Bank One, Texas, N.A. v. Stewart

• Court: Court of Appeals of Texas
• Citation: 967 S.W.2d 419
• Docket Number: No. 14-93-00899-CV,14-93-00899-CV
• Parties: 36 UCC Rep.Serv.2d 894 BANK ONE, TEXAS, N.A., Bonnet Resources Corporation, Trendmaker, Inc., and Weyerhaeuser Real Estate Company, Appellants, v. Maco STEWART and Leisure Resorts, Inc., Appellees. (14th Dist.)
• Decision Date: 29 January 1998

Page 419

967 S.W.2d 419 36 UCC Rep.Serv.2d 894 BANK ONE, TEXAS, N.A., Bonnet Resources Corporation,
Trendmaker, Inc., and Weyerhaeuser Real Estate
Company, Appellants,
v.
Maco STEWART and Leisure Resorts, Inc., Appellees. No. 14-93-00899-CV. Court of Appeals of Texas,
Houston (14th Dist.). Jan. 29, 1998.
Rehearing Overruled March 26, 1998.

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H. Miles Cohn, Lynne Liberato, Jeff Nobles, Maria Teresa Arguindegui, Brendan D. Cook, Houston, for appellants.

M.H. Cersonsky, Michael C. O'Connor, Mynde S. Eisen, John H. Bennett, Jr., Houston, for appellees.

Before LEE, HUDSON and EDELMAN, JJ.

OPINION ON MOTION FOR REHEARING

HUDSON, Justice.

On consideration of appellant's motion for rehearing, we withdraw the majority and concurring opinions of June 26, 1997, and substitute the following opinion.

Appellants, Bank One, Texas, N.A., Bonnet Resources Corporation, Trendmaker, Inc., and Weyerhaeuser Real Estate Company appeal from a $17,000,000 judgment arising out of the sale of a defaulted note to a maker of a collateral note securing the defaulted note, and the subsequent foreclosure of the collateral note. In eighteen points of error, Bank One, Texas, N.A. and Bonnet Resources (collectively "Bank One") assert the trial court erred in submitting jury questions and granting judgment regarding an alleged breach of a bailment agreement, breach of the duty of good faith and fair dealing, conspiracy to commit fraud, and failure to comply with

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Section 9.207(a) of the Texas Business and Commerce Code. Bank One also challenges the legal and factual sufficiency of the evidence to support the judgment and to award actual and exemplary damages as well as attorney fees. In addition, Bank One asserts the trial court made errors in the submission of the jury charge.

In eight points of error, Trendmaker asserts the trial court erred in submitting jury questions and entering judgment on claims of breach of a bailment agreement, tortious interference with a contract, breach of the duty of good faith and fair dealing, conversion, civil conspiracy to commit fraud and commercial unreasonableness, and in awarding actual and punitive damages and attorney fees.

In twenty-nine points of error, Weyerhaeuser Real Estate Company (Weyerhaeuser) asserts the trial court erred in submitting jury questions and entering judgment on findings that it committed fraud, engaged in a civil conspiracy to commit fraud, tortiously interfered in a business relationship, and acted with malice. Weyerhaeuser also challenges the legal and factual sufficiency of the evidence to support the judgment related to these claims and asserts error in the submission of erroneous instructions and questions related to corporate identity, damages, attorney fees, and prejudgment interest. In addition, Weyerhaeuser contends the trial court erred in refusing its proposed instructions, entering judgment on the basis of jury findings against Trendmaker and Bank One, excluding evidence, and admitting the testimony of an undisclosed expert witness.

Appellee Maco Stewart (Stewart) brings two cross-points complaining of the award of attorney fees and asking for recovery under the theory providing the greatest relief. Appellee Leisure Resorts, Inc. (LRI) brings three cross-points complaining of the award of attorney fees, the calculation of prejudgment and postjudgment interest and the trial court's refusal to rescind the Trendmaker foreclosure sale. We reverse and render.

I. Background

A. Stewart Sells Bay Colony to LRI

In 1984, Stewart sold two large tracts of an 890 acre tract of real estate known as Bay Colony to two companies owned by Tyler Todd (Todd), namely, Todd Development Company (TDC) and TDT Development Company. TDT Development Company, which later became LRI, ¹ purchased the northern tract and TDC purchased the southern tract of Bay Colony. Stewart retained a purchase money lien on the northern tract to secure repayment of $1,500,000 of financing that he provided to LRI. Stewart's interest in Bay Colony was subordinate to a first lien held by Ameriway Savings Association (Ameriway) securing a $1,650,000 loan to LRI.

