IN THE SUPREME COURT OF TEXAS

IN THE SUPREME COURT OF TEXAS

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No. 05-0686

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First Commerce Bank, = f/k/a=20 Brazosport

Bank of Texas,=20 Petitioner,

Christine Palmer,=20 individually, and Christine Palmer and Frederick A. Palmer Iii, = Independent=20 Co‑executors of the Estate of Frederick A. Palmer, Jr., = Respondents

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On Petition for Review from = the

Court of Appeals for the Thirteenth = District of=20 Texas

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Argued November=20 14, 2006

Justice Medina delivered the = opinion of=20 the Court.

The = issue in=20 this case is whether there was a lack or failure of consideration for = two=20 guaranty agreements. The two guaranty agreements were among others = required by=20 the creditor and given by shareholders of the corporate debtor. The = trial court=20 refused to enforce the guaranties, finding problems with the underlying=20 consideration, and the court of appeals affirmed. 165 S.W.3d 366. We, = however,=20 disagree that there was either a lack or failure of consideration. = Accordingly,=20 we reverse the court of appeals=92 judgment and remand the case to the = trial court=20 for further=20 proceedings. &= nbsp;=20

Fred Palmer,=20 Jr. and three business associates owned equal shares in J.V.3, Inc., a = Texas=20 corporation, which held title to 260 acres in Brazoria County, near = Danbury,=20 Texas. Palmer and his associates intended to develop this land as a = country=20 subdivision, but these plans failed. They then decided to use the land = as a=20 grass farm and formed a partnership for that purpose, the Quail Creek = Grass=20 Farm, which leased the land from J.V.3.

About this=20 same time, J.V.3 began attempting to refinance the 260 acres in order to = pay off=20 the family who had sold it the property. Before that could be done, = however,=20 Fred Palmer, Jr. died. Palmer=92s widow and his son were named = co-executors of his=20 estate.

About six=20 months after Palmer=92s death, J.V.3 refinanced the property with a = $1,000,000=20 loan from the First Commerce Bank, then known as the Brazosport Bank of = Texas.=20 J.V.3=92s president signed the promissory note on March 30, 1983, and = all of=20 J.V.3=92s shareholders, including Palmer=92s widow and his estate = (hereafter the=20 =93Palmers=94), signed their approval and acceptance of the note. The = Bank also=20 required individual guarantees from all J.V.3 shareholders, and again = the=20 Palmers signed as guarantors.

The = 1983=20 promissory note granted the Bank the right to accelerate upon sixty days = notice=20 prior to the note=92s annual anniversary date. After about five years, = the Bank=20 elected to accelerate, notifying J.V.3 and its shareholders by letter on = January=20 11, 1988. The Bank, however, also informed J.V.3 that it might renew the = note on=20 March 30, 1988, under certain terms and conditions outlined in the = letter. The=20 conditions included a request for current financial statements from all=20 guarantors, including the Palmers.

J.V.3 decided=20 to renew, and a new note was executed bearing the date of the original = note=92s=20 fifth anniversary, March 30, 1988. Once again, each shareholder agreed = to=20 guarantee the corporation=92s debt, but guarantees from the Palmers were = not=20 signed until August 9. On August 10, J.V.3 and all shareholders, = including the=20 Palmers, signed a document entitled modification, renewal, and extension = of real=20 estate note and lien, reciting the terms of their March 30, 1988 = agreement with=20 the Bank. The Bank contended that the promissory note was also executed = at that=20 time and backdated to March 30, 1988, but the date on which the note was = actually signed was in dispute at trial.

About four=20 years after the note=92s renewal, the Bank demanded payment from the = guarantors,=20 notifying them that J.V.3 had stopped making payments. Litigation = ensued, and=20 the Bank eventually settled with J.V.3 and all guarantors except the = Palmers.=20 The remaining claims were set for a bench trial.

