Escalante v. Luckie

• Decision Date: 09 May 2002
• Docket Number: No. 11-01-00014-CV.,11-01-00014-CV.
• Parties: Jorge ESCALANTE, Appellant, v. D.D. LUCKIE and Harry K. Myers, Jr., Appellees.
• Court: Texas Court of Appeals

77 S.W.3d 410

Jorge ESCALANTE, Appellant, v. D.D. LUCKIE and Harry K. Myers, Jr., Appellees.

No. 11-01-00014-CV.

Court of Appeals of Texas, Eastland.

May 9, 2002.

Rehearing Overruled June 27, 2002.

J. Mark Chevallier, Jeffrey R. Sandberg, McGuire, Craddock & Strother, Dallas, for Appellant.

Kent F. Brooks, Law Office of Kent F. Brooks, Randall C. Reed, Weiner Glass & Reed, Attorneys At Law, Michael L. Jones, Henry & Jones, Attorneys At Law, Timothy A. Duffy, Burleson Pate & Gibson, Attorneys At Law, Dallas, for Appellees.

Panel consists of ARNOT, C.J., and WRIGHT, J., and McCALL, J.

Opinion

TERRY McCALL, Justice.

Jorge Escalante is the holder of two promissory notes by American Teletronics, Inc. (ATI) to MainBank and a third promissory note by Bent Tree Group, Inc. (Bent Tree) to MainBank. Escalante had pledged certificates of deposit to Main-Bank as additional security to facilitate the loans from MainBank to ATI and Bent Tree. ATI and Bent Tree failed to pay the notes, and MainBank forced Escalante to liquidate his pledged CDs and pay the proceeds to MainBank. MainBank endorsed all three notes to Escalante. Escalante sued ATI and Bent Tree, as makers, and four individuals, John N. Stogner, Dal McKinney, D.D. Luckie, and Harry K. Myers, Jr., as guarantors. After a bench trial, the trial court entered a default judgment against ATI, Bent Tree, and McKinney; entered an agreed judgment against Stogner; and entered a judgment in favor of Luckie and Myers. Luckie and Myers presented no evidence during the trial. We affirm in part, reverse and render in part, and reverse and remand in part.

Escalante asserts that there is no evidence to support the trial court's judgment or, in the alternative, that the trial court's judgment is against the great weight and preponderance of the evidence. Escalante argues that the trial court erred because: (1) the guarantees and the underlying notes were admitted into evidence; (2) Escalante proved that he is the owner and holder of the guarantees of the August 24, 1998, note (Note 2) executed by Myers and Luckie; (3) Escalante proved that the $274,511.06 CD dated August 20, 1997, was the subject of the Luckie and Myers guarantees and that the CD was lost or forfeited; (4) Escalante proved the amount of money advanced on the line of credit note and the amounts due under the three notes; and (5) Escalante proved that he was obligated to MainBank for payment of the $150,000.00 note (Note 3).

Standard of Review

The trial court expressly found that Escalante failed to prove certain elements of his claims against Luckie and Myers. An appellate court liberally construes the issues on appeal in order to obtain a just, fair, and equitable adjudication of the rights of the litigants. We look not only at the wording of the issues but also to the argument under each point to determine the intent of the party. Holley v. Watts, 629 S.W.2d 694, 696 (Tex.1982). Although his issues on appeal are not stated in terms of legal and factual sufficiency challenges, we find that Escalante has raised both legal and factual insufficiency points.

When an appellant attacks the legal sufficiency of an adverse finding on an issue on which it has the burden of proof, appellant must demonstrate on appeal that the evidence establishes, as a matter of law, all vital facts in support of the issue. Dow Chemical Company v. Francis, 46 S.W.3d 237, 241 (Tex.2001). When a party attacks the factual sufficiency of an adverse finding on an issue on which it has the burden of proof, the party must demonstrate on appeal that the adverse finding is against the great weight and preponderance of the evidence. Id. at 242. Because he had the burden of proof at trial, Escalante must demonstrate on appeal either: (1) that he established each element as a matter of law or (2) that the trial court's finding as to the failure of proof of the element was against the great weight and preponderance of the evidence. Williford Energy Company v. Submergible Cable Services, Inc., 895 S.W.2d 379, 383-84 (Tex.App.-Amarillo 1994, no writ).

Note 1—$500,000.00 Revolving Line of Credit

Myers, as chairman, and Luckie, as secretary, on behalf of ATI executed Note 1 to MainBank. Note 1 was dated August 20, 1997, and was a $500,000.00 revolving line of credit. On its face, Note 1 stated that it was a renewal of a prior note. The first paragraph of the note reads:

For value received, I promise to pay you, or your order, at your address listed above the PRINCIPAL sum of FIVE HUNDRED THOUSAND AND NO/100 Dollars $500,000.

