Ginsberg 1985 Real Estate Partnership v. Cadle Co.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 93-5470
_____________________

GINSBERG 1985 REAL ESTATE PARTNERSHIP,

Plaintiff-Counter
Defendant-Appellant

STATEWIDE INSURANCE AGENCY, INC., ET AL.,

Counter-Defendants-
Appellants.

v.

THE CADLE COMPANY
Defendant-Counter
Claimant-Appellee.

_________________________________________________________________

Appeal from the United States District Court
for the Eastern District of Texas
_________________________________________________________________

(November 23, 1994)

Before KING, JOLLY, and STEWART, Circuit Judges.

KING, Circuit Judge:

Appellants Ginsberg 1985 Real Estate Partnership, Fred

Ginsberg, Sidney Ginsberg, Joe Ginsberg, and Statewide Insurance

Agency, Inc., appeal from the district court's grant of summary

judgment for The Cadle Company on a promissory note dispute. We

vacate and remand that portion of the district court's judgment
that determines the amount of The Cadle Company's recovery, but we

affirm the judgment in all other respects.

I. FACTUAL AND PROCEDURAL BACKGROUND

On June 3, 1985, Ginsberg 1985 Real Estate Partnership

("Ginsberg 1985") executed a $250,000 promissory note ("Note")

payable to the order of RepublicBank Tyler. The Note specified

that the interest rate to be applied was the prime interest rate

charged by RepublicBank Dallas, plus one percent. Payment of the

Note was guaranteed by Statewide Insurance Agency, Inc.

("Statewide"), and individual guaranties were also provided by the

partners of Ginsberg 1985 -- Joe Ginsberg, Sidney Ginsberg, Ted

Ginsberg, and Fred Ginsberg.

On July 29, 1988, First RepublicBank Dallas -- the successor

to RepublicBank Dallas -- was declared insolvent and was placed

into receivership. First RepublicBank Tyler -- the successor to

RepublicBank Tyler -- also failed and was placed into

receivership.1 Numerous assets of both failed banks, including the

Note and guaranties at issue, were sold to JRB Bank, N.A. ("JRB").

JRB subsequently changed its name to NCNB Texas National Bank

("NCNB"), and NCNB later changed its name to NationsBank of Texas,

N.A. ("NationsBank").

Sometime prior to March of 1991, a dispute arose between NCNB

and Ginsberg 1985 over the allocation of payments on the Note

between principal and interest, and NCNB allegedly advised Ginsberg

1
In both cases, the Federal Deposit Insurance
Corporation ("FDIC") was appointed as receiver.

2
1985 to cease making payments on the Note until the dispute could

be resolved. Ginsberg 1985's last payment was made on March 1,

1991. NCNB subsequently transferred the Note and the related

guaranties to the FDIC on November 30, 1991, and the FDIC then sold

the Note and the guaranties to The Cadle Company ("Cadle") on June

22, 1992. Cadle requested payment on the Note and made demand upon

the guarantors because of the cessation of payments.

In response, Ginsberg 1985 filed suit against Cadle in state

court, seeking damages for usury, negligence, gross negligence, and

breach of contract, as well as a judgment declaring the rights

between the parties. Cadle removed the lawsuit to federal court on

diversity grounds and filed a counterclaim against Ginsberg 1985

for the amount due under the Note. Cadle also asserted claims

against Statewide and the individual guarantors on the basis of

their guaranty agreements.

In district court, Cadle filed a motion for summary judgment,

offering the affidavit of its account executive in support of the

motion. In light of First RepublicBank Dallas's failure, the

affidavit calculated the amount of past due interest using two

different measures; first, the rate after default of 18% (the

highest rate permitted by law), and second, the "continuing" rate

derived by periodically substituting the prime rate of NationsBank

and its predecessors. On August 4, 1993, the district court,

without analysis, granted Cadle's motion in a "final judgment," and

awarded Cadle the outstanding principal amount of the Note

($189,248.22), together with accrued interest at the default rate

3
of 18%. The court ordered that Cadle was entitled to recover

jointly and severally from Ginsberg 1985, Statewide, Joe Ginsberg,

Sidney Ginsberg, and Fred Ginsberg.2 The court also denied all of

Ginsberg 1985's claims against Cadle. After unsuccessfully urging

a motion for new trial or to amend the judgment, Ginsberg 1985,

Fred Ginsberg, Sidney Ginsberg, Joe Ginsberg, and Statewide filed

a notice of appeal.

