13 S.W. 39


GARDNER
v.
WATSON.


Supreme Court of Texas.


February 4, 1890.

Appeal from district court, Freestone county.

A. G. Anderson and G. A. Bell, for appellant. L. G. Farrar and B. S. Gardner,
for appellee.

GAINES, J.

This suit was brought by appellee to recover of appellant, as administrator of 
the estate of L. D. Bradley, deceased, an alleged indebtedness, amounting to 
about the sum of $1,000, besides interest. Upon the trial it was agreed between 
the parties, in effect, that the indebtedness accrued as is alleged in the 
petition, but that defendant was entitled to an offset of $300. It was further 
stipulated that he was entitled to an additional offset of $500, unless it 
should be determined upon the trial that defendant's intestate was indebted to
plaintiff, as surviving partner of the firm of C. L. Watson & Bro., in the 
last-named sum, by reason of a contract of guaranty executed by Bradley to
plaintiff to secure him in payment of $500 of an indebtedness contracted by 
one Grayson. The question was whether Bradley's indebtedness to Watson, arising
out of the guaranty, had been discharged or not. The facts in relation to that
matter are as follows: Watson & Bro. were merchants, and Bradley and Grayson 
were brothers-in-law. Grayson, being about to enter into business as a retail 
merchant on a small scale, applied to Watson & Bro. for credit. Bradley agreed
with Watson & Bro. that he would guaranty Grayson's account to the amount of 
$250, provided they would extend him, upon his own responsibility, credit for a
like amount. This occurred in November, 1881. The proposition was accepted, and 
the credit given. Grayson continued buying of Watson & Bro. during the remainder
of the year 1881, the year 1882, and the early part of the year 1883. He made
payments upon his account from time to time during this period, but never fully 
discharged his indebtedness. Watson & Bro. having declined to sell Grayson any
more goods without additional security, on March 27, 1883, Bradley executed the 
following guaranty: "Groesbeck, Mch. 27th, 1883. Mess. C. L. Watson & Bro., 
Mexia — Gentlemen: I have to-day seen Charles E. Grayson, and, upon consulting
with him, I am willing to become his security to the amount of $500 worth of 
goods, instead of $250, as heretofore; provided you extend to him a credit of 
$500 worth of goods additional, on his own individual account or responsibility.
Yours, truly, etc., [Signed] L. C. BRADLEY." The guaranty was accepted, and the
credit extended, and Grayson continued to buy of the Watsons, and to make them 
partial payments, until about the 1st of January, 1885, when he failed. At the 
time he closed his business he was indebted to Watson & Bro. in the sum of 
$1,618.40. Shortly after this date he transferred to them certain property, 
which they took upon account, and for which they gave him credit; and for the 
balance remaining, amounting to $1,261, he executed to them his note, and 
transferred to them certain credits collaterally to secure its payment. From 
these Watson & Bro. collected the sum of $306.42, for which they gave him 
credit. Grayson testified that he made the settlement with the


Page 40

agent of Watson & Bro., and that he transferred the property and gave the 
security with the express agreement that Bradley was to be released. The 
plaintiff testified that when he sent the agent (who was only his book-keeper) 
to make the settlement, he instructed him not to release Bradley; and that, 
having heard subsequently that Grayson had stated that Bradley had been 
discharged, he asked him if he had made such a statement, and that he denied 
that he had ever done so. Grayson, on the other hand, testified that he had no
such conversation with Watson. The court held that Bradley's liability upon his
guaranty had never been discharged, and refused to allow defendant the $500 
offset against the indebtedness sued upon.

