Western Bank-Downtown v. Carline
| Decision Date | 25 August 1988 |
| Docket Number | BANK-DOWNTOWN,No. 01-87-00336-CV,01-87-00336-CV |
| Citation | 757 S.W.2d 111 |
| Parties | WESTERN, now known as Houston Commerce Bank, Appellant, v. Wallace CARLINE, Andy Wedaman, John Cathey, Thomas E. Hetherington, and Ray Smith, Appellees. (1st Dist.) |
| Court | Texas Court of Appeals |
Jeffery H. Hubbard, Mark C. Harwell, Morris & Campbell, Houston, for appellant.
Robert L. Collins, Daniel Kistler, Robert L. Collins & Associates, Houston, for appellees.
Before WARREN, DUGGAN and LEVY, JJ.
This appeal concerns whether the limited guarantors on a secured corporate promissory note are liable to the obligee bank for post-petition interest and attorney's fees after the corporate obligor filed for Chapter 11 protection under the federal bankruptcy laws.
Appellant, First Western Bank 1 ("the Bank"), appeals from a summary judgment awarding $111,530.28 to appellees, Wallace Carline, Andy Wedaman, John Cathey, Thomas F. Hetherington, and Ray Smith, all limited guarantors of the $1,000,000 promissory note executed by Tex-La Transportation, Inc. ("Tex-La") payable to the Bank. The judgment amount is the aggregate total of the sums the trial court found the Bank to have wrongly collected from the individual limited guarantors when the Bank pursued its claim of post-bankruptcy indebtedness by Tex-La for interest and attorney's fees. The Bank asserts four points of error; the limited guarantors urge two cross-points.
The Bank alleges that the trial court erred: (1) in granting summary judgment to the limited guarantors on the theory that Tex-La, as principal, owed no debt for post-petition interest and attorney's fees by reason of the Federal Bankruptcy Act, because the Bankruptcy Act does not extinguish a debt but simply prevents its enforceability as to the principal; (2) in denying the Bank's cross-motion for summary judgment urging that it is not liable to repay the limited guarantors "what is otherwise post-judgment interest and attorney fees of the principal because, notwithstanding the filing of a bankruptcy proceeding, the debt for such sums is not extinguished"; (3) in granting summary judgment for the guarantors based upon a federal bankruptcy proceeding commenced by Tex-La, the principal, because, under Texas law, the guarantors have an unconditional obligation to pay the principal's indebtedness, which is unaffected by the principal's bankruptcy proceeding; and (4) in denying the Bank's cross-motion for summary judgment asserting that it is not liable to repay the guarantors what is otherwise post-judgment interest and attorney fees of the principal, because the guarantors have an unconditional obligation to pay the indebtedness, which is unaffected by the principal's bankruptcy proceeding.
On or about January 11, 1982, Tex-La executed its promissory note payable to the Bank on or before April 12, 1982, in the amount of $1,000,000. The note was secured by accounts receivable and other collateral 2. The guarantors' limited guarantees were secured by their individual certificates of deposit and letters of credit.
On March 12, 1982, Tex-La filed for bankruptcy under chapter 11 of the United States Bankruptcy Code. In its schedules of assets and liabilities filed pursuant to the code, Tex-La listed the Bank as a creditor with a $1,000,000 claim, but indicated no interest due on the indebtedness. The Bank did not file a proof of claim to assert its right to payment, and did not challenge Tex-La's listing of its indebtedness to the Bank as $1,000,000 interest free.
The fair market value of the collateral securing the Bank's loan at the time of Tex-La's bankruptcy filing, plus the accounts receivable generated after the filing of the petition, was approximately $818,000. Since the time of the bankruptcy filing, accounts receivable, contract proceeds, and proceeds from insurance claims have been applied to reduce the loan's principal.
About June 1985, the Bank undertook to retire the outstanding balance on Tex-La's note by drawing on the certificates of deposit and letters of credit belonging to the limited guarantors. The Bank collected the following amounts:
$212,168.43 " unpaid principal
$ 26,657.19 " pre-petition interest
$103,044.66 " post-petition interest
$ 8,485.62 " attorney's fees
The limited guarantors do not dispute the amounts the Bank collected for unpaid principal and pre-petition interest; however, they contend that the Bank wrongfully charged and collected post-petition interest and attorney's fees from them.
When reviewing the grant of a summary judgment on appeal, the decisive question is whether the proof establishes as a matter of law that there is no genuine issue of material fact as to one or more of the essential elements of the plaintiff's cause of action. Gibbs v. General Motors Corp., 450 S.W.2d 827, 828 (Tex.1970). The burden of showing that there is no genuine issue of material fact is on the movant, and all evidence favorable to the non-movant will be taken as true and all doubts resolved in its favor. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985).
To determine the extent to which the limited guarantors are liable for Tex-La's note, we first look to the language of the guaranty agreements, intending to give effect to all of the provisions, if possible. United States v. Little Joe Trawlers, Inc., 776 F.2d 1249 (5th Cir.1985); First Bank of Houston v. Bradley, 702 S.W.2d 683 (Tex.App.--Houston [14th Dist.] 1985, no writ).
Each guarantor individually entered into an express limited guaranty agreement 3 for "any and all indebtedness, to the extent hereinafter mentioned, which [Tex-La], hereinafter referred to as Borrower, may now or at any time hereafter owe said Bank...."
A guarantor's liability on a debt is measured by the principal's liability unless a more extensive or more limited liability is expressly set forth in the guaranty agreement. Houston Furniture Distrib., Inc. v. Bank of Woodlake, N.A., 562 S.W.2d 880, 884 (Tex.Civ.App.--Houston [1st Dist.] 1978, no writ). To determine Tex-La's liability to the Bank, we consider the effect of Tex-La's bankruptcy filing.
11 U.S.C. § 506(b) (1979) 4 designates which creditors of a debtor under chapter 11 are allowed post-petition interest and costs. Section 506(b) allows a secured creditor, who holds more value in collateral than in funds loaned out on the date of bankruptcy filing, to have an allocation of post-petition interest and costs to the extent that it is oversecured, provided such is permitted by the agreement under which the claim arose. 5
On March 12, 1982, Tex-La's bankruptcy filing date, the Bank was neither oversecured nor eligible to benefit from § 506(b), and therefore could not receive post-petition interest and costs from Tex-La's bankruptcy estate. Thus, by virtue of its bankruptcy proceeding, Tex-La would never incur post-petition interest or costs on its indebtedness to the Bank. 6
The rules of interpretation of guaranty agreements are well established. Where uncertainty exists about the meaning of a guaranty contract, and two reasonable constructions may be made, the reviewing court will apply the construction more favorable to the guarantor. Clark v. Walker-Kurth Lumber Co., 689 S.W.2d 275 (Tex.App.--Houston [1st Dist.] 1985, writ ref'd n.r.e.). The rule of strictissimi juris is applied to refrain from extending the guarantor's obligation by implication beyond the written terms of the agreement. Id. at 278.
All four of the Bank's points of error essentially rely on an interpretation of the guaranty agreement that would allow recovery of post-petition interest and attorney fees simply because the loan was made, guaranteed, and, but for the filing of bankruptcy, such charges would be owed until the loan was...
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