April 27, 2011 – Eve Randles v. Allegra Hanson and KCB, LLC, No. 29,427

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IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number:

Filing Date: _APRIL 27, 2011

NO. 29,427
EVE RANDLES,
Plaintiff-Appellant,
V.
ALLEGRA HANSON and KCB, LLC,
Defendants- Appellees.

APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY
Ted Baca, District Judge

Cuddy & McCarthy, LLP
Daniel J. Behles

Albuquerque, NM
for Appellant

Allegra Hanson, Attomey At Law
Allegra Hanson

Albuquerque, NM
Pro Se Appellee

Rodey, Dickason, Sloan, Akin & Robb, P.A.
Edward Ricco

Jocelyn Drennan

Albuquerque, NM

for Appellee KCB, LLC

OPINION
FRY, Judge.
{1} 	In this appeal, we must determine the legal and equitable remedies available to
performing and contributing coguarantors against a principal debtor who has defaulted
on a loan. 	Adopting the approach of the Restatement (Third) of Suretyship and
Guaranty, we hold that a coguarantor who has fulfilled a duty of contribution to a
performing coguarantor is entitled to recourse against a principal debtor as though the
contributing coguarantor had performed the guaranty to the same extent as his or her
contribution. 	Restatement (Third) of Suretyship & Guaranty § 58 (1996). 	A
contributing coguarantor has the right to seek reimbursement, restitution, or
subrogation against a defaulting principal debtor to the extent of his or her
contribution. 	Id. cmts. b, c, d, at 248-50. 	We further conclude that a performing
coguarantor’s claim against a principal debtor is reduced to the extent that he/she
receives contribution from another coguarantor. 	Id. cmt. e, at 250. 	Applying this
holding to the facts of this case, we reverse the district court’s grant of summary
judgment in favor of Defendant KCB, LLC (KCB or “performing coguarantor”) and
remand with instructions.

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BACKGROUND
{2} 	This case arose out of a $500,000 loan issued by Compass Bank to New Mexico
Motor Speedway, Inc. (Speedway) in October 2000. The loan was secured through
the execution of personal guaranties by four shareholders of Speedway—Steven
Kadner, Richard Chaves, and Jerome Beckes, who are the individual members of
Defendant KCB, and Plaintiff Eve Randles—and by Michael Jones, Speedway’s
president at the time.
{3} 	Two days after the promissory note for the loan was executed, the parties
entered into two written agreements that are relevant to the present dispute. The first
agreement (Memorandum Agreement) was executed between all five guarantors and
essentially allocated liability among the guarantors in the event of a default by
Speedway. In this agreement, the guarantors acknowledged that they were “jointly
and severally liable for all unpaid amounts” and, therefore, if Speedway defaulted, the
agreement provided that each guarantor would be responsible for paying “one-fifth
(1/5) of all amounts owed” within twenty days of the date of any written demand by
the bank for payment.
{4} 	The second agreement (Compensation Agreement) was executed between
Speedway and all five guarantors. This agreement memorialized an earlier offer from
Speedway to pay “each guarantor $1.00 for each dollar guaranteed” as compensation

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for the “significant risk” each guarantor had taken in personally guaranteeing the loan.
Accordingly, the agreement provided that Speedway would pay approximately
$500,000 to the guarantors as compensation for their guaranties and that this amount
would be distributed in equal percentages among the five guarantors.
A. 	Speedway’s Default and Subsequent Bankruptcy
{5} 	In 2003, Speedway defaulted on the loan, and the bank demanded payment
from the guarantors. Randles and Speedway’s president, Jones, refused to pay, and
the remaining three guarantors ultimately paid the entire $500,000 plus interest due
on the note. These three individuals, as performing guarantors, then formed KCB and
assigned their rights under the written agreements to KCB. Shortly thereafter, KCB
sued Randles and Jones to recover their pro-rata shares of the amount KCB had paid
to the bank. In that action, KCB obtained a judgment against Randles for her pro-rata
share of the principal in the amount of $113,406, plus attorney fees, which Randles
paid to KCB in June 2005.
{6} 	KCB also sought reimbursement from Speedway for its default. 	This effort
stalled in June 2005 when Speedway filed for Chapter 11 bankruptcy. 	During the
bankruptcy proceedings, KCB filed two claims against Speedway totaling one million
dollars. The first claim was for $500,000—the amount KCB claimed it had paid to
the bank upon Speedway’s default (which we refer to as the “principal amount” or

