Davis v. Small Business Inv. Co. of Houston

• Decision Date: 23 March 1976
• Docket Number: No. 8355,8355
• Citation: 535 S.W.2d 740,19 UCCRep.Serv. 668
• Parties: 19 UCC Rep.Serv. 668 Leo M. DAVIS, Appellant, v. The SMALL BUSINESS INVESTMENT COMPANY OF HOUSTON, Appellee.
• Court: Texas Court of Appeals

Page 740

535 S.W.2d 740

19 UCC Rep.Serv. 668

Leo M. DAVIS, Appellant, v. The SMALL BUSINESS INVESTMENT COMPANY OF HOUSTON, Appellee.

No. 8355.

Court of Civil Appeals of Texas Texarkana.

March 23, 1976.

Rehearing Denied April 20, 1976.

Wm. Andress, Jr., Andress, Woodgate & Lodewick, Dallas, for appellant.

Gerald R. Coplin, Passman, Jones, Andrews, Coplin, Holley & Co., Dallas, for appellee.

CORNELIUS, Justice.

The Small Business Investment Company of Houston (hereinafter referred to as investment company) sought to recover from Computer Forms, Inc. and Leo Davis the principal and interest due by the terms of two promissory notes. The notes, one for $60,000.00 and one for $9,000.00, had been executed by Computer Forms, and were personally guaranteed by Leo Davis. Davis was President and a substantial stockholder of Computer Forms. Davis and Computer Forms filed a counterclaim for damages on the ground that the investment company had breached an agreement to secure additional financing for Computer Forms. At the close of evidence from all parties, the trial court withdrew the case from the jury and rendered judgment for The Small Business Investment Company against Computer Forms and Davis on the notes, and against Computer Forms and Davis on their counterclaim. Only Davis has appealed.

The evidence viewed most favorably to Davis, showed that Computer Forms was a relatively new business which had never earned a profit, but which Davis felt could be salvaged and put into a profitable position if it could secure $100,000.00 financing within a specified time. Davis approached the investment company for the money, telling them the complete story of Computer Forms' condition and need for the financing. He stated that he needed the money within thirty days. The investment company could only supply $60,000.00 of the necessary financing but agreed to obtain the remaining $40,000.00 from other sources. Although Davis testified, and certain preliminary documents indicated, that the intent was to furnish the additional $40,000.00 within thirty days, the letter of commitment on which the counterclaim was based stated the $40,000.00 would be made available within Two months. The investment company did advance an additional $9,000.00 but failed to furnish the $40,000.00 as agreed. Nevertheless, Davis obtained the additional $40,000.00 within the sixty day period from West Central Capital Corporation through his own efforts. Certain equipment and machinery had been mortgaged to the investment company to secure the notes. Upon default in payment of the notes, the investment company took possession of the collateral and later sold it for the sum of $16,057.82. Judgment was for The Small Business Investment Company for $99,755.00 principal and interest on its notes, together with attorney's fees and expenses incurred in preserving and storing the collateral. The expenses amounted to $23,060.41. A credit against expenses was allowed for the $16,057.82 received from the sale, leaving $7,002.59 net expenses. The investment company was awarded judgment for 60% Of those expenses. Since West Central Capital Corporation also had a security interest in the collateral to secure its $40,000.00 loan, it assumed 40% Of the expenses with the corresponding right of reimbursement from Davis.

Davis contends he was entitled to recover damages for the investment company's breach of the agreement to secure the additional financing, and that he produced sufficient evidence supporting his counterclaim to take his case to the jury. He also contends that the trial court erred in allowing the investment company to recover expenses for preserving and storing the collateral, since there was no evidence that the amounts expended therefor were reasonable.

There is a recognized cause of action for breach of an agreement to loan money. Annotation, 36 A.L.R. 1408. If, as he alleged and testified, Davis was a party to the agreement or if it was for his benefit, he could maintain such a cause of action in his own right. But upon the breach of such an agreement, the plaintiff is required to avoid or mitigate his damages by securing the money from other sources if it is available. Western Union Tel. Co. v. Hearne, 7 Tex.Civ.App. 67, 26 S.W. 478 (1894, no writ); Annotation, 36 A.L.R. 1416. Damages will be allowed only to the extent of the excess, if any, in the amount of interest the plaintiff was compelled to pay, unless he can show other damages which were reasonably within the contemplation of the parties at the time the agreement was made. Collins Inv. Co. v. Sallas, 260 S.W. 261 (Tex.Civ.App. Texarkana 1924, writ ref'd); Annotation, 36 A.L.R. 1410 et seq. In this case the written commitment for the loan specified that the additional $40,000.00 was to be furnished within two months. Although obtained from a different source and as a result of Davis' personal efforts, admittedly the money was received within that time, and there was no pleading or evidence of any loss due to excess interest charges. Therefore, neither Computer Forms nor Davis suffered any loss by reason of the investment company's failure to furnish the money, unless some special damages within the contemplation of the parties resulted therefrom. Davis attempted to show such damages by proof that he was forced to put $35,000.00 of his own money into the business. But the very fact that he was compelled to put his own money into the venture even though the additional $40,000.00 was obtained within the time specified shows there was no causally related loss in that regard. The undisputed evidence showed that his contribution would have been necessary even if the investment company had complied fully with its agreement. Davis also contended that Computer Forms suffered a loss of profits because of the breach of the loan agreement, and because the breach forced him to spend time away from the management of the business 'hustling money'. However, the undisputed evidence revealed that when the agreement for financing was negotiated, Computer Forms was in severe economic difficulty and had never operated at a profit. Davis testified the '. . . current difficulty required a hundred thousand dollars in order to satisfy creditors of that moment, plus additional operating capital that would be needed for it to continue as a going business. . .'. He also testified that Computer Forms 'never turned a profit' and 'never got out of the red ink'. There was no evidence tending to show that the company could have ever made a profit. There was no evidence of contracts or sales which could have been anticipated, the cost of doing business, or the estimated profits, if any, which could be expected from any sales which might be made. In short, any award of lost profits here would necessarily be based upon pure speculation. Uncertainty as to the amount of damages is not fatal to recovery, but...