Shenandoah Associates v. J & K Properties, Inc.

741 S.W.2d 470, 1987 Tex. App. LEXIS 8870, 1987 WL 20576

• Court: Court of Appeals of Texas
• Decided: October 6, 1987
• Docket: 05-85-00629-CV
• Status: Published

Opinions

STEPHENS, Justice.

This multiple-party suit was brought by Shenandoah Associates, the dissatisfied purchaser of a mobile home park in Odessa, Texas. Shenandoah seeks rescission and damages under the Texas Deceptive Trade Practices Act of the Business and Commerce Code as amended in 1979. After a jury trial of several weeks, and the submission of several hundred special issues, the trial court entered its judgment rescinding the sale of the park from J & K to Shenandoah, yet charging Shenandoah with liability for the unpaid balances of the first and second mortgages, and awarding attorney’s fees against Shenandoah for having brought its suit in bad faith and for the purposes of harrassment against all defendants except J & K.

On appeal, Shenandoah presents twelve points of error for our consideration. J & K Properties, Inc., a co-appellant, presents seven points of error, and Home Savings Association, Family Development Corporation, A-l Inc., and John Bushman, appel-lees, present one cross-point. We agree with Shenandoah’s points of error number one, and number six, and we agree with J & K’s point of error number one, accordingly, we reverse the judgment of the trial court and remand the case for a new trial.

CHRONOLOGY OF FACTS

In 1982 J & K held legal title to the park, encumbered by a first mortgage of $830,-000.00, in favor of Home Savings. This note was guaranteed by Bill J. Jacobson, President of J & K. Coupled with the loan, J & K had granted an exclusive sales contract to Family Development for sale of the park. At the time of this transaction, John Bushman solely owned Home Savings and A-l Inc., and Home Savings was the sole owner of Family Development.

Later in 1982, negotiations for the sale of the park began between J & K and Steven K. Babbidge & Associates. These negotiations fell through in December 1982. Later negotiations began between Bushman’s group and Babbidge without the participation of J & K. These negotiations resulted ina sale of the park to Babbidge, or its nominee, and at closing, January 4, 1983, Shenandoah, Babbidge’s nominee, became the title holder of the park.

The sale was consummated by the payment of $135,000.00 in cash, the execution by Shenandoah of a six-months second lien note for $135,000.00 payable to J & K, which was simultaneously endorsed to Family Development, and the assumption by Shenandoah of the $830,000.00 note to Home.

Some time after closing, and after Shenandoah occupied the property, difficulties arose between the parties resulting in this suit. Prior to the filing of the suit, J & K filed for bankruptcy; however, before the trial of the case, the automatic stay afforded J & K by the bankruptcy filing, was lifted by the Federal Court.

TRIAL COURT’S JUDGMENT

The trial court’s final judgment is paraphrased as follows:

1. A-l Inc., Home Savings, and Bushman were awarded a take-nothing judgment as to Shenandoah.

2. A-l Inc., was awarded judgment against Shenandoah for: (a) attorney’s fees of $173,003.00, expenses of $10,-852.81; (b) if appealed to this court, an additional $27,000.00 attorney’s fees, and an additional $5,000.00 expenses; and (c) if appealed to the Texas Supreme Court, an additional $13,500.00 as attorney’s fees, and an additional $2,500.00 as expenses.

3. Bushman was awarded the same judgment against Shenandoah as was A-l Inc.

4. Home Savings was awarded judgment against Shenandoah for $893,-047.35, as the sum due on the principal and interest of the note through August 1, 1984, together with pre-judgment and post judgment interest on the principal balance of the note, together with foreclosure of its lien on the park, together with a money judgment for any deficiency resulting from the sale of the property, and ordering reimbursement to Shenandoah for any excess of the sale over the debt. Home, additionally, was awarded the same sum as was awarded A-l Inc., and Bushman, for its attorney’s fees and expenses.

5. Family Development was awarded judgment against Shenandoah for $155,240.32 on its note through August 1, 1984, together with pre-judgment and post-judgment interest on the balance of its $135,000.00 note. Additionally, Family was awarded foreclosure of its lien and a money judgment against Shenandoah for any deficiency resulting from the sale, and likewise ordering the payment of any excess received from the sale to Shenandoah. Family was also awarded judgment against Shenandoah for its attorney’s fees of $179,603.00, together with its expenses of $52,325.14, and the additional sums of $27,000.00 and $13,-500.00, together with $5,000.00 and $2,500.00 respectively for attorney’s fees and expenses in the event of an appeal.

