AI Generated Opinion Summaries

This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.

Facts

The Plaintiffs sold a commercial property to a corporation under a real estate contract, with part of the down payment secured by a promissory note guaranteed by the Defendant. The corporation defaulted on the note, and the Plaintiffs later entered into a settlement agreement with the corporation, reacquiring the property and releasing the corporation from further liability. The Defendant, as guarantor, argued that the settlement impaired his ability to seek reimbursement from the corporation (paras 1-4, 8).

Procedural History

• District Court, August 29, 1994: Judgment was entered against the corporation and the Defendant for the unpaid amount of the promissory note (para 3).
• District Court, March 31, 1995: The judgment against the Defendant was set aside after he argued he had not retained the attorney who represented him (para 5).
• District Court, July 3, 1996: Summary judgment was granted in favor of the Defendant, discharging him from liability as guarantor (para 6).

Parties' Submissions

• Appellants (Plaintiffs): Argued that the Defendant, as guarantor, remained liable for the unpaid amount of the promissory note despite the settlement agreement with the corporation (paras 1, 6).
• Appellee (Defendant): Claimed that the settlement agreement impaired his right of recourse against the corporation, discharging him from his obligations as guarantor under both the Uniform Commercial Code (UCC) and common law (paras 6, 8-9).

Legal Issues

• Whether the Defendant was discharged from his obligations as guarantor under the UCC or common law due to the settlement agreement impairing his right of recourse against the corporation.
• Whether the Plaintiffs were entitled to summary judgment in their favor (paras 7, 10).

Disposition

• The Court of Appeals reversed the summary judgment in favor of the Defendant and remanded the case for further proceedings (para 38).

Reasons

Per Hartz CJ (Donnelly and Wechsler JJ. concurring):

• The Court held that the Defendant's argument under UCC Section 55-3-605(b) failed because the Defendant retained a legal right of recourse against the corporation, even if the corporation lacked assets (paras 16-20).
• The common law rule that releasing a principal obligor discharges a guarantor was displaced by UCC Section 55-3-605(b), which allows a creditor to release the principal obligor without discharging the guarantor (paras 23-24).
• The Defendant's claim that the Plaintiffs had already recovered the full debt through the resale of the property was rejected, as the real estate contract was not equivalent to a mortgage, and the Plaintiffs were not required to account for profits from the resale (paras 24-25).
• The Court found no "material modification" of the Defendant's obligation under UCC Section 55-3-605(d), as the terms of the promissory note itself were not altered (paras 25-27).
• However, the Court recognized a potential defense under Restatement (Third) of Suretyship and Guaranty Section 44, which discharges a guarantor to the extent that the creditor impairs the guarantor's right of recourse. The settlement agreement may have impaired the Defendant's ability to seek reimbursement from the corporation, creating a factual issue requiring further proceedings (paras 28-37).
• The Court concluded that neither party was entitled to summary judgment due to unresolved factual issues regarding the extent of any impairment to the Defendant's right of recourse (paras 37-38).