In August 2025, the Supreme Court of Ohio issued its decision in Huntington National Bank v. Schneider providing important guidance on the obligations of lenders in guaranty and suretyship relationships. The Court rejected arguments based on Section 124(1) of the Restatement (First) of Security (1941), which would have imposed a duty on creditors to disclose facts that materially increase a surety’s risk, and reaffirmed Ohio’s long-standing approach to arm’s-length commercial transactions.
Background
The dispute arose from a $77 million loan transaction between Huntington National Bank and a group of nursing and real estate companies. Business owner Raymond Schneider personally guaranteed the loans, along with his partner, Harold Sosna. After the companies defaulted and a check-kiting scheme by Sosna came to light, Huntington sought repayment under Schneider’s guaranty.
Schneider argued that the bank fraudulently induced him to sign the guaranty agreement by failing to disclose adverse financial information about Sosna and Sosna’s companies. Sosna claimed Huntington knew about Sosna and his companies’ deteriorating financial condition and should have told him. The trial court rejected this argument and granted summary judgment to Huntington. The First District Court of Appeals reversed, adopting the Restatement’s “doctrine of increased risk.”
The Ohio Supreme Court then reversed, rejecting the First District’s holding on the Restatement. The Ohio Supreme Court instead held Huntington, as the lender requiring a guaranty for its loan, did not have a duty to disclose information about Sosna to Schneider. The Court further held that Schneider, as the guarantor, could have, and should have, investigated Sosna’s financial state before executing the guaranty agreement. Accordingly, the Court held Huntington and Schneider engaged in an arm’s length transaction related to the loan and guaranty agreement, and there no relationship of special trust to create any duty for Huntington to disclose facts about Sosna to Schneider.
Practical Implications
- For Guarantors: Signing a guaranty is a serious undertaking. The decision shows an example of Ohio’s highest court strictly enforcing a guaranty agreement against the guarantor. The decision also puts responsibility to investigate risks on the guarantor.
- For Businesses: The ruling underscores the importance of due diligence in partnership and financing arrangements. Courts will not impose disclosure duties where parties could have independently verified material facts.
- For Lenders: This opinion strengthens certainty in commercial lending. Banks and creditors are not obligated to disclose borrower or guarantor risks unless a fiduciary-like relationship exists.
Conclusion
The Ohio Supreme Court’s decision in Huntington National Bank v. Schneider confirms that in arm’s-length transactions between a lender and a guarantor, absent any special relationship of trust, Ohio law does not impose a duty on the lender to disclose information about the principal debtor.
