Terry Scott v. Citizen's National Bank

IN THE

TENTH COURT OF APPEALS

 

No. 10-03-00322-CV

Terry Scott,

                                                                      Appellant

 v.

Citizen's National Bank,

                                                                      Appellee

From the 40th District Court

Ellis County, Texas

Trial Court # 62048

MEMORANDUM Opinion AFTER REMAND

This case involves a suit over the alleged nonpayment of a promissory note.  One of the borrowers, Terry Scott, had pledged his Cessna airplane as collateral on the loan.  After a bench trial, the judge rendered judgment against Scott and the other two borrowers for the loan amount, interest, attorney’s fees, and foreclosure of the lien against the airplane.  On appeal, Scott attacks the judgment in six issues.  Finding no error, we will affirm the judgment.

THE LOAN

In June 2000, Richard Karamatic, Richard Engel, and Scott secured a $25,250[1] loan from Citizen’s National Bank (“Bank”) to start a business, Inoquest Communications (“Inoquest”).  Under the terms of the promissory note that Engel, Karamatic, and Scott signed, repayment on the debt was to be made no later than December 21, 2000.  For several months, no payments were made on the loan.  On October 31, 2000, Albert Garcia, a Bank employee, approved an internal funds transfer in the amount of $26,267.10 from an Inoquest account to pay the balance of the note.  Later, Engel contacted Garcia and instructed him to reverse the transaction.  Garcia complied with this instruction and returned the funds to the Inoquest account.

THE SUIT

In May 2002, the Bank sued Karamatic, Scott, and Engel to recover the loan amount, interest, and attorney’s fees, and for foreclosure of the lien on the collateral (the airplane).  Scott filed a general denial and affirmative defenses that (1) the debt had been paid in full by Inoquest, and (2) accord and satisfaction.  He also filed a counterclaim seeking (1) declaratory judgment that the note and security agreement had been discharged, (2) relief for wrongful sequestration, and (3) attorney’s fees. After a one-day bench trial, the judge rendered judgment against Karamatic, Scott, and Engel, jointly and severally, for $32,176.27 principal and interest, $14,000 in attorney’s fees,[2] and foreclosure of the lien on the airplane.

Scott timely filed a Request for Findings of Fact and Conclusions of Law.  After he filed a Notice of Past Due Findings of Fact and Conclusions of Law, the court signed and filed the Bank’s proposed findings and conclusions, which essentially state that there had been no payment on the note.  Scott filed a Request for Additional and Amended Findings and Conclusions of Law, seeking findings that the loan had been paid off and the payoff was not the result of a mistake by the Bank.  The court did not respond to this request, and Scott timely filed his notice of appeal. Engel and Karamatic did not appeal the trial court's judgment.

We reversed the judgment against Scott, rendered judgment for him on the note, and remanded the cause for consideration of his counterclaim.  In a per curiam opinion, the supreme court, without addressing the merits, reversed our judgment, holding that we failed to explain, with specificity, why we substituted our judgment for that of the trial court.  Citizens Nat’l Bank v. Scott, 195 S.W.3d 94, 96 (Tex. 2006) (citing Gonzalez v. McAllen Med. Ctr., 195 S.W.3d 680 (Tex. 2006)).  The case was remanded to us “for more detailed consideration.”  Id.  After remand, both parties filed supplemental briefs.  10th Tex. App. (Waco) Loc. R. 19.

ISSUES ON APPEAL

Scott attacks the judgment in six issues:

1. Whether the evidence established as a matter of law that the note was paid on October 31, 2000, when the Bank applied Inoquest’s funds to the note in the full amount of the note.

2. Whether the “reversal” of the transaction, without notice to Scott, had the legal effect of reinstating Scott’s liability on the note.

3. Whether the Bank can contend for the first time after the court’s judgment and findings that the court found that the debit was a “mistake,” not having pled mistake, offered evidence of a mistake, or obtained an express finding of mistake.

4. Whether the court erred in failing to make Scott’s requested findings, based on undisputed evidence, that the note was paid on October 31, 2000, by the transfer of funds from Inoquest and that the application of Inoquest’s funds to the note was not the result of a mistake by the Bank and, based on those findings, erred in failing to conclude as a matter of law that the note had been paid.

