Opinion issued July 26, 2016
In The
Court of Appeals For The
First District of Texas ———————————— NO. 01-15-00192-CV ——————————— DANIEL MANDARINO, CARRIE MANDARINO, LAURA DOYLE, ROBERT CHURCH, BRETT BEALS AND LINDA BEALS AS TRUSTEES OF THE BEALS FAMILY REVOCABLE TRUST, ROBERT A. SCHALBE, WILLIAM H. GAY, JR., RICCARDIO D. GAY, ERIC JOHNSTONE, RAFAL ZIELINSKI, AND VALLY MESTRONI, Appellants V. SHERWOOD LANE INVESTMENTS, LLC, Appellee
On Appeal from the 164th District Court Harris County, Texas Trial Court Case No. 2014-32347
MEMORANDUM OPINION
Appellee Sherwood Lane Investments, LLC brought this action against the
appellants to recover sums allegedly due under a wraparound promissory note. The trial court granted Sherwood Lane’s motion for summary judgment and rendered
judgment against the appellants for the amount of the note plus interest, post-
judgment interest, and attorney’s fees.
The appellants challenge the summary judgment based on: (1) the
admissibility of the note as summary-judgment evidence; (2) an alleged fact issue
regarding the principal and interest due on the note; (3) Sherwood Lane’s alleged
inability to enforce the note as its holder; (4) the statute of limitations; and
(5) alleged fact issues regarding affirmative defenses.
Finding no reversible error, we affirm the judgment of the trial court.
Background
Sherwood Pines, Ltd. was a limited partnership that owned an interest in an
apartment complex in Harris County, Texas. In 1999, Sherwood Pines amended its
certificate of partnership to allow John Gilmore, formerly a general partner, to
withdraw and convert his interest to a limited partnership interest. On February 6,
2006, the Secretary of State canceled Sherwood Pines’s certificate of partnership
because it failed to file a required periodic report under the Texas Revised Limited
Partnership Act.
On October 16, 2006, the appellants purchased Sherwood Pines’s interest in
the apartment complex. To secure the purchase, they signed a promissory note as
makers, with Sherwood Pines as payee. Sherwood Pines still owed a portion of the
2 principal from its original purchase of the property (the “First Lien Principal”),
which it incorporated into the new promissory note. The additional balance that
appellants owed to Sherwood Pines (the “Second Lien Principal”) was described in
the note as “Five Hundred and Sixty-Five Thousand Dollars” in words but
$569,529.87 in numbers. The original note on the First Lien Principal was
designated the “wrapped note” and the note signed by appellants was named the
“wraparound note.” The wraparound note stated that a deed and deed of trust
conveying the property would be transferred in exchange for the note, and the legal
description of the property was provided in an attached exhibit.
The wraparound note was structured to provide for monthly payments that
included portions of both the First and Second Lien Principal amounts, plus
associated interest. The amounts owed under both the wrapped note and
wraparound note, with interest, were to be paid in full by June 1, 2011. The
wraparound note contained a provision requiring the appellants to make best
efforts to formally assume the wrapped note within six months. If the appellants
did not assume liability on the wrapped note, the wraparound note required that
they pay Sherwood Pines two percent of the outstanding total loan balance. The
wraparound note allowed for acceleration of full payment in the event of default at
the holder’s option.
3 The wraparound note’s signature page contained the following clause in
capital letters:
This note represents the final agreement between the payee and the maker and except as otherwise expressly indicated above may not be contradicted by evidence of prior, contemporaneous, or subsequent agreements of the parties and maker agrees there are no unwritten oral agreements between payee and maker.
The appellants each signed the wraparound note, with all except Brett and Linda
Beals signing in their personal capacities. The appellants did not assume liability
on the wrapped note in the time required by the wraparound note or pay 2% of the
total loan balance, but Sherwood Pines did not accelerate the note based on this
default.
In 2008, Sherwood Pines endorsed the wraparound note to Lee Wallis, Inc.
The appellants ceased making payments on the note on July 1, 2009. Lee Wallis
issued a demand for payment on August 26, 2009, but the appellants did not
respond. This resulted in a default on the wrapped note, and the holder of the
wrapped note foreclosed on the apartment property on April 10, 2010 in order to
satisfy the First Lien Principal amount. Lee Wallis subsequently endorsed the
wraparound note to appellee Sherwood Lane Investments on May 19, 2014.
