National Educators L. Ins. Co. v. Master Video Systems Inc., 92

• Decision Date: 30 December 1965
• Docket Number: No. 92,92
• Citation: 398 S.W.2d 358
• Parties: NATIONAL EDUCATORS LIFE INSURANCE COMPANY, Appellant, v. MASTER VIDEO SYSTEMS, INC., Appellee.
• Court: Texas Court of Appeals

Page 358

398 S.W.2d 358

NATIONAL EDUCATORS LIFE INSURANCE COMPANY, Appellant, v. MASTER VIDEO SYSTEMS, INC., Appellee.

No. 92.

Court of Civil Appeals of Texas, Corpus Christi.

Dec. 30, 1965.

Two Motions for Rehearing Denied Jan. 27, 1966.

Keys, Russell, Watson & Seaman, by M. W. Meredith, Jr., Corpus Christi, for appellant.

Fischer, Wood, Burney & Nesbitt, by James R. Harris, Corpus Christi, for appellee.

NYE, Justice.

Master Video Systems, Inc., appellee, brought suit against National Educators Life Insurance Company, appellant, for damages alleging conversion of certain personal property located in a motel owned by W. C. Price and wife Geraldine Price. Trial was before a jury. Both plaintiff and defendant moved for judgment on the verdict or for judgment non obstante veredicto. The trial court awarded judgment to the plaintiff in the amount of $16,633.18 as actual damages. Defendant has appealed from that judgment and both parties seek relief in this Court, the plaintiff by cross assignments of error. The various parties to the transaction giving rise to the dispute should, at the outset be clarified, because of the complicated fact situation involved.

W. R. Price and wife Geraldine Price decided to build a motel in Port Aransas, Texas. W. R. Price will hereafter be referred to as Price in this opinion. A corporation was formed by Price and others for purposes related to the motel. This corporation was called Paradise Isle Motor Hotel Corporation, hereinafter referred to as Motel Corp.

Price got in touch with Educations Industry, Inc., a building contracting firm domiciled in Fort Worth, Texas, hereinafter called Industries, who agreed to construct a fifty-two unit motel for $350,000.00 and also agreed to obtain the interim and long term financing for Price.

Industries obtained the long term financing through National Educators Life Insurance Company, also a corporation domiciled in Fort Worth, Texas, and hereinafter called Nelico. Nelico was the defendant in this law suit and the appellant herein.

Motel Corp. purchased all of the furnishings for the motel including television sets, carpeting, air conditioning units, all equipment, supplies, furniture and fixtures, all of such property hereinafter called furnishings, from Master Video Systems, Inc., a Delaware corporation with officers in Port Washington, New York, hereinafter called MVS. The purchasing arrangement for the furnishings was such, that title was in MVS. Motel Corp. leased all of such furnishings from MVS on a monthly rental basis for a term of five years. The agreement gave Motel Corp. an option to purchase all of such furnishings at the end of the term for a nominal sum. MVS was the plaintiff in the trial court and appellee herein.

Price defaulted on his note and Nelico foreclosed on the deed of trust and a chattel mortgage given Nelico by Price individually and joined therein by his wife. The crux of the law suit things on the question of whether or not Nelico had a valid mortgage on the furnishings. MVS says not and we agree.

The motel operation was never a success. After Price had operated the motel two years, Nelico advised Price that he was more than a year behind in his payments on his note, and that the note was then and there accelerated. Notice of foreclosure proceedings was given. After about three months of delay, Nelico foreclosed on the motel under its deed of trust and on a chattel mortgage. Nelico purchased the motel and furnishings at the foreclosure sale and went into operation of the motel in March of 1961, and continued operating the motel until the time of trial. At the same time Motel Corp. was likewise in default on its lease payments to MVS. Prior to the foreclosure sale on the furnishings, MVS notified Nelico of MVS's superior right to the furnishings, however Nelico foreclosed on the furnishings anyway. MVS brought this suit against Nelico for conversion of its furnishings.

MVS claims title through its purchase and lease back arrangement with Motel Corp. Nelico claims title through the chattel mortgage executed by Price. MVS says that Nelico's mortgage was from Price individually to Industrial and from Industries to Nelico and that Motel Corp. and MVS were never parties to Nelico's mortgage. Therefore, as MVS argues, Nelico has no claim of title under its mortgage, because Nelico's assignor in title took from Price and wife, when the actual title to the furnishings or the right to mortgage the furnishings was in Motel Corp. or MVS. Nelico, on the other hand contends, that MVS agreed to a mortgage of their interest in the furnishings in favor of Nelico and that therefore Nelico had a superior lien on the furnishings at all times; (1) based on the written chattel mortgage; (2) based on a superior equitable mortgage; and/or (3) based on the fact that MVS's security interest in the furnishings was taken with notice of a superior lien in Nelico.

