the underlying debt. This issue hinges on the interpretation and enforcement of several provisions of the guaranty, specifically paragraphs four and twenty. Since a resolution of this issue necessarily depends on an interpretation and construction of the guaranty agreement, the controversy properly falls within the scope of the choice-of-law provision set forth above. Thus, based on New York conflict of law principles, Texas law governs this dispute.
I. THE EXTENT OF THE PLAINTIFFS' LIABILITY UNDER THE GUARANTY
The Defendant claims that it is owed $ 56,781.94 in principal remaining from their original lease contract with GFCC. Even though the obligations of GFCC were extinguished by virtue of the approved Chapter 11 plan, the Defendant argues that the Plaintiffs as guarantors of GFCC's debt are still liable for the remainder of the obligation. Defendant argues that by the express terms of paragraph four and twenty of the guaranty, the Plaintiffs waived any right to assert the defense of payment or release by GFCC for the underlying obligation, and contracted to remain liable for the entire amount of the debt. Paragraph four states, in relevant part, that the Plaintiffs would remain bound under the Guaranty, "notwithstanding any such exchange, surrender, release, change, alteration, renewal, extension, continuance, compromise, waiver, inaction, extension of further credit, or other dealing" to GFCC of the underlying debt. Paragraph twenty further sets forth that the Plaintiffs waive "any defenses which the lessee may assert on the underlying debt, including but not limited to, failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord, and satisfaction and usury." Defendant argues that the law of guaranty contracts allows a guarantor to remain liable for and underlying debt despite any payment by the debtor. See, e.g., In Re El Paso Refining, Inc., 192 B.R. 144 (Bankr. W.D. Tex. 1996); Crompton-Richmond Co. v. Briggs, 560 F.2d 1195, 1197 (5th Cir. 1977); NCNB Texas Nat'l Bank v. Johnson, 11 F.3d 1260 (5th Cir. 1994).
Primarily, the Plaintiffs argue that any obligation they had to the Defendant by virtue of their personal guaranty of GFCC's debt to the Defendant was extinguished when GFCC's obligation to the Defendant was settled pursuant to the bankruptcy plan. The Plaintiffs argue that because a guarantor's liability cannot exist absent the primary obligee remaining liable on the underlying debt, the Plaintiff should be released from liability by operation of the Bankruptcy Plan. See Asociacion De Az De Gua v. U.S. National Bank of Oregon, 423 F.2d 683 (9th Cir. 1970); Michaels v. Chemical Bank, 110 Misc. 2d 74, 76, 441 N.Y.S.2d 638 (Sup. Ct. N.Y. Cty. 1981). Plaintiffs further argue that the Court should not interpret paragraphs four and twenty of the guaranty as a waiver by the Plaintiffs of the above-mentioned defense because such an interpretation would be patently inequitable and could potentially subject the Plaintiffs to double liability on the underlying debt. Alternatively, Plaintiffs argue that there is a material issue of fact as to whether the sale of the DEX 600S switching system was "commercially reasonable" given the Defendant's status as an over-secured creditor and given the fact that the sale failed to satisfy GFCC's entire obligation.
There is a general rule that the release of a primary obligor releases the guarantor. See Holcombe v. Solinger & Sons Co., 238 F.2d 495, 499 (5th Cir. 1956). However, where a guaranty specifically authorizes the release of an obligor without impairing the ability to seek payment from the guarantor, the guarantor's liability exists independently of the underlying obligation. See In re El Paso, 192 B.R. at 148; NCNB Texas Nat'l Bank, 11 F.3d at 1266 (holding that the court will enforce a guaranty according to its terms). The authority cited by the Plaintiffs in their papers does not disagree with this principle. See Bier Pension Plan Trust v. Schneierson, 74 N.Y.2d 312, 315, 546 N.Y.S.2d 824, 545 N.E.2d 1212 (1989) (holding that a surety is not liable on any obligation which is modified without its consent); Jones v. Gelles, 167 A.D.2d 636, 638, 562 N.Y.S.2d 992 (3d Dep't 1990) (holding that a guarantor may still be liable on a guaranty even if the creditor cannot recover from the principal, if the surety expressly assumed a liability independent of the principal's obligation).
Here, by the express terms of paragraphs four and twenty of the guaranty, the Plaintiffs have waived the right to assert any defense based on the release of GFCC by the bankruptcy court. Further, pursuant to paragraph four, the Plaintiffs expressly guaranteed the full debt, independent of any obligation owed by GFCC. Additionally, the Plaintiffs' equitable argument is not persuasive because DSC is not attempting to recover any amount over what it was entitled to in the original agreement. Furthermore, the order of the Bankruptcy Court sets forth:
All claims of DSC existing as of the Effective Date, including secured claims, unsecured deficiency claims and administrative claims, but specifically not including any claims that DSC may own by virtue of an assignment from Richard Comi by virtue of a certain guaranty, dated September 24, 1994, shall be paid in full, as to [GFCC], without waiver by DSC of its rights, if any, to pursue Comi on his guaranty or enforce any claim which Comi may have assigned to DSC, by payment in cash, on or before the Effective Date, by NECBES of the sum of $ 507, 416.
(emphasis added). Thus, this order by its express terms contemplates that DSC would have full right to pursue the remainder of GFCC's original debt from the Plaintiffs.
Finally, Plaintiffs' challenge of the commercial reasonableness of the sale of the DEX 600S switching system merits little discussion. Section 9.507 of the Texas Business and Commerce Code sets forth, in relevant part:
A disposition which has been approved in any judicial proceeding or by any bona fide creditor's committee or representative of creditors shall conclusively be deemed to be commercially reasonable, but this sentence does not indicate that any such approval must be obtained in any case nor does it indicate that any disposition not so approved is not commercially reasonable.