## Facts

- The Venaglias sold commercial real property to Downtown Business Center, Inc. (DBC) under a transaction involving a $90,000 down payment and a real estate contract for the balance.
- As part of the down payment, DBC delivered a $68,000 promissory note payable to the Venaglias, with staged payment deadlines in 1993 and interest at 10%.
- Roy M. Kropinak signed a guaranty/undertaking associated with the $68,000 note and was treated as a guarantor/surety or accommodation party.
- DBC defaulted on the note, and the Venaglias sued to enforce the note and guaranties, including against Kropinak.
- During the litigation, the Venaglias and DBC entered a settlement under which DBC relinquished remaining rights in the property and the Venaglias released DBC from liability on the note and related obligations.
- Kropinak was not a party to the settlement and did not consent to it.
- Kropinak asserted suretyship defenses, including discharge based on the release of the principal obligor, material modification without consent, and impairment of recourse/subrogation rights.

## Issues

1. Whether a creditor’s settlement with and release of the principal obligor on a promissory note automatically discharges a nonconsenting guarantor/accommodation party.
2. Whether the settlement constituted a material modification of the underlying obligation that discharged the guarantor.
3. Whether the settlement impaired the guarantor’s recourse/subrogation or related suretyship rights so as to discharge him in whole or in part.
4. Whether either side was entitled to summary judgment on the suretyship defenses based on the existing record.

## Decision

- The appellate court reversed the district court’s summary judgment in favor of Kropinak.
- The appellate court declined to direct entry of summary judgment for the Venaglias.
- The case was remanded because the record did not permit summary judgment for either party on the asserted suretyship defenses.
- The court held that release of the principal obligor did not, on this record, establish an automatic discharge of the nonconsenting guarantor; the effect depended on facts concerning impairment and the settlement’s terms.

## Legal Principles

- UCC provisions addressing accommodation parties and discharge operate alongside common-law suretyship principles unless displaced; both may inform available defenses.
- A creditor’s release of the principal obligor does not necessarily discharge a guarantor; the result may depend on whether rights against the guarantor were preserved and whether the guarantor’s reimbursement/subrogation rights were impaired.
- A surety may be discharged to the extent an unconsented, material modification of the principal obligation increases the surety’s risk; materiality and increased risk can be fact-dependent.
- Impairment of a surety’s recourse rights (including subrogation or reimbursement), potentially including impairment tied to settlement structure and collateral-related consequences, may support discharge in whole or part, but commonly requires factual development.
- Summary judgment is improper where material facts remain disputed regarding the settlement’s legal effect, the existence and extent of impairment, and the application of suretyship defenses.

## Conclusion

The court reversed summary judgment for the guarantor because the settlement’s effect on discharge defenses under the UCC and common-law suretyship doctrines turned on unresolved factual questions, and it remanded for further proceedings rather than awarding judgment to either side.


Venaglia v. Kropinak, 956 P.2d 824 (N.M. Ct. App. 1998)