1488, Inc. v. Philsec Inv. Corp.
| Citation | 939 F.2d 1281 |
| Decision Date | 03 September 1991 |
| Docket Number | No. 90-2370,90-2370 |
| Parties | 1488, INC. and/or Drago Daic, Plaintiffs-Counter Defendants-Appellees-Cross-Appellants, v. PHILSEC INVESTMENT CORP., Ayala International Finance, Ltd., and Athona Holdings, N.V., Defendants-Counter Plaintiffs-Appellants-Cross-Appellees, v. Edgardo V. GUEVARA, et al., Counter Defendants-Appellees-Cross-Appellants, Ventura O. Ducat, Counter Defendant-Appellee-Cross-Appellant, and William H. Craig, Counter Defendant- Appellee-Cross-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Bruce H. Jackson, Baker & McKenzie, San Francisco, Cal., Michael M. Wilson, Miller, Keeton, Bristow & Brown, Houston, Tex., for Philsec, Ayala & Athona.
John W. Berkel, Houston, Tex., for 1488 and/or Drago.
David A. Wills, Houston, Tex., for Ducat.
Appeals from the United States District Court for the Southern District of Texas.
Before THORNBERRY, JOLLY and WIENER, Circuit Judges.
The plaintiff, 1488, Inc., is a Houston based corporation, which participated in an exchange of assets with the defendants, Philsec Investment Corporation, Ayala International Finance, Ltd. and Athona Holding, N.V. in early 1983. The transaction called for 1488 to give the defendants a portion of land in exchange for a portfolio of stocks and a promissory note for approximately $300,000. The agreement also called for the defendants to cancel a debt owed to them by one of 1488's partners. After the exchange had taken place, the defendants were unable to sell the land. They defaulted on the promissory note and then refused to release the remainder of the stock portfolio to the plaintiff as their agreement required. The plaintiff sued the defendants for breach of contract and fraud. The defendants filed counterclaims against the plaintiff and counter-defendants alleging fraud, conspiracy, negligent misrepresentation, and gross and general negligence. After the district court directed a verdict against the defendants on all but two of their counterclaims and affirmative defenses, the jury returned a verdict in favor of the plaintiff. The defendants appeal the jury verdict as well as the district court's directed verdict against them. The plaintiff cross appeals a post-judgment decision by the district court to amend the amount of attorney's fees.
During the early 1980's, Ventura Ducat, a Philippine investor, had loans outstanding with Philsec Investment Corporation ("Philsec"), a Philippine stock brokerage firm, and Ayala International Finance, Ltd. ("AIFL"), a Hong Kong deposit taking corporation. The amount owed to these two entities totaled approximately $3.1 million. As security for the loans, Ducat had pledged a stock portfolio, which was valued at approximately $1.4 million. At the time, both Philsec and AIFL were wholly owned subsidiaries of Ayala Investment and Development Corporation ("AIDC"). The majority stockholder of AIDC, was Ayala Corporation, one of the largest conglomerates in the Philippines, much of whose business included real estate development in that country. In addition, their subsidiaries conducted real estate operations throughout the Pacific region and along the western coast of the United States.
From 1980 to 1982, Philsec tried to collect the outstanding loans that had been extended to Ducat. Philsec was a member of the Makati Stock Exchange in the Philippines In the fall of 1980, the former head of the legal department of Ayala Corporation, Edgardo Guevara, became president of Philsec. As president, one of Guevara's duties included resolving Ducat's excessive liability. During the course of negotiations, Ducat proposed to settle his debt by an exchange of assets, or a dacion en pago as it is referred to in the Philippines. Ducat's suggestion called for Philsec to accept title to real estate in lieu of cash in order to clear Ducat's obligation. After extinguishing the debt, Philsec would then return the $1.4 million stock portfolio being held as security. At the time of the proposal, Ducat owned several portions of real estate in Houston, Texas in partnership with 1488, Inc. and its president Drago Daic. Guevara reported this offer to the Chief Executive Officer of Ayala Corporation, Enrique Zobel, who instructed Guevara to pursue the offer. Zobel also advised Guevara to ask Thomas Gomez to evaluate the property offered by Ducat; Gomez was an AIFL employee who often traveled to the United States.
and the rules of that organization required that a stock broker maintain an amount of security that was equal to at least fifty percent of a client's outstanding debt. The value of the shares held as security for Ducat's loans had fallen below that requirement. As a result of this shortfall, Philsec's trading privileges were in danger of being suspended.
