Land Title Co. of Dallas, Inc. v. F. M. Stigler, Inc.

• Decision Date: 10 December 1980
• Docket Number: No. B-9272,B-9272
• Citation: 609 S.W.2d 754
• Parties: LAND TITLE COMPANY OF DALLAS, INC., et al., Petitioners, v. F. M. STIGLER, INC., et al., Respondents.
• Court: Texas Supreme Court

Page 754

609 S.W.2d 754

LAND TITLE COMPANY OF DALLAS, INC., et al., Petitioners, v. F. M. STIGLER, INC., et al., Respondents.

No. B-9272.

Supreme Court of Texas.

Dec. 10, 1980.

Rehearing Denied Jan. 21, 1980.

Cowles, Sorrels, Patterson & Thompson, R. Brent Cooper, Dallas, DeLange, Hudspeth, Pitman & Katz, Eugene J. Pitman, Sellers & Berg, Michael G. Tapp, Houston, for petitioners.

Storey, Armstrong, Steger & Martin, Hugh L. Steger, Robert S. Addison and Frederick W. Addison, III, Dallas, for respondents.

DENTON, Justice:

This priority of liens case involves the question of ratification by a principal of the unauthorized act of its agent. Floyd M. Stigler, Inc. and others sued Leon D. Hogg, Jr. for recovery on its note and for judicial foreclosure of its deed of trust. Stigler also sued HNC Realty Company to set aside the foreclosure sale, to declare the subordination agreement invalid, and to declare its prior deed of trust lien superior to HNC's deed of trust. Hogg and HNC filed third-party actions against Land Title Company of Dallas, Inc., d/b/a Southwest Land Title Company, for indemnity and contribution. The trial court found that plaintiff Floyd M. Stigler, Inc. ratified the action of its agent, R. B. Russell, by retaining the benefits of an unauthorized transaction executed by Russell subordinating the Stigler's first lien to that of HNC Realty Company. The trial court rendered judgment that Stigler take nothing against HNC. The court of civil appeals reversed the judgment of the trial court and remanded the cause. 595 S.W.2d 158. We reverse the judgment of the court of civil appeals and affirm the judgment of the trial court.

In 1972, Floyd M. Stigler, Inc. and other heirs of the Lively estate contracted to sell forty-three acres of land, situated in Dallas County, to Leon D. Hogg, Jr. Closing was set for February 15, 1973. Stigler executed a warranty deed to Hogg dated February 12, 1973 and delivered it to its agent R. B. Russell. Hogg executed a deed of trust and note payable to Stigler for $1,418,332.76. A provision was included in the deed of trust that it could be subordinated to a lien for construction and improvements. On February 9, 1973, Stigler executed a power of attorney authorizing Russell to subordinate Stigler's first lien to a subsequent lien for construction and improvements. This power of attorney was filed of record in Dallas County on February 23, 1973.

Because Hogg had difficulty obtaining funds for the down payment, closing was not held on February 15, 1973. Closing was held on August 15, 1973 at which time the warranty deed and deed of trust were filed of record. At closing, Hogg tendered $472,777.60 to Stigler as down payment of the purchase price.

On May 11, 1973, Hogg and Russell organized Interchange Properties, Inc. The corporation applied for and received a loan of $950,000.00 from HNC Realty Company on August 14, 1973. Hogg secured this loan by giving HNC a deed of trust to the forty-three acres. Simultaneously, Hogg conveyed the property to Interchange. The proceeds of the loan were used to make the down payment to Stigler and to service debt installments on the loan.

Prior to obtaining the loan, Russell executed an agreement, on July 31, 1973, subordinating Stigler's deed of trust lien to HNC's deed of trust lien. This agreement was executed pursuant to the power of attorney granted Russell to subordinate Stigler's lien to a subsequent lien for "construction and improvements." The subordination agreement specified the loan from HNC was for "improvement and development." This was filed of record on August 15, 1973. Interchange defaulted. On May 7, 1975, HNC foreclosed and subsequently purchased the property.

In response to special issues, the jury found that Russell acted as Stigler's agent in the sale to Hogg; that Russell had authority to execute the subordination agreement; that Stigler had no knowledge of the subordination agreement at the time the down payment was received or that the funds were proceeds of the HNC loan; and, that the subordination agreement became binding on Stigler through ratification. The trial court rendered judgment that Stigler recover the purchase price plus interest, attorneys' fees, and costs from Hogg, but that it take nothing against HNC. The court of civil appeals reversed the judgment and remanded the cause with instructions that the trial court render judgment declaring Stigler's lien prior and superior to HNC's lien, to set aside the foreclosure sale; and, to proceed with judicial foreclosure of Stigler's lien. The court severed Stigler's action against HNC from HNC's third-party action against Southwest Land Title and remanded that action for consideration of the merits of the third-party action. The judgment against Hogg was left undisturbed. The court of civil appeals held that, as a matter of law, Russell lacked authority to execute the subordination agreement unless it involved a lien for construction and improvements. 595 S.W.2d 158, 161. The court further held that Stigler's retention of the down payment did not constitute ratification of the subordination agreement. Id. at 160.

Stigler contends that ratification was not pleaded properly and should not have been submitted to the jury. Rule 94 of the Texas Rules of Civil Procedure requires that all matters constituting an avoidance or affirmative defense must be pleaded. Ratification is a plea in avoidance and thus an affirmative defense which, absent trial by consent, is waived unless affirmatively pleaded. Petroleum Anchor Equip., Inc. v. Tyra, 419 S.W.2d 829, 835 (Tex.1967). The purpose of Rule 94 is to give the opposing party notice of the defensive issues to be tried. Hunter v. Carter, 476 S.W.2d 41, 45 (Tex.Civ.App.-Houston (14th Dist.) 1972, writ ref'd n. r. e.); Musso v. Cronley, 422 S.W.2d 840, 841 (Tex.Civ.App.-Waco 1967, no writ).

In this case, HNC did not plead ratification. Stigler made timely and proper objections to both the charge and special issues. However, ratification was pleaded by Hogg and Southwest Land Title. In determining whether issues are supported by pleadings, the trial court will supply omissions in the pleadings of one party by referring to the allegations contained in the pleadings of another. Whittington v. Glazier, 81 S.W.2d 543, 545 (Tex.Civ.App.-Texarkana 1935, writ ref'd). We hold that Stigler had notice that the issue of ratification was to be tried.

Ratification may occur when a principal, though he had no knowledge originally of the unauthorized act of his agent, retains the benefits of the transaction after acquiring full knowledge. Hornblower &...