Victoria Bank & Trust Co. v. Brady

• Court: Texas Supreme Court
• Writing for the Court: HIGHTOWER; Concurring and Dissenting Opinion By Mauzy; MAUZY
• Citation: Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 931 (Tex. 1991)
• Decision Date: 19 June 1991
• Docket Number: No. C-9328,C-9328
• Parties: VICTORIA BANK & TRUST COMPANY, Petitioner, v. Marlyn R. BRADY, Fancher Cattle Co., Inc. and Bill Fancher, Respondents.

Page 931

811 S.W.2d 931

VICTORIA BANK & TRUST COMPANY, Petitioner, v. Marlyn R. BRADY, Fancher Cattle Co., Inc. and Bill Fancher Respondents.

No. C-9328.

Supreme Court of Texas.

June 19, 1991.

Jess H. Hall, James W. Paulsen, Houston, John D. Murphree, Victoria, Andy Taylor, Houston, for petitioner.

Dan Fontaine, David Grant Kaiser, Randy D. Little, W. James Kronzer, Houston, for respondents.

OPINION

HIGHTOWER, Justice.

This is a lender liability case. Victoria Bank & Trust Company (Bank) sued Marlyn and Pauline Brady, Bill Fancher (Fancher) and Fancher Cattle Company, Inc. (Cattle Company) on a promissory note. Fancher and the Cattle Company counterclaimed asserting (1) usury, (2) fraud, duress and tortious interference with business relations, (3) breach of duty of good faith and fair dealing and (4) violations of the Texas Deceptive Trade Practices-Consumer Protection Act (DTPA). After a jury trial, judgment was rendered for Fancher and the Cattle Company against the Bank. The court of appeals affirmed in part and reversed and rendered in part. 779 S.W.2d 893. We affirm in part and reverse and render in part.

Fancher, a cattle trader and owner of the Cattle Company, had a business relationship with the Bank dating back to 1973 that usually involved loans for cattle purchases. In 1983, Marlyn Brady (Brady) formed a partnership with the Cattle Company to buy and sell cattle. The Bank agreed to supply the necessary funding for the venture. Among other things, the Bank required Brady and the Cattle Company to reduce their partnership agreement to writing and to secure the loan with Brady's ranch in Zavala County (Brady's ranch) as collateral. The Bank also insisted upon a priority lien position for this property by requiring that a pre-existing lien held by Winter Garden Production Credit Association (Winter Garden) be paid.

On November 21, 1983, Brady and Fancher, as president of the Cattle Company, executed several documents including a promissory note to the Bank (the Brady-Cattle Company note). In addition, Fancher, as president of the Cattle Company, executed a security agreement in connection with the Brady-Cattle Company note. The security agreement created a security interest or lien in the Cattle Company's cattle. Brady individually and the Cattle Company were co-makers on the note. In exchange for the note, Brady and the Cattle Company received a revolving line of credit for $150,000.00. On December 2, 1983, the Bank transferred funds to Winter Garden, purchased an assignment of Brady's note and deed of trust and achieved the required priority lien position. The amount of the Winter Garden debt of $121,796.75 was charged to the $150,000.00 line of credit. Consequently, Fancher ¹ and the Cattle Company became obligated on Brady's pre-existing debt. However, Fancher and the Cattle Company dispute that they are responsible for Brady's pre-existing debt; Fancher testified that the Bank assured him on several occasions (1) that he would not be held responsible for Brady's pre-existing debt and (2) that Brady's ranch would be more than adequate to secure the loan.

In 1984, the Bank agreed to renew and extend the Brady-Cattle Company note and increase the amount of the line of credit for Brady and the Cattle Company. As part of the transaction, the balance of the November 1983 note (including the amount attributable to Brady's pre-existing debt) was to be paid with the proceeds of the renewal note. On June 20, 1984, Brady and the Cattle Company executed the renewal note as co-makers. Subsequently Brady and the Cattle Company traded cattle and made payments against the debt with proceeds of the transactions. Although the note was not in default, in April 1985, the Bank notified Brady and the Cattle Company that the note would not be renewed and recommended that they either seek financing elsewhere or liquidate their assets to pay the note when it became due in June 1985. The Cattle Company and Brady began to liquidate their inventory; however, in July 1985, the renewal note was declared to be in default and the Bank posted Brady's ranch for foreclosure. When it determined the probable insufficiency of Brady's ranch to cover the remaining debt on the Brady-Cattle Company renewal note, the Bank decided to pursue the Cattle Company and Fancher as guarantor for the debt.

