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Prentice v. Frost Bank

Court of Appeals of Texas, Third District, Austin

June 23, 2017

Eugene Miles Prentice, Richard M. Spaziano, and Carl William Pollock, Appellants
Frost Bank, Appellee


          Before Chief Justice Rose, Justices Pemberton and Bourland



         The focus of this appeal is four guaranty agreements that were executed pursuant to the same loan transaction. At issue is whether these agreements, as they interact with each other, give rise to a latent ambiguity that should be construed in favor of the guarantors to absolve them of liability. Concluding otherwise, the district court rendered final summary judgment for the lender and denied a cross-motion the guarantors had filed, and the guarantors challenge these rulings on appeal. Upon applying well-established rules of contract construction, we agree with the district court and affirm.


         The basic events leading up to the underlying litigation are undisputed.[1] National Insurance Partners, Inc. (NIP) borrowed $1, 000, 000 from Frost National Bank (Frost) in 2007. NIP signed a promissory note (the 2007 Note) in connection with the transaction, and the appellants, Carl William Pollock, Eugene Miles Prentice, and Richard M. Spaziano, plus a fourth individual who is not a party to this appeal, Bruce W. Ling, each signed a separate Commercial Guaranty (i.e., a "Guaranty Agreement") to secure the debt evidenced by the 2007 Note.[2] The 2007 Note and the Guaranty Agreements are each dated May 22, 2007, and each Guaranty Agreement contains terms identical to the others. Pertinent to this appeal, each Guaranty Agreement provides that the "Guarantor absolutely and unconditionally guarantees full and punctual payment and satisfaction of Guarantor's Share of the Indebtedness of [NIP] to [Frost], " which is defined as "50.000% of all the principal amount, interest thereon to the extent not prohibited by law, " and related collection costs, expenses, and reasonable attorney's fees.

         NIP and Frost later agreed to modify the loan and, in connection therewith, NIP signed a promissory note dated October 16, 2009 (the 2009 Note) in the principal amount of $1.292 million, with a maturity date of October 16, 2012.[3] NIP subsequently declared bankruptcy and defaulted on its payment obligations under the 2009 Note. As of October 2012, the debt outstanding totaled $712, 554.68, including principal, accrued interest, and attorney's fees. Frost made demand on each of the four guarantors to pay $356, 277.34, a figure representing 50 percent of the $712, 554.68 figure.

         In December 2012, Frost and Ling agreed to a settlement pursuant to which Ling paid Frost $358, 684.32 (apparently representing the $356, 277.34 amount demanded, plus interest accruing in the meantime) as satisfaction of his "entire liability and obligations under the Guaranty." In addition to Ling's payment, the trustee overseeing NIP's bankruptcy made a one-time payment of $66, 281.49 toward the 2009 Note. Frost sued the remaining guarantors (i.e., appellants) and sought a joint-and-several recovery from them of the "Guarantor's Share of the Indebtedness as defined in the Guaranty Agreements." Appellants answered with general denials and also asserted a "partial payment" affirmative defense based on the payments previously made by Ling and NIP.[4]

         As we will detail below, the parties joined issue as to the meaning of the "Guarantor's Share of the Indebtedness of [NIP] to [Frost], " and eventually presented that issue for judicial resolution through cross-motions for summary judgment. Frost's motion sought to adjudicate each appellant liable for the full amount of each one's "Guarantor's Share of the Indebtedness"-i.e., a 50 percent share of such indebtedness[5]-until the full amount due under the 2009 Note had been paid in full. Appellants' cross-motion sought to disprove an "essential element" of Frost's claim, "the amount of liability, " based on appellants' argument that the "Guarantor's Share of the Indebtedness" is a collective liability for no more than 50 percent of the total indebtedness, which Ling had already paid.[6]

         The district court rendered a final summary judgment granting Frost's motion, [7]denying appellants' cross-motion, and ordering that Frost recover from each appellant the sum of $356, 277.34 (the "Guarantor's Share of the Indebtedness" as described in Frost's motion), plus $4, 194.26 in accrued pre-judgment interest, costs, and fees (in other words, a total of $360, 471.60 from each appellant).[8] However, the judgment also provides that "once [Frost] receives or collects sums from any one or more of the above [appellants] equal to 'Guarantor's Share of the Indebtedness'"-i.e., the sum of "$356, 277.34 plus 100% of accrued pre-judgment and post-judgment interest, collection costs and reasonable attorney's fees for trial and appeal since the date 'Guarantor's Share of the Indebtedness' was determined"-"then this judgment shall be deemed to be satisfied in full."

         This appeal followed.[9]


         As both sides acknowledge, [10] this case is amenable to summary judgment because it hinges on the proper interpretation of the Guaranty Agreements rather than on a dispute about the material facts.[11] We review the parties' cross-motions for summary judgment de novo and render the judgment that the trial court should have rendered.[12] "[E]ach party bears the burden of establishing that it is entitled to judgment as a matter of law."[13]

