Court Opinion

ID: 9768150
Source: CourtListenerOpinion
Date Created: 2023-08-29 05:44:21.531929+00
Date Added: 2024-06-11T07:30:33.750425
License: Public Domain

WRIGHT, Justice,
dissenting.
Because I would conclude in accordance with the Restatement of Suretyship and Guaranty that a guaranty, as a secondary obligation, follows the underlying note that it secures, I would conclude that Ashcraft by proving he was the owner and holder of the note, in the absence of evidence of an agreement to the contrary, also proved he was the owner and holder of the guaranty. Accordingly, I respectfully dissent from the majority opinion. Further, I would reverse the trial court’s judgment and render judgment in favor of Ashcraft.
The majority first concludes that according to the contract governing this transaction, the purchase and sale agreement, the RTC did not assign the guaranty to Ashcraft. The majority then concludes that, because Ash-*918craft did not prove the RTC held the guaranty, Ashcraft failed to prove the RTC was capable of assigning it to him. As a result, the majority concludes Ashcraft failed to prove that he was the owner and holder of the guaranty. I cannot agree with either the majority’s analysis or its holding that Ash-craft failed to prove he was the owner and holder of the guaranty.
Whether the transfer of the principal obligation operates as an assignment of the guaranty is an issue of first impression in Texas. Although, as the majority notes, no Texas court has addressed Ashcraft’s argument about automatic assignment of the guaranty, the Restatement of the Law of Suretyship and Guaranty and the only jurisdictions writing on this issue apply to guaranties the general rule of contract law that the transfer of a note automatically carries with it the assignment of all collateral used to secure the note. For the reasons that follow, I would agree with the other jurisdictions and follow the Restatement of the Law of Suretyship and Guaranty. I disagree with the majority that we need not decide whether Texas law provides for automatic assignment of the guaranty with the primary obligation. As I view the necessary analysis in this case, we must first decide whether the assignment of the underlying obligation operates to assign any secondary obligation supporting it. Next, we must determine whether there are circumstances or agreements prohibiting assignment of the secondary obligation.
The majority concludes that Ashcraft failed to show that the RTC owned the guaranty and, thus, we need not determine whether Texas, like the other jurisdictions and the Restatement, follows the general principle of automatic assignment under contract law. I disagree. Initially, we must determine whether Texas law provides for automatic assignment of the guaranty with the primary obligation; because, if automatic assignment is the law in Texas, when Ash-craft proved the note was assigned to the RTC, in the absence of any agreement to the contrary, he proved the RTC was the holder and owner of any secondary obligations to the note.
If, as the majority states, the guaranty admitted into evidence at trial “at best shows the guaranty’s terms as of 1984,” in the absence of any evidence to the contrary, I would conclude the terms of the guaranty as executed in 1984 remain the terms of the guaranty. When Ashcraft introduced the guaranty into evidence, he proved the terms of the guaranty.1 It then became Lookadoo’s burden to controvert that evidence. See Metrocon Const. Co. v. Gregory Const. Co., 668 S.W.2d 460, 463 (Tex.App.—Dallas 1983, writ ref'd n.r.e.) (once the terms of the contract have been established, party seeking to avoid effect of the contract due to modification bears the burden of proof). To hold otherwise would be to place a negative burden upon Ashcraft. See id. at 465. The majority requires Ashcraft to prove that the contract has not been modified. I would conclude that Ashcraft introduced evidence showing the terms of the guaranty when it was executed, and if Lookadoo seeks to avoid the terms of the guaranty, he should bear the burden of proving that the terms have been extinguished or modified. See id. Accordingly, I disagree with the majority’s conclusion that because Ashcraft presented no evidence “confirming that Lookadoo’s guaranty was still in effect and owned by the RTC,” the circumstances of this ease prevent this Court from determining whether the transfer of the underlying note automatically assigned the guaranty.
