T.O. Stanley Boot Co., Inc. v. Bank of El Paso

Citation847 S.W.2d 218
Decision Date02 December 1992
Docket NumberNo. D-1272,D-1272
CourtSupreme Court of Texas
Parties19 UCC Rep.Serv.2d 514 T.O. STANLEY BOOT CO., INC., T.O. Stanley, James S. Ruby, Lawrence Harmel, Henry C. Tyler a/k/a H. Tim Tyler, and E. Guy Merrell, Petitioners, v. The BANK OF EL PASO f/k/a Cielo Vista Bank, Respondent.
OPINION

COOK, Justice.

This case began as a lawsuit by the Bank of El Paso f/k/a Cielo Vista Bank ("the Bank") on past due debts. The Bank sued T.O. Stanley Boot Co., as borrower, and T.O. Stanley, James Ruby, Lawrence Harmel, E. Guy Merrell, and Henry C. Tyler a/k/a H. Tim Tyler ("the Stanley Group") as guarantors on the notes. All defendants except Tyler counterclaimed. Tyler did not answer.

The jury returned a verdict in favor of all the defendants. The court of appeals reversed the judgment and rendered judgment in favor of the Bank on its affirmative claims. 809 S.W.2d 279. We granted writ to consider various issues, including those concerning breach of contract, fraud, impairment of collateral, the Bank's suit on the note, and to examine the court of appeals' review of the evidence. We affirm in part and reverse and render in part.

Facts

T.O. Stanley, a bootmaker, incorporated a bootmaking business in 1979. That business was known as T Bar S. In 1986, T Bar S filed for bankruptcy. At the time, the corporation owed the Bank $66,000. This debt was secured by the bootmaking equipment. The bankruptcy trustee abandoned the equipment.

T.O. Stanley sought out investors to form a new corporation. Stanley also approached the Bank about financing for the new corporation. In addition, Stanley wanted to acquire the bootmaking equipment that had been released to the Bank by the bankruptcy trustee. The Bank required the financial statements of the new investors and projected revenues of the corporation.

The new corporation was formed. It was called T.O. Stanley Boot Co., Inc. (the "Corporation").

Discussions with the Bank continued. On December 5, 1986, Stanley and some of the new investors met with officers of the Bank. The parties discussed the financial needs of the new corporation, the possibility of obtaining the bootmaking equipment, and Stanley's personal indebtedness to the Bank. The parties discussed the possible need for a $500,000 loan for the Corporation. The Bank agreed to sell to the Corporation the bootmaking equipment for the outstanding debt on the equipment of $68,152.30.

Over the next eight months, the Corporation borrowed money for equipment, operating expenses, and leather. All of these debts were evidenced by promissory notes or guaranties. In July 1987, Stanley, Merrell, Ruby, Tyler, and Harmel executed continuing guaranties to accommodate the indebtedness of the Corporation to the extent of $300,000. The Corporation consolidated its existing debts to the Bank in a $216,570.62 note.

In June 1987, the Corporation's board of directors approved a resolution allowing the Corporation to apply for a Small Business Administration ("SBA") Loan in the amount of $500,000. In July 1987, the Corporation was approved by the SBA for a loan of $500,000. In September, the Corporation refused the SBA loan because the SBA terms were considered unacceptable by the Corporation and its investors. The Bank declined to make any further loans to the Corporation unless it provided additional collateral.

The Stanley Group attempted through a series of letters to have the Bank provide a $500,000 line of credit. In November 1987, the Corporation renewed its note with the Bank in a note in the amount of $236,377.61. This note represented the amount of the first consolidated note along with the interest due on that note being rolled over into the new note.

The $236,377.61 note matured on May 22, 1988. The Bank made a demand on the Corporation and the guarantors to pay the note.

There was no attempt by any party to repay the note. The Bank sued the Corporation, Stanley, Merrell, Ruby, Harmel and Tyler on the note and at the same time applied for a temporary injunction to prevent any disposition of the collateral securing the note. The Bank took possession of the collateral in November 1988. For several months the Bank was responsible for paying the rent while the equipment remained on the leased premises.

The Bank filed a separate suit against Stanley, Merrell, Harmel and Tyler for the personal debt of Stanley. Merrell, Harmel, and Tyler had guaranteed the personal debt of Stanley. This suit was consolidated with the Bank's original suit.

Preservation of Error

The Corporation and the Stanley Group contend that the Bank has not sufficiently preserved error in the trial court for our review. These complaints are without merit. We deal with these contentions as a group.

