Terry Jennings

On Appeal from the 133rd Judicial District Court

Harris County, Texas

Trial Court Case No. 2008-47756

MEMORANDUM OPINION

Appellants, J. Homer Garza and Arturo Salomon, bring this appeal challenging the trial court's judgment, entered after a bench trial, in favor of appellee, C. Paul Evans, in Evans's suit in intervention for breach of a guaranty agreement. In three issues, Garza and Salomon contend that the trial court erred in enforcing the guaranty agreement.

We affirm.

Background

In their original petition, Garza and Salomon asserted against TBA Construction, L.L.C. ("TBA Construction") and its owners Mark Adkinson, Mary Adkinson, and Thomas Dunn their claims for breach of contract, fraud, fraudulent inducement, unfair competition, and violation of a non-competition agreement. Evans filed a suit in intervention against Garza, Salomon, TBA Construction, and Mark Adkinson, alleging that TBA Construction had defaulted on a promissory note in the amount of $200,000 and Garza, Salomon, and Adkinson had defaulted on their guaranty of payment under the promissory note. Specifically, Evans alleged that TBA Construction had delivered him a promissory note; Garza, Salomon, and Adkinson individually guaranteed the note later the same year; TBA Construction defaulted on the note; and Adkinson, Garza, and Salomon had refused to pay the amount due on the note as provided in the guaranty agreement.

The trial court entered a default judgment on Evans's claim against TBA Construction in the amount of $235.195.26. At the beginning of trial, Garza and Salomon non-suited their claims against TBA Construction.

Evans testified that in March 2006, he discussed with Dunn the possibility of loaning money to TBA Construction in order to "fund the company," and he and Dunn eventually agreed that Evans would loan TBA Construction $200,000. Evans received a promissory note from TBA Construction, signed by Evans and Dunn, which provided for semi-annual repayments of interest beginning in September 15, 2006 and the total amount coming due on March 15, 2011.

In October 2006, Evans spoke with Mark Adkinson, who informed him that "the company had been purchased by another firm." Adkinson asked if Evans "could wait for 90 days" before receiving total repayment of the note, to which Evans consented. "[A]t some point" later, Evans received a document entitled, "Specific Guaranty Agreement," signed by Garza, Salomon, and Adkinson, which provided,

FOR VALUE received, the undersigned, whether one or more, hereinafter "Undersigned" or "Guarantor," jointly, severally, and unconditionally guarantee the full and punctual payment when due of the following described indebtedness of $200,000, "Borrower," whether one or more, to C. PAUL EVANS, "Lending Party":
One certain promissory note in the original principal amount of $200,000.00, dated March 15, 2006, executed by Borrower and payable to the order of Lending Party . . . together with all renewals and extensions thereof, even though represented by new instruments
and/or occurring after the death of any Borrower or Undersigned, together with all interest, attorney fees and/or court costs for which Borrower may become liable in connection therewith. . . .
The Undersigned waive notice of acceptance of this guaranty and of any liability to which it applies or may apply, and waive presentment and demand for payment thereof, notice of dishonor or nonpayment thereof, collection or instigation of suit or any other action by Lending Party in collection thereof including any notice of default in payment thereof or other notice to, or demand of payment therefor on, any party.

Evans received a payment of interest in September 2006 and a second payment of interest on March 13, 2007, but he received no further payment installments. On February 8, 2008, Evans sent Garza, Salomon, and Adkinson a "Notice of Default and Right to Cure Default" and requested payment of the amount due "under the Specific Guaranty Agreement," but he received no response. At the time of trial, Evans calculated that $235,713 remained due on the note.

On cross-examination, Evans explained that he first knew of the guaranty when he received it "[s]ometime after the guaranty was signed." He did not exchange anything in return for the guaranty, loan any more money to the company, or change the terms of the loan.

Dunn testified that he and Adkinson started TBA Construction in 2001. Dunn contacted Evans about making a loan to TBA Construction because Evans was "a close friend . . . and he knew that [TBA Construction was] having some financial issues." Even after Evans's loan, however, TBA Construction was "still struggling," so Dunn approached Adkinson about "shut[ting] the companies down" and repaying their outstanding debts to Evans and TBA Construction's equipment suppliers. Dunn and Adkinson also discussed the possibility of selling the company to Garza and Salomon. Dunn explained that, when they met with Garza and Salomon, repaying the loan to Evans was "the single most important item to be dealt with," and he refused to sell the company without Evans's consent and a "guarantee of payment" to Evans. Garza, Salomon, and Adkinson then signed the "Specific Guaranty Agreement," which was incorporated into the "Agreement of Sale of Company Assets" ("Agreement of Sale"), making Garza and Salomon general partners in TBA Construction along with Adkinson. The Agreement of Sale included the following provision,

For and in consideration of the transfer of the businesses' assets of the Companies, the Buyers agree to guarantee full payment to Paul Evans in the sum of $200,000.00 . . . .

