Peck v. Mack Trucks, Inc., 14,518

• Decision Date: 12 February 1986
• Docket Number: No. 14,518,14,518
• Parties: 1 UCC Rep.Serv.2d 322 Carl S. PECK and Margery L. Peck, Appellants, v. MACK TRUCKS, INC., Appellee.
• Court: Texas Court of Appeals

Page 583

704 S.W.2d 583

1 UCC Rep.Serv.2d 322

Carl S. PECK and Margery L. Peck, Appellants, v. MACK TRUCKS, INC., Appellee.

No. 14,518.

Court of Appeals of Texas,

Austin.

Feb. 12, 1986.

William L. Smith, Jr., Denton, for appellants.

J. Raymond Chesney, Dallas, for appellee.

Before POWERS, EARL W. SMITH and BRADY, JJ.

PER CURIAM.

This is an appeal from part of a summary judgment in a deficiency action under Tex.Bus. and Com.Code Ann. § 9.504 (Supp.1986). Appellants appeal from that part of the judgment that awards damages under certain "unconditional" guaranty agreements. We will reverse that part of the judgment and remand the cause for further proceedings as to appellants.

In December 1979 Eldees, Inc. purchased a tractor from Austin Mack Sales, Inc., an authorized Mack truck dealer, under a retail installment contract that gave Austin Mack Sales, Inc. a security interest in the tractor. In January 1980 Eldees, Inc. purchased a second tractor from Austin Mack Sales, Inc. under another retail installment contract with an identical security interest provision. Both retail installment contracts were assigned to Mack Financial Corporation with an "unconditional" guaranty by Austin Mack Sales, Inc. ¹ Sometime thereafter Eldees, Inc. defaulted on the two retail installment contracts. Mack Financial Corporation then foreclosed its security interests in the two vehicles, repossessed them, disposed of them, and assigned its right to the deficiency of $37,319.53 to its sister company, appellee Mack Trucks, Inc.

During the course of these events, Austin Mack Sales, Inc. was adjudicated bankrupt. Appellee then filed suit for, inter alia, the deficiency against appellants, Carl S. Peck and Margery L. Peck, who were "unconditional" guarantors of Austin Mack Sales, Inc. ² In November 1984 an interlocutory In their sole point of error, appellants argue that the trial court erred in granting summary judgment on the deficiency claim because appellee failed to allege and conclusively prove an essential element of that claim, to wit: that appellee notified appellants (guarantors) of the repossession and sale of the tractors. We agree.

partial summary judgment was rendered against appellants for, inter alia, the deficiency of $37,319.53, plus interest. The interlocutory partial summary judgment was brought forward into a final judgment in April 1985. Appellants appeal from that part of the summary judgment that awards the deficiency, plus interest, and the attorney's fees attributable to that particular claim.

Under Tex.Bus. & Com.Code Ann. § 9.504 (Supp.1986), a secured creditor may, upon default, seize the collateral, sell it at a public or private sale, and sue for any deficiency. But if a secured creditor elects this course, § 9.504(c) provides that:

... reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor, if he has not signed after default a statement renouncing or modifying his right to notification of sale.

It is settled law that notice of sale to the debtor is an essential element in any deficiency claim, Tanenbaum v. Economics Laboratory, Inc., 628 S.W.2d 769, 772 (Tex.1982), and that the term "debtor" as used in § 9.504 includes guarantors of secured transactions, Gentry v. Highlands State Bank, 633 S.W.2d 590, 592 (Tex.App.1982, writ ref'd). See also 9 Anderson, Uniform Commercial Code § 9-504.42 (1985) (majority of jurisdictions hold term "debtor" in U.C.C. § 9-504 includes guarantors of secured transactions); Conner, Commercial Guaranties, 12 Tex.Tech L.Rev. 789, 840-842 (1981) (several arguments support conclusion that term "debtor" under U.C.C. § 9-504 includes guarantors of secured transactions). Since appellee, as the record shows, did not even allege and certainly did not conclusively establish that it provided the necessary notice of sale to appellants, it was error for the trial court to grant summary judgment for appellee on the deficiency claim. City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671, 678 (Tex.1979).

Appellee argues that since appellants were "unconditional" guarantors, there was no legal requirement for notice of sale. On appellee's theory, an unconditional guarantor assumes an absolute contractual obligation which, upon becoming operative, is dischargeable only by payment. While this argument does have a certain superficial appeal by virtue of its seemingly tautological logic, it fails to comport with the well-recognized legal definition of the term "unconditional guaranty," which shows that it is a limited term. In law the principal distinction between an unconditional guaranty (sometimes called "guaranty of payment") and a conditional guaranty (sometimes called a "guaranty of collection") is that, under the former, no duty is imposed on the creditor to attempt to collect from the primary obligor prior to attempting to collect from the guarantor. Under a conditional guaranty, on the other hand, the creditor is first required to use reasonable diligence to collect from the primary obligor before looking to the assets of the guarantor. Wolfe v. Schuster, 591 S.W.2d 926, 930 (Tex.Civ.App.--1979, no writ); McGhee v. Wynnewood State Bank, 297 S.W.2d 876, 883-884 (Tex.Civ.App.--1957, writ ref'd n.r.e.); see also Eisenberg, ed., Debtor-Creditor Law § 17.03(C)(2)(b) (1985); 38 C.J.S. Guaranty § 7 (1943 and Supp.1985). Thus, it is obvious that the conditional/unconditional guaranty distinction Appellee's argument also fails for a second reason. Texas Bus. & Com.Code Ann. § 9.501 (Supp.1986) provides that a "debtor" may not waive his rights under § 9.504, including his right to notice of sale, except as provided in § 9.504(c). Since it is settled law that the term "debtor" as used in § 9.504 includes guarantors of secured transactions, Gentry v. Highlands State Bank, 633 S.W.2d at 592, it would be illogical for this Court to hold other than that the term "debtor" in § 9.501 also includes guarantors of secured transactions, and we do so hold. Thus, under Tex.Bus. & Com.Code Ann. § 9.501 (Supp.1986), guarantors of secured transactions, whether conditional or unconditional, may not...