Armstrong v. Steppes Apts.

• Decision Date: 06 July 2001
• Docket Number: No. 2-97-250-CV,2-97-250-CV
• Citation: 57 S.W.3d 37
• Parties: (Tex.App.-Fort Worth 2001) DONALD E. ARMSTRONG, TRUSTEE OF THE DONALD E. ARMSTRONG FAMILY TRUST AND THE DONALD E. ARMSTRONG CHARITABLE REMAINDER UNITRUST; BOY'S CLUBS OF SAN DIEGO; JENNIFER POTTER; JERRY B. JAMES; AND THE NATIONAL ABILITY CENTER, APPELLANTS v. STEPPES APARTMENTS, LTD. AND JOHN L. FEECE, APPELLEES
• Court: Texas Court of Appeals

Page 37

57 S.W.3d 37 (Tex.App.-Fort Worth 2001)

DONALD E. ARMSTRONG, TRUSTEE OF THE DONALD E. ARMSTRONG FAMILY TRUST AND THE DONALD E. ARMSTRONG CHARITABLE REMAINDER UNITRUST; BOY'S CLUBS OF SAN DIEGO; JENNIFER POTTER; JERRY B. JAMES; AND THE NATIONAL ABILITY CENTER, APPELLANTS v. STEPPES APARTMENTS, LTD. AND JOHN L. FEECE, APPELLEES

No. 2-97-250-CV

Court of Appeals of Texas, Fort Worth

July 6, 2001

From the 67th District Court of Tarrant County

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

PANEL A: DAY and LIVINGSTON, JJ.

OPINION

DAY, JUSTICE

INTRODUCTION

Appellees Steppes Apartments, Ltd. ("Steppes") and John L. Feece brought this declaratory judgment action against appellant Donald E. Armstrong, Trustee of the Donald E. Armstrong Family Trust and the Donald E. Armstrong Charitable Remainder Unitrust, for a declaration of whether Steppes was in default under loan documents securing the purchase of an apartment complex. After a non-jury trial, the trial court determined that Steppes was not in default and that Armstrong contracted for, charged, and received usurious interest in an amount more than double that allowed by law. The trial court ordered all principal and interest under the two notes forfeited, assessed fines of three times the amount of usurious interest, and awarded attorneys' fees.

Armstrong¹ raises 122 points on appeal. We affirm.²

FACTUAL BACKGROUND

On September 29, 1994, Steppes entered into a sales agreement to purchase an apartment complex located in Fort Worth, Texas. The sellers, the Donald E. Armstrong Charitable Remainder Unitrust and the Donald E. Armstrong Family Trust, were represented by their trustee, Donald E. Armstrong. On September 29, 1994, Steppes executed two promissory notes: one in favor of the Unitrust in the original principal amount of $1,071,500 and one in favor of the Family Trust in the original principal amount of $375,250. Both notes were secured by deeds of trust. Steppes' president, John L. Feece, also executed a personal guaranty in favor of the trusts.

Both notes had a sliding interest scale. For the first 3 months, interest accrued at the rate of 2 percent. The interest rate rose by 2 percent every 3 months for the remainder of the first year. The interest rate was 8.5 percent during the second year, 9 percent during the third year, and 10 percent during the fourth through eleventh years. The notes provided for deferred down payments which were subject to a 9 percent interest rate. The notes also provided for a 13.5 percent per annum default interest rate and a 7 percent late charge.

On October 12, 1994, Armstrong demanded that the Steppes create impound or reserve accounts for the payment of taxes and insurance and proposed how he thought this should be done. Impound accounts had not been created prior to the closing; however, the deeds of trust provided that

[i]f requested by the Beneficiary at any time, Grantor shall pay to the Beneficiary on the first day of each month or at such other times as may be specified by Beneficiary such amounts as the Beneficiary may from time to time estimate to be necessary to create and maintain a reserve fund from which to pay, before the same become due, all taxes, assessments, liens and charges on or against the mortgaged property, and all premiums for insurance required hereunder.

Armstrong also sought reimbursement for the prepayment of utility bills, requested copies of insurance polices, and insisted that he be named individually, in addition to the two trusts, on the insurance policies.

On the same day, Armstrong sent Feece a fax asking Steppes to pay half of a revised bill from P. E. Pennington and Company that Armstrong received after closing. Armstrong also stated that he would just "keep" a $3,194 check from the City of Fort Worth Housing Authority for October rents and utilities that Feece had sent him to endorse and return. Armstrong explained that he estimated he was owed approximately $5,000 for pre-paid utilities in addition to rents prior to September 29. He credited Steppes $1,868 from the check toward utility payments.

