Fireman's Fund Ins. Co. of Texas v. Jackson Hill Marina, Inc.

• Decision Date: 30 January 1986
• Docket Number: No. 12-85-0017-CV,12-85-0017-CV
• Citation: 704 S.W.2d 131
• Parties: 1 UCC Rep.Serv.2d 335 FIREMAN'S FUND INSURANCE COMPANY OF TEXAS, Appellant, v. JACKSON HILL MARINA, INC., Appellee.
• Court: Texas Court of Appeals

Page 131

704 S.W.2d 131

1 UCC Rep.Serv.2d 335

FIREMAN'S FUND INSURANCE COMPANY OF TEXAS, Appellant, v. JACKSON HILL MARINA, INC., Appellee.

No. 12-85-0017-CV.

Court of Appeals of Texas Tyler.

Jan. 30, 1986.

Rehearing Denied March 6, 1986.

Kenzy D. Hallmark, Zeleskey, Cornelius, Rogers, Hallmark, Lufkin, for appellant.

John W. Mitchell, Ramsey, Smith & Mitchell, San Augustine, for appellee.

PER CURIAM.

Jackson Hill Marina ("Marina") filed suit against Fireman's Fund Insurance Company ("Insurance Company") to recover the face amount of a policy covering a portable metal building allegedly owned by Marina. Texas National Bank ("Bank") intervened to collect a portion of the proceeds under the mortgage clause of the policy.

Marina purchased a Texas standard policy from State Insurance Agency, Inc. of San Augustine ("Agency"). The policy was issued to Marina as the insured, and Bank was named in the loss payable clause as mortgagee. The period of coverage ran from April 1, 1982, to April 1, 1983. On April 12, 1979, Marina, by L.N. Coker, president and sole stockholder, executed a note to Bank in the principal amount of $45,000.00 and a security agreement. The note was secured by a lien on a 40' X 50' metal building ("building") and contents, as reflected in the security agreement. The building was used as a restaurant at the marina site on land leased from the U.S. Army Corps of Engineers.

Coker moved to West Texas in September of 1982 after closing the marina. In October of 1982, Marina stopped making payments on the note to Bank. Jim Hatler, president of Bank, sent a letter to Coker notifying him that the Marina's note was in default, accelerating payment and declaring the note due. Hatler also stated in the letter:

Although we have not contacted you in writing concerning your default and the Bank's acceleration, we would ask that you permit the sale of our security on the 16th of November, 1982 in an effort to help all parties concerned.

If you approve, write me a letter, by return mail, authorizing the Bank to include its collateral with the public auction of November 16, 1982.

If you are not in agreement with this, then please accept this letter as our notice that at 11:00 o'clock a.m. on the 22nd day of November, 1982, or at any time thereafter, from time to time until sold, a private sale will be held to sell the collateral as referred to above.

Though not stated in the letter, testimony indicated that the balance of the note at the time of default was between $24,000.00 and $25,000.00.

Coker testified that after receiving the letter, he called Hatler and told him to go ahead and sell the building if he could get anything for it and to apply the proceeds to Marina's note. At trial, the following exchange took place between the Insurance Company's attorney and Coker:

Q: All right. So from this testimony here you knew that they were going to sell it at the auction and you gave Mr. Hatler permission to sell it at the auction, didn't you? That what that says?

A: Well, yes, basically it does, but not--

Q: All right ... You gave him permission to sell it, didn't you?

A: Yeah, if it was beneficial to both of us.

The public auction referred to by Hatler in his letter was to be conducted by Commercial National Bank, the lienholder on other property at the marina. Marina had also defaulted on its notes to Commercial National Bank. After Coker's telephone conversation with Hatler, a flyer advertising the public auction was sent out, which included the building as one of the items to be offered. Ladon Farmer was present at the auction and testified that he bought everything but the building. Farmer testified that he bid $5,000.00 for the building, but the president of Bank made the high bid of $25,000.00. Jerry Baker, an officer with Commercial National Bank, also heard Hatler announce a bid of $25,000.00 to purchase the building. According to Baker, "Jim Hatler, on behalf of Texas National Bank, made the high bid at the auction, which it appeared at the time the auctioneer accepted ... the auctioneer did accept that bid." Ralph Segars, the auctioneer, testified that he sold the building to whoever it was that was bidding for the Bank. There is a discrepancy as to the amount of the bid, because Segars testified that the Bank bid $20,000.00 instead of $25,000.00.