Sherwood Lane’s managing member, Herbert B. Richardson, was formerly a
general partner of Sherwood Pines and admitted that he had personal knowledge of
the original sale of the apartment interest as well as the appellants’ prior default.
4 Sherwood Lane filed suit to collect on the unpaid balance and interest from
the wraparound note on June 5, 2014. It moved for summary judgment, attaching
affidavits from former Sherwood Pines general partners Gilmore and Richardson,
another affidavit from a representative of Lee Wallis, as well as a copy of the note.
Sherwood Lane also attached an affidavit by an accountant retained to calculate the
interest due on the wraparound note. The initial affidavit signed by the accountant
calculated the principal amount based on the numerical loan amount recited in the
wraparound note ($569,529.87). After the appellants objected, Sherwood Lane
submitted a second affidavit by the accountant which recalculated the interest
based on the principal amount as stated in words ($565,000.00). Sherwood Lane
contends that it mistakenly gave the accountant incorrect information for the first
affidavit, and that the corrected affidavit was submitted “purely for the Court’s
convenience and assistance in determining the final judgment amount.”
The appellants objected to the affidavits from Gilmore, Richardson, and the
Lee Wallis representative based on hearsay, relevance, and competence to testify.
They also objected to the evidence of the wraparound note as being incomplete,
because the copy attached by Sherwood Lane did not include the note’s Exhibit A,
which was the legal description of the property securing the note. The trial court
did not rule on these objections.
5 The appellants replied to the motion for summary judgment with its own set
of affidavits from each appellant, as well as the broker for the transaction, each
asserting that the terms of the loan were intended to be nonrecourse. The appellants
also attached a copy of the deed of trust that conveyed the property. Sherwood
Lane objected to this evidence based on the parol evidence rule, but it did not
obtain a ruling on its objection. In their response, the appellants generally claimed
that the wraparound note was unenforceable, and they denied that Sherwood Pines
was a viable legal entity at the time of the note’s creation on the ground that its
certificate of partnership had been canceled. The appellants also asserted the
affirmative defenses of estoppel, laches, waiver, and fraudulent inducement.
The trial court granted a final summary judgment for Sherwood Lane in the
amount of $1,044,481.18, with post-judgment interest, and it awarded $16,537.50
in attorney’s fees. The appellants filed a motion for new trial which was overruled
by operation of law, then they appealed.
Analysis
This court reviews a trial court’s grant of summary judgment de novo. Buck
v. Palmer, 381 S.W.3d 525, 527 (Tex. 2012). We must reverse if there is more than
a scintilla of probative evidence that raises a genuine issue of material fact. Id.; see
also TEX. R. CIV. P. 166a(c). Less than a scintilla of evidence exists if the evidence
creates no more than a mere surmise or suspicion of a fact regarding a challenged
6 element. Forbes, Inc. v. Granada Biosciences, Inc., 124 S.W.3d 167, 172 (Tex.
2003). We review the record “in the light most favorable to the nonmovant,
indulging every reasonable inference and resolving any doubts against the motion.”
City of Keller v. Wilson, 168 S.W.3d 802, 824 (Tex. 2005). Once a plaintiff
establishes its right to summary judgment as a matter of law, the burden then shifts
to the defendant as nonmovant to present evidence that raises a genuine issue of
material fact, thereby precluding summary judgment. Parker v. Dodge, 98 S.W.3d
297, 299 (Tex. App.—Houston [1st Dist.] 2003, no pet.).
I. Admissibility of promissory note
The appellants first contend that the copy of the wraparound note submitted
by Sherwood Lane was inadmissible, and that this should have prevented summary
judgment. The appellants contend that the affidavits submitted by Sherwood Lane
were insufficient to authenticate the note. They also claim that the copy of the note
was incomplete because it did not contain a copy of Exhibit A. Sherwood Lane
responds that it presented conclusive evidence of the wraparound note’s existence
and terms, and that the appellants did not produce any evidence that would
controvert these claims.