II. STANDARD OF REVIEW

We review a summary judgment de novo, applying the same

criteria employed by the district court in the first instance. See

Conkling v. Turner, 18 F.3d 1285, 1295 (5th Cir. 1994); FDIC v.

Dawson, 4 F.3d 1303, 1306 (5th Cir. 1993), cert. denied, 114 S. Ct.

2673 (1994). Summary judgment is proper if "the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no genuine

issue as to any material fact and that the moving party is entitled

to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see also

Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986). After the

movant has presented a properly supported motion for summary

judgment, the burden shifts to the non-moving party to show with

"significant probative evidence" that there exists a genuine issue

of material fact. See Conkling, 18 F.3d at 1295. A fact is

"material" if its resolution in favor of one party might affect the

2
According to the appellants, Ted Ginsberg filed for
bankruptcy protection, and as a consequence, Cadle amended its
complaint to omit any claims against him. Ted Ginsberg is not a
party to this appeal.

4
outcome of the lawsuit under governing law. See Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue is

"genuine" if the evidence is sufficient for a reasonable jury to

return a verdict for the non-moving party. See id.

III. ANALYSIS AND DISCUSSION

A. Interest Rate Selection

The primary issue in this appeal involves the interest rate to

be applied after the failure of First RepublicBank Dallas. As

mentioned, the Note pegged the interest rate to the prime rate of

First RepublicBank Dallas,3 plus one percent. Appellants contend

that "[u]pon its failure, the First RepublicBank Dallas prime

interest rate ceased to exist. As a result, since July 29, 1988,

the [N]ote has failed to specify an interest rate that is agreed

upon by the parties." According to the appellants, the Texas

legislature has mandated a 6% rate of interest in the absence of a

specified rate.4 Thus, because Cadle has charged greater than 6%

3
As previously discussed, the Note actually specified
that the prime interest rate would be pegged to RepublicBank
Dallas. The parties agreed, however, that First RepublicBank
Dallas was the successor to RepublicBank Dallas, and that the
prime rate of First RepublicBank Dallas was applicable until the
failure of that bank.
4
The statute provides the following:

When no specified rate of interest is agreed upon by
the parties, interest at the rate of six percent per
annum shall be allowed on all accounts and contracts
ascertaining the sum payable, commencing on the
thirtieth (30th) day from and after the time when the
sum is due and payable.

Tex. Rev. Civ. Stat. Ann. art. 5069-1.03 (Vernon 1987).

5
interest since the failure of First RepublicBank Dallas, appellants

assert that Cadle has "committed usury" and is liable to Ginsberg

1985 for statutory usury penalties.

In response, Cadle contends that it was entitled to substitute

an analogous prime interest rate for the prime interest rate of the

failed First RepublicBank Dallas. Cadle not only calculated

accrued interest at the 18% default rate, but it also calculated

the amount of interest by referring periodically to the prime rate

in effect at the banks that assumed many of First RepublicBank

Dallas's assets and operations (i.e., NCNB and NationsBank).

Cadle's "substitution" approach, or its application of a

"continuing" interest rate, is supported by Texas law and

precedents in this circuit. In FDIC v. Blanton, 918 F.2d 524 (5th

Cir. 1990), the contract between the parties specified a pre-

maturity interest rate equal to the prime rate of First National

Bank of Midland ("FNB-Midland"), plus one percent. FNB-Midland

failed, and Blanton argued "that the applicable postmaturity rate

should be one percent because the contract specifies a prematurity

rate equal to FNB-Midland Prime plus one percent, and upon FNB-

Midland's insolvency, FNB-Midland Prime evaporated, leaving one

percent." Id. at 532.

We disagreed with Blanton's construction, initially noting

that:

[e]ven assuming the absence of a specific agreement as to
postmaturity interest, settled Texas law permits the
implication that the specified prematurity rate continues
after postmaturity. Petroscience Corp. v. Diamond
Geophysical, Inc., 684 S.W.2d 668, 668-69 (Tex. 1984)
(per curiam). Such an implication favors continuity in

6
 the rate of interest rather than elimination of interest
upon the unforeseeable insolvency of the bank supplying
the prime rate reference.

