Cadle Company v. Regency Homes Inc.

• Citation: 21 S.W.3d 670
• Parties: (Tex.App.-Austin 2000) The Cadle Company, Appellant v. Regency Homes, Inc. and Gene Rutland, Appellees NO. 03-99-00318-CV
• Decision Date: 15 June 2000
• Court: Texas Court of Appeals

Page 670

21 S.W.3d 670 (Tex.App.-Austin 2000)

The Cadle Company, Appellant v. Regency Homes, Inc. and Gene Rutland, Appellees

NO. 03-99-00318-CV

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

June 15, 2000

FROM THE DISTRICT COURT OF BELL COUNTY, 146TH JUDICIAL DISTRICT NO. 149,538-B, HONORABLE RICK MORRIS, JUDGE PRESIDING

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Before Chief Justice Aboussie, Justices B. A. Smith and Yeakel; Justice Yeakel not participating

ON MOTION FOR REHEARING

Bea Ann Smith, Justice

The opinion and judgment issued herein on March 30, 2000 are withdrawn, and the following opinion is substituted in lieu of the earlier one.

Appellant, The Cadle Company (Cadle), brought suit against appellees, Regency Homes, Inc. (Regency) and Gene Rutland,¹ guarantor, for payment of three promissory notes. The case was tried to the bench. Finding that the notes had been paid and that Cadle did not own the guaranty, the trial court ordered that Cadle take nothing against either defendant. We hold that the take-nothing judgment is not supported by any of the grounds advanced and that the trial court erred in concluding that Cadle did not own the guaranty. We will reverse and remand to the district court for a new trial.

FACTUAL AND PROCEDURAL BACKGROUND

Regency, a now-defunct corporation engaged in homebuilding, executed three notes payable to Texas American Bank/Temple on October 11, 1988: one for $10,000, one for $25,062.19, and one for $88,977.60.² The notes all provided for variable interest rates that fluctuated according to the bank's prime rate. All three notes matured on April 10, 1989. Texas American Bank failed on July 20, 1989. Regency and Rutland do not dispute that the originals of these notes, signed by Rutland, were entered in evidence during the trial. Each note referenced a security agreement that no party was able to locate.

On March 4, 1988, Rutland, as president and sole shareholder of Regency, executed an unlimited personal guaranty of Regency's indebtedness to Texas American Bank; he agreed to guarantee "the prompt and full payment to Bank of all indebtedness and liabilities of all kinds which are now or hereafter may be owing to Bank [by Regency]." Rutland does not dispute that the original guaranty he signed was entered into evidence during the trial.

After Texas American Bank failed, the Federal Deposit Insurance Corporation (FDIC) transferred the bank's assets to Team Bank, which later merged with Bank One. Cadle purchased the three notes in question from Bank One on November 29, 1993. The loan sale agreement package contained Regency's three promissory notes and Rutland's original guaranty; it did not contain a security agreement. The notes were endorsed from the FDIC to Bank One, and from Bank One to Cadle. The endorsements were not challenged at trial nor are they challenged on appeal. None of the three notes was marked paid, in full or in part.

Believing that the notes were in default, Cadle demanded payment from both Regency and Rutland in June 1994. When appellees failed to respond, Cadle filed this suit in July 1994. Appellees waited more than three years to file an answer.

Following a bench trial, the trial court rendered a take-nothing judgment against Cadle and entered findings of fact and conclusions of law. In nine points of error, Cadle challenges nine of the findings of fact and all seven conclusions of law.

STANDARD OF REVIEW

In seven of its nine points of error, Cadle challenges the legal and factual sufficiency of the evidence to support certain findings of fact by the trial. We attach to a court's findings of fact the same weight that we attach to a jury's verdict upon jury questions. See Lawyers Sur. Corp. v. Larson, 869 S.W.2d 649, 653 (Tex. App.--Austin 1994, writ denied). To review the evidence under a legal insufficiency or no-evidence point, we consider all the evidence in the light most favorable to the prevailing party, indulging every reasonable inference in that party's favor. See Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 285-86 (Tex. 1998). We will uphold the finding if more than a scintilla of evidence supports it. See Burroughs Welcome Co. v. Crye, 907 S.W.2d 497, 499 (Tex. 1995). The evidence supporting a finding amounts to more than a scintilla if reasonable minds could arrive at the finding given the facts proved in the particular case. See id.

