Spring Branch Bank v. Mengden

• Decision Date: 31 December 1981
• Docket Number: No. A2616,A2616
• Citation: 628 S.W.2d 130
• Parties: SPRING BRANCH BANK, et al., Appellant, v. Walter H. MENGDEN, Sr., Appellee. (14th Dist.)
• Court: Texas Court of Appeals

Page 130

628 S.W.2d 130

SPRING BRANCH BANK, et al., Appellant, v. Walter H. MENGDEN, Sr., Appellee.

No. A2616.

Court of Appeals of Texas, Houston (14th Dist.).

Dec. 31, 1981.

Rehearing Denied Feb. 25, 1982.

Sharon Stagg, Boswell, O'Toole, Davis & Pickering, Joe G. Roady, Sheinfeld, Maley, & Kay, Houston, for appellant.

B. J. Walter, Foreman & Dyess, Houston, for appellee.

Before J. CURTISS BROWN, C. J., and JUNELL and PRICE, JJ.

JUNELL, Justice.

Appellants Spring Branch Bank and James C. Winters appeal from judgment in favor of appellee Walter H. Mengden, Sr., plaintiff in the court below in a suit to recover a portion of the attorneys' fees paid by appellee in order to avoid foreclosure on oil and gas properties. We reverse and remand.

Mengden borrowed $575,000 from Spring Branch Bank and executed a promissory note in that amount. The note was secured by deed of trust covering a working interest in oil and gas property located in Dewitt, Gonzales, and Harris Counties, Texas. The note, which had been prepared by Mengden's attorney, provided for payment of attorneys' fees in the amount of ten percent (10%) of the unpaid principal and interest in the event of default. Mengden did not pay the note when, after several extensions, it became due on December 27, 1973. The Bank posted notice for foreclosure to be held on the first Tuesday in March, 1974. The record is unclear as to the exact date payment was made. Either on the day before or on the Friday before the scheduled foreclosure sale, Mengden paid to the Bank (with both payor and payee acting through their attorneys) the total amount demanded to avoid foreclosure, $675,827.73; that amount included $575,000 principal, $39,388.85 interest, and $61,438.88 attorneys' fees. The Bank paid to appellant Winters, the attorney who represented the Bank in this matter, the full amount of attorneys' fees collected, $61,438.88. Winters testified at trial that he had expended approximately 75 hours of recorded time on this matter and another, unrelated file. In May of 1974 Mengden wrote to the Bank and requested refund of a portion of the attorneys' fees; on January 3, 1975, Mengden filed suit to recover allegedly unreasonable attorneys' fees. In response to special issues submitted to the jury at the trial on the merits, the jury found that (1) the amount paid was unreasonable and (2) $30,000 was a reasonable amount to be paid; the jury failed to find that (3) Mengden had waived the right to contest reasonableness and (4) Mengden had paid under duress. Both parties moved for judgment on the verdict. Notwithstanding a finding favorable to the defense on the issue of duress, the trial court entered judgment for Mengden in the amount of $31,438.88 together with interest at the rate of 9% per annum from the date of collection, March 4, 1974, until paid.

Appellants present 23 points of error for review. We have considered all 23 points of error as well as appellee's crosspoint. For convenience in discussing the issues before us, we have reworded and grouped the various points raised in accordance with our understanding and analysis of the case. We will first consider those issues related to the question of duress and the jury's failure to make an affirmative finding to Special Issue No. 4 as to whether the payment of 10% in attorney's fees was made under duress. Appellants argue that the determinative issue in this case is not whether the attorney's fees were reasonable but whether the Bank and its attorneys had the legal right to demand payment in accordance with provisions of the note signed by Mengden. Appellants argue that a voluntary payment on a claim of right cannot be recovered in the absence of fraud, duress or compulsion. Appellants further contend that not only did appellee fail to obtain a jury finding of duress but appellee cannot establish duress as a matter of law because the Bank had the legal right to demand 10% in attorneys' fees. Appellee concedes that threatening to exercise one's legal rights does not constitute duress but, predictably, appellee takes the position that the Bank had no legal right to demand unreasonable attorneys' fees to prevent extrajudicial foreclosure and that, therefore, the Bank's demand amounted to duress as a matter of law. It is undisputed that Mengden had defaulted on the note and that the Bank had the power to foreclose on Mengden's property unless Mengden paid the amount demanded.

The threshold issue which we must decide is whether Spring Branch Bank had the legal right to demand payment of an amount which included attorneys' fees in the amount of 10% as stipulated in the promissory note on which Mengden had defaulted, which promissory note was secured by property over which Spring Branch Bank had the power to complete extrajudicial foreclosure within a few days.

