First State Bank v. Keilman
| Decision Date | 31 March 1993 |
| Docket Number | No. 3-91-418-CV,3-91-418-CV |
| Citation | 851 S.W.2d 914 |
| Parties | 22 UCC Rep.Serv.2d 282 FIRST STATE BANK, Appellant, v. Tom KEILMAN and Myrna Keilman, Appellees. |
| Court | Texas Court of Appeals |
J. Bruce Bennett, Cardwell & Hart, Austin, for appellant.
Nicolai von Kreisler, Susan J. Haney, von Kreisler & Swanson, P.C., Austin, for appellees.
Before POWERS, JONES and KIDD, JJ.
ON MOTION FOR REHEARING
The opinion and judgment issued herein by this Court on December 23, 1992, are withdrawn, and this opinion is filed in lieu of the earlier one.
First State Bank ("FSB"), appellant, filed suit against Tom and Myrna Keilman, appellees, to recover the balance owing on a promissory note following the non-judicial foreclosure of property securing the note. The Keilmans counterclaimed, alleging material alteration, wrongful foreclosure, and usury. Based on the jury's findings, the trial court rendered judgment in favor of the Keilmans on their counterclaims and on FSB's deficiency claim. FSB perfected this appeal, challenging the sufficiency of the evidence to support the jury's findings and the trial court's judgment. As to all but one of the Keilmans' counterclaims, we will reverse the judgment of the trial court and render judgment that the Keilmans take nothing. As to one of the Keilmans' usury counterclaims, we will reverse the trial court's judgment and remand the cause for further proceedings. As to FSB's deficiency claim, we will reverse the trial court's take-nothing judgment and remand the cause for further proceedings.
On November 1, 1985, the Keilmans executed a promissory note payable to Frontier National Bank ("Frontier") in the principal amount of $157,000. The note obligated the Keilmans to pay interest at a rate equal to the lesser of the maximum lawful rate or Frontier's prime rate plus two percent per annum. The note was secured by a deed-of-trust lien on 563 acres of land located in Terrell County, Texas (the "property"), which had been purchased by the Keilmans in 1983. As additional security, the Keilmans pledged a $150,000 note receivable dated October 1, 1985. The Keilmans renewed and extended this loan several times. In the final renewal note, executed on August 11, 1986, the Keilmans promised to pay $152,000 plus interest.
In October 1988 the FDIC closed Frontier, and FSB purchased the Keilmans' renewal note from the receivership estate.
By March 1989 the Keilmans were in default. On April 25, 1989, FSB's attorney, Janice McKennon, formally notified the Keilmans by letter that they were in default and demanded payment of all past due sums. On May 15, 1989, McKennon informed the Keilmans by letter that FSB had accelerated their indebtedness and scheduled a trustee's sale of the property securing the loan for June 6, 1989, at the Terrell County courthouse.
On behalf of FSB, McKennon hired Terrell County Attorney Marsha Monroe to conduct the foreclosure sale and to bid on the property on behalf of FSB. FSB appointed Monroe as the substitute trustee under the deed of trust. Monroe filed the appointment of substitute trustee and the notice of sale with the Terrell County Clerk and posted the notice of sale on the courthouse bulletin board. Before the proposed foreclosure date, FSB obtained an appraisal that placed the value of the property at $16,462.20. Based on this appraisal, FSB calculated a bid price, and McKennon conveyed the proposed bid to Monroe.
A few days before the scheduled sale, Mr. Keilman spoke with Roy Touchstone, a loan officer at FSB, who said the foreclosure sale would proceed as planned. Touchstone also told Keilman of the appraisal received by FSB. Keilman strongly disagreed with the appraised value and began efforts to borrow money in order to bid against FSB at the foreclosure sale.
On June 6, 1989, Mr. Keilman and a companion, Carl Bierman, drove to Terrell County to attend the foreclosure sale, which was to occur on the courthouse steps between 10:00 a.m. and 1:00 p.m. Shortly before 10:30 a.m., Keilman decided to go to the local newspaper office to see if the sale had been advertised in the newspaper. Before leaving the courthouse, Keilman authorized Bierman to bid up to $16,000 for the property. Shortly after Keilman left, Monroe appeared on the courthouse steps to begin the sale. Bierman asked Monroe to wait until Keilman returned; however, Monroe refused and began the sale in Keilman's absence. Apparently having misunderstood Keilman's instructions, Bierman believed he was authorized to bid only up to $13,000. As a result, he stopped bidding when the price reached $13,000. Monroe sold the property to FSB for $13,200.
