Nabours v. Longview Savings & Loan Ass'n

700 S.W.2d 901, 28 Tex. Sup. Ct. J. 571, 1985 Tex. LEXIS 1475

• Court: Texas Supreme Court
• Decided: July 17, 1985
• Docket: C-3476
• Status: Published

Opinions

GONZALEZ, Justice.

This controversy arose when Metropolitan Savings & Loan Association (now Long-view Savings & Loan Association) sought to foreclose on a vendor’s lien it held on the Nabours’ home. The Nabours sued to prevent the foreclosure and to recover damages. The jury found that Longview had waived its right to foreclose, that it had made false statements in connection with the foreclosure notices, and that it acted with malice. However, the jury found that the Nabours had suffered no actual damages. They did award punitive damages and attorney’s fees. The court of appeals, with one justice dissenting, affirmed the granting of the injunction by the trial court, but it reversed the judgment of the trial court as to the punitive damages and attorney’s fees. 673 S.W.2d 357 (Tex.App. 1984). We affirm the judgment of the court of appeals.

FACTS

The Nabours purchased a home from Alfred Burke in April, 1981. Mr. Burke’s home was subject to a lien and deed of trust held by Metropolitan. Those instruments contained the following provision:

The Grantors further agree that they will not make any voluntary inter vivos transfer of the premises or any part thereof without first obtaining the written consent of the mortgagee. Any such transfer, if the mortgagee shall not so consent, shall constitute a default under the terms of this instrument....

The Nabours intended to finance the purchase of the house with a “wrap-around” mortgage, rather than with an assumption of the obligation currently existing against the home. They requested Metropolitan’s consent to the sale. Metropolitan replied with a letter stating that consent would not be given without a satisfactory credit approval and assumption by the Nabours of Burke’s note. Burke’s attorney informed Metropolitan that the Nabours would not assume the existing loan.

Nabours had dealt with Metropolitan on one previous occasion. In April, 1980, Nab-ours purchased a house subject to a similar provision in a note and deed of trust held by Metropolitan. In that transaction Nab-ours was told by Terry Irick, a vice president of Metropolitan, that Metropolitan did not foreclose when consent clauses were violated and that any response by the association would merely be a formality. The day before the sale of the Burke house, however, Irick called Nabours and told him that he recommended that they not complete the sale. Nevertheless, the sale was closed on April 9, 1981. Thereafter, Burke made payments on the house for several months.

In August, 1981, Metropolitan posted foreclosure notices and filed statements of record. These statements were contained in a document entitled “Resignation of Trustee and Appointment of Substitute Trustee.” This document stated that Metropolitan held a promissory note executed by Alfred Burke, that the Nabours had assumed the note and that “default has occurred in the payment of said indebtedness.” The court of appeals states in its opinion that the representations of record stated that the Nabours had defaulted on their obligation by non-payment. In fact, the statement of record concerning default and non-payment is correct, since the due-on-sale clause was breached by Burke and the accelerated amount due under the note had not been paid by him. Therefore, the only false statement of record concerned the assumption of Burke’s obligation by the Nabours. In October, Nabours obtained a temporary injunction to prevent a forced sale of the house and this suit followed.

At trial, Nabours asserted that Longview was guilty of common law fraud, violations of the Deceptive Trade Practices Act, and that it had waived its right to foreclose. The jury found that the Nabours had suffered no actual damages, but awarded $126,200 in punitive damages in addition to attorney’s fees. The trial court made permanent the temporary injunction prohibiting Metropolitan from foreclosing on the Nabours’ house for violation of the consent clause, and rendered judgment against Metropolitan for the punitive damages found by the jury and attorney’s fees.

The court of appeals affirmed the granting of the injunction, held that the Nabours were not consumers under the Deceptive Trade Practices Act and reversed the judgment of the trial court as to punitive damages.

PUNITIVE DAMAGES

The Nabours assert that the award of equitable relief against Metropolitan and the existence of evidence in the record of actual damage is sufficient to justify the award of punitive damages in this case. We disagree.