Note 1 reflects that ATI received $79,300.00 as the first advance on August 20, 1997. It was a demand note. If no demand was made, then interest was payable quarterly, and the principal was due August 20, 1998.

Luckie was not only acting on behalf of ATI as its secretary; he also executed some of the documents on behalf of Escalante as Escalante's attorney-in-fact. Escalante testified that he and Luckie had known each other for 30 years and that they had been involved in numerous business transactions with each other. On August 20, 1997, Luckie, as Escalante's attorney-in-fact, pledged Escalante's $274,511.06 CD No. 10038570 to MainBank as security for Note 1 and "all extensions, renewals, modifications and substitutions." The record contains both the assignment by Escalante of the CD to MainBank and the separate endorsement on the CD that states that the CD was "being held at MainBank as collateral on loan in name of American Teletronics Inc." Myers and Luckie both testified that Escalante pledged his CD to secure Note 1.

Escalante also introduced into evidence guarantee agreements dated August 14, 1995, that were executed by Myers and Luckie. The first paragraph of the guarantee agreements states that:

The Undersigned, [Luckie][Myers], a shareholder of American Teletronics, Inc., hereby unconditionally guarantees payment and performance of all obligations of American Teletronics, Inc. to Jorge A. Escalante arising under or related to the Collateral Accommodation Agreement, attached hereto (the "CA Agreement") and the Undersigned unconditionally agrees to indemnify and hold harmless Escalante from any and all claims, actions, or causes of action, losses or expenses that he may suffer or incur because or by reason of his pledge of his $250,000 certificate of deposit to MainBank to secure the payment and performance of the obligations of American Teletronics, Inc.'s to MainBank under a letter of credit issued to Continental Casualty Company and/or Transportation Insurance Company and/or Transcontinental Technical Services, Inc.; provided, however, the liability of the Undersigned is limited to [10 percent in the case of Luckie and 30 percent in the case of Myers] of the total liability of American Teletronics, Inc., to Escalante. (Emphasis in original)

The Collateral Accommodation Agreement (the CAA), also dated August 14, 1995, between ATI and Escalante sets forth why Escalante pledged his $250,000.00 CD to MainBank. ATI wanted to have the use of $420,000.00 of its $2,100,000.00 worker's compensation insurance deposit with Continental Casualty Company (Continental). Continental required a one-year letter of credit from MainBank to make certain that the $420,000.00 was repaid. ATI did not have sufficient unencumbered assets acceptable to MainBank to adequately collateralize ATI's $420,000.00 liability to MainBank that would arise out of MainBank's issuance of the letter of credit to Continental. Escalante agreed to pledge his $250,000.00 CD to secure ATI's liability to MainBank to induce MainBank to issue its letter of credit to Continental. In the CAA, ATI agreed that it would "immediately pay MainBank any amounts MainBank pays under [the letter of credit to Continental]."

In its findings of fact, the trial court found that Escalante is the current owner and holder of Note 1; that Escalante paid MainBank $274,511.06 for Note 1 and used the proceeds of a $274,511.06 CD No. 10038570 to do so; and that, under the terms of an Individual Guaranty, Indemnity, Stock Pledge and Security Agreement dated August 14, 1995, Escalante pledged a $250,000.00 CD to secure the payment and performance of the obligation of ATI to MainBank under the letter of credit issued to Continental. In its conclusions of law, the trial court held in part:

1. [Escalante] failed to prove by a preponderance of the evidence that the $274,511.06 C.D. dated August 20, 1997, was in any way related to the $250,000 C.D. dated August 14, 1995, and which was the subject matter of the Individual Guaranty, Indemnity, Stock Pledge and Security Agreements executed by D.D. Luckie and Harry K. Myers [on August 14, 1995].

2. [Escalante] failed to prove by a preponderance of the evidence that the $250,000 C.D. identified in Exhibits 3 and 4 was lost or forfeited in connection with the payment and performance of the obligations of [ATI] to Main Bank under the Letter of Credit issued by [Continental].

5. [Escalante] failed to prove by a preponderance of the evidence the amount of money advanced on the Line of Credit Note (Note 1).

6. [Escalante] failed to prove by a preponderance of the evidence the amount of principal and interest owed by [ATI] on Note 1.

An assignee of a note seeking to recover for the breach of a guarantee agreement regarding a note must establish: (1) the existence and ownership of the guarantee agreement; (2) the terms of the underlying contract by the holder; (3) the occurrence of the conditions upon which liability is based; and (4) the failure or refusal to perform the promise by the guarantor. Marshall v. Ford Motor Company, 878 S.W.2d 629, 631 (Tex.App.-Dallas 1994, no writ); Wiman v. Tomaszewicz, 877 S.W.2d 1, 8 (Tex.App.-Dallas 1994, no writ).

Escalante established his ownership of the 1995 guarantee agreements from Luckie and Myers. The existence and ownership of a note may be established by proof that the plaintiff is the named...