james-m-maddox-and-kelli-l-maddox-v-summit-mortgage-corporation-and ( 2002 )

In The

Court of Appeals

Ninth District of Texas at Beaumont

____________________

NO. 09-00-571 CV ____________________

JAMES M. MADDOX AND KELLI L. MADDOX, Appellants

V.

SUMMIT MORTGAGE CORPORATION AND NATIONSBANC MORTGAGE CORPORATION, NOW KNOWN AS BANK OF AMERICA MORTGAGE CORPORATION, Appellees

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On Appeal from the 410th District Court Montgomery County, Texas Trial Cause No. 99-01-00433-CV

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OPINION  

James M. Maddox and Kelli L. Maddox sued Summit Mortgage Corporation and NationsBanc Mortgage Corporation, now known as Bank of America Mortgage Corporation, seeking discharge of their mortgage debt because of the fraudulent alteration of their promissory note. The trial court disregarded the answer to one of the two questions submitted to the jury, and entered a take nothing judgment.

The questions submitted to the jury read:

QUESTION NO. 1

Did Nationsbanc Mortgage Corporation make a material and fraudulent alteration to the promissory note in question?

You are instructed when answering this question that the acts of a party's authorized agent or employee, or of its confederates, are attributable to him.

"Material" means: any alteration of an instrument which changes the contract of any party thereto in any respect.

You are instructed that changes favorable to the obligor are unlikely to be made with any fraudulent intent; but if such an intent is found the alteration may operate as a discharge.

You are instructed that an alteration of a promissory note is fraudulent only if the alteration was made by a person with dishonest and deceitful purpose to acquire more than such person was entitled to under the note as signed by the maker and the maker suffered some loss as a result of the alteration.

Answer "Yes" or "No"

Answer Yes

If you answered "Yes" to Jury Question Number 1 then answer Question No. 2. Otherwise do not answer Question No. 2.

Question No. 2

Do you find that Bank of America Mortgage Corporation[ ⁽¹⁾] bought the Adjustable Rate Note from Summit Mortgage Company in good faith and without notice of any defense against the Adjustable Rate Note?

"Good Faith" means honesty in fact in the transaction concerned. A person can be said to have exercised good faith when it has observed the reasonable commercial standards of fair dealing in his trade.

A person has "notice of a defense" to the Adjustable Rate Note if the instrument is so incomplete, bears such visible evidence of forgery or alteration, or is otherwise so irregular as to call into question its validity, terms or ownership.

A person has "notice" of a fact when

• he has actual knowledge of it;
• he has received a notice or notification of it; or
• from all of the facts and circumstances known to him at the time in question he has reason to know that it exists

Answer "Yes" or "No:"

Answer: Yes

The Maddoxes raise nine issues in their appeal. Their brief groups the argument on these first four issues:

ISSUE NO. 1: The trial court erred in ignoring the jury's answer to jury question no. 1 and refusing to enter judgment discharging Plaintiffs' debt.

ISSUE NO. 2: The trial court erred in granting the motion to disregard the jury's finding to jury question no. 1.

ISSUE NO. 3: The trial court erred in rendering its final judgment because the judgment does not conform to the verdict reached by the jury in jury question no. 1 and is therefore contrary to the jury's findings.

ISSUE NO. 4: The trial court erred in rendering final judgment based solely upon its interpretation of the jury's answer to jury question no. 2 because there was no evidence to support the trial court's interpretation of the jury's answer and the trial court's interpretation created an irreconcilable conflict between the jury's answers.

On November 15, 1995, the Maddoxes executed an adjustable rate note, payable to Summit Mortgage Corporation, that provided for a January 1 annual interest rate change date. The note was secured by an FHA deed of trust, which was filed in the county real property records on November 22, 1995. An assignment of the note from Summit Mortgage Corporation to Boatmen's National Mortgage Corporation, dated November 15, 1995, also was filed in the real estate records on November 22, 1995. Summit endorsed the note to Boatmen's without recourse. On December 1, 1995, Boatmen's notified the Maddoxes that the monthly mortgage payments would be paid to it.   

A letter from Boatmen's to Summit, dated December 6, 1995, stated:

After reviewing the above referenced file for purchase, we are holding funds. We will forward funds upon receipt of documents clearing the conditions listed below. We must have these conditions in our office no later than 12-12-95. If this date is not met, you will be subject to current market price. Your prompt attention in resolving this matter will be greatly appreciated. The items(s) needed are as follows:

1 X Original note is enclosed/first change date be corrected to be 4-1-97 and initialed by borrowers.

2 Deed of trust - ARM rider must also be corrected to show correct change date of 4-1-97, initialed by borrowers and re-recorded.

3 If assignment has been recorded, it will have to be re-recorded to reflect re-recording of deed of trust.

4 Just for your information - the escrow amount for taxes on line 1006 is shown on wrong line; should be on tax line instead of flood insurance line.

Should you have any questions, please contact me at 8516 . Thank you for your prompt attention in this matter.