         Appellants raise three issues, the latter two of which are dispositive.[14] In those issues, appellants contend that, respectively, the district court erred in rendering a traditional summary judgment in Frost's favor and in denying appellants' cross-motion for summary judgment.[15] Both issues hinge on what appellants have characterized as the "determinative question" underlying the parties' competing traditional summary-judgment motions-whether, under the terms of the Guaranty Agreements, each guarantor (and, therefore, each appellant) is individually liable for 50 percent of the total debt, such that the four guarantors' cumulative liability would be 200 percent of the total debt, or conversely, whether the appellants are collectively liable for 50 percent of such debt, such that all four guarantors' liability was extinguished by Ling's payment of 50 percent of the total debt. Reading the Guaranty Agreements together, appellants insist, gives rise to a latent ambiguity that, construed in their favor, renders the latter scenario applicable (i.e., a collective liability), and that Ling's payment satisfied this collective liability in full. Predicated on that conclusion, appellants maintain that they have negated any further liability to Frost, entitling them to a summary judgment that Frost take nothing on its claims against them.[16]

         It is well settled in Texas that guaranty agreements must be "strictly construed" in the sense of not being extended beyond their precise unambiguous terms.[17] We "construe unambiguous guaranty agreements as any other contract, "[18] but uncertainties in meaning are "'given a construction which is most favorable to the guarantor.'"[19] We therefore begin by examining the Guaranty Agreements to ascertain the terms to which the appellants agreed.[20] The following terms are material to the dispute:

GUARANTEE OF PAYMENT AND PERFORMANCE. For good and valuable consideration, Guarantor absolutely and unconditionally guarantees full and punctual payment and satisfaction of Guarantor's Share of the Indebtedness of [NIP] to [Frost], and the performance and discharge of all [of NIP's] obligations under the Note and the Related Documents. This is a guaranty of payment and performance and not of collection, so [Frost] can enforce this Guaranty against Guarantor even when [Frost] has not exhausted [its] remedies against anyone else obligated to pay the Indebtedness or against any collateral securing the Indebtedness, this Guaranty or any other guaranty of the Indebtedness. . . .
INDEBTEDNESS. The word "Indebtedness" as used in this Guaranty means all of the principal amount outstanding from time to time and at any one or more times, [21]accrued unpaid interest thereon and all collection costs and legal expenses related thereto permitted by law, [Frost's] reasonable attorneys' fees, arising from any and all debts, liabilities and obligations that [NIP] individually or collectively or interchangeably with others, owes or will owe [Frost] under the Note and Related Documents and any renewals, extensions, modifications, refinancings, consolidations and substitutions of the Note and Related Documents.
If [Frost] presently holds one or more guaranties, or hereafter receives additional guaranties from Guarantor, [Frost's] rights under all guaranties shall be cumulative. This Guaranty shall not (unless specifically provided below to the contrary) affect or invalidate any such other guaranties. Guarantor's liability will be Guarantor's aggregate liability under the terms of this Guaranty and any such other unterminated guaranties.
GUARANTOR'S SHARE OF THE INDEBTEDNESS. The words "Guarantor's Share of the Indebtedness" as used in this Guaranty mean 50.000% of all the principal amount, interest thereon to the extent not prohibited by law, and all collection costs, expenses and [Frost's] reasonable attorneys' fees whether or not there is a lawsuit, and if there is a lawsuit, any fees and costs for trial and appeals.
[Frost] shall determine Guarantor's Share of the Indebtedness when [Frost] makes demand on Guarantor. After a determination, Guarantor's Share of the Indebtedness will only be reduced by sums actually paid by Guarantor under this Guaranty, but will not be reduced by sums from any other source including, but not limited to, sums realized from any collateral securing the Indebtedness or this Guaranty, or payments by anyone other than Guarantor, or reductions by operation of law, judicial order or equitable principles. [Frost] has the sole and absolute discretion to determine how sums shall be applied among guaranties of the Indebtedness. . . .
DURATION OF GUARANTY. This Guaranty . . . will continue in full force until all the Indebtedness shall have been fully and finally paid and satisfied and all of Guarantor's other obligations under this Guaranty shall have been performed in full. Release of any other guarantor or termination of any other guaranty of the Indebtedness shall not affect the liability of Guarantor under this Guaranty. A revocation [Frost] receives from any one or more Guarantors shall not affect the liability of any remaining Guarantors under this Guaranty. . . . Guarantor's liability . . . shall terminate only upon (A) termination in writing by [NIP] and [Frost] of the line of credit, (B) payment of the Indebtedness in full in legal tender, and (C) payment in full in legal tender of all of Guarantor's other obligations under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes [Frost], without notice or demand and without lessening or otherwise affecting Guarantor's liability under this Guaranty, from time to time: . . . (D) to release, substitute, agree not to sue, or deal with any one or more of [NIP's] sureties, endorsers, or other guarantors on any terms or in any manner [Frost] may choose. . . .
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Guaranty: . . .
Interpretation. In all cases where there is more than one . . . Guarantor, then all words used in this Guaranty in the singular shall be deemed to have been used in the plural where the context and construction so require; and . . . when this Guaranty is executed by more than one Guarantor, the word[] . . . "Guarantor" . . . shall mean all and any one or more of them. . . .
Notices. . . . Unless otherwise provided or required by law, if there is more than one Guarantor, any notice given by [Frost] to any Guarantor is deemed to be notice given to all Guarantors. . . .
DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Guaranty. . . . Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. . . .
Guarantor. The word "Guarantor" means everyone signing this Guaranty, including without limitation [the signing party], and in each case, any signer's successors and assigns.
Guarantor's Share of the Indebtedness. The words "Guarantor's Share of the Indebtedness" mean Guarantor's indebtedness to [Frost] as more particularly ...

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