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“underlying obligation”). 	The second claim was for an additional $500,000—the
compensation KCB claimed it was due under the terms of the Compensation
Agreement 	(“premium 	amount”). 	Subsequently, 	as 	part 	of 	its 	Chapter 	11
reorganization efforts, Speedway agreed to pay KCB’s claims and proposed a
payment of one million dollars to cover both the principal and the premium amounts.
At this point, Randles filed a conditional objection in bankruptcy court for $200,000
of Speedway’s proposed payout to KCB, arguing that she was entitled to this amount
because half ($100,000) represented her pro-rata share of the principal she had
previously paid to KCB in the earlier judgment and the other half ($100,000) was her
portion of the premium. Without addressing the merits of this dispute and in order to
allow the bankruptcy proceedings to conclude, the parties agreed to a stipulated order
that the disputed $200,000 would be placed in the trust account for KCB’s attorney,
Defendant Allegra Hanson, pending resolution of the parties’ dispute as to the amount.
The bankruptcy court’s order disbursed the remaining $800,000 directly to KCB and
stated that Speedway was deemed to have fulfilled its obligations to Randles and KCB
regardless of the outcome of their dispute as to the $200,000. The parties then asked
the bankruptcy court to decide the merits of their dispute as to the $200,000, but the
court determined that it no longer had subject matter jurisdiction to do so. That set the
stage for the current lawsuit.

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B. 	Present Dispute
{7} 	In the proceedings below, which gave rise to this appeal, Randles filed an action
in district court against KCB, arguing that she was entitled to the $200,000. 	She
argued that half of this sum represented reimbursement from Speedway for her
payment of the judgment to KCB for her pro-rata share of the principal and that the
other half was her share of the premium. The parties filed cross-motions for summary
judgment, with each party arguing that it was entitled to the $200,000 as a matter of
law and equity. After a hearing on both motions, the district court denied Randles’
motion and granted KCB’s cross-motion for summary judgment. The court concluded
that Randles was not entitled to the $100,000 principal or the $100,000 premium
amounts as a matter of both law and equity. This appeal followed.
DISCUSSION
{8} 	On appeal, Randles argues that the district court erroneously denied her motion
for summary judgment as to both the principal and the premium amounts. We address
the parties’ arguments with respect to each amount in turn.
A. 	Standard of Review
{9} 	“On appeal from the grant of summary judgment, we ordinarily review the
whole record in the light most favorable to the party opposing summary judgment to
determine if there is any evidence that places a genuine issue of material fact in

6
dispute.” City of Albuquerque v. BPLW Architects & Eng’rs, Inc., 2009-NMCA-081,
¶ 7, 146 N.M. 717, 213 P.3d 1146. 	“However, if no material issues of fact are in
dispute and an appeal presents only a question of law, we apply de novo review and
are not required to view the appeal in the light most favorable to the party opposing
summary judgment.” Id. In addition, “[w]here cross-motions for summary judgment
are presented on the basis of a common legal issue, this Court may reverse both the
grant of one party’s motion and the denial of the opposing party’s cross-motion and
award 	judgment 	on 	the 	cross-motion.” 	Grisham 	v. 	Allstate 	Ins. 	Co.,
1999-NMCA-153, ¶ 2, 128 N.M. 340, 992 P.2d 891.
B. 	Whether Randles is Entitled to the $100,000 Principal
{10} 	With regard to the $100,000 principal amount, Randles argues that her previous
payment of the judgment to KCB for her pro-rata share of the principal entitled her
to seek recourse from Speedway for that payment. Specifically, Randles contends that
her contribution to KCB placed her in the position “as if she ha[d] participated with
them originally in paying Compass Bank” and, therefore, she became entitled to
recover the $100,000 principal from Speedway under three different theories:
assignment, subrogation, and what she terms as general “equitable principles . . . [of]
unjust enrichment and double recovery.” In response, KCB argues that Randles is
precluded from any recovery because she breached the Memorandum Agreement by