5. When the undisputed evidence shows that the Bank applied Inoquest’s funds to payment of the note in the full amount, whether the Bank properly reversed the transaction without notice to Scott; whether the court could “ignore the evidence” to make findings of fact concerning non-payment of the debt and the Bank’s not having agreed to discharge Scott from the debt or any obligation related to it; whether the court properly concluded that there had been no payment of the note.

6. Whether the court erred in failing to amend its findings and conclusions, as Scott requested, to reflect the undisputed evidence of payment.

As we noted on original submission, each of these issues essentially asserts that the undisputed evidence shows that the note was fully paid with Inoquest’s funds on October 31, 2000, and that the Bank’s reversal of that transaction had no legal effect as to Scott. In fact, that was the relative positions of the parties on original submission and is their positions after remand.  Scott contends that the October 31 transaction paid the note and extinguished his liability; the Bank contends that the “reversal” of that transaction was proper and that Scott’s liability on the note had not been extinguished.

STANDARD OF REVIEW

When a party who had the burden of proof brings a “legal sufficiency” issue complaining of an adverse finding, that party must demonstrate that the evidence establishes conclusively, i.e., as a “matter of law,” all vital facts in support of the finding sought by the party.  Dow Chemical Co. v. Francis, 46 S.W.3d 237, 241 (Tex. 2001); Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989).  In this type of review, we first examine the record for evidence supporting the adverse finding.  Id.  If more than a scintilla of evidence supports the adverse finding, our inquiry ends; but if no evidence supports the adverse finding, we review the entire record to determine if the contrary proposition is established as a matter of law.  Id.

In reviewing the legal sufficiency of the evidence, we view the evidence in the light favorable to the verdict, crediting favorable evidence if a reasonable factfinder could, and disregarding contrary evidence unless a reasonable factfinder could not.  See City of Keller v. Wilson, 168 S.W.3d 802, 807, 822 (Tex. 2005).  There is legally insufficient evidence or “no evidence” of a vital fact when (a) there is a complete absence of evidence of a vital fact; (b) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (c) the evidence offered to prove a vital fact is no more than a mere scintilla; or (d) the evidence conclusively establishes the opposite of the vital fact.  Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997).  More than a scintilla of evidence exists when the evidence supporting the finding, as a whole, “rises to a level that would enable reasonable and fair-minded people to differ in their conclusions.”  Id. (quoting Burroughs Wellcome Co. v. Crye, 907 S.W.2d 497, 499 (Tex. 1995)).

ISSUE ONE:  Does the evidence establish “payment” as a matter of law?

The Bank argues that Scott has waived this issue because he asserts in his brief “this is not a ‘sufficiency of the evidence’ situation.”  We have examined Scott’s issues with that in mind and, finding that he argues “matter of law” points, “conclusive evidence” points, and “undisputed evidence” points, reject the waiver argument.  The “sufficiency” referred to in his brief is “factual sufficiency” of the evidence, which he affirmed in oral argument is not raised in this appeal.

The trial court concluded there had been no “payment.”  Scott says the evidence conclusively establishes the facts necessary to show the contrary.  He concedes that the testimony of the witnesses conflicted on several points, including whose idea the October 31 transaction was, when the later “reversal” was, and how much time elapsed between the two. He says, however, that there is no factual dispute about whether Garcia made an internal bank transaction to pay the note with Inoquest’s funds but then reversed that transaction.

“Payment is defined as the discharge of an obligation by the actual or constructive delivery of money or its equivalent by the obligor or by someone for him for the purpose of extinguishing the obligation, wholly or partially, and the acceptance of it by the obligee.”  First Heights Bank FSB v. Guttierrez, 852 S.W.2d 596, 605 (Tex. App.—Corpus Christi 1993, writ denied); accord Gillman v. Phillips Petroleum Co., 601 S.W.2d 513, 515 (Tex. Civ. App.—Amarillo 1980, no writ).

Focusing on the October 31 transaction, we find that the record shows that Garcia, an employee and loan officer of the Bank, testified that there was an internal bank transaction made whereby funds were “taken out” of Inoquest’s account and used to “pay off” the loan, that he as the loan officer was authorized to make that transaction, that Engel (his main contact with respect to the loan) instructed him to make the transaction, that no other person besides Engel gave him any instructions concerning the transaction, that the Bank consented to the transaction at the time, and that the Bank’s “loan history” document shows a payment made on October 31, 2000.

