Breach of Note Claim - Which elements must the lender / holder / assignee prove?

    
ELEMENTS OF BREACH OF PROMISSORY NOTE
 
“To collect on a promissory note, a plaintiff must establish: (1) the existence of the note in question, (2) the defendant signed the note, (3) the plaintiff is the owner and holder of the note, and (4) a certain balance is due and owing on the note.” Cadle Co. v. Regency Homes, Inc., 21 S.W.3d 670, 674 (Tex. App.—Austin 2000, pet. denied); see Clark v. Dedina, 658 S.W.2d 293, 295 (Tex. App.—Houston [1st Dist.] 1983, writ dism’d).
 
OWNERSHIP OF NOTE AND RIGHT-TO-SUE ISSUE IMPLICATES THE MERITS OF THE CLAIM [not a standing issue in the jurisdictional sense]
 
“[T]he question of whether a party is entitled to sue on a contract is sometimes informally referred to as an issue of standing.” Ashford Partners, Ltd. v. Eco Res., Inc., No. 01-09-00809-CV, 2010 WL 2991118, at *3 (Tex. App.—Houston [1st Dist.] July 29, 2010, pet. filed); see Yasuda Fire & Marine Ins. Co. of Am. v. Criaco, 225 S.W.3d 894, 898 (Tex. App.—Houston [14th Dist.] 2007, no pet.). “Nevertheless, . . . the issue does not affect the court’s jurisdiction, [and] it is not truly one of standing, but one on the merits of the contract claim itself.” Ashford Partners, 2010 WL 2991118, at *3 (citing Criaco, 225 S.W.3d at 898). Because ownership of the promissory note was an essential element of Wells Fargo’s right to collect on it, see Cadle, 21 S.W.3d at 674; Clark, 658 S.W.2d at 295, the [...] District Court’s determination that Wells Fargo did not own the promissory note is a determination on the merits, not one of jurisdiction. See Ashford Partners, 2010 WL 2991118, at *3; Criaco, 225 S.W.3d at 898.
 
SOURCE: Houston Court of Appeals for the First District -  01-10-00020-CV 5/12/12

Mitigation in the context of default on real estate note and foreclosure

Mitigation in the foreclosure and breach of real estate note context: Bank not required to accept offer/consent to sale of secured property that would not have covered the entire indebtedness and would have precluded it from enforcing the note and obtain deficiency judgment against debtors

The doctrine of mitigation of damages prevents a party from recovering for damages resulting from a breach of contract that could be avoided by reasonable efforts on the part of the plaintiff. Great Am. Ins. Co. v. N. Austin Mun. Utility Dist. No. 1, 908 S.W.2d 415, 426 (Tex. 1995). In other words, where a party is entitled to the benefits of a contract and can save himself from the damages resulting from its breach at a trifling expense or with reasonable exertions, it is his duty to incur such expense and make such exertions. Id. (quoting Walker v. Salt Flat Water Co., 96 S.W.2d 231, 232 (Tex. 1936)). Although an injured party is required to exercise reasonable efforts to minimize damages, it is not required to mitigate its losses "by accepting an arrangement with the repudiator if that is made conditional on [its] surrender of [its] rights under the repudiated contract." Cook Composites, Inc. v. Westlake Styrene Corp., 15 S.W.3d 124, 135 (Tex. App.-Houston [14th Dist.] 2000, pet. dism'd) (quoting Publicker Chemical Corp. v. Belcher Oil Co., 792 F.2d 482, 488 (5th Cir. 1986)).

