Hughes v. Straus-Frank Co.

SMITH, Chief Justice. Straus-Frank Company, a corporation, engaged in the wholesale mercantile business at San Antonio, brought this suit against O. L. McShan, J. B. McShan and S. W. Hughes, to recover the amount of a promissory note executed by the McShans on November 1, 1934. The corporation recovered against all three defendants, but Hughes alone has appealed. It is undisputed that on June 27, 1932, Hughes, at the solicitation of O. L. Mc-Shan, executed and delivered to the latter, who in turn delivered to Straus-Frank Company, the following guaranty: “Please sell to O. L. McShan, hereinafter known as subject party, on your usual credit terms such goods, wares and merchandise as he, she or representative may select, from and after this date, in consideration of which I guarantee and hold myself personally responsible for the payment at maturity at San Antonio, Texas, of the purchase price of all goods, wares and merchandise so sold, whether evidenced by open account, trade acceptances, or notices, .ogether with interest from maturity at the rate of 8% per annum on open account and trade acceptance items, and interest on the notes according to their terms. I hereby waive notice of acceptance, amount of sales, dates of shipment or delivery, notice of default in payment, or the ’ requirements of any legal proceedings against the said subject party and I also agree that said indebtedness or any part of it may be changed in form and in terms of payments as often as may be agreed upon between you and the said subject party and that no change in the form or personnel of his, her, or representative’s business shall affect this guaranty. “This is intended to be a guaranty, applying to all sales made by you to O. L. McShan from-until you receive notice by registered mail that the same is revoked by me.” On the strength of this guaranty McShan entered into a contract with Straus-Frank Company to purchase from it a line of automobile accessories on credit and pay for same according to the terms of that contract. For the initial outlay the corporation took McShan’s installment note, to mature in July, 1933, for $1,060, to bear interest at 8% before, and 10% after, maturity, and 15% attorney’s fee. McShan and the corporation proceeded under this contract, McShan taking a line of Straus-Frank . Company’s goods, replenishing the stock and making payments on his note and open account from time to time, so that on October 9, 1933, he owed the Company a balance of $618.60 principal, and $55.32 interest, on said note, and a balance of $1,877.64 on open account. On said date, October 9, 1933, Hughes revoked said guaranty, in writing, as provided in said instrument, and while Straus-Frank Company [584] thereafter continued to sell McShan on credit, as before, it did not attempt to hold Hughes on such subsequent transactions. Subsequently, on December 20, 1933, however, and without Hughes’ knowledge or consent, Straus-Frank Company accepted McShan’s demand note for $2,550, the 'amount of the guaranteed debt, consisting of the unpaid balance of McShan’s past due note, with interest, and the balance on his open account in settlement of said indebtedness. The new note provided for 8% interest before and 10% after maturity on the whole amount, and 15% attorney’s fee. And still later, on November 1, 1934, Straus-Frank Company accepted, in lieu of said last mentioned demand note of 0. L. McShan for $2551.76, a new demand note of O. L. McShan and J. B. McShan, for $2,728.12, plus interest and attorney's "fees, as aforesaid, which included the principal and interest claimed to have accrued on the substituted note. On August 8, 1935, Straus-Frank Company brought this suit jointly against J. B. McShan and O. L. McShan, as principal obligors, and S. W. Hughes, as guarantor, .to recover the amouht of the last mentioned note of J. B. and O. L. McShan, as well as against the two McShans upon open account for $1,187.77, incurred by them .after the revocation of the Hughes guaranty- The trial was to a jury, but the only issues submitted to them were those -relating to the controversy between Straus-Frank Company and the McShans. No issue affecting Hughes was submitted to the jury. There was no jury finding, or requested finding, for example, that the goods for which Hughes was held liable under his guaranty were in fact purchased by O. L. McShan, the person whose credit was guaranteed by Hughes, although J. B. Mc-Shan testified, without apparent contradiction, to facts which would have justified, if not required, findings that the goods for which Hughes was held on his guaranty were all purchased by J. B. McShan for a business operated exclusively by him. The trial resulted in judgment for Straus-Frank Company, substantially as prayed for, against the two McShans and Hughes, including a decree against the latter upon the McShans’ demand note executed by them on November 1, 1934, more than a year after the admitted revocation of his guaranty. There was no attempt to recover upon the McShan obligations, or the evidences thereof, as they existed at the time of the revocation of the guaranty. Hughes recovered over against the Mc-Shans. Hughes alone has appealed. In its brief appellee contends, for the first time in this proceeding that appellant’s liability was that of principal ob-ligor, and not that of guarantor. The record shows, however, that appellee sued appellant as guarantor, he was treated as such by all parties and the court throughout the proceeding, and judgment was rendered against him solely on that theory. It is too late, on appeal, to shift the cause from the theory of guaranty to that of principal obligor. Smith v. Montgomery, 3 Tex. 199. Moreover, the language of appellant’s obligation, as well as the conduct of the parties themselves, and all the facts of record, constitute that obligation a guaranty, as distinguished from an original obligation. The record shows, without dispute, that upon receipt of the guaranty McShan took it to appellee, with whom he contracted directly for an initial bill of goods, and under that contract continued to purchase according to his needs, from time to time; that appellee from the beginning and throughout these transactions looked to McShan, primarily, for payment, and collected continuing partial payments from him on his note and accounts, without notice or reference to appellant as guarantor or otherwise. In short, appellee dealt directly with McShan, and looked to him for the primary fulfillment of his engagement, and did not call upon appellant for performance until McShan had definitely defaulted upon his obligation. This conduct of the parties, and particularly of appellee, constituted appellant a guarantor rather than a principal obligor, for, as was said in Smith v. Montgomery, supra, “if the whole credit be not given to the person who comes in to answer for another, his undertaking is collateral, and his liability is only that of a guarantor.” 