Ohio Supreme Court clarifies no duty to disclose “increased risk” to sureties

On August 20, 2025, the Ohio Supreme Court (“Court”) issued its long-anticipated opinion in Huntington National Bank v. Schneider, 2025-Ohio-2920. Reversing the First District Court of Appeals and reinstating summary judgment for the secured lender, the Court held that:

1. In an arm’s-length credit transaction, a lender does not owe a common-law duty to disclose facts that materially increase a guarantor’s or surety’s risk unless the lender and guarantor have established a relationship of “special trust or confidence.”
2. The Court declined to adopt § 124(1) of the Restatement (First) of Security (the so-called “doctrine of increased risk”), which imposes an affirmative disclosure obligation on creditors.
3. Freedom of contract remains paramount: sophisticated parties are presumed to protect their own interests and may allocate risk by express agreement, including broad waiver provisions in guaranties.

Key Takeaways for Secured Lenders

• No Affirmative Disclosure Duty – The Court’s ruling eliminates any lingering uncertainty created by lower-court opinions that flirted with Restatement § 124(1). Absent a fiduciary relationship, a secured lender may rely on the borrower’s and guarantor’s representations and is not required to volunteer adverse information about the borrower’s deteriorating financial condition or other risk-enhancing facts that the guarantor could have discovered.
• Enforceability of Broad Waivers – The decision reinforces the effectiveness of comprehensive waiver language typically found in guaranties (e.g., waivers of defenses, notice, diligence, and disclosure). Courts in Ohio will respect those waivers unless the guarantor can show fraud or another recognized vitiating circumstance.
• Emphasis on Arm’s-Length Dealings – By grounding its analysis in traditional contract principles, the Court reaffirmed that commercial lending relationships are presumed to be at arm’s length. Lenders are not fiduciaries, and sophisticated guarantors are expected to conduct their own due diligence.
• Risk Allocation Remains a Contractual Question – While lenders are now shielded from tort-based disclosure claims rooted in “increased risk,” they should continue to pay close attention to any contractual covenants that expressly require disclosures (e.g., representations in commitment letters or negotiated guaranty provisions). The absence of a common-law duty does not override bargained-for contractual duties.
• Minor Caveat from the Concurrence/Dissent – Justice Brunner cautioned that a disclosure duty might arise where the guarantor is “unsophisticated.” Although not controlling, the opinion signals that lenders should still evaluate the sophistication of counterparties, particularly in smaller or relationship-driven deals, and document the parties’ respective access to information.

Practical Implications

1. Guaranty Drafting – Continue to include robust waiver clauses; consider reiterating that guarantors are sophisticated, have independently investigated the borrower, and are not relying on the lender for information.
2. Diligence Protocols – The ruling does not eliminate prudent underwriting standards. Maintaining accurate credit files and clear internal memoranda confirming the absence of a special trust relationship will help defeat any future claims of lender misconduct.
3. Relationship Management – While voluntary disclosures are not legally mandated, a strategic decision to share certain information may preserve goodwill or mitigate reputational risk. Evaluate on a case-by-case basis, particularly where the lender anticipates a workout rather than enforcement.
4. Litigation Strategy – In Ohio state courts, lenders now have powerful precedent to move for early dismissal or summary judgment when guarantors allege nondisclosure-based defenses.
5. Multi-State Portfolios – Be mindful that several jurisdictions do follow Restatement § 124(1) or similar principles. National and regional lenders should maintain a jurisdiction-specific checklist when analyzing potential disclosure exposure across their portfolios.

For more information on this topic, you can reach out to McDonald Hopkins' Strategic Advisory and Restructuring Department Member, Scott Opincar.