Iwasaki

Plaintiff brought this action on a “Continuing Guaranty” agreement which provided that defendant guaranteed all present and future indebtedness of Mikio *84 and Yo Nagayama to the extent of $5,000 principal plus interest. Plaintiff sought recovery of the amounts owed by the Nagayamas on three loans, one of which plaintiff made several months after defendant executed the continuing guaranty. The trial court entered judgment for plaintiff in the principal sum of $2,253.13, plus $215.45 interest and $235.00 attorney’s fees. Plaintiff appeals, alleging that the trial court erred in holding that defendant was discharged from liability on the third loan by plaintiff’s failure to disclose to defendant that the Nagayamas required that loan to pay their federal taxes. 1

This appeal presents an issue of first impression: whether a creditor owes a duty of disclosure to a surety on a continuing guaranty during the course, as well as at the inception, of the suretyship relationship, and if so, the nature and extent of that duty. We shall explain why we adopt the Restatement rule. That rule provides that each time the creditor accepts the continuing offer of a surety on a continuing guaranty…