Court Opinion

ID: 9768265
Source: CourtListenerOpinion
Date Created: 2023-08-29 05:53:24.860944+00
Date Added: 2024-06-11T07:30:38.868781
License: Public Domain

AKIN, Justice,
dissenting.
I cannot agree that the language of the guaranty includes a renewal note and that on maturity of the renewal note, a new cause of action arose on the same indebtedness under the guaranty. Instead, I would hold that the renewal of the note was not included within the ambit of the language defining guaranteed indebtedness. Assuming, however, that the guaranty is capable of two reasonable constructions, following familiar construction rules favoring the guarantor, I would adhere to the same holding. Consequently, the bank’s action on the indebtedness is barred by limitations. Although Holland’s pleading of discharge was stricken by the trial judge, the guarantor would have been discharged by the execution of the renewal note since it was not authorized by the guaranty. I would also hold that the trial judge abused his discretion in refusing to permit the guarantor to amend his pleadings alleging additional defenses, including discharge. Accordingly, I must dissent.

Holland's Construction Not Unreasonable

The majority concedes that its opinion stands or falls upon their construction of the guaranty. The majority holds that the guaranty encompasses a renewal of the original indebtedness. I cannot agree. The basic flaw in the majority’s reasoning is a misapplication of two basic principles of contract and suretyship law. The first of these is that where a surety agreement is capable of two reasonable constructions, the construction more favorable to the guarantor should be adopted. E. g. McKnight v. Virginia Mirror Company, 463 S.W.2d 428, 430 (Tex.1971). The second is that an agreement capable of two reasonable constructions should be construed against the scrivener. Leslie Lowry & Co. v. KTRM, Inc., 239 S.W.2d 898 (Tex.Civ.App.—Beaumont 1951, no writ).
The bank argues, and the majority agrees, that under the guaranty, Holland remains liable on the guaranty under a renewal of the original indebtedness between the debtor and the bank. The guaranty was on a printed form drafted by the bank, and we may safely assume that the bank did intend that Holland should remain liable on a renewal of the original indebtedness. But that intent is not controlling here. For the purposes of this part of my dissent I assume the reasonableness of the *414majority’s construction of the phrase “all indebtedness of every kind and character” in paragraph one, as including a renewal of the original indebtedness. But this proposition, like the bank’s intent, is not dispositive of the case at bar. The controlling question is whether the construction of the guaranty advanced by Holland is reasonable. If it is, then the settled principles noted above require that the construction of the guaranty urged by defendant be adopted. By refusing to adopt Holland’s construction, the majority holds that, as a matter of law, that construction is unreasonable.
Holland asserts that the guaranty does not include renewals. He argues that the first paragraph defining guaranteed indebtedness encompasses additional loans to the debtor but not a renewal of the original indebtedness because the language does not specifically so state. In my view, Holland’s construction is reasonable. If the language of paragraph 1 is sufficiently broad enough to include renewals, as the majority maintains, why then did the scrivener for the bank deem it necessary to specifically refer to “renewals and extensions thereof” in the alternative definition of “guaranteed indebtedness” set forth in paragraph 12? Obviously, this specific language would have been unnecessary if the language used in paragraph 1 was meant to include renewals of the same indebtedness. Under the construction given this language by the majority, a debtor could execute a renewal note long after limitations had run and the guarantor would be liable.
The majority maintains that a construction of “guaranteed indebtedness” including additional loans but not renewals of the original loan is illogical and unreasonable. I cannot agree. There is a fundamental distinction between a renewal of the original indebtedness and an additional loan. With respect to an additional loan, the guarantor has a built-in safeguard. A bank ordinarily will make an additional loan only if it believes the creditor to be capable of repaying the additional amount. But with respect to a renewal, the guarantor has no such protection. Financial weakness on the part of the debtor may be the basis of a renewal of the loan. If the debtor is on the verge of insolvency and is unable to repay the loan, the bank has an incentive to renew the loan and hope the debtor’s position improves.
On the other hand, the guarantor may prefer that the debt not be renewed, but instead that the debtor’s assets be liquidated and used, pro tanto, to pay the guaranteed indebtedness, rather than risk a further deterioration of the debtor’s liquidity. Thus there exists an imminently logical distinction between a guaranty of additional loans and a guaranty of renewals of the original indebtedness.
The majority also reasons that the definition of guaranteed indebtedness in paragraph 1 must encompass renewals of the original indebtedness because paragraphs 6 and 10 mention the term “renewal.” I do not agree that this can be the basis for holding the construction advanced by Holland to be unreasonable. The guaranty is on a printed form prepared by the bank. As previously noted, paragraph 12 of that form provides that the term “guaranteed indebtedness” may be limited to a specific amount together with renewals and extensions of that amount, if the specific amount is filled in below that paragraph. The space below paragraph 12 was blank, thus making that paragraph inoperative. Paragraphs 6 and 10 can be reasonably construed to include the term “renewal” only to cover situations where paragraph 12 is operative. Those paragraphs, as set forth below, would not be inoperative if the term “renewal” was struck from them. Paragraph 6 provides:
6. Notice to Guarantors of the acceptance of this guaranty and of the making, renewing or assignment of the Guaranteed Indebtedness and each item thereof, are hereby expressly waived by Guarantors.
With respect to this paragraph, I cannot agree that a waiver of notice of a renewal is the equivalent to a provision consenting to a renewal under the rule of strictissimi juris applicable to surety agreements. *415Southwest Savings Association v. Dunagan, 392 S.W.2d 761, 766 (Tex.Civ.App.—Dallas 1965, writ ref’d n. r. e.). Paragraph 10 states:
10. In the event of the death of a Guarantor, the obligation of the estate of the deceased Guarantor shall continue in full force and effect as to (i) the Guaranteed Indebtedness, as it exists at the date of death, and any renewals or extensions thereof, and (ii) loans or advances made to or for the account of the Borrower after the date of the death of the deceased Guarantor pursuant to an obligation of the Bank under a commitment made to the Borrower prior to the date of such death, subject only to the limitation, if any be herein specified, on the amount of the Guaranteed Indebtedness. As to all surviving Guarantors, this guaranty shall continue in full force and effect after the death of a Guarantor, not only as to the Guaranteed Indebtedness existing at that time, but also as to indebtedness of the Borrower thereafter incurred by Borrower to Bank, subject only to the limitation, if any be herein specified, on the amount of the Guaranteed Indebtedness.
Neither can I agree that under these circumstances the mere mention of the term “renewal” in two paragraphs of the bank’s printed form supports a holding that a construction of “guaranteed indebtedness” which does not include renewals is unreasonable.
Thus the majority’s reasoning does not support their holding that Holland’s construction of the guaranty is unreasonable. I would hold that paragraph 1 of the guaranty is susceptible to a reasonable construction that does not include renewals within the ambit of “guaranteed indebtedness.”