Id. (emphasis added). Blanton, however, also denied the existence

of any agreement on postmaturity interest; instead, like the

appellants in this case, he urged the statutory rate of six percent

applicable in the absence of an agreement between the parties. We

rejected this contention as well, finding the six percent rate of

article 5069-1.03 to be inapplicable. As the court stated, "[w]e

conclude either that the parties did agree on a specific

postmaturity rate, or that the evidence was such that the district

court could properly fix the interest without reference to article

5069-1.03." Id.

Perhaps most importantly, we explicitly noted in Blanton that

"[t]he trial judge could have applied an analogous prime rate as

consistent with the intent of the parties," even though, as in the

instant case, the contract between the parties pegged the interest

rate to a specific banking institution that subsequently failed.

Id. The district court in Blanton calculated prejudgment interest

at ten percent based upon an implicit finding that the parties

agreed to that rate. See id. at 532-33. In dicta, however, we

approved an alternative interest calculation based upon the

application of an analogous prime rate. As we noted:

Counsel for FDIC indicated that the district court had
not in fact applied a uniform 10% rate, but instead
applied a fluctuating rate borrowed from the prime rate
of Republicbank, the assuming bank of FNB-Midland. . . .
Application of the fluctuating rate would merely indicate
that the trial judge had not accepted the ten percent
postmaturity interest agreement, and had instead applied
a prime rate borrowed from larger Texas banks upon which

7
 FNB-Midland had based its own prime rate. The Florida
bankruptcy court presiding over the Gihls Properties
proceedings did precisely that, and expressly rejected
application of the Texas six-percent legal interest
statute.

Id. at 532-33 n.10.

Simply put, the Blanton analysis is persuasive in this case.

The failure of First RepublicBank was an unforeseeable event, and

Texas law favors continuity in the rate of interest. The parties

intended for the promissory note to be governed by the prime rate

of interest of First RepublicBank Dallas. Thus, the six percent

legal rate is neither needed nor applicable, as we find an implicit

agreement to use an analogous prime rate in the event of an

unforeseeable "benchmark" bank failure.

In fact, in the context of the First RepublicBank Dallas

failure, a federal district court approved the substitution of

NCNB's prime rate for the prime rate of First RepublicBank Dallas.

In FDIC v. Condo Group Apartments, the defendants argued that "NCNB

charged a usurious rate of interest in using NCNB's prime rate to

calculate interest rather than First Republic's prime rate," even

though the defendants acknowledged that "since July of 1988, First

Republic effectively had no prime rate or cost of funds rate of

interest." As a result, the defendants argued that "the rate of

interest should be zero, or alternatively, it should be set by

[the] Court." 812 F. Supp. 694, 699 (N.D. Tex. 1992).

As regards the prematurity interest rate, the district court

observed that the loan agreement in that case defined the interest

"in terms of the prime rate or the cost of funds rate of First

8
Republic -- which are no longer in existence." Id. Nevertheless,

the court specifically noted that "[c]ourts have approved use of a

prime rate of another bank when the Note became an asset of the

FDIC through a purchase and assumption agreement."5 Id. (citing

FDIC v. La Rambla Shopping Ctr., 791 F.2d 215, 223 (1st Cir.

1986)). In addition, the district court, citing Blanton, rejected

the argument that the postmaturity rate of interest evaporates

"when the prime rate used for prematurity calculations no longer

exists." Condo Group Apartments, 812 F. Supp. at 699. The court

then approved the use of NCNB's prime rate in light of the failure

of First RepublicBank Dallas.

In the instant case, appellants cite FDIC v. Cage, 810 F.

Supp. 745 (S.D. Miss. 1993), in support of their position, but even

the Cage court approved the substitution of an analogous prime rate

in the context of a "benchmark" bank failure. In Cage, the

promissory note in question specified an interest rate of one and

one-half percent "above the prevailing commercial prime rate of

AmBank." 810 F. Supp. at 746. AmBank failed, and the FDIC

calculated interest based upon a substitute New York prime rate,

plus the specified one and one-half percent. See id. The district

court made the following observations:

Obviously, a bank cannot be expected to provide in its
notes for interest rates to be applied in the event the
bank fails. It would be unreasonable to find that the
obligors under a note would escape all interest in a
circumstance such as this. Because the rate of interest

5
In the instant case, the promissory note and
accompanying guarantees initially became assets of JRL pursuant
to a Purchase and Assumption Agreement with the FDIC.