Before that=20 trial commenced, the court identified the two issues remaining in = dispute as:=20 (1) the date the second promissory note was signed; and (2) the amount = to be=20 credited against the note because of the Bank=92s prior settlements. The = trial=20 began with the Bank presenting its case through the testimony of its = president.=20 The Bank then rested, and the Palmers moved for directed verdict, = arguing that=20 their 1988 guaranties could not be enforced because there was either a = lack or=20 failure of consideration. The trial court apparently agreed because it = granted=20 the Palmers=92 motion and rendered judgment that the Bank take nothing. = The Bank=20 appealed, and the court of appeals affirmed the trial court=92s = judgment. 165=20 S.W.3d 366.

As = documented=20 in the pretrial order, the trial court viewed the timing of the renewal = note=92s=20 execution as the primary issue. The Bank=92s president testified that = the 1988=20 note=92s purpose was to renew and extend J.V.3=92s 1983 debt. He further = testified=20 that the renewal note was executed after all the shareholders had signed = their=20 guaranties, including the Palmers, but was backdated to March 30, 1988, = the=20 anniversary date on which the original note was to be rolled into the = new=20 one.

The = court of=20 appeals concluded, however, that the March 30 date on the promissory = note was=20 some evidence that it was executed before the Palmers=92 guaranties and = that the=20 trial court was free to disbelieve the Bank president=92s testimony to = the=20 contrary. 165 S.W.3d at 369. The court further reasoned that because = four months=20 passed between the date of the note and the guaranty agreements that = some new=20 consideration, independent of the promissory note, was required. 165 = S.W.3d at=20 368-70. The court gleaned this requirement from Fourticq v. = Fireman=92s Fund=20 Ins. Co., in which the court of appeals stated that when =93a = contract=20 of guaranty is entered into independently of the transaction which = created the=20 primary debt or obligation, the guarantor=92s promise must be supported = by=20 consideration distinct from that of the primary debt.=94 Id. at = 368=20 (quoting Fourticq, 679 S.W.2d 562, 564 (Tex. App.=96Dallas 1984, = no writ)=20 (emphasis omitted)).

Determining=20 whether a guaranty agreement is independent of the debt it guarantees, = however,=20 is not simply a question of the order in which the documents are signed. = If the=20 guarantor=92s promise is given as part of the transaction that creates = the=20 guaranteed debt, the consideration for the debt likewise supports the = guaranty.=20 Universal Metals & Mach., Inc. v. Bohart, 539 S.W.2d 874, 878 = (Tex.=20 1976). And even when the guaranty is signed after the principal = obligation, =93the=20 guaranty promise is founded upon a consideration if the promise was = given as the=20 result of previous arrangement, the principal obligation having been = induced by=20 or created on the faith of the guaranty.=94 38 Am. Jur. 2d Guaranty = =A7 43 at 905=20 (1999). Guaranty agreements that post-date the underlying obligation = have thus=20 often been enforced in Texas without the requirement of additional = consideration=20 to the guarantor. See, e.g., Bohart, 539 S.W.2d at 878 (machinery = delivered before guaranty signed); Windham v. Cal-Tim, Ltd., 47 = S.W.3d=20 846, 849-50 (Tex. App.=96Beaumont 2001, pet. denied) (guaranty signed = two months=20 after lease); Holland v. First Nat=92l Bank, 597 S.W.2d = 406, 410=20 (Tex. Civ. App.=96Dallas 1980, writ dism=92d) (guaranty signed after = note);=20 Maykus v. Texas Bank & Trust Co. of Dallas, 550 S.W.2d 396, = 397 (Tex.=20 Civ. App.=96Dallas 1977, no writ) (same); Waller v. Missouri City = State=20 Bank, 482 S.W.2d 40, 41-43 (Tex. Civ. App.=96Tyler 1972, writ = ref=92d n.r.e.)=20 (same).

