Court: New Mexico Supreme Court; January 12, 1990; New Mexico; State Supreme Court
In Sunwest Bank of Farmington v. Don Kennedy et al., the Supreme Court of New Mexico affirmed the district court's summary judgment in favor of Sunwest Bank against the Kennedys. The case arose from a 1982 loan of $165,000 to Kennedy, Inc., guaranteed by the Kennedys through an 'Unconditional and Continuing Guaranty.' After selling their corporate interest in 1984, the new owners, including defendants Copeland and Clark, also guaranteed the loan. In 1985, a modification to the note was executed, releasing another guarantor, Craven, without notifying the Kennedys. The note later defaulted, leading to Sunwest seeking to collect the outstanding amount of $104,730.30.
The appeal focused on whether the bank's actions—specifically, releasing Craven from his guarantee and modifying the loan terms—discharged the Kennedys’ liability. The court considered whether Craven and Santex, Inc. became co-makers of the note through their guarantee, which would imply that the release of their obligations could also release the Kennedys. The court affirmed that a release by the holder of a note discharges subsequent parties and co-debtors unless the maker approves it. The Kennedys argued that Copeland and Craven became co-makers; however, the court found this argument insufficient to alter the original obligations without their consent, thus upholding the summary judgment against the Kennedys.
Sunwest highlighted that Kennedy, Inc. assumed debt from the Kennedys via an 'Agreement for Assumption of Indebtedness,' while Craven and Santex, Inc. were not parties to this agreement and did not assume any liability. The Kennedys remained personally liable for the debt despite this assumption. Additionally, the 'Contract of Sale' between the Kennedys, Craven, and Santex does not affect the Kennedys' obligations to Sunwest, as Sunwest was not a party to that contract. Thus, the Kennedys' claim that Craven and Santex were co-makers is unsupported. Although Craven signed a personal guarantee, he did not assume primary liability for the loan, making the release of his obligations irrelevant to the Kennedys' liability.
The Kennedys argued that Sunwest materially altered their obligation by releasing co-guarantors and extending the payment period without their consent. However, as Craven was a subsequent guarantor, his release did not impact the Kennedys' rights. The Kennedys contended they did not sign as co-makers; however, they signed personal guarantees that allowed Sunwest to modify terms without affecting their liability. They were also original note makers, thus their obligation to repay remained unchanged even after the debt was transferred to Kennedy, Inc. The Kennedys' argument that they did not consent to the extension of the note is deemed meritless, as their prior agreements indicated their ongoing liability despite the extension.
The original note was intended to undergo modifications over a ten-year period. The Kennedys, as makers of the note, lack the defenses available to sureties or accommodation parties, particularly in cases where unauthorized extensions are granted by the holder. Legal precedents affirm that makers remain primarily liable regardless of subsequent actions that may affect collateral or agreements. The Kennedys argued they should be discharged due to a lack of consent for an extension, citing a case (Abraham) suggesting that material alterations without consent could discharge a party. However, the court noted that the context in Abraham involved a renewal and lacked clear evidence of intended extensions and potential fraud. Contrasting with the Kennedys' situation, the court found that they intended to renew the note and were aware of their ongoing liability. Consequently, the district court's summary judgment in favor of Sunwest was upheld, affirming the Kennedys' liability as makers. The Kennedys did not claim that a corporate assumption of their debt altered their status to sureties, thus the implications of such a change were not explored.
