Clark v. Walker-Kurth Lumber Co.

• Decision Date: 14 March 1985
• Docket Number: WALKER-KURTH,No. 01-84-0696-CV,01-84-0696-CV
• Citation: 689 S.W.2d 275
• Parties: Dewey M. CLARK, Appellant, v.LUMBER COMPANY, Appellee. (1st Dist.)
• Court: Texas Court of Appeals

Page 275

689 S.W.2d 275

Dewey M. CLARK, Appellant, v. WALKER-KURTH LUMBER COMPANY, Appellee.

No. 01-84-0696-CV.

Court of Appeals of Texas,

Houston (1st Dist.).

March 14, 1985.

Rehearing Denied April 18, 1985.

J. James Luck, Houston, for appellant.

Margaret Garner Mirabal, Eric B. Zwiebel, Mirabal & Associates, Houston, for appellee.

Before DUGGAN, HOYT and WARREN, JJ.

OPINION

WARREN, Justice.

This is an appeal from a judgment for the creditor in a suit tried without a jury on a guaranty agreement. Walker-Kurth Lumber Company (Walker-Kurth) sued appellant in his capacity as guarantor for the unpaid debts at Clarco, Inc., a Texas corporation. Appellant brings seven points of error, alleging: (1) that the trial court erred in holding him liable under the guaranty agreement beyond the sum guaranteed; (2) that the terms of the guaranty agreement were not complied with resulting in a failure of consideration of the guaranty and his discharge as guarantor; (3) that the trial court abused its discretion in refusing to allow his trial amendments; (4) that the trial court erred in admitting certain business records into evidence; and (5) that the trial court erred in awarding prejudgment and postjudgment interest at a rate of eighteen percent per annum.

In 1976, appellant formed Clarco, Inc. to conduct international sales of oilfield equipment. Clarco, Inc. expanded its operations in 1978 to include export forwarding and crating. On September 6, 1978, Clarco, Inc. submitted a credit application to Walker-Kurth to finance the acquisition of supplies for the crating operations. The application listed appellant and two employees as authorized buyers. Additionally, the instrument stated that in the event of delinquency in the account, the debtor agreed to "pay interest at the full legal rate."

On the same day appellant executed an "Individual Personal Guaranty" stating:

I, Dewey M. Clark ... for and in consideration of your extending credit at my request to Clarco, Inc. (hereinafter referred to as the "Company") ... personally guarantee to you the payment ... of any obligation of the Company and I hereby agree to bind myself to pay you on demand any sum which may become due to you by the Company whenever the Company shall fail to pay the same. It is understood that this guaranty shall be a continuing and irrevocable guaranty and indemnity for such indebtedness of the Company. I do hereby waive notice of default, non-payment and notice thereof and consent to my modification or renewal of the credit agreement hereby guaranteed.

/s/ Dewey M. Clark

At some time after appellant submitted the credit application and personal guaranty to Walker-Kurth, a notation was made in the margin of the credit application: "OK $1000 limit/GDJ." George D. Jones was credit manager of Walker-Kurth in September of 1978.

From 1978 to 1982, Clarco, Inc. continued to use lumber for crating. Purchases were made on the Clarco, Inc. account at Walker-Kurth and by February 19, 1982, the account had an unpaid balance of $26,138.57. Also during this period, several changes were made in Clarco, Inc.'s management including appellant's resignation and subsequent reappointment as president, and the formation of a separate corporation for equipment crating and forwarding. In May 1982, Clarco, Inc. filed bankruptcy in the United States Bankruptcy Court for the Southern District of Texas.

Appellant's primary contention on appeal is that the trial court erred, as a matter of law, in expanding his obligation beyond the $1000 credit limit added to the credit application by Walker-Kurth's credit manager. In related points of error, appellant argues that appellee breached the terms of the credit agreement by allowing purchases in excess of the credit limit and without the authorization of either appellant or another "authorized buyer." Appellant concludes that the breach of the credit agreement resulted in a failure of consideration of the guaranty.

The issues before this court turn primarily on the interpretation of the credit contract and appellant's guaranty. In particular, the court must reconcile appellant's guaranty of "any obligation" of Clarco, Inc. and his claim that the credit limit notation was intended to limit his liability as guarantor.