Here, the Williams parties, as the breaching parties, had the burden of proving that damages could have been mitigated. See Copenhaver v. Berryman, 602 S.W.2d 540, 544 (Tex. App.-Corpus Christi 1980, writ ref'd n.r.e.). The Williams parties base their failure to mitigate affirmative defense on testimony from Donald Williams, who found a buyer who was willing to pay "approximately $1,400,000" for one of the parcels at issue, but the Bank refused to give Williams its permission for the sale. If the Bank accepted this side arrangement with the Williams parties, it would have required the Bank to surrender its rights and remedies under the promissory notes, as well as the Agreement with regard to this particular parcel. Because the notes were in default, and the Williams parties failed to pay their indebtedness by June 7, 2011, the Bank was not required to mitigate its damages by forgoing its rights and remedies under the notes and the Agreement. See Cook Composites, 15 S.W.3d at 135. Without other evidence that damages could have been mitigated, the Williams parties failed to raise a question of fact on the Bank's failure to mitigate.[3]

ELEMENTS CREDITOR HAS TO PROVE WHEN SUING ON PROMISSORY NOTE

To recover a debt due and owing under a promissory note, a party must establish that it is the legal holder of an existing note, the debtor's execution of the note, and that an outstanding balance is due and owing. Austin v. Countrywide Homes Loans, 261 S.W.3d 68, 72 (Tex. App.-Houston [1st Dist.] 2008, pet. denied).

SOURCE: CORPUS CHRISTI-EDINBURG COURT OF APPEALS - No. 13-12-00704-CV - 1/16/2014 - Williams v. Compass Bank (creditor can't be forced into short sale under duty-to-mitigate-damages doctrine and give up its claim).

Footnote 3: We also note that the Bank had a right under the promissory notes to foreclose on the properties prior to the Agreement reached in 2011 because the Williams parties were in default. The Agreement, by itself, is further conclusive proof of the Bank's attempt to exercise reasonable efforts to minimize damages by forbearing its collection efforts and allowing the Williams parties to pay back its indebtedness.  

Foreclosure under Deed of Trust (DoT) vs lawsuit to enforce the Promissory Note: Is there a difference, and if so, what's difference?

Foreclosure of mortgaged property under a deed of trust and suit to enforce note to obtain money judgment against borrower are separate and distinct creditor remedies 

WHAT IS THE RELATIONSHIP BETWEEN FORECLOSURE AND SUIT ON PROMISSORY NOTE? 

A lien creditor may pursue foreclosure of a lien against real property under the deed of trust independent of whether the creditor pursues personal action against the borrower to collect under the note. See Stephens v. LPP Mortg., Ltd., 316 S.W.3d 742, 747 (Tex. App.-Austin 2010, pet. denied). As a federal district court applying Texas law has explained:

Texas law differentiates between enforcement of a promissory note and foreclosure. Foreclosure is an independent action against the collateral and may be conducted without judicial supervision. Enforcement of the note, on the other hand, is a personal action against the signatory and requires a judicial proceeding (citations omitted).

Reardean v. CitiMortgage, Inc., No. A-11-CA-420-SS, 2011 WL 3268307, at *3 (W.D. Tex. July 25, 2011). Because Wells Fargo was the mortgagee by statute, it was entitled to enforce the deed of trust and, thus, begin nonjudicial foreclosure proceedings. Farkas's second and third issues are overruled. Because Wells Fargo was authorized to enforce the deed of trust, we need not address the fourth issue: whether Wells Fargo was entitled to enforce the note. Similarly, for the same reason, we need not address Farkas's first issue regarding the servicing rights to the loan under the note.

SOURCE: ELEVENTH COURT OF APPEALS IN EASTLAND, TEXAS - 11-12-00024-CV - 1/9/2014

ROLE OF MERS IN REAL ESTATE FINANCE AND SECONDARY MORTGAGE MARKET EXPLAINED 

A federal judicial panel on multidistrict litigation gave the following explanation of how the MERS system purportedly operates:

When a home is purchased, the lender obtains from the borrower a promissory note and a mortgage instrument naming MERS as the mortgagee (as nominee for the lender and its successors and assigns). In the mortgage, the borrower assigns his right, title, and interest in the property to MERS, and the mortgage instrument is then recorded in the local land records with MERS as the named mortgagee. When the promissory note is sold (and possibly re-sold) in the secondary mortgage market, the MERS database tracks that transfer. As long as the parties involved in the sale are MERS members, MERS remains the mortgagee of record (thereby avoiding recording and other transfer fees that are otherwise associated with the sale) and continues to act as an agent for the new owner of the promissory note.