To collect on a promissory note, the plaintiff must establish that (1) there is a
note, (2) the plaintiff is the legal owner and holder of the note, (3) the defendant is
the maker of the note, and (4) a certain balance on the note is due. Suttles v.
7 Thomas Bearden Co., 152 S.W.3d 607, 611 (Tex. App.—Houston [1st Dist.] 2004,
no pet.).
A photocopy of the note and an attached affidavit that swears it is a true and
correct copy is sufficient summary-judgment proof for the note’s existence, absent
controverting evidence. Life Ins. Co. of Virginia v. Gar–Dal, Inc., 570 S.W.2d 378,
380 (Tex. 1978); Affordable Motor Co., Inc. v. LNA, LLC, 351 S.W.3d 515, 520
(Tex. App.—Dallas 2011, pet. denied). The payee can establish ownership by
attesting in an affidavit that he is the owner of the note, when the note or other
appropriate evidence shows that it was issued or assigned to him. See Zarges v.
Bevan, 652 S.W.2d 368, 369 (Tex. 1983) (per curiam); Blankenship v. Robins, 899
S.W.2d 236, 238 (Tex. App.—Houston [14th Dist.] 1994, no writ). If the maker
does not deny the genuineness of his signature, he is established as the maker.
Blankenship, 899 S.W.2d at 238. Statements by affidavit can establish that a
balance is due and owing. See id. at 238–39.
To be considered by the trial court or reviewing court, summary-judgment
evidence must be presented in a form that would be admissible at trial. Hidalgo v.
Surety Sav. & Loan Ass’n, 462 S.W.2d 540, 545 (Tex. 1971); Vice v. Kasprzak,
318 S.W.3d 1, 11 (Tex. App.—Houston [1st Dist.] 2009, pet. denied). To preserve
a complaint about the form of summary-judgment evidence on appeal, a party must
have objected in writing and secured a ruling on the objection. Grand Prairie
8 Indep. Sch. Dist. v. Vaughan, 792 S.W.2d 944, 945 (Tex. 1990); Hung Tan Phan v.
An Dinh Le, 426 S.W.3d 786, 792 (Tex. App.—Houston [1st Dist.] 2012, no pet.);
Vice, 318 S.W.3d at 11. A trial court’s order granting summary judgment does not
impliedly rule on an objection to summary-judgment evidence. See Delfino v.
Perry Homes, 223 S.W.3d 32, 35 (Tex. App.—Houston [1st Dist.] 2006, no pet.).
“Unauthenticated or unsworn documents, or documents not supported by
any affidavit, are not entitled to consideration as summary judgment evidence.”
Mackey v. Great Lakes Investments, Inc., 255 S.W.3d 243, 252 (Tex. App.—San
Antonio 2008, pet. denied); see also TEX. R. CIV. P. 166a(f). A complete absence
of authentication is a defect of substance which may be raised for the first time on
appeal. Blanche v. First Nationwide Mortg. Corp., 74 S.W.3d 444, 451 (Tex.
App.—Dallas 2002, no pet.).
Because the appellants failed to obtain a ruling from the trial court, the
objections to the adequacy of the affidavits to authenticate the promissory note
were waived. See Vice, 318 S.W.3d at 11; Delfino, 223 S.W.3d at 35. The
appellants nevertheless claim that the note was not proper summary-judgment
evidence because it did not contain the referenced exhibit describing the property.
The appellants argue that this defect rendered the note incomplete and incapable of
authentication. We disagree.
9 Sherwood Lane submitted a photocopy of the note attached to the affidavit
of its holder, the managing partner of the company, who swore that it was a true
and correct copy. Absent controverting summary-judgment proof, this was
competent summary-judgment evidence to prove the note’s existence and the
appellants’ status as makers. See Zarges, 652 S.W.2d at 369. The appellants did
not submit any evidence to controvert the affidavit’s claim that this was a true and
correct copy of the wraparound note.
We conclude that the copy of the promissory note was proper summary-
judgment evidence that established the note’s existence, Sherwood Pines as the
payee of the note, and the appellants as its maker. See id.; McLernon v. Dynegy,
347 S.W.3d 315, 326 (Tex. App.—Houston [14th Dist.] 2011, no pet.). We
overrule appellant’s first issue.