21 Tex.Jur. pp. 135, et seq.; Smith v. Montgomery, supra; Wood v. Paper Co., 117 Tex. 399, 5 S.W.2d 748; National City Bank v. Taylor, Tex.Civ.App., 293 S.W. 613. We are not certain, at least we do not decide, that the distinction between the obligations of a principal obligor and a guarantor would make any difference in the decision in this case, so far as that is con [585] cerned. It is sufficient to say that upon the facts of this case appellant’s obligation was that of a guarantor, which, under the authorities may be likened to that of a surety. Lane v. Scott, 57 Tex. 367; Gardner v. Watson, 76 Tex. 25, 13 S.W. 39; Farmers’ State Bank v. First State Bank, Tex.Civ.App., 260 S.W. 664, writ refused. And that liability cannot be extended, by implication or otherwise, beyond the actual terms of the express engagement. Smith v. Montgomery, supra; Ryan v. Morton, 65 Tex. 258; Henger v. Lumber Company, Tex.Civ.App., 17 S.W.2d 136, writ refused; National City Bank v. Taylor, Tex.Civ.App., 293 S.W. 613; Jarecki Mfg. Co. v. Hinds, Tex.Civ.App., 295 S.W. 274; Id., Tex.Com.App., 6 S.W.2d 343; Southland Life Ins. Co. v. Stewart, Tex.Civ.App., 211 S.W. 460; Sheffield v. J. I. Case Threshing Machine Co., Tex.Civ.App., 293 S.W. 183. In his first proposition appellant contends that he was entitled to notice of _ appellee’s acceptance of the guaranty before his liability thereunder would begin, and that, therefore, it being conceded that notice of appellee’s acceptance was never given him, he never became liable on the guaranty. We are of the opinion that such notice was waived by the language of the guaranty, and overrule appellant’s proposition. While it is not deemed essential to the disposition of the case, it is not inappropriate to point out that the note sued on, if enforced according to its terms, would alter and enlarge the burdens of the obligors over those assumed within the period and under the express terms of the guaranty, in this: The prior obligation called for 8% interest on the open account, with no provision for attorney’s fee, whereas, under the substituted note the amount of the open account was covered into a note bearing 10% interest and providing for attorney’s fee; further, it extended -the maturity date on the open account from October 9, 1933, to November 1, 1934; it extended the maturity date of the original note from July 15, 1933, to November 1, 1934. Moreover, the obligation was further changed by adding J. B. McShan as an original obligor upon the latter note. It is elementary, as indicated in the authorities herein cited, that such changes as those pointed out constitute such material alterations as will affect the release of sureties and guarantors, regardless of whether the alterations increase the burden upon the obligors. We are of the opinion that appellant was not suable or liable upon the note upon which appellee recovered below. The respective and relative rights of the parties were necessarily fixed by and as of the time of the termination of the guaranty. At that time the guaranteed obligation consisted of a past due note of O. L. McShan, and his past due open account, and the guarantor’s obligation was measurable by the terms of that note and the condition of that account. The debtor and creditor had; no power or authority thereafter to bind the guarantor without his knowledge or consent, to the new and different obligation. 21 Tex.Jur. pp. 172, et seq.; Smith v. Montgomery, supra; Lane v. Scott, 57 Tex. 367; Wilson v. Drug Co., Tex.Com.App., 222 S.W. 223; Ryan v. Morton, supra; Gardner v. Watson, supra; Sheffield v. J. I. Case Threshing Machine Co., Tex.Civ.App., 293 S.W. 183; Casey-Swasey Co. v. Anderson, 37 Tex.Civ.App. 223, 83 S.W. 840, writ refused; Farmers’ State Bank v. First State Bank, supra; Sherwin-Williams Paint Co. v. Rausin, Tex.Civ.App., 10 S.W.2d 196, writ refused; Jarecki Mfg. Co. v. Hinds, supra. It is not essential to this conclusion to hold that appellant was released by reason of the substitution of a new obligation in lieu of that accruing within the period and under the express terms of the guaranty. It is sufficient to deny recovery upon appellee’s election to sue upon the cause of action based upon the substituted obligation, executed by the principal obligor long after the guaranty was revoked, rather than upon that accruing during the life and under the terms of the guaranty. We conclude that appellant’s liability under the guaranty was measured and evidenced by the note of the principal obligor, and by the condition of the open account, incurred during the life of the guaranty, and as the principal obligee elected to ignore that debt and sue upon a promissory note executed by the principal obligor and a stranger long after the termination of the guaranty, he cannot recover upon the guaranty. We have discussed the case upon the assumption, for the purpose of the decision, that the goods for the value of which appellee seeks to hold appellant on his guaranty, were in fact purchased by and [586] sold to O. L. McShan, whose credit was guaranteed by appellant. The record shows, almost conclusively, however, that those goods were not purchased by, or for the benefit of, O. L. McShan, but were purchased by and appropriated to the sole benefit of another, to-wit: J. B. McShan. Clearly, the burden was upon appellee to establish by sufficient evidence and elicit a jury finding in this jury case, that the “subject”, of the guaranty purchased the goods with which the guarantor is sought to be charged. In the absence of such proof and finding appellee was not entitled to recover. Appellant has properly raised this question in his fourth proposition, which must be sustained. For the sev.eral reasons stated, the judgment as against appellant, Hughes, must be reversed, and as no useful purpose could be served by remanding the cause, judgment will be here rendered that appellee take nothing by reason of his suit against appellant, and pay all costs. The judgment against the McShans, who have not appealed, will be affirmed. Affirmed in part; in part reversed and rendered.