Court Opinion

ID: 9680111
Source: CourtListenerOpinion
Date Created: 2023-08-24 07:19:53.138387+00
Date Added: 2024-06-11T18:17:25.471142
License: Public Domain

GUITTARD, Justice
(dissenting).
I do not agree that the terms “primary obligor(s)” and “guarantee(s)” are mutually exclusive and create an ambiguity in the instrument so as to invoke the rule that it should be interpreted most favorably to the guarantors. Neither do I agree that the term “guarantee” necessarily implies a valid primary obligation on the part of someone other than the guarantors. I conclude, rather, that the language of the document is clear, and that it is an independent contract imposing liability on the guarantors if the note is not paid, without reference to any liability of the apparent maker of the note.1
*288The court’s holding, as stated in the opinions of both Justice Akin and the Chief Justice, that the language of the contract is ambiguous, is based on theory that the words “primary obligor (s)’’ and “guarantee(s)” contradict each other and leave the meaning uncertain. Without any attempt to reconcile these terms so as to give effect to both, the majority applies the rule of strict construction in favor of the guarantors, and also resorts to extrinsic evidence to determine the parties’ intention. By this process, the court construes the contract so as to render the words “primary ob-ligor (s)” meaningless.
I regard this method of construction as contrary to the accepted rules for interpretation of contracts. In Universal C.I.T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154 (1951), Justice Calvert, speaking for the Supreme Court, said that a contract is ambiguous only when the application of pertinent rules of interpretation to the face of the instrument leave it genuinely uncertain which one of two or more meanings is the proper meaning. Id. at 157. He explained that the primary concern is to give effect to the true intention of the parties, and that to achieve this object, the courts will examine the entire writing, “seeking as best they can to harmonize and to give effect to all the provisions of the contract so that none will be rendered meaningless.” Id. at 158. Likewise, in Young v. De la Garza, 368 S.W.2d 667, 670 (Tex.Civ.App.—Dallas 1963, no writ), this court held that apparently conflicting contractual provisions “are to be reconciled and harmonized, if possible, by reasonable interpretation, and the contract as a whole given effect.” If the apparently conflicting provisions can be harmonized, the contract is not ambiguous, and there is no occasion to apply the rule that a guaranty is to be construed most favorably to the guarantor.2
When I apply these rules, I have no difficulty in harmonizing the expression “as primary obligor (s)” with the word “guarantee (s).” I concede that “guarantee” and “guaranty” are sometimes used in a strict technical sense to mean a collateral agreement creating a secondary rather than a primary obligation. This, however, is not the only sense in which these words are used. They are also used in the sense of an assurance that someone else will perform, regardless of whether that person is legally bound.
A “guaranty” 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 “secondary.” 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 “primary.” This analysis is confirmed by the following passage from Simpson on Suretyship § 55, at 277 (1950):
It is obviously possible for S to guarantee that P will render the promised performance. It is equally possible for S to guarantee that P will render such performance as he is legally bound to render. In the latter case it is clear that by the terms of his contract the surety is liable for nothing if the principal is under no liability. In the former case it is just as clear that the surety is liable upon the principal’s nonperformance of his promise, irrespective of whether the principal was legally obligated to perform it, inas*289much as a promisor, if he so intends, may obligate himself to pay if acts are not performed. . . . [I]t is a problem of intention. Although it is true that unless the principal is legally obligated, the promisor cannot be bound as a guarantor, or surety, yet the question is not how the defendant is bound, but whether he is bound or not. An assumption that the promisor intends to be bound only as a technical surety or guarantor, otherwise not at all, is doubtless often contrary to fact.
The author cites Backus v. Feeks, 71 Wash. 508, 129 P. 86 (1913), in which a bond was given to guarantee payment of rent under a five-year lease. The lease was effective only as a monthly tenancy because it was not acknowleged as required by law. The court treated the scope of the guaranty as a question of intention and enforced the bond regardless of the invalidity of the lease. In support of this holding, the court quoted from 20 Cyc. 1421 as follows:
A guaranty of an existing contract may stand by itself, although the obligation guaranteed is invalid .... And as the guarantor may by the terms of his contract make himself liable for the principal debt, although it be invalid, the question of whether the liability of a guarantor is to be measured by the liability of the principal debtor is largely a matter of interpretation of the contract of guaranty.