It is first claimed by appellant that Bradley's contract was not a continuing 
guaranty, and that, being bound only for one-half of the first $1,000 credit 
extended after the execution of the contract, his liability was extinguished by
the payment by Grayson of that amount. There is no especial rule by which we can
determine whether a contract of guaranty is a continuing one or not. Guaranties,
like other contracts, must be construed so as to give effect to the intention of
the parties, and if, upon their face, the intention be doubtful, resort may be 
had to parol evidence of the situation and surroundings of the parties, in order 
to solve the difficulty. Hotchkiss v. Barnes, 34 Conn. 29; Heffield v. Meadows, 
L. R. 4 C. P. 595. If we were confined to the face of the guaranty now in 
question, it would be very difficult to determine whether it was intended to 
apply only to the first credit of $500 extended to Grayson, and was exhausted 
when goods to that amount were taken up by him, or whether it was to continue in
operation and extend to any subsequent purchases he might make, limited only by
the amount intended to be secured. Taking the language alone, it would be easy
to find precedents warranting a decision either way. See instances in Brandt, 
Sur. §§ 131-137. But when viewed in connection with the situation and the 
previous transactions between the parties, the question is not difficult of 
solution. In the first place, Grayson was attempting to carry on a mercantile
business, and was almost wholly without capital or credit. It is hardly 
probable that a guaranty which was to be exhausted by the first extension of a
credit to the amount of $500 would be sufficient to accomplish the object that
any of the parties had in view; that is to say, to enable Grayson to prosecute
and to continue in his business. Then, again, the guaranty in question is not 
an original transaction. Its terms show that it is but an extension as to amount
of a former contract. The face of the paper shows that the guarantor regarded 
the former contract as still existing. That contract had been executed more than
a year, and secured a credit of $250; and under it Grayson had bought goods to
the amount of $2,000, and had paid Watson & Bro. the amount secured, several 
times over. If it had not been a continuing guaranty, it would have been 
exhausted when the first goods, to the amount of $250, were sold upon its faith,
and Bradley's liability would have been discharged when they were paid for. Yet
the language of the promise is: "I am willing to become his security to the 
amount of $500 worth of goods, instead of $250, as heretofore;" clearly 
implying, we think, that the writing recognized his former obligation as a 
continuing one, and was intended to keep it in force, and to increase the 
amount. We think the court did not err in holding that the contract was intended
as a continuing guaranty.

Was Bradley's liability discharged by the transaction between Grayson and 
Watson's agent? If we should be guided alone by the statement of facts, we 
should be inclined to answer that question in the affirmative. If, as Grayson 
testified, it was agreed between him and the agent that Bradley should be 
released, we think the transaction would have that effect, although the agent
exceeded his powers in making that stipulation. In the transaction Grayson 
transferred to Watson property amounting to about $300, and also notes and 
accounts from which his creditor realized $300 more. Grayson had the right to 
transfer this property to Bradley directly, to secure him against loss on his 
guaranty. Hence we do not see why he did not have the right to direct the
appropriation of any payment he might make to Watson to that part of his 
indebtedness, which was guarantied by Bradley. Although the agent of Watson may
have had no authority to release Bradley, yet, if it were a fact that he and 
Grayson did so agree, the property transferred in the transaction ought to be 
deemed to be applied to the discharge of Bradley's indebtedness. The agreement 
would at least show a clear intention to make the appropriation, and, the debtor
having the right to make the appropriation, it should be given effect, although
the agent was not authorized to stipulate for Bradley's release. But the trial
judge, in his conclusions of fact, did not find that any such agreement was ever
made as was testified to by Grayson. It is not clear whether or not he intended
to find the contrary. The court, however, did find that Grayson had never made
the application of any payments to the discharge of Bradley's liability, and 
that the note executed by Bradley at the time of the settlement between him and
Watson's agent "was not intended by the parties to discharge the obligation of 
L. D. Bradley." We infer from these findings that the court did not give full 
credit to Grayson's testimony. If Watson was to be believed, Grayson had made
statements to him inconsistent with the idea that there had been any agreement
with Watson's agent for the release of Bradley. Grayson denied that any such 
conversation had taken place. Still there is a conflict, and the finding of the 
judge against the existence of the agreement should perhaps

