McCallum Highlands, Ltd. v. Washington Capital Dus, Inc.

• Decision Date: 10 October 1995
• Docket Number: No. 94-10691,94-10691
• Parties: McCALLUM HIGHLANDS, LTD., Plaintiff-Appellant, v. WASHINGTON CAPITAL DUS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 89

66 F.3d 89

McCALLUM HIGHLANDS, LTD., Plaintiff-Appellant, v. WASHINGTON CAPITAL DUS, INC., Defendant-Appellee.

No. 94-10691.

United States Court of Appeals,

Fifth Circuit.

Oct. 10, 1995.

D. Ronald Reneker, Bush, Craddock & Reneker, Dallas, TX, for appellant.

William H. Church, Jr., William D. Sims, Jr., Z. Melissa Lawrence, Dallas, TX, for appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before HIGGINBOTHAM, SMITH and STEWART, Circuit Judges.

STEWART, Circuit Judge:

McCallum Highlands, LTD., appeals from an adverse summary judgment on an action to avoid certain amended portions of a loan agreement with Washington Capital Dus, Inc. Affirmed in part, vacated in part, and remanded.

FACTS

Ari Susman owned an apartment complex, McCallum Highlands, and wanted to refinance its mortgage. In order to refinance at a lower rate of interest through Washington Capital Dus ("Washington"), he reorganized as a limited partnership, McCallum Highlands, LTD, ("McCallum") with himself as general partner. He also obtained an agreement from his previous mortgaging company foregoing a hefty prepayment penalty provided he refinanced by April 30, 1991. Washington is in the business of making loans and then selling them to the Federal Home Loan Mortgage Association ("Fannie Mae").

On January 9, 1991, McCallum accepted Washington's offered loan commitment for $6,700,000 at an interest rate of 9.75% per annum. The loan commitment also provided that McCallum could lower the interest rate through a buy-down process and increase the amount of the loan to Susman's originally requested amount of $7,015,000. This amount of money (allegedly) would allow him to pay off the Hancock mortgage and would also provide some extra capital with which to refurbish McCallum apartments. Susman made a good faith deposit of $134,000 in acceptance of the loan commitment.

Sometime early in 1991, Fannie Mae changed the guidelines describing what loans they would buy. This change included a provision to grandfather out the kind of loan Susman wanted. The provision required that a borrower like McCallum select the applicable interest rate by April 19, 1991, and that the loan close by April 30, 1991--the same date that Hancock had set as McCallum's final date to avoid the prepayment penalty.

Additionally, Fannie Mae criticized another loan Washington had made to Susman (the "Fountains" loan) because Susman had several properties in default at the time, and was not a good risk. Because of Fannie Mae's criticism, on March 22, 1991--less than one month before closing--Washington told Susman that they wanted to lower the amount loaned, and that they thought they could get out of the commitment through a loophole. Susman told Washington that he expected them to honor their commitment. On April 18 (one day before the April 19 deadline), Washington told Susman that they The trial court found for Washington on summary judgment with regard to both claims.

would allow him to select an interest rate for the McCallum loan only if the maximum amount loaned was limited to $6,400,000 with no buy-down provision. Susman, feeling that he had no choice because he needed to have the loan in place before April 30, signed up for the loan even though (allegedly) the proposed amount, after closing costs, provided less than enough to pay off the previous loan. He claims that Washington's actions amounted to economic duress, resulting in McCallum's bankruptcy, or alternatively, that there was no consideration for the modification of the loan commitment so that it is void, (and Washington is therefore in breach of the original agreement).

DISCUSSION

Texas substantive law governs this diversity suit. See Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Rule 56 of the Federal Rules of Civil Procedure, however, governs the propriety of summary judgment. Summary judgment shall be granted if the record, taken as a whole, "together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56. We review the district court's summary judgment de novo. Lee v. Wal-Mart Stores, Inc., 34 F.3d 285, 288 (5th Cir.1994). However, we resolve factual controversies in favor of the nonmoving party, but only when there is an actual controversy, that is, when both parties have submitted evidence of contradictory facts. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994). We do not, in the absence of any proof, assume that the nonmoving party could or would prove the necessary facts. Id. Moreover, unsupported allegations or affidavits setting forth "ultimate or conclusory facts and conclusions of law" are insufficient to either support or defeat a motion for summary judgment. Galindo v. Precision American Corp., 754 F.2d 1212, 1216 (5th Cir.1985).

