BBVA USA F/K/A Compass Bank v. Richard Francis ( 2022 )

Reversed and Rendered in Part, Reversed and Remanded in Part, and
Opinion filed January 6, 2022.
In The
Fourteenth Court of Appeals
NO. 14-20-00427-CV
BBVA USA F/K/A COMPASS BANK, Appellant
V.
RICHARD FRANCIS, Appellee
On Appeal from the 295th District Court
Harris County, Texas
Trial Court Cause No. 2017-79795
OPINION
In this case, we address whether the release of an obligor’s liability under
two promissory notes following partial payment also releases the guarantor’s
obligations as to the remaining debt. Appellant BBVA USA f/k/a Compass Bank
challenges the trial court’s summary judgment in favor of appellee Richard Francis
and the trial court’s denial of BBVA’s motion for summary judgment. Because
Francis broadly guaranteed the payment of the indebtedness on the notes and
broadly waived any available defenses, we conclude he is liable to BBVA under
the guaranty agreement for the remaining balance due. We reverse the trial court’s
judgment, render judgment in favor of BBVA, and remand the case for a
determination of attorney’s fees and costs.
Background
The facts are largely undisputed. Spring Excellence Surgical Hospital, LLC
(Hospital) took out a loan from BBVA for $1 million and signed a promissory
note. Francis, as a member of the LLC, personally guaranteed the loan. Hospital
obtained another loan from BBVA for $200,000 and signed a second promissory
note that was covered by the guaranty agreement.
Hospital defaulted on the first loan, which allowed BBVA to accelerate the
second loan and seek payment of all indebtedness under the promissory notes.
BBVA then sued Hospital, Francis, and other guarantors for breaches of the
promissory notes and guaranty agreements. One of the other guarantors filed for
bankruptcy, and the case was removed to bankruptcy court. BBVA pursued its
claims in an adversary proceeding in the bankruptcy court.
BBVA settled with Hospital and two of the guarantors but not Francis. The
settling parties included a “Reservation of Rights” in the settlement agreement,
agreeing that BBVA “reserves any and all rights and remedies it may have against
Francis arising out of or connected to [the notes] and all related guaranties . . . or
otherwise.” The bankruptcy court approved the settlement and in its “Order
Approving Compromise,” expressly stated that the settlement agreement did “not
contemplate [or] constitute a release or waiver by [BBVA] of . . . Francis . . . for
any obligations related to the [BBVA] loans. [BBVA] reserve[s] any rights,
defenses and remedies [it] may have against Francis.” The bankruptcy court
remanded BBVA’s claims against Francis back to state court.
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Francis filed a third-party petition against Hospital and the other guarantors.
BBVA filed its motion for summary judgment against Francis, and Francis filed
his competing motion on the basis that BBVA’s release of Hospital extinguished
Francis’s liability as a guarantor. The trial court denied BBVA’s motion and
granted Francis’s, then rendered final judgment. The trial court dismissed the third-
party claims as moot and assessed “all costs of court” against BBVA.
Discussion
In three issues, BBVA challenges the trial court’s summary judgment rulings
and its award of costs to third party defendants.1 Francis contends that BBVA’s
release of Hospital extinguished his personal obligations as a guarantor and thus
the trial court did not err in granting summary judgment in his favor.
We review summary judgments de novo. Mann Frankfort Stein & Lipp
Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We review the
evidence presented in the motion and response in the light most favorable to the
party against whom the summary judgment was rendered, crediting evidence
favorable to that party if reasonable jurors could, and disregarding contrary
evidence unless reasonable jurors could not. Id. The party moving for traditional
summary judgment bears the burden of showing no genuine issue of material fact
exists and he is entitled to judgment as a matter of law. Id. (citing Tex. R. Civ. P.
166(a)(c)). The evidence raises a genuine issue of material fact if reasonable and
fair-minded jurors could differ in their conclusions in light of all the summary
judgment evidence. Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 755
(Tex. 2007). Summary judgment for a defendant is proper only when the defendant
negates at least one element of each of the plaintiff’s theories of recovery or pleads
1
Because we are reversing the judgment, we need not address BBVA’s third issue
challenging the trial court’s costs award.