In accordance with these authorities, courts have generally interpreted a guaranty of payment of a particular existing note as a guaranty of the act of payment rather than a guaranty of the discharge of the obligation to pay, even though the contract does not provide, as does the contract here, that the guarantor’s obligation is “primary.” The leading case is Veazie v. Willis, 72 Mass. (6 Gray) 90 (1856), in which the defendant had declined to endorse a note, but had signed a separate document specifically describing the note and guaranteeing its payment. The signatures of the maker and one of the endorsers had been forged. In holding the guarantor liable, the court observed that if the promise had been written on the note itself, no one would contend that the guarantor could avoid liability to a bona fide purchaser by showing that the names of the prior parties were forged. The opinion continues as follows:
The ground of objection to the maintenance of the action is, that the contract, on the part of the defendant, was made upon the assumption that all the names borne on the note were genuine signatures, and that he intended only to guaranty the solvency and ability of the parties to pay the same, treating all the names thereon as liable, as parties to the note. But it appearing, upon the facts stated, that the defendant guarantied the payment of this particular note, and thereupon the plaintiff concluded his agreement to purchase the note, both parties being equally innocent as to any fraud, misrepresentation or concealment, the court are of opinion that, upon the nonpayment of the same at its maturity by the parties whose names were borne thereon, the defendant, under his guaranty, became liable to pay the same to the plaintiff, although it now is made to appear that the names of the maker of the note and one of the indorsers were forgeries.
This decision was cited and followed in Jones v. Thayer, 78 Mass. (12 Gray) 443, 74 Am.Dec. 602, 603 (1860). There, the defendant had guaranteed payment of a note signed by one Messer, and, when sued on his guaranty, he defended on the ground that Messer’s liability on the note was not established because Messer had made it payable to himself and had not endorsed it. The court held that since the particular note in question was exhibited to the defendant when he gave his guaranty, he was bound, and since both of the parties were equally ignorant of the defect, although the guarantor would have had less rights on the instrument if required to pay it, than he *290supposed, that was his own error, for which he was responsible.
Likewise, in Holm v. Jamieson, 173 Ill. 295, 50 N.E. 702, 704 (1808), a guaranty of payment was endorsed on a note, and the guarantor was held liable even though the purported maker was a corporation whose name was signed by its treasurer without authority. The court said:
A guarantor may make a contract which is collateral, or one which is independent. This guaranty was an absolute undertaking that the maker would pay the note when due, and by the default of the principal an immediate liability existed. The undertaking of the guarantor was an independent contract, not resting on a necessity to exhaust a remedy against the maker; but, by the terms used in the guaranty, it was an undertaking to every subsequent holder that the instrument guarantied was perfectly valid. By a guaranty of this character, the guarantor undertakes to every subsequent holder that the names of the maker and previous indorsers are really in the handwriting of those to whom they respectively purport to belong; and this is carried to the extent that, where a promise has been written upon the note itself, a person guarantying the payment of that note is bound, even though the names of prior parties, or some one of them, were in fact forged.
A similar holding was made in Newark Finance Corp. v. Acocella, 115 N.J.L. 388, 180 A. 862, 864 (1935). There, a guaranty of payment was endorsed on the back of a note. The court held the guarantor liable even though the maker’s signature was forged, saying that the word “guarantee” did not restrict the liability of the endorser as defined by the Uniform Negotiable Instruments Act, but, to the contrary, had the effect of enlarging it.3
The same rule has been applied in the case of a surety who adds his signature on a document along with a forged signature. Since the signature of the surety is evidence of his intention to be a primary obligor on the particular note in question, he is liable to an innocent payee, even though he signed in the belief that the forged signature was genuine. Helms v. Wayne Agricultural Co., 73 Ind. 325, 329, 38 Am.Rep. 147 (1881); and see, Young v. Perry, 187 Ala. 122, 65 So. 817, 818 (1914).
Texas authority, also, supports an interpretation of “guarantee” 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, “[we] guarantee payment” for a carload of watermelons to be shipped to a produce company. The court held this telegram to be “an absolute guaranty of the payment of the money,” and, therefore, a “primary 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 “primary obligation.”
Likewise, in Ganado Land Co. v. Smith, 290 S.W. 920, 923 (Tex.Civ.App.—Galveston 1927, writ ref’d), a guarantor endorsed on the back of a note, “I guarantee payment of the within note . . . .” The guaran*291tor was held to be “an absolute guarantor of the payment of the note and was primarily liable for its payment by reason of his guaranty.” (Emphasis added.) 4
