World Help v. Leisure Lifestyles, Inc.

• Decision Date: 04 June 1998
• Docket Number: No. 2-96-260-CV,2-96-260-CV
• Citation: 977 S.W.2d 662
• Parties: WORLD HELP, Appellant, v. LEISURE LIFESTYLES, INC., Kingdom Properties, Inc. and Turner Construction Company of Texas, Inc., Appellees.
• Court: Texas Court of Appeals

Page 662

977 S.W.2d 662

WORLD HELP, Appellant, v. LEISURE LIFESTYLES, INC., Kingdom Properties, Inc. and Turner Construction Company of Texas, Inc., Appellees.

No. 2-96-260-CV.

Court of Appeals of Texas,

Fort Worth.

June 4, 1998.

Rehearing Overruled Sept. 24, 1998.

Bourland, Kirkman, Seidler & Evans, David L. Evans, Thomas M. Michel, Fort Worth, for Appellant.

Flourney & Deaton, Robert L. Flourney, Zeleskey, Cornelius, Hallmark, Roper & Hicks, James R. Cornelius, Lufkin, Quilling, Selander, Cummisky, Clutts & Lownds, P.C., Brian W. Erikson, Dallas, for Appellees.

Before CAYCE, C.J., and LIVINGSTON and BRIGHAM, JJ.

OPINION

CAYCE, Chief Justice.

I. Introduction and Background

This case raises numerous lien priority and breach of contract issues, primarily arising out of two loan transactions between appellee Leisure Lifestyles, Inc. (Leisure) and appellant World Help's predecessor, Church and Institutional Facilities Development Corporation (C & I). We affirm in part, reverse and remand in part, and reverse and render in part. We set out the facts pertinent to the parties' points and cross points under our discussions of those points, but an overview of the facts and this case's procedural history is also necessary.

In September 1988, Leisure and C & I closed on a loan that allowed Leisure to purchase property in Granbury, Texas known as Rylee's Landing (the acquisition loan). The acquisition loan documents gave C & I vendor's and deed of trust liens on Rylee's Landing for the full amount of the acquisition loan. In June 1989, Leisure and C & I closed on a second loan, the proceeds of which were to be used to develop Rylee's Landing as a retirement center (the development loan). The development loan documents gave C & I a deed of trust lien on Rylee's Landing for the full amount of the development loan.

In May 1989, Leisure contracted with appellee Turner Construction Company of Texas, Inc. (Turner) for Turner to construct improvements to Rylee's Landing. Turner began work on Rylee's Landing during the summer of 1989. At some point, Leisure also entered into a contract with appellee Kingdom Properties, Inc. (Kingdom) for the actual development of the retirement center. Kingdom advanced funds for the retirement center.

C & I fully funded the acquisition loan but funded only a fraction of the development loan before filing bankruptcy in early October 1989. After C & I filed bankruptcy, Leisure was unable to pay Turner's applications for progress payments under the construction contract. Because its pay applications went unpaid, Turner filed mechanic's and materialman's liens against Rylee's Landing. Turner reduced the liens to judgment in November 1993.

Kingdom also filed mechanic's and materialman's liens against Rylee's Landing because Leisure failed to pay Kingdom's development fees. Kingdom's liens were reduced to judgment in November 1993.

Meanwhile, in December 1992, World Help purchased the acquisition and development loan promissory notes, the corresponding deeds of trust, and the warranty deed with vendor's lien (collectively, the Leisure documents) from C & I's bankruptcy trustee. In February 1993, Hood County Appraisal District (HCAD) sued Leisure, C & I, Turner, and Kingdom for delinquent ad valorem taxes due on Rylee's Landing for the years 1989 through 1992. HCAD amended its petition in September 1993 to delete C & I as a party and add World Help as a party. In January 1994, World Help paid the delinquent taxes, as well as the 1993 taxes on Rylee's Landing.

In January 1995, World Help moved for summary judgment (1) that its vendor's and deed of trust liens on Rylee's Landing had priority over Turner's and Kingdom's liens, and (2) that because World Help had paid the 1989 through 1993 property taxes, it was equitably subrogated to HCAD's first priority tax liens.

In June 1995, the trial court granted World Help's motion to realign the parties and designated World Help as plaintiff and Leisure, Turner, and Kingdom as defendants. In July 1995, Turner and Kingdom moved for summary judgment that their liens had priority over World Help's liens based on the doctrine of equitable subordination.

In October 1995, the trial court entered a partial summary judgment, ruling that (1) World Help's liens were superior to Turner's and Kingdom's to the extent of $34,860 (the amount of the 1993 property taxes), (2) Turner's liens were superior to World Help's remaining liens and Kingdom's liens, and (3) Kingdom's liens were superior to World Help's remaining liens. In December 1995, Kingdom foreclosed on its liens and purchased Rylee's Landing at a sheriff's sale.