II. Principal and interest calculations
The appellants argue that the two affidavits from Sherwood Lane’s
accountant, which differed with respect to the principal amount of the wraparound
note, created an issue of material fact regarding the amount of the principal and
interest due on the note. Sherwood Lane replies that there was no actual question
of fact over the principal and interest due because the words of the contract
controlled the amount of the principal by statute. It asserts that the first affidavit
10 was incompetent for lacking a proper legal basis, and the second was the only
affidavit that was properly submitted.
“If an instrument contains contradictory terms, typewritten terms prevail
over printed terms, handwritten terms prevail over both, and words prevail over
numbers.” TEX. BUS. & COM. CODE § 3.114. In Guthrie v. National Homes Corp.,
394 S.W.2d 494 (Tex. 1965), the Supreme Court of Texas considered a case in
which an instrument stated that the obligor would pay “$5,780,” which was written
out as “Five Thousand Eighty and 00/100 *** Dollars.” Guthrie, 394 S.W.2d at
495. The Court held that the words “Five Thousand Eighty and 00/100 ***
Dollars” were unambiguous and controlled over the numerals. Id. at 495–96.
The rule that words control over numerals applies to remove any ambiguity
that may result from a difference between the written and numerical terms. See id.;
see also Charles R. Tips Family Trust v. P.B. Commercial LLC, 459 S.W.3d 147,
154 (Tex. App.—Houston [1st Dist.] 2015, no pet.). We therefore conclude that,
based on Guthrie and the Texas Business and Commercial Code, the words used in
the note to express the amount of the principal unambiguously controlled over the
inconsistent numerals, and the amount of the initial principal was $565,000.00. See
Guthrie, 394 S.W.2d at 495–96; TEX. BUS. & COM. CODE § 3.114.
The appellants also argue that the two affidavits submitted by Sherwood
Lane’s accountant create a fact issue that should preclude summary judgment.
11 When a statement in an affidavit contradicts the affiant’s prior testimony, this can
create an issue of material fact. See Randall v. Dallas Power & Light Co., 752
S.W.2d 4, 5 (Tex. 1988). If the affidavit does not explain the change in testimony,
it may be struck as a “sham” affidavit that does not raise an actual fact issue. See
Tejada v. Gernale, 363 S.W.3d 699, 707 (Tex. App.—Houston [1st Dist.] 2011, no
pet.); Farroux v. Denny’s Rests., Inc., 962 S.W.2d 108, 111 (Tex. App.—Houston
[1st Dist.] 1997, no pet.). When a proper explanation for the change is proffered,
the trial court need not strike the affidavit, and may consider it as summary-
judgment evidence. Tejada, 363 S.W.3d at 707.
The second affidavit in this case did not explain the change in testimony, but
counsel noted in its reply that the corrected affidavit was solely for the court’s
convenience and that all essential terms for the calculation of the interest and
principal were already in the note. The trial court did not strike the second affidavit
as a “sham affidavit.” However, even if the trial court refused to consider either of
the accountant’s affidavits as proper summary-judgment evidence, it would have
been able to reach the same mathematical conclusions in rendering its judgment
from the principal amount, maturity date, and interest rate stated unambiguously in
the note. Thus, regardless of whether the trial court considered the affidavits, they
would not have created an issue of material fact, and they could not have
12 contributed to reversible error on appeal. See TEX. R. APP. P. 44.1(a)(1) (error is
only reversible if it “probably caused the rendition of an improper judgment”).
We overrule the appellants’ second issue.
III. Sherwood Lane’s status as holder of note
In their third issue, the appellants contend that Sherwood Lane could not be
the legal holder of the note. The appellants’ key assertion is that Sherwood Pines
was not a legal entity with the right to do business at the time of the note’s
creation, because its certificate of partnership had been canceled and Gilmore had
withdrawn as a general partner, which could trigger dissolution by statute. On this
theory, because Sherwood Pines had no right to do business, the note was facially
invalid and never could be endorsed. In the alternative, the appellants argue that
Sherwood Lane cannot be a holder in due course, because it had notice of the
appellants’ default before receiving the note.