In re Mortg. Elec. Registration Sys. (MERS) Litig., 659 F. Supp. 2d 1368, 1370 n.6 (J.P.M.L. 2009).

DEED OF TRUST AND STATUS OF MORTGAGEE 

If Wells Fargo was the mortgagee, then it was entitled to exercise the powers that Farkas granted in the deed of trust. The Property Code authorizes a mortgagee to sell real property under a "power of sale conferred by a deed of trust." PROP. § 51.002. The statutory definition of a mortgagee includes: (1) the grantee, beneficiary, owner, or holder of a security instrument; (2) a book entry system, which acts as a nominee for the grantee, beneficiary, owner, or holder of a security instrument and its successors and assigns; and (3) the last person to whom the security interest has been assigned of record. See id. § 51.0001(1), (4).

Here, the summary judgment evidence shows that Wells Fargo was the last person to whom the instrument had been assigned. According to the terms of the deed of trust, MERS was the beneficiary and the nominee for the lender (Jefferson Mortgage Services) and its successors and assignees. Thus, MERS was a mortgagee as defined in the Property Code. When MERS executed the assignment to Wells Fargo Bank, N.A. on December 1, 2009, Wells Fargo obtained all of MERS's rights and interest in the deed of trust (originating from the lender, Jefferson Mortgage Services), including the "right to foreclose and sell the Property." See Athey v. Mortg. Elec. Registration Sys., Inc., 314 S.W.3d 161, 166 (Tex. App.-Eastland 2010, pet. denied).

Farkas contends that Wells Fargo is not the mortgagee because "[t]he purported assignment of the Deed of Trust is ineffective to transfer the security interest to Wells Fargo as a matter of law" because "Wells Fargo does not hold the subject debt." Essentially, Farkas argues that Wells Fargo was not the holder of the note and, thus, could not exercise the powers granted by him under the deed of trust. Farkas seems to conflate the foreclosure with enforcing the note against the borrower.

SOURCE:  EASTLAND COURT OF APPEALS - 11-12-00024-CV - 1/9/2014

EXCERPT FROM RECENT FEDERAL DISTRICT COURT IN TEXAS OPINION / ORDER

Texas law differentiates between enforcement of a promissory note and a deed of trust. "Where there is a debt secured by a note, which is, in turn, secured by a lien, the lien and the note constitute separate obligations." Aguero v. Ramirez, 70 S.W.3d 372, 374 (Tex. App. 2002). Thus, the right to recover on the promissory note and the right to foreclose may be enforced separately. See Stephens v. LPP Mortg., 316 S.W.3d 742, 747 (Tex. App. 2010) (finding that the promissory note and the lien which secures it are "separate legal obligations" that "may be litigated in separate lawsuits"); Carter v. Gray, 125 Tex. 219, 81 S.W.2d 647, 648 (Tex. 1935) ("It is so well settled as not to be controverted that the right to recover a personal judgment for a debt secured by a lien on land and the right to have a foreclosure of lien are severable, and a plaintiff may elect to seek a personal judgment without foreclosing the lien, and even without a waiver of the lien.").
 
Foreclosure is an independent action against the collateral and may be conducted without judicial supervision. Bierwirth v. BAC Home Loans Servicing, L.P., No. 03-11-00644-CV, 2012 WL 3793190, at *4 (Tex. App. Aug. 30, 2012) (citing Reardean v. CitiMortgage, Inc., No. A-11-CA-420, 2011 WL 3268307, at *3 (W.D. Tex. July 25, 2011)). Enforcement of the promissory note, on the other hand, is a personal action against the signatory and requires a judicial proceeding. Id.