1 Although only a few cases in New Mexico have touched on the right of
contribution between coguarantors, see FDIC v. Hiatt, 117 N.M. 461, 469, 872 P.2d
879, 887 (1994) (Montgomery, C.J., dissenting); First Nat’l Bank in Albuquerque v.
Energy Equities Inc., 91 N.M. 11, 17, 569 P.2d 421, 427 (Ct. App. 1977), the principle
is well-established in other jurisdictions. 	See, e.g., Lestorti v. DeLeo, 4 A.3d 269,
275-77 (Conn. 2010); Hills Bank & Trust Co. v. Converse, 772 N.W.2d 764, 772-73
(Iowa 2009); Rodehorst v. Gartner, 669 N.W.2d 679, 686-87 (Neb. 2003); Albrecht
v. Walter, 1997 ND 238, ¶ 10, 572 N.W.2d 809, 812; Katz v. Prete, 459 A.2d 81, 85
(R.I. 1983); Gardner v. Bean, 677 P.2d 1116, 1118 (Utah 1984). Additionally, the
Restatement (Third) of Suretyship and Guaranty has recognized the right of one
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refusing to pay when the bank demanded payment following Speedway’s default.
KCB further claims that the theories of assignment and subrogation are inapplicable
under the facts of this case and that the doctrine of unclean hands precludes any
recovery on equitable grounds.
{11} 	On this issue, the parties contend that there are no material facts in dispute. The
parties agree that Randles breached the Memorandum Agreement by not paying her
share of the principal within twenty days of Speedway’s default; that KCB then sued
Randles for her share of the principal after it had paid the entire loan principal to the
bank; and that Randles paid $113,406, plus attorney fees, to KCB in satisfaction of the
ensuing judgment KCB obtained against her.
{12} 	We diverge briefly to clarify that although the previous lawsuit filed by KCB
against Randles was termed a “complaint for collection of debt” without using the
term “contribution,” we consider that lawsuit essentially to be an action for
contribution.1 See Black’s Law Dictionary 378 (9th ed. 2009) (defining “contribution”

cosurety to seek contribution from another cosurety. See § 55(2), at 236 (1996); see
also Peter A. Alces, The Law of Suretyship & Guaranty § 5.03[2], at 5-13 (1996)
(describing the Restatement’s approach on contribution by stating that “when one
cosurety has paid the obligee more than that cosurety’s proportionate share of the
underlying obligation, the cosurety who has overpaid will have a claim against the
other cosurety(ies) to recover the amount he paid in excess of his proportionate share.
The idea is that each cosurety should ultimately be out of pocket only in the amount
to which he agreed”).
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as “[t]he right that gives one of several persons who are liable on a common debt the
ability to recover proportionately from each of the others when that one person
discharges the debt for the benefit of all”). We think that Randles’ payment of the
judgment is economically equivalent to the result that would be obtained in an action
for contribution against her. For reasons that become apparent in our discussion later,
we therefore re-cast the facts mentioned above in the context of an action for
contribution as follows. After KCB paid Speedway’s obligation to the bank, it had
a right to seek contribution from Randles for her pro-rata share of the principal.
Subsequently, when Randles paid the $113,406 judgment to KCB, we consider her to
have fulfilled a duty of contribution to KCB.
{13} 	Based on our review of the record, we agree with the parties’ contention that
there are no disputed material facts on this issue. 	Thus, resolution of the parties’
dispute over the $100,000 principal depends solely on determining whether Randles
is entitled to the $100,000 principal amount paid by Speedway by virtue of her
previous contribution to KCB. 	Stated differently, we must decide whether a

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contributing coguarantor—i.e., a guarantor who has paid its pro-rata share of the
underlying obligation through an action for contribution brought by a fellow
coguarantor—is entitled to seek recovery from the principal debtor to the extent of its
contribution. We apply de novo review to this legal question.
{14} 	This is a novel issue in New Mexico as we have not found any New Mexico
case to have addressed this precise issue, nor have the parties directed us to any such
authority. 	In the absence of any relevant New Mexico authority, we turn to the
Restatement (Third) of Suretyship and Guaranty for guidance. 	This Court has
previously stated that we look to the Restatement for “authoritative guidance on the
common law” of guaranties. Venaglia v. Kropinak, 1998-NMCA-043, ¶ 12, 125 N.M.
25, 956 P.2d 824.
{15} 	For purposes of clarity, we begin our analysis by setting forth the relationship
between the parties in terms of the Restatement because these terms differ from those
employed by the parties in their briefing. The Restatement avoids the use of the term
“guarantor” and instead refers to a guarantor as a “secondary obligor,” who is liable
to the “obligee” (or creditor) for the underlying obligation in the event of a default by
the principal obligor (or principal debtor). See Restatement (Third) of Suretyship &
Guaranty § 1 cmt. d, at 7 (1996). The obligation of a secondary obligor to pay the
underlying obligation is considered the secondary obligation. 	Id. 	Additionally, in

