First Nat. Bank of Amarillo v. Jarnigan

• Decision Date: 25 June 1990
• Docket Number: No. 07-89-0227-CV,07-89-0227-CV
• Citation: 794 S.W.2d 54
• Parties: The FIRST NATIONAL BANK OF AMARILLO, Appellant, v. Floyd L. JARNIGAN and Ernestine Jarnigan, Tri-City Land Development and Builders, Inc., and Tom Hess, Appellees.
• Court: Texas Court of Appeals

Page 54

794 S.W.2d 54

The FIRST NATIONAL BANK OF AMARILLO, Appellant, v. Floyd L. JARNIGAN and Ernestine Jarnigan, Tri-City Land Development and Builders, Inc., and Tom Hess, Appellees.

No. 07-89-0227-CV.

Court of Appeals of Texas Amarillo.

June 25, 1990.

Rehearing Overruled Aug. 6, 1990.

Ham, Irwin, Graham & Cox, John S. Irwin and Roger S. Cox, Amarillo, for appellant.

Ben Sturgeon, Vernon, Wolfram Law Firm, Walter P. Wolfram, Amarillo, and Milton Walker, Panhandle, for appellees.

Before REYNOLDS, C.J., and DODSON and BOYD, JJ.

BOYD, Justice.

In sixty-four (64) points, appellant The First National Bank of Amarillo (Bank), asserts the trial court erred in rendering its judgment in favor of appellees Floyd L. Jarnigan and Ernestine Jarnigan (Jarnigans), Tri-City Land Development and Builders, Inc. (Tri-City), and Tom Hess (Hess). In seventeen reply points the Jarnigans argue the trial court, in the main acted correctly, but, in three cross-points suggest areas in which they assert trial court error exists. Hess and Tri-City have also filed a brief replying to the Bank's sixty-second and sixty-third points of error. We reverse and remand.

On March 5, 1983, the Jarnigans and Hess, d/b/a Tri-City Builders, entered into an instrument denominated as a "New Home Residential Earnest Money Contract" in which Hess agreed to construct a residence upon property located in Borger, Texas. Since the Bank had handled interim financing for Hess on seven "pre-sold" houses in the past, Hess approached Robert Lee (Bob) Bass, a senior vice-president of the Bank, about handling the interim financing on the house.

The Bank approved the request, and, pursuant to its instructions, the documents necessary to effectuate the deal were prepared by Leon Mitchell, a Borger attorney. Mr. Mitchell was Tri-City's regular attorney, and the instruments were executed in his office. The instruments were:

1. A Builder's & Mechanic's Lien Contract, with power of sale, dated April 6, 1983, executed by the Jarnigans in favor of Tri-City which provided for the construction of a residence upon property located in Borger.

2. A Builder's & Mechanic's Lien Note dated April 6, 1983, in the principal amount of $90,000, executed by the Jarnigans and payable to the order of Tri-City on or before six months from its date. The note also recites a power of sale on the Borger property.

3. A transfer of lien from Tri-City to the Bank dated April 6, 1983, covering the $90,000 note and the liens securing it.

4. A promissory note in the principal sum of $90,000, dated April 6, 1983, and due on or before six months from its date. The note provides for "interest on the principal outstanding at a variable rate of two per cent (2%) per annum, above the prime rate of interest charged by Continental Illinois National Bank and Trust Company, Chicago, Illinois, to its largest and most creditworthy borrowers on ninety-day unsecured commercial loans." The note also provided that the interest rate would change on the effective date of changes on the prime rate by the Chicago bank. It also recited that it was secured by a deed of trust in favor of Don Powell, trustee. Although the body of the note recited only the Jarnigans as the obligors, it was also executed by Tri-City.

5. A deed of trust dated April 6, 1983, covering the Borger property, executed by the Jarnigans in favor of Don Powell, as trustee for the Bank. It secures the $90,000 note described immediately above and contains the usual provisions as to non-judicial sale of the property in the event of default. It also recites that the note secured by it is in renewal and extension of the $90,000 mechanic's lien note.

The instruments were prepared in this manner pursuant to instructions from Robert Lee (Bob) Bass. Although the transaction was one in which a federally mandated information document called a Regulation "Z" document was required, one was not given. A "Z" document is one which defines how much the total interest on a loan would be if all of the monies were advanced on the first day of the loan being transacted. It should also state the annual percentage rate of interest on the loan.

On April 27, 1983, the Bank began making loan advances on invoices prepared and submitted by Hess purportedly representing work done on the house. In late August or early September, 1983, the Bank stopped making advances when David Forbess, a credit analyst at the Bank, decided advances made exceeded the work done on the house. The residence was not completed by Tri-City, and the $90,000 deed of trust note, after demand, was not paid by its due date.

