Aquaduct, L.L.C. v. Mcelhenie

• Decision Date: 09 September 2003
• Docket Number: No. 14-02-00708-CV.,14-02-00708-CV.
• Citation: 116 S.W.3d 438
• Parties: AQUADUCT, L.L.C., Appellant, v. Travis J. McELHENIE and Wife, Lisa Christian McElhenie, and North American Mortgage Company, Appellees.
• Court: Texas Court of Appeals

116 S.W.3d 438

AQUADUCT, L.L.C., Appellant, v. Travis J. McELHENIE and Wife, Lisa Christian McElhenie, and North American Mortgage Company, Appellees.

No. 14-02-00708-CV.

Court of Appeals of Texas, Houston (14th Dist.).

September 9, 2003.

Rehearing Overruled October 2, 2003.

H. Miles Cohn, Houston, for appellant.

Bradford W. Irelan, E. John Gorman, G.P. Matherne, Houston, for appellees.

Panel consists of Justices YATES, HUDSON, and SEYMORE.

OPINION

CHARLES W. SEYMORE, Justice.

Appellant Aquaduct, L.L.C. challenges the trial court's finding that it authorized its loan servicing agent to receive full payment of a mortgage note and the trial court's award of attorney's fees to appellee, North American Mortgage Company. We affirm.

I. Procedural and Factual Background

In November 1996, Travis McElhenie and Linda Christian ("the McElhenies")¹ executed a promissory note for $28,045.22 in favor of Millennium Interests, Ltd. ("the McElhenie Note") to purchase a homestead. The McElhenie Note required the McElhenies, as mortgagors, to repay Millennium Interests, as mortgagee, "both principal and interest" at 10% annually in "360 monthly principal and interest installments of $216.12 per month," and a tax escrow fee of $15 per month. The first installment was due on November 1, 1996, followed by successive installments payable on the first of each month "until the full amount of the consideration of principal and interest is paid." To secure this mortgage debt, the McElhenies signed a deed of trust ("the Millennium Deed") that same month, granting Millennium Interests a vendor's lien and a deed-of-trust lien in the property. Millennium recorded this deed. Neither the McElhenie Note nor the Millennium Deed established any penalty for early payment of the full amount owing on the mortgage debt.

In April 1997, Millennium transferred the McElhenie Note to Aquaduct, L.L.C., together with the liens securing the McElhenies' mortgage debt.² The transfer of lien instrument instructed the Harris County clerk's office to return the original transfer to Gibraltar Mortgage Corporation ("Gibraltar") after filing. Aquaduct appointed Gibraltar as its loan servicing agent and authorized Gibraltar to collect monthly payments from the McElhenies on the McElhenie Note. As the loan servicing agent, Gibraltar collected principal and interest payments from the McElhenies, accounted for that money to Aquaduct each month, and forwarded the payments to Aquaduct each month.

In September 1998, the McElhenies refinanced their mortgage through National Mortgage Link, I Ltd. ("National Mortgage Link") by renewing and extending the McElhenie Note. To do so, the McElhenies executed a deed of trust naming National Mortgage Link as the beneficiary and a renewal and extension rider accompanying the deed of trust ("Renewed McElhenie Note"). The deed of trust was recorded. In refinancing their mortgage, the McElhenies agreed to pay National Mortgage $86,850, representing the amount they owed under the Renewed McElhenie Note. To secure the Renewed McElhenie Note, the McElhenies encumbered their homestead with a lien in favor of National Mortgage Link.

Old Republic Title Company ("Old Republic") represented National Mortgage Link at the closing of this transaction. At the closing, in a simultaneous transaction, National Mortgage Link assigned the Renewed McElhenie Note and the accompanying deed of trust lien to North American Mortgage Company ("North American"). The deed was recorded. Old Republic requested and obtained from Gibraltar a statement of the total remaining balance on the McElhenie Note. A title insurance policy was also obtained and it revealed in part the lien Millennium assigned to Aquaduct. To take a first lien position on the McElhenies' homestead, National Mortgage Link and North American paid to Gibraltar the remaining balance on the McElhenie Note ($28,126.61) in September 1998. Old Republic, acting on behalf of National Mortgage Link and North American, sent the check to Gibraltar and also asked Gibraltar to execute and return to Old Republic for filing a release of lien or transfer of lien. Gibraltar ignored this request, and deposited the check in its Aquaduct account. However, Gibraltar never paid these funds over to Aquaduct, and Gibraltar apparently converted the funds to its own use.

In August 2000, Aquaduct filed this suit asking the trial court to declare its lien superior to North American's lien on the McElhenie homestead. Aquaduct argued payment to Gibraltar of the full amount owing under the McElhenie Note was improper because Gibraltar only had authority to accept monthly payments of principal and interest. North American counterclaimed for a judgment declaring its lien superior to Aquaduct's lien. Following a bench trial, the court found Aquaduct authorized its agent, Gibraltar, to accept payment in full of outstanding balances on its notes, declared Aquaduct's lien satisfied, and ordered Aquaduct to execute a release of lien.