A no evidence point is preserved through one of the following: (1) a motion for instructed verdict; (2) a motion for judgment notwithstanding the verdict; (3) an objection to the submission of the issue to the jury; (4) a motion to disregard the jury's answer to a vital fact issue; or (5) a motion for new trial. Aero Energy, Inc. v. Circle C Drilling Co., 699 S.W.2d 821, 822 (Tex.1985). The Bank properly preserved its no evidence points through a motion for judgment notwithstanding the verdict.

The Bank also preserved its complaints regarding the standing of the individuals to assert certain causes of action, including usury, breach of contract, and fraud. The Bank filed a verified denial that the individuals as guarantors on the note had no standing to assert these claims, which the Bank contended belonged solely to the Corporation. TEX.R.CIV.P. 93(2). The Bank also specially excepted to the capacity of the individuals to assert these claims. See Group Medical & Surgical Serv. v. Leong, 750 S.W.2d 791, 794 (Tex.App.--El Paso 1988, writ denied). The Bank sufficiently preserved its points of error for our review.

Breach of Contract

The Corporation and the Stanley Group asserted a cause of action based on a breach of contract. The Petitioners contend that they had a valid contract with the Bank, which called for the Bank to make available to them a $500,000 line of credit.

In order to be legally binding, a contract must be sufficiently definite in its terms so that a court can understand what the promisor undertook. Bendalin v. Delgado, 406 S.W.2d 897, 899 (Tex.1966); University Nat'l Bank v. Ernst & Whinney, 773 S.W.2d 707, 710 (Tex.App.--San Antonio 1989, no writ). The material terms of the contract must be agreed upon before a court can enforce the contract. Where an essential term is open for future negotiation, there is no binding contract. Gerdes v. Mustang Exploration Co., 666 S.W.2d 640, 644 (Tex.App.--Corpus Christi 1984, no writ).

Each contract should be considered separately to determine its material terms. Bridewell v. Pritchett, 562 S.W.2d 956, 958 (Tex.Civ.App.--Fort Worth 1978, writ ref'd n.r.e.). In a contract to loan money, the material terms will generally be: the amount to be loaned, maturity date of the loan, the interest rate, and the repayment terms. Wheeler v. White, 398 S.W.2d 93, 95 (Tex.1965); Pine v. Gibraltar Savings Assn., 519 S.W.2d 238, 243-44 (Tex.Civ.App.--Houston [1st Dist.] 1974, writ ref'd n.r.e.); accord Stansel v. American Sec. Bank, 547 A.2d 990, 993 (D.C.App.1988), cert. denied, 490 U.S. 1021, 109 S.Ct. 1746, 104 L.Ed.2d 183 (1989); Champaign Nat'l Bank v. Landers Seed Co., Inc., 165 Ill.App.3d 1090, 116 Ill.Dec. 742, 745, 519 N.E.2d 957, 960 (1988), cert. denied, 489 U.S. 1019, 109 S.Ct. 1138, 103 L.Ed.2d 199 (1989); McErlean v. Union Nat'l Bank of Chicago, 90 Ill.App.3d 1141, 46 Ill.Dec. 406, 410, 414 N.E.2d 128, 132 (1980).

The court of appeals concluded that there was no evidence of some of the material terms of this contract. Petitioners challenge the court of appeals' ruling, claiming the court of appeals failed in its no evidence review to consider only the evidence supporting the verdict. We agree that the court of appeals incorrectly set out evidence that contradicted the verdict. In reviewing a no evidence point, the court of appeals should consider only the evidence that supports the verdict; it should ignore all evidence that does not support the verdict. See Alm v. Aluminum Co. of America, 717 S.W.2d 588, 593 (Tex.1986). Nevertheless, considering only the evidence that supports the verdict, we reach the same conclusion as the court of appeals.

Petitioners introduced evidence of only one material element of a contract to loan money--the amount to be loaned. The only evidence introduced regarding the interest rate was Stanley's testimony that the Bank "always charged" 1 1/2% to 2 1/2% over the prime rate. This testimony amounts to no evidence of the interest rate.

Petitioners failed to present any evidence of the repayment terms of the note. Petitioners assert that repayment was to be controlled by the pro formas submitted to the Bank. The record does not support Petitioners' position. The pro formas were discussed in connection with another loan. Viewing this evidence in the light most favorable to the verdict, we cannot conclude that the pro formas supplied the repayment terms.

We conclude that the alleged contract failed for indefiniteness. No evidence was introduced regarding the interest rate of the alleged loan or the repayment terms. These elements were material to this contract, and a court is not free to supply them. 1

Fraud

Petitioners contend that the court of appeals erred in rendering judgment in favor of the Bank on the fraud claim. Petitioners claim that the Bank misrepresented that it would loan them $500,000, and that the misrepresentation induced their reliance and caused...

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