3.01 The obligations of the Sellers ("The Companies and their Owners") under this Agreement shall be subject to the receipt by Sellers of the following documents, all of which shall be fully executed:
1. An Agreement executed by Mark D. Adkinson, J. Homer Garza, and Arturo Salomon guaranteeing full payment of a note in the sum of $200,000.00 to Paul
Evan[s] in Addendum "H", attached hereto and made part of this Agreement by incorporation.

Adkinson testified that he was a vice president and director of TBA Construction. He first discussed a potential sale of TBA Construction with Garza, his corporate attorney, in October 2006. Because Dunn would not consent to selling the company unless he was "sure [Evans] got paid," Garza "indicated for [Adkinson] . . . to tell [Evans] that he would be paid." Adkinson contacted Evans to inform him of the potential sale and to ensure repayment of the loan, and Evans replied that he would "go along with the deal."

Adkinson, Garza, and Salomon formed a new company, AGS Investments, Ltd. ("AGS Investments"), through which it acquired and then operated TBA Construction. AGS Investments continued to work on TBA Construction's ongoing projects and received payment from their customers. Adkinson eventually "departed from the company" because he did not "get along" with Garza and was not "satisfied with what [he was] getting paid."

Salomon testified that after acquiring TBA Construction, he wired large sums of money to the company. He was not involved in negotiating the Agreement of Sale, did not "read all the details" of the Agreement of Sale, and "relied" on Garza for everything "because he was taking care of the agreement." Salomon considered himself only an investor in the project, and his understanding of the acquisition was that he, Garza, and Adkinson would "buy the assets, the machines and the things, everything clear so we can work with that." However, shortly after the acquisition, "everything was foreclosed [on] and taken away" because Salomon was not aware that "there were liens on everything."

Garza testified that Adkinson first approached him about obtaining "some assistance" with TBA Construction's "financial condition." After agreeing to acquire TBA Construction's assets, Garza explained that "most" of the Agreement of Sale was drafted "at Mr. Adkinson's and Mr. Dunn's office." Garza then identified several deposits made to bank accounts set up by Adkinson, Salomon, and Garza from projects inherited from TBA Construction. Garza also identified several payments from those bank accounts to debts that were owed by TBA Construction.

On cross-examination, Garza explained that at first he would not sign a guaranty agreement for the $200,000 note to Evans. However, Dunn explained that "there was $361,000 estimated profits on five contracts that [TBA Construction] had" and the note could be paid from those profits. Garza stated that he had never spoken to Evans prior to signing the guaranty agreement and did not receive any benefit from Evans, but rather the agreement "was between [Dunn] and ourselves." Garza did receive a call from Evans in March 2007, when Evans told Garza that "[h]e had received an interest payment" and "he wanted to know why [they] were not paying him the whole amount." Garza responded that he was "looking at rescinding the contract because the equipment" was not free of all liens and he and Salomon "had not gotten [their] contractors assigned." He explained that any payments he had received were due to "new business" and he received "[n]o money at all" from the alleged $361,000 in estimated profits from TBA Construction's ongoing projects.

The trial court entered a final judgment that Evans is entitled to recover from Garza, Salomon, and Adkinson, jointly and severally, in the amount of $257,261.06. In its findings of fact, the court found that "[a]s part of the consideration given for the assets of the businesses . . . Garza, Salomon and Adkinson, individually, agreed to jointly, severally and unconditionally guaranty full and punctual payment when due of the promissory note owed by TBA Construction to Evans" and "Evans is the lawful owner and holder of the promissory note and guaranty." The court also found that "[t]here was consideration for the guaranty" because "the primary obligor on the debt guaranteed, TBA Construction" and "the promisors, Garza, Salomon, and Adkinson, received benefit." Under its conclusions of law, the trial court found that enforcement of the guaranty was not barred by a failure or lack of consideration.

Standard of Review

In an appeal of a judgment rendered after a bench trial, the trial court's findings of fact have the same weight as a jury's verdict, and we review the legal sufficiency of the evidence used to support them just as we would review a jury's findings. Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994); Daniel v. Falcon Interest Realty Corp., 190 S.W.3d 177, 184 (Tex. App.—Houston [1st Dist.] 2005, no pet.). In conducting a legal-sufficiency review of the evidence, a court must consider all of the evidence in the light most favorable to the verdict and indulge every reasonable inference that would support it. City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005). The term "inference" means,

In the law of evidence, a truth or proposition drawn from another which is supposed or admitted to be true. A process of reasoning by which a fact or proposition sought to be established is deduced as a logical consequence from other facts, or a state of facts, already proved. . . .