It is well established in Texas that the attorneys' fee clause in a promissory note is in the nature of a contract to indemnify the holder of the note for attorneys' expenses actually incurred in collecting principal and interest on the note. F. R. Hernandez Construction & Supply Co., Inc. v. National Bank of Commerce of Brownsville, 578 S.W.2d 675, 676-7 (Tex.1979). The legal owner and holder of a promissory note is prima facie entitled to recover the attorneys' fees stipulated therein upon the happening of the contingency which makes the same payable. Id., citing Kuper v. Schmidt, 161 Tex. 189, 338 S.W.2d 948 (1960). The holder of the note is not entitled to recover the full contractual amount if the obligor of the note shows that the fee should be limited to an amount that is reasonable under the circumstances. Id.

While both appellants and appellee agree, and the trial court so instructed the jury, that the obligor of a note can challenge the reasonableness of contractual attorneys' fees, they disagree as to what constitutes a timely, proper showing of unreasonableness when the challenge arises after allegedly unreasonable fees are paid. In a suit to collect on a promissory note the obligor can plead and prove the affirmative defense that the contractual fee is unreasonable. Such an affirmative defense is not in the nature of a recovery but is asserted in a lawsuit before payment is made and requires that the obligor show (1) that the contractual fee is unreasonable and (2) what lesser amount is reasonable. Id. 578 S.W.2d at 677. The instant case arises in a different context; it involves a challenge brought after payment was made in a situation where the party making the demand need not resort to the courts to enforce such demand.

The general rule is that money voluntarily paid on a claim of right, with full knowledge of all the facts, in the absence of fraud, duress, or compulsion, cannot be recovered. Pacific Molasses Co. v. Graves, 451 S.W.2d 294 (Tex.Civ.App.-San Antonio 1970, writ ref'd n.r.e.); West Texas State Bank v. Tri-Service Drilling Co., 339 S.W.2d 249 (Tex.Civ.App.-Eastland 1960, writ ref'd n.r.e.). It is well established in Texas that as a matter of law there can be no duress unless there is a threat to do some act which the demanding party has no legal right to do; there must be some illegal exaction or some fault or deception; the restraint must be imminent and such as to destroy free agency without the present means of protection. C.F. & I. Steel Corp. v. Pete Sublett and Co., 623 S.W.2d 709 (Tex.Civ.App.-Houston (1st Dist.) 1981); Tower Contracting Co., Inc. of Texas v. Burden Brothers, Inc., 482 S.W.2d 330 (Tex.Civ.App.-Dallas 1972, writ ref'd n.r.e.); Sanders v. Republic National Bank of Dallas, 389 S.W.2d 551 (Tex.Civ.App.-Dallas 1965, no writ); Scurlock v. Lovvarn, 410 S.W.2d 525 (Tex.Civ.App.-Dallas 1966, no writ); Lawrence v. Huber, 347 S.W.2d 5 (Tex.Civ.App.-Waco 1961, no writ); Stanford v. United States Inv. Corp., Ltd., 272 S.W. 568 (Tex.Civ.App.-Waco 1925, writ dism'd); Ward v. Scarborough, 236 S.W. 434 (Tex.Comm'n App. 1922, opinion adopted). It is never duress to threaten to do that which a party has a legal right to do. Ulmer v. Ulmer, 139 Tex. 326, 162 S.W.2d 944 (1942). Texas courts have drawn a distinction between cases in which the party asserting a claim or demand must resort to the courts to enforce the same and those cases (like the instant case) in which the party making a claim or demand has the power to enforce the same extrajudicially. Ward v. Scarborough, 236 S.W. at 437-8.

The latter class includes cases where one party has possession of the property of another and refuses to surrender it except upon compliance with a wrongful demand and the delay of an action to recover it would cause great or irreparable injury, cases where one party is invested with the power to sell or dispose of the property of another and threatens to exercise such power wrongfully or oppressively and in a way to sacrifice such property or inflict great or irreparable injury, and other cases in which one party may be in a position to inflict in various ways great or irreparable injury to the property or property interests of another if compliance with the unlawful demand is refused.

In this latter class of cases duress may exist, although some measure of relief or redress might have been secured by an action in the courts.

Id. (emphasis added).

Because appellants have vigorously urged upon us a number of cases, including Stanford v. United States Inv. Corp., 272 S.W. 568, Runcie v. Runcie, 407 S.W.2d 861 (Tex.Civ.App.-Amarillo 1966, writ ref'd n.r.e.), and Kuper v. Schmidt, 161 Tex. 189, 338 S.W.2d 948, in support of their position in this appeal we consider it important to stress the above distinction recognized by the Texas courts. The cases just named are examples of those cases in which the demanding party must resort to the courts to enforce the demand and are therefore not dispositive of the instant case.

Appellee would have us hold that the record before us establishes duress as a matter of law. We decline to do so.

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