U.S. v. Little Joe Trawlers, Inc.

• Decision Date: 19 November 1985
• Docket Number: No. 84-2678,84-2678
• Citation: 776 F.2d 1249
• Parties: 42 UCC Rep.Serv. 488 UNITED STATES of America, Plaintiff-Appellant, v. LITTLE JOE TRAWLERS, INC., etc., et al., Defendants, and Enrique Rangel Salinas and Concha Rangel Salinas, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1249

776 F.2d 1249

42 UCC Rep.Serv. 488

UNITED STATES of America, Plaintiff-Appellant, v. LITTLE JOE TRAWLERS, INC., etc., et al., Defendants, and Enrique Rangel Salinas and Concha Rangel Salinas,

Defendants-Appellees.

No. 84-2678.

United States Court of Appeals,

Fifth Circuit.

Nov. 19, 1985.

John Pedrick, Office of Gen. Counsel, Washington, D.C., Ruth L. Harris, U.S. Atty., Tyler, Tex., for plaintiff-appellant.

Garza & Garza, Reynaldo G. Garza, Jr., Brownsville, Tex., for defendants-appellees.

Before CLARK, Chief Judge, BROWN and GEE, Circuit Judges.

Appeal from the United States District Court for the Eastern District of Texas.

OPINION

JOHN R. BROWN, Circuit Judge:

In this appeal, the United States asks us to overturn the District Court's decision and thereby enforce the promissory note executed by defendant Little Joe Trawlers, Inc. and guaranteed by defendants Enrique and Concha Salinas (Guarantors). After agreed proceedings before a magistrate, the District Court, adopting the magistrate's recommendation, granted Guarantors summary judgment. This was done on the ground that the United States failed to give Guarantors notice of intent to accelerate the maturity of the note. The judgment of the District Court was further grounded on the magistrate's ruling that the waiver of rights in the guaranty contract was not sufficiently specific to effect a waiver of the right to receive notice of intent to accelerate. We reverse the judgment of the District Court and hold that notice of intent to accelerate is not required to be given to a guarantor as opposed to a maker of an installment note. We further hold that the terms of the guaranty contract were so broad that Guarantors should be required to make good on their guarantee even if the right to notice did exist, and even if there was no specific waiver of this right in the contract. We therefore reverse the judgment of the District Court and remand for further proceedings consistent with this opinion.

MONEY TO LEND

In 1977, with the help of the United States government (acting through the National Oceanic and Atmospheric Administration), Little Joe Trawlers, Inc. obtained a loan from the First State Bank of Aransas Pass, Texas (Bank). The money was used to purchase a fishing vessel. A lot of papers were executed. Little Joe executed a promissory note ("note one") to the Bank, which was guaranteed by the United States pursuant to Title 11 of the Merchant Marine Act. 46 U.S.C. Secs. 1271 et seq. Little Joe then signed an additional promissory note ("note two") to the United States, agreeing to repay the government for any sums which the government would be required to pay the Bank on the loan (note one). ¹ In response to the government's demand that Little Joe obtain guarantors for the payment of "note two" in case Little Joe failed to honor its obligation, Enrique and Concha Salinas executed a contract of guaranty, thereby agreeing to serve as guarantors for "note two" which was held by the government.

Little Joe eventually defaulted on its loan from the Bank and the Bank called on the government to make good on its guarantee. The government paid off the loan in full to the Bank and demanded payment of "note two" by Little Joe and Guarantors. It is undisputed that the government, prior to acceleration of "note two", did not give Little Joe or Guarantors notice of its intention to accelerate if the overdue payments were not made, and hence did not afford the opportunity for Little Joe or Guarantors to pay the past due installments.

THE GUARANTY AGREEMENT

In paragraph 1 of the guaranty agreement, the Salinases unconditionally guaranteed the payment of all sums stated in "note two" to be payable to the government "regardless of whether [the Bank or the government] shall have taken any steps to enforce any rights against [Little Joe] or any other person to collect such sums, or any part thereof, and regardless of any other condition or contingency."

The extremely broad agreement goes on to waive a number of rights, guaranteeing payment in virtually every conceivable situation. Paragraph 3 provided as follows:

3. The obligations, covenants, agreements and duties of the Guarantor under this Guaranty Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following with respect to the Note or the Mortgage, although without notice or the further consent of the Guarantor:

* * *

* * *

(c) the modification or amendment (whether material or otherwise) of any of the obligations of [Little Joe] or any of the Guarantor as set forth in either of such instruments;

(d) the doing or the omission of any of the acts referred to in either of such instruments;

(e) any failure, omission, or delay of [the Bank or the government] to enforce, assert, or exercise any right, power or remedy conferred on [the Bank or the government] in each of such instruments, or any action on the part of [the Bank or the government] granting indulgence or extension in any form whatsoever;

* * *

* * *

(g) the release of [Little Joe] or the Guarantor or any of them from the performance or observance of any of the agreements, covenants, terms or conditions contained in either of such instruments by the operation of the law.