None of the authorities cited by the majority are contrary to those above discussed. Walter E. Heller & Co. v. Allen, 412 S.W.2d 712, 721 (Tex.Civ.App.—Corpus Christi 1967, writ ref’d n.r.e.), recognizes that a guarantor may assume a “less or greater liability” than that of the principal. The quotation from 10 Williston on Contracts § 1214 (3d ed. 1967) states the general rule that a surety or guarantor is not liable to a creditor unless the principal is liable, but the same author recognizes as one of the exceptions to this rule that a “defect in an apparently valid obligation” may be among the defenses not available to a guarantor. Id. at 715, 716. Cases cited in support of this text include several in which the defense was forgery of the principal obligation.
The present case is not controlled by Southwest Savings Ass’n v. Dunagan, 392 S.W.2d 761 (Tex.Civ.App.—Dallas 1965, writ ref’d n. r. e.), since there the guaranty was not attached to a particular note, nor did it use the term “primary obligors” or any equivalent language. The guaranty agreement in question referred to a note to be executed by a certain corporation which was yet to be incorporated, and the note sued on was executed by a different corporation. Under these circumstances, the court held that the guaranty was ineffective because the principal obligation referred to never came into existence.
Since, in view of the authorities above discussed, the term “guarantee” is consistent with an intention to assume a primary obligation, all the provisions of this contract may be harmonized and given effect. The contract provides that the undersigned parties “as primary obligor(s) hereby . unconditionally guarantee(s) the prompt payment of principal and interest on the foregoing promissory note when and as due in accordance with its terms.” The unconditional guaranty of payment of the particular note referred to is sufficient evidence in itself of a primary obligation under the applicable authorities. Use of the words “as primary obligors” removes all doubt. Although “guarantee (s)” in itself might be subject to more than one interpretation, the unequivocal meaning of the agreement as a whole is that the undersigned parties guarantee that BMT, the corporation named in the note, will pay the amount specified at the time stated, and that if it does not pay, the obligation of the guarantors is primary rather than secondary. The guarantors “guarantee” payment in the sense that they promise to be responsible if the corporation does not pay as provided in the note, and their obligation is “primary” in the sense that it does not depend on the obligation of the corporation. I see nothing contradictory or “mutually exclusive” about the use of both terms.
As a consequence of my view that the contract is not ambiguous, I have no occasion to resort to extrinsic evidence of circumstances to determine the intention of the parties. I will observe, however, that the circumstances under which this agreement was signed are consistent with my view that the guaranty was intended as a primary obligation. The note appeared to be a valid document signed by a Mexican corporation. Plaintiff was not aware of the forgery, according to the jury’s finding. As payee of the note, plaintiff intended to negotiate it to a bank, and have it insured by a federal agency concerned with encouragement of foreign trade. A previous note without guaranty was not acceptable to either. The insuring agency furnished a form of guaranty agreement intended to satisfy both itself and the bank. The obvious purpose of the guaranty was to assure the bank and the agency that the guar*292antors would stand responsible for payment of this particular note. Presumably, neither the bank nor the insuring agency would accept responsibility for determining whether the Mexican corporation was legally bound to pay. Any suit against the corporation might have to be prosecuted in Mexico, and aside from the inconvenience of such a remedy, the enforceability of such a note under Mexican law may not have been entirely clear. The guarantors were American citizens with contractual relations with the corporation. They agreed to guarantee the note “as primary obligor (s).” This language could only be understood by the bank and the agency, and also by the payee, as obviating any question of whether the corporation was legally bound. The majority’s holding that the guarantors’ liability depends on that of the corporation would permit them to avoid the guaranty on any ground available to the corporation, and thus defeat a major purpose of the guaranty.
For the reasons stated, I am unable to concur in the judgment of the court.

. The opinion of Justice Akin states that an independent guaranty agreement must be based on a separate consideration. I do not reach this question, since the agreement recites “value received,” and lack of initial consideration has not been raised either in the trial court or in this court.

. Of. Universal C.I.T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 157 (1951), in which the court said that in the absence of ambiguity there was no occasion to apply the rule that a contract is to be construed most strongly against its author.

. Gf. Tex.Bus. & Comm.Code Ann. § 3.416 (a) (Tex. UCC 1968) :
“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.
The comment under this section states that when a guaranty of payment is added to an indorsement, “the liability of the indorser becomes indistinguishable from that of a comaker.”

. Cf. Estes v. Continental Bank & Trust Co., 421 S.W.2d 158, 161 (Tex.Civ.App.—Dallas 1967, no writ), in which this court considered a contract of guaranty which expressly provided that the liability of the guarantors “shall be primary and not secondary.”