B. LRI Sells Bay Colony to the Midlands Associates

On March 25, 1985, LRI sold its interest in Bay Colony to the Midlands Associates, a joint venture consisting of Trendmaker and Commonwealth Realty Development Company (Commonwealth Realty). As partial payment of the purchase price, the Midlands Associates executed a promissory note for $9,031,214 (the Midland Note) in favor of LRI, secured by the northern tract of Bay Colony. ² At the same time, LRI endorsed and collaterally assigned the Midland Note to Ameriway, which advanced additional money to LRI and TDC (the Ameriway Note). ³ The joint venturers to the Midlands Associates and their parent corporations ⁴ executed a letter to LRI, TDC and Ameriway guaranteeing

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each joint venturer's obligation to make capital contributions to the Midlands Associates. On the same day, LRI restructured its prior debt to Stewart by executing another promissory note in favor of Stewart for $1,450,000 (the Stewart Note), secured by a second lien in the Midland Note. By letter, Ameriway, Stewart, and LRI acknowledged Stewart's status as a subordinate secured party in the Ameriway Note and agreed that Ameriway would act as bailee for Stewart. ⁵

C. Trendmaker and Commonwealth Restructure their Joint

Venture Relationship

The Midlands Associates began to develop Bay Colony. Trendmaker provided the expertise in development and Commonwealth provided the financing. Nevertheless, on May 18, 1988, Trendmaker and Commonwealth Realty terminated their joint venture relationship in the Midlands Associates and in another joint venture entity. In exchange ⁶ for Commonwealth's interest in the other joint venture entity, Trendmaker assigned its interest in the Midlands Associates and its assets to Commonwealth Realty. Thus, Commonwealth Realty and another Commonwealth entity became the sole owner of the Midlands Associates and its assets, including the northern tract of Bay Colony. As consideration for the assignment, Commonwealth Realty "assumed full payment of all of the debts and obligations of Midlands Associates." Commonwealth also agreed to indemnify Trendmaker for its liabilities relating to the Midland Note.

D. MBank Replaces Ameriway and LRI Restructures Debt with MBank

A short time later, Ameriway resigned as lead agent on the Ameriway Note. On June 3, 1988 Ameriway assigned to MBank an interest in the Ameriway Note and its collateral, the Midlands Note. ⁷ Consequently, MBank, Houston, N.A. became the lead lender and Commonwealth Savings a participant lender on the LRI Note. LRI restructured its debt and executed a commercial revolving credit note in favor of MBank ⁸ for $5,719,769 (the LRI Note). At this time Todd became aware that Trendmaker was no longer a partner in the Midlands Associates.

By letter agreement, MBank acknowledged Stewart's status as a subordinate secured party in the Midland Note under the terms governing LRI's assignment of the Midland Note to Ameriway on March 25, 1985. In the same letter, Stewart agreed his interest in the Midland Note would remain subordinate to MBank's interest even if the Stewart loan was renewed, extended or rearranged. Subject to those terms, MBank agreed to act as bailee for the Stewart Note solely for the purpose of perfecting Stewart's security interest in the Midland Note (the Bailment Agreement). On June 1, 1988, LRI directed MBank by letter to disburse the proceeds remaining after payment of the LRI Note, from the funds MBank received from the Midlands Associates, to Stewart for payment due on the Stewart Note (the Collection Letter).

E. Bank One Acquires the LRI Note

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In 1989, MBank failed ⁹ and Bank One was formed to purchase MBank's assets. Pursuant to a Purchase and Assumption Agreement effective March 28, 1989, Bank One acquired MBank's seventy percent interest in the LRI Note. ¹⁰ Bank One's subsidiary and agent, Bonnet Resources, handled the LRI Note and its collateral, the Midland Note, on behalf of Bank One. Bonnet collected payment on the Midland Note from Commonwealth Savings and distributed funds remaining after payment of the LRI Note according to Todd's instructions in the Collection Letter to MBank.

F. The Midlands Associates Default on the Midland Note

Also in 1989, Todd filed for personal bankruptcy and his other company, TDC, filed for corporate bankruptcy. Commonwealth Savings Association, the parent corporation of Commonwealth Realty, failed and came under control of the Resolution Trust Corporation (the RTC). The Midlands Associates, comprised of Commonwealth Realty and other Commonwealth entities but controlled by the RTC, defaulted on its December 1989 payment on the Midland Note. As a result of the Midland default, LRI defaulted on both the LRI Note and the Stewart Note.

In early 1990, Bank One initiated collection of the LRI Note through its agent and affiliate, Bonnet Resources. After meeting with Todd, Bank One agreed to forego adverse action against LRI for sixty days while LRI pursued collection of the Midland Note. Instead of pursuing Trendmaker, Todd unsuccessfully directed his efforts primarily to marketing Bay Colony to potential buyers. ¹¹

During the moratorium, both Stewart and Trendmaker approached Bank One about purchasing the LRI Note. ¹² Stewart declined to make an offer on the LRI Note because he was unable to obtain financing, but invited Bank One to join him in suing Trendmaker and Weyerhaeuser to recover on the Midland Note. Bank One rejected Trendmaker's initial offer but informed Trendmaker that it would seriously entertain "a proposal encompassing a discount of 5% to 10% of the outstanding balance" due on the LRI Note. In the meantime, Stewart filed suit against Trendmaker, Weyerhaeuser, the Commonwealth entities, and the Midlands Associates, and joined LRI, Bank One and...