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cases where there are multiple secondary obligors for the same underlying obligation,
the 	relationship 	between 	them is 	that 	of 	a 	cosuretyship 	or 	a 	subsuretyship.
Restatement (Third) of Suretyship & Guaranty § 53, at 227 (1996).
{16} 	Applying these terms to the parties in this case, Randles and KCB were
secondary obligors with joint and several liability to Compass Bank, the obligee, for
the $500,000 underlying obligation in the event of a default by Speedway, the
principal obligor. Also, Randles and KCB were cosureties because they expressly
agreed in the Memorandum Agreement to be jointly and severally liable for the
underlying obligation. 	See id. § 55 cmt. a, at 236 (stating that individuals are
cosureties when “the relationship between them is such that they should share the cost
of performance of their secondary obligations”). Moreover, based on the procedural
history of this case, KCB is considered a performing cosurety because it performed
under the guaranty when the principal obligor defaulted while Randles is a
contributing cosurety because she acted only through the previous action for
contribution. See id. § 55 cmts. a-e, at 236-38 (describing performing cosurety’s role
and right to seek contribution); § 58 cmts. a-b, e, at 248-50 (describing contributing
cosurety).
{17} 	Based on our review of the Restatement, we conclude that one section in
particular is on point for resolving the issue before this Court because it covers the

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rights of a contributing cosurety with respect to a principal obligor who has defaulted.
Section 58 of the Restatement provides two general rules directly applicable here that
govern the rights of performing and contributing co-sureties in seeking recovery
against a principal obligor in the event of a default. First, the section provides that
“[a] cosurety who satisfies a duty of contribution owed to another cosurety . . . is
entitled to recourse against the principal obligor as though that cosurety had
performed its secondary obligation to the same extent.” Id. § 58(1), at 248. Second,
it provides that “[t]he claim against the principal obligor of a cosurety who performs
its secondary obligation . . . is reduced to the extent that the cosurety receives
contribution from another cosurety.” Id. § 58(2), at 248; see id. cmt. e, at 250 (“When
a cosurety performs its secondary obligation, the magnitude of its claim against the
principal obligor is determined by the magnitude of its performance pursuant to the
secondary obligation. If the performing cosurety later recovers from another cosurety
under a right of contribution, however, the performing cosurety no longer requires the
original remedy against the principal obligor in order to be made whole.”). A leading
treatise on suretyship and guaranty offers an illustration of these rules in operation
together that is directly on point:
If S1, S2, and S3 are each liable for $2,500 of a $7,500 obligation of P
to O, when S1 pays O the full $7,500, S1 may recover that amount from
P. Once S1 recovers $2,500 in contribution from S2, S2 will be able to

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recover that amount, $2,500, from P. Upon that payment by S2 to S1,
S1's claim against P is reduced by $2,500.
Alces, supra, § 5.03[2], at 5-14.
{18} 	The general rationale underlying Section 58 is to place the contributing cosurety
in the same position as the performing cosurety when it comes to seeking recovery
from the principal obligor. Restatement (Third) of Suretyship & Guaranty § 58 cmt.
a, at 248 (“When one cosurety performs beyond its contributive share and receives
contribution from another cosurety, the cosureties are in the same position as if the
contributing cosurety had performed the secondary obligation to the same extent as
its contribution to the performing cosurety.”); Id. cmt. d, at 249 (“If [a] cosurety
fulfills a duty of contribution to the [performing] cosurety, the result is economically
equivalent to a situation in which the two cosureties, by each performing to the extent
of their contributive shares, discharge the underlying obligation.”).
{19} 	We adopt the approach of Section 58 of the Restatement for determining the
rights of contributing and performing cosureties against a principal obligor who has
defaulted on a loan. Thus, we describe the theories of recovery provided in Section
58 by which a contributing cosurety can seek recovery against a principal obligor: (1)
reimbursement, which is based on “notions of an implied contract on the part of the
principal obligor to make [a contributing] secondary obligor whole for the costs of its
performance”; (2) restitution, which is based on the principle of unjust enrichment;