Consequently, I would begin the analysis of this case with the proposition that guaranty agreements are governed by general principles of contract law. See Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983); Marshall v. Ford Motor Co., 878 S.W.2d 629, 631 (Tex.App.—Dallas 1994, no writ). A guaranty creates a secondary obligation whereby the guarantor promises to answer for the debt of another and may be called upon to perform once the primary obligor has failed to perform. Dann v. Team Bank, 788 S.W.2d 182, 183 (Tex.App.—Dallas 1990, no writ). The guaranty is a contract distinct from the pri*919mary obligation. Sunbelt Sav. v. Barr, 824 S.W.2d 600, 602 (Tex.App.—Dallas 1991), rev’d on other grounds, 837 S.W.2d 627 (Tex.1992). Nonetheless, the guaranty is a secondary obligation intended to secure the payment of the primary debt. See Dann, 788 S.W.2d at 183.
In Texas, guaranty agreements are classified as general or special. See Cobb v. Texas Distrib., Inc., 524 S.W.2d 342, 344 (Tex.Civ.App.—Dallas 1975, no writ). A general guaranty operates in favor of any person who may accept it. A special guaranty, on the other hand, is available only to the particular person to whom it is addressed. See id. General guaranty contract rights are assignable unless the provisions of the promise or agreement of guaranty manifest the intention that the right or rights created shall not be assigned. See Thompson v. North Tex. Nat’l Bank, 37 S.W.2d 735, 738-39 (Tex.Comm’n App.1931, holding approved); Lexington Ins. Co. v. Gray, 775 S.W.2d 679, 682 (Tex.App.—Austin 1989, writ denied), disapproved on other grounds by Amberboy v. Societe de Banque Privee, 831 S.W.2d 793 (Tex.1992). Special guaranties, on the other hand, are usually not assignable. See FinanceAmerica Private Brands, Inc. v. Hall, 380 A.2d 1377, 1380 (Del.Super.1977). Both Lookadoo and Ashcraft agree that the guaranty is a general guaranty and is assignable; they disagree about whether a separate express assignment is necessary to assign the guaranty.
Texas law follows the general contract rule that the transfer of a note automatically carries with it the assignment of all collateral used to secure payment of the note. See Gilbreath v. White, 903 S.W.2d 851, 854 (Tex.App.—Texarkana 1995, no writ); Lawson v. Gibbs, 591 S.W.2d 292, 294 (Tex.Civ.App.—Houston [14th Dist.] 1979, writ ref'd n.r.e.); Pridgen v. Denson, 220 S.W.2d 194, 196 (Tex.Civ.App.—Austin 1949, writ dism’d); see also Jackson v. Thweatt, 883 S.W.2d 171, 176 (Tex.) (unless a contrary intention is manifest or inferable, an assignment ordinarily carries with it all rights, remedies, and benefits which are incidental to the thing assigned, except those which are personal to the assignor and for his benefit only), cert. denied, 513 U.S. 872, 115 S.Ct. 196, 130 L.Ed.2d 127 (1994).
The Restatement of the Law of Suretyship and Guaranty applies this general principle to guaranty agreements, reasoning that the secondary obligation follows the underlying obligation because the secondary obligation, like a security interest, has value only as an adjunct to the underlying obligation. Restatement (Third) of SuRetyship & Guaranty § 13 cmt. f (1996). It can usually be assumed that a person assigning an underlying obligation intends to also assign any secondary obligation supporting it. Id. Thus, unless there is an agreement to the contrary or assignment is otherwise prohibited, assignment of the underlying obligation also assigns the secondary obligation. Id, Assignment is otherwise prohibited when: (a) the substitution of a right of the assignee for the right of the obligee would materially change the duty of the secondary obligor or materially increase the burden or risk imposed on it by its contract; (b) the assignment is forbidden by statute or is otherwise ineffective as a matter of public policy; or (c) the assignment is validly precluded by contract. Id. § 13(1).
