Shenandoah Associates v. J & K Properties, Inc.

• Decision Date: 31 March 1987
• Docket Number: No. 05-85-00629-CV,A-1,05-85-00629-CV
• Parties: SHENANDOAH ASSOCIATES, Appellant, v. J & K PROPERTIES, INC., Appellee. v. HOME SAVINGS ASSOCIATION FAMILY DEVELOPMENT CORPORATION,Inc., and John Bushman, Appellees.
• Court: Texas Court of Appeals

Page 470

741 S.W.2d 470

SHENANDOAH ASSOCIATES, Appellant, v. J & K PROPERTIES, INC., Appellee. v. HOME SAVINGS ASSOCIATION FAMILY DEVELOPMENT CORPORATION, A-1

Inc., and John Bushman, Appellees.

No. 05-85-00629-CV.

Court of Appeals of Texas,

Dallas.

March 31, 1987.

On Motion for Rehearing Oct. 6, 1987.

Rehearing Denied Nov. 9, 1987.

Royal H. Brin, Jr., Dallas, for appellant.

Jordan, Dunlap & Prather, Robert C. Prather, Dallas, Don Windle, Denton, for appellees.

Before STEPHENS, STEWART and HOLLINGSWORTH ¹, JJ.

STEPHENS, Justice.

This multiple-party suit was brought by Shenandoah Associates, the dissatisfied purchaser of a mobile home park in Odessa, Texas. Shenandoah seeks rescission and damages under the Texas Deceptive Trade Practices Act of the Business and Commerce Code as amended in 1979. After a jury trial of several weeks, and the submission of several hundred special issues, the trial court entered its judgment rescinding the sale of the park from J & K to Shenandoah, yet charging Shenandoah with liability for the unpaid balances of the first and second mortgages, and awarding attorney's fees against Shenandoah for having brought its suit in bad faith and for the purposes of harrassment against all defendants except J & K.

On appeal, Shenandoah presents twelve points of error for our consideration. J & K Properties, Inc., a co-appellant, presents seven points of error, and Home Savings Association, Family Development Corporation, A-1 Inc., and John Bushman, appellees, present one cross-point. We agree with Shenandoah's points of error number one, and number six, and we agree with J & K's point of error number one, accordingly, we reverse the judgment of the trial court and remand the case for a new trial.

CHRONOLOGY OF FACTS

In 1982 J & K held legal title to the park, encumbered by a first mortgage of $830,000.00, in favor of Home Savings. This note was guaranteed by Bill J. Jacobson, President of J & K. Coupled with the loan, J & K had granted an exclusive sales contract to Family Development for sale of the park. At the time of this transaction, John Bushman solely owned Home Savings and A-1 Inc., and Home Savings was the sole owner of Family Development.

Later in 1982, negotiations for the sale of the park began between J & K and Steven K. Babbidge & Associates. These negotiations fell through in December 1982. Later negotiations began between Bushman's group and Babbidge without the participation of J & K. These negotiations resulted ina sale of the park to Babbidge, or its nominee, and at closing, January 4, 1983, Shenandoah, Babbidge's nominee, became the title holder of the park.

The sale was consummated by the payment of $135,000.00 in cash, the execution by Shenandoah of a six-months second lien note for $135,000.00 payable to J & K, which was simultaneously endorsed to Family Development, and the assumption by Shenandoah of the $830,000.00 note to Home.

Some time after closing, and after Shenandoah occupied the property, difficulties arose between the parties resulting in this suit. Prior to the filing of the suit, J & K filed for bankruptcy; however, before the trial of the case, the automatic stay afforded J & K by the bankruptcy filing, was lifted by the Federal Court.

TRIAL COURT'S JUDGMENT

The trial court's final judgment is paraphrased as follows:

1. A-1 Inc., Home Savings, and Bushman were awarded a take-nothing judgment as to Shenandoah.

2. A-1 Inc., was awarded judgment against Shenandoah for: (a) attorney's fees of $173,003.00, expenses of $10,852.81; (b) if appealed to this court, an additional $27,000.00 attorney's fees, and an additional $5,000.00 expenses; and (c) if appealed to the Texas Supreme Court, an additional $13,500.00 as attorney's fees, and an additional $2,500.00 as expenses.

3. Bushman was awarded the same judgment against Shenandoah as was A-1 Inc.

4. Home Savings was awarded judgment against Shenandoah for $893,047.35, as the sum due on the principal and interest of the note through August 1, 1984, together with pre-judgment and post judgment interest on the principal balance of the note, together with foreclosure of its lien on the park, together with a money judgment for any deficiency resulting from the sale of the property, and ordering reimbursement to Shenandoah for any excess of the sale over the debt. Home, additionally, was awarded the same sum as was awarded A-1 Inc., and Bushman, for its attorney's fees and expenses.