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and (3) subrogation. 	See id. cmts. b, c, d, at 248-50. 	The Restatement defines
reimbursement as the duty of a principal obligor who is charged with notice of a
cosurety’s secondary obligation to “reimburse [a] secondary obligor for [the] cost of
fulfilling its duty of contribution.” 	Id. cmt. b, at 249. 	Restitution differs from
reimbursement in that it covers situations where the principal obligor is not charged
with notice of the secondary obligation. 	Id. cmt. c, at 249. Finally, subrogation is
essentially an equitable assignment of the obligee’s rights to the guarantor when it
comes to seeking recourse against a principal obligor. 	See Dan B. Dobbs, Law of
Remedies § 4.3(4), at 404 (2d ed. 1993) (“Having paid the defendant’s creditor, the
plaintiff stands in the creditor’s shoes, becomes the real party in interest, and is
entitled to exercise all the remedies which the creditor possessed against the
defendant.” (footnote omitted) (internal quotation marks and citation omitted)). In
this context, once a cosurety has fulfilled a duty of contribution, the Restatement
provides that the cosurety “is subrogated to the rights of the obligee against the
principal obligor to the same extent as if that cosurety had paid the same funds to the
obligee.” 	Restatement (Third) of Suretyship & Guaranty § 58 cmt. d, at 249-50.
Under any of these three theories, a contributing cosurety is entitled to recourse from
the principal obligor to the extent of his contribution. Id. § 58, illus. 1-4, at 249-50.

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{20} 	Applying the Restatement’s approach to the facts presented in this case, we
reverse the district court’s ruling as to the principal amount. We hold that Randles,
as a contributing cosurety, was entitled to recourse from Speedway for the principal
to the extent of her earlier contribution to KCB. 	That is, following Randles’
contribution, Randles and KCB were in the same position and had the same rights in
seeking recourse from Speedway for their respective payments under the guaranty
either through initial performance (by KCB) or contribution (by Randles). 	Thus,
when Speedway agreed to pay $500,000 to cover the principal during bankruptcy
proceedings, KCB’s claim to the $500,000 should have been reduced by $100,000
based on Randles’ contribution, and Randles should then have been allowed to claim
the $100,000 based on her contribution. Under the Restatement, Randles correctly
asserted a right to the $100,000 principal in the bankruptcy proceedings under theories
of reimbursement or subrogation. Speedway had a duty to reimburse Randles to the
extent of her contribution or, alternatively, Randles became subrogated to the rights
of the bank against Speedway to the extent of her contribution. Although Randles
also made arguments based on restitution in her briefing, we follow the Restatement’s
approach and conclude that restitution is not available to her because Speedway, as
principal obligor, has always had notice of the personal guaranties. See Restatement
(Third) of Suretyship & Guaranty § 58 cmt. c, at 249. This result would prevent any

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double recovery on the part of KCB and would also make both KCB and Randles
whole for their respective actions as a result of Speedway’s default.
{21} 	Having determined that Randles is entitled to the principal amount under the
approach of the Restatement, we turn to examine whether KCB’s arguments preclude
her recovery. KCB’s arguments regarding the principal amount do not change our
holding. Based on our above reasoning, we disagree with KCB’s first argument that
subrogation is inapplicable to the facts of this case. This leaves only KCB’s second
argument on appeal, which is that the doctrine of unclean hands precludes Randles
from seeking any portion of the principal amount paid by Speedway to KCB in the
bankruptcy proceedings. 	“The doctrine of unclean hands generally prevents a
complainant from recovering where he or she has been guilty of fraudulent, illegal or
inequitable conduct in the matter with relation to which he [or she] seeks relief.”
Magnolia Mountain Ltd. P’ship v. Ski Rio Partners, Ltd., 2006-NMCA-027, ¶ 36, 139
N.M. 288, 131 P.3d 675 (alteration in original) (internal quotation marks and citation
omitted). 	The doctrine is invoked in circumstances where the complainant has
“dirtied [his or her hands] in acquiring the right he [or she] now asserts.” Romero v.
Bank of the Sw., 2003-NMCA-124, ¶ 38, 135 N.M. 1, 83 P.3d 288 (internal quotation
marks and citation omitted). Here, KCB contends that the doctrine applies because
Randles engaged in inequitable conduct by “not shar[ing] the burden [of Speedway’s