A. Economic Duress

To avoid summary judgment on its economic duress claim, McCallum must demonstrate a genuine issue of material fact as to each of the following elements of economic duress required by Texas law: (1) a threat to do something that the threatening party has no legal right to do; (2) some illegal exaction or fraudulent deception; (3) the restraint is imminent and such as to destroy a person's free will without adequate means of protection; and (4) the claimant's financial distress was caused by the party accused of duress. ¹ Simpson v. MBank Dallas, N.A., 724 S.W.2d 102 (Tex.App.--Dallas 1987, writ ref'd n.r.e.).

Elements one and two are very similar: the plaintiff must establish that the defendant threatened to do something he had no legal right to do, and that threat involved an illegal exaction or a fraudulent deception. The law, in general, is that the "threat to break a contract does not in itself constitute duress." Hartsville Mill v. United States, 271 U.S. 43, 49, 46 S.Ct. 389, 391, 70 L.Ed. 822 (1926); Palmer Barge Line v. So. Petroleum Trading Co., Ltd., 776 F.2d 502, 505 (5th Cir.1985). Thus, Washington's advising Susman of its belief that there could be loopholes in the loan commitment is not sufficient to constitute economic duress. Moreover, as regards the second element, the trial court found that there is no summary judgment evidence of illegal exaction or fraud or deception. There is no showing that Washington did not intend to honor the McCallum commitment when the agreement was originally made. Neither Washington nor Susman could foresee or control Fannie Mae's dissatisfaction with the Fountains loan, or the guidelines change, both of which materially altered the atmosphere surrounding the loans. In renegotiating the loan terms, there is no showing that Washington engaged in any deceptive or fraudulent behavior.

As regards the third element, the district court also correctly held that Susman failed to show an imminent threat that destroyed his free will and against which he had no present means of protection. Given the short amount of time available to him, it is not clear that Susman could or could not have pursued other financing opportunities, but he made no showing that he could not have pursued legal remedies. Thus, McCallum failed to establish that there was an imminent threat which destroyed free will. Tower Contracting Co., Inc. v. Burden Bros., Inc., 482 S.W.2d 330, 336 (Tex.Civ.--Dallas 1972, writ ref'd n.r.e.).

Finally, as regards the fourth element, Susman made no showing other than conclusory allegations that his financial predicament was caused by Washington. Apparently, it was Susman's financial situation that led to his need to refinance the apartments, it was also his financial situation that led to Fannie Mae's criticism of the other loan underwritten by Washington. Washington's renegotiation of the loan may have been the proverbial straw that broke the camel's back, but that does not make Washington responsible for McCallum's financial distress. Moreover, McCallum waited for fifteen months after the amended agreement to allege duress. This court has indicated that a "delay in raising a claim of duress in addition to the existence of a negotiated agreement between parties represented by counsel is compelling evidence that there was in fact no duress." Palmer Barge Line, Inc., v. Southern Petroleum Trading Co., Ltd., 776 F.2d 502, 506 (5th Cir.1985). Thus, because Susman failed to provide evidence for all four elements, summary judgment for Washington on the issue of economic duress was appropriate.

B. Consideration

McCallum argues that it was provided no consideration for signing Amendment Three to the loan commitment. Consideration is a present exchange bargained for in return for a promise. Roark v. Stallworth Oil and Gas, Inc., 813 S.W.2d 492, 496 (Tex.1991) (citation omitted). It consists of either a benefit to the promisor or a detriment to the promisee. Id. The detriment must induce the making of the promise, and the promise must induce the incurring of the detriment. Id.

In general, under the "pre-existing duty rule," an agreement to do what one is already bound to do cannot serve as "sufficient consideration to support a supplemental contract or modification." Signs v. Bankers Life & Casualty Co., 340 S.W.2d 67, 73 (Tex.Civ.App.--Dallas, 1960, no writ). This rule usually comes in to play when one party becomes unhappy with the contract as agreed upon and wants to change it. 3 WILLISTON ON CONTRACTS Sec. 7:36 (1992). He has to offer some new consideration to the other party to induce that other party to agree to the change. Thus, merely offering the preexisting duty he had already contracted to perform cannot serve as consideration for the change. See Okemah Construction, Inc., v. Barkley-Farmer, Inc., 583 S.W.2d 458, 460 (Tex.Civ.App.--Houston [1 Dist.], 1979, no writ).

In the case at bar, Washington became unhappy with the McCallum commitment when Fannie Mae criticized the prior...