League City State Bank v. Mares, 91

• Decision Date: 27 March 1968
• Docket Number: No. 91,91
• Citation: 427 S.W.2d 336
• Parties: LEAGUE CITY STATE BANK, Appellant, v. Robert A. MARES et al., Appellee. . Houston (14th Dist.)
• Court: Texas Court of Appeals

Page 336

427 S.W.2d 336

LEAGUE CITY STATE BANK, Appellant, v. Robert A. MARES et al., Appellee.

No. 91.

Court of Civil Appeals of Texas Houston (14th Dist.).

March 27, 1968.

Rehearing Denied April 24, 1968.

Charles R. Hancock, Hancock & Bellard, William E. Carroll, Palmer & Carroll, Dickinson, for appellant.

Ed Schwab, III, Levy, Levy, Schwab & Coughlin, Galveston, Crouch, Cole & Pacetti, Houston, for appellee.

George D. Martin, Crawford, Harris, Martin & Carmona, Galveston, for defendants Holmes et ux.

TUNKS, Chief Justice.

On November 25, 1957, Robert A. Mares and Frank M. Austin, Jr., bought from E. E. Holmes and wife, a tract of real property located in Kemah, Galveston County, Texas. As a part of the consideration for such tract of property, Mares and Austin executed their negotiable promissory note in the principal amount of $12,000.00 dated November 25, 1957, payable in monthly installments of $200.00 each, the first installment of which was due on January 22, 1958 and bearing interest at the rate of 6% Per annum. This note was secured by a vendor's lien retained in the deed from Holmes to Mares and Austin and was further secured by a deed of trust of even date therewith.

After taking possession of the property in question, Mares and Austin paid the payments, with some irregularity, on their note. On March 17, 1959, they were in arrears on their payments. On that date, Mares executed and delivered to Holmes a check in the amount of $900.00. On the face of this check a notation is made, 'payments on property at Kemah--paid to April 22, 1959.' There is no controversy but that this March 17, 1959 payment brought the makers up to date and constituted payment of all due under the note until April 22, 1959.

On March 26, 1959 Mares executed and delivered to Holmes his check in the amount of $1,290.00. Written on the face of that check were the words, 'payment on Kemah property, lot 7, block 27.' It is in reference to this payment of March 26, 1959, that the testimony is in conflict. Mares and Austin both testified positively that there was an agreement between them on the one hand and Holmes on the other hand to the effect that the $1,290.00 paid should apply to the next due payments on their note. Holmes, on the other hand, testified that their agreement was to the effect that the check was in payment of the last six $200.00 payments to become due at the end of the note. There is some confusion in his testimony as to the extra $90.00. Holmes testified that it was the result of some computation which he made as to interest, but was never able to explain the manner in which his computation was made. Mares and Austin testified that the sum $1,290.00 was a specific sum required by Holmes at the time in question and that they made the check in that amount as an accommodation to him.

On the date of the original sale, November 25, 1957, Holmes and wife assigned the $12,000.00 note to League City State Bank, League City, Texas. This assignment was effected by endorsement and delivery of the note itself. In a separate written document, assigning the note and deed of trust lien, it was recited that the assignment was in consideration of a loan made to them by League City State Bank in the amount of $4,500.00. Holmes testified that he had participated in a continuous series of loan transactions with League City State Bank and that the additional $4,500.00 loaned to him on November 25, 1957, increased his total indebtedness to that bank to the sum of $10,800.00. The nature of this additional indebtedness is not clear from the record, nor is it clear whether the assignment of the $12,000.00 note was intended to be security for the entire $10,800.00 of indebtedness or the $4,500.00 additional loaned to him on November 25, 1957. It is clear, however, from the testimony of all parties involved, that the assignment from Holmes to the League City State Bank was collateral in nature and was intended as security for Holmes' indebtedness to the bank. Mares and Austin were not notified of this assignment and they made payments directly to Holmes, except for three payments which they, at Holmes' direction, paid to the bank for credit to Holmes' account.

On August 5, 1959, D.C. Long, an attorney in League City, Texas, wrote to Robert A. Mares and Frank M. Austin, Jr., a letter informing them for the first time that their note and the lien securing it had been assigned to the League City State Bank, that they were delinquent in the payment of said note for a period of several months, that the bank had exercised its option to accelerate and did thereby declare the entire balance of the note due and payable as of that date. On September 8, 1959, Long wrote another letter to Robert A. Mares referring to the bank's acceleration of the note and telling him that he, Long, had been instructed to foreclose the deed of trust lien securing the note unless action was taken within five days from the date thereof.

Mares and Austin restified that upon receiving this correspondence from Long, they protected that they were not in arrears on their payments and declared a willingness to maintain the payments as they came due. If their version of the agreement with Holmes as to the application of the $1,290.00 payment of March 26th was true, they, obviously were not in arrears. In response to this declaration on their part, Long insisted that the entire balance of the note, together with attorney's fees, be paid, and declined to accept their offer to continue the payments as they came due. Mares and Austin further testified that, though they made efforts to do so, they were unable to raise the cash with which to pay the entire balance due on the note together with attorney's fees as demanded by Long.

On November 3, 1959, Long, acting as substitute trustee under the deed of trust, foreclosed the lien and executed a trustee's deed conveying the property to Holmes for a recited consideration of $3,891.19.

Holmes had been using the payments on the note from Mares and Austin to meet the payments on his, Holmes' indebtedness to League City State Bank. Between the date of the $1,290.00 payment of March 26, 1959, and the date of the first letter from Long to Mares and Austin of August 5, 1959, Holmes had fallen in arrears on his payments to the bank. The testimony is somewhat in dispute as to just what steps the bank took in order to collect its indebtedness from Holmes. Holmes testified that the bank returned to him the $12,000.00 note. Long testified that Holmes employed him to foreclose the lien and in connection therewith, Holmes delivered to him the $12,000.00 note. Cecil A. Deese, who was at the time in question the executive vice president of League City State Bank, was called as a witness by Mares and Austin. After having testified that Holmes was in arrears in his payments to the bank, he gave the following testimony:

'Question: Well, when Mr. Holmes didn't pay his note, what did the bank do?

'Answer: We told him we wanted our money and he told me that he would get the money up under foreclosure of the property.

'Question: Who owned the note or held the note in the sum of $12,000.00 that had been assigned to the bank as security when he told you all of this?

'Answer: The bank held the note in its possession under this collateral assignment.

'Question: Let me show you the note, also, if I can find it.

'Mr. Bell: Somehow or another, that note didn't get marked--I have it--as an exhibit.

'Question: The bank held the note at that time?

'Answer: That's right.

'Question: And, of course, you can see here (indicating paper), it had been endorsed over to the League City State Bank with full recourse on us by Mr. and Mrs. Holmes?

(The witness did not reply).

'Question: And then Mr. Holmes said he would get the money by foreclosing the deed of trust?

'Answer: That's correct.

'Question: And then what did the bank do?

'Answer: We told him to go ahead and get us the money. That's all we were interested in, was money.

'Question: Did you give him collateral back and this note?

'Answer: I don't recall whether we gave it back to him or not at the time. We wouldn't have given it to him until he paid us our money.

'Question: Because that was the collateral for your loan and you wouldn't redeliver the collateral until you had been paid; is that correct?

'Answer: That's ordinary course of business.'

After the foreclosure, D. C. Long...