First Nat. Acceptance Co. v. Bishop

• Decision Date: 09 February 2006
• Docket Number: No. 13-04-135-CV.,13-04-135-CV.
• Citation: 187 S.W.3d 710
• Parties: FIRST NATIONAL ACCEPTANCE COMPANY, Appellant, v. Deola BISHOP, Appellee.
• Court: Texas Court of Appeals

187 S.W.3d 710

FIRST NATIONAL ACCEPTANCE COMPANY, Appellant, v. Deola BISHOP, Appellee.

No. 13-04-135-CV.

Court of Appeals of Texas, Corpus Christi-Edinburg.

February 9, 2006.

COPYRIGHT MATERIAL OMITTED

Richard A. Battaglia, Houston, for appellant.

David L. Rusnak, Atlanta, GA, Hervey Levin, Dallas, for appellees.

Before Chief Justice VALDEZ and Justices HINOJOSA and YANEZ.

OPINION

Opinion by Chief Justice VALDEZ.

Appellant, First National Acceptance Company (FNAC), appeals from the judgment of the district court granting a declaratory judgment and permanent injunction in favor of appellee, Deola Bishop, and enjoining FNAC from conducting a foreclosure sale of certain property in Cameron County, Texas. FNAC argues that (1) the trial court erred in declaring that appellant does not possess holder-in-due-course status, (2) FNAC did not have an agency relationship with American Notice Investments, Inc. (ANI), and (3) Bishop should not have been granted attorneys' fees pursuant to the Declaratory Judgment Act. We affirm.

Background

Bishop owned a home and property in Cameron County, Texas, which she sold to Cristobol and Juana Elisa Gonzalez in 1998 through a warranty deed with vendor's lien. The Gonzalezes executed a note in the principal amount of $76,500.00 payable to Bishop, accompanied by a deed of trust securing the property, and made regular payments to Bishop on the note.

Bishop held the note and deed of trust until January 2000, at which point she responded to an advertisement in a local newspaper soliciting the sale of promissory notes. The advertisement was placed by ANI, a corporation in the business of buying secured promissory notes from individuals on a discounted basis.

ANI's principal lender was FNAC, a Michigan corporation involved in lending money to businesses to facilitate the purchase of secured promissory notes, which FNAC itself would then repurchase and service. FNAC would also use ANI to conduct in-house closings of ANI's purchase of secured promissory notes with FNAC-funds. According to deposition testimony from ANI's owner, ANI would typically contact FNAC regarding potential promissory notes available for purchase. If FNAC approved the purchase of the note, it would release the funds to ANI with instructions regarding how to disburse the funds. ANI would then purchase the note from the individual holder and transfer its interest in the note to FNAC. FNAC would begin to service the note and collect payments directly from the individual debtors, although ANI would be notified if the note went into default. ANI was obligated to follow FNAC's instructions regarding the purchase of notes exactly. Neither ANI nor FNAC would disclose their relationship to individual note holders seeking to sell their notes to ANI.

When Bishop responded to ANI's newspaper advertisement, ANI allegedly sent FNAC information about the note and the property, including a broker worksheet and appraisal. After receiving approval, ANI sent FNAC the original note, the deed of trust, and note endorsement. FNAC responded with a "funding memo," by which ANI was instructed to conduct the closing for the Bishop property and then, once all FNAC's requirements were met, to disburse the sale funds to Bishop.

ANI failed to disburse any funds to Bishop. Bishop attempted to cancel her agreement and demanded the return of her documents. ANI failed to return the note, deed of trust, and note endorsement to Bishop, having already transferred these to FNAC. ANI then ceased doing business. FNAC also failed to disburse any funds to Bishop and refused to return the note, deed of trust, and note endorsement.

Shortly thereafter, FNAC's legal counsel notified the Gonzalezes that FNAC had purchased their note and deed of trust and was therefore entitled "to collect in full upon the Note, even if Bishop was not paid by [ANI] for her assignment based on the assignment executed by Bishop. Bishop assumed the risk of non-payment when she assigned the Note and Deed without requiring simultaneous payment." FNAC then threatened to go forward with possible foreclosure proceedings against the Gonzalezes.

Bishop and the Gonzalezes filed suit against ANI and FNAC seeking declaratory relief and a permanent injunction enjoining FNAC from conducting a foreclosure sale on the property. The declaratory judgment action sought a judgment declaring that (1) Bishop is the lawful owner of the note secured by the deed of trust, (2) neither ANI nor FNAC have an interest in the note due to a failure of consideration, and (3) the transfer of the lien from Bishop is null and void. Bishop also sought an award of courts costs and reasonable and necessary attorneys' fees. ANI settled its dispute before trial and did not appear.