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and conclusively establishes each element of an affirmative defense. Hilburn v.
Storage Tr. Props., LP, 586 S.W.3d 501, 506 (Tex. App.—Houston [14th Dist.]
2019, no pet.). Because the parties presented competing summary judgment
motions and the trial court granted Francis’s motion while denying BBVA’s
motion, we review the summary judgment evidence presented by both sides and
render the judgment that the trial court should have rendered. See Trial v. Dragon,
593 S.W.3d 313, 316–17 (Tex. 2019); Farmers Ins. Exch. v. Rodriguez, 366
S.W.3d 216, 221 (Tex. App.—Houston [14th Dist.] 2012, pet. denied).
I. Francis’s Motion for Summary Judgment Erroneously Granted
In its first issue, BBVA challenges the trial court’s summary judgment in
favor of Francis. Francis contends that his obligations as guarantor are tied to
Hospital’s liability and BBVA’s release and settlement of Hospital’s liability
extinguished Francis’s obligations under the guaranty. Francis moved for summary
judgment on that ground, contending that his obligations are limited to the
“Indebtedness of Borrower” under the language of the guaranty.
To determine a guarantor’s liability, we look to the language of the guaranty
agreement. Norris v. Tex. Dev. Co., 547 S.W.3d 656, 662 (Tex. App.—Houston
[14th Dist.] 2018, no pet.). The interpretation of a guaranty agreement, like any
contract, is a legal question we review de novo. Wasserberg v. Flooring Servs. of
Tex., LLC, 376 S.W.3d 202, 206 (Tex. App.—Houston [14th Dist.] 2012, no pet.)
(citing Gulf Ins. Co. v. Burns Motors, Inc., 22 S.W.3d 417, 423 (Tex. 2000)). We
construe guaranties strictly according to their precise terms and must not extend
the guarantor’s obligations beyond the language of the agreement. Norris, 547
S.W.3d at 662-63. We also construe a guaranty as we would any other contract,
and our primary concern is to ascertain and give effect to the written expression of
the parties’ intent. Plains Expl. & Prod. Co. v. Torch Energy Advisors Inc., 473
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S.W.3d 296, 305 (Tex. 2015); Italian Cowboy Partners, Ltd. v. Prudential Ins. Co.
of Am., 341 S.W.3d 323, 333 (Tex. 2011).
We afford terms their plain and ordinary meaning unless the contract
indicates that the parties intended a different meaning. Dynegy Midstream Servs.,
Ltd. P’ship. v. Apache Corp., 294 S.W.3d 164, 168 (Tex. 2009). We consider the
entire contract, respecting all provisions so that none are rendered meaningless.
Plains Expl. & Prod., 473 S.W.3d at 305. If possible, we avoid a construction that
is unreasonable, inequitable, and oppressive. Nat’l City Bank v. Ortiz, 401 S.W.3d
867, 878 (Tex. App.—Houston [14th Dist.] 2013, pet. denied) (op. on reh’g)
(citing Frost Nat’l Bank v. L&F Distribs., Ltd., 165 S.W.3d 310, 312 (Tex. 2005)
(per curiam)). If a contract is unambiguous, we enforce it as written without
considering parol evidence.2 David J. Sacks, P.C. v. Haden, 266 S.W.3d 447, 450
(Tex. 2008) (per curiam).
Indebtedness of Borrower. The guaranty agreement includes a clause
entitled “CONTINUING GUARANTEE OF PAYMENT AND
PERFORMANCE,” in which Francis “absolutely and unconditionally guarantee[d]
full and punctual payment and satisfaction of the Indebtedness of Borrower to
Lender, and the performance and discharge of all borrower’s obligations under the
Note and the Related Documents.” (Emphasis added.) “Indebtedness” is defined as
follows:
[A]ll of the principal amount outstanding from time to time and at any
one or more times, accrued unpaid interest thereon and all collection
costs and legal expenses related thereto permitted by law, [BBVA’s]
reasonable attorneys’ fees, arising from any and all debts, liabilities
and obligations of every nature or form, now existing or hereafter
2
In his appellate brief, Francis does not assert that the contract is ambiguous but contends
that any ambiguities must be construed in his favor. We do not see any ambiguities in the
relevant portions of the guaranty agreement.