This court has faced a similar situation twice in the recent past. In Doubleday & Company, Inc., v. Dr. N. Jay Rogers, 674 S.W.2d 751 (Tex.1984), the defendant committed libel against Dr. Rogers.. The jury found no actual damages yet awarded punitive damages. Dr. Rogers argued that he needed only show that he was entitled to actual damages. Because actual damages were to be presumed in a libel case, he argued that it was not necessary that he actually recover any actual damages. The theory advanced by Dr. Rogers relied upon presumed harm to support the award of punitive damages. The Nabours are forced to rely on the same theory of presumed harm, since the jury found that no actual damage existed. In Doubleday, the contention that presumed harm was sufficient was rejected by the court, which stated that “[t]he Texas cases are unanimous in holding that recovery of actual damages is prerequisite to receipt of exemplary damages.” Doubleday, 674 S.W.2d at 751. In Doubleday, the court also stated: “[pjuni-tive damages are not recoverable ... in the absence of a recovery of actual damages. This rule was most recently reaffirmed by this court in City Products Corp. v. Berman, 610 S.W.2d 446, 460 (Tex.1980).” Doubleday, Id at 753-4.

Even in cases where actual damages are not recoverable, it is still necessary to allege, prove and secure jury findings on the existence and amount of actual damage sufficient to support an award of punitive damage. Doubleday, 674 S.W.2d 754;¹ Berman, 610 S.W.2d at 450; Fort Worth Elevators Co. v. Russell, 123 Tex. 128, 70 S.W.2d 397, at 409 (1934); See also Burk Royalty v. Walls, 616 S.W.2d 911 (Tex.1981).

The operative facts in Berman are identical to those before the court today. In Berman, an injunction was granted against a lessor to enforce a lease. The jury awarded the plaintiff punitive damages, even though it found no actual damages. The court of appeals dissolved the injunction and disallowed the award of punitive damages. This court reinstated the injunction, but affirmed the court of appeals judgment as to punitive damages.

Despite the fact that the injunction existed and that the jury found by answer to special issues that the breach of the lease had “resulted in damage or injury” to the plaintiffs, the court denied the right to punitive damages. It stated that “[wjhen a distinct, wilful tort is alleged and proved in connection with a suit upon contract, one may recover punitive damages, but even in that instance the complainant must prove that he suffered some actual damages.” Berman, 610 S.W.2d at 450. The Berman court affirmed the reversal by the court of appeals of the award of punitive damages even though injunctive relief had also been granted.2

This result necessarily follows from the rule that punitive damages must bear a reasonable proportion to actual damages. Alamo National Bank v. Kraus, 616 S.W.2d 908 (Tex.1981); Southwestern Investment Co. v. Neeley, 452 S.W.2d 705 (Tex.1970). International Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567 (Tex.1963). The rule is not a rigid one, though, and its application is to be determined on an ad hoc basis by the facts of each case. No set ratio may be established to govern in all cases. Kraus, 616 S.W.2d at 910. It is only one of several factors to be considered in the determination of the appropriateness and reasonableness of an award of punitive damages. Kraus, 616 S.W.2d at 910; Neeley, 452 S.W.2d at 707. Further, the ratio serves as one gauge of the effect of bias, prejudice and passion on the jury. Nolan v. Bettis, 577 S.W.2d 551 (Tex.Civ.App. — Austin 1979, writ ref d n.r. e.).

There is another, and more basic, rule that requires actual damages to be found prior to an award of punitive damages. Punitive damages are recoverable only after proof of a distinct, wilful tort. Amoco Production Co. v. Alexander, 622 S.W.2d 563 (Tex.1981); City Products Corp. v. Berman, 610 S.W.2d 446 (Tex.1980). This requirement applies equally to actions arising out of tort or contract, or those seeking equitable relief. See Berman, 610 S.W.2d 446; Holloway, 368 S.W.2d 567. Punitive damages must be contingent on a finding of actual damage since actual damage is a necessary element of the underlying tort upon which the punitive damages are to be based.

The Nabours cite Fillion v. Troy, 656 S.W.2d 912 (Tex.App. — Houston [1st Dist.] 1983, writ ref d n.r.e.), in support of their position that a mere grant of an injunction will support an award of punitive damages. We do not agree. Fillion did not involve injunctive relief. Fillion involved a recission of conveyances fraudulently induced. As in other cases where equity requires the return of property, this “recovery of the consideration paid as a result of fraud constitutes actual damages and will serve as a basis for the recovery of exemplary damages.” Holloway, 368 S.W.2d at 568 (quoting from Briggs v. Rodriguez, 236 S.W.2d 510, 516 (Tex.Civ.App. — San Antonio 1951, writ ref’d n.r.e.).³ Further, the jury in Fillion made findings of the fair market value of the property returned to the plaintiff. Therefore, the Nabours reliance on Fillion is misplaced.