Chapter 51 of the Texas Property Code, which governs non-judicial foreclosures, authorizes either a mortgagee or a mortgage servicer acting on behalf of a mortgagee to sell real property under a "power of sale conferred by a deed of trust." See Tex. Prop. Code. §§ 51.002, 51.0025. The Property Code defines a "mortgagee" as "(A) the grantee, beneficiary, owner, or holder of a security instrument; (B) a book entry system;[3] or (C) if the security interest has been assigned of record, the last person to whom the security interest has been assigned of record." Tex. Prop. Code § 51.0001(4). Under Texas law, therefore, Defendant need not hold the Note in order to foreclose; it need only have the right to foreclose under the Deed of Trust.

SOURCE: Rodriguez v. Bank of America, NA, Dist. Court, WD Texas 2013 United States District Court, W.D. Texas, San Antonio Division. April 25, 2013.

LEGAL VS EQUITABLE TITLE IN RELATION TO MORTGAGED PROPERTY 

 "When a mortgagor executes a deed of trust the legal and equitable estates in the property are severed. The mortgagor retains the legal title and the mortgagee holds the equitable title. Texas has always followed this lien theory of mortgages." Green v. McKay, 376 S.W.3d 891, 899 n.9 (Tex. App.-Dallas 2012, pet. denied) (quoting Flag-Redfern Oil v. Humble Exploration Co., 744 S.W.2d 6, 8 (Tex. 1987)).

See Lighthouse Church of Cloverleaf v. Tex. Bank, 889 S.W.2d 595, 603 (Tex. App.-Houston [14th Dist.] 1994, writ denied) (stating that "[f]oreclosure transfers title from the debtor to another party").

Interspousal loans - separate vs. community property (and debt)

Loan from one spouse to the other and community-property presumption. Tricky issue in property division upon divorce.

PROMISSORY NOTE BETWEEN SPOUSES

Husband asserts wife's summary judgment evidence did not overcome the presumption that the note was community property and the debt it evidenced was a "community debt." Property possessed by either spouse during marriage is presumed to be community property. Tex. Fam. Code Ann. § 3.003(a) (West 2006); Fillingim v. Fillingim, 332 S.W.3d 361, 363 (Tex. 2011). This presumption is rebuttable by clear and convincing evidence to the contrary. Tex. Fam. Code Ann. § 3.003 (West 2006).

In the note, husband unequivocally recited the money he borrowed from wife, as evidenced by the note, was her separate property. This recitation sufficiently rebuts the presumption of community property and creates a new presumption that the funds loaned by wife to husband were wife's separate property. Kyles v. Kyles, 832 S.W.2d 194, 196 (Tex.App.-Beaumont 1992, no pet.) (recitations of separate property character in deeds displaced community presumption and created new presumption of separate property) (citing Henry S. Miller Company v. Evans, 452 S.W.2d 426, 430-31 (Tex. 1970)); Licata v. Licata, 11 S.W.3d 269, 274 (Tex.App.-Houston [14th Dist.] 1999, pet. denied) (applying holding regarding new presumption of separate property to settlement proceeds based on recitations in settlement documents); see Henry S. Miller Company, 452 S.W.2d at 430-31 (because of recitals in deed that land was conveyed to wife as her sole and separate property and consideration was from her separate estate, no community presumption existed). The recital in the note of separate property was prima facie evidence that the money loaned, as evidenced by the note, was the separate property of wife. See Licata, 11 S.W.3d at 274 (citing Kyles, 832 S.W.3d at 196); Henry S. Miller Company, 452 S.W.2d at 430 (separate property character recitals in deed to wife established prima facie defense of separate property). Cf. Kahn v. Kahn, 94 Tex. 114, 58 S.W. 825, 825-26 (1900) (absent proof of fraud or mistake husband bound by recitals in his deed to wife regarding payment of consideration by wife from separate funds); Roberts v. Roberts, 999 S.W.2d 424, 432 (Tex.App.-El Paso 1999, no pet.) (similarly stating rule).