Limitations

Apart from the question of whether a renewal is included within the language used to define “guaranteed indebtedness," I also disagree with the majority’s conclusion that the statute of limitations does not bar the indebtedness sued upon because the bank could have sued Holland from the date of maturity and for four years thereafter. At the time of the acceleration on November 24, 1971, the bank had an independent right to sue Holland regardless of the subsequent renewal of the same indebtedness, without Holland’s consent, between the bank and United Car Wash. Because Holland was an absolute guarantor, under the principles set forth in Universal Metals & Machinery, Inc. v. Bohart, 539 S.W.2d 874, 877 (Tex.1976), the bank’s right to sue Holland was not dependent upon the later renewal of the note between the bank and the maker. The rule as stated by the supreme court in San Antonio Real Estate Building & Loan Association v. Stewart, 94 Tex. 441, 61 S.W. 386, 388 (1901), is: “[It] is not in the power of the creditor by his acts alone to change the rights of the parties resulting from the maturity of the debt.” Consequently, the supreme court concluded that in a situation where the creditor had accepted later partial payments, the statute of limitations barred the action because these unilateral acceptances did not prevent the creditor from suing the guarantor after default. Thus, where the right to sue the guarantor continues, the statute of limitations continues to run.
Here, the bank contends, and the majority apparently agrees, that because it entered into a new agreement with United Car Wash, the debtor, the bank lost its right to sue Holland under the guaranty until United Car Wash defaulted on the second note. Essentially, the bank is contending that the new note covering the same indebtedness tolled the statute of limitations as to Holland. I cannot agree. This same contention was rejected, in a well reasoned opinion by Justice Alexander (later chief justice of the supreme court) in Trimble v. Whitson, 77 S.W.2d 899 (Tex.Civ.App.—Waco 1934, no writ). In that case, the debtor and the creditor entered into an agreement extending and renewing the indebtedness, without the consent of the guarantor. That court held that since the guarantor was not a party to the new agreement between the debtor and the creditor, the guarantor was not bound by *416the provisions of the new agreement. Justice Alexander further noted that insofar as the guarantor was concerned, the maturity date of the indebtedness remained as originally provided for in the note. Consequently, that court held that since suit was brought more than four years after the maturity date in the original note, it was barred by the four year statute of limitations.
The majority opinion attempts to distinguish Trimble v. Whitson, 77 S.W.2d 899 (Tex.Civ.App.—Waco 1934, no writ), on the ground that the guaranty here “authorizes and includes renewals without notice to or consent of the guarantor.” As I read paragraph 6 of the guaranty, it waives notice of “the making, renewing, or assignment” of the guaranteed indebtedness but does not consent to any such actions. In so stating the majority is again construing the guaranty against the guarantor so as to extend his liability, which of course, is contrary to established rules of construction with respect to guaranty agreements.
In support of its contention that a new promise to pay an existing indebtedness will stop the running of the statute of limitations as to the guarantor and that the statute does not commence running again until the new time for performance of the renewal note arrives, the majority cites McNeill v. Simpson, 39 S.W.2d 835 (Tex.Com.App.1931, judgmt. adopted) and Greig v. First National Bank, 511 S.W.2d 86 (Tex.Civ.App.—Beaumont 1974, writ ref’d n. r. e.). Neither case supports this proposition. In McNeill v. Simpson, the creditor, debtor, and the guarantor orally agreed to an extension of time for payment of the note and that court held that a new contract, based upon new consideration, arose among the parties. That court did not hold that a guarantor, not a party to the new contract, would be bound by it, nor did it hold that the statute of limitations would be tolled in such a situation. Consequently, since Holland was not a party to the renewal and extension agreement, I do not regard McNeill as authority for the proposition asserted by the majority.
Neither does Greig v. First National Bank, supra, support the majority’s position. In Greig v. First National Bank, at 88, that court was confronted with precisely this question:
The fact that each new note was not executed on or before the maturity of the preceding note is not controlling in this case. . Even though the bank may have had a cause of action against Capital Contracting Co. and Greig as each note matured, that cause of action was extinguished as a new note was executed and the old note thereby paid. The statute of limitations had not run on the cause of action sued upon when this suit was filed. See Texas Water Sup. Corp. v. Reconstruction Finance Corp., 204 F.2d 190 (5th Cir. 1953).