Sherwood Lane responds that the mere fact that Sherwood Pines’s certificate
was canceled did not dissolve the partnership. It argues that Sherwood Pines was
still capable of executing a valid contract, and Sherwood Lane is the lawful holder
of the note based on conclusive evidence of endorsement.
A. Existence of Sherwood Pines at time of note’s making
At the outset, we note that the appellants did not present to the trial court
their theory that Gilmore’s withdrawal triggered a dissolution of Sherwood Pines.
13 Issues that the nonmovant contends “avoid the movant’s entitlement to summary
judgment must be expressly presented by written answer to the motion or by other
written response to the motion and are not expressly presented by mere reference
to summary judgment evidence.” McConnell v. Southside Indep. Sch. Dist., 858
S.W.2d 337, 341 (Tex. 1993). If the summary-judgment response does not state the
specific grounds for avoiding summary judgment, those grounds are not preserved
for appeal. See id.; TEX. R. CIV. P. 166a(c). Rather than specifically presenting this
ground for Sherwood Pines’s invalidity to the trial court, the appellants’ summary-
judgment response only discussed the cancellation of the certificate of partnership.
Accordingly, the theory that Gilmore’s withdrawal as general partner caused the
dissolution of Sherwood Pines has not been preserved for appellate review. See
McConnell, 858 S.W.2d at 341.
All parties agree that because Sherwood Pines was formed prior to the
adoption of the Texas Business Organizations Code, it was governed by the Texas
Revised Limited Partnership Act (RLPA). See TEX. REV. CIV. STAT. art. 6132a-1,
Act of May 31, 1993, 73rd Leg., R.S., ch. 917m § 8, 1993 Tex. Gen Laws 3887,
3915–16 (expired Jan. 1, 2010).
When statutory language is unambiguous, we interpret it according to its
plain meaning. See, e.g., State ex rel. State Dep’t of Highways & Pub. Transp. v.
Gonzales, 82 S.W.3d 322, 327 (Tex. 2002). The RLPA required a limited
14 partnership to file a periodic report to the secretary of state in order to maintain the
right to transact business. See RLPA § 13.05. Failing to file the report when due
led to a forfeiture of the right to transact business, but that forfeiture did not
“impair the validity of a contract or act of the limited partnership.” Id. § 13.06(c).
The right to transact business could be restored if the partnership filed the required
report and paid the required fee. Id. § 13.07. Upon cancellation of the limited
partnership’s certificate, the status of the limited partnership was changed to
inactive in the records of the secretary of state, and active status similarly could be
revived by filing the report and associated fees. See id. §§ 13.08–09.
The appellants argue that the RLPA’s language regarding the “right to
transact business” precluded Sherwood Pines from entering into a new contract to
assign its rights as holder of the wraparound note. However, this is contrary to the
plain language of the statute, which stated that the forfeiture of the right to transact
business “does not impair the validity of a contract or act of the limited
partnership.” Id. § 13.06(c). Under the terms of the statute, the forfeiture of the
right to transact business only prevented the partnership from maintaining an
action, suit, or proceeding in the courts, and it did not prevent the partnership from
forming new, valid contracts. Id.
Section 13.06 does not aid the appellants’ argument regarding the non-
existence of the partnership either. Dissolution of a limited partnership was
15 governed by Section 8.01 of the RLPA, which provided for dissolution only on the
occurrence of events specified in the partnership agreement, written consent of all
partners, judicial decree, or the withdrawal of a general partner (unless the
partnership agreement permitted otherwise or the remaining general partners
agreed in writing to continue). RLPA § 8.01; cf. Collin County v. Hixon Family
Partnership, Ltd., 365 S.W.3d 860, 868 & n.4 (Tex. App.—Dallas 2012, pet.
denied) (holding that partnership was still in existence and capable of defending
suit under statute). Under the statute, neither forfeiture of the right to do business
nor cancellation of the partnership certificate results in dissolution of the
partnership. RLPA §§ 13.06–.09. As stated above, the appellants waived their
argument regarding withdrawal of a general partner by failing to raise it in the trial
court. See TEX. R. CIV. P. 166a(c); McConnell, 858 S.W.2d at 341. Accordingly,
we conclude that Sherwood Pines was a legal entity at the time of the wraparound
note’s creation, and the contract was not invalidated due to the invalidation of its
certificate of partnership.