With the recitals in his promissory note to wife, the burden then shifted to husband to come forward with more than a scintilla of evidence tending to rebut the separate property presumption. Licata 11 S.W.3d at 274; see Landaverde v. Estate of Abedinzadeh, No. 14-11-0143-CV, 2011 Tex. App. Lexis 8668, at *4-5 (Tex.App.-Houston [14th Dist.] Nov. 1, 2011, no pet.) (on summary judgment party resisting a presumption must produce evidence sufficient to neutralize effect of presumption in order for case to proceed to trial). Absent such evidence, the separate property presumption becomes conclusive. See Licata, 11 S.W.3d at 274 (citing Kyles, 832 S.W.2d at 196). 

The characterization of the note as separate or community property is determined by the inception of title rule. Tex. Fam. Code Ann. § 3.006 (West 2006). As executed and delivered, the note with its recitals raised the presumption that the funds advanced, and thus the note representing those funds, was the separate property of wife. The uses to which husband later put the funds are not pertinent to the note's characterization.

SOURCE: Amarillo Court of Appeals - No. 07-11-00223-CV – 2/21/2013 

Collection of a Promissory Note - Multiple Instruments pertaining to the obligationa

Collection of a Promissory Note: Essential elements the creditor must prove 

To collect on a promissory note, a plaintiff m ust establish: (1) that the note exists; (2) that the defendant signed the note; (3) that the plaintiff is the owner and holder of the note; and (4) that a certain balance is due and owing on the note. Cadle Co. v. Regency Homes, Inc., 21 S.W.3d 670, 674 (Tex. App.—Austin 2000, pet. denied); see also Clark v. Dedina, 658 S.W.2d 293, 295–96 (Tex. App.—Houston [1st Dist.] 1983, writ dism’d).

Business and Commerce Code Section 3.117

Business and commerce code section 3.117, titled “Other Agreements Affecting Instrument,” states in relevant part that

the obligation of a party to an instrument to pay the instrument may be modified, supplemented, or nullified by a separate agreement of the obligor and a person entitled to enforce the instrument, if the instrument is issued or the obligation is incurred in reliance on the agreement or as part of the same transaction giving rise to the agreement. To the extent an obligation is modified, supplemented, or nullified by an agreement under this section, the agreement is a defense to the obligation.

Tex. Bus. & Com. Code Ann. § 3.117 (West 2002). “The separate agreement might be a security agreement . . . that contradicts the terms of the instrument.” Id. § 3.117 cmt. 1 (West Supp. 2010)

Multiple instruments / documents can be given effect as if they were one

Additionally, where two or more instruments, executed contemporaneously or at different times, pertain to the same transaction, the instruments will be read together, even though they do not expressly refer to each other. Bd. of Ins. Comm’rs v. Great S. Life Ins. Co., 150 Tex. 258, 267, 239 S.W.2d 803, 809 (1951); see also Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000) (stating that it is “well-established law that instruments pertaining to the same transaction may be read together to ascertain the parties’ intent”).

SOURCE: Fort Worth Court of Appeals - 02-10-00296-CV - 8/4/11

Legal lingo: Consideration in the context of a contract

CONSIDERATION AS AN ESSENTIAL ELEMENT OF A VALID CONTRACT

Generally, a contract must be supported by consideration to be enforceable. Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 659 (Tex. 2006).

What constitutes consideration?

Consideration consists of a benefit to the promisor or a detriment to the promisee. N. Natural Gas Co. v. Conoco, Inc., 986 S.W.2d 603, 607 (Tex. 1998). Consideration for a promise may be either a performance or a return promise bargained for in a present exchange. Johnson, 209 S.W.3d at 659 (citing Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 496 (Tex. 1991); Restatement (Second) of Contracts § 71(1) (1981)).

Lack of consideration may defeat contract claim

Lack of consideration for a contract is an affirmative defense to its enforcement; therefore, [ LITIGANT ] was required to raise a fact issue on lack of consideration. See Tex. R. Civ. P. 94; Kaye/Bassman Intern. Corp. v. Help Desk Now, Inc., 321 S.W.3d 806, 814 (Tex. App.—Dallas 2010, pet. denied).