After a hearing, the court ruled in favor of Bishop, declaring that "Bishop is the lawful owner of, and entitled to possession of" the note; "neither [ANI] or FNAC have an interest in the note and the Bishop sale documents;" and "the transfer of liens by [ANI] or FNAC are null and void." The court ordered FNAC to pay Bishop's attorneys' fees, and also ordered the Gonzalezes to pay to Bishop all mortgage payments owed on the note. FNAC filed its appeal to this Court.

Agency

FNAC argues that because ANI and FNAC enjoyed independent contractual relationships, the court could not impute that an agency relationship existed between them sufficient to defeat FNAC's holder-in-due-course status for the Bishop note.¹ The trial court held as a conclusion of law that ANI "was the agent of FNAC for the closing of the Bishop Sales Agreement," and therefore "all knowledge of [ANI] regarding the closing of the Bishop Sales Agreement, as agent for FNAC . . ., is imputed to FNAC . . . [including] notice of the failure of [ANI] to pay the Consideration to Bishop." We review the trial court's conclusions of law de novo. See Dominguez v. Castaneda, 163 S.W.3d 318, 325 (Tex.App.-El Paso 2005, pet. denied).

The question of whether a principal-agent relationship exists under established facts is a question of law for the court. Ross v. Tex. One P'ship, 796 S.W.2d 206, 210 (Tex.App.-Dallas 1990, writ denied). An agent is one who consents to the control of another, the principal, where the principal manifests consent that the agent shall act for the principal. See Royal Mortgage Corp. v. Montague, 41 S.W.3d 721, 732 (Tex.App.-Fort Worth 2001, no pet). A principal-agent relationship is not presumed, and the party asserting the relationship has the burden of proving it. Id. The party claiming agency must prove the principal has both the right to assign the agent's task and the right to control the means and details by which the agent will accomplish the task. Lyons v. Lindsey Morden Claims Mgmt., Inc., 985 S.W.2d 86, 90 (Tex.App.-El Paso 1998, no pet.). The principal's extent of control over the details of accomplishing the assigned task primarily distinguishes the status of agent from that of independent contractor. Id. The right of control is "the supreme test" in establishing an agency relationship. See State Farm Mut. Auto. Ins. Co. v. Traver, 980 S.W.2d 625, 628 (Tex.1998) (citing Newspapers, Inc. v. Love, 380 S.W.2d 582, 588, 590, 598 (Tex. 1964)).

An agent need not disclose his or her principal's identity in order to act on behalf of that principal. Latch v. Gratty, Inc., 107 S.W.3d 543, 546 (Tex.2003). An agent may make a contract for an undisclosed principal in his own name, and the latter may sue or be sued on the contract. Id. (citing First Nat'l Bank of Wichita Falls v. Fite, 131 Tex. 523, 115 S.W.2d 1105, 1109-10 (1938); RESTATEMENT (SECOND) OF AGENCY § 186 cmt. c).

Having reviewed the arguments and authorities presented by both parties, as well as the documents and testimony regarding the relationship between ANI and FNAC in the context of the sale of the Bishop note, we agree with Bishop that the trial court was presented with sufficient evidence to conclude that ANI acted as an agent for its principal, FNAC, for the closing of the Bishop sale. Bishop met her burden of proof to establish that ANI, over an extended period of time, repeatedly closed sale agreements funded by FNAC, as an "inside" closing under strict written instructions from FNAC.² For these "inside" closings, ANI prepared the transaction documents and conducted the closing as the sole representative of FNAC. This "inside" closing of sales agreements by ANI for FNAC was outside of and apart from the specific and limited requirements and duties imposed by the ANI-FNAC loan agreement. FNAC accepted the benefit of the ANI-conducted "inside" closings, repeatedly referred to ANI as its "broker," and took possession of the note before funding the transaction. This demonstrates that FNAC had both the right to assign ANI's task and the right to control the means and details by which ANI accomplished the task of acquiring and purchasing promissory notes. See Lyons, 985 S.W.2d at 90. Accordingly, we conclude the trial court did not err by declaring ANI an agent of FNAC in the context of the Bishop note sale.

The protections bestowed on those who qualify for holder-in-due-course status are intended to safeguard innocent holders who acquire a note without prior knowledge of any problems or defenses. See TEX. BUS. & COM.CODE ANN. § 3.302 (Vernon 2002); Tex. State Bank v. Sharp, 506 S.W.2d 761, 763 (Tex.Civ.App.-Austin 1974, writ ref'd n.r.e.). Thus, because FNAC knew that Bishop, once she was not paid, had cancelled the sale of her note and demanded its return from ANI, and because ANI was acting as an agent of FNAC in this sale, FNAC cannot be considered a holder in due course and thus exempt from Bishop's claims. See Polland & Cook v. Lehmann, 832 S.W.2d 729, 738 (Tex.App.-Houston [1st Dist.] 1992, writ denied) (imputing knowledge of agent to principal).

Bishop urges this Court to adopt the reasoning of the New Jersey Supreme Court, which held the following in Unico v. Owen, 50...