Originally, Price was in the lumber business in Dallas, Texas. He and his wife decided they would build a motel in Port Aransas on Mustang Island. Price purchased and paid for a seven-acre tract in Port Aransas, Texas. In March of 1958, Price met with a Mr. Wm. R. Roberts, Jr. Executive Vice President of Industries, and with Roberts' attorney, a Mr. Walter G. Cook. An agreement by letter form was made between Price and Industries concerning the construction of the motel. This letter agreement was dated March 25, 1958, and is hereinafter referred to as the 'March 25th Agreement'. This agreement provided for Price to execute a mechanic's lien or consent for a mechanic's lien in favor of Industries for $350,000.00 as consideration for the building of the fifty-two unit motel. Price was to be responsible for furnishing all air conditioning window units, carpeting, furniture and furnishings for the motel at no additional cost to the contractor, Industries. Price further agreed to obtain letters or agreements from suppliers to the effect that they would subordinate their interest in the furnishings to the mechanic's lien and any renewals and extensions thereof and that Industries was to have its mechanic lien rights converted into a first mortgage on such furnishings. Industries was to obtain the financing with a loan in the amount of $350,000.00 at 6% interest for a term of fifteen years to be repaid in monthly installments of $2953.54. The agreement obligated Price to create a corporation (Motel Corp.) and to place in the corporation land and assets belonging to Price individually in the amount of $80,000.00 and then have Motel Corp., pledge these assets to Industries as additional collateral for the loan. Motel Corp., when created, was authorized to mortgage its assets to Industries. Price, individually, further agreed to execute any and all papers that the loan company or contractor, Industries, might require to accomplish this transaction. Neither Nelico, Motel Corp., nor MVS was a party to this agreement.

During the time that the motel was being built, Price negotiated with a number of suppliers for the furnishings and finally made an agreement with MVS to finance and supply the furnishings for the motel. MVS paid for the furnishings from the various suppliers through Motel Corp. Motel Corp. took title from the suppliers, sold the furnishings to MVS, and then leased the furnishings back from MVS. In the two contracts dated April 30, 1958, hereinafter referred to as the 'April 30th Agreement', Motel Corp., in effect, sold $82,500.00 worth of furniture and $10,800.00 worth of air conditioning equipment (the furnishings) to MVS, and MVS then in turn, by the 'April 30th Agreement', leased back all of the furnishings to Motel Corp. These April 30th agreements are identical except as to the description of the property. The jury found that the 'April 30th Agreement' reserved title in the furnishings to MVS with the intent to secure the payment to the indebtedness on such items owned by Motel Corp. to MVS. There was sufficient evidence to uphold these jury findings. The effect of the 'April 30th Agreement' and the jury findings placed the title to the furnishings in MVS. This was a security arrangement. Motel Corp. had, however, the right to mortgage the furnishings by the terms of the 'April 30th Agreement'. In any event either MVS or Motel Corp. could have given a lien on the furnishings to Industries or Nelico. Since the ownership of the furnishings and/or title was either in MVS or Motel Corp. at the time the furnishings were installed, and this fact is not in dispute, the question to be resolved is: Did MVS or Motel Corp. give a mortgage to Industries or Nelico at any time, so as to create a superior title interest in them over MVS?

The terms of the 'April 30th Agreement' provided that MVS was to purchase, and Motel Corp. was to sell the subject furnishings when said furnishings were actually installed in the motel. The agreement provided that: Such furnishings shall be deemed to have been installed in said motel when MVS received written notice by Motel Corp. to that effect and such notice shall state: '* * * that there is no vendor's or mechanic's lien or other encumbrances on said furniture (equipment) other than a mortgage, or an agreement to execute a mortgage in favor of National Educators Life Insurance Company (Nelico), Fort Worth, Texas, in the principal amount of $350,000.00 to the extent that said mortgage is secured by the furniture (equipment) described in Schedule 'A'. (2) that said furniture is, in all respects, satisfactory.' The jury found that MVS recognized that Motel Corp. by the 'April 30th Agreement' had a right to give a mortgage to Nelico and that by the 'April 30th Agreement' Nelico was to have a first mortgage on the equipment.

On or about November 4, 1958, the motel building was completed and the furnishings were installed. Motel Corp. gave the required notice to MVS that such furnishings had been installed. The letter of notice...