Although the Greig case implies that there was a new debt, this was not crucial to the point presented in that case and is not the law. A renewal (as in Greig) does not extinguish the original indebtedness unless the parties so agree, but operates only as an extension of the time to pay. “It remains the same; it is in substance and in fact the same indebtedness evidenced by a new promise.” Bank of Austin v. Barnett, 549 S.W.2d 428, 430 (Tex.Civ.App.—Austin 1977, no writ). See Schwab v. Schlumberger Well Surveying Corp., 145 Tex. 379, 198 S.W.2d 79, 82 (1946). The renewal note in our case cannot then be considered a “new debt” for which Holland would be unquestionably liable under the terms of the guaranty. Consequently, I do not regard Greig as authority to hold that the borrower is authorized to extinguish an accrued cause of action against the guarantor, absent consent from the guarantor.
The majority apparently holds that the bank’s acceptance of the renewal note from United Car Wash on May 4, 1972, was an abandonment of its acceleration and, therefore, the statute of limitations did not begin to run until a default arose under the renewal note. Neither can I agree with this contention. Although a creditor may abandon, waive or rescind acceleration of the maturity of a note (none of which are *417shown by the evidence here), it does not follow that if the creditor extinguishes the note accelerated by accepting a new note, the creditor may affect the rights of parties not privy to the new agreement, unless the guaranty upon which liability of the guarantor depends specifically authorizes such act. Instead, the rule is that a creditor, such as the bank here, cannot unilaterally change the rights of party, such as Holland, resulting from the maturity of a debt. San Antonio Real Estate Building & Loan Association v. Stewart, supra at 388.
Nevertheless, the bank argues, and the majority agrees, that the execution of the renewal note by United Car Wash stopped the running of limitations as to Holland. No authority holds that such a renewal would prevent the bank from suing Holland on his guaranty after the liability accrued thereon on November 24,1971, and for four years thereafter. Indeed, paragraph 5 of the guaranty provides that “in the event of default by Borrower in payment of the Guaranteed Indebtedness, . . . when such indebtedness becomes due, either by its terms or as the result of the exercise of any power to accelerate, the Guarantors . shall on demand . . . pay the amount due thereon to the Bank . and it shall not be necessary for the Bank, in order to enforce such payment by the Guarantors, first to institute suit or exhaust its remedies against the Borrower or others liable on such indebtedness, or to enforce its rights against any security which shall ever have been given to secure such indebtedness.” As I read this language, Holland became unconditionally obligated to pay the indebtedness on November 24,1971, regardless of whether the bank extended the time for the borrower to pay the indebtedness. Under the guaranty the bank had an absolute right to sue Holland, the guarantor, for an uninterrupted four year period after the accrual of this cause of action on November 24, 1971, even though as between the bank and the borrower no such right existed after renewal. Consequently, as to Holland’s liability under his guaranty, he would have been precluded by paragraph 5 from asserting as a defense, during the four year period, any agreement made after accrual of payment of the indebtedness, such as the renewal note between the bank and United Car Wash.
Absent Holland’s consent, the bank’s renewal of the indebtedness is immaterial to the question of whether the four year statute of limitations had run on the guaranty or whether Holland was discharged as a matter of law. This is true because both discharge and limitations are affirmative defenses and, as here, Holland pleaded only limitations in the pleadings allowed by the trial judge. Although Holland also pleaded discharge in his disallowed amended pleading, the lack of pleadings with respect to discharge does not preclude him from asserting limitations, as the majority opinion suggests.
Neither can I agree with the majority’s conclusion that “the renewal by the maker would be a defense to a suit against the guarantor before maturity of the renewal note because the guaranty covers only the ‘indebtedness ... of Borrower to Bank.’ ” The majority seems to reason that, absent the renewal note, the borrower is somehow not liable to the bank. I cannot accept this rationale because it confuses the underlying indebtedness with the notes, each of which merely evidence the underlying indebtedness. As noted earlier, there was but one indebtedness here with an original note representing that indebtedness and the renewal note on May 4, 1972, also representing the same indebtedness. See Schwab v. Schlumberger Well Surveying Corp., 145 Tex. 379, 198 S.W.2d 79, 82 (1946). In my view, Holland was liable on the indebtedness due the bank from November 24, 1971, until that indebtedness was barred when Holland asserted his affirmative defense of limitations. The renewal note had no affect upon Holland’s established liability and could not be a tolling of limitations as a matter of law.