When reviewing the factual sufficiency of the evidence, we must consider and weigh all the evidence and should set aside the judgment only if the evidence is so weak or so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. See Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986). We will not substitute our judgment for that of the trier of fact merely because we might reach a different conclusion. See Westech Eng'g, Inc. v. Clearwater Constructors, Inc., 835 S.W.2d 190, 196 (Tex. App.--Austin 1992, no writ).

TAKE-NOTHING JUDGMENT

To collect on a promissory note, a plaintiff must establish: (1) the existence of the note in question, (2) the defendant signed the note, (3) the plaintiff is the owner and holder of the note, and (4) a certain balance is due and owing on the note. See Commercial Serv. of Perry, Inc. v. Wooldridge, 968 S.W.2d 560, 564 (Tex. App.--Fort Worth 1998, no pet.). Establishing the amount of interest owed can be problematic when the note in question contains a variable interest rate, as is the case in this dispute; the difficulty grows when the variable interest rate is indexed to the prime rate of a defunct bank. Even if the holder of the note succeeds in establishing the elements entitling it to collection, the debtor may defeat collection by asserting and proving the affirmative defense of payment. See Southwestern Fire & Cas. Co. v. Larue, 367 S.W.2d 162, 163 (Tex. 1963). If the debt is secured by a lien on intangible property, such as a note receivable, and a creditor wishes to sue for a deficiency after foreclosing the lien, it must first give the debtor notice of the intent to dispose of the property and must dispose of the property in a commercially reasonable manner. See Tex. Bus. & Com. Code Ann. § 9.504 (West 1991).

The trial court's findings of fact and conclusions of law reveal several bases for its take-nothing judgment against Cadle. First, the trial court found that each of the three promissory notes had been paid or compromised in full. Additionally, the court held that Cadle did not prove that a certain balance was due on any of the promissory notes. Apparently the trial court reached this conclusion because of the variable interest rate set forth in each note. Seemingly for the same reason, the trial court concluded that the notes were not, and never had been, negotiable instruments. Further, the court found that the defendants were not indebted to Cadle because a predecessor in interest had not disposed of collateral in a commercially reasonable manner. See id. Cadle attacks each of these conclusions and raises factual and legal sufficiency challenges to the underlying findings of fact. We address each ground that might support the take-nothing judgment. In reviewing the evidence we, like the trial court, are presented with a confusing and disjointed record of the transactions relevant to resolution of this dispute.

I. Payment

Cadle's possession of the original notes, Rutland's acknowledgment that he executed them, and the fact that the notes were not marked paid, constituted prima facie proof that the notes remained unpaid. See Naylor v. Gutteridge, 430 S.W.2d 726, 731 (Tex. App.--Austin 1968, writ ref'd n.r.e.). Rutland raised the affirmative defense of payment, and the trial court found that all three notes had been paid. On appeal, Cadle contends that the evidence is legally and factually insufficient to support this finding. See Larue, 367 S.W.2d at 162 (defendant has burden to prove affirmative defense of payment); Titlow v. Devine, 650 S.W.2d 143, 144 (Tex. App.--Houston [14th Dist.] 1983, no writ) (defendants required to prove payment by preponderance of the evidence).³

We first address whether Rutland established that the $88,873.26 note held by Cadle had been paid. At trial, Rutland contended that the $88,873.26 note was actually a renewal of an interim construction loan and had been paid by foreclosure on the collateral securing the loan. In 1985 Regency obtained an interim construction loan from Texas American Bank (the bank) in the original sum of $82,750 to finance construction of a house that Regency built at 410 Northcliffe Drive in Belton. In 1987 Regency sold the home, taking a note receivable from Jack and Donna Brown for $104,025 (the Brown note receivable). The $82,750 interim construction loan was not paid off at that time. Instead, Regency claims to have renewed the interim construction note plus interest in some amount approximating $88,000.⁴ Regency pledged the Brown note receivable to the bank as security for this renewal note and for a $10,000 note that represented the accumulation of interest that Regency owed the bank on other indebtedness. The bank's release of lien securing the original $82,750 interim construction note, Regency's deed to the Browns, the Browns' Deed of Trust in favor of Regency, and Regency's transfer of lien in favor of the bank were all executed on November 17, 1987. All of these documents are in the record. What is not in the record is the security agreement or the note representing the renewal of the interim construction loan; we do not even know the principal amount of that note. But Rutland asked the trial court to believe, and the trial court apparently did believe, that this renewal of the interim construction loan was the $88,873.26 note held by Cadle. Rutland and the trial court further assumed that the $10,000 note held by Cadle was the same $10,000 note that was also secured by the Brown note receivable of...