In December of 1982, Gomez looked at several pieces of real estate that were being offered by Ducat and 1488. In a telex to Guevara, Gomez reported that "of the three properties offered by Ven Ducat for loan substitution best possibility is 78 acres undeveloped land on Maxey Rd or north east freeway thirteen miles from Houston downtown." Plaintiff's Exhibit # 12. Guevara, among others, believed that the land was worth approximately $2.9 million, but no one had requested an independent appraisal. In his telex to Guevara, Gomez also noted that he felt such a swap would be "fair [and] reasonable" and concluded with a recommendation "that we will be better off taking this opportuinity [sic] now than be faced with potentially longdrawn legal situation while Ducat loans currency denomination further depreciate." Id. Gomez's recommendation was forwarded to Zobel, the Chief Executive Officer of Ayala Corporation, and the exchange was approved by AIFL's board of directors at a meeting in late December. The board had not seen or requested an appraisal prior to approving the transaction at this meeting.
As closing neared, Guevara made a list of the securities in the Ducat portfolio and the prices at which they were trading. This list was sent to Daic at 1488, since they would be transferred to 1488 after the deal was struck.
After the board of directors had approved the exchange, but before the deal had been closed, Xavier Loinaz, an AIFL director, asked Guevara to obtain an appraisal of the property. The defendants argued that their decision to make the exchange was subject to acquiring such an appraisal. 1488, on the other hand, argued that the defendants relied on Gomez's recommendation in consummating the transaction and requested the independent appraisal only as an afterthought. At any rate, William Craig, a former owner of the property and a real estate broker, was eventually selected to conduct an appraisal of the property. Craig appraised the land in January 1983 and concluded that the property had a fair market value of $3,365,000.
The transaction ultimately closed in Harris County. The property was transferred to Athona Holdings, N.V., a company wholly owned by AIFL and Philsec and created specifically to facilitate the exchange of assets. By this point, the parties to the loan agreement had negotiated a reduction in Ducat's original debt from $3.1 million to $2.5 million. Because the land was valued at approximately $2.9 million for the purposes of this transaction, Athona agreed to sign a promissory note, payable to 1488, for the difference between the value of the land and the amount of Ducat's debt. At 1488's request, Philsec transferred the securities in the Ducat portfolio into an account at Philsec for 1488's benefit and began to liquidate them as per 1488's instructions.
Soon after the deal was closed, the market for real estate in Houston declined rapidly. Athona could not sell the property as easily as it had anticipated, and without a source of cash it was unable to make its payments under the promissory note. The defendants assumed that the real estate was worth less than they had been led to believe, and they retaliated against 1488 by refusing to release the securities portfolio to 1488's control as required by their agreement.
After a number of unsuccessful efforts to collect on the promissory note and the securities, 1488 filed suit against Philsec, AIFL, and Athona alleging a variety of claims. First, they sued the defendants for misrepresenting to 1488 that an active market existed for two securities included in the portfolio, the Sabena and Richfield shares when, in fact, those shares were to be withdrawn from the active trading list. 1488 alleged that the defendants knew about the imminent removal but that they had not disclosed this information. Second, they sued the defendants for conversion of the stock portfolio. Third, they sued the defendants for fraud, alleging that Athona had never intended to abide by the provisions of the promissory note when they signed it. Finally, the plaintiffs alleged that the defendants had acted in concert as a common enterprise or in the alternative, that Athona was the alter ego of Philsec and AIFL.
The defendants filed counterclaims against 1488 and several third party defendants (Drago Daic, William Craig, Ventura Ducat and Edgardo Guevara) alleging fraud, negligence and conspiracy. The claims made by the defendants rested on the allegation that these individuals knew or should have known that the value of the real estate involved in the exchange was less than the appraisal value assigned to it by Craig.
At trial, the district court directed a verdict against the defendants on their three counterclaims, with the exception of AIFL's negligence claims against Craig, and all the defendants' affirmative defenses except mutual mistake. The district court also directed a verdict against the plaintiff on its claims of common enterprise and fraud against the defendants. The jury delivered a verdict for the plaintiff on the remaining claims, and for Craig on AIFL's claim. The...
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