Court Opinion

ID: 9674491
Source: CourtListenerOpinion
Date Created: 2023-08-24 04:29:47.856061+00
Date Added: 2024-06-11T18:16:27.802031
License: Public Domain

*880STEAKLEY, Justice
(dissenting).
I am not content to join the majority for several reasons.
In the first place, the rationale of the majority is a retreat from the strictness with which we have viewed an obligation where one person assumes to answer for the debt of another. We have heretofore acted consistently “with the favoritism of the law for guarantors and indemnitors,” and this should be the road to decision here. Hernandez v. Great American Ins. Co. of N. Y., 464 S.W.2d 91 (Tex.1971); McKnight v. Virginia Mirror Co., Inc., 463 S.W.2d 428 (Tex.1971). In McKnight, we quoted the statement of the rule by the late Chief Justice Hickman in his writing in Jarecki Mfg. Co. v. Hinds, 295 S.W. 274 (Tex.Civ.App.1927, writ dism’d, 6 S.W.2d 343):
“It has been often said that he [one assuming to answer for the debt of another] is a favorite of the law. His obligation does not extend one jot or tittle beyond what is ‘nominated in the bond’. Smith v. Montgomery, 3 Tex. 199.”
A guaranty agreement is a species of indemnity contract, i. e., the promissor agrees to be responsible for the performance of another over whom he does not have direct control. The agreement is strictly construed. See Sira & Payne, Inc. v. Wallace & Riddle, 484 S.W.2d 559 (Tex.1972), where we restated the rule that an indemnity agreement will not be held to protect an indemnitee against the consequences of his own negligence unless the obligation is expressed in clear and unequivocal language. We should be no less strict in determining the obligation of the Boharts.
The circumstances of the execution of the note in question were these. Universal Metals, a Texas corporation, sold machine tools to BMT, a Mexican corporation. A promissory note in payment therefor was forwarded to the Mexican corporation and signed by it with no guarantors. The Foreign Credit Insurance Association, a group of domestic insurers who write insurance in conjunction with the Export-Import Bank, an agency of the United States, refused to accept the note without guarantors. FCIA wrote Export Credit Insurance upon the transaction and its form of promissory note obligation and guaranty was then utilized. A substitute note in this form was submitted and purportedly signed by BMT, and admittedly signed by the Boharts, and is the note upon which Universal Metals brought this suit against the Boharts.
It can hardly be gainsaid that, at the least, there is some doubt as to the nature of the obligation of the Boharts under the contract here. Witness the sharp divisions in the courts below; witness the terms of the contract and the circumstances of its execution. It is unmistakable on the face of the instrument that the Boharts signed in the stated capacity of guarantors, and not as co-makers. Cf. Reed v. Buck, 370 S.W.2d 867 (Tex.1963), where we recognized that, “Parties to a negotiable instrument are generally held to be liable in the capacity in which they sign the instrument and suable accordingly.” It is also reasonably evident from the words used that the obligation the Boharts assumed was that of guarantors of payment of the note, to which obligation they became unconditionally bound. An “unconditional guaranty” is “one whereby the guarantor agrees to pay or perform a contract upon default of the principal without limitation. It is an absolute undertaking to pay a debt at maturity or perform an agreement if the principal does not pay or perform.” See Joe Heaston Tractor & Implement Co. v. Securities Acceptance Corp., 243 F.2d 196 (10 Cir. 1957), where the contract under review unconditionally guaranteed payment of notes in accordance with their terms.
It is equally unmistakable that the agreement presupposed an obligated maker; otherwise, there was no reason for inclusion of the provision for waiver of “any requirement that the holder exhaust any right or take any action against the maker of the foregoing promissory note.”
I further disagree with the reliance of the majority on Sec. 3.416(a) of the Tex.Bus. & Comm.Code as a buttress to its holding that *881the Boharts signed the note as co-makers. Section 3.416(a) reads:
“(a) ‘Payment guaranteed’ or equivalent words added to a signature mean that the signer engages that if the instrument is not paid when due he will pay it according to its tenor without resort by the holder to any other party.”
It is evident on its face that Sec. 3.416 has no application to a contract of guaranty with stated terms and conditions, and that its provisions do not purport to define rights in this circumstance. As indicated in the Comment, quoted by the majority, the writing concerns an indorsement and speaks of words added to a signature: words like “payment guaranteed” or “collection guaranteed.” This is not the problem at hand.
It is not mentioned by the majority that the instrument in question was a form of promissory note obligation written by someone in the Foreign Credit Insurance Association. The inclusion by the unknown scrivener of the phrase “as primary obli-gor(s)” is really the only basis of any substance for the conversion by the majority of the obligation of the Boharts into that of co-makers. Of course, this phrase is the source of the problem of the case — really the whole problem — and must be considered. Admittedly, there is a surface plausibility to the overriding effect the majority has given the phrase; but in my view the phrase has been exaggerated out of proportion to the context in which it was included by the FCIA scrivener. The question is simply whether the effect of these words is to convert what is otherwise an obvious guarantee obligation into an obligation of the character that was itself guaranteed, i. e., a maker obligation. The contract provides that the guarantee obligation of payment of the note arises only “when and as due in accordance with its terms.” These are explicitly stated conditions to liability of the Boharts. The note did not and could not become due in accordance with its terms if its maker, BMT, is not bound to pay, and payment was guaranteed by the Boharts only in such event; and only in such event would the Boharts become primary obligors for payment of the note. So it is my view that the majority has reached conclusions inconsistent with the terms of the contract and the circumstances of its execution, as well as contrary to the strictness we have heretofore followed in favoring one who is sought to be held for the debt of another.
Finally, it is quite certain that a contract of guaranty cannot be such without an obligation to be guaranteed, and presupposes that the obligation guaranteed is the primary obligation of another. From this it necessarily follows that the obligation of a guarantor is co-extensive with the obligation guaranteed and cannot be more or less; and, further, that an obligation of guaranty cannot exist in the absence of an obligation to be guaranteed. It is undisputed that BMT is not bound here.
As stated in 3 J. Kent, Commentaries on American Law 162 (8th ed. 1854), “A guaranty . . . is a promise to answer for the payment of some debt or the performance of some duty, in the case of the failure of another person, who, in the first instance is liable.” A. Stearns, The Law of Suretyship § 4.1 (5th ed. 1951) states, “Since the contract of guaranty is collateral, a primary or principal obligation must exist to which it is secondary, as without a principal debt there can be no guaranty.” The guaranty contract is secondary or collateral to some principal contract between the creditor and his principal debtor. The guaranty promise is a promise to answer for the debt or the default of the principal debtor under his contract with the creditor. Therefore, unless the debtor is bound under the principal contract, there is no obligation which is guaranteed and the guarantor is not liable to the creditor if the debtor fails to perform. 38 Am.Jur.2d Guaranty § 51 (1968).
I would affirm the judgment of the Court of Civil Appeals.