Likewise, the only jurisdictions I have found writing on this issue apply the rule that assignment of the underlying note automatically assigns the guaranty. See Ampex Credit Corp. v. Bateman, 554 F.2d 750, 753 (5th Cir.1977) (transfer of the principal obligation is generally held to operate as an assignment of the guaranty); Thorpe v. Story, 10 Cal.2d 104, 73 P.2d 1194, 1202 (1937) (assignment of the debt operates as assignment of the guaranty, because even though the guaranty is a separate instrument it is incidental to the debt); New Holland, Inc. v. Trunk, 579 So.2d 215, 218 (Fla.Dist.Ct.App.1991) (assignment of a principal obligation also operates as an assignment of the guaranty of the obligation); Rizzi v. Service Dev. Corp., 354 So.2d 898, 899 (Fla.Dist.Ct.App.1978) (transfer of a lease was transfer of the original obligation and operated as an assignment of the guaranty); Hazel v. Tharpe & Brooks, Inc., 159 Ga.App. 415, 283 S.E.2d 653, 654 (1981) (transfer of the principal obligation also operated as an assignment of the *920guaranty); Sinclair Mktg., Inc. v. Siepert, 107 Idaho 1000, 695 P.2d 385, 388 (1985) (there is no question that the assignment of a principal obligation also operates as an assignment of the guaranty of the obligation); Siedentopf v. Braune, 273 A.D. 791, 75 N.Y.S.2d 326, 326 (N.Y.App.Div.1947) (surrender of the security to the bank in lieu of foreclosure carried with it an assignment of the guaranty).
Nevertheless, Lookadoo relies on Havens v. Ayers, 886 S.W.2d 506 (Tex.App.—Houston [1st Disk] 1994, no writ), and its interpretation of Tennessee law to support his position that a separate assignment of the guaranty is necessary. In Havens, the court relied on Tennessee law, which requires an express provision allowing for assignment of the guaranty, in concluding that assignment of the underlying note does not operate to assign the guaranty. Id. at 511 (citing Memphis Sheraton Corp. v. Kirkley, 640 F.2d 14 (6th Cir.1981), and Turley v. Hodge, 22 Tenn. 73, 74 (1842)). These cases, however, addressed the issue of whether the guaranties were assignable under Tennessee law, not whether the guaranties were validly assigned. Further, the cases appear to involve special guaranties, which are generally not assignable unless the terms of the guaranty expressly permit assignment or other special circumstances exist. See Financeamerica, 380 A.2d at 1380.
Lookadoo does not dispute that his guaranty is a general guaranty and is assignable; instead, he argues that Ashcraft must have a separate express assignment to show ownership of the guaranty. Because the issue before this Court is whether the guaranty was automatically assigned with the note and not whether it was assignable, I do not find these eases persuasive. I am, however, persuaded by the reasoning in the Restatement. Therefore, I would conclude that the assignment of a note operates to assign the guaranty unless the terms of the guaranty prohibit assignment or there is an agreement to the contrary, or other circumstances exist to prohibit assignment. To decide this issue, I turn to the guaranty to determine if there is language precluding automatic assignment of the guaranty.
The guaranty contains the following language regarding assignment:
10. This Guaranty is for the benefit of Noteholder, its successors and assigns, and in the event of an assignment by Noteholder (or its successors or assigns) of the Guaranteed Indebtedness, or any part thereof, the rights and benefits hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness.
Lookadoo argues this provision requires a separate assignment of the guaranty, contending the use of the word “may” creates an inference that the rights under the guaranty are not automatically assigned if the note is transferred. I disagree. The provision addresses the assignability of the guaranty, not the requirements of a valid assignment. I am aware that the terms of the guaranty must be strictly followed, and that any ambiguity must be construed in favor of the guarantor. See Coker, 650 S.W.2d at 394 n. 1. However, the agreement may not be extended beyond its precise terms by construction or by implication. Id. I would conclude that to construe the above provision to infer the requirement of a separate express assignment of the guaranty would be to extend the agreement beyond its precise terms. The guaranty clearly and unambiguously allows for assignment, and I would conclude the terms of the guaranty do not preclude automatic assignment of the guaranty with the note.