FSB credited the entire $13,200 toward the Keilmans' indebtedness on the renewal note. Touchstone then contacted the Keilmans by letter requesting a meeting in order to discuss a payment plan for the deficiency remaining on the note. After receiving no response, FSB filed suit to collect on the deficiency. The Keilmans counterclaimed, alleging that FSB materially altered the promissory note, wrongfully foreclosed on the property, and committed usury.
The jury found that FSB altered the note without the Keilmans' consent, wrongfully foreclosed on the property, committed usury, and engaged in a conspiracy with the substitute trustee to injure the Keilmans. The jury also found that the unpaid principal balance on the note was $40,000 and the accrued but unpaid interest was $18,000. Based on these findings, the trial court awarded the Keilmans $293,000 in statutory usury penalties, $18,200 in actual damages, $97,000 in exemplary damages, and $68,500 in attorney's fees; the trial court also rendered judgment that the note was void and that FSB take nothing on its deficiency claim.
On appeal, FSB asserts fifteen points of error. We will group the points of error and address each in the order of the following categories: (1) Material Alteration; (2) Wrongful Foreclosure; (3) Usury; (4) Attorney's Fees; and (5) FSB's Deficiency Claim.
In its third point of error, FSB complains that the evidence is both legally and factually insufficient to support the jury's finding that the interest rate stated in the renewal note was altered without the consent or authorization of the Keilmans. At trial, the Keilmans produced a copy of the renewal note in which they promised to pay the principal amount of $152,000 "together with interest thereon at the prime rate established by Frontier National Bank as described in the [November 1, 1985] note, plus Two percent (12.5%) per annum." In the original renewal note, produced by FSB at trial, the numeral "12.5%" inside the parentheses was deleted and replaced with the numeral "2%." The jury found that FSB had altered the interest rate in the renewal note without the Keilmans' consent. Based in part on this finding, the trial court rendered judgment that the renewal note was void and that the Keilmans were discharged from liability. 1
Under Texas law, an "alteration by a holder which is both fraudulent and material discharges any party whose contract is thereby changed unless that party assents." See Tex.Bus. & Com.Code Ann. § 3.407(b)(1) (West 1968). The jury found that the Keilmans did not consent to an alteration of the interest rate. However, there were no findings of materiality or fraudulent intent, elements which must be established before discharge from the note is proper. Lawler v. FDIC, 538 S.W.2d 245, 247 (Tex.Civ.App.--Beaumont 1976, writ ref'd n.r.e.). Because of the absence of jury findings, the missing elements must be deemed found by the trial court in such a manner as to support the judgment. See Tex.R.Civ.P. 279.
FSB's third point of error states: "The evidence is both legally and factually insufficient to support the jury's answer to Question No. 6 [alteration without consent]."
Within the body of its argument under this point, FSB asserts that there is no evidence of materiality or fraudulent intent. Because FSB's point of error itself specifically complains only of the jury's finding regarding the existence of an alteration without the Keilmans' consent, and does not expressly attack the trial court's deemed findings, the Keilmans argue that FSB has not preserved its complaint for appeal. We disagree.
Rule 74(d) of the Rules of Appellate Procedure states that "[a] point is sufficient if it directs the attention of the appellate court to the error about which a complaint is made." Tex.R.App.P. 74(d). As a general rule, Texas courts should construe points of error liberally "in order to adjudicate justly, fairly and equitably the rights of the litigants." Williams v. Khalaf, 802 S.W.2d 651, 658 (Tex.1990). "[A] substantial compliance with these [briefing] rules will suffice in the interest of justice." Tex.R.App.P. 74(p); see also Weaver v. Southwest Nat'l Bank, 813 S.W.2d 481, 482 (Tex.1991).
One approach that has developed in interpreting points of error may be called the "inextricably intertwined" approach. This approach allows the appellate court to consider an issue which has not been specifically mentioned in a point of error, but which is argued under the point, if the issue is so inextricably intertwined with an issue that is specified in the point of error that "one cannot be mentioned without automatically directing attention to the other." Consolidated Eng'g Co. v. Southern Steel Co., 699 S.W.2d 188, 192 (Tex.1985).
We think the inextricably intertwined approach is applicable in the present case. The trial court expressly identified the jury's alteration-without-consent finding as a basis for discharging the Keilmans from liability. The trial court did not, however, make any written findings on the omitted elements of materiality and fraudulent intent. In its point of error, FSB is clearly complaining about this aspect of the judgment. As indicated previously, the jury's finding alone is insufficient to...
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