II. Issues Presented

Aquaduct presents the following issues for review:

(1) Is there evidence to support the trial court's finding that Aquaduct's loan-servicing agent, Gibraltar, had authority to collect final payment on the McElhenie's mortgage note?

(2) Is circumstantial evidence sufficient to support the trial court's finding that Gibraltar had authority to collect final payment on the note?

(3) Was North American entitled to attorney's fees under the Declaratory Judgments Act when its counterclaim was allegedly a suit to clear title?

(4) Was the trial court's award of attorney's fees under the Declaratory Judgments Act equitable and just?

III. Analysis and Discussion

A. Did Gibraltar have authority to collect the final payment on the McElhenie mortgage note?

In its first and second issues, Aquaduct challenges the legal sufficiency of the evidence to support the trial court's finding that Gibraltar had agency authority to collect payment of the outstanding balance on the McElhenie Note. In conducting a no-evidence analysis, we review the evidence in a light that tends to support the disputed findings and disregard all evidence and inferences to the contrary. Lee Lewis Constr., Inc. v. Harrison, 70 S.W.3d 778, 782 (Tex.2001). If more than a scintilla of evidence exists, it is legally sufficient. Id. More than a scintilla of evidence exists if the evidence furnishes some reasonable basis for differing conclusions by reasonable minds about a vital fact's existence. Id. at 782-83.

Aquaduct maintains the trial court improperly relied on circumstantial evidence to infer, from Gibraltar's authority to collect monthly payments of principal and interest, that Gibraltar had authority to collect payment in full on behalf of Aquaduct. The question of agency is usually one of fact, and circumstantial evidence may be used to establish the agency relationship and to determine the scope of the agent's authority. St. Paul Surplus Lines Ins. Co., Inc. v. Dal-Worth Tank Co., Inc., 917 S.W.2d 29, 48 (Tex.App.-Amarillo 1995, no writ); Foundation Reserve Ins. Co. v. Wesson, 447 S.W.2d 436, 438 (Tex.Civ.App.-Dallas 1969, writ ref'd). Absent actual or apparent authority, an agent cannot bind a principal. See Currey v. Lone Star Steel Co., 676 S.W.2d 205, 209 (Tex.App.-Fort Worth 1984, no writ). Both actual and apparent authority are created through conduct of the principal communicated either to the agent (actual authority) or to a third party (apparent authority). See id. at 210. Actual authority denotes that authority which the principal intentionally confers upon the agent, or intentionally allows the agent to believe he has, or by want of ordinary care allows the agent to believe himself to possess. Suarez v. Jordan, 35 S.W.3d 268, 272-73 (Tex. App.-Houston [14th Dist.] 2000, no pet.); see also Spring Garden 79U, Inc. v. Stewart Title Co., 874 S.W.2d 945, 948 (Tex. App.-Houston [1st Dist.] 1994, no writ).

The record shows that Gibraltar had implied actual authority to collect full payment of outstanding balances on behalf of Aquaduct. Aquaduct acquired several mortgage notes, including the McElhenie Note, from Millennium Interests, Ltd. Millennium had hired Gibraltar to service its notes, but required debtors to send payments directly to Millennium, rather than sending them to Gibraltar. After acquiring the notes, Aquaduct kept Gibraltar as the loan servicer without making a written agreement that defined the scope of Gibraltar's authority. Vernon Young, the president of Aquaduct, testified that, although not explicitly discussed, Gibraltar had authority to perform numerous tasks, including authority: (1) to conduct the day-to-day business of handling Aquaduct's notes; (2) to collect and remit monthly payments of principal and interest; (3) to identify any delinquencies; (4) to manage escrow payments; (5) to issue IRS Form 1098 mortgage interest statements to debtors on which Gibraltar was identified as the "lender/recipient" of payments; and (6) to issue "payoff statements" upon request that stated the remaining balance on a note. There was no indication on the payoff statement that a full payment should be made to Aquaduct.

As the servicing agent, Gibraltar sent the McElhenies, and Aquaduct's other newly-acquired debtors, a coupon book and letter in May 1997. The letter stated that servicing of the McElhenie Note had been transferred to Gibraltar and directed the McElhenies to send their payments to Gibraltar and not to Millennium. The letter did not indicate that a full payment should be treated any differently from a regular monthly payment, and the record suggests this is the only payment instruction Aquaduct ever gave its debtors. The letter did not mention Aquaduct or state that Millennium no longer held the mortgage note. Young testified that Aquaduct authorized Gibraltar to send this letter and that Aquaduct never had any communication with the McElhenies or its other debtors.

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