9
 is a term which is essential to a determination of the
rights and duties of the parties and because the parties
to this action understandably failed to specify the
interest rate to be applied upon the failure of AmBank,
it is left to the Court to determine a reasonable rate of
interest. The Court finds that substitution of the
commonly used New York prime rate is reasonable under the
circumstances of this case.

Id. at 747 (emphasis added).

As the affidavit of Cadle's account executive indicates,

accrued interest was calculated by substituting the prime rates of

the banks that assumed many of First RepublicBank Dallas's assets.

Although these banks were not necessarily the legal "successors" of

First RepublicBank Dallas, the case law indicates that "successor"

bank status is not required; rather, an analogous prime rate is all

that is necessary, and Cadle's incorporation of the prime rates of

the banks that assumed many of First RepublicBank Dallas's assets

is analogous. As mentioned, we find that this "continuing" rate of

interest approach is consistent with the intent of the parties and

with existing, well-reasoned precedents, and this substitution of

analogous prime rates is appropriate in light of the "benchmark"

bank's failure. As such, appellants' usury claims are

inapplicable, and it is unnecessary for us to reach the merits of

appellants' arguments regarding the Note's savings clause. Cf.

Blanton, 918 F.2d at 532 n.8 ("We do not address the requirements

for a claim of usury because we . . . reject Blanton's claim that

6% was the legal limit.").

The Note between the parties in this case contained the

following provision:

10
 If default be made in the payment of any installment of
principal or interest under this Note or in the
performance of any covenant in any instrument securing
the payment of this Note, the entire principal balance
and accrued interest owing hereon shall at once become
due and payable without notice, at the option of the
holder of this Note. Failure to exercise this option
shall not constitute a waiver of the right to exercise
the same in the event of any subsequent default.

The district court awarded the entire principal balance along with

accrued interest at the 18% default rate -- implicitly finding,

therefore, that Ginsberg 1985 had defaulted on the payment of one

or more installments of principal and interest, and that Cadle had

accelerated the payments on the Note. We believe, however, that

there is a genuine and material factual dispute as to whether

default and acceleration actually occurred, and nothing in the

record conclusively eliminates this dispute such that Cadle would

be clearly entitled to summary judgment. After all, appellants

allege that NCNB advised Ginsberg 1985 to cease payment on the Note

until the allocation problems could be resolved. If there is no

default, then the district court's application of the 18% interest

rate was improper, and interest should instead be awarded at the

"continuing" or "substitution" rate. Normally, we would remand

this issue to the district court to determine whether default and

acceleration actually occurred. Cadle, however, stated at oral

argument that it would simply prefer the lower interest award at

the "continuing" or "substitution" rate, rather than having to

further litigate the default issues on remand. Thus, because we

find that the "continuing" rate of interest approach is consistent

with Texas law and the intent of the parties, we vacate only the

11
"amount of recovery" portion of the district court's judgment, and

we remand with instructions to enter judgment for Cadle for the

principal amount of the Note, together with interest at the

"continuing" rate, until the date of judgment. Cf. Conkling, 18

F.3d at 1296 n.9 ("This court may affirm a grant of summary

judgment on any appropriate ground that was raised to the district

court and upon which both parties had the opportunity to introduce

evidence."). The court may reopen the record in the event that it

is necessary to determine the "continuing" rate.

B. Propriety of Usury and Illegality Defenses

Aside from the fact that we find no "commission of usury" by

Cadle, Texas law does not permit a guarantor to escape its

obligation by asserting a usury defense based on a usurious

principal obligation. Despite the contentions of the appellants-

guarantors, the Texas Supreme Court clearly held in Heaner that a

guarantor may not assert usury defenses that stem from the

underlying principal obligation. See Houston Sash and Door Co. v.

Heaner, 577 S.W.2d 217, 222 (Tex. 1979). As the Texas Supreme

Court explained:

Article 5069-1.06 provides in plain language that the
prescribed penalties be forfeited "to the obligor." Such
language evidences the Legislature's intent that the
usury defense remain personal to the debtor. Since
statutes of a penal nature are to be strictly construed,
the penalty forfeitures provided in Article 5069-1.06 are
restricted to the immediate parties to the transaction
creating the usury defense.

