Court Opinion

ID: 2912401
Source: CourtListenerOpinion
Date Created: 2015-09-10 16:43:19.417018+00
Date Added: 2024-06-11T11:37:58.104953
License: Public Domain

11th
Court of Appeals
                                                                  Eastland,
Texas
                                                                        Opinion
 
Farmers & Merchants State Bank of Krum
Appellant
Vs.                   No. 11-01-00345-CV B Appeal from Dallas County
Reece Supply Company
Appellee
 
The issue in this summary judgment case is whether
the guaranty agreement is an unconditional payment guaranty or a collateral
conditional guaranty.  Reece Supply
Company (Reece) sued Farmers & Merchants State Bank of Krum (Farmers) on a
guaranty agreement signed by Farmers. 
The trial court granted Reece=s
motion for summary judgment.  Farmers
appeals.  We affirm.
The summary judgment proof reveals the following
information.  David White, sales manager
for Reece, stated in an affidavit that G.R.A.V.I.T.Y. Enterprises, Inc.
(Gravity) contacted Reece concerning a contract Gravity had with U.S. Tobacco
Company.  Reece agreed to provide
Gravity transformers to be used by Gravity in its contract with U.S. Tobacco.  The sale of the transformers was conditioned
upon Gravity=s bank
presenting to Reece a letter of credit or other acceptable assurance of payment
for the cost of transformers ordered by Gravity.  Farmers provided Reece with a written agreement to pay the amount
due for transformers shipped to Gravity in connection with the U.S. Tobacco
contract.  Reece shipped 2,250
transformers to Gravity.  The cost of
the transformers sold to Gravity was $82,552.50.  Neither Gravity nor Farmers paid Reece for the transformers
shipped by Reece to Gravity.

Jim Chambers, president of Gravity, stated in an
affidavit that it was clear in conversations between the representatives of
Gravity and Reece that the transformers purchased from Reece would be used by
Gravity in connection with Gravity=s
contract with U.S. Tobacco and that the transformers would need to be operable,
safe, and fit for that purpose. 
Chambers stated that he contacted Farmers and asked Farmers if it would
assure Reece that Gravity could pay for working  transformers shipped by Reece 
pursuant to the agreement between Gravity and Reece.  Chambers stated that the transformers
shipped by Reece were unsafe.  The
transformers would overheat and posed a serious fire hazard, and Gravity could
not use the transformers shipped by Reece. 
Because the transformers were faulty, Gravity refused to pay Reece.  Gravity informed Farmers that the
transformers were faulty and instructed Farmers to make no payment to Reece
until the problem was solved.  Chambers
stated that, thereafter, Reece came to Gravity=s
headquarters and retrieved the transformers Reece shipped.  The transformers were never returned to
Gravity.
Vaughn Andrus, president of Farmers, stated in an
affidavit that Farmers agreed to send Reece a letter for the purpose of assuring
Reece that, if Reece would ship working transformers to Gravity according to
all of the terms of the agreement negotiated between Reece and Gravity, Reece
would be paid.  Andrus stated that the
November 4, 1997, letter to Reece was assuring payment if, and only if, Reece
performed according to the agreement between Reece and Gravity.  The agreement called for the shipment of
working, non-hazardous transformers that Gravity could use in connection with
its contract with U.S. Tobacco.  Andrus
stated that Farmers received a letter from Chambers detailing certain
safety-related problems with the transformers. 
Farmers learned that Reece had retaken possession of the faulty
transformers shipped to Gravity.
The November 4, 1997, letter, signed by Andrus, provided
in part:
Reece
Supply Company
Attn:
David White
PO
Box 565545
Dallas,
TX 75356
 
Dear
Mr. White:
 
G.R.A.V.I.T.Y.,
Inc. of 803 North 5th Street, Sanger, Texas, has a Line of Credit with us for
the purpose of buying supplies to be sold to U.S. Tobacco.  It is our understanding that G.R.A.V.I.T.Y,
Inc. will purchase from you approximately 3,000 transformers over the next few
months.  That order will amount to
approximately $121,255.
 
Our
bank will guarantee that each order placed by G.R.A.V.I.T.Y, Inc. will be paid as
agreed, seven (7) days after shipment, FOB, Sanger, TX.  (Emphasis added)

Farmers does not contend that the guaranty
agreement is ambiguous.  Farmers asserts
that the affidavits of Chambers and Andrus are admissible not to vary or alter
the terms of the letter but to show that a fact question exists as to whether
or not the conditions of the guaranty and of the underlying contract between
Reece and Gravity had been fulfilled.
Reece cites Universal Metals and Machinery, Inc.
v. Bohart, 539 S.W.2d 874, 877 
(Tex.1976), and argues that Farmers may not rely upon the underlying
contract between Reece and Gravity because the guaranty agreement signed by
Farmers was an unconditional payment guaranty. 
We agree.  The supreme court in Bohart,
stated:
A number of judicial precedents have held that
guaranties, like the one in this case, are absolute rather than conditional,
primary rather than secondary, and guarantees of payment rather than guarantees
of collection.  A discussion of many of
those cases may be found in the dissenting opinion of the court of civil
appeals and need not here be repeated. 
523 S.W.2d 279, at 288-291.  The
guarantor, who contracted as a primary, absolute, unconditional obligor, is not
freed from liability because of the forged signature of the maker.  Ganado Land Co. v. Smith, 290 S.W. 920

(Tex.Civ.App.1927, writ ref=d);
El Paso Bank & Trust Co. v. First State Bank, 202 S.W. 522

(Tex.Civ.App.1918, no writ).
 