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default] with the other guarantors” and by letting “the entire onus of responding to
Compass Bank fall on KCB.” 	In support, KCB relies on Lampton v. Staebler, 67
S.W.2d 473 (Ky. Ct. App. 1934), a case that involved the right of contribution
between cosureties and which held that a performing cosurety’s inequitable conduct
can lead to a forfeiture of his or her right to seek contribution. Id. at 478.
{22} 	We do not consider Lampton to be applicable to the facts of this case. Here, we
are not faced with a claim for contribution between cosureties or the right of a
performing cosurety to seek contribution; rather, we are concerned with the rights of
cosureties in post-contribution circumstances. 	In this lawsuit, which concerns a
determination of the legal and equitable remedies available to KCB and Randles
against a third party, Speedway, we remain unconvinced that Randles engaged in
conduct during the bankruptcy proceedings or in district court that would merit
application of the unclean hands doctrine. See Gen. Electric Co. v. Klein, 129 A.2d
250, 252 (Del. Ch. 1956) (“The repentant sinner, especially where he has been duly
punished, is not unwelcome in equity.”); Halls v. White, 2006 SD 47, ¶ 18, 715
N.W.2d 577, 585 (“If a person guilty of unconscionable or wrongful conduct purges
himself or herself by adequate and effective renunciation and repudiation, the right to
relief will be restored.” (alteration omitted) (internal quotation marks and citation
omitted)). 	Additionally, whatever inequitable conduct Randles engaged in after

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Speedway’s default was remedied by the judgment KCB obtained against her. Once
KCB received the judgment, which included attorney fees and costs, it was made
whole with respect to the portion of the principal that it had paid to the bank on
Randles’ behalf.
{23} 	Therefore, we reverse the grant of summary judgment in favor of KCB and
remand with instructions to enter summary judgment in favor of Randles as to the
$100,000 principal.
B. 	Whether Randles is Entitled to the $100,000 Premium
{24} 	Randles argues that she became entitled to the $100,000 premium as soon as
she executed the promissory note as a guarantor. She contends that the terms of the
Compensation Agreement did not require the guarantors to actually perform the
guaranty in order to receive compensation. 	KCB interprets the terms of the
Compensation Agreement differently, arguing that it should be construed together
with the Memorandum Agreement based on this Court’s holding in Master Builders,
Inc. v. Cabbell, 95 N.M. 371, 373, 622 P.2d 276, 278 (Ct. App. 1980) (“[I]n the
absence of anything to indicate a contrary intention, instruments executed at the same
time, by the same parties, for the same purpose, and in the course of the same
transaction, are, in the eye of the law, one instrument, and will be read and construed
together[.]” (internal quotation marks and citation omitted)). 	Construing the two

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written agreements together, KCB contends that performance of the guaranty was
required in order to receive compensation and, therefore, Randles’ breach of the
Memorandum Agreement precludes her from being entitled to a premium payment
under the Compensation Agreement. 	Alternatively, KCB argues that even if the
Compensation Agreement is considered in isolation, Randles breached that agreement
because she did not provide a guaranty as contemplated by the agreement based on the
word’s usual and customary meaning.
{25} 	The parties contend that resolution of this issue on appeal is a question of
contract 	interpretation 	requiring 	us 	to 	determine 	whether 	the 	Compensation
Agreement is ambiguous as to what constitutes performance—that is, we must decide
whether the terms of the Compensation Agreement provide that Randles and KCB
earned the premium upon execution of the promissory note or upon performance of
the guaranty in the event of a default. On a somewhat related ground, we understand
the parties to also argue that we must decide whether the Compensation Agreement
and the Memorandum Agreement should be construed together as one instrument for
purposes of determining the respective rights of the parties to the disputed $100,000
premium. This requires us to consider the rule from Master Builders that two or more
writings should be construed together if they are part of the same transaction, which