Consideration for execution of promissory note

[A] written instrument reciting a consideration imports one, and with such a recitation we presume the consideration [to be] sufficient. Hoagland v. Finholt, 773 S.W.2d 740, 743 (Tex. App.—Dallas 1989, no writ). However, parol evidence is admissible to show want or failure of consideration and establish the actual consideration given for the instrument. DeLuca v. Munzel, 673 S.W.2d 373, 376 (Tex. App.—Houston [1st Dist.] 1984, writ ref‘d n.r.e.) (citing Fire Ins. Ass’n v. Wickham, 141 U.S. 564, 579–82 (1891); Gaines Motor Sales Co. v. Hastings Mfg. Co., 104 S.W.2d 548, 551 (Tex. Civ. App.—Fort Worth 1937, writ dism‘d)).

To constitute consideration, . . . [t]he performance or return promise . . . may be given by the promisee or by some other person. Restatement (Second) of Contracts § 71 (1981) (emphasis added). ―It matters not from whom the consideration moves or to whom it goes. If it is bargained for and given in exchange for the promise, the promise is not gratuitous. Id. cmt. c.

SOURCE: Houston Court of Appeals - 14-09-00312-CV - 7/26/11 - McLernon v. Dynegy Inc.

Suit on personal guaranty: Elements a creditor has to prove to recover from guarantor

LAW OF GUARANTY IN TEXAS 
  
When can a creditor sue the guarantor of a promissory note or contract? 
  
ELEMENT OF SUIT AGAINST GUARANTOR

To recover for breach of the guaranty agreement, [ Plaintiff ] had to establish (1) the existence and ownership of the guaranty agreement, (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 the promise by the guarantor. Escalante v. Luckie, 77 S.W.3d 410, 416 (Tex. App.—Eastland 2002, pet. denied). A secured party is not required to dispose of the collateral through foreclosure before suing on the underlying obligation. Christian v. Univ. Fed. Sav. Ass’n, 792 S.W.2d 533, 535 (Tex. App.—Houston [1st Dist.] 1990, no writ). Where a guaranty agreement so provides, a lender need not liquidate its collateral before obtaining judgment against a guarantor. Fed. Deposit Ins. Corp. v. Coleman, 795 S.W.2d 706, 709-710 (Tex. 1990).

SOURCE: Eastland Court of Appeals - 11-09-00196-CV - 6/16/11
 
CITES AND CASELAW SNIPPETS ON ELEMENTS OF ACTION AGAINST GUARANTORS FROM OTHER TEXAS COURTS OF APPEALS 
   
Wiman v. Tomaszewicz, 877 S.W.2d 1, 8 (Tex. App.-Dallas 1994, no writ) (to recover on the guaranty of a note, a party must show proof of the existence and ownership of the guaranty contract, the terms of the underlying contract by the holder, the occurrence of the conditions upon which liability is based, and the failure or refusal to perform by the guarantor). In order to recover on a breach of guaranty agreement, the plaintiff must prove: (1) the existence and ownership of the guaranty agreement; (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 the promise by the guarantor. Marshall v. Ford Motor Company, 878 S.W.2d 629, 631 (Tex.App.-Dallas 1994, no writ). 
   
A guaranty agreement is a person's promise to perform the same act that another person is contractually bound to perform. Simmons v. Compania Financiera Libano, S.A., 830 S.W.2d 789, 792 (Tex. App.-Houston [1st Dist.] 1992, writ denied). A guaranty creates a secondary obligation under which the guarantor promises to answer for the debt of the primary obligor if the primary obligor fails to perform. Garner v. Corpus Christi Nat'l Bank, 944 S.W.2d 469, 475 (Tex. App.-Corpus Christi 1997, writ denied). 
  
To recover under a guaranty agreement, a plaintiff must show (1) the existence and ownership of the guaranty agreement, (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 the refusal to perform the promise by the guarantor. Byrd v. Estate of Nelms, 154 S.W.3d 149, 157 (Tex. App.-Waco 2004, pet. denied); Roye Enter., Inc. v. Roper, No. 02-04-00132-CV, 2005 WL 1791964, at *3 (Tex. App.-Fort Worth July 28, 2005, no pet.) (mem. op.); see also Simpson v. MBank Dallas, N.A., 724 S.W.2d 102, 107 (Tex. App.-Dallas 1987, writ ref'd n.r.e.) (stating that when a guaranty is in writing and signed by the guarantor, the guaranty's existence presumes consideration). 
  
