Lee v. O'Leary
| Decision Date | 15 July 1987 |
| Docket Number | No. 07-85-0350-CV,07-85-0350-CV |
| Citation | 742 S.W.2d 28 |
| Parties | Nelson N. LEE and Wife, Alice K. Lee, Key West Towers, Inc., and Richard O. Eid, Appellants, v. Joseph E. O'LEARY and Wife, Hannelore I. O'Leary, Northern Hospitality, Inc., and William S. Gray, Appellees. |
| Court | Texas Court of Appeals |
Patrick A. Pirtle, Nickum & Pirtle, Amarillo, for appellants.
G. Keith McGowan, Levbarg & McGowan, Austin, for appellees.
Before REYNOLDS, C.J., and COUNTISS and BOYD, JJ.
This is a wraparound note case. It is before us on an agreed statement, pursuant to Rule 378 of the Texas Rules of Civil Procedure. 1 Because the parties before us appear both as appellants and as appellees, they will be referred to by name rather than by title. We affirm those portions of the judgment attacked by Nelson N. Lee and wife Alice K. Lee (the Lees). We sustain a portion of the attack on the judgment by Key West Towers, Inc. (Key West) and Richard O. Eid (Eid) and modify the judgment to that extent; otherwise, we affirm.
The case involves a complex series of wraparound mortgage note transactions, climaxed by a chain of defaults and a foreclosure sale. The property in question is a motor hotel in downtown Amarillo. The chain of title, as pertinent here, is from Ray Berney Enterprises, Inc. and C.R. Peters (Berney/Peters) to Joseph E. O'Leary and wife Hannelore I. O'Leary (the O'Learys), from the O'Learys to the Lees, from the Lees to Key West and, finally, from Key West to Northern Hospitality, Inc. (Northern). 2
When the Lees purchased the property from the O'Learys, they gave the O'Learys a promissory note (the O'Leary note) secured by a lien on the property. The O'Leary note was in the sum of $1,150,000.00, which included, or wrapped around, the unpaid balance of three promissory notes that were secured by prior liens on the property.
When Key West purchased the property from the Lees, it gave the Lees a promissory note (the Lee note) secured by a lien on the property. The Lee note was in the sum of $1,125,000.00, which wrapped around the unpaid balance of the O'Leary note. Also, Key West and Eid, President of Key West, guaranteed the O'Leary note.
Key West then conveyed the property to Northern in return for a note and guaranty agreement. Subsequently, Northern defaulted, setting up a chain of defaults back to Berney/Peters, who instituted foreclosure Thereafter, as pertinent here, the O'Learys sued the Lees on the O'Leary note, and Key West and Eid on their guaranty of the O'Leary note. The Lees then sued Key West and Eid on the Lee note. The trial court gave the O'Learys judgment against the Lees, Key West and Eid for $157,489.85 plus interest, costs and attorney's fees. It then gave the Lees judgment against Key West and Eid for $73,702.70 plus interest, costs and attorney's fees.
proceedings and bought the property at the foreclosure sale for $700,000.00.
THE LEE APPEAL
The Lees attack the judgment by two points of error, by which they contend the trial court erred (1) by failing to credit the bid price at the foreclosure sale on the amounts owed by the parties, and (2) by giving Key West and Eid credit on the Lee note for the balance owed by the Lees to the O'Learys on the O'Leary note. The points will be resolved collectively, because they are grounded on one problem: How to calculate a deficiency judgment on a wraparound note.
When Berney/Peters foreclosed, there was an unpaid balance of $974,382.12 on the O'Leary note, the wraparound obligation included in the Lee note. At that time, the unpaid balance of the Lee note (including the O'Leary wraparound) was $1,038,495.86. The trial court gave Key West and Eid credit for the unpaid balance on the O'Leary note, and, after adding $9588.96 in interest that had accrued on the $64,113.74 balance by trial time, ordered Key West and Eid to pay $73,702.70 to the Lees. The Lees argue that the court should have credited the bid price at the foreclosure sale, $700,000.00, instead of the balance on the O'Leary note, $974,382.12. This would have increased the award to Lee from $73,702.70 to $348,084.82. We conclude, however, that the trial court gave the correct credits.