Id. Moreover, we have previously held that "[u]nder Texas law a

guarantor cannot assert any claim of usury in the underlying

obligation. Usury is a personal defense and may not be asserted by

12
a guarantor unless the contract with the guarantor also contains

the usurious provision." FSLIC v. Griffin, 935 F.2d 691, 700 (5th

Cir. 1991). Because the state of the law has not changed, we may

not now deviate from our holding in Griffin. See Broussard v.

Southern Pac. Transp. Co., 665 F.2d 1387, 1389 (5th Cir. 1982) (en

banc) ("[A] prior panel decision `should be followed by other

panels without regard to any alleged existing confusion in state

law, absent a subsequent state court decision or statutory

amendment which makes this Court's [prior] decision clearly

wrong.'") (quoting Lee v. Frozen Food Express, Inc., 592 F.2d 271,

272 (5th Cir. 1979)).6

C. Validity of the Guaranty

Appellants also contest the validity of the guaranty executed

by Sidney Ginsberg on behalf of Statewide. Appellants claim that

a corporation's power to execute a guaranty is limited by Article

1302-2.06(B) of the Texas Revised Civil Statutes, which provides in

relevant part:

[A]ny corporation shall have the power and authority to
make a guaranty if the guaranty reasonably may be
expected to benefit, directly or indirectly, the
guarantor corporation. . . . The decision of, or a
decision made pursuant to authority granted by, the Board
of Directors that the guaranty may reasonably be expected
to benefit, directly or indirectly, the guarantor
corporation shall be binding upon the guarantor
corporation, and no guaranty made by a corporation in

6
Even though appellants are correct in their assertion
that "[a] guaranty . . . may not be enforced if the underlying
obligation is void for illegality," Griffin, 935 F.2d at 700, we
have already concluded that Cadle's "continuing" rate of interest
is not usurious. Appellants have provided no additional evidence
of illegality in the underlying Note, and after a review of the
record, we also find no evidence of illegality.

13
 accordance with the provisions of this Section B shall be
invalid or unenforceable as against such corporation,
unless such guaranty is sought to be enforced by a person
who participated in a fraud on the guarantor corporation
resulting in the making of the guaranty or by a person
who had notice of such fraud before he acquired his
rights under the guaranty.

Tex. Rev. Civ. Stat. Ann. art. 1302-2.06(B) (Vernon Supp. 1994).

According to the appellants-guarantors, "[w]ithout a resolution

from the [Statewide] Board of Directors determining that the

guaranty benefits the corporation, it cannot be assumed that the

corporation possessed authority to execute the guaranty."

Moreover, the appellants submitted a February 18, 1993 affidavit of

Fred Ginsberg, current President of Statewide, who stated that

"Sidney Ginsberg never had authority to execute that [June 3, 1985]

Guaranty on behalf of Statewide." After analyzing the statutory

language and the relevant precedents, we agree with Cadle's

contention that "a decision by the [B]oard of [D]irectors is not

required before the corporation has the authority to execute a

guaranty."

First, the plain language of the statute does not indicate

that a Board decision or resolution is mandatory. Indeed, the

first sentence of the statute provides broad authority to a

corporation to make a guaranty, as long as it reasonably benefits

the corporation. There is no other requirement for an enforceable

guaranty, and conspicuously absent from this case is any allegation

by Statewide that the guaranty did not benefit the corporation.

The language involving a Board decision is not phrased in terms of

a requirement; instead, the language seems designed to benefit the

14
lender by insuring that the corporation cannot later escape its

guaranty by asserting an ultra vires defense. Viewed in this

light, the statute provides explicit protection to a lender who

insists upon a formal Board declaration that the guaranty is

reasonably expected to benefit the guarantor corporation; in such

circumstances, the lender can insure, before disbursing any funds,

that the guaranty shall be statutorily "binding upon the guarantor

corporation." See, e.g., Diamond Paint Co. v. Embry, 525 S.W.2d

529, 535 (Tex. Civ. App. -- Houston [14th Dist.] 1975, writ ref'd

n.r.e.) (noting that in article 1302-2.06(B), "[t]he Legislature

[provided] that certain guaranties are neither illegal nor ultra

vires"). Thus, a Board decision is not a statutory prerequisite

before an enforceable guaranty can be made; instead, it provides a

lender with a guaranteed enforcement mechanism if the lender

chooses to require a formal Board decision or resolution.7

7
An article in the Texas Tech Law Review also concludes
that a Board decision is not a statutory prerequisite to creating
a corporate guaranty:

