State Nat. Bank v. Academia, Inc., 13-89-015-CV

CourtCourt of Appeals of Texas
Citation802 S.W.2d 282
Docket NumberNo. 13-89-015-CV,13-89-015-CV
Parties14 UCC Rep.Serv.2d 662 STATE NATIONAL BANK, Appellant, v. ACADEMIA, INC., Joseph Winsberg, and Ingrid Winsberg, Appellees.
Decision Date31 October 1990

H. Hollis Rankin, III, Mullin & Rankin, McAllen, Harold Hirshman, Sonnenschein, Carlin, Nath & Rosenthal, Chicago, Ill., Morris Atlas, Lisa D. Powell, Gary L. Gurwitz, Atlas & Powell, McAllen, Scott J. Atlas, Margaret C. Ling, Carlos Garcia, Betty R. Owens, Jill I. Groff, James A. Reeder, Jr., Vinson & Elkins, Houston, Susan G. Conway, Vinson & Elkins, Austin, for appellant.

Roger Reed, John L. Tippit, Munoz, Hockema & Reed, McAllen, for appellees.

Before NYE, C.J., and BENAVIDES and KEYS, JJ.



State National Bank (Bank), an Illinois corporation, brought the present action in Texas against Academia, Inc., based on a deficiency on a $340,000 loan made to Academia's predecessor in interest, A/C Uniform Company (A/C). Academia, and Joseph and Ingrid Winsberg as intervenors, counterclaimed for breach of contract, bad faith and unfair dealing, tortious interference, conversion and emotional distress, based on an oral agreement between the parties to extend the underlying note by one year and the Bank's wrongful collection efforts and foreclosure on collateral. After a jury trial, judgment was rendered against the Bank and in favor of Academia for $6,988,873.03, Joseph Winsberg for $3,670,497.68, and Ingrid Winsberg for $2,613,665.12. The Bank appeals by seventy-eight points of error. We reverse the judgment of the trial court and render judgment that Academia and the Winsbergs take nothing.

The record reveals that Joseph Winsberg began work at his family's clothing store in Chicago, Illinois, in 1947. In the 1960s he started a business to manufacture and sell student uniforms to parochial schools in the Chicago area. Joseph and Ingrid Winsberg originally organized the business as A/C Uniform Company, an Illinois corporation, operating out of the Winsberg Department Store in Chicago. The Winsbergs eventually centered their efforts on the manufacturing and financial aspects of the business, while Donnamay and Walter Sifferman, friends of the family and joint owners of the business, marketed and sold the uniforms out of the Chicago store. The Winsbergs unsuccessfully tried to manufacture their uniforms out of a Wisconsin plant, but in 1984 eventually settled on McAllen, Texas, as the location for the manufacturing arm of their uniform business. The Winsbergs incorporated Academia in Texas with twin plants: one in Texas to cut the fabric; one in Mexico to sew the uniforms together. The completed uniforms were then sold through the Chicago store directly to children attending various parochial schools that had approved the uniforms for wear.

The significant banking relationships between State National Bank and A/C-Academia began in 1984, when Joseph Winsberg negotiated a line of credit for his uniform business. Other loans were made to Winsberg Department Store, which was dissolved in 1985, and to the North Clark Street Partnership (Partnership), composed of the Winsbergs, a Winsberg brother and the Siffermans, which owned the Winsberg Building and from which Winsberg Department Store and A/C leased their business premises. The Winsbergs guaranteed all three loans, and Bank officials testified that they looked at the loans as a package deal.

The primary loan in question is represented by a note by A/C to the Bank dated Dec. 18, 1985, in the amount of $340,000 (A/C note) and due on its face on October 30, 1986. The note was secured by a lien on A/C's inventory and accounts receivable, and guaranteed by the Winsbergs and Academia. In addition, there is a written letter of understanding of the same date stating that the loan may only be amended by written agreement signed by all parties.

In February of 1986, the Partnership defaulted on its building loan from the Bank, but the Bank took no immediate action on the default. The building loan was secured by a mortgage and assignment of rents on the Winsberg Building.