Next, I would determine whether the RTC intended to transfer the guaranty to Ashcraft when it transferred the note. The majority agrees with Lookadoo’s contention that the Purchase and Sale Agreement indicates the RTC did not intend to transfer the guaranty along with the note. I disagree. I am of the opinion that the RTC did, in fact, intend to transfer the guaranty with the note in the absence of an agreement to the contrary. See Restatement (Third) of Suretyship & Guaranty § 13 cmt. f (1996).
Lookadoo first relies on the fact that the guaranty is not listed in the Final Asset Schedule attached to the Bill of Sale. However, the Purchase and Sale Agreement defines “asset” as any charge off, deficiency or judg*921ment described on the Asset Schedule or the Final Asr>A Schedule. “Collateral,” on the other hand, in defined as the real or personal property, gmí ' ity, pledge or other property, if any, securing the note. Thus, under the express terms of the Purchase and Sale Agreement, which the majority concludes is the controlling contract, the guaranty is defined as collateral and not as an asset. As L’iK'h, the guaranty would not be listed on the Final Asset Schedule as a result of its very definition in the Purchase and Sale Agreement. Thus, I would conclude that the RTC’s failure to include the guaranty on the Final Asset Schedule is irrelevant to a determination of the RTC’s intent to transfer the guaranty along with the note.
Second, Lookadoo and the majority rely on section 3.1 of the Purchase and Sale Agreement, which provides:
Buyer’s Preparation of Assignments. Upon execution of this Agreement, it shall be the Buyer’s responsibility to prepare the assignments of judgment for any and all judgments sold hereunder.... In the event any other assignments of Seller’s interest in any of the Assets and any collateral securing the Assets is required, it shall be Buyer’s responsibility to prepare and submit the form of the assignment it desires to use to the Seller ... (emphasis added).
Lookadoo contends this “clearly addresses the need for separate assignments.” Likewise, the majority concludes section 3.1 “shifted responsibility to Ashcraft to follow up on the guaranty issue and obtain a written assignment.” I disagree. The issue to be determined is whether the RTC intended to assign the guaranty with the note. Nothing in this provision indicates that the RTC did not intend to transfer the guaranty. The provision simply provides that if an assignment is required for any collateral, it is Ashcraft’s responsibility to prepare its own assignment language, paperwork, and format, which is not required in the case of the automatic assignment of a previously executed general guaranty agreement. After reviewing the Purchase and Sale Agreement, I would conclude it does not evidence an agreement between the RTC and Ashcraft that the RTC would retain the guaranty when it transferred the note to Ashcraft. In the absence of an agreement to the contrary, I would conclude, like the Restatement and the other jurisdictions that have addressed this issue, that the RTC intended to transfer the guaranty with the note.
Because the terms of the guaranty do not prohibit assignment and there was no evidence of an agreement to the contrary, I would, also, conclude the assignment of the note operated to assign the guaranty. As a result, I would conclude that Ashcraft, not only proved ownership of the note, but also proved ownership of the general guaranty. To recover under the guaranty, Ashcraft must show: (1) the existence and ownership of the guaranty contract; (2) the terms of the underlying contract by the holder; (3) the occurrence of the conditions upon which liability is based; and (4) the failure or refusal to perform the promise by the guarantor. See Marshall, 878 S.W.2d at 631. Based on my conclusions that: (1) absent evidence to the contrary, the guaranty admitted into evidence at trial shows the terms of the guaranty; (2) the transfer of the note operated to transfer the guaranty; (3) the terms of the guaranty did not preclude automatic assignment; and (4) the RTC intended to transfer the guaranty with the note, I would conclude that Ashcraft is entitled to recover under the guaranty.
Accordingly, I would reverse the trial court’s take-nothing judgment entered in favor of Lookadoo and render judgment in favor of Ashcraft.

. The trial court admitted the guaranty into evidence. Lookadoo does not challenge the admis-sión of the guaranty on appeal. Thus, I do not discuss the authenticity of the guaranty.