 "To obtain summary judgment on a guaranty agreement, a party must conclusively prove: (1) the existence and ownership of the guaranty contract, (2) the performance of the terms of the contract by plaintiff, (3) the occurrence of the condition on which liability is based, and (4) guarantor's failure or refusal to perform the promise." Corona v. Pilgrim's Pride Corp., 245 S.W.3d 75, 80 (Tex.App.-Texarkana 2008, pet. denied). Barclay v. Waxahachie Bank & Trust Co., 568 S.W.2d 721, 723 (Tex.Civ. App.-Waco 1978, no writ). 
   
Recovery on a Promissory Note and Guaranty 
   
To recover for a debt on a promissory note, a party must establish that it is the legal holder of the note, the debtor's execution of the note, and that an outstanding balance is due and owing. Austin v. Countrywide Homes, 261 S.W.3d 68, 72 (Tex. App.-Houston [1st Dist.] 2008, pet. denied). To recover on the guaranty of a note, a party must show proof of the existence and ownership of the guaranty contract, the terms of the underlying contract by the holder, the occurrence of the conditions upon which liability is based, and the failure or refusal to perform by the guarantor. Wiman v. Tomaszewicz, 877 S.W.2d 1, 8 (Tex.App.-Dallas 1994, no writ). 

RELATED CAUSES OF ACTION: 

Suit for breach of note, default under promissory note, breach of contract, breach of residential or commercial lease agreement, personal guaranty agreement, corporate guaranty [not guarantee], suit for judicial forclosure of security interest in collateral, suit for deficiency judgment

Discharge Defense to Suit to Enforce Personal Guaranty - Material Alteration of Contract without Guarantor's Consent

   
AFFIRMATIVE DEFENSE OF DISCHARGE AGAINST ENFORCEMENT OF PERSONAL GUARANTY FOR LIABILITY EVIDENCED BY PROMISSORY NOTE

To be entitled to discharge from liability, 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); Old Colony Ins. Co. v. City of Quitman, 163 Tex. 144, 352 S.W.2d 452, 455 (1961).
 
We review a trial court's conclusions of law as a legal question. BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002).
   
DISCHARGE DEFENSE NOT ESTABLISHED
 
There is no evidence of any modification of the promissory note here. The evidence Byboth relies on concerns whether Wood breached the note, not whether it modified it. Moreover, the evidence also negates as a matter of law any damages resulting from the misapplication of the payments from 2-16 Holdings, Inc. It is undisputed that when Wood calculated the amount owed on the note at trial (or at least before judgment), it credited 2-16 Holdings, Inc. and Byboth with the amounts of the four payments. Byboth agreed that Wood was not seeking to recover under the guaranty more than 2-16 Holdings, Inc. owed under the terms of the promissory note. Therefore, any earlier misapplication of the payments due under the promissory note was corrected, and the judgment on the underlying obligation reflected the correction. Thus, the undisputed facts fail to show that Byboth should be discharged from liability.
 
SOURCE: 05-08-00915-CV (Dallas Court of Appeals) (5/21/09, pet. denied Oct 16, 2009)

Material Alteration of Contract and Discharge Defense
in Suit to Enforce Personal Guaranty

Elements of promissory note suit, suit on note

To recover for a debt on a promissory note, a party must establish that it is the legal holder of the note, the debtor’s execution of the note, and that an outstanding balance is due and owing. Austin v. Countrywide Homes, 261 S.W.3d 68, 72 (Tex. App.—Houston [1st Dist.] 2008, pet. denied). SOURCE: McShaffry v. Amegy Bank N.A. (Tex.App.- Houston [1st Dist.] Apr. 2, 2009)(Bland) (promissory note suit, extinguishment by guarantor)