423 Colony, Ltd. v. the Independent Executors of the Estate of Peter C. Kern, Dan Flagg, John Cochran, and Ben Lipman ( 2019 )

In the
Court of Appeals
Second Appellate District of Texas
at Fort Worth
___________________________
No. 02-18-00032-CV
___________________________
423 COLONY, LTD., Appellant
V.
THE INDEPENDENT EXECUTORS OF THE ESTATE OF PETER C. KERN,
DAN FLAGG, JOHN COCHRAN, AND BEN LIPMAN, Appellees
On Appeal from the Probate Court
Denton County, Texas
Trial Court No. PR-2014-00040-03
Before Sudderth, C.J.; Kerr and Bassel, JJ.
Memorandum Opinion by Chief Justice Sudderth
MEMORANDUM OPINION
In June 2012, Peter C. Kern, as managing member of Cheers Spirits and
Liquors, LLC, signed an agreement with Appellant 423 Colony, Ltd. (Colony) to lease
for 126 months approximately 3,000 square feet of space at Oaks Village Shopping
Center for a liquor store. Contemporaneously, Kern, in his individual capacity,
executed an unconditional guaranty for payment of the lease. Kern died in January
2014.
A month later, Cheers defaulted on the lease by failing to pay rent and
abandoned the property. The next month, Cheers declared bankruptcy. In April
2014, Colony filed this suit against the executors of Kern’s estate1 seeking payment of
past due rent and other sums owed pursuant to the guaranty. In response and
through its filing of six amended answers over the course of the lawsuit, the Estate
raised a laundry list of affirmative defenses and pleaded counterclaims. At the
conclusion of a nine-day bench trial which centered primarily upon the Estate’s
affirmative defenses and counterclaims, the trial court rendered judgment for the
Estate that Colony take nothing on its claim for breach of the guaranty and awarded
attorney’s fees on behalf of the Estate. The trial court subsequently issued 66 findings
of fact and 27 conclusions of law.
For simplicity, we will refer to the executors collectively as the Estate.
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Colony brings four issues on appeal. In its first issue, Colony argues that the
trial court erred by rendering a take-nothing judgment in the Estate’s favor because
Colony conclusively established its right to recover against the Estate on the guaranty
as a matter of law. Correspondingly, Colony argues in its fourth issue that the trial
court’s award of attorney’s fees to the Estate should be reversed. Because we agree
with Colony that it was entitled to a judgment on the guaranty as a matter of law, we
resolve the first and fourth issues in Colony’s favor and do not need to address the
second and third issues.2 See Tex. R. App. P. 47.1. We reverse the trial court’s
judgment, render judgment in favor of Colony for $571,163.54, and remand this case
to the trial court for a determination of Colony’s attorney’s fees, costs, and expenses.
Discussion
I. Standard of Review
A trial court’s findings of fact have the same force and dignity as a jury’s
answers to jury questions, and we review the legal and factual sufficiency of the
evidence supporting those findings using the same standards that we apply to jury
findings. Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994); Anderson v. City of Seven
Points, 806 S.W.2d 791, 794 (Tex. 1991); see also MBM Fin. Corp. v. Woodlands Operating
Co., 292 S.W.3d 660, 663 n.3 (Tex. 2009). When the appellate record contains a
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Colony’s second and third issues argue (2) that Kern did not have standing to
assert, or, alternatively, waived, all defenses to the lease; and (3) that the evidence is
legally insufficient to support the trial court’s findings of fact and conclusions of law
regarding the Estate’s myriad defenses.
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reporter’s record, findings of fact on disputed issues are not conclusive and may be
challenged for evidentiary sufficiency. Super Ventures, Inc. v. Chaudhry, 501 S.W.3d 121,
126 (Tex. App.—Fort Worth 2016, no pet.). We defer to unchallenged fact findings
that are supported by some evidence. Tenaska Energy, Inc. v. Ponderosa Pine Energy,
LLC, 437 S.W.3d 518, 523 (Tex. 2014).