The handwritten words "final docs" were written on the right margin. ⁽²⁾   

Boatmen's funded the loan to Summit on December 13, 1995.   

The mortgage rate change date was altered to "4/1/97" on the face of the promissory note and the adjustable rate rider. The alterations were initialed "JM" and "KLM" but the initials are forgeries. Both James Maddox and Kelli Maddox testified that they not only did not authorize the alteration to the note, they had no knowledge that the change had been made until after Boatmen's notified them on March 6, 1997, that their interest rate had been increased by 1%. On December 18, 1995, the FHA deed of trust with adjustable rate rider was re-recorded to reflect the altered change date. The assignment from Summit to Boatmen's was not cancelled, nor was it re-recorded.   

NationsBanc Mortgage Corporation merged with Boatmen's in 1997. NationsBanc Mortgage Corporation was a wholly owned subsidiary of NationsBank. In turn, Bank of America merged with NationsBank in 1999. At the time of trial, Bank of America was the holder of the note as successor in interest to Boatmen's.   

Kimberly Lindsey, Summit's operations manager, testified that, although it was addressed to her, she first saw the December 1 Boatmen's letter after this litigation commenced. Summit's file had been destroyed in late 1997 or early 1998, so she could not compare the letter to any documents in Summit's file. Lindsey did not recognize the handwriting on the letter. She did not make the alteration to the Maddox note and she did not know if the note was altered at Summit or at Boatmen's.   

Stewart Thomas Porter, a Summit vice-president, testified that Summit is a loan originator that sells all of its loans to other mortgage companies. Porter was not involved with the Maddox loan until after litigation commenced. He did not know who made the changes on the Maddox papers. According to Porter, the change date is only a clerical date in order to meet the parameters of a pool on the secondary market and is not negotiated with the borrower. He felt that the repricing mentioned in the Boatmen's letter was a mere clerical change and not a matter of concern to Summit. If Boatmen's decided not to buy a note it had examined, they would return it to the warehouse bank and the endorsement would be cancelled and the assignment would be voided.

Clyde Ben Cowen, the corporate representative for Bank of America, testified that Boatmen's, NationsBanc, and Bank of America were all the same entity. Cowen had no documentation that the change date had been altered prior to the date it sent the money for the Maddox note. He does not have a stamp like that used with the forged initials.   

Question 1 applied Section 3.407 of the Texas Business and Commerce Code:

(a) Any alteration of an instrument is material which changes the contract of any party thereto in any respect, including any such change in

. . . .

(3) the writing as signed, by adding to it or by removing any part of it.

(b) As against any person other than a subsequent holder in due course

(1) alteration by the holder which is both fraudulent and material discharges any party whose contract is thereby changed unless that party assents or is precluded from asserting the defense;

(2) no other alteration discharges any party and the instrument may be enforced according to its original tenor, . . .

Act of May 24, 1967, 60th Leg., R.S., ch. 785, §1, 1967 Tex. Gen. Laws 2424. ⁽³⁾   

We may uphold a trial court's judgment notwithstanding the verdict only if no evidence supports the jury's finding. See Mancorp, Inc. v. Culpepper, 802 S.W.2d 226, 227 (Tex. 1990). Our review is limited to the evidence tending to support the jury's verdict; we must disregard all evidence to the contrary. Id. If more than a scintilla of evidence supports the jury finding, it must be upheld. Id. at 228. A jury finding is not based on legally sufficient evidence if: (1) there is a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the evidence conclusively establishes the opposite of the vital fact. See Merrell Dow Pharm., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997).

NationsBanc argues that the Maddoxes failed to plead a theory upon which NationsBanc could be liable for an alteration made by Summit. In the absence of special exceptions, pleadings are to be liberally construed in favor of the pleader. See Bank One, Texas, N.A. v. Stewart, 967 S.W.2d 419, 430 (Tex. App.--Houston [14th Dist.] 1998, pet. denied). Pleadings must give fair notice of the claim asserted to provide the opposing party with enough information to enable him to prepare a defense. Id. A petition is sufficient if a cause of action may be reasonably inferred from what is specifically stated. Id. The Maddoxes' petition alleges, "Defendant, Summit Mortgage Corporation, is a mortgage corporation engaged in the business of marketing mortgage loans to consumers for the purposes of selling mortgage loans in the secondary market. Plaintiffs believe that the Defendants, in order to confer greater rights on Defendants as holders of Plaintiff's loan, fraudulently and materially altered the Note and related documents. . ." This pleading is sufficient to place the defendants on notice that the plaintiffs were seeking to hold them liable under a theory of joint liability because it alleges that NationsBanc and Summit acted together to alter the documents.

Next, NationsBanc argues that the evidence conclusively established that it did not alter the note. While the Maddoxes did not prove the identity of the individual who forged their initials, they did prove that the forgeries occurred after the note had been assigned to Boatmen's, and Boatmen's had received actual, physical possession of the note. Although there was evidence that the assignment could have been cancelled, it was not. Boatmen's could have required the execution and recording of a new assignment, but it did not. Boatmen's paid Summit for the note before the forged documents were re-recorded. NationsBanc held the note at the time of its unauthorized alteration.