The Bank proceeded to a non-judicial foreclosure under its deed of trust. It was the only bidder at the foreclosure sale and purchased the property for $60,000, which was applied upon the balance the Bank asserted was due under the note. The amount of the bid was based upon the Bank's estimate that the residence under construction was 60% complete upon a total construction cost of $90,000. The property was resold by the Bank "as is" for $65,000.

On September 4, 1984, the Bank filed this suit against the Jarnigans, Tri-City, Hess, and Hess' mother, Betty L. Wilson (Wilson), who had signed a guaranty agreement, to collect the $28,142.04 balance it asserted was due upon the note. Wilson paid the Bank $10,000 in settlement of the claim against her, and, on December 30, 1985, she was dismissed from the suit. The $10,000 was applied upon the principal claimed by the Bank to be due.

After exhaustive and voluminous discovery and considerable amendment of pleadings on the part of all parties, at the time of trial, the Bank sought recovery of an alleged deficiency of $9,048.57 plus interest and attorney's fees. The Jarnigans denied liability and, in a cross-action, sought recovery for asserted violations of the Deceptive Trade Practices Act (DTPA), Tex.Bus. & Com.Code Ann. §§ 17.41 et seq. (Vernon 1987 & Vernon Supp.1990); the Debt Collection Act, Tex.Rev.Civ.Stat.Ann. art. 5069, §§ 11.01-11.11 (Vernon 1987); and for breach of the duty of good faith and fair dealing.

Trial of the cause began on January 23, 1989. After presentation of the Bank's case in chief, the trial court granted the Jarnigan's motion for instructed verdict that the Bank take nothing against them on its suit on the promissory note. On January 28, 1989, the trial court submitted to the jury (1) the Bank's claim against Tri-City on the promissory note; (2) the Bank's claim against Hess on a guaranty agreement; (3) the Jarnigan's claims against the Bank under their DTPA, Debt Collection Act, and common law good faith and fair dealing theories; and (4) the Jarnigan's DTPA claim against Tri-City.

Based on the jury's answers, the trial court, on March 10, 1989, entered judgment. However, after a hearing on the Bank's motion for new trial, the trial court, by judgment dated June 26, 1989, granted the Bank a new trial as to its claim for attorney's fees against Tri-City and severed that portion of the suit, modified the prior judgment to delete the joint and several liability of the Bank on mental anguish findings of the jury against Tri-City, and awarded the Bank judgment against Tri-City in the amount of $5,082.58, plus interest. It also awarded the Jarnigans judgment against the Bank on their DTPA claim in the sum of $162,881.90, together with additional damages under that Act in the sum of $32,000, awarded the Jarnigans judgment against Tri-City under the DTPA in the amount of $2,000, with additional damages under that Act of $4,500, and awarded the Jarnigans judgment against the Bank and Tri-City, jointly and severally, in the sum of $150,000 for attorney's fees. It is from this modified judgment that the appeal arises. Relevant portions of the evidence will be set out as may be necessary in a discussion of the questions raised in the appeal.

In its first point, the Bank avers that the trial court erred in granting the Jarnigans' motion for instructed verdict because the evidence was not sufficient to establish as a matter of law that the Bank was not entitled to recover anything on the promissory note.

In reviewing a case in which a verdict has been directed, an appellate court must view the evidence in the light most favorable to the party against whom the verdict was rendered and disregard all contrary inferences. If the appellate court finds there is any evidence of probative value which raises a material fact issue or issues, i.e., when reasonable minds may differ as to the truth of controlling facts, then the judgment must be reversed and the cause remanded for the jury's determination of that issue or issues. White v. Southwestern Bell Tel. Co., Inc., 651 S.W.2d 260, 262 (Tex.1983); Collora v. Navarro, 574 S.W.2d 65, 68 (Tex.1978).

In supporting the directed verdict, the Jarnigans argue the Bank was not a holder in due course of the renewal note. That being the case, they reason, the note was subject to any defense they might have to the mechanic's lien contract, in particular, to its "partial lien" provision. If the right to recover and foreclose was limited by that provision, they opine, the Bank must have established the difference in the contract price and the cost of completing the improvements. Having failed to do so, no ascertainable amount of money was due the Bank, and, if no ascertainable amount of money was due, the Bank was not entitled to recover under its note and lien. Under those circumstances, then, they reason, the trial court acted correctly in granting the instructed verdict.

The Texas Business and Commerce Code defines a "holder" as "a person who is in possession of a document of title or an instrument or a certificated investment security drawn, issued, or endorsed to him or to his order or to bearer or in blank." Tex.Bus. & Com.Code Ann. § 1.201(20) (Vernon Supp.1990). A "holder in due course," as relevant here, is defined as a holder who takes the instrument "without...