Universal Metals & Machinery, Inc. v. Bohart

• Decision Date: 23 June 1976
• Docket Number: No. B--5351,B--5351
• Citation: 18 UCCRep.Serv. 1238,19 UCCRep.Serv. 891,539 S.W.2d 874
• Parties: 18 UCC Rep.Serv. 1238, 19 UCC Rep.Serv. 891 UNIVERSAL METALS AND MACHINERY, INC., Petitioner, v. James T. BOHART, et ux., Respondents.
• Court: Texas Supreme Court

Page 874

539 S.W.2d 874

18 UCC Rep.Serv. 1238, 19 UCC Rep.Serv. 891

UNIVERSAL METALS AND MACHINERY, INC., Petitioner, v. James T. BOHART, et ux., Respondents.

No. B--5351.

Supreme Court of Texas.

June 23, 1976.

Turner, Rodgers, Sailers, Jordan & Calloway, John H. McElhaney, Dallas, for petitioner.

Tom James, Dallas, for respondents.

ON MOTION FOR REHEARING

POPE, Justice.

Universal Metals and a number of amicus curiae briefs forcefully urge that this court did not give Article 1302--2.09 its intended meaning by our original opinion. We are convinced that we were wrong in holding that the Boharts were not guarantors within the meaning of that statute and that they could assert their claim for usury. We grant the motion for rehearing, withdraw our former opinion, set aside our former judgment, and substitute this opinion for our former one.

Universal Metals & Machinery, Inc., hereafter called Universal, instituted this suit against James T. Bohart and his wife Jean Bohart, to recover $219,000 which was the unpaid principal on a promissory note. Universal sought judgment against the Boharts on the legal theory that they were primary obligors under their guaranty agreement. A jury found that the purported maker's signature on the promissory note which the Boharts guaranteed was a forgery. The trial court rendered judgment the Universal as the holder-payee against the Boharts and that court also denied the Boharts' counterclaim that Universal charged them usurious interest. The court of civil appeals, with a divided court, reversed the judgment of the trial court and rendered judgment that Universal take nothing. 523 S.W.2d 279. We reverse the judgment of the court of civil appeals and affirm the judgment of the trial court.

Universal sold and delivered some machinery to Beneficiadora de Minerales de Tlaxcala, S.A., a Mexican corporation hereafter called BMT. The Boharts owned a large proportion of the stock in the corporation and also owned all of the stock in a corporation which held the exclusive sales rights to BMT's production. The machinery had already been shipped to BMT in Mexico when on November 1, 1971, the Boharts signed the instrument which is the basis of this suit. In relevant parts the instrument was:

'PROMISSORY NOTE

'U.S. $225,000.00

November 1, 1971

'FOR VALUE RECEIVED, Beneficiadora de Minerales de Tlaxcala, S.A., Santa Cruz #1, Braccionamiento Industrial, Santa Cruz, Tlaxcala, Mexico (Name and Address of Maker) by this promissory note hereby unconditionally promises to pay to the order of Universal Metals & Machinery, Inc. (Name of Insured), at Houston National Bank--Houston, Texas (Name and Address of U.S. Commercial Bank) the principal sum of Two Hundred Twenty-five Thousand Dollars Dollars ($225,000.00) in installments as hereinafter provided and to pay interest concurrently with each payment of principal at the rate of Twelve per cent (12%) per annum on the unpaid principal balance hereof from time to time outstanding.'

(Then follow other provisions for installment payments, prepayment, acceleration, and waiver.)

'BENEFICIADORA DE MINERALES DE TLAXCALA, SA

By /s/ Manuel Cortes

Title: PRESIDENTE OF THE CORPORATION

'FOR VALUE RECEIVED, the undersigned --- as primary obligor(s), hereby (jointly and severally unconditionally guarantee(s) the prompt payment of principal and interest on the foregoing promissory note when and as due in accordance with its terms, and hereby waive(s) diligence, presentment, demand, protest, or notice of any kind whatsoever, as well as any requirement that the holder exhaust any right or take any action against the maker of the foregoing promissory note and hereby consent(s) to any extension of time or renewal thereof.

/s/ James T. Bohart

(Name of Guarantor)

/s/ Jean Bohart (Mrs. James T. Bohart)

(Name of Guarantor)'

Plaintiff did not name BMT as a defendant in its suit. The jury made findings that the signature of Manuel Cortes, President of BMT, was not genuine; but that plaintiff, Universal, accepted the instrument without knowledge of that fact. The basis for the judgment of the court of civil appeals was that the Boharts signed the instrument as primary obligors and also as guarantors. The court was of the opinion that the two terms are mutually exclusive, an ambiguity existed and in that situation the instrument should be construed in favor of its being a guaranty which imposed only secondary liability. The court then reasoned that the Boharts, being only secondarily liable, are not liable at all because BMT is not liable on its forged signature.