We may sustain a legal-sufficiency challenge—that is, a no-evidence
challenge—only when (1) the record discloses a complete absence of evidence of a
vital fact, (2) the rules of law or of evidence bar the court from giving weight to the
only evidence offered to prove a vital fact, (3) the evidence offered to prove a vital
fact is no more than a mere scintilla, or (4) the evidence establishes conclusively the
opposite of a vital fact. Ford Motor Co. v. Castillo, 444 S.W.3d 616, 620 (Tex. 2014) (op.
on reh’g); Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998) (op.
on reh’g). In determining whether legally sufficient evidence supports the finding
under review, we must consider evidence favorable to the finding if a reasonable
factfinder could and must disregard contrary evidence unless a reasonable factfinder
could not. Cent. Ready Mix Concrete Co. v. Islas, 228 S.W.3d 649, 651 (Tex. 2007); City of
Keller v. Wilson, 168 S.W.3d 802, 807, 827 (Tex. 2005).
If, as here, a party is attacking the legal sufficiency of an adverse finding on an
issue on which the party had the burden of proof, and if no evidence supports the
finding, we review all the evidence to determine whether the contrary proposition is
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established as a matter of law. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 241 (Tex.
2001); Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989).
II. General Principles
A guaranty is a person’s promise to perform an act that another person is
contractually bound to perform. Shin v. Sharif, No. 2-08-00347-CV, 2009 WL
1565028, at *2 (Tex. App.—Fort Worth June 4, 2009, no pet.) (mem. op.) (citing
Simmons v. Compania Financiera Libano, S.A., 830 S.W.2d 789, 792 (Tex. App.—
Houston [1st Dist.] 1992, writ denied)). We construe unambiguous guaranties in the
same manner as we construe any other contract, as a matter of law for the court.
Moayedi v. Interstate 35/Chisam Rd., L.P., 438 S.W.3d 1, 7 (Tex. 2014) (citing Coker v.
Coker, 650 S.W.2d 391, 393–94 (Tex. 1983)). Our primary concern is to ascertain the
intent of all parties as expressed in the guaranty, and we begin with the plain language
of the guaranty. Id. (quoting J.M. Davidson v. Webster, 128 S.W.3d 223, 229 (Tex.
2003)). When the language is unambiguous, we must enforce it as written. Don’s Bldg.
Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 23 (Tex. 2008).
There are two types of guaranties: payment (or unconditional) guaranties and
collection (or conditional) guaranties. Chahadeh v. Jacinto Med. Grp., P.A., 519 S.W.3d
242, 246 (Tex. App.—Houston [1st Dist.] 2017, no pet.); see also Cox v. Lerman, 949
S.W.2d 527, 530 (Tex. App.—Houston [14th Dist.] 1997, no writ). The primary
difference is whether the guaranty requires the creditor to pursue the principal debtor
before it pursues the guarantor for collection of the debt. Id. A guaranty of payment
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does not require the creditor to pursue the principal debtor before pursuing the
guarantor. Id. Instead, “[a] guarantor of payment is primarily liable; he waives any
requirement that the holder of the note take action against the maker as a condition
precedent to his liability on the guaranty.” Hopkins v. First Nat’l Bank at Brownsville,
551 S.W.2d 343, 345 (Tex. 1977).
III. Application
The guaranty before us in this case expressly states that it is unconditional no
fewer than five times.3 There is nothing ambiguous about the guaranty’s language; it
is beyond debate that the guaranty is an unconditional guarantee of payment. This
alone generally places the enforcement of a guaranty beyond the reach of defenses
that may be available to the primary obligor. See Universal Metals & Mach., Inc. v.
Bohart, 539 S.W.2d 874, 877 (Tex. 1976) (holding that a guarantor “is not freed from
liability because of the forged signature of the maker”); Sowell v. Int’l Interests, LP, 416
S.W.3d 593, 601–02 (Tex. App.—Houston [14th Dist.] 2013, pet. denied) (holding
that unambiguous language of unconditional payment guaranty waived any right to
3
The guaranty states: “Lessor shall not be obligated or required to exhaust its
remedies against Lessee as a condition precedent to its collection under this Guaranty.