Feece responded on October 18, 1994. He rejected Armstrong's proposed plan for reserve accounts, informed Armstrong that he had procured insurance for the apartment complex, and stated that, according to the deeds of trust, Steppes would pay 1/12th of the annual property taxes on a monthly basis. He also proposed an alternate plan for payment of those reserves. Feece claimed Steppes was not responsible for any additional P. E. Pennington and Company charges because those fees had been finally prorated prior to closing. Feece refused to unconditionally accept Armstrong's estimate of utility charges due. He also asked Armstrong to return $1,868 from the Housing Authority check because it was attributable to October rent and $88.40 which was the prorated amount of September rent owed to Steppes. Feece warned that if Steppes did not receive these amounts, Steppes would deduct them from the first note payment.

Armstrong deposited the Fort Worth Housing Authority check into his own account. Part of the check included monies attributable to after-closing rents due to Steppes. Armstrong deducted Steppes' share of the rents included in the check and applied it to utility bills. Armstrong was not aware of any document that authorized him to do so. The loan documents provided that Armstrong would be reimbursed for utility charges if, as, and when they were paid by the tenants. John Feece and his wife, Rosalie, testified that they sent Armstrong all monies he was ever due for utilities. Armstrong admitted that he received utility reimbursements, but he testified they were unacceptable to him.

In an October 25, 1994 letter, Armstrong rejected the Feeces' proposal concerning impound accounts. He told the Feeces that he was "going to get some lenders to provide me with information on how they begin impound accounts. I imagine they will require at least two months tax and insurance impounds in advance. I suggest you explore that yourself." He also said "The biggest issue for me is having me named individually as additional insured. . . . The fact that you are not obligated to do that is not the issue."

In its first payment, which was due November 1, 1994, Steppes offset the amount of the Housing Authority check that Armstrong refused to return. Feece instructed Armstrong to credit the withheld monies to interest due under each note.

On November 1, 1994, the day the first payments were due under the notes, Armstrong declared Steppes in default on both notes and claimed to be entitled to the 13.5 per annum percent default interest rate. The bases for his default claim were that: (1) Steppes did not use its "best efforts" to reconcile utility charges due to the trusts; (2) Steppes did "not abid[e] by my requests on the tax and insurance impounds"; (3) Steppes did not provide Armstrong with copies of the insurance policies or proof of payment of the first year's insurance premium; and (4) the insurance policies contained incorrect additional insurance endorsements for the two trusts and did not name Armstrong individually as an additional insured. Armstrong gave Steppes ten days, or until November 11, to cure these defaults. Armstrong testified that as of November 1, he wanted 2 months' reserve for insurance and taxes.

Steppes attempted to cure. Feece paid Armstrong the full amount of the first payment due by November 3, 1994. Because Armstrong's demands concerning the insurance and tax reserve accounts and the prepaid utilities were inconsistent, the Feeces took Armstrong up on his suggestion that they calculate the amounts themselves. They calculated how much they thought Armstrong was entitled to and sent him checks for those amounts. Armstrong found that unacceptable. He explained "I cannot accept this check [for pre-paid utility reimbursements]. This situation is too complicated and I am concerned accepting or depositing this check will confuse the default issues. . . . Please cure all the defaults or none."

Armstrong sent Steppes another letter on November 10 stating that the matters had not been cured and giving Steppes 24 hours to cure the alleged defaults and avoid acceleration of the debt. Armstrong continued to insist that he be named individually on the insurance policy as an additional insured and that Steppes pay the P. E. Pennington and Company bill and Armstrong's estimate of utility reimbursement charges before those funds were received by Steppes. Armstrong also stated he would be satisfied with a 1-month reserve fund because he had learned that federal law would not allow a 2-month reserve fund. At trial, Armstrong admitted that he knew neither the notes nor the deeds of trust authorized him to make some of the demands he made in the November 10th letter such as his demands for payment of the P.E. Pennington and Company bill, reimbursement of all utilities by November 11th, and payment of his attorneys' fees. Up until November 11, Armstrong never provided the Feeces with an amount they could pay to satisfy his demand for a reserve account even though the deeds of trust required him to do so, nor did he inform them of the other amounts he would accept to cure the alleged default.

Armstrong accelerated the amounts due under the notes on November 11, 1994 and claimed that the default interest rate of 13.5 percent per annum went into effect on that day. He did not inform the Feeces that he had accelerated, but at trial testified that he sent them notice of his intent to exercise the option to accelerate. He interpreted the deeds of trust as waiving notice of acceleration.

Steppes filed a declaratory judgment action on November 17, 1994, seeking a declaration of whether it was in default Armstrong filed a counterclaim, and Feece intervened.

Steppes paid Armstrong an $80,375 installment of deferred down payments on March 29, 1995. The Feeces testified...