Denial of Leave to Amend

Neither can I agree that the trial judge was justified in striking Holland’s pleading setting forth additional defenses filed five *418days before trial. On the day of trial, the bank excepted to these pleadings on the ground that they were filed without leave of court and within seven days of trial. The bank neither pleaded nor presented evidence of surprise. Accordingly, the trial judge should not have stricken the pleadings because Tex.R.Civ.P. 63 states that leave to amend “shall be granted . unless there is a showing that amendment will operate as a surprise to the opposite party.” I would hold that under the clear language and spirit of rule 63, the trial judge abused his discretion in striking Holland’s pleadings. Hardin v. Hardin, 584 S.W.2d 384, 385-86 (Tex.Civ.App.—Eastland 1979, writ granted). This abuse was compounded by the denial of Holland’s motion for a continuance so that these material defenses could be presented. It should be noted that none of these defenses, such as discharge by novation, could in any way affect the bank’s presentation of evidence but merely raised questions of law for the court. In such a situation, justice is served by permitting the pleading to be filed and if the opposing party shows surprise, then a continuance should be granted.
The majority seeks to justify its position by holding that Holland has failed to attack the trial court’s action in sustaining special exceptions to the amended pleadings. Although the judge does recite that he sustains the exceptions, he does so on the ground that the pleading was filed within seven days of trial. Indeed, the trial judge’s statement in the statement of facts resolves all doubt with respect to this question. In my view, the majority opinion places form over substance and places Holland in the same untenable position as did the trial judge when he struck Holland’s amended pleading.

Conclusion

In conclusion, I would reverse and render the judgment of the trial court on the question of limitations. Alternatively, this court should hold that the trial judge abused his discretion in striking Holland’s amended answer, denying him a continuance, and then instructing a verdict against him. Accordingly, at least, the cause should be remanded so that justice may be done. This is particularly true here where the evidence in the bills of exceptions show conclusively that Holland was discharged as a matter of law.