Lucas' Estate v. Whiteley

• Decision Date: 29 April 1977
• Docket Number: No. 8761,8761
• Citation: 550 S.W.2d 767
• Parties: 22 UCC Rep.Serv. 95 Estate of Peter F. LUCAS, Appellant, v. L. D. WHITELEY et al., Appellees.
• Court: Texas Court of Appeals

Page 767

550 S.W.2d 767

22 UCC Rep.Serv. 95

Estate of Peter F. LUCAS, Appellant, v. L. D. WHITELEY et al., Appellees.

No. 8761.

Court of Civil Appeals of Texas, Amarillo.

April 29, 1977.

Rehearing Denied May 23, 1977.

Thompson, Knight, Simmons & Bullion, Stephen F. Fink, Dallas, for appellant.

Bill A. Davis, Lubbock, for appellees.

REYNOLDS, Justice.

The estate of a mentally incompetent was adjudged liable on a promissory note to which the incompetent's name was affixed pursuant to a power of attorney signed, so the jury found, during incompetency. The adjudication came after the jury further determined that plaintiff holders of the note gave valuable consideration, albeit not to the incompetent, for the note and dealt with the incompetent in good faith, without fraud or imposition, and without knowledge of his mental incapacity. Given the jury's findings, we hold that the incompetent's liability on the note was avoided. Reversed and rendered.

On 13 April 1973, the names of Capital K Investment Corporation and Peter F. Lucas were affixed to a promissory note by Nasib Ed Kalliel as president of the corporation and as attorney-in-fact for Lucas. The note is in the principal sum of $120,000, bears interest at the rate of eight per cent per annum, and is payable to the order of J. W. Chapman & Sons in annual principal installments of $20,000 plus accrued interest, beginning 1 April 1974. The note was executed in connection with L. D. Whiteley's sale of the Le Chateau Apartments in Lubbock, Texas, to Capital K Investment Corporation.

The power of attorney under which Kalliel acted was a special one signed by Lucas on 12 April 1973. In a judicial proceeding of 11 June 1973, Lucas was adjudged a person of unsound mind.

A $25,000 payment was made on the note on 28 June 1973. After no other payment was made, plaintiffs L. D. Whiteley, Homer Porter and J. W. Chapman & Sons, a partnership composed of Ray Chapman and Harold Chapman, all alleging to be holders in due course of the note, instituted this suit to recover from Capital K Investment Corporation and Virginia L. Nick, in her capacity as Guardian of the Estate of Peter F. Lucas, the principal balance and accrued interest on the note, together with reasonable attorney's fees.

For Lucas, there was interposed, among the reasons for nonliability, the defense that he was of unsound mind and mentally incapable of acting rationally when the power of attorney was executed. No answer was filed on behalf of Capital K Investment Corporation and, when the corporation failed to appear for trial, a judgment nihil dicit was rendered against it in favor of plaintiffs.

Following a trial before a jury, the jury returned its verdict which, corresponding to the numbered special issues, was that: (1) Lucas personally signed the power of attorney dated 12 April 1973; (2) when he was mentally incompetent; (3) plaintiffs did not give Lucas valuable consideration for the note; (4) plaintiffs were acting in good faith in their dealing with Lucas at the time the note was executed; (5) they were acting without fraud or imposition; (6) they had no knowledge of Lucas' mental incapacity; (7) plaintiffs gave valuable consideration in exchange for the note; (8) there was no agreement that the $25,000 payment would be applied to the final payments on the note; and (9) $16,000 would reasonably compensate plaintiffs as payment for reasonable attorney's fees.

Accepting the verdict, the trial court rendered judgment that plaintiffs recover from the corporation and the estate of Lucas the sum of $141,235.06 as principal, interest and attorney's fees on the note, together with postjudgment interest, and that the estate of Lucas have judgment against the corporation, by way of contribution, for the sum of $62,073.53, with postjudgment interest.

Only the estate of Lucas has appealed. The essence of the sole point of error is that the trial court erred in not rendering a take-nothing judgment as to Lucas' estate because the jury's answers to special issues 2 and 3 established the defense of mental incompetency which avoided liability. We agree and, for the reasons stated below, sustain the point.

In joining the issue, the parties have not challenged any answer given by the jury. Conclusive, then, is that Lucas was mentally incompetent when he executed the power of attorney by authority of which Kalliel affixed Lucas' name to the note. It follows, from the principle early confirmed in Texas, that the power of attorney and the resulting note as it obligates Lucas is not void, but only voidable at the election of Lucas or his legal guardian. Williams v. Sapieha, 94 Tex. 430, 61 S.W. 115, 116 (1901). And it has been held that the avoidance is not barred by the showing, as shown here by the jury's determinations with respect to the note, that an instrument was obtained in good faith for a valuable consideration and without fraud. Mitchell v. Inman, 156 S.W. 290, 292 (Tex.Civ.App. Fort Worth 1913, writ ref'd). Notwithstanding, plaintiffs contend that under these elements of the verdict, Lucas' avoidance of liability on the note is precluded by the Texas Uniform Commercial Code (1967), V.T.C.A., Bus. & C. § 3.305, and, until plaintiffs are restored to their original position, by Vernon's Ann.Civ.St. art. 5561a, § 7 (Supp.1976).

V.T.C.A., Bus. & C. § 3.305, speaks to the rights of a holder in due course, the status conferred on the payee-holder of the note, J. W. Chapman & Sons, by the jury's findings that plaintiffs gave valuable consideration for the note, they were...