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arising or acquired, that [Hospital] individually or collectively or
interchangeably with others, owes or will owe [BBVA].
“Indebtedness” includes, without limitation, . . . liabilities and
obligations . . . barred or unenforceable against [Hospital] for any
reason whatsoever.
(Emphasis added.)
Type of Guaranty. Texas guaranty law recognizes two distinct types of
guaranty: a guaranty of collection, which is conditional, and a guaranty of
payment, which is unconditional. Universal Metals & Mach., Inc. v. Bohart, 539
S.W.2d 874, 877 (Tex. 1976); James Constr. Grp., LLC v. Westlake Chem. Corp.,
594 S.W.3d 722, 759 (Tex. App.—Houston [14th Dist.] 2019, pet. dism’d w.o.j.).
A guaranty of payment is an obligation to pay the debt when due if the debtor does
not. James Constr. Grp., 594 S.W.3d at 759. It requires no condition precedent to
enforcement against the guarantor other than a default by the principal debtor. Id.
The guaranty agreement includes express language stating that it “is a guaranty of
payment and performance and not of collection,” allowing BBVA to “enforce [the
guaranty] against [Francis] even when [BBVA] 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.”
Language of Settlement Agreement. The settlement agreement states:
Except for the rights, obligations, and agreements included in this
Agreement, upon the full and timely receipt of the Payments [BBVA]
agrees it will not pursue [Hospital] for the deficiency that remains on
[the notes] and agrees to release [Hospital] of any and all liability,
claims, or causes of action, whether known or unknown, which arose
out of, are connected with, or in any way related to [the loans] and
[Hospital’s] Claims.
Moreover, in the settlement agreement, BBVA reserved “any and all rights and
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remedies it may have against Francis arising out of or connected to [the notes].”
The settlement agreement also includes a clause stating that the agreement “will in
no manner constitute a release or waiver by [BBVA] of Francis . . . for [his]
obligations under the [guaranty] or the full indebtedness existing under [the
notes].” And the bankruptcy court acknowledged in its order approving the
settlement that BBVA did not release its claims against Francis and further
acknowledged that BBVA reserved “any rights, defenses and remedies” that might
remain against Francis.
Despite this language in the settlement agreement and bankruptcy court’s
order approving the settlement, Francis contends that BBVA nevertheless is barred
from asserting a deficiency claim against him as a guarantor based solely on
BBVA’s release of Hospital as the principal obligor. Francis contends, in other
words, that because BBVA discharged the principal obligation, he is no longer
liable as a guarantor. But BBVA did not discharge the obligation. Under the
language of the settlement agreement, BBVA agreed not to pursue Hospital for the
deficiency on the notes and released Hospital “of any and all liability, claims, or
causes of action” related to the loans. BBVA did not release the indebtedness.
Moreover, Francis can point to no language in the settlement agreement releasing
BBVA’s claims against him for the deficiency. To the contrary, BBVA expressly
reserved its right to pursue any claims against Francis as guarantor. There is no
factual support for Francis’s claim that BBVA is precluded from enforcing the
guaranty simply because it released its claims against Hospital.
More Extensive Liability as Guarantor. Francis contends that language in
the settlement agreement improperly “broadens the scope of [the] guaranty.” We
disagree. The settlement agreement is tied to Francis’s obligations as set forth in
the guaranty agreement. Notwithstanding language in the settlement agreement
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reserving BBVA’s claims against Francis, Francis expressly agreed as a guarantor
to assume more extensive liability than Hospital. Although a guarantor’s liability
on a debt is normally measured by the principal’s liability, a guarantor may agree
to a more extensive or limited liability. 84 Lumber Co., L.P. v. Powers, 393
S.W.3d 299, 308 (Tex. App.—Houston [1st Dist.] 2012, pet. denied). Francis
“absolutely and unconditionally guarantee[d] full and punctual payment and
satisfaction of the Indebtedness of Borrower to Lender, and the performance and
discharge of all borrower’s obligations under the Note and the Related
Documents.” He expressly agreed to “a guaranty of payment and performance and
not of collection,” which required him unconditionally to pay the debt when due if
Hospital did not. See James Constr. Grp., 594 S.W.3d at 759. He explicitly stated
in the guaranty that (1) BBVA could enforce the guaranty without exhausting its
remedies against Hospital, (2) indebtedness as defined under the guaranty included
any liabilities and obligations “barred or unenforceable against [Hospital] for any
reason,” (3) payments made by Hospital would not “discharge or diminish”
Francis’s obligations “for any remaining or succeeding indebtedness,” and (4) the
guaranty would continue until “all the [i]ndebtedness” was “fully and finally paid
and satisfied.”