This testimony conclusively establishes the facts of the October 31 transaction whereby the Bank debited Inoquest’s account and credited the note in the same amount.  There is no evidence to show that these events did not occur.

The Bank argues that unless, at the time of delivery, the debtor intends that the delivery constitute payment, the delivery of funds, whether actual or constructive, does not constitute payment of a debt.  Put another way: crediting an account is not always sufficient to constitute payment.  See Continential Oil Co. v. Zaring, 563 P.2d 964, 968 (Colo. App. 1977) (“Mere credits entered against an account on a party’s books do not constitute payment . . . .  Such actions may serve as payment, however, if they are intended by both parties to act as a discharge of the debt.”).

The Amarillo court quoted an earlier Texarkana case: “Whether or not a transaction constitutes payment in termination of liability depends upon the intention of the parties, and acts which might otherwise constitute payment will not do so when the parties do not so intend.”  Gillman, 601 S.W.2d at 515 (citing Greenwood v. Senter, 44 S.W.2d 504, 505 (Tex. Civ. App.—Texarkana 1931), aff'd in part and rev'd in part, 61 S.W.2d 812 (Tex. Comm. App. 1933, holding approved)).  The court, upholding the trial court’s finding of payment, went on to say:  “Moreover, in the absence of expressed mutual intent, the best evidence of the parties' intent is the interpretation they placed upon their transaction.”  Id. at 516.  “In the situation presented by this record, the acts of the parties themselves furnish the construction they mutually placed upon their transaction at the time.”  Id.

Here, some period of time elapsed between the October 31 internal bank transaction and the reversal of that transaction by the Bank.  Garcia testified that Engel called him “approximately an hour” after the transaction was completed.  He said:

· he told Engel that he had done exactly as he was told: “pay off the loan from an account where [Engel] was an authorized signer”;

· Engel told him that he (Garcia) did not have authority to make the transaction;

· Engel said he did not want the loan paid that way and that it would be paid later; and

· Garcia told Engel he did not have authority to reverse the payoff—that he would have to “get with management” about that.

He testified that, after consulting with management, he reversed the transaction later that same day.  Garcia acknowledged that the “posting date” for the reversal transaction was November 6, 2000.[3]  He could not account for the time difference other than as a “lag in workload.” He said that the reversal was “pretty unusual” and that he had not reversed a payment on any other note.

Engel testified that several days after October 31, he went to Garcia’s office to discuss the matter.  He said he was not in Waxahachie on October 31, so could not have asked Garcia to pay off the note or have discussed it with Garcia on that date after the transaction. He testified that Pete Grosso, “in the accompany of Richard Karamatic,” caused the note to be paid off.  Engel answered “No” when asked directly: “Was it then a mistake that the note got paid off originally?”  He testified that Grosso was authorized on Inoquest’s account, was on Inoquest’s board of directors, and was authorized to do it.  He said he was aware of no objection by any officer of Inoquest to the payment of the note.

Karamatic testified that he was in a meeting with Grosso at Inoquest on October 31 when Engel came in.  He said Grosso told Engel that the note had been paid, and Engel began to “rant and rave about we can’t do that.”  He testified that Engel said, “I’m going to straighten this out,” but Engel did not make a phone call from the office.

Both Engel and Karamatic testified that the reason not to pay the note was that it would “free up” the collateral (the airplane), which was an asset of Scott’s, and that Scott was getting a divorce.

Based on the conflicting evidence about who authorized the use of Inoquest’s funds for the transaction, the conflict about the timing of the instructions to reverse it, and the undisputed evidence that it was to prevent the release of the collateral, we conclude that Scott failed to conclusively prove that there was “payment” on the note by virtue of the October 31 transaction.[4]  Guttierrez, 852 S.W.2d at 605; Gillman, 601 S.W.2d at 515; see also O’Connor v. Miller, 127 S.W.3d 249, 258 (Tex. App.—Waco 2003, pet. denied) (factfinder is entitled to consider the circumstantial evidence, weigh witnesses' credibility, and make reasonable inferences from the evidence it chooses to believe).   We overrule issue one.

ISSUE TWO:  Whether the “reversal” of the transaction, without notice

to Scott, had the legal effect of reinstating Scott’s liability on the note.