There are several ways to approach the problem before us. See and compare J.M. Realty Investment Corp. v. Stern, 296 So.2d 588 (Fla.Dist.Ct.App.1974); Daugharthy v. Monritt Associates, 293 Md. 399, 444 A.2d 1030 (1982); Maupin v. Chaney, 139 Tex. 426, 163 S.W.2d 380 (1942); Habitat, Inc. v. McKanna, 523 S.W.2d 787 (Tex.Civ.App.--Eastland 1974, no writ). We see no reason, however, to stray from settled principles of contract law or create new or artificial rules simply because we face a relatively unusual kind of business transaction. The obligations of parties to a contract are best determined by the interpretation or construction of their agreement, and nothing more. See Gallup v. St. Paul Insurance Company, 515 S.W.2d 249, 250 (Tex.1974); Republic National Life Insurance Co. v. Spillars, 368 S.W.2d 92, 94 (Tex.1963); Skyland Developers v. Sky Harbor Associates, 586 S.W.2d 564, 570 (Tex.Civ.App.--Corpus Christi 1979, no writ). That rule should prevail, whether a court is dealing with a relatively simple sale and purchase of personalty, see, e.g., Caviness Packing Co., Inc. v. Corbett, 587 S.W.2d 543 (Tex.Civ.App.--Amarillo 1979, writ ref'd n.r.e.), or, as here, a complex series of real estate transactions involving many parties. The ultimate question, always, is: What did the parties agree to do? That was the approach taken by the Fourteenth Court of Appeals in Houston in the recent wraparound note case of Consolidated Capital Special Trust v. Summers, 737 S.W.2d 327 (Tex.App.--Houston [14th Dist.] 1987, no writ), and it is the approach we take here.
In this case, the Lees made the following agreements with Key West and Eid on the debt. First, the deed from the Lees to Key West, signed by the Lees, states: "This conveyance is made further subject to and the Grantee herein does not assume payment of the following indebtednesses: ...." The statement is followed by a list of prior liens and debts against the property, including the O'Leary note that was owed by the Lees to the O'Learys and credited on the Key West and Eid note to the Lees. Second, the Lee note, which is the $1,125,000.00 real estate lien note prepared as part of the transaction, signed by Key West, and payable to the Lees, concludes as follows:
The aforesaid note, hereinafter referred to as Wraparound Note, is an all inclusive note which includes within its principal amount the unpaid principal balances of all indebtednesses described in the aforementioned Warranty Deed executed by Nelson N. Lee and wife, Alice K. Lee, to the Undersigned.
When the two instruments are construed together, as they must be, Jim Walter Homes, Inc. v. Schuenemann, 668 S.W.2d 324, 327 (Tex.1984), only one conclusion is possible. The $1,125,000.00 note includes those prior debts listed in the deed, and Key West and Eid are not responsible for the balance due on those prior debts. Thus, the plain language in the contract excepts the grantees from assuming payments arising under pre-existing encumbrances, as was the case in Daugharthy v. Monritt Associates, supra. See also Lyons v. Montgomery, 701 S.W.2d 641 (Tex.1985).
Accordingly, in order to decide how much Key West and Eid owe the Lees, the balance due on the prior debts must be subtracted from the balance due on the Lee note. The trial court did that, by subtracting the balance due on the O'Leary note (which wrapped around earlier notes), and entered judgment accordingly. Regardless of the face amount called for by the Lee note, which covers the total obligation on the property, the subsequent language in both instruments clearly reveals the parties' intent to hold Key West and Eid accountable only for the Lees' equity in the note. In interpreting a deed, this Court endeavors to carry into effect the intention of the parties as expressed therein. Maupin v. Chaney, supra at 383. All parts of a contract are to be taken together, giving them such meaning as will carry out the intention of the parties to the fullest extent. General American Indemnity Company v. Pepper, 161 Tex. 263, 339 S.W.2d 660, 661 (Tex.1960). Applying those principles, we conclude that the trial court was correct.
It follows that we must also reject the Lees' contention that only the amount bid at the foreclosure sale can be credited on the Lee note. 3 That bid is immaterial, under the facts of this case and our view of the law. The cases cited by the Lees that support crediting the bid price on the debt of the mortgagor, Maupin v. Chaney, supra; Whalen v. Etheridge, 428 S.W.2d 824 (Tex.Civ.App.--San Antonio 1968, writ ref'd n.r.e.), are factually distinguishable from the present case. The Lees' points of error one and two are overruled.
THE KEY WEST--EID APPEAL
Key West and Eid attack the judgment by six points of error. By the first four points, they attack the form of the judgment, contending it is ambiguous and incorrectly states the joint and several liability of the various parties sued by the O'Learys. By their final two points, they contend evidence of Eid's personal liability to the Lees is factually and legally insufficient to support the judgment against him. We will consider the contentions in the order stated.
Key West and Eid contend the judgment, in its present form, would allow the O'Learys a double recovery: the O'Learys can collect $157,489.85 from the Lees, then collect an additional $157,489.85 from Key West and Eid, jointly and severally. The portion of the judgment in dispute reads as follows:
IT IS, THEREFORE, ORDERED, ADJUDGED AND DECREED by the Court that Plaintiffs, JOSEPH E. O'LEARY and wife, HANNELORE I. O'LEARY, have and recover from Defendants NELSON N. LEE and wife, ALICE K. LEE, the sum of ONE HUNDRED FIFTY-SEVEN THOUSAND FOUR HUNDRED EIGHTY-NINE AND...
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