Witnesses for Bank testified that Marina's loan was "charged off" on January 18, 1983. Several witnesses explained that by charging off the note, the balance was taken out of "loan accounts" and rebooked into "bank repos." Bank insists that the charge off does not necessarily indicate foreclosure of the collateral, but that the Comptroller of the Currency requires a loan's removal from loan accounts when it is no longer accruing interest. Bank's ledger shows that no credit was given Marina's account for the Bank's purchase of the building at auction, and several Bank employees and officials testified that no foreclosure had occurred.

Fire totally destroyed the building on March 28, 1983. Proof of loss was filed with the Insurance Company. Bank's claim was rejected because of failure to notify Insurance Company of a change of ownership under the mortgage clause. Insurance Company also rejected the Marina's claim for insurance. In its answer to Marina's petition, the Insurance Company asserts that the Marina did not have an insurable interest in the building at the time of the fire. ¹

Trial was before the court. A judgment was rendered in favor of Marina and Bank for the $40,000.00 face amount of the policy, attorney's fees, 10% post-judgment interest and costs of court. A myriad of findings of fact were made by the trial court, but those relevant to the points on appeal are:

20. The Plaintiff did not agree to or authorize the sale of the restaurant building and contents at the Commercial National Bank of Nacogdoches foreclosure auction sale on November 16, 1982.

21. The Plaintiff was not notified that the restaurant building and contents were to be sold without Plaintiff's agreement to such sale at the Commercial National Bank of Nacogdoches foreclosure auction sale on November 16, 1982.

26. The auctioneer "struck off" and purported to sell the subject restaurant building to the Intervenor TEXAS NATIONAL BANK OF LUFKIN upon a bid by one Jim Hatler, who was acting on behalf of the said Intervenor.

27. There was no bill of sale or other documentation of an actual sale of the subject restaurant building at the Commercial National Bank of Nacogdoches foreclosure auction sale on November 16, 1982.

28. There was no money or other consideration paid to Plaintiff by Intervenor for a sale of the subject restaurant building, and there was no credit given to Plaintiff by Intervenor on Plaintiff's indebtedness for such a sale.

33. The Defendant had actual notice of the purported sale of the restaurant building at the Commercial National Bank of Nacogdoches foreclosure auction sale, and acknowledged the same by written memorandum to the Intervenor dated December 30, 1982, which memorandum contained a request to return the subject insurance policy for cancellation.

The trial court made the following conclusions of law which apply to this appeal:

1. The subject insurance policy was in full force and effect on the date of the subject fire loss in this case, as to both the Plaintiff-Insured JACKSON HILL MARINA, INC. and the Intervenor-Mortgagee TEXAS NATIONAL BANK OF LUFKIN.

2. There was no valid, legal or binding sale, either foreclosure or otherwise, of the subject restaurant building at the Commercial National Bank of Nacogdoches foreclosure auction sale held November 16, 1982.

3. There was no change of ownership of the subject restaurant building during the policy period of the subject insurance policy.

4. On the date of the subject fire loss in this case, the Plaintiff JACKSON HILL MARINA, INC. was the owner of the subject restaurant building and the Intervenor TEXAS NATIONAL BANK OF LUFKIN was the Mortgagee holding a lien on same.

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Insurance Company asserts on appeal that the trial court erred in entering judgment for Bank and Marina because the evidence established as a matter of law that a change in ownership of the building had occurred, thereby invalidating the policy as to Marina, or that the trial court's finding that the policy was in effect at the time of the fire was against the great weight and preponderance of the evidence. In its third point of error, Insurance Company contests the trial court's finding that it had actual notice of the sale, and the judgment in favor of Bank based on that finding.

As to the judgment in favor of Marina, the controlling question is whether there was a change in ownership of the building before the fire. We find that the evidence conclusively shows that there was a change of ownership from Marina to Bank on November 16, 1982, the date of the public auction. The trial court and appellees have ignored the consequences of Bank's action...