In January 1996, the trial court entered an order denying the rest of World Help's motion for summary judgment. The remaining issues in the case were tried to the court. In its May 1996 final judgment, the trial court:

• rendered judgment for World Help against Leisure for $34,860 (the amount of the 1993 ad valorem taxes);

• denied World Help's claim to recover from Leisure for payment of the 1989 through 1992 ad valorem taxes;

• rendered judgment for World Help against Leisure on the promissory notes in the amount of $2,101,937 plus $31,673 in prejudgment interest ($2,133,610 total);

• reaffirmed the priorities of World Help's, Turner's, and Kingdom's liens as set forth in the October 1995 interlocutory summary judgment;

• denied World Help's claim to the rental proceeds from Rylee's Landing (except to satisfy the claim for the 1993 ad valorem taxes);

• granted Turner a lien of $195,220 against the proceeds that World Help recovers from Leisure (a) after World Help fully recovers the 1993 ad valorem taxes, and (b) reduced by any amount Turner recovers on its liens;

• rendered judgment that World Help's lien for the 1993 ad valorem taxes survived the December 1995 foreclosure of Kingdom's liens;

• ordered Leisure and Kingdom to pay all pre- and post-foreclosure rental receipts to World Help on demand until World Help recovers the full amount of the 1993 ad valorem taxes;

• awarded World Help pre- and post-judgment interest on the judgment against Leisure for the 1993 ad valorem taxes and on the promissory notes; and

• denied all requests for attorney's fees.

II. Summary of Appellate Issues

In this appeal we must decide whether:

• the trial court properly granted summary judgment on the priorities of World Help's, Turner's, and Kingdom's liens;

• World Help has a security interest in and is therefore entitled to the rental proceeds from Rylee's Landing;

• the trial court properly granted Turner an equitable lien on the rental proceeds;

• the acquisition and development loans constituted a single contract between Leisure and C & I;

• sufficient evidence supports the trial court's findings that C & I breached its agreement with Leisure when Leisure was not in default on its obligations to C & I;

• the trial court properly ruled that World Help is not equitably subrogated to HCAD's lien position regarding the property taxes except for the 1993 taxes;

• World Help can recover from Leisure for payment of the delinquent property taxes;

• World Help can enforce the promissory notes and deeds of trust against Leisure;

• the trial court properly denied World Help attorney's fees; and

• the trial court properly denied Turner attorney's fees.

III. Equitable Subordination

In its first point, World Help complains that the trial court erred in granting summary judgment that World Help's vendor's and deed of trust liens on Rylee's Landing are equitably subordinated to Turner's and Kingdom's liens. In point two, World Help complains that the trial court improperly rendered final judgment on this issue.

A. Standard of Review

In a summary judgment case, the issue on appeal is whether the movant met its summary judgment burden by establishing that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law. See TEX.R. CIV. P. 166a(c); Cate v. Dover Corp., 790 S.W.2d 559, 562 (Tex.1990); City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex.1979). The burden of proof is on the movant and all doubts about the existence of a genuine issue of a material fact are resolved against the movant. See Acker v. Texas Water Comm'n, 790 S.W.2d 299, 301-02 (Tex.1990); Cate, 790 S.W.2d at 562; Great Am. Reserve Ins. Co. v San Antonio Plumbing Supply Co., 391 S.W.2d 41, 47 (Tex.1965). Therefore, we must view the evidence and its reasonable inferences in the light most favorable to the nonmovant. See Great Am., 391 S.W.2d at 47.

In deciding whether there is a material fact issue precluding summary judgment, all conflicts in the evidence will be disregarded and the evidence favorable to the nonmovant will be accepted as true. See Harwell v. State Farm Mut. Auto. Ins. Co., 896 S.W.2d 170, 173 (Tex.1995); Montgomery v. Kennedy, 669 S.W.2d 309, 311 (Tex.1984). Evidence that favors the movant's position will not be considered unless it is uncontroverted. See Great Am., 391 S.W.2d at 47. The summary judgment will be affirmed only if the record establishes that the movant has conclusively proved all essential elements of its cause of action or defense as a matter of law. See City of Houston, 589 S.W.2d at 678.

The parties agree that C & I's vendor's and deed of trust liens on Rylee's Landing were prior in time to both Turner's and Kingdom's mechanic's and materialman's liens. In a contest over rights or interests in property, ordinarily the party that is first in time is first in right. See Church v. Western Fin. Corp., 22 S.W.2d 1074, 1075 (Tex.Civ.App.--San Antonio 1929, no writ). World Help acquired C & I's lien rights when it purchased the Leisure documents from C & I's bankruptcy estate. Thus, absent an exception to the general rule, World Help's lien rights would be superior to both Turner's and Kindgom's.

But Turner and Kingdom assert that the trial court properly subordinated World Help's lien rights to...