In July of 1986, in order to combine both the manufacturing and the sales arms of the uniform business under one corporation for marketing purposes, Academia purchased A/C and dissolved it as a separate entity, accepting responsibility for all of A/C's debts and liabilities. According to Joseph Winsberg, Bank officials had been pressuring him to repay the A/C note, due on its face in October. In order to comply, Winsberg began looking for a buyer for his uniform business as early as June of 1986. In August of 1986, Winsberg paid $37,000 on the principal of the A/C note. However, the balance of the loan remained outstanding on October 30, 1986, when A/C-Academia defaulted according to the terms of the written note.

On December 12, 1986, the Bank secured an Illinois judgment of replevin against A/C allowing seizure of the property securing the A/C note and the premises on which it was located. On December 15, 1986, pursuant to the judgment, representatives of the Bank along with the local sheriff closed down the Chicago location and changed the locks on the building. The Bank claimed its right to the business premises by virtue of the earlier default on the Partnership loan and an assignment of rents thereunder. Bank officials indicated that the immediate provocation for the foreclosure was information that the Bank had received indicating that Academia was holding a December "fire sale" to liquidate a large amount of its inventory at low prices.

Subsequently, representatives of the Bank refused the Winsbergs or Donnamay Sifferman access to the premises to recover any of the non-collateral equipment and business records, or even personal property. The Winsbergs testified to several wasted trips to Chicago during which the Bank had reneged on promises to allow them access to non-collateral assets, including patterns for cutting the uniforms and the lists of school contacts which were essential to the continued operation of the business. Richard Gauthier, a vice-president of the Bank, testified that it refused to allow Academia and the Winsbergs to recover their non-collateral assets for fear that they would also take property which the bank asserted claims against, and that the Bank's intent in locking up the premises was not to harm Academia's business, but to protect the Bank's interest in the collateral. Nevertheless, this loss of use of its entire business operation in Chicago caused Academia's entire uniform business to be ruined.

In addition, Joseph Winsberg testified that during this period the Bank failed to cooperate to obtain a reasonable price for its sale of the business assets it was holding as collateral; he had found buyers who would have purchased the business for a reasonable price if the bank had only been willing to continue a portion of the loan. In one case, Winsberg testified that he had already arranged the terms of a sale of the business to Sweet-Orr & Co., but because Sweet-Orr was busy with another deal it postponed negotiations at the beginning of January which were never resumed after the Bank's own sale of the business.

In February of 1987, the Bank conducted a private sale of Academia's inventory for $250,000 to A Complete Uniform Company (Complete), whose president, Mason Smith, had been a primary competitor with a less than amicable relationship with the Winsbergs. Edward Halper, the Illinois lawyer representing the Bank at time of default and foreclosure, testified that the Bank's private sale of collateral to Complete was commercially reasonable under the circumstances. The Bank also leased the Chicago premises to Complete, which thereby also acquired the patterns, machinery, equipment and school contacts located there and belonging to Academia. After the purchase by Complete, it called the school contacts and informed them of a change in ownership of the business and asked if they wanted to continue their business with the new company. Bank officials, however, testified that the Bank did not sell the non-collateral assets to Complete, but simply made no arrangements with regard to the patterns and equipment belonging to Academia at the time it sold the inventory and leased the premises.

Since the Bank's sale to Complete had not entirely paid off Academia's debt, the Bank initiated the present Texas lawsuit against Academia for a deficiency due under the A/C note and foreclosure of the security interest in Texas. Academia counterclaimed that, based on an oral agreement with the Bank that the A/C note would not be called before the end of Academia's 1987 selling season, the Bank's demand of full payment on October 30, 1986, and its seizure of Academia's property to satisfy the indebtedness constituted both a breach of contract and a breach of the common law and statutory duties of good faith and fair dealing. Academia also claimed that the Bank had converted the property seized to satisfy the debt, and that the seizure of property effected a tortious interference with Academia's existing contracts to supply school uniforms, and with its agreement to sell these contracts to a third-party, Sweet-Orr & Co. Additionally, Joseph and Ingrid Winsberg, officers of and shareholders in Academia and guarantors of the A/C note, intervened in the lawsuit, adopting the claims of Academia and also asserting their own claims that the Bank's tortious conduct amounted to either intentional or negligent infliction of emotional distress.

After a lengthy trial the case was submitted to a jury, which returned the following pertinent findings:

1. Contract Claims. A/C Uniform executed a note in the original amount of $340,000 due on its face on October 30, 1986, but there was an oral agreement between the Bank and Joe Winsberg that the loan would not have to be fully repaid until after A/C's 1987...

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