In September 1984, the Cattle Company received a separate line of credit from the Bank. In connection with this separate line of credit, the Cattle Company pledged a certificate of deposit and executed a security agreement dated September 21, 1984, which was filed and created a security interest or lien in the Cattle Company's cattle. In August 1985, after Fancher and the Cattle Company became disenchanted with the Bank, the Cattle Company paid the debt incurred in September 1984 under its separate line of credit and the Bank released a certificate of deposit which it held to secure the separate line of credit debt. However, the Bank retained the security agreement executed in connection with the Cattle Company's separate line of credit and failed to release the security interest or lien in the Cattle Company's cattle. In addition, Fancher and the Cattle Company closed their personal and corporate checking accounts at the Bank and began doing business with another local bank.

In early September 1985, Bill Richardson, a local customer, purchased cattle from the Cattle Company and paid with a draft for $82,900.00 drawn on the Bank. When Fancher presented the draft for payment, he was informed that the Bank would need authorization from Richardson before the draft could be paid ² and that Fancher should deposit the draft in his account at his new bank. After contacting Richardson and conferring with its attorney, the Bank denied payment on the draft until Fancher agreed to deduct $40,000.00 from the draft proceeds and apply it to the remaining debt under the Brady-Cattle Company note. The Bank claimed a security interest or lien in the cattle under the September 21, 1984 security agreement retained after the Cattle Company paid off its separate line of credit. The security agreement contained an after-acquired property clause which purportedly gave the Bank a security interest or lien in the cattle which were sold to Bill Richardson. Under protest, Fancher agreed to "deduct" the $40,000.00 from the draft and the $40,000.00 was applied to the debt remaining on the Brady-Cattle Company note. After receiving the $40,000.00, the Bank surrendered the September 21, 1984 security agreement to Fancher and the Cattle Company and released the security interest or lien on the cattle.

On September 30, 1985, Brady filed suit in Zavala County against the Bank to enjoin the foreclosure of his ranch. At the temporary injunction hearing, Brady, Fancher, the Cattle Company and the Bank reached a "settlement agreement" which provided, among other things, that Fancher and the Cattle Company release the Bank from any and all claims or causes of action attributable to the "above described loan transaction." ³ Shortly thereafter when Brady and the Cattle Company defaulted on the renewal note, the Bank foreclosed on Brady's ranch and purchased it for $70,000.00 at the foreclosure sale. Subsequently, the Bank sued Brady, the Cattle Company, Fancher and Pauline Brady ⁴ for the deficiency on the renewal note. Fancher and the Cattle Company counterclaimed asserting (1) usury, (2) fraud, duress and tortious interference with business relations, (3) breach of duty of good faith and fair dealing and (4) violations of the Texas Deceptive Trade Practices-Consumer Protection Act (DTPA). The jury answered all questions in favor of Fancher and the Cattle Company. After disregarding the jury findings concerning usury and breach of the duty of good faith and fair dealing, the trial court rendered judgment for Fancher and the Cattle Company and against the Bank on their remaining claims. ⁵ Fancher, the Cattle Company and the Bank appealed. Reinstating Fancher and the Cattle Company's usury claim and modifying the trial court's judgment to include usury penalties, the court of appeals affirmed in part and reversed and rendered in part. 779 S.W.2d 893.

I.

The issues before this court are (1) whether the Bank's requirement that the Cattle Company assume Brady's pre-existing debt to Winter Garden as a condition of its extension of credit constituted usury, (2) whether the October 23, 1985 "settlement agreement" effectively barred all of Fancher and the Cattle Company's claims, and (3) whether the Bank established the privilege (or defense) of legal justification or excuse for its "interference" with the business relationship between the Cattle Company and Bill Richardson as a matter of law. ⁶

II.

The Bank argues that its requirement that the Cattle Company assume Brady's pre-existing debt to Winter Garden as a condition of its extension of credit did not constitute usury. We agree.

Before financing the Brady-Cattle Company partnership, the Bank required, among other things, Brady's ranch as collateral to secure the loan. However, since Winter Garden held a priority lien position on Brady's ranch as a result of an earlier loan, the Bank required that the Winter Garden loan be paid as a condition of making the loan to Brady and the Cattle Company. On November 21, 1983, Brady and Fancher, as president of the Cattle Company, executed several documents including a promissory note to the Bank and a security agreement. Brady individually and the Cattle Company were co-makers on the note. In exchange for the note, Brady and the Cattle Company received a revolving line of credit for $150,000.00. On December 2, 1983, the Bank transferred funds to Winter Garden, purchased an assignment of Brady's note and deed of trust and achieved the required priority lien position. The amount of the Winter Garden debt was $121,796.75 which was charged to the $150,000.00 line of credit....