B. Sherwood Lane’s ownership of note
As noted above, the appellants failed to preserve their evidentiary objections
to the form of the affidavits accompanying Sherwood Lane’s motion for summary
judgment. See Vice, 318 S.W.3d at 11. The affidavits executed by Gilmore and the
representative from Lee Wallis and the attachments to these affidavits established
16 the endorsement of the note from Sherwood Pines to Lee Wallis, and finally to
Sherwood Lane. The appellants argue that the wraparound note was incomplete
when endorsed, but they did not submit any summary-judgment evidence to
support this claim or controvert Sherwood Lane’s evidence of endorsement.
Accordingly, we conclude that the affidavits establish that Sherwood Lane was the
lawful owner and holder of the note. See McLernon, 347 S.W.3d at 324; cf.
Blankenship, 899 S.W.2d at 238.
The appellants contend that Sherwood Lane could not have the status of
holder in due course. A holder in due course is a holder who takes the instrument
(1) for value, (2) in good faith, (3) without notice that the instrument is overdue or
has been dishonored, (4) without notice that the instrument contains an
unauthorized signature or has been altered, (5) without notice of any claim to the
instrument, and (6) without notice that any party has an affirmative defense or
claim in recoupment. See TEX. BUS. & COM. CODE § 3.302. A holder in due course
can enforce a note subject only to the defenses of infancy, duress, fraud that
induced the obligor to sign the instrument with neither knowledge nor reasonable
opportunity to learn its character or essential terms, or discharge in insolvency. See
id. § 3.305. In other words, a holder in due course can enforce a note without being
subject to contract defenses such as fraudulent inducement. See Strickland v.
Coleman, 824 S.W.2d 188, 192 (Tex. App.—Houston [1st Dist.] 1991, no writ).
17 Sherwood Lane does not deny that it had notice of the appellants’ prior
default, and thus it was not a holder in due course, but merely a holder of the note.
As holder, Sherwood Lane was still able to enforce the note, albeit subject to the
defenses that would be available for a simple contract. See id.
Because the evidence established that Sherwood Lane was the legal owner
and holder of the note, we overrule the appellants’ third issue.
IV. Statute of limitations
In their fourth issue, the appellants argue that Sherwood Lane was barred
from suit by Texas Property Code section 51.003, the statute of limitations for a
deficiency judgment. The appellants assert that the foreclosure of the underlying
property created a deficiency in the overall indebtedness secured by the real
property, and that this renders Sherwood Lane’s suit a deficiency claim which
needed to be brought within two years of foreclosure, making the deadline for
filing April 10, 2012. Sherwood Lane responds that this case should be governed
by Texas Business and Commerce Code section 3.118 as a standard suit on a
promissory note, making the relevant statute of limitations six years from the date
the note was overdue. Sherwood Lane asserts the note became overdue on June 1,
2011, making the deadline for filing June 1, 2017.
The relevant portion of Section 51.003 provides:
If the price at which real property is sold at a foreclosure sale under Section 51.002 is less than the unpaid balance of the indebtedness
18 secured by the real property, resulting in a deficiency, any action brought to recover the deficiency must be brought within two years of the foreclosure sale and is governed by this section.
TEX. PROP. CODE § 51.003(a). The Supreme Court of Texas has interpreted this
statute as follows:
Read as a whole and in context with the remainder of § 51.003, § 51.003(a) provides that whenever a borrower is sued after real property is sold at a foreclosure sale as permitted by and described in § 51.002, and judgment is sought against the borrower because the foreclosure sales price is less than the amount owed, then (1) the suit is for a “deficiency judgment,” (2) the suit must be brought within two years of the foreclosure sale, and (3) the suit is governed by § 51.003.
PlainsCapital Bank v. Martin, 459 S.W.3d 550, 555 (Tex. 2015).
In Mays v. Bank One, N.A., 150 S.W.3d 897 (Tex. App.—Dallas 2004, no
pet.), the appellant executed two different promissory notes to different lenders.