The = question=20 then is whether the Palmers=92 1988 guaranties were independent = transactions. They=20 were not, of course, because these guaranties without dispute were = signed in=20 connection with the renewal of the 1983 note. Had that note not been = renewed,=20 J.V.3 and the guarantors, including the Palmers, would have been = responsible for=20 paying it in 1988. The Palmers thus benefitted from the renewal and = extension of=20 their obligation to repay the earlier note. See Simpson v. MBank = Dallas,=20 N.A., 724 S.W.2d 102, 107 (Tex. App.=96Dallas 1987, writ ref=92d = n.r.e.)=20 (restructuring of existing debt conferred benefit upon guarantor that=20 constituted consideration supporting guaranty). Moreover, the first = =93Unlimited=20 Continuing Guaranty Agreement=94 signed by the Palmers in 1983 provided = in=20 Paragraph 3 that their guaranties were =93absolute, complete and = continuing=94 and=20 were to continue upon any extension or renewal of J.V.3=92s debt:

3. The=20 guaranty is an absolute, complete and continuing one, and no notice of = the=20 Indebtedness or any extension of credit already, or hereafter, = contracted by or=20 extended to the Borrower need be given to the Guarantor. Borrower and = Bank=20 may rearrange, extend and/or renew the Indebtedness without notice to = the=20 Guarantor and in such event Guarantor will remain fully bound hereunder = on such=20 Indebtedness. The Guarantor hereby expressly waives presentment, = demand,=20 protest and notice of protest and dishonor on any and all forms of such=20 Indebtedness, all diligence in collection or protection of or = realization upon=20 the Indebtedness, or any part thereof or any security therefor, and also = notice=20 of acceptance of this guaranty, acceptance on the part of Bank, being=20 conclusively presumed by its request for this guaranty and delivery of = same to=20 it.

(Emphasis=20 added). Thus, we conclude that there was consideration for the = Palmers=92 1988=20 guaranty agreements, consisting of the Bank=92s forbearance on the 1983=20 guaranties, as well as its agreement to renew and extend J.V.3=92s = original=20 debt.

The = Palmers,=20 however, also contend that they were released from their guaranties = because the=20 Bank allowed the underlying collateral to be impaired. Specifically, = they=20 complain that the Bank allowed J.V.3 to sell the real property securing = the note=20 to Quail Ridge Grass Farms and that this sale impaired the Bank=92s = rights to the=20 collateral. The Bank=92s president disagreed, testifying that the Bank = did not=20 consent to this transaction and was unaware of it at the time. The Bank = further=20 submits that, in any event, the transaction did not adversely affect its = secured=20 position because the real estate was conveyed by an assumption deed = which=20 recognized the Bank=92s interest in the property.

More to the=20 point, however, the Bank argues that preservation of the collateral was = not part=20 of the consideration for the Palmers=92 guaranties in the first place. = In fact,=20 the Palmers expressly disclaimed any right to complain about the = Bank=92s handling=20 of the collateral in paragraphs 4 and 5 of their guaranty agreements. = Paragraph=20 4 authorized the Bank to =93waive and release=94 any security, and = paragraph 5=20 relieved the Bank of any obligation to proceed against or exhaust any = particular=20 security. Such waivers have been enforced by Texas courts. See, e.g., = Fed.=20 Deposit Ins. Corp. v. Coleman, 795 S.W.2d 706, 710 (Tex. 1990);=20 Bohart, 539 S.W.2d at 877. Accordingly, even had evidence existed = of=20 impairment of collateral in this case, it would not have amounted to a = failure=20 of consideration for the Palmers=92 guaranties.

Finally, the=20 Bank contends that we should render judgment in its favor instead of = remanding=20 the case to the trial court. In this regard, the Bank argues that the = Palmers=20 waived their right to litigate the credits due them from the Bank=92s = previous=20 settlements because they failed to present any evidence in support of = their=20 claims. But since = the=20 trial court improvidently granted the motion for directed verdict, the = Palmers=20 did not have the need or opportunity to present evidence of any other = defenses=20 or credits due them. They should have that opportunity. Tex. R. App. P. 60. = Accordingly, we=20 reverse the court of appeals=92 judgment and remand the case to the = trial court=20 for further proceedings.

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David M.=20 Medina

Justice

Opinion=20 delivered: June 1, = 2007