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Randles refers to as the “joint construction” principle on appeal and which was
referred to as “incorporation by reference” in the record below.
{26} 	We begin our analysis by setting forth the applicable law governing ambiguity
in contractual agreements in the context of motions for summary judgment. It is well
established that “[w]hether a contractual provision is ambiguous is a question of law,
which we review de novo.” McNeill v. Rice Eng’g & Operating, Inc., 2003-NMCA-
078, ¶ 13, 133 N.M. 804, 70 P.3d 794 (internal quotation marks and citation omitted).
We utilize the following approach in determining whether a contract term is
ambiguous:
The standard to be applied in determining whether a contract is subject
to equally logical but conflicting interpretations is the same standard
applied in a motion for summary judgment. If the evidence presented is
so plain that no reasonable person could hold any way but one, then the
court may interpret the meaning as a matter of law, and summary
judgment would be proper. On the other hand, if the court determines
that the contract is reasonably and fairly susceptible of different
constructions, an ambiguity exists, and summary judgment would not be
proper. Rather, the jury must resolve any factual issues presented by the
ambiguity. In resolving ambiguity, extrinsic evidence may be admitted
to aid the jury in interpreting the intent of the parties. The jury must then
decide if the evidence presented supports one interpretation rather than
the other.
Id. (alteration omitted) (internal quotation marks and citations omitted). 	As our
Supreme Court held in Mark V, Inc. v. Mellekas, a district court may consider extrinsic
evidence in making its preliminary finding of whether a contractual provision is

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ambiguous. 	114 N.M. 778, 781, 845 P.2d 1232, 1235 (1993). 	In other words, a
district court “may consider the circumstances surrounding the making of the contract
and of any relevant usage of trade, course of dealing, and course of performance in
making its threshold determination of whether the contract terms are ambiguous.”
McNeill, 2003-NMCA-078, ¶ 14.
{27} 	In this case, the provision of the Compensation Agreement at issue is the
language concerning payment of the premium:
II. 	COMPENSATION IN EXCHANGE FOR GUARANTY OF
NOTE
A. 	Amount of Compensation Paid to Guarantors. 	In
exchange for the guaranty of the obligations of Speedway under the
Note, Speedway agrees to pay the Guarantors the total sum of FOUR
HUNDRED NINETY-FIVE THOUSAND AND 00/100 DOLLARS
($495,000), plus all accrued interest under the Note until the Note is paid
in full.
{28} 	On appeal, the parties’ disagree as to whether the district court actually found
the Compensation Agreement ambiguous and specifically the above language that
Speedway would pay the premium “[i]n exchange for the guaranty of the obligations
of Speedway under the Note.” 	Although the district court did not enter a specific
finding that this language was ambiguous, our review of the hearing indicates that the
court considered the parties’ various arguments regarding interpretation of the
Compensation Agreement and that the court appeared to agree with KCB’s

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interpretation that the two agreements should be construed together. The court stated
that “under the [C]ompensation [A]greement, there was no entitlement to any recovery
of those funds because in equity there was a failure to perform under the
[M]emorandum [A]greement.” 	Randles contends that the district court must have
found ambiguity in the Compensation Agreement in order to reach the conclusion that
a guarantor must have performed the guaranty in order to earn the premium payment.
KCB counters that the district court did not need to address ambiguity of the
Compensation Agreement because performance was a requirement under the
Memorandum Agreement and “all writings that are part of the same transaction are
interpreted together.”
{29} 	Both Randles and KCB assert on appeal that the language of the Compensation
Agreement is unambiguous and supports their respective interpretations. We must
determine, therefore, whether the Compensation Agreement is reasonably susceptible
to the two interpretations argued by the parties; if we determine that it is, then the
district court erred in granting summary judgment and we must remand for a fact
finder to resolve the ambiguity. See C.R. Anthony Co. v. Loretto Mall Partners, 112
N.M. 504, 509, 817 P.2d 238, 243 (1991) (“[I]f the court finds ambiguity, the jury (or
court as the fact finder in the absence of a jury) resolves the ambiguity as an issue of
ultimate fact[.]”).

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{30} 	We first consider Randles’ interpretation of the Compensation Agreement.
Randles construes the language of the agreement to mean that upon execution of the
guaranty on the promissory note alone, the guarantors became automatically entitled
to the premium payment. 	She argues that the text of the agreement contains no
express language requiring performance under the Memorandum Agreement as a
prerequisite to earning the premium under the Compensation Agreement. Instead, in
her view, the guarantors receive the premium regardless of whether there was a default
by Speedway. In other words, even if Speedway did not default and the guarantors
were thus never required to perform the guaranty under the Memorandum Agreement,
Speedway would nevertheless be required to make the premium payment to the
guarantors. To support her interpretation, Randles points to extrinsic evidence in the
form of an offer letter from Speedway that pre-dates the Compensation Agreement
and provides that the “compensation [i.e., the premium] will be paid at Phase I
funding.” Randles appears to argue that the fact compensation would occur at Phase
I funding indicates that Speedway would pay the premium even in a no-default
scenario where the guaranty was not performed.
{31} 	KCB counters by arguing that the terms of the Compensation Agreement
require performance of the guaranty in two primary ways. First, KCB contends that
the Memorandum Agreement was “incorporated” into the Compensation Agreement