The instrument clearly shows that: (1) the Boharts signed 'as primary obligor(s),' and (2) they 'jointly and severally unconditionally guarantee the prompt payment of the principal and the interest . . . when and as due.' They called themselves guarantors. In our opinion, the Boharts agreed to be the kind of 'guarantors' which the instrument details; that is, guarantors who are primarily liable, who are jointly, severally and unconditionally liable for the prompt payment of principal and interest, when due and whether any action is taken against the maker or not. 38 C.J.S. Guaranty § 43 (1943).

Section 3.416(a) of the Texas Business & Commerce Code codified what was already the law of Texas. Clark, Suretyship in the Uniform Commercial Code, 46 Tex.L.Rev. 453, 454 (1968). It was enacted on September 1, 1967, when the Code became effective. The section reads:

(a) 'Payment guaranteed' or equivalent words added to a signature mean that the signer engages that if the instrument is not paid when due he will pay it according to its tenor without resort by the holder to any other party.

The Comment to the section which was prepared by the American Law Institute and the National Conference of Commissioners on Uniform State Laws is helpful. It says:

Purposes: The section is new. It states the commercial understanding as to the meaning and effect of words of guaranty added to a signature.

An indorser who guarantees Payment waives not only presentment, notice of dishonor and protest, but also all demand upon the maker or drawee. Words of guaranty do not affect the character of the indorsement as an indorsement (Section 3--202(4)); but the liability of the indorser becomes indistinguishable from that of a co-maker. A guaranty of Collection likewise waives formal presentment, notice of dishonor and protest, but requires that the holder first proceed against the maker or acceptor by suit and execution, or show that such proceeding would be useless. (Emphasis added.)

The Boharts guaranteed the prompt payment of the note, and they unconditionally guaranteed the payment when and as due. In 1 HAWKLAND, A TRANSACTIONAL GUIDE TO THE UNIFORM COMMERCIAL CODE at 492 (1964) the guaranty of payment and the waiver of conditions are discussed:

The most important situation in which primary liability is asserted against one who at first impression appears to be an indorser occurs when an apparent indorser guarantees payment or waives presentment and notice of dishonor. Since the difference in liability between an indorser and a maker is that the former has conditions precedent to liability, it follows that this difference disappears if these conditions are waived. Under section 3--416, one guaranteeing payment is treated as a primary party.

The Boharts waived any requirement that the holder of the note must exhaust its rights or take action against the maker, as a condition precedent to their liability. After the parties by their contract excluded certain conditions, the court should not again write those conditions into the note. We should interpret the instrument by the standard of performance upon which the parties agreed. Tex.Bus. & Comm.Code Ann. § 1.102 (1968).

A number of judicial precedents have held that guaranties, like the one in this case, are absolute rather than conditional, primary rather than secondary, and guarantees of payment rather than guarantees of collection. A discussion of many of those cases may be found in the dissenting opinion of the court of civil appeals and need not here be repeated. 523 S.W.2d 279, at 288--291. The guarantor, who contracted as a primary, absolute, unconditional obligor, is not freed from liability because of the forged signature of the maker. Ganado Land Co. v. Smith, 290 S.W. 920 (Tex.Civ.App.1927, writ ref'd); El Paso Bank & Trust Co. v. First State Bank, 202 S.W. 522 (Tex.Civ.App.1918, no writ); Reynolds v Service Loan & Finance Co., 116 Ga.App. 740, 158 S.E.2d 309 (1967); Holm v. Jamieson, 173 Ill. 295, 50 N.E. 702 (1898); Helms v. Wayne Agricultural Co., 73 Ind. 325 (1881); Etelson v. Suburban Trust Co., 263 Md. 376, 283 A.2d 408 (1971); Newark Finance Corp. v. Acocella, 115 N.J.L. 388, 180 A. 862 (S.Ct.N.J.1935); Cusick v. Ifshin, 70 Misc.2d 564, 334 N.Y.S.2d 106 (Civ.Ct.N.Y.1972); Warner-Lambert Pharmaceutical Co. v. Sylk, 471 F.2d 1137, 1145 (3d Cir. 1972).

In El Paso Bank & Trust Co. v. First State Bank, 202 S.W. 522 (Tex.Civ.App.1918, no writ), the court held:

The rule is stated to be general that in case of an absolute guaranty, no demand upon the principal debtor is necessary. . . . It is not treated as a collateral liability, but is a Primary and positive agreement, and the Breach of the principal's contract to pay the sum promised ipso facto imposes upon the guarantor a complete liability. (202 S.W. at 524.) (Emphasis added.)

Similar holdings are found in Estes v. Continental Bank & Trust Co., 421 S.W.2d 158 (Tex.Civ.App.1967, no writ); Dahmes v. Industrial Credit Co., 261 Minn. 26, 110 N.W.2d 484 (1961); Simon v. Landau, 27 Misc.2d 269, 208 N.Y.S.2d 120 (N.Y.Sp.Term 1960); Swift & Co. v. Geraghty, 199 Wis. 329, 226 N.W. 381 (1929). In Dahmes, supra, the court observed that the proceeds did not go to the one named guarantor and commented, 'They are primarily liable in the sense that their guaranty was absolute rather than conditional.' In Simon, supra, the...