Union Mortg. Co., Inc. v. Barlow
| Decision Date | 10 January 1992 |
| Citation | 595 So.2d 1335 |
| Parties | UNION MORTGAGE COMPANY, INC. v. Willie Mae BARLOW and Willie J. Galy. 1901350. |
| Court | Alabama Supreme Court |
Robert A. Huffaker of Rushton, Stakely, Johnston & Garrett, P.A., Montgomery, James D. Turner and Albert G. Lewis III of Turner & Turner, P.C., Tuscaloosa, and Jerry J. Strochlic and Jeff H. Galloway of Hughes Hubbard & Reed, New York City, for appellant.
Edward L. Hardin, Jr. and Maston E. Martin, Jr. of Hardin, Tucker & Martin, Birmingham, and John A. Taber and Earl
L. Dansby of Taber and Dansby, Montgomery, for appellees.
This is an appeal from a judgment on a jury verdict in favor of the plaintiffs, Willie Mae Barlow and Willie J. Galy, in the amount of $6,153,000. The case raises questions of whether there was a prejudicial failure of prospective jurors to accurately answer questions on voir dire; whether the verdict failed to follow the court's instructions or was inconsistent; whether the evidence supported the verdict; and whether the award of punitive damages was excessive or otherwise improper.
The plaintiffs sued Union Mortgage Company, Inc. ("Union Mortgage"), American Home Improvement Services of Alabama ("American Home"), and Ronald Sellers, president of American Home, alleging fraud, conspiracy, and breach of contract relating to a home improvement loan; they requested damages in the amount of $4,500,000. A suggestion of bankruptcy by Ronald Sellers, doing business as American Home, was filed, and the action against Union Mortgage was severed from the action against American Home and Sellers. Union Mortgage filed an answer denying the plaintiffs' claims and asserting the affirmative defenses of estoppel and in pari delicto. Union Mortgage also filed a counterclaim for $6,250,000, alleging that the plaintiffs had committed fraud, conspiracy, and breach of contract.
The facts and arguments in this case are lengthy. Therefore, it is necessary to briefly describe the parties and their roles in the home improvement loan at issue in this case.
American Home was principally in the business of performing home improvements. The evidence would support a finding that American Home performed home improvement contracts on credit only if Union Mortgage agreed in advance to lend the homeowner money for the repairs, with the loan secured by a mortgage on the house. The evidence showed that Union Mortgage actually approved the loans and that it took an immediate assignment of the mortgages at a substantial discount plus a fee. Neither the discount nor the fee was disclosed to the mortgagor. Union Mortgage then sold these mortgages to other financial institutions for substantially more than the discounted credit that it had actually extended.
Willie Mae Barlow, a woman living in Hayneville, Alabama, applied for and obtained such a loan for an amount substantially larger than the value of the improvements for which the loan was supposed to be used. As part of the transaction, she executed a deed conveying her house to herself and her son Willie J. Galy, whose income was required for approval of the loan and who joined her in executing the mortgage. Barlow had five other children, and she testified that she would not have deeded her property to her son Galy if she had been informed of the effect of the document she was signing.
The plaintiffs presented two alternate theories of relief at trial as to the fraud claim. First, the plaintiffs claimed that Union Mortgage had committed fraud through American Home as its agent.
The plaintiffs argued that all the documents reflected that credit was being extended to the homeowner by the contractor, such as American Home, for home repairs. They contended that the home repairs were worth substantially less than the amount of the loan. According to the plaintiffs, the contractor immediately assigned the mortgage to Union Mortgage. Union Mortgage then "chopped" a percentage off the face amount of the loan. Union Mortgage told the contractor the amount of the discount but did not tell the customer. The plaintiffs claimed that Union Mortgage made its money from the discount and the profit from the subsequent sale of the mortgage. The contractor, they contended, made money from the inflated price of the home repairs. The result for the customer was that she owed money on a home improvement loan for which she did not receive the full value of the loan. The plaintiffs argued that Union Mortgage devised this scheme to commit fraud against all its customers and had been committing fraud since its formation in 1982. They note that Union Mortgage and American Home had engaged in 84 similar transactions in Alabama.