[A]rticle 1302-2.06(B) states that a guaranty made in
accordance with section (B) shall not be "invalid or
unenforceable." Therefore, the corporation wishing to
avoid liability on its guaranty might argue by
implication that a corporate guaranty not so made would
be invalid or unenforceable. This argument ignores,
however, the fact that section (B) grants authority for
the making of guaranties. Even if a guaranty is not
authorized under article 1302-2.06 and, therefore, is
ultra vires, article 2.04 [of the Texas Business
Corporation Act] should still apply. In addition, a
corporate guaranty not made in accordance with section
(B), but in compliance with section (A) or section (C),
obviously would not be invalid. Finally, the statutory
reference to a guaranty's being "invalid or
unenforceable" apparently pertains only to the effect
on enforceability of the types of fraud described in

15
 Second, and perhaps more importantly, cases have approved the

creation of a guaranty relying on apparent authority -- even after

the enactment of article 1302-2.06(B) -- with no mention of a Board

decision or resolution requirement. The "Board decision" language

was added in a 1973 amendment to article 1302-2.06(B), see Tex.

Rev. Civ. Stat. Ann. art. 1302-2.06(B) (Vernon 1980) (historical

notes), but some post-1973 cases have at least considered the use

of apparent authority to create binding guaranties without

mentioning any "Board decision" prerequisite. See, e.g., Charles

E. Beard, Inc. v. Cameronics Technology Corp., 729 F. Supp. 528,

531 (E.D. Tex. 1989) (considering whether a guaranty was created by

apparent authority, and concluding that "[t]here was no evidence

that there was actual or apparent authority vested in [employees]

so as to bind the defendant to a contract guaranteeing . . .

contractual performance . . . ."); Diamond Paint Co. v. Embry, 525

S.W.2d 529, 535 (Tex. Civ. App. -- Houston [14th Dist.] 1975, writ

ref'd n.r.e.) (noting the conduct of corporate officers in

executing a guaranty and concluding that "such conduct in evidence

supported the finding of apparent authority" to create the

guaranty). In these cases, apparent authority provided the

operative framework for considering whether a guaranty was validly

section (B).

Terry W. Conner, Enforcing Commercial Guaranties in Texas:
Vanishing Limitations, Remaining Questions, 12 Tex. Tech L. Rev.
785, 800 (1981) (footnotes omitted). The article later notes
that "it would seem clear that the failure of the guarantor's
board of directors to make a determination that the guaranty
benefits the corporation would not be detrimental if in fact the
guaranty benefits the guarantor." Id.

16
created; a "Board decision" requirement did not enter the analysis.

Thus, we infer that a guaranty can be validly created without

procuring a Board decision or resolution, as article 1302-2.06(B)

does not mandate such a requirement.

Our conclusion is strengthened by the language of subsection

E of article 1302-2.06, which states in relevant part that:

[n]othing in Section B, C, or D of this Article is
intended or shall be construed to limit or deny to any
corporation the right or power to do or perform any act
which it is or may be empowered or authorized to do or
perform under any other laws of the State of Texas now in
force or hereafter enacted.

Tex. Rev. Civ. Stat. Ann. art. 1302-2.06(E) (Vernon Supp. 1994).

It is a fundamental tenet of agency law that "[t]he acts of [a

corporation's] officers or agents can create apparent authority."

Paramount Nat'l Life Ins. Co. v. Williams, 772 S.W.2d 255, 262

(Tex. App. -- Houston [14th Dist.] 1989, writ denied). As the

above-cited cases indicate, the acts of a corporation's officers or

agents can create a valid guaranty through the exercise of apparent

authority. We will not disturb such settled principles of agency

and corporations law without clearer statutory language indicating

the necessity of a Board decision for creation of a guaranty. The

language of subsection E affirms this position, as it explicitly

indicates that subsection B was not intended to displace a

corporation's common-law power to create a guaranty.