We review a trial court's conclusions of law de novo, and we will uphold the conclusions if the judgment can be sustained on any legal theory supported by the evidence. BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002); In re Moers, 104 S.W.3d 609, 611 (Tex. App.—Houston [1st Dist.] 2003, no pet.). Although a trial court's conclusions of law may not be challenged for factual sufficiency, we may review the legal conclusions drawn from the facts to determine whether the conclusions are correct. BMC Software Belgium, N.V., 83 S.W.3d at 794. If we determine that a conclusion of law is erroneous, but the trial court nevertheless rendered the proper judgment, the error does not require reversal. Id.; Vaughn v. DAP Fin. Servs., 982 S.W.2d 1, 6 (Tex. App.—Houston [1st Dist.] 1997, no pet.). Finally, we note that the trial court acts as fact-finder in a bench trial and is the sole judge of the credibility of witnesses. See Murff v. Murff, 615 S.W.2d 696, 700 (Tex. 1981); HTS Servs., Inc. v. Hallwood Realty Partners, L.P., 190 S.W.3d 108, 111 (Tex. App.—Houston [1st Dist.] 2005, no pet.).

Breach of Guaranty Agreement

In their first issue, Garza and Salomon argue that the trial court "erred in finding Evans was entitled to enforce the guaranty agreement because there was no meeting of the minds to create a valid guaranty agreement." In their second issue, Garza and Salomon argue that "Evans was not the lawful owner and holder of the guaranty and is, therefore, not entitled to enforce the guaranty." In their third issue, Garza and Salomon assert that "[t]here was no consideration for the guaranty."

Meeting of the Minds

Garza and Salomon first argue that "there was no meeting of the minds to create a valid guaranty agreement" because "Evans (the creditor) was not even aware of the existence of the guaranty until sometime after Garza, Salomon, and Adkinson (the guarantors) entered into the guaranty with TBA Construction (the primary debtor)." Thus, according to Garza and Salomon, "Evans is not entitled to enforce the guaranty."

The Texas Business and Commerce Code provides:

(a) A promise or agreement described in Subsection (b) of this section is not enforceable unless the promise or agreement, or a memorandum of it, is

(1) in writing; and

(2) signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him.

Here, the "Specific Guaranty Agreement" provides, in pertinent part,

[T]he undersigned, whether one or more, hereinafter "Undersigned" or "Guarantor," jointly, severally, and unconditionally guarantee the
full and punctual payment when due of the following described indebtedness of $200,000.00, "Borrower," whether one or more, to C. Paul Evans, "Lending Party":
one certain promissory note in the original principal amount of $200,000.00, dated March 15, 2006, executed by Borrower and payable to the order of Lending Party . . . .

The obligations of the Sellers ("The Companies and their Owners") under this Agreement shall be subject to the receipt by Sellers of the following documents, all of which shall be fully executed:

1. An agreement executed by Mark D. Adkinson, J. Homer Garza and Arturo Salomon guaranteeing fully

payment of a note in the sum of $200,000.00 to Paul Evan[s] in Addendum "H," attached hereto and made part of this Agreement by incorporation.

Garza and Salomon nevertheless argue that Evans was required to prove a "meeting of the minds" with respect to Evans because "to have a valid guaranty, there must be a clear demonstration of a meeting of the minds of all three essential parties to the agreement." In support of this proposition, Garza and Salomon rely on Sacks v. Haden, 266 S.W.3d 447 (Tex. 2008) and Copeland v. Alsobrook, 3 S.W.3d 598 (Tex App.—San Antonio 1999, pet. denied). In Sacks, the Texas Supreme Court considered whether there was a "meeting of the minds" in the execution of an attorney's fee agreement where the parties had an oral agreement regarding the "maximum fee" that could be charged. Sacks, 266 S.W.3d at 44850. Sacks did not address the "meeting of the minds" for a guaranty agreement. Likewise, in Copeland, the San Antonio Court of Appeals addressed the issue of whether there was a "meeting of the minds" regarding an oral contract for the parties to "work together to obtain the proceeds" of a decedent's life insurance policy. Copeland, 3 S.W.3d at 603-04. Copeland similarly does not involve the "meeting of the minds" for a guaranty agreement, and Garza and Salomon fail to cite any authority requiring a plaintiff to show a "meeting of the minds" between all three parties to a guaranty agreement. Accordingly, we hold that the trial court did not err in concluding that Evans was not precluded from enforcing the guaranty agreement on the ground that he did not show a "meeting of the minds."

