Reece v. First State Bank of Denton

• Decision Date: 17 May 1978
• Docket Number: No. B-7173,B-7173
• Parties: 24 UCC Rep.Serv. 194 E. R. REECE, Petitioner, v. FIRST STATE BANK OF DENTON, Texas, Respondent.
• Court: Texas Supreme Court

Page 296

566 S.W.2d 296

24 UCC Rep.Serv. 194

E. R. REECE, Petitioner, v. FIRST STATE BANK OF DENTON, Texas, Respondent.

No. B-7173.

Supreme Court of Texas.

May 17, 1978.

Royce Coleman, Denton, for petitioner.

Kelsey, Wood & Gregory, D. Michael Gregory and Richard H. Kelsey, Denton, for respondent.

DENTON, Justice.

This is a suit brought by First State Bank of Denton, Texas, against E. R. Reece on a continuing guaranty contract. The question presented is whether Reece is liable on his continuing guaranty for corporate indebtedness when a subsequent promissory note was forged. After a jury trial, the court withdrew the case from the jury and rendered judgment against Reece and in favor of the bank for the remaining indebtedness on a delinquent corporate note plus attorney's fees. The court of civil appeals affirmed. 555 S.W.2d 929. We affirm the judgment of the court of civil appeals.

E. R. Reece was a twenty-five per cent stockholder and vice-president of Denton County Tractor Company. To secure a line of credit from the plaintiff bank for the corporation, Reece executed a continuing guaranty for corporate indebtedness up to $25,000. Pursuant to this agreement, a $25,000 loan was made to the tractor company which was subsequently repaid. A second loan was later negotiated by Mac McGee, who was corporate secretary of the tractor company and apparently managed the corporation's day to day affairs. McGee was not authorized to contract for loans for the corporation by the articles of incorporation or board resolution. Only Lavell Smith, the president; E. R. Reece, the vice-president; and Joe Reece, the treasurer, were empowered by a specific board of directors resolution to negotiate and procure loans from the plaintiff bank.

Because of McGee's lack of authority to contract for the loan, the bank refused to make the loan unless E. R. Reece signed the note as an officer of the corporation. McGee brought back a note purportedly signed by Reece, but the bank does not dispute Reece's testimony that the signature was forged. The bank was unaware of the forgery and did not contact Reece at any time to verify the signature. Based upon the note with the forged signature of Reece, and the guaranty contract undisputedly signed by Reece, the bank supplied $8,680.32 to an automobile dealer for the tractor company's purchase of two automobiles. Title to the vehicles was taken in the name of the tractor company and several payments were made on the note by the corporation. When the note became delinquent, the bank foreclosed on the two automobiles and sold them, crediting the proceeds to the note. Since the corporation had become insolvent, the bank brought this suit against E. R. Reece on his guaranty contract.

Reece's continuing guaranty contract provided:

In Consideration of the First State Bank of Denton, Texas at my request, giving or extending terms of credit to Denton County Tractor Co. of Denton, Texas, hereinafter called "debtor," I hereby give this continuing guaranty to the First State Bank, Denton, Texas, hereinafter called "Bank," its transferees or assigns, for the payment in full, together with all interest, attorney fees, other fees, and charges of whatsoever nature and kind, of any indebtedness, direct or contingent whether secured and unsecured, of said debtor to said Bank up to the amount of Twenty five thousand and no/100 Dollars ($25,000.00), whether due or to become due, and whether now existing or hereafter arising . . . for payment of the said indebtedness precisely as if the same had been contracted and was due or owing by me in person, hereby agreeing to and binding...