (2) the FDIC had the right to -- and in fact did -- reserve in the December 31 agreement the option of pursuing Toshiba under the guaranty and (3) under the Uniform Commercial Code as codified in Connecticut, release of a debtor does not diminish a guarantor's obligations.
All of the documents relevant to this action provide -- and the parties do not dispute -- that Connecticut law is to apply where appropriate.
Assuming that Toshiba has correctly described the intent of the FDIC and the Lenox Hill parties in drafting their settlement and the status of the law generally, the FDIC is nevertheless correct that Toshiba remains liable as guarantor because the terms of its guaranty clearly contemplate amendments to the loan documents of the type at issue here. Section 2 of the guaranty reads in pertinent part:
The liability of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of: . . .