This instrument of Guaranty shall be construed as a guaranty of payment and
performance rather than as a guaranty of collection.” It also provides that Kern
“absolutely and unconditionally guarantees to Lessor . . . the full and prompt
performance of all Lessee’s Obligations including . . . the payment when due of all
rents . . . coming due under the terms of the Lease” and that “[s]uch payment and
performance is to be made or performed by Guarantor forthwith upon any default by
Lessee under the terms of the Lease.” And it states, “This Guaranty is a direct and
primary obligation of the Guarantor.”
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assert failure-to-mitigate-damages defense); see also United States v. Little Joe Trawlers, Inc.,
776 F.2d 1249, 1252 (5th Cir. 1985) (explaining that Texas law generally holds a
guarantor liable for payment even though the holder of the note cannot enforce the
claim against the principal obligor unless the claim against the principal obligor is void
for illegality and discussing Texas cases holding the same).4 But in this case, the
guaranty itself also expressly waives any reliance upon defenses that may have been
available to the Estate.5 There is no ambiguity to the language used in this respect—
Kern waived any reliance on defenses to the lease based upon any “invalidity,
irregularity or unenforceability” of the lease.
Colony met its burden to recover for the breach of a guaranty agreement by
showing (1) the existence and ownership of the guaranty; (2) the terms of the lease as
the underlying contract; (3) the occurrence of a default by nonpayment; and (4) the
failure or refusal of the Estate to perform the promise by Kern as the guarantor. See
Byrd v. Estate of H.G. Nelms, 154 S.W.3d 149, 157 (Tex. App.—Waco 2004, pet.
denied). The guaranty’s language unambiguously establishes its unconditional nature
4
To the extent the Estate argues that caselaw applying these principles to
promissory notes does not apply to the lease as a real estate contract, we reject this
argument. See Ford v. Darwin, 767 S.W.2d 851, 855 (Tex. App.—Dallas 1989, writ
denied) (holding that a guarantor of payment of a non-UCC instrument is governed
by the same rules as a guarantor of payment of a UCC instrument).
The guaranty states: “No invalidity, irregularity or unenforceability of all or any
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part of the Lease or of any security thereof, shall affect, impair or constitute a
defense to this Guaranty.” [Emphasis added.]
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as a payment guaranty, generally precluding the Estate from availing itself of Cheers’s
possible defenses, see Universal Metals, 539 S.W.2d at 877, and also unambiguously
waives any defense based on any “invalidity, irregularity or unenforceability” of the
lease. We therefore sustain Colony’s first issue, reverse the trial court’s take-nothing
judgment, and render judgment in Colony’s favor in the amount of $571,163.54. See
Vista Chevrolet, Inc. v. Lewis, 709 S.W.2d 176, 176 (Tex. 1986); see also Tex. R. App. P.
43.3.
Because we resolve Colony’s first issue in its favor, we do not need to address
Colony’s second and third issues. Tex. R. App. P. 47.1. As Colony is now the
prevailing party, we resolve Colony’s fourth issue regarding the award of attorney’s
fees and expenses in Colony’s favor based on the guaranty’s provision that the
prevailing party shall be entitled to attorney’s fees and expenses. And because the trial
court did not make any findings as to the amount or reasonableness of Colony’s
attorney’s fees and expenses, we remand this case to the trial court for further
proceedings to determine the appropriate amount of attorney’s fees, including those
incurred on appeal, and expenses due to Colony. See Young v. Qualls, 223 S.W.3d 312,
314–15 (Tex. 2007).
Conclusion
Having sustained Colony’s first and fourth issues and without reaching its
second and third issues, we reverse the trial court’s judgment, render judgment in
favor of Colony in the amount of $571,163.54, and remand this case to the trial court
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for a determination of Colony’s reasonable and necessary attorney’s fees, costs, and
expenses.
/s/ Bonnie Sudderth
Bonnie Sudderth
Chief Justice
Delivered: May 23, 2019
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