The Salinases also agreed in paragraph 8 to be endorsers of the note. Paragraph 8 provided:

8. The signature of the Guarantor is, in addition to and not in limitation of the foregoing, intended as and to have the effect of an endorsement of the Note by the Guarantor, who hereby waives presentment, demand of payment, protest and notice of nonpayment or dishonor, and of protest of the Note and any and all other notices and demands whatsoever.

The trial court focused on this latter paragraph in determining that the guarantors had not "waived" their right to receive notice of intent to accelerate because this right was not specifically mentioned in paragraph 8's waiver language.

THE RIGHTS OF A GUARANTOR

The magistrate correctly found that the Salinases, as guarantors, occupied the status of primary obligors with respect to the note. Hopkins v. First Nat. Bank at Brownsville, 551 S.W.2d 343, 345 (Tex.1977). From this, he concluded that guarantors therefore enjoy all the rights and privileges of the maker of a note. Thus, since Texas law ² clearly provides that a maker of a note is to be given notice of intent to accelerate maturity, Allen Sales and Service Center, Inc. v. Ryan, 525 S.W.2d 863 (Tex.1975), the magistrate logically ruled that Guarantors had the right to receive such notice.

The magistrate's reasoning, adopted by the District Court, is at first glance appealing, but suffers from a faulty premise--that is, that guarantors, by virtue of their status as primary obligors, enjoy all the rights and privileges of the maker of a note. Texas law does not so provide and the proposition is simply not correct. Our analysis of guaranty law indicates that one of the maker's rights which does not also belong to a guarantor is the right to receive notice of intent to accelerate.

Although the Texas Supreme Court stated in Hopkins that a guarantor of payment is primarily liable, 551 S.W.2d at 345, the Court did not mean to imply that a guarantor has all the rights and privileges of a maker. Rather, the Court emphasized the "primary obligor" status of guarantors to support its ruling that a guarantor may be sued even though no action has been taken against the maker. Id. In other words, establishing the liability of a guarantor does not depend upon first establishing the liability of the maker. Thus, the entire discussion in Hopkins focuses upon the obligations of the guarantor and nowhere purports to equate his rights with those of the maker. Therefore, Hopkins does not support the magistrate's conclusion that a guarantor has all the rights and privileges of a maker.

An analysis of the liability of the guarantor vis-a-vis the liability of the maker clearly indicates that a guarantor does not step into the maker's shoes and thereby acquire all his rights and privileges. See generally Conner, Enforcing Commercial Guaranties in Texas: Vanishing Limitations, Remaining Questions, 12 Tex.Tech.L.Rev. 785, 817-827 (1981). While the extent of a guarantor's liability certainly does not exceed the maker's underlying obligation, the actual liability of the guarantor may exist even when the maker himself is not liable on the note. Hopkins, 551 S.W.2d at 345. In Hopkins, for example, the Court pointed out that a guarantor is liable on his guaranty of payment even when the maker's signature is a forgery, thereby releasing the supposed maker from liability. Id., citing Universal Metals & Machinery, Inc. v. Bohart, 539 S.W.2d 874 (Tex.1976).

A long line of Texas cases supplies the rule governing the liability of a guarantor vis-a-vis the liability of the maker. Generally, an unconditional guarantor is liable for payment even through the holder of the note cannot enforce the claim against the principal obligor (the maker), unless the claim against the principal obligor is void for illegality. See, e.g., Houston Sash & Door Co. v. Heaner, 577 S.W.2d 217 (Tex.1979); Universal Metals & Machinery, Inc. v. Bohart, 539 S.W.2d 874 (Tex.1976); National City Bank v. Taylor, 293 S.W. 613 (Tex.Civ.App.1927); Fuqua v. Pabst Brewing Co., 90 Tex. 298, 38 S.W. 29 (1896); Howard v. Smith, 91 Tex. 8, 38 S.W. 15 (1896). See also Conner, supra, 12 Tex.Tech.L.Rev. at 824. Thus, the guarantor has been held liable even when the underlying obligation is unenforceable against the maker because the maker's signature was a forgery, Bohart, because the interest on the underlying debt violated Texas' usury laws, Houston Sash, because the maker's incurrence of the underlying debt was ultra vires, Taylor, and because the statute of limitations barred action against the maker. Beddall v. Reader's Wholesale Distrib., Inc., 408 S.W.2d 237 (Tex.Civ.App.1966).

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