Texas Causes of Action & Affirmative Defenses

Texas Causes of Action & Affirmative Defenses

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Thursday, October 6, 2011

Suit to enforce guaranty agreement against guarantor when the principal obligor defaults

  
NATURE OF GUARANTY

A guaranty is a promise to a creditor by a third party to pay a debt on behalf of a principal in the event that the principal defaults on the original obligation. See Republic Nat’l Bank of Dallas v. Nw. Nat’l Bank of Fort Worth, 578 S.W.2d 109, 114 (Tex. 1978). A continuing guaranty covers a series of transactions, rather than just a single liability. See Sonne v. FDIC, 881 S.W.2d 789, 793 (Tex. App.—Houston [14th Dist.] 1994, writ denied); Mann v. NCNB Tex. Nat’l Bank, 854 S.W.2d 664, 667 (Tex. App.—Dallas 1992, no writ). It contemplates a future course of dealing between creditor and principal, and generally continues for an indefinite amount of time or until revoked. See Straus-Frank Co. v. Hughes, 156 S.W.2d 519, 520 (Tex. 1941); Blount v. Westinghouse Credit Corp., 432 S.W.2d 549, 553 (Tex. Civ. App.—Dallas 1968, no writ). Thus, with a continuing guaranty, the guarantor becomes liable for successive obligations as they accrue. Sonne, 881 S.W.2d at 793.

ELEMENTS OF CAUSE OF ACTION BASED ON GUARANTY

To support a claim on a guaranty, a party must show proof of (1) the existence and ownership of a guaranty contract; (2) the terms of the underlying contract by the holder; (3) the occurrence of the conditions upon which liability is based; and (4) the failure or refusal to perform by the guarantor. Lee v. Martin Marietta Materials Sw., Ltd., 141 S.W.3d 719, 720 (Tex. App.—San Antonio 2004, no pet.).

INTERPRETATION OF GUARANTY CONTRACTS BY THE COURT

When construing a guaranty agreement, our primary goal is to ascertain and give effect to the intent of the parties. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983); Hasty v. Keller HCP Partners, L.P., 260 S.W.3d 666, 670 (Tex. App.—Dallas 2008, no pet.). The surest guide to the parties’ intent is the language used in the guaranty, and where the language is clear and unambiguous, we may not look to the subject matter or attending circumstances in order to give it a different construction. See Univ. Sav. Ass’n v. Miller, 786 S.W.2d 461, 462 (Tex. App.—Houston [14th Dist.] 1990, writ denied); Sw. Sav. Ass’n v. Dunagan, 392 S.W.2d 761, 767 (Tex. Civ. App.—Dallas 1965, writ ref’d n.r.e.).

SOURCE: HOUSTON COURT OF APPEALS - 14-10-00597-CV - 9/13/11 

RELATED LEGAL TERMS AND PHRASES: guarantors, personal guaranty, commercial guaranty, enforce guaranty agreement, suing guarantor of principal obligation upon default of principal obligor, borrower, creditor remedies