Page 41

stand, if in fact he did so find. But, should we treat the case as if there had
been no distinct finding upon the issue, appellant would not be placed in a 
better position. There was no request made for additional findings of fact upon 
this special issue, nor was there any exception to the conclusions of fact on 
the ground of incompleteness. When there is no finding upon an issue upon which
the evidence is conflicting, the court below will be presumed to have arrived 
at that conclusion which is necessary to support the judgment. If, therefore, 
the conclusions filed by the judge should be construed as not embracing the 
issue in question, we should nevertheless be compelled to hold that he had found
that the agreement was not in fact made. If there was no appropriation of the
property turned over by Grayson to Watson's agent, to the payment of that part 
of the debt secured by Bradley, then Bradley was not discharged by the payment.

But closely connected with the question just discussed is another, which is 
presented by an assignment which in effect complains that the court erred in
holding that Bradley was not discharged by Watson's taking Grayson's negotiable
promissory note. Neither the pleadings nor the evidence very distinctly present
the facts bearing upon this issue in the case. But in the conclusions of law 
the court held "that, in order to maintain a guarantor's claim of discharge from
his obligation, there ought to be shown (1) an intention and actual discharge,
or (2) some action or conduct on part of the guarantee whereby the condition of
the guarantor was rendered worse." From this we infer that it was the opinion of
the court that, in order for the guarantor to claim a discharge by reason of a 
valid contract for an extension of time entered into between the creditor and 
principal debtor, he must show that he has been actually injured by the 
extension. That such is not the law is well settled by the decisions of this 
court. Lane v. Scott, 57 Tex. 367; Ryan v. Morton, 65 Tex. 258. The cases cited
involved the rights of sureties, but the principles announced apply with equal 
force to the case of guarantors. Samuell v. Howarth, 3 Mer. 272. The answer of
the defendant states the facts of the extension of the contract by the execution
of the note by Grayson, but fails to allege that the extension was granted 
without Bradley's consent. There was no evidence bearing upon that question. In
a different case it might be an important inquiry whether the burden was not 
upon the defendant to allege and prove he did not assent to the new contract, in
order to avail himself of its execution as a defense. But it is alleged in 
plaintiff's supplemental petition that the debt which was guarantied (it being
an open account for goods sold in previous years) was due in January, 1885, and
that Grayson, after having transferred to plaintiff some property, the value of
which was credited thereon, executed to him a note for the balance, including 
the sum of $500, for which Bradley had become liable as guarantor. The note, 
which was made a part of the petition, extended the debt five days, (including
the days of grace,) and stipulated for a higher rate of interest, and was 
secured by a contemporaneous transfer of choses in action as collateral to 
secure its payment. The plaintiff also alleged, in effect, that the settlement 
was made and the transaction consummated at the instance of Bradley. According 
to these allegations, here was certainly a new contract. The length of time is
unimportant, provided it be for a definite period, and there be a consideration
to support the promise of extension. The promise to pay an increased rate of 
interest, and the transfer of the collaterals on the part of Grayson, were 
sufficient to make the new contract binding. The old contract and the new are 
materially different, and the latter extinguished the former. The amount for 
which Bradley had bound himself being embraced in the new agreement, he was 
bound upon that contract, if at all. He could not be bound by an agreement to 
which he had never assented, and therefore we think that, in order to hold him
liable, it was incumbent upon plaintiff to allege and prove his consent. In 
Lane v. Scott, supra, in treating of the right of a surety to pay the debt on 
or after maturity, and then to proceed against his principal for indemnity, the
court say: "This, however, he could not do, if, in the meanwhile, the creditor 
had made a binding agreement, varying in an essential particular the original 
contract. In such case the surety is not bound by that contract, for it has 
ceased to exist; nor by the new contract, for he is not a party to it." As the 
case is now presented to us, we think the liability of Bradley's estate depends
upon the question whether he assented to the new contract or not. There being no
evidence to show that he did assent, we think the judgment should be reversed; 
and, it being impossible to determine the question from the record before us, 
the cause will be remanded for a new trial.