Justice Guittard, in his
dissenting opinion in Bohart v. Universal Metals and Machinery, Inc., 523
S.W.2d 279, 288-90 (Tex.Civ.App. - Dallas 1975), rev=d, Universal Metals and
Machinery, Inc. v. Bohart, supra, discussed the obligations of Aprimary@ and Asecondary@ guarantors:  
A Aguaranty@ is a species of indemnity
contract.  It is a promise to stand
responsible for occurrence of an event that may not be directly within the
control of the immediate parties to the contract.  The problem of interpretation is to identify the event for which
responsibility is assumed.  If that
event is a third person=s
discharge of his legal obligation, no liability arises unless the third person
is legally bound.  Accordingly, the
guarantor=s obligation
is termed Asecondary.@  If that event is a third person=s
performance of a specified act, the guarantor=s
liability arises when the third person has failed to perform as specified,
irrespective of his legal obligation. 
In this situation the guarantor=s
obligation may properly be termed Aprimary.@
 
Justice Guittard stated further:

Texas authority, also, supports an interpretation of Aguarantee@ as consistent with a
primary obligation.  In El Paso Bank
& Trust Co. v. First State Bank, 202 S.W. 522, 524 (Tex.Civ.App. - El Paso
1918, no writ), a bank sent a telegram to another bank stating, A[we] guarantee payment@ for a carload of
watermelons to be shipped to a produce company.  The court held this telegram to be Aan
absolute guaranty of the payment of the money,@
and, therefore, a Aprimary
and positive agreement@
rather than a collateral liability. 
Accordingly, the suit on the guaranty was held not to be subject to the
defenses that the melons did not come up to the agreed standard of weight or
quality or that they were not shipped within the time agreed upon between the
buyer and the seller.  This result was
reached even though the telegram did not expressly use the term Aprimary obligation.@
 
The court in Universal C. I.
T. Credit Corp. v. Daniel, 243 S.W.2d 154 (Tex.1951), stated that, to achieve
the true intention of the parties, we should examine and consider the entire
writing and seek to harmonize and to give effect to all of the provisions of
the contract so that none will be rendered meaningless.
Farmers contends that the
guaranty was conditioned on Reece supplying transformers to be used by Gravity
in its contract with U.S. Tobacco. 
Reece failed to supply transformers to Gravity that were useable by
Gravity to fulfill the contract with U.S. Tobacco.  Therefore, Farmers argues that the underlying agreement between
Gravity and Reece was not fulfilled and that a condition of the guaranty agreement
was not fulfilled.  Farmers points to
the first paragraph of the November 4, 1997, letter and argues that such
paragraph clearly contemplates that the guaranty will be for payment for
transformers Aused to
fulfill Gravity=s
contract with U.S. Tobacco Company.@  Farmers also asserts that the words Aas agreed@ in the letter refers to
the underlying agreement between Reece and Gravity.
The first paragraph of the
letter does not add any terms or conditions to the guaranty agreement set out
in the second paragraph of the letter. 
The first paragraph merely contains a recital of facts identifying the
subject matter of the guaranty agreement.

We disagree with Farmers= argument that the words Aas agreed@ in the November 4, 1997,
letter refer to the underlying agreement between Reece and Gravity.  The words Aas
agreed@  modify the word Apaid@
in the guaranty agreement.  We agree
with Reece=s analysis
that the language of the guaranty agreement can only have meaning within the
four corners of the letter if Aas
agreed@ refers to the
amount agreed to by Reece and Gravity for the transformers delivered to
Gravity.  The guaranty agreement preceded
the placing of the orders by Gravity and the delivery of the transformers by
Reece.  On November 4, 1997, Farmers did
not know the number or cost of the transformers that Gravity would order from
Reece.
The November 4, 1997, letter is unambiguous.  The instrument alone will be deemed to
express the intention of the parties for it is the objective, not subjective,
intent that controls.  City of Pinehurst
v. Spooner Addition Water Company, 432 S.W.2d 515 (Tex.1968).  We hold that the guaranty agreement is an
unconditional payment guaranty.  The
conditions urged by Farmers are not available to Farmers.
Farmers next asserts failure of
consideration.  Consideration for a
guaranty agreement usually consists of either the sufferance of a detriment by
the creditor or a benefit conferred by the creditor  on the primary debtor. 
Hargis v. Radio Corporation of America, Electronic Components, 539
S.W.2d 230, 232 (Tex.Civ.App. - Austin 1976, no writ).  The consideration was Farmers= promise to pay the amount Aas agreed, seven (7) days
after shipment@ by
Reece, Reece=s
detrimental reliance on Farmers=
promise, and Reece=s
shipping the transformers.   See Gooch
v. American Sling Company, Inc., 902 S.W.2d 181, 185 (Tex.App. - Fort Worth
1995, no writ.).
Farmers also contends that it is entitled to an
offset because Reece repossessed the transformers and because Reece has not
accounted for the disposition of the transformers or allowed any credit for the
value of the transformers.  Farmers was
the primary, absolute, unconditional obligor. 
Therefore, the asserted defenses of offset and failure of consideration
because the transformers were unfit are not available to Farmers.  See Houston Sash and Door Company, Inc. v.
Heaner, 577 S.W.2d 217 (Tex.1979); Universal Metals and Machinery, Inc. v.
Bohart, supra.
The summary judgment proof established that Reece
was entitled to judgment as a matter of law. 
Gibbs v. General Motors Corporation, 450 S.W.2d 827 (Tex.1970).  The judgment of the trial court is affirmed.
 
AUSTIN McCLOUD
SENIOR JUSTICE
May 23, 2002 
Publish.  See TEX.R.APP.P.
47.3(b).
Panel
consists of:  Wright, J., and
McCall,
J., and McCloud, S.J.[1]

[1]Austin McCloud, Retired Chief Justice, Court of
Appeals, 11th District of Texas at Eastland sitting by assignment.