Second, the plaintiffs argued that Union Mortgage had committed fraud directly against its customers. The plaintiffs contended that Union Mortgage was the primary lender and, as such, should have disclosed the "chop" or discount to the customer. The plaintiffs argued that Union Mortgage was the primary lender because it made all of the credit decisions and actually funded the loan.
Union Mortgage points out that it is common practice to buy and sell commercial paper. Most of the commercial paper purchased by Union Mortgage was related to home improvement loans and it bought these papers at a discount. Union Mortgage argued that a discount or a "chop" is common in the banking industry. Union Mortgage claimed that it was a secondary lender, and, as such, was not required to inform the customer of the discount.
Union Mortgage contended that American Home was not its agent. Union Mortgage asserted that it bought only about 50% of American Home's commercial paper and was not contractually bound to buy any of its commercial paper. The evidence was also susceptible to the construction, however, that Union Mortgage approved 50-60% of the loan applications submitted by American Home, and there was no evidence that American Home submitted loan applications to any other financier or performed repairs for any of the applicants for whom Union Mortgage denied credit. Union Mortgage claimed that American Home and Barlow conspired to falsely indicate that the loan for the home repairs was substantially greater than the amount of money actually lent. Union Mortgage contended that it never made any misrepresentations to Barlow, but that Barlow misrepresented material facts to Union Mortgage prior to its purchase of her mortgage. Union Mortgage claimed that it relied on those fraudulent misrepresentations and was thereby damaged.
With that general statement of the parties, the claims, and the defenses in mind, we turn to a detailed statement of the facts. Because the jury returned a verdict for the plaintiffs, we are bound to assume that the jury drew all inferences favorable to the plaintiffs that the evidence will support.
The undisputed facts in this case are as follows: On August 2, 1988, Willie Mae Barlow and her son, Willie J. Galy, signed a contract with American Home for $8,000 in home repairs. The loan was secured by a mortgage on Barlow's house. The repairs to be done on Barlow's house were as follows: (1) install vinyl in the kitchen and hall; (2) paint, scrape, and trim the exterior of the house; (3) install two storm doors; and (4) repair plumbing in the bathroom. The annual percentage rate on the loan was 17.98% which made the total amount of payments due on the loan $17,284.80 over its 10-year term. Barlow and her son then executed a mortgage on Barlow's house to American Home on August 2, 1988, which American Home immediately assigned to Union Mortgage in the same document. Union Mortgage paid American Home $7,075 for the mortgage. That is, Union Mortgage discounted the $8,000 loan by 10% and charged a $125 fee. Subsequently, Union Mortgage sold the mortgage to the Mitsui Bank of Japan for $7,975.93. 1
Barlow testified at trial that she applied for a $2,000 loan with American Home in 1987 and was turned down. Barlow needed the money to pay her daughter's medical bills. In late July 1988, Ida Sellers of American Home contacted Barlow and told her that her loan application had been reviewed again and that she was eligible for a loan.
On August 2, 1988, Nell Stanberry, of American Home, contacted Barlow and told her that Union Mortgage could lend her money only if American Home could make some repairs on her house. Although Barlow did not need any repairs on her house, which was built in 1985, she agreed to let American Home make a few repairs in order to get the needed loan. At the time, Barlow was delinquent on her loan payments to the Farmers Home Administration, which had financed the building of her house and which held a first mortgage on the house. American Home paid the delinquent mortgage payment for Barlow in order for Barlow to qualify for the home repair loan. Barlow signed several incomplete documents, including an $8,000 loan contract and a mortgage to American Home containing an assignment to Union Mortgage. Barlow also signed a financial disclosure statement for Union Mortgage, which enabled Union Mortgage to find out Barlow's wages as a maid. Barlow and her son signed the documents on August 2, 1988, but did not have a chance to review them because Stanberry was "in a hurry to return to Birmingham." Stanberry told Barlow that she would complete the documents and mail them to her.
On August 3, 1988, Barlow decided that her house did not need $6,000 in repairs. However, on that date, repairmen from American Home arrived at Barlow's house; they told her that it was too late to rescind the contract. The repairs were made that date and shortly thereafter, Ida Sellers called Barlow and told her that she would be receiving a check for $2,000. Sellers stated that American Home was supposed to do only home repair and could not directly lend Barlow any money, and, therefore, that the $2,000 check had to be payable to a third party. Barlow told Sellers to make...
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