Opinion ID: 1151193
Heading Depth: 3
Heading Rank: 2

Heading: Did the trial court err in granting judgment for the full debt in light of Sunwest's release of the co-guarantors?

Text: Appellants next argue that the trial court erred when it awarded Sunwest a judgment for the full amount of the underlying Curry County Grain debt in light of Sunwest's release of the co-guarantors. The release of the co-guarantors, appellants contend, precludes them from seeking contribution from the released guarantors. Thus, appellants argue that their liability should be proportionately reduced. At common law, the discharge of one surety without the consent of the co-sureties completely discharged the remaining sureties. Western Bank v. Aqua Leisure, Ltd., 105 N.M. 756, 758, 737 P.2d 537, 539 (1987). However, in a majority of jurisdictions including New Mexico, this rule has been modified to release the co-surety only to the extent that the co-surety was prejudiced by the release. Id.; 74 Am.Jur.2d Suretyship §§ 82-83 (1974); 72 C.J.S. Principal & Surety §§ 173-74 (1987). In the instant case, appellants argue that the release of Michael and Clare by Sunwest was without appellants' knowledge or consent and that therefore, they are entitled to a pro rata reduction in their obligation under the Guaranty. Sunwest argues that under the terms of the Guaranty, appellants consented in advance to allow Sunwest to release the co-guarantors without affecting or impairing Sunwest's ability to collect from appellants. We agree with Sunwest. The respective rights of the guarantor and the creditor are determined by reference to the terms of the contract between them. Aqua Leisure, 105 N.M. at 759, 737 P.2d at 540; First State Bank v. Muzio, 100 N.M. 98, 100, 666 P.2d 777, 779 (1983); American Bank of Commerce v. Covolo, 88 N.M. 405, 408, 540 P.2d 1294, 1297 (1975). The guarantor may waive legal defenses to his or her liability in advance under the terms of the guaranty. Aqua Leisure, 105 N.M. at 759, 737 P.2d at 540 (waiver of commercially reasonable sale of collateral); Muzio, 100 N.M. at 100, 666 P.2d at 779 (waiver of homestead exemption and collection priorities); Covolo, 88 N.M. at 409, 540 P.2d at 1298 (waiver of commercially reasonable sale of collateral). The guarantor is a favorite of the law and is entitled to have the guaranty strictly construed in his or her favor. Shirley v. Venaglia, 86 N.M. 721, 724, 527 P.2d 316, 319 (1974); Bank of New Mexico v. Northwest Power Prod., Inc., 95 N.M. 743, 747, 626 P.2d 280, 284 (Ct.App. 1980). In the instant case, appellants signed the Guaranty, which contained the following clause: SUNWEST may from time to time and without affecting or impairing Guarantors' liability hereunder sell, release, surrender, exchange, settle, compromise, waive, subordinate, modify or amend, with or without consideration and on such terms and conditions as may be acceptable to SUNWEST, any and all of the collateral, security guarantees, documents and instruments evidencing the Guaranteed Obligations or the security for the payment thereof, or other obligors thereunder. All settlements, compromises, compositions, accounts stated and agreed balances entered into between SUNWEST and Borrower shall be binding upon Guarantors. Appellants contend that, notwithstanding this clause, Sunwest could not release the co-guarantors without reducing the appellants' liability under the Guaranty. We disagree. In Muzio, we upheld the validity of a clause in a guaranty contract that waived the benefit of a homestead exemption. 100 N.M. at 100, 666 P.2d at 779. In that case, we held that the specific terms of the guaranty contract control the rights of the parties... . Id. We reasoned that this waiver was an integral part of the credit which was extended, and we are reluctant to impair arms-length contractual obligations and allow [appellant Muzio] to violate his guaranty contract. Id. The reasoning from Muzio is applicable to the instant case. The clause quoted from the Guaranty was an integral part of the credit extended by Sunwest to Curry County Grain. Appellants have not asserted that the transaction between Sunwest and Curry County Grain was anything other than an arms-length transaction. Thus, we now hold, as we held in Muzio, that the specific terms of the Guaranty control the rights of appellants and Sunwest. The language of the Guaranty establishes joint and several liability among the guarantors of the Curry County Grain debt. To agree with appellants' contention and allow them to avoid the effects of the Guaranty would require this Court to ignore the plain and express language of the guaranty contract. Muzio, 100 N.M. at 102, 666 P.2d at 781. Therefore, we affirm the trial court's ruling that under the Guaranty, appellants are liable for the entire amount of the Curry County Grain debt. The judgment is AFFIRMED. IT IS SO ORDERED. MONTGOMERY and FRANCHINI, JJ., concur.