Because we conclude that a Board decision is not required to

create a valid guaranty -- although obtaining one is clearly the

better part of valor -- the only question is whether Sidney

Ginsberg had apparent authority to execute the guaranty on behalf

17
of Statewide. The guaranty was signed "Sidney Ginsberg," and

immediately below his signature, the guaranty noted that he was the

"authorized officer" of Statewide Insurance Agency. Moreover, the

guaranty was executed on June 3, 1985 -- the same day that the

individual guaranties of the Ginsbergs were executed -- and no

objection to Sidney Ginsberg's authority was raised until Fred

Ginsberg's affidavit was signed on February 18, 1993. Thus, in

this lawsuit, we find that a legitimate case for apparent authority

has been made.

To rebut the case for apparent authority, appellants needed to

present competent summary judgment evidence to show that it was

unreasonable for Cadle and its predecessors to believe that Sidney

Ginsberg was authorized to execute the corporate guaranty. See

Restatement (Second) of Agency § 8 cmt. c (1958) ("Apparent

authority exists only to the extent that it is reasonable for the

third person dealing with the agent to believe that the agent is

authorized."). The only summary judgment evidence submitted in

response by the appellants, however, was the statement in Fred

Ginsberg's affidavit that "Sidney Ginsberg never had authority to

execute that Guaranty on behalf of Statewide." This statement is

simply not enough to raise a fact question to block the grant of

summary judgment on apparent authority. The statement only serves

to refute Sidney Ginsberg's actual authority, but the mere lack of

actual authority does not factually or legally rebut the binding

effect of apparent authority. See, e.g., Clark Advertising Agency

v. Tice, 490 F.2d 834, 835-36 (5th Cir. 1974) (concluding that

18
where a president left detailed negotiation work to a comptroller

and a vice-president, those two officers had apparent authority to

bind the corporation, and the corporation was estopped from denying

their authority, regardless of "[w]hether or not [the officers]

actually had express or implied authority to bind [the

corporation]"); Restatement (Second) of Agency § 159 cmt. c (1958)

("A person who is not authorized to make a contract on behalf of a

principal but who has apparent authority to do so, subjects both

the principal and the other party to liability to the same extent

as if the contract were authorized.") (emphasis added). Thus, we

conclude that the district court was correct in its grant of

summary judgment for Cadle on the validity of the Statewide

guaranty.

D. Tort Claims

Appellants contend that Cadle and its "predecessors" have

committed negligence and gross negligence in the application of

payments to the amount due on the Note. According to the

appellants, "Ginsberg Partnership has suffered damage in that

excess interest has accrued due to the inflated principal balance

thereby increasing the partnership's liabilities." In addition,

the appellants argue that NCNB was negligent and grossly negligent

in not promptly determining the proper amounts of interest and

principal.

We agree, however, with Cadle's position that Ginsberg 1985

"did not come forward with any evidence that it suffered damages

resulting from any alleged negligence." In response to Cadle's

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summary judgment motion, the appellants relied heavily on the

affidavit of Fred Ginsberg, but the affidavit failed to discuss

any damages resulting from the alleged negligence, and it offered

no evidence of any duty or breach of duty on the part of Cadle or

NCNB. No calculations of the allegedly "proper" allocation of

principal and interest were submitted by appellants; thus, no

comparison as to potential "damages" could be made with the

calculations submitted by Cadle. Indeed, Ginsberg 1985 was aided

by the fact that NCNB did not require payments during the dispute

over the allocation of principal and interest. Simply put, upon

our review of the record, we conclude that the partnership has

failed to show any damages from the alleged mishandling of its

account. As a consequence, we agree with the grant of summary

judgment on this issue.8

IV. CONCLUSION

For the foregoing reasons, we VACATE that portion of the

district court's judgment that determines the amount of Cadle's

recovery, and we REMAND with instructions to enter judgment for

Cadle for principal and interest at the "continuing" rate. In all

other respects, however, the district court's grant of summary

judgment for Cadle, and its corresponding denial of appellants'

claims, is AFFIRMED.

8
Because we conclude that appellants' claims of usury,
negligence, and gross negligence lack merit, we find it
unnecessary to decide whether Cadle is immune from defenses based
on the holder in due course and D'Oench, Duhme doctrines.

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