In analyzing the agreements in this case we should note preliminarily that the rules of interpretation of guaranty agreements are well established. Where uncertainty exists as to the meaning of a contract of guaranty, and where two reasonable constructions may be made, the reviewing court will apply the construction more favorable to the guarantor. The rule of strictissimi juris is applied to refrain from extending the guarantor's obligation by implication beyond the written terms of the agreement. Coker v. Coker, 650 S.W.2d 391, 394 n. 1 (Tex.1983); Reece v. First State Bank of Denton, 566 S.W.2d 296, 297 (Tex.1978); McKnight v. Virginia Mirror Company, 463 S.W.2d 428, 430 (Tex.1971); Commerce Savings Association of Brazoria County v. GGE Management Co., 539 S.W.2d 71, 77-78 (Tex.Civ.App.--Houston [1st Dist.] ), modified and aff'd per curiam, 543 S.W.2d 862 (Tex.1976); Southwest Savings Association v. Dunagan, 392 S.W.2d 761, 766-67 (Tex.Civ.App.--Dallas 1965, writ ref'd n.r.e.).

Similar claims to appellant's were raised and rejected in Lenamond v. North Shore Supply Company, 667 S.W.2d 283 (Tex.App.--Houston [14th Dist.] 1984, no writ). In Lenamond, the appellant executed a guaranty agreement to enable his company to purchase materials on open account from the appellee. Lenamond, the guarantor, argued that a handwritten credit limit of $2,500 limited his personal liability to that amount. In rejecting the argument the court held:

First, it is clear that the guarantors did not intend to limit their liability to $2,500 under the guaranty because the credit application which contains the guaranty requests credit for $10,000 on August 13, 1978. Thus the guarantors expressed a willingness to guarantee indebtedness up to at least $10,000. The $2,500 credit limit was approved by the appellee after the credit application was made and did not constitute part of the guaranty agreement. We believe that the "indebtedness hereunder" language referred to all credit obtained through the credit application rather than to credit limitations imposed by the appellee which were subject to change. In this case the appellee later revoked the credit limit by extending Norwest Fabricating Company credit beyond the initial $2,500 credit limit. Second, the guaranty expressly states no notice of indebtedness or extension of credit hereafter contracted or extended need be given to the guarantors. Generally, if parties to a loan materially alter the terms, the guarantors will be discharged unless they are given notice and consent to the change in terms. Straus-Frank Co. v. Hughes, 138 Tex. 50, 156 S.W.2d 519 (1941). The guarantors in this case have impliedly agreed that alteration would not result in discharge by agreeing that the terms of the debt may be altered without giving notice to them.

Lenamond, 667 S.W.2d at 286 (emphasis added). Appellant contends that the Lenamond case is distinguishable because, in the case at bar, there is no evidence of appellant's intent to guaranty the indebtedness of the corporation beyond the written credit limitation. He also argues that the Lenamond court ignored the application of section 2.207 of the Business and Commerce Code by holding that the credit limit was not part of the guaranty.

On our facts it would be unreasonable to conclude that the credit limit of $1000 is an enforceable limit on appellant's liability as guarantor. First, it is clear that appellant, the guarantor, did not intend to limit his liability to $1000. Nothing in the record demonstrates that appellant requested any limitation on his personal liability. To the contrary, appellant admits signing the guaranty before the addition of the credit limit notation. Moreover, the clear language of the guaranty states that he guaranteed payment of "any obligation" of Clarco, Inc. Lenamond, 667 S.W.2d at 286.

Second, appellant's argument that the $1000 limit became part of the guaranty agreement under the rules of section 2.207 is without merit. The $1000 limit was a limit on credit to be extended Clarco, Inc., and clearly was not intended to limit the guarantor's liability. Where the contract between the creditor and principal debtor limits the obligation of the former to extend credit to the latter up to a specified amount, such limitation does not condition the contract by which the guarantor agrees to guaranty the payment of all credit extended to the debtor. Moreover, the liability of the guarantor is not limited to the amount of credit specified or discharged by the extension of more credit than the amount specified. See Missouri Farmers Association v. Coleman, 676 S.W.2d 855 (Mo.App.1984); Bay Oil Co. v. Vilas, 237 Wis. 603, 296 N.W. 595 (1941); 38 C.J.S. Guaranty § 356, p. 1211.

Third, appellant is incorrect in asserting that the terms of the credit agreement were breached and he was discharged as guarantor when appellee allowed purchases to be made by persons other than the "authorized buyers" listed on the credit agreement. Appellant agreed to remain liable for any debts incurred by Clarco, Inc. in purchasing goods from Walker-Kurth. Appellant's guaranty was thus continuing and unconditional. Sufficient evidence was introduced at trial to establish the debt of Clarco, Inc. to Walker-Kurth. Moreover, in concluding that Walker-Kurth did not breach the credit agreement by allowing purchases in excess of $1000 or by persons other than the authorized buyers, we necessarily conclude that there was no failure of consideration of the guaranty agreement.

We are not extending appellant's obligation or faltering in our application of strictissimi juris since appellant intended his guaranty to be unconditional. Appellant...