Mays, 150 S.W.3d at 898. When the appellant defaulted, the senior lienholder
foreclosed, but it was only able to satisfy the first debt. Id. No proceeds were left
for the junior lienholder, so that holder sued for the value of its promissory note.
Id. The appellant aimed to use the property’s fair market value to offset the
claimed deficiency under Texas Property Code section 51.005, which only applies
after a foreclosure sale results in a deficiency. See id. at 899; TEX. PROP. CODE §
51.005. However, the court found the statute inapplicable, noting that “the only
foreclosure was of the lien held by” the senior lienholder. Mays, 150 S.W.3d at
19 900. Because the second lien remained wholly unsatisfied and the second lien was
extinguished by the foreclosure, the court held that the statute did not apply. Id.
The factual situation in this case is similar to the one in Mays. Here, the
senior lienholder, who had possession of the wrapped note, foreclosed on the lien
after appellants defaulted on their obligations to both notes, leading to Lee Wallis’s
default on the wrapped note. However, the proceeds of that sale did not satisfy any
of the debt from the junior lien, the wraparound note at issue in this suit. Just as
there was no foreclosure by the junior lienholder in Mays, so was there no
foreclosure by Sherwood Lane in the instant case. See id.
We conclude that the statute of limitations for deficiency judgments is
similarly inapplicable. While Mays dealt with a different subsection of the Property
Code, we aim to harmonize the provisions in any statute and assign an undefined
statutory term a meaning that is consistent throughout. See Tex. Dep’t of Transp. v.
Needham, 82 S.W.3d 314, 318 (Tex. 2002). Mays’s interpretation of the statute is
thus relevant to our interpretation of section 51.003. Based on this analysis and the
plain language of the statute, we conclude that Sherwood Lane was not seeking a
deficiency judgment when it sued on the promissory note, and it was not subject to
the statute of limitations for deficiency judgments. See TEX. PROP. CODE § 51.003;
PlainsCapital Bank, 459 S.W.3d at 555; Mays, 150 S.W.3d at 900.
20 The appellants attempt to distinguish Mays on the basis that it dealt with a
different subsection of the Property Code. Mays, 150 S.W.3d at 900. However,
Mays is factually similar and contains a relevant interpretation of what is and is not
considered a deficiency after foreclosure under section 51.002 of the Property
Code, which is also the basis of deficiency judgments under section 51.003. See id.
at 899–900; see also TEX. PROP. CODE §§ 51.002–.003.
Sherwood Lane asserts that section 3.118 of the Texas Business and
Commerce Code was the appropriate statute of limitations. We agree.
Section 3.118 states that an action to enforce a promissory note “must be
commenced within six years after the due date . . . stated in the note, or if a due
date is accelerated, within six years after the accelerated due date.” TEX. BUS. &
COM. CODE § 3.118(a). The due date stated in the wraparound note was June 1,
2011. This means that the statute of limitations for this case was June 1, 2017,
because there is no evidence that the note was accelerated. Sherwood Lane filed
suit on June 5, 2014, which was within the statute of limitations. See id.
We overrule appellants’ fourth issue.
V. Affirmative defenses
The appellants raised the affirmative defenses of fraud, fraudulent
inducement, and fraud in a real estate transaction. In their fifth issue, they claim
that this created a question of material fact that should have barred summary
21 judgment. When a defendant wishes to assert an affirmative defense to defeat
summary judgment on the plaintiff’s claim, he must present sufficient evidence to
create a fact issue on each element. See Brownlee v. Brownlee, 665 S.W.2d 111,
112 (Tex. 1984); Anglo–Dutch Petroleum Int’l, Inc. v. Haskell, 193 S.W.3d 87, 95
(Tex. App.—Houston [1st Dist.] 2006, pet. denied).
The appellants argue that Sherwood Pines made misrepresentations that the
promissory note holder would not have recourse to them personally, and that this
constituted fraudulent inducement because they would not have signed the note if
they knew they would be personally liable. Sherwood Lane responds that the terms
of the note contradicted any oral representations. The note also included a merger
clause expressly disavowing such representations, which prevented the appellants
from justifiably relying on alleged extra-contractual representations.
To prevail on a defense of fraudulent inducement, a party must establish the
elements of fraud “as they relate to an agreement between the parties.” Haase v.