Our holding in this case should not be confused with an absolute refusal to allow punitive damages in a case where equitable relief is had. In fact, it is recognized that “Texas courts, contrary to what appears to be the majority rule, See 48 A.L.R.2d 947, 949, will not deny exemplary damages simply because an action is equitable, rather than legal.” Mack v. Newton, 737 F.2d 1343, 1363 (5th Cir.1984). Indeed, in the instant case the Nabours chose to seek actual damages only in the form of “loss of market value, if any, on the Plaintiffs home as a result of the conduct, if any, of the Defendant, Metropolitan Savings & Loan Association....” The jury returned an answer of “-0-” to the damage issue. Perhaps if the Nabours had not so limited the jury’s consideration of actual damages, an adequate damage finding would have been made.⁴

In the instant case there is no finding of actual damage by the jury to support an award of punitive damages. Therefore, the court of appeals properly reversed that portion of the judgment of the trial court.

DECEPTIVE TRADE PRACTICES ACT

The Nabours also assert that as a result of their attempts to influence Long-view Savings to give its written consent to the sale of the house by Burke, they were entitled to damages and attorney’s fees under the Deceptive Trade Practices Act. The court of appeals rejected this claim for attorney’s fees, holding that the Nabours were not “consumers” within the meaning of the Act. We need not address that question. The Nabours failed to recover statutory damages under the Deceptive Trade Practices Act. .Thus, they are not entitled recover attorney’s fees under the Act. Tex.Bus. & Comm.Code § 17.50; McKinley v. Drozd, 685 S.W.2d 7 (Tex.1985).

After an examination of the record, we have determined that there is legally sufficient evidence to support the jury answers to the waiver issues. We find no reversible error in this part of the court of appeals judgment.

The judgment of the court of appeals is affirmed.

KILGARLIN, SPEARS, RAY and ROBERTSON, JJ., dissenting.

1 . The dissent states that first amendment freedoms were decisive in Doubleday. Punitive damages are allowed in libel cases based upon the same rules governing all torts. This court stated that ‘‘[we] do not find it desirable to carve out of the settled rule an exception for libel cases.” Doubleday, 674 S.W.2d at 754. (emphasis added).

2 . The dissent claims Berman is meaningless because the writings of the court were not required by a point of error. It is true that the punitive damages issue was not raised on appeal. It was not addressed at all in the court of appeals opinion. In fact, the judgment of the court of appeals was correct on this point. The Berman court wrote in order to affirm the judgment of the court of appeals. The court deliberately addressed the issue of punitive damages under the facts presented. No other logical choice remains to explain the writings of the court. While the statements may have been gratuitous, they were meant to serve a purpose. Any gratuity ended, however, when City Products, Inc., a plaintiff, filed its motion for rehearing. It forcefully argued, in a brief solely devoted to that purpose, that the reinstatement of the injunction by this court also authorized the reinstatement of the punitive damage award incident thereto. The motion for rehearing was overruled by the court.

3 . The dissent ignores the fact that in every case where punitive damages have been allowed incident to equitable relief, the equitable relief has involved the return of property to the injured party. This is true in each of the cases cited by the dissent. See Holloway 368 S.W.2d at 582 ($228,900 recovered usurped corporate profits); Oliver v. Chapman, 15 Tex. 400 (1955) (annulment of certain real property conveyances); Fillion, 657 S.W.2d 912 (recission of deeds; jury finding as to fair market value of property restored to plaintiff); Russell v. Truitt, 554 S.W.2d 948 (Tex.Civ.App. — Fort Worth 1977, writ ref’d n.r.e.) (recovery of $8,000 in agency fees); Pollard v. El Paso National Bank, 343 S.W.2d 909 (Tex.Civ.App. — El Paso 1961, writ ref'd n.r.e.) (recission of fraudulently induced conveyance). The reliance by the dissent on the broad language of Holloway is misleading. The dissent has cited no case for the proposition that bare injunctive relief will support an award of punitive damages. The reasoning of Holloway requires that there be finding of actual damages or that some property be recovered to support the punitive damage award. See 368 S.W.2d at 583-4.

4 . The dissent raises visions of homeless families walking the streets because of a choice to pursue punitive damages rather than equitable relief. No such choice is imposed by this opinion. In the case at bar we are unable to ascertain whether the Nabours suffered any actual damages apart from lost market value of their house. Based upon the version of the facts argued by the dissent, the Nabours almost certainly suffered other damages. However, these damages were excluded from the jury’s consideration by the charge. Thus, the Nabours have forced this so-called “Hobson’s Choice" upon themselves.