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under the holding of Master Builders. KCB claims that the two writings were part of
a single transaction, concern the same subject matter and were executed on the same
date and, therefore, they should be read and construed together as a single contract.
If the agreements are construed together, KCB contends that performance of the
guaranty under the terms of the Memorandum Agreement was necessary before
Randles had any legal right to enforce the terms of the Compensation Agreement.
KCB further argues that even if there was no explicit requirement of performance in
the Compensation Agreement, there was an implicit requirement that each guarantor
had a duty to actually honor the guaranty based on the usual and customary meaning
of the word “guaranty.” 	In its view, the only reasonable interpretation of the
agreement is “that the guarantors who in fact bore the risk upon Speedway’s default
and performed when needed would correspondingly be entitled to recover a
proportionate share of any compensation Speedway paid as the reward for that
performance.”
{32} 	Although we recognize that “[t]he mere fact that the parties are in disagreement
on construction to be given to the contract does not necessarily establish an
ambiguity,” we conclude that the contractual language at issue here is fairly and
reasonably susceptible to the two different constructions put forth by the parties,
thereby creating an ambiguity. 	Levenson v. Mobley, 106 N.M. 399, 401, 744 P.2d

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174, 176 (1987); see Mark V, Inc., 114 N.M. at 781, 845 P.2d at 1235 (“If the court
determines that the contract is reasonably and fairly susceptible of different
constructions, 	an 	ambiguity 	exists.”). 	We 	determine 	that 	the 	Compensation
Agreement is ambiguous as to what event triggers payment of the premium and
susceptible to conflicting interpretations in this regard. 	On the one hand, the
agreement is vague and does not explicitly state under what circumstances, the
premium payment would be made. 	The agreement does not define the word
“guaranty” and it is silent as to the means and manner of payment of the premium.
Additionally, the agreement contains an integration clause stating that it is the “entire
agreement of the parties with respect to the subject matter hereof,” and Speedway’s
offer letter may support Randles’ interpretation. On the other hand, it would not be
unreasonable to conclude that the two contracts are incorporated and should be
construed together because they were signed on the same date by all five guarantors
and Speedway and arguably involve the same subject matter and transaction.
Moreover, we conclude that several material issues of fact exist regarding the parties’
intent and the circumstances surrounding execution of the two written agreements:
Did the parties expect payment of the premium in a no-default scenario or only if there
was a default? Under what circumstances did the guarantors sign the agreements?
What was Speedway’s intent in obtaining the guaranties? 	All of these questions

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remain unresolved on appeal and subject to multiple conflicting inferences, none of
which are fully resolved by the evidentiary record. We note that “[a]lthough a written
contract need not detail every term, essential terms must be expressly provided or
necessarily implied by construction for a court to find the contract unambiguous on
its face.” McNeill, 2003-NMCA-078, ¶ 27.
{33} 	Based on the foregoing, we hold that it was improper for the district court to
grant summary judgment at this stage. 	Rather, the meaning to be assigned to the
ambiguous language of the Compensation Agreement and the parties’ intent are
questions of fact that should be decided by a fact finder. Therefore, we reverse and
remand to the district court for further proceedings on the premium amount.
CONCLUSION
{34} 	For the reasons set forth above, we reverse the district court’s grant of summary
judgment to Defendants KCB and Hanson and the denial of summary judgment to
Randles under the Memorandum Agreement. We hold that Randles is entitled to the
$100,000 principal under that agreement, and we therefore instruct the district court
on remand to enter summary judgment in favor of Randles as to that amount. With
respect to the $100,000 premium amount under the Compensation Agreement, we
remand for further proceedings consistent with this opinion.
{35} 	IT IS SO ORDERED.

CYNTHIA A. FRY, Judge

WE CONCUR:

MICHAEL E. VIGIL, Judge

TIMOTHY L. GARCIA, Judge

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