6. Shenandoah was awarded judgment against J & K rescinding:

(a) Sale of the mobile home park.

(b) Sale of certain personalty contemporaneously made with the sale of the park.

(c) Assignment of certain leases coupled with the sale of the park.

(d) Assignment of warranties coupled with the sale of the park.

(e) An agreement between J & K, Bill Jacobson and Shenandoah.

7. Bushman and J & K were also awarded post-judgment interest of 10% on their attorney’s fees and expenses awards.

8. Court costs were taxed 80% against Shenandoah and 20% against J & K.

SHENANDOAH’S CLAIMS

Shenandoah’s first point of error complains that the trial court erred by granting partial rescission of the sale of the park instead of full rescission, and by not placing all the parties in the status quo, because partial rescission, not recognized under Texas law, leaves the Bushman group with all the benefits of the transaction.

Shenandoah argues that the rescission is not complete because it still requires Shenandoah to pay $830,000 evidenced by the assumption agreement and the second lien promissory note for $135,000.

RESCISSION

Rescission is an equitable remedy that may be granted upon certain grounds, such as fraud. Boyter v. MCR Construction Co., 673 S.W.2d 938, 941 (Tex.App.—Dallas 1984, writ ref’d n.r.e.). The defrauded purchaser is put to an election whether he will keep the property and recover damages, or rescind the sale and return the property while recovering the value he has parted with. O’Con v. Hightower, 268 S.W.2d 321, 322 (Tex.Civ.App.—San Antonio 1954, writ ref’d). This court in Boyter set out the prerequisites to the granting of rescission:

To be entitled to the equitable remedy of rescission, however, a party must show either (1) that he and the other party are in the status quo, i.e., that he is not retaining benefits received under the instrument without restoration to the other party, Texas Co. v. State, 154 Tex. 494, 281 S.W.2d 83, 91 (1955); Freyer v. Michels, 360 S.W.2d 559, 562 (Tex.Civ.App.—Dallas 1962, writ dism’d), or (2) that there are special equitable considerations that obviate the need for the parties to be in the status quo, Turner v. Agricultural Credit Corp., 601 S.W.2d 61, 65 (Tex.Civ.App.—Houston [1st Dist.] 1980, writ ref’d n.r.e.); see also Texas Employers Insurance Association v. Kennedy, 135 Tex. 486, 143 S.W.2d 583, 585 (1940).

Boyter, 673 S.W.2d at 941.

Shenandoah complains that the court’s judgment requiring it to give up the property, but to continue to pay on the assumption agreement of the first lien note and to pay the second lien note constitutes a partial rescission.

A down-payment of $270,000 was required to purchase the Park. On January 4, 1983, at closing, Shenandoah paid $135,-000 in cash and signed a promissory note payable to J & K secured by a second lien deed of trust in which it unconditionally promised to pay J & K $135,000. The second lien deed of trust specifically states that the noté “represents a portion of the consideration ... for the purchase of the property” described in the deed. Simultaneously with closing, the second lien note was endorsed by J & K, stating that it did “sell, transfer, assign and set over the within note together with all liens securing same to Family Development” with recourse. When the trial court granted the rescission of the sale of the property to Shenandoah, it should have cancelled Shenandoah’s indebtedness on the second lien note, to return the parties to the status quo. See Boyter, 673 S.W.2d at 941. This lien is an indivisible part of the contract for the purchase of the Park; the rescission without cancellation of the note constitutes a prohibited “partial rescission.” Raney, 504 S.W.2d at 534. Having elected to sue for rescission, Shenandoah should have recovered the value it parted with. O’Con, 268 S.W.2d at 322.