The Bank points out that this issue is predicated on our sustaining Scott’s first issue, because if there was no “payment” there was no need to reinstate liability.  We agree and overrule Scott’s second issue.

ISSUE THREE:  Whether the Bank can contend for the first time after the

court’s judgment and findings that the court found that the debit was

a “mistake,” not having pled mistake, offered evidence of a mistake, or

obtained an express finding of mistake.

Scott says the court did not find “mistake” in making the transaction.  The Bank says  1) it was not required to plead mistake, as that is an evidentiary issue concerning whether there was liability on the note, 2) there is no evidence that the transaction was a mistake, and 3) there was no finding of mistake because none was necessary.  We agree. The Bank does not rely on mistake; rather, it says that it properly reversed a transaction that was not intended to pay the note.  We have found that the court’s finding of no payment was authorized by the evidence.  We overrule issue three.

ISSUE FOUR: Whether the court erred in failing to make Scott’s requested findings, based on undisputed evidence, that the note was paid on October 31, 2000, by the transfer of funds from Inoquest and that the application of Inoquest’s funds to the note was not the result of a mistake by the Bank and, based on those findings, erred in failing to conclude as a matter of law that the note had been paid.

As we indicated earlier, this issue is another means of attacking the court’s failure to find “payment,” and is a combination of issues one (conclusive proof of payment) and three (mistake). The Bank notes that additional findings of fact and conclusions of law are not required when the requested findings are contrary to or inconsistent with the court’s original findings.  We agree.  Thomas v. Cornyn, 71 S.W.3d 473, 485 (Tex. App.—Austin 2002, no pet.).  Furthermore, we have found that the court’s finding of no payment was authorized by the evidence.  We overrule issue four.

ISSUE FIVE: When the undisputed evidence shows that the Bank applied Inoquest’s funds to the full amount of the note, whether the Bank properly reversed the transaction without notice to Scott; whether the court could “ignore the evidence” to make findings of fact concerning non-payment of the debt and the Bank’s not having agreed to discharge Scott from the debt or any obligation related to it; whether the court properly concluded that there had been no payment of the note.

Again, as the Bank points out, this issue is another means to assert that the court should have found that there was “payment.”  Because we have found that the court’s finding of no payment was authorized by the evidence, we overrule issue five.

ISSUE SIX: Whether the court erred in failing to amend its findings and conclusions, as Scott requested, to reflect the undisputed evidence of payment.

This issue is an alternate means of questioning the court’s finding of no payment.  As noted above, additional findings of fact and conclusions of law are not required when the requested findings are contrary to or inconsistent with the court’s original findings.  Id.  We overrule issue six.

CONCLUSION

Having overruled Scott’s six issues, we affirm the judgment of the trial court.  Because Scott appealed to this court, the Bank is entitled to the $3,000 in additional attorney’s fees awarded by the trial court in the event of an appeal.  The judgment expressly denied Scott’s counterclaim, and he has not brought an issue on appeal concerning that ruling.

BILL VANCE

Justice

Before Chief Justice Gray,

Justice Vance, and

Justice Reyna

Affirmed

Opinion delivered and filed November 8, 2006

[CV06]

---

[1] Our original opinion described the note as being for $25,000.  The security agreement Scott signed describes it as such, and an exhibit refers to a $25,000 loan and a $250 “loan fee,” which was apparently included in the note.

[2] And additional attorney’s fees in the event Scott appealed to this court and the supreme court.

    [3]           The record also contains a copy of a deposit slip showing a credit to Inoquest’s account on November 6 in the amount of $26,267.10 stating “reversal of pay-off on loan # 92503 per [Garcia].”  The exhibit also shows that interest on the note was paid on November 6.

    [4]           Scott directs us to Lawyers Surety Corp. v. Riverbend Bank, 966 S.W.2d 182 (Tex. App.—Fort Worth 1998, no pet.), and Gramercy Insurance Co. v. MRD Investments, Inc., 47 S.W.3d 721 (Tex. App.—Houston [14th Dist.] 2001, pet. denied), where the discussions involved “payment” of bank drafts in the context of recovery on a surety bond.  We do not find the references persuasive in this context.  Nor do we find the cited provisions of the Texas Business and Commerce Code relevant to the question of intent.