5. Family Development was awarded judgment against Shenandoah for $155,240.32 on its note through August 1, 1984, together with pre-judgment and post-judgment interest on the balance of its $135,000.00 note. Additionally, Family was awarded foreclosure of its lien and a money judgment against Shenandoah for any deficiency resulting from the sale, and likewise ordering the payment of any excess received from the sale to Shenandoah. Family was also awarded judgment against Shenandoah for its attorney's fees of $179,603.00, together with its 6. Shenandoah was awarded judgment against J & K rescinding:

expenses of $52,325.14, and the additional sums of $27,000.00 and $13,500.00, together with $5,000.00 and $2,500.00 respectively for attorney's fees and expenses in the event of an appeal.

(a) Sale of the mobile home park.

(b) Sale of certain personalty contemporaneously made with the sale of the park.

(c) Assignment of certain leases coupled with the sale of the park.

(d) Assignment of warranties coupled with the sale of the park.

(e) An agreement between J & K, Bill Jacobson and Shenandoah.

7. Bushman and J & K were also awarded post-judgment interest of 10% on their attorney's fees and expenses awards.

8. Court costs were taxed 80% against Shenandoah and 20% against J & K.

SHENANDOAH'S CLAIMS

Shenandoah's first point of error complains that the trial court erred by granting partial rescission of the sale of the park instead of full rescission, and by not placing all the parties in the status quo, because partial rescission, not recognized under Texas law, leaves the Bushman group with all the benefits of the transaction.

Shenandoah argues that the rescission is not complete because it still requires Shenandoah to pay $830,000 evidenced by the assumption agreement and the second lien promissory note for $135,000.

RESCISSION

Rescission is an equitable remedy that may be granted upon certain grounds, such as fraud. Boyter v. MCR Construction Co., 673 S.W.2d 938, 941 (Tex.App.--Dallas 1984, writ ref'd n.r.e.). The defrauded purchaser is put to an election whether he will keep the property and recover damages, or rescind the sale and return the property while recovering the value he has parted with. O'Con v. Hightower, 268 S.W.2d 321, 322 (Tex.Civ.App.--San Antonio 1954, writ ref'd). This court in Boyter set out the prerequisites to the granting of rescission:

To be entitled to the equitable remedy of rescission, however, a party must show either (1) that he and the other party are in the status quo, i.e., that he is not retaining benefits received under the instrument without restoration to the other party, Texas Co. v. State, 154 Tex. 494, 281 S.W.2d 83, 91 (1955); Freyer v. Michels, 360 S.W.2d 559, 562 (Tex.Civ.App.--Dallas 1962, writ dism'd), or (2) that there are special equitable considerations that obviate the need for the parties to be in the status quo, Turner v. Agricultural Credit Corp., 601 S.W.2d 61, 65 (Tex.Civ.App.--Houston [1st Dist.] 1980, writ ref'd n.r.e.); see also Texas Employers Insurance Association v. Kennedy, 135 Tex. 486, 143 S.W.2d 583, 585 (1940).

Boyter, 673 S.W.2d at 941.

Shenandoah complains that the court's judgment requiring it to give up the property, but to continue to pay on the assumption agreement of the first lien note and to pay the second lien note constitutes a partial rescission.

A down-payment of $270,000 was required to purchase the Park. On January 4, 1983, at closing, Shenandoah paid $135,000 in cash and signed a promissory note payable to J & K secured by a second lien deed of trust in which it unconditionally promised to pay J & K $135,000. The second lien deed of trust specifically states that the note "represents a portion of the consideration ... for the purchase of the property" described in the deed. Simultaneously with closing, the second lien note was endorsed by J & K, stating that it did "sell, transfer, assign and set over the within note together with all liens securing same to Family Development" with recourse. When the trial court granted the rescission of the sale of the property to Shenandoah, it should have cancelled Shenandoah's indebtedness on the second lien note, to return the parties to the status quo. See Boyter, 673 S.W.2d at 941. This In addition to the cash payment and the execution of the second lien note, Shenandoah assumed the unpaid balance of the original first lien note in the amount of $830,000.00, as a part of the consideration of the sale. Generally, an assumption agreement in a deed of conveyance creates a new contract under which the one making the assumption becomes the principal obligor and the original maker becomes the surety. Straus v. Brooks, 136 Tex. 141, 148 S.W.2d 393, 396 (Tex.Com.App.1941). The agreement is an unconditional contract within itself; an unconditional promise to pay the debt. See Barber v. Federal Land Bank, 204 S.W.2d 74, 78 (Tex.Civ.App.--Texarkana 1947, writ ref'd n.r.e.). The promisor has made the debt his own, has become primarily liable for its discharge, and has assumed an independent duty of payment, irrespective of the liability of the principal debtor. Id. However, when the assumption of an agreement is a part of the consideration of the underlying contract, the cancellation and rescission of the underlying contract creates a demand that equity be performed by cancelling the assumption agreement. When the equitable relief of rescission is granted the original status of the parties must be...