In addition to the cash payment and the execution of the second lien note, Shenandoah assumed the unpaid balance of the original first lien note in the amount of $830,000.00, as a part of the consideration of the sale. Generally, an assumption agreement in a deed of conveyance creates a new contract under which the one making the assumption becomes the principal obli-gor and the original maker becomes the surety. Straus v. Brooks, 136 Tex. 141, 148 S.W.2d 393, 396 (Tex.Com.App.1941). The agreement is an unconditional contract within itself; an unconditional promise to pay the debt. See Barber v. Federal Land Bank, 204 S.W.2d 74, 78 (Tex.Civ.App.—Texarkana 1947, writ ref’d n.r.e.). The promisor has made the debt his own, has become primarily liable for its discharge, and has assumed an independent duty of payment, irrespective of the liability of the principal debtor. Id. However, when the assumption of an agreement is a part of the consideration of the underlying contract, the cancellation and rescission of the underlying contract creates a demand that equity be performed by cancelling the assumption agreement. When the equitable relief of rescission is granted the original status of the parties must be restored. See Texas Co. v. State, 154 Tex. 494, 281 S.W.2d 83, 91 (1955); Boyter, 673 S.W.2d 941; Proctor v. Green, 673 S.W.2d 390, 393 (Tex.App.—Houston [1st Dist.] 1984, no writ).

A recognized exception to this rule is when the purchaser terminates the contract and the court has examined the circumstances and determined that it would be more equitable to grant the recission without the complete or partial restoration of the consideration received by the purchaser while in possession of the purchased item. See Boyter, 673 S.W.2d at 941; Turner v. Houston Agricultural Credit Corp., 601 S.W.2d 61, 65 (Tex.Civ.App.—Houston [1st Dist.] 1980, writ ref d n.r.e.). We hold that the trial court properly considered the circumstances of this case and found it was more equitable not to require Shenandoah to return to J & K the rental payments and other monies obtained while it was in control of the property.

The trial court granted Shenandoah’s request for the equitable relief of rescission; therefore, it follows, and equity dictates, that the Shenandoah should be returned to the status quo by requiring J & K to return the rescinded sales agreement purchase money in the sum of $135,000.00, by cancelling the second lien note of $135,000, and by cancelling Shenandoah’s assumption agreement of the original loan. Shenandoah’s first point of error is granted.

Shenandoah frames its second point of error as follows:

There being no finding by the trial court in the one final judgment required by law that this action was groundless and brought in bad faith, or brought for the purpose of harassment, the trial court erred in rendering judgment against Shenandoah for the Defendants’ attorney’s fees and court costs.

The facts giving rise to this cause of action occurred after the 1979 amendment ot § 17.50(c) of the Texas Deceptive Trade Practices Act which states:

(c) On a finding by the court that an action under this section was groundless and brought in bad faith, or brought for the purposes of harassment, the court shall award the defendant reasonable and necessary attorney’s fees and court costs.

TEX.BUS. & COM.CODE ANN. § 17.50(c) (Vernon Supp.1986).

Prior to the 1979 amendment, the courts consistently construed section 17.50(c) to require a jury finding of bad faith or harassment and a court finding of ground-lessness. Computer Business Services, Inc. v. West, 627 S.W.2d 759, 761 (Tex.App.—Tyler 1981, writ ref’d n.r.e.); Brunstetter v. Southern, 619 S.W.2d 557, 560 (Tex. Civ.App. — San Antonio 1981, writ ref’d n.r. e.); Genico Distributors, Inc. v. First National Bank, 616 S.W.2d 418, 420 (Tex.Civ.App.—Texarkana 1981, writ ref’d n.r.e.). However, in Leissner v. Schott, 668 S.W.2d 686 (Tex.1984) a case arising after the 1979 amendment, the jury found no violation of the Deceptive Trade Practice Act, but did find that the suit was brought in bad faith and for purposes of harassment. The trial court refused to award attorney’s fees because the court did not find the suit to be groundless. On appeal, the Court of Appeals construed the amended act to allow fees based on (a) a finding of harassment, or (b) a finding that the suit was groundless and brought in bad faith. Because there was a jury finding of harassment, the Court of Appeals awarded attorney’s fees. On review by the Supreme Court, the Court of Appeals decision was upheld, although the Supreme Court declined to decide the question of whether the Court of Appeals was correct in its interpretation that issues of bad faith and harassment are for the jury, and reserved judgment on the issue of whether section 17.50(c) requires the trial court to make all the necessary findings. Likewise, in Wickersham Ford, Inc. v. Orange County, 701 S.W.2d 344, 350 (Tex.App.—Beaumont 1985, no writ), an award of attorney’s fees based solely on a jury finding of harassment was upheld. In the case at bar, the jury did specifically find that Shenandoah’s suits against all appel-lees were brought in bad faith and for the purpose of harassment. Under Leissner v. Schott, 668 S.W.2d at 686 a jury finding of harassment alone is enough to entitle a defendant to an award of attorney’s fees under section 17.50(c).