Glazner, 62 S.W.3d 795, 798–99 (Tex. 2001). Fraud requires “a material
misrepresentation, which was false, and which was either known to be false when
made or was asserted without knowledge of its truth, which was intended to be
acted upon, which was relied upon, and which caused injury.” Formosa Plastics
Corp. USA v. Presidio Eng’rs and Contractors, Inc., 960 S.W.2d 41, 47 (Tex.
22 1998) (quoting Sears, Roebuck & Co. v. Meadows, 877 S.W.2d 281, 282 (Tex.
1994)).
The “recipient of a fraudulent misrepresentation is not justified in relying
upon its truth if he knows that it is false or its falsity is obvious to him.” Nat’l
Prop. Holdings, L.P. v. Westergren, 453 S.W.3d 419, 425 (Tex. 2015) (quoting
Restatement (Second) of Torts § 541 (1977)). A failure to exercise reasonable
diligence to review a written agreement that directly contradicts an oral
representation can render reliance on the oral representations unjustifiable. See id.
at 424; Miller Global Props., LLC v. Marriott Int’l Inc., 418 S.W.3d 342, 350
(Tex. App.—Dallas 2013, pet. denied).
The Supreme Court of Texas has held that this is particularly true when the
only alleged fraudulent inducement is “a representation to a maker, or surety, by
the payee that he will not be liable.” Town N. Nat. Bank v. Broaddus, 569 S.W.2d
489, 491 (Tex. 1978). When the alleged fraudulent inducement is a representation
that the maker would not be liable on the note, there must be “a showing of some
type of trickery, artifice, or device employed by the payee in addition to the
showing that the payee represented to the maker he would not be liable on such
note.” Id. at 494.
Without such evidence of trickery, the parol evidence rule operates to
exclude evidence of prior representations that a maker would not be liable on a
23 promissory note, even for tort claims such as fraudulent inducement. See id. at 491.
The parol evidence rule is a rule of substantive law that bars a court from
considering evidence that violates it, even if that evidence is admitted without
objection. Hubacek v. Ennis State Bank, 159 Tex. 166, 317 S.W.2d 30, 32 (1958);
Jarvis v. K & E Re One, LLC, 390 S.W.3d 631, 638 (Tex. App.—Dallas 2011, no
pet.).
In this case, the appellants’ evidence of fraudulent inducement was
presented through affidavits from the makers, an affidavit from the broker who
represented them, and a copy of the sales contract that was executed at the same
time as the note. The appellants claim that this extrinsic evidence raises an issue of
material fact as to whether they would be personally liable on the note. However,
as established in Broaddus, that extrinsic evidence is barred by the parol evidence
rule. See 569 S.W.2d at 491. The appellants have not brought forward any
evidence of “trickery, artifice, or device” in addition to the alleged oral
misrepresentation that would allow the trial court to consider that extrinsic
evidence. Id.
Sherwood Lane did not preserve its objection to the affidavits and sales
contract by obtaining a ruling from the trial court. See Grand Prairie Indep. Sch.
Dist. v. Vaughan, 792 S.W.2d 944, 945 (Tex. 1990); Hung Tan Phan v. An Dinh
Le, 426 S.W.3d 786, 792 (Tex. App.—Houston [1st Dist.] 2012, no pet.).
24 However, because the parol evidence rule is a substantive rule rather than one of
form, we nevertheless may consider it on appeal. See Hubacek, 317 S.W.2d at 32.
Accordingly, we conclude that the appellants’ evidence of an alleged
misrepresentation that they would not be liable on the note was parol evidence that
was inadmissible as a matter of law. See Broaddus, 569 S.W.2d at 491. Without
this evidence, the appellants have not raised an issue of material fact regarding
their alleged affirmative defenses of fraud, fraudulent inducement, and fraud in a
real estate transaction. See Brownlee, 665 S.W.2d at 112.
We overrule the appellants’ fifth issue.
Conclusion
We conclude that there was sufficient summary-judgment evidence to
establish Sherwood Lane’s right to summary judgment as a matter of law. We
affirm the judgment of the trial court.
Michael Massengale Justice
Panel consists of Justices Jennings, Massengale, and Huddle.