NationsBanc argues that the alteration of the documents delayed the raising of the interest rate by three months, saving the Maddoxes money. This argument presupposes that the interest rate would have been increased effective January 1, 1997. None of the evidence in the record, however, indicates that Boatmen's took any action to increase the interest rate until it notified the Maddoxes of the increase on March 6. By that time, it was too late to change the interest rate payable on the unpaid balance of the note for 1997. The Maddoxes paid $496.89 in additional interest in 1997.   

NationsBanc also argues that there was no evidence that it had a dishonest or deceitful purpose for altering the loan documents. Both Summit and NationsBanc were motivated purely by a desire to sell the loan to GNMA. Neither Summit nor NationsBanc provided any explanation for the total failure to communicate with the Maddoxes. As the person who altered the change date did not come forward, there is no evidence that the change was made with the mistaken belief that it was authorized by the makers. Although Cowen testified that the paperwork appeared to be regular on its face, the December 6 letter demonstrates that someone at Boatmen's was aware that the Maddox paperwork provided for a January 1 rather than an April 1 change date, and that date was changed without any of the documents being re-executed and re-acknowledged before a notary. Although a person who had never seen the documents before December 18 might have thought the change was initialed before the documents were executed, the person handling the purchase for Boatmen's would have known that was not the case.

There is evidence in the record that supports the jury's finding on the first jury question. Therefore, the trial court erred in disregarding the question. In answer to the second question, the jury found that Bank of America purchased the note as a holder in due course. Bank of America and NationsBanc are the same entity. "In order for conflicting findings to destroy each other, one finding must be such as would warrant a judgment for one of the parties, and the other finding would warrant a judgment for the other party." Isern v. Watson, 942 S.W.2d 186, 191 (Tex. App.--Beaumont 1997, pet. denied). A jury's findings fatally conflict only if the findings concern the same material fact and there is no reasonable basis upon which they can be reconciled. See Bender v. Southern Pac. Transp. Co., 600 S.W.2d 257, 260 (Tex. 1980). The Maddoxes argue that the answers can be reconciled if NationsBanc purchased unaltered notes, then altered them. We disagree. NationsBanc cannot be a holder in due course if it participated in the fraudulent alteration of the documents. See Act of May 24, 1967, 60th Leg., R.S., ch. 785, §1, 1967 Tex. Gen. Laws 2419. ⁽⁴⁾

The Maddoxes argue there is no evidence to support the jury's finding to Question No. 2. Ben Cowen testified that, from Boatmen's computer records, it appeared that the paperwork was mailed to Summit on December 6 and received back at Boatmen's on December 13. He testified that Boatmen's would not have purchased the loan if the documents had not been changed. According to Cowen, the paperwork did not look unusual. Thus, there is some evidence that Boatmen's purchased the note without knowledge of the fraudulent alteration.

Although there is more than a scintilla of evidence to support the findings on the two questions submitted to the jury, those answers are in fatal conflict with each other. "Fatal conflicts require a new trial." Calabrian Chemicals Corp. v. Bailey-Buchanan Masonry, Inc., 44 S.W.3d 276, 282 (Tex. App.--Beaumont 2001, pet. denied). The judgment of the trial court is reversed and the cause is remanded for a new trial. We decline to address the remaining issues raised in the briefs.

REVERSED AND REMANDED.

PER CURIAM

Submitted on December 13, 2001

Opinion Delivered March 7, 2002

Do Not Publish

Before Walker, C.J., Burgess and Gaultney, JJ.

1. Bank of America Mortgage Corporation is the successor in interest to NationsBanc Mortgage Corporation, as shall be explained elsewhere in this opinion.

2. The copy of the letter, which NationsBanc produced at trial, had handmade alterations of uncertain age and authorship. The typeset portion of the letter appears below:

After reviewing the above referenced file for purchase, we are holding funds. We will forward funds upon receipt of documents clearing the conditions listed below. We must have these conditions in our office no later than 12-12-95. If this date is not met, you will be subject to current market price. Your prompt attention in resolving this matter will be greatly appreciated. The items(s) needed are as follows:

1 X Original note is enclosed/first change date be corrected to be 4-1-97 and initialed by borrowers.

2 X Deed of trust - ARM rider must also be corrected to show correct change date of 4-1-97, initialed by borrowers and re-recorded.

3 X If assignment has been recorded, it will have to be re-recorded to reflect re-recording of deed of trust.

4 Just for your information - the escrow amount for taxes on line 1006 is shown on wrong line; should be on tax line instead of flood insurance line.

Should you have any questions, please contact me at 8516 . Thank you for your prompt attention in this matter.

3. For current law,

see Tex. Bus. & Com. Code Ann. § 3.407 (Vernon Supp. 2002).

4. For current law,

see Tex. Bus. & Com. Code Ann. § 3.302 (Vernon Supp. 2002).