Furthermore, as to Shenandoah’s argument that attorney’s fees were improperly awarded, findings of fact and conclusions of law concerning the award of attorney’s fees were neither requested nor entered. Shenandoah argues that it was not required to request findings of fact and conclusions of law since the trial was by jury. Ordinarily this is correct. However, the parties and attorneys all agreed to an order that “the fact issues of reasonable and necessary attorney’s fees and expenses incurred in prosecuting or defending these actions and counterclaims, including representation at various appellate court levels, shall be tried to the court in a separate trial, such trial to be set by the court.” (emphasis added). Such a trial was held by the court on the issue of attorney’s fees, therefore, since Shenandoah failed to request any findings of fact or conclusions of law on the separate attorney’s fees trial to the judge, the trial court judgment implies all necessary fact-findings in support of its judgment. Rosestone Properties, Inc. v. Schliemann, 662 S.W.2d 49, 51 (Tex.App.—San Antonio 1983, writ ref’d n.r.e.). The trial court did award attorney's fees in its judgment. All findings of fact and conclusions of law necessary to uphold the attorney's fees award are therefore deemed in favor of the judgment. Shenandoah’s second point of error is overruled.

In point of error number six, Shenandoah complains that testimony by an expert witness far exceeded the boundaries of a pretrial order, which limited the expert’s testimony to reasonable attorney’s fees and the amount of damages. Shenandoah asserts that the testimony was prejudicial because, contrary to the court’s order, the witness testified freely concerning the reliance of the parties on certain documents, proper documents for a closing, the lack of certain documents at the closing, the generally accepted interpretation of documents and their meanings, whether the attorney for Shenandoah acted with propriety, and the witness also interpreted the Canons of Ethics. These were only a few of the areas of dispute on which the witness testified. We are mindful of the general proposition that the determination of the admissibility of opinion testimony is a matter within the sound discretion of the trial court, which will not be disturbed on appeal absent a showing of abuse. UMC, Inc. v. Coonrod Electric Co., 667 S.W.2d 549, 559 (Tex.App.—Corpus Christi 1983, writ ref’d n.r.e.). However, we are of the opinion that in light of the complexity of the case before us, admission of the testimony of this particular witness, far in excess of the limitations placed upon him by the trial court’s pretrial order, was highly prejudicial and the trial court abused its discretion by admitting such testimony. Appellee argues correctly that if the improper evidence given by the witness is supported by other evidence in the case, admitted without objection, or of the same character or effect, adduced or elicited by the complaining party, the error is harmless, Drake v. Walls, 348 S.W.2d 62, 69 (Tex.Civ.App.—Dallas 1961, writ ref d n.r.e.); see Missouri-Kansas-Texas Railroad Co. v. Shelton, 383 S.W.2d 842, 848 (Tex.Civ.App.—Dallas 1964, writ ref’d n.r.e.), cert. denied 382 U.S. 845, 86 S.Ct. 54, 15 L.Ed.2d 85 (1965); City of Houston v. Howe & Wise, 323 S.W.2d 134, 138 (Tex.Civ.App.—Houston 1959, writ ref d n.r.e.). See Richardson v. Green, 677 S.W.2d 497, 501 (Tex.1984); Columbia Engineering International, Ltd. v. Dorman, 602 S.W.2d 72, 77 (Tex.Civ.App.—Beaumont 1980, writ ref’d n.r.e.). However, appellee has not pointed out to this court what other evidence, properly admitted, would justify a finding that the testimony of this witness was harmless, and we decline to search the thirty eight hundred pages of testimony to attempt to find such other evidence. Appellant’s sixth point of error is sustained.

J & K’s CLAIMS

J & K first contends that the trial court erred by admitting into evidence, depositions that were taken without notice to J & K. Notice was only given to A-l.