Perhaps most importantly, Francis waived “any and all rights or defenses
based on suretyship or impairment of collateral . . . other than actual payment.” A
waiver of “any and all rights” broadly waives all possible defenses. See Moayedi v.
Interstate 35/Chisam Rd., L.P., 438 S.W.3d 1, 8 (Tex. 2014) (“To waive all
possible defenses seems to very clearly indicate what defenses are included: all of
them.”). This language establishes the intention that the guaranty would not be
subject to any defenses other than full payment. See id.; see also Holmes v.
Graham Mortgage Corp., 449 S.W.3d 257, 265 (Tex. App.—Dallas 2014, pet.
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denied) (holding, based on plain language of guaranty agreement, that guarantor
waived all defensive theories, including, among others, payment, accord and
satisfaction, and cancellation of debt).
Francis argues the “non-release provisions and waivers of defenses” in the
guaranty agreement are “immaterial.” We disagree. As discussed, our analysis is
based on a plain reading of the guaranty agreement. Its binding language does not
contemplate a release of Francis’s liability as a guarantor based on any release of
Hospital’s liability. See, e.g., Int’l Interests, L.P. v. Wadley, No. CV H-05-19, 2008
WL 11389571, at *5 (S.D. Tex. Sept. 9, 2008). Francis presented no evidence in
support of his argument that the release of BBVA’s claims against Hospital also
released BBVA’s claims against him.3 Accordingly, the trial court erred in granting
summary judgment in favor of Francis. We sustain BBVA’s first issue.
II. BBVA’s Motion for Summary Judgment Erroneously Denied
In its second issue, BBVA challenges the trial court’s denial of its summary
judgment motion on its breach of guaranty claim against Francis. To meet its
summary judgment burden, BBVA was required to show (1) the existence and
ownership of the guaranty, (2) the terms of the underlying contract, (3) the
occurrence of the condition on which liability is based, and (4) the guarantor’s
failure or refusal to perform the promise. Norris, 547 S.W.3d at 659. BBVA
presented evidence of these elements through an affidavit and the loan documents.
3
The only opinion cited by Francis in support of his argument is unpersuasive, has no
precedential value in this court, and is factually distinguishable. See CoastalStates Bank v.
Hanover Homes of S.C., LLC, 759 S.E.2d 152 (S.C. Ct. App. 2014). The court noted in that
opinion, “where the creditor enters into a compromise agreement with the debtor, the effect of
which is to release the debtor from further liability, the guarantor can no longer be held liable,
unless the guaranty contract or the compromise agreement provides otherwise.” Id. at 159
(emphasis added). Here, both the guaranty agreement and the settlement agreement provide that
BBVA reserved its claims against Francis for any remaining deficiency after BBVA released
Hospital’s liability.
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BBVA’s Vice President for Asset Recovery Management and Solutions
Division Kenneth J. Daigrepont attested to the terms of the two loans and the
guaranty. The loan documents at issue included, among other things, the loan
agreements, promissory notes, and guaranty agreement. Daigrepont attested that
Hospital failed to pay the principal balance on the first note when it became due.
BBVA sent a notice of maturity and default to Hospital and all the guarantors.
BBVA also sent a notice of default and intent to accelerate the second note based
on Hospital’s default on the first note, as authorized under the loan agreements.
Hospital did not cure its defaults and stopped making monthly payments. After
BBVA sued Hospital and the guarantors, BBVA eventually settled with Hospital
and three of the guarantors, leaving a deficiency on the first note. Francis as
guarantor did not make any payments. Daigrepont calculated the remaining
balance of principal and interest due after the settlement payments. According to
Daigrepont, the second note had been paid off with settlement funds, but the
balance owed under the first note totaled $356,534.28, plus interest from
January 7, 2020 through the date of judgment. The affidavit and supporting loan
documents thus provide evidence supporting every element of BBVA’s breach of
guaranty claim.
