Texas Causes of Action & Affirmative Defenses

Texas Causes of Action & Affirmative Defenses

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Wednesday, May 23, 2012

When is guaranty agreement [not] enforceable?

 
GUARANTY AND INVALIDATION OF GUARANTY BY MATERIAL ALTERATION OF THE UNDERLYING CONTRACT WITHOUT THE GUARANTOR’S CONSENT
  
“A guaranty creates a secondary obligation whereby the guarantor promises to answer for the debt of another and may be called upon to perform once the primary obligor has failed to perform.” Anderton v. Cawley, No. 05-10-00693-CV, 2012 WL 1606665, at *5 (Tex. App.-Dallas May 8, 2012, no pet. h.) (quoting Dann v. Team Bank, 788 S.W.2d 182, 183 (Tex. App.-Dallas 1990, no writ)). To recover under a guaranty, a claimant must prove (1) the existence and ownership of the guaranty contract, (2) the terms of the underlying contract, (3) the occurrence of the conditions upon which liability is based, and (4) the guarantor's failure or refusal to perform the promise. Id.; Marshall v. Ford Motor Co., 878 S.W.2d 629, 631 (Tex. App.-Dallas 1994, no writ). 

A guarantor may require that the terms of his guaranty be strictly followed, and the guaranty may not be extended by construction or implication beyond the precise terms of the contract. Reece v. First State Bank of Denton, 566 S.W.2d 296, 297 (Tex. 1978); Marshall, 878 S.W.2d at 631; Beal Bank, SSB v. Biggers, 227 S.W.3d 187, 192 (Tex. App.-Houston [1st Dist.] 2007, no pet.). A guarantor is discharged by a material alteration of the underlying contract that lacks the consent of the guarantor and harms the guarantor. Beal Bank, SSB, 227 S.W.3d at 192; Austin Hardwoods Inc. v. Vanden Berghe, 917 S.W.2d 320, 325 (Tex. App.-El Paso 1995, writ denied); see also McKnight v. Va. Mirror Co., 463 S.W.2d 428, 430 (Tex. 1971).

A material alteration is an alteration of the underlying contract between a creditor and principal debtor that either injures or enhances the risk of injury to the guarantor. United Concrete Pipe Corp. v. Spin-Line Co., 430 S.W.2d 360, 365-66 (Tex. 1968); Fed. Deposit Ins. Corp. v. Attayi, 745 S.W.2d 939, 944 (Tex. App.-Houston [1st Dist.] 1988, no writ).

To be entitled to discharge from liability on the guaranty, the guarantor must prove (1) a material alteration of the underlying contract; (2) made without the guarantor's consent; (3) which is to the guarantor's detriment. Vastine v. Bank of Dallas, 808 S.W.2d 463, 464-65 (Tex. 1991) (per curiam); Byboth v. Wood Ltd. P'ship, No. 05-08-00915-CV, 2009 WL 1416768, at *2 (Tex. App.-Dallas May 21, 2009, pet. denied) (mem. op.).

SOURCE: DALLAS COURT OF APPEALS - 05-11-00211-CV – 5/22/12


Futerfas seeks to recover from the Estate based solely on an alleged guaranty by Edward of the payment of rent due on the half of the building initially rented by Agora, not the half of the building subject to the Amendment. The Estate argues, however, that Agora's decision to rent the second half of the building increased its total rent obligation to Futerfas. The Estate contends that because the Amendment increased the risk Agora would default on its rent obligation on the half of the building subject to the alleged guaranty, it was a material alteration that released Edward, and therefore the Estate, from the guaranty.

The Estate submitted no summary judgment evidence that Agora's entering into the Amendment, as opposed to any other business decision, caused Agora to default on its obligations under the lease. Accordingly, the Estate failed to meet its summary judgment burden of proving that the Amendment injured or enhanced the risk of injury to the Estate. Because the Estate failed to establish, as a matter of law, that the Amendment was a material alteration of the lease, the trial court erred by granting summary judgment for the Estate. See Travelers Indem. Co. v. Dahlen, 734 S.W.2d 729, 732-33 (Tex. App.-Dallas 1987, writ ref'd n.r.e.) (reversing summary judgment because fact issue existed on whether modification was material).

We reverse the trial court's judgment in favor of the Estate and remand this case to the trial court for further proceedings.

SOURCE: DALLAS COURT OF APPEALS - 05-11-00211-CV – 5/22/12

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