Texas Rule of Civil Procedure 200(2) states the notice requirements for an oral deposition:

2. Notice of Examination: General Requirements; Notice of Deposition of Organization.

a. Reasonable notice must be served in writing by the party, or his attorney, proposing to take a deposition upon oral examination, to every other party or his attorney of record_

[Emphasis added.] When other parties are not given notice of the deposition, an “ex parte” deposition is not admissible. See Reilly v. Buster, 125 Tex. 323, 82 S.W.2d 931, 933 (1935); Woodall v. Adams, 7 S.W. 2d 922, 925 (Tex.Civ.App. — Galveston 1928, no writ); see also Pouncy v. Garner, 626 S.W.2d 337, 344 (Tex.App.—Tyler 1981, writ ref’d n.r.e.).

In the present case, the trial court entered an interlocutory default judgment against J & K and the other defendants, on November 23, 1983, which: (1) rescinded the sales contract; (2) set aside the general warranty deed and bill of sale; (3) can-celled the $135,000 promissory note and second lien deed of trust; (4) cancelled the assumption agreement; and (5) ordered Shenandoah to reconvey the property to the defendants “upon receipt of the restitution and incidental damages hereafter ordered to be paid Plaintiff, by this Court.” The court stated that a hearing would be held to determine the amount of damages to be paid to Shenandoah. Clearly, this interlocutory default judgment only determined J & K’s liability to Shenandoah; the issue of damages was not answered. Therefore, J & K should have been given notice of the taking of depositions since it is a party to the suit in which damages were yet to be determined.

J & K objects to the admission of the deposition testimony of Steve Brindle, Stanley Black, Stephen Babbidge, Michael Jackson, and Geno Olivas. (The other depositions cited by J & K in its brief were never read into evidence and, therefore, are not crucial.) At trial, the depositions of Jackson and Olivas were read into the record without J & K asserting its notice objection. After half of Brindle’s deposition had been read into the record, J & K presented its objection for lack of notice. The trial court ruled that the objection was untimely as it applied to the depositions that had already been read into the record, but stated:

The objection insofar as it relates to use of depositions to prove liability and not damages is overruled inasmuch as at the time the depositions were taken, liability had been determined by default judgment against J & K Properties, Incorporated, and when the Court vacated interlocutory default judgment the day before trial commenced J & K Properties, Incorporated, withdrew its motion for continuance, which would have been the proper remedy to allow the retaking of the depositions.

As to the objection insofar as it relates to use of depositions or portions thereof not yet read before the jury and insofar as they relate to the issue of damages against J & K Properties, Incorporated, the Court takes that under advisement and carries it and will make a decision later on that issue.

You’ve preserved your objection on the record as to all portions not yet read, any portion read will be read over your objection, over your motion to strike. If the Court determines that you are correct, it will take such action as necessary later in the trial or after the verdict to prevent any harm with respect to damages.

The court made no further ruling on the admissibility of the depositions as they relate to the issue of damages.

J & K re-urged its objection to the remainder of Brindle’s deposition and to the depositions of Black and Babbidge. Upon reviewing the depositions that were admitted into evidence without objection and those that were admitted over objection, we find damaging evidence that was admitted before the jury that is not “offset” by properly admitted deposition testimony. See Richardson, 677 S.W.2d at 501. (eg. Brindle had testified about defectively built septic tanks before the objection, and continued to testify concerning various other defective septic tanks after the objection. Brindle then went on to describe defective water lines. Black testified that he was in charge of collecting rent, maintenance, and leasing. He stated that the rent receipt books were “moderately” accurate; that the water lines were not properly attached at the faucets; and there was a great danger of the lines “breaking off at the main,” causing the water to be cut off for repairs “several times” due to this fault.)

We hold that the remaining portion of Brindle’s deposition and Black’s deposition were improperly admitted for purposes of determining damages after proper objection by J & K. Brindle and Black’s deposition testimony was damaging to J & K as it presented evidence of bad workmanship and improper bookkeeping that supports Shenandoah’s request for damages.

Having made the determination that this deposition testimony was improperly admitted, absent notice to J & K, and being unable to conclude that such admission was harmless error, we sustain J & K’s first point of error.

The judgment of the trial court is reversed, and the cause is remanded for a new trial.

Before STEPHENS, STEWART and ROW¹, JJ.