Francis combined his cross-motion for summary judgment and response to
BBVA’s motion for summary judgment. In addition to asserting that BBVA’s
release of Hospital’s liability extinguished his liability, addressed above, Francis
also incorporated by reference “any additional arguments raised by Third-Party
Defendants in opposition to BBVA’s summary judgment motion to the extent
applicable to the claims against, and supportive of the defenses of, Dr. Francis.”
Accordingly, we address these arguments.
The third-party defendants responded to BBVA’s summary judgment
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motion on several grounds. First, they asserted, as did Francis, that Francis’s
liability was extinguished by the settlement agreement, an argument we conclude
is without merit. Second, they contended that there are inconsistencies between
BBVA’s motion for summary judgment and the proof of claim it filed in the
bankruptcy proceeding, which purportedly created a material issue of fact as to the
amounts due under the notes. Third, they asserted that the second note was “never
properly accelerated.” Fourth, they contended that the person who signed the
second note on behalf of Hospital lacked authority. They did not, however, submit
any evidence or point to any evidence in the record to support these arguments, so
no issues of material fact are shown by these arguments.
The third-party defendants also objected to BBVA’s evidence, contending
that the affidavit is contradictory, again asserting the person who signed the second
note lacked authority, Francis did not sign a guaranty for the second note, and the
affidavit fails to establish legal fees. The trial court did not rule on these
objections, and to the extent that they are defects of form, they are waived. See
Grace Interest, LLC v. Wallis State Bank, 431 S.W.3d 110, 124 (Tex. App.—
Houston [14th Dist.] 2013, pet. denied) (“To complain of . . . a defect [of form in
an affidavit], a party must object in writing to the form of the summary judgment
evidence, place the objection before the trial court, and obtain a ruling.”); see also
Vice v. Kasprzak, 318 S.W.3d 1, 11 (Tex. App.—Houston [1st Dist.] 2009, pet.
denied) (“Failure to secure the trial court’s ruling on the objections to the summary
judgment evidence also waives the complaint for appeal.”). Moreover, the third-
party defendants did not present or point out any evidence in support of these
arguments.
As to the argument that the affidavit is contradictory, we further note that the
third-party defendants took issue with Daigrepont’s initial statement that BBVA
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accelerated the second note on November 29, 2017 and later statement that BBVA
accelerated the note on November 30, 2017. We conclude these statements
showing a one-day discrepancy do not raise a material fact issue. As to the lack of
a separate guaranty for the second note, the guaranty agreement states that Francis
agreed to a continuing guaranty, which includes indebtedness “now existing or
hereinafter arising or acquired, on an open and continuing basis.” See Sonne v.
F.D.I.C., 881 S.W.2d 789, 793 (Tex. App.—Houston [14th Dist.] 1994, writ
denied) (“A continuing guaranty is one which contemplates a future course of
dealing between the lender and debtor and is intended to apply to other liabilities
as they accrue.”). Accordingly, Francis guaranteed funds Hospital borrowed at the
time he signed the guaranty and afterwards. Lastly, BBVA sought to supplement
its motion with proof of attorney’s fees if the trial court granted the motion, so that
issue was not before the trial court. We conclude third-party defendants failed to
show by their arguments any genuine issues of material fact.
BBVA met its burden to present evidence in support of each element of its
breach of guaranty claim and no genuine issue of material fact exists as to any
element of that claim on this record. Accordingly, we conclude the trial court erred
in denying BBVA’s motion for summary judgment. We sustain BBVA’s second
issue.
Conclusion
We reverse the trial court’s judgment in favor of Francis, render judgment in
favor of BBVA on its breach of guaranty claim, and remand for a determination of
attorney’s fees and costs to which BBVA may be entitled. See Tex. Civ. Prac. &
Rem. Code § 38.001.
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/s/ Frances Bourliot
Justice
Panel consists of Justices Jewell, Bourliot, and Poissant.
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