We overrule Garza and Salomon's first issue.

Status as Owner and Holder of the Guaranty

In their second issue, Garza and Salomon argue that the trial court erred in concluding that Evans was the "lawful owner and holder of the promissory note and guaranty" because "he did not know of the guaranty until long after Garza, Salomon, and Adkinson signed it" and "there is no evidence establishing that Evans ever received the original of the guaranty. "

To recover against a guarantor of a note, the plaintiff must show (1) the existence of the note and guaranty, (2) the debtor signed the guaranty, (3) the plaintiff legally owns or holds the guaranty, and (4) a certain balance remains due and owing. Vaughn, 982 S.W.2d at 4.

Here, Evans testified that he received the originals of both the guaranty and the promissory note although, at trial, he could only produce copies of the documents. The guaranty was signed by Garza, Salomon, and Adkinson, and Evans testified that he was the owner of the rights under the guaranty. Furthermore, the plain language of the guaranty gives Evans the right to collect under the guaranty, stating that the undersigned "unconditionally guarantee the full and punctual payment when due" under the promissory note "to C. PAUL EVANS, 'Lending Party,'" the "Lending Party may, at his option . . . extend the time of payment," and "[p]ayments of all amounts hereunder shall be made to C. Paul Evans." The guaranty agreement further states,

This Agreement is for the benefit of Lending Party, and for such other persons as may from time to time become or be the holders of any indebtedness guaranteed. This Agreement shall be transferrable and negotiable, with the same force and effect and to the same extent as such indebtedness may be transferrable, it being understood that upon the assignment of transfer by Lending Party of any indebtedness guaranteed, the legal holder of such indebtedness shall have all of the rights granted to Lending Party under this guaranty.

Garza and Salomon argue that, despite the above language, without producing an original of the guaranty agreement, "Evans cannot establish an unbroken chain of title for the guaranty." In support of this proposition, Garza and Salomon rely on Ashcraft v. Lookadoo, 952 S.W.2d 907 (Tex. App.—Dallas 1997, pet. denied). In Ashcraft, the plaintiff purchased a promissory note from a company that had been placed in receivership. Id. at 911. The plaintiff argued that, despite the fact that the purchase agreement included only the promissory note, he nevertheless also acquired an underlying guaranty because "the assignment of a note automatically operates as an assignment of any separate guaranties that secure the note." Id. at 911. The Dallas Court of Appeals held that the plain language of the purchase agreement included only the promissory note and, therefore, the plaintiff did not acquire the underlying guaranty through his purchase. Id. at 912-13. The court further held that, although the plaintiff eventually obtained a copy of the guaranty, he did not establish that he obtained a copy from the guaranty's owners or he was assigned the rights under the guaranty by the guaranty's owners. Id. at 913.

Here, by contrast, the terms of the guaranty agreement grant the rights under the agreement to Evans, and there is no evidence that Evans transferred or assigned the rights under the guaranty. Furthermore, Evans testified that he received the original of the guaranty, he was the owner and holder of the guaranty, and the copy he produced at trial was a true and accurate copy of the original. This testimony was sufficient to prove his status as the legal owner and holder of the guaranty. See Zarges v. Bevan, 652 S.W.2d 368, 369 (Tex. 1983) (holding that photocopy of note, together with affidavit stating that copy was "true and correct" copy of original, was sufficient to show status as owner and holder of note in summary judgment); Life Ins. Co. of Va. v. Gar-Dal, Inc., 570 S.W.2d 378, 381 (Tex. 1978) (holding that copy of note and affidavit that plaintiff was "sole owner and holder" of note was sufficient to prove that plaintiff "was the owner, holder, and in possession of the note"); Vaughn, 982 S.W.2d at 5 (citing Hanks v. NCNB Tex. Nat'l Bank, 815 S.W.2d 763, 765 (Tex. App.—Eastland 1991, no writ)) (holding that where bank officer stated copies of note and guaranty were "true and genuine" and "confirmed that the bank was the legal holder and owner" and "sole party to enforce" the note and guaranty, evidence was sufficient "to prove legal holder and ownership status")). Accordingly, we hold that the trial could have reasonably concluded that Evans is the "lawful owner and holder" of the guaranty.

We overrule Garza and Salomon's second issue.

Consideration

In their third issue, Garza and Salomon argue that because "there was no consideration for the guaranty," Evans should not be "allowed to recover under the guaranty." Garza and Salomon assert that "as a matter of law, there was no consideration for the guaranty" and "TBA Construction did not receive an additional benefit from the signing of the guaranty." They further assert that "whether Garza, Salomon, and Adkinson received a benefit from signing the guaranty is not a factor when determining whether there is consideration to establish a valid guaranty."

Like any contract, a guaranty agreement must be supported by consideration. Hargis v. Radio Corp. of Am., Elec. Components, 539 S.W.2d 230, 232 (Tex. Civ. App. —Austin 1976, no writ). Consideration "consists of either a benefit to the promisor or a detriment to the promisee." Ventura, 102 S.W.3d at 262. "The detriment must induce the making of the promise, and the promise must induce the incurring of the detriment." Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 496 (Tex. 1991) (citations omitted). Consideration for a guaranty agreement is usually either the sufferance of a detriment by the creditor or a benefit conferred on the primary debtor. Hargis, 539 S.W.2d at 232.

When, as in the present case, the parties enter into a guaranty independent of the transaction that initially caused an obligation, consideration independent of the obligation must support the guaranty. Gooch v. Am. Sling Co., Inc., 902 S.W.2d 181, 185 (Tex. App.—Fort Worth 1995, no writ). The consideration need not pass to the guarantor; consideration is sufficient if the primary debtor receives some benefit. Beltran v. Groos Bank, N.A., 755 S.W.2d 944, 948 (Tex. App.—San Antonio 1988, no writ); see Smith v. Christley, 755 S.W.2d 525, 532 (Tex. App.— Houston [14th Dist.] 1988, writ denied), disapproved on other grounds by Van Allen v. Blackledge, 35 S.W.3d 61, 65 n.3 (Tex. App.—Houston [14th Dist.] 2000, pet. denied). Consideration may be given either by the promisee or by some other person to either the promisor or some other person. Frazer v. Tex. Farm Bureau Mut. Inc. Co., 4 S.W.3d 819, 824 (Tex. App.—Houston [1st Dist.] 1999, no pet.); Hovas v. O'Brien, 654 S.W.2d 801, 802-03 (Tex. App.—Houston [14th Dist.] 1983, writ ref'd n.r.e.).

Garza and Salomon first assert that "there was no consideration distinct from that of the primary debt." However, the Agreement of Sale, which was executed at the same time as the guaranty agreement and incorporated the guaranty agreement, stated,

For and in consideration of the transfer of the businesses' assets of the Companies, the Buyers agree to guarantee full payment to [Evans] in the sum of $200,000.00 . . . .

Garza and Salomon further argue that whether they received a benefit from signing the guaranty is "not a factor when determining whether there is consideration to establish a valid guaranty" because "it is not necessary that any consideration pass directly to the guarantor." While "[c]onsideration for guaranty agreements usually consists of a detriment to the creditor or a benefit conferred on the primary debtor," this does not preclude consideration consisting of a benefit conferred on the guarantor. Cf. Hargis, 539 S.W. at 231 (emphasis added). Consideration may consist of "either a benefit to the promisor or a detriment to the promisee." Ventura, 102 S.W.3d at 262. As promisors, the benefit conferred to Garza, Salomon, and Adkinson was sufficient to support a finding that enforcement of the guaranty was not barred by failure or lack of consideration. See Universal Metals & Machinery v. Bohart, 539 S.W.2d 874, 877-88 (Tex. 1976) (holding that corporate owners, as individual guarantors of corporation's debt, received consideration for guaranty where debtors continued to provide corporation machinery); Simpson v. MBank Dallas, N.A., 724 S.W.2d 102, 107 (Tex. App.—Dallas 1987, writ ref'd n.r.e.) (holding that guarantor received benefit, and thus consideration, where creditor acquiesced to sale of company to guarantors); see also Frazer, 4 S.W.3d at 824 ("Consideration may be given by either the promisee or by some other person to either the promisor or some other person.").

Although the benefit conferred on Garza, Salomon, and Adkinson is sufficient to support a finding of consideration, there is also evidence that TBA Construction, as primary debtors, received a benefit. As part of the Agreement of Sale, TBA Construction received a "[c]ash injection of $285,000.00 by [Salomon]." And, as stated above, the guaranty agreement was a "condition precedent" to consummating the Agreement of Sale and was incorporated therein. Accordingly, we hold that the trial court did not err in concluding that TBA Construction received a benefit from the guaranty agreement and enforcement of the guaranty was not barred by failure or lack of consideration.

We overrule Garza and Salomon's third issue.

Conclusion

We affirm the judgment of the trial court.

Terry Jennings

Justice
Panel consists of Justices Jennings, Massengale, and Huddle.

See TEX. R. CIV. P. 60.