1 ... S eeT EX . R. A PP . P. 47. 4. 

## COURT OF APPEALS SECOND DISTRICTOFTEXAS FORT WORTH
NO. 2 - 0 6 - 2 9 6 - CV
B OBAR L I NGT ON AP P E L L ANT V . D O U G M C C LUR E A PPELL EE

----- ----- -- FR O M THE 355TH DI STRI CT CO URT O F HO O D CO UN TY

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### M E M ORANDU M OP I NI ON 1

----- ----- -- Th i s i s a s ui ton a note. A p p e ll antBo b A r l i ngton appeal s f r om t he t r i al
cou rt ’ s j udgm entaw ar di ng Appel l eeD oug M cCl ur e t he pr i nc i p a l su m of $ 6 4 ,5 0 0 p lu s$ 1 1 2 ,4 0 3 .0 8 in in te re s t a n d $ 5 7 ,9 3 9 .6 2 in a tt o rn e y ’s fe e s . In
n in e is s u e s , A r lin g t o n a r g u e st h a tt h e t r ia l c o u rte r r e d b yre n d e r in g ju d g m e n tin f avo rofM cCl ur e b ec aus e ( 1) t he unde r l yi ng t r ans ac t i on w asan i l l ega l l oan f r om2

an ERI SA pl an; ( 2) t her e i s no no t e; ( 3) A r l i ngt on w as n o t t he m ak eroft he
n o te; ( 4 ) M c C l u re i s n o t t h e h o l d e r of the n o te; ( 5 ) n o th i n g i s o w e d o n the n o te bec aus e M cCl ur e p ai d of ft he bal anc e y ea r s a g o ; (6 ) t he su i ti s bar r ed by l i m i tati o n s; ( 7 ) i f t h e tr i a l co u rtb a se d i ts j u d g m e n t o n M c C l u re’s s u i t f o r de b t, i t e rre d b ys o d o i n g ; a n d (8 ) i f th e tri a l c o u rt b a s e d i ts j u d g m e n t o n M c C l u re ’s q u a n tu m m e ru i t c l a i m , i t e rre d b ys o d o i n g . W e a ffir m . F a c tu a la n d P ro c e d u ra lH i s to ry I n 199 9, A r l i ngt on, M cCl ur e, and M erv Reaga n agr ee d t o ac qui re an d dev el op r ea l pr ope rt y i n H ood C ount y. To t hi s end , t heyf or m ed a c or por at i on, BM D Ea gl esCr es t , In c ., w i t h Ar l i ngt on, M cCl ur e, an d Rea gan ea ch ow ni ng a t h ir d o ft h e c o r p o r a t io n . A r lin g t o n w a st o s e rv e a sp r e s id e n to fB M D a n d w o u ld b e p ri m a ri l yre s p o n s i b l e fo r i ts m a n a g e m e n t a n d o p e ra ti o n . A r l i ngt on, M cCl ur e, an d Rea g a n ag r ee d t o f und t he pur cha seoft he
su bj ec tpr ope rt y w i t h a l oan f r om t he em pl oye e r et i r em entpl an ( “t he Pl an” ) of M cCl ur e’ s bus i nes s, M c C l ur e Deve l opm ent , I nc. Theyag r ee d t hatA r l i ngt on
w oul d s i gn t he not e a s m ak er , an d t he not e w o u l d b e se cur ed by a de ed of t r us tl i en on t he pr ope rt y. T h e y fu rth e rag r ee d t hatt heyw oul d e ac h be
o b l i g a ted to re p a yo n e thir d o f t h e l o a n a n d th a t th e y w o u l d e a c h c o n tr i b u te to BM D on e t hi r d oft he dev el opm entco st s, an nua l t axe s, hol di ng c os t s, an d
m a i n te n a n c e e x p e n s e sa s s o c i a te d w i th th e p ro p e rty .3

BM D cl os ed on th e p rope rt y on O ct obe r14, 1999 . Att he cl os i ng, A r lin g t o n s ig n e d a p r o m is s o ry n o t e in t h e p r in c ip a l s u m o f$ 2 7 5 ,0 0 0 p a y a b le t o t he P l a n . H e al so s i gne d a de ed oft r us tgr ant i ng t he Pl an a l i en on t he p ro p e rtyto s e c u re th e n o te . Ar l i ng t on m a des om e of t he i nt e r e s tp a ym e nt so n t hen ot e u nt i l M a y 14, 20 01 . M eanw hi l e, A r l i ngton, M cC l ur e, and R eagan contr i buted $4 1, 00 0 each t o B M D f or t he pr opert y’ s devel opm ent . O n M ay 11 , 20 00 , Reag an pur chased t w o o ft h e p r o p e rt y ’s s ix p la t t e d lo t s f r o m B M D f o r$ 1 4 6 ,0 0 0 , w h ic h w a sp a id t o t he Pl an and cr edi t ed aga i ns t th e n ot e, l ea vi ng a pr i nci palba l anc e o f $12 9, 000 . Rea gan t hen re l i nqui sh ed hi s one - t hi r d i nt er es ti n BM D , an d A rl i n g to n a n d M c C l u re e a c h o w n e d h a l f o f B M D th e re a fte r. O n A ugu st31 , 20 00 , M cC l ur e pai d t o t he Pl an t he ent i r e bal ance ow ed
o n th e n o te . O n M a rc h 1 5 , 2 0 0 1 , A rl i n g to n , i n d i v i d u a l l y , a n d M c C l u re , a s th e P l a n ’s tr u ste e , sign e d a w ri tten ag ree m e n t ex ten d i n g th e m a tu ri ty d a te o f th e n o te to June30, 2001 . O n M ay 14, 200 2, t hey si gne d ano t her agr ee m entext end i ng t he m at ur i t y da t e o ft he not e u nt i l s om eon e o t hert han Reag an pur cha se d one oft he r em ai ni ng l ot s. M cC l ur e si gned t he second e x te n s i on i n hi s i ndi vi dual
ca pac i t y. The se con d e xt ens i on r ec i te d th e a m o u ntow ed on t he not e a s of M a y1 4 , 2 0 0 2 , a s$ 6 4 ,5 0 0 .2 ... M cC l ur e al so sued A r l i ngton on a second, $1 0, 00 0 n ot e. The t r i al

courtul t i m at el y gr ant ed M cC l ur e a di r ect ed ver di cton t he s e c o n d note. A ccor di ng t o M cC l ur e’ s br i ef , A r l i ngton pai d t he second note af t ert r i al , and t hat n o te i sn o l o n g e r i n c o n tro v e rs y . 4 A l t hou gh M cC l ur e had al r eady pai d th e n ot e i n f ul l , t he Pl an dem anded pa ym e nto n t hen ot e f r om Ar l i ng t on o n Ju ne4, 2002 . On Dec e m be r13, 2004 , th e P l a n n o ti fi e d A rl i n g to n o f i ts i n te n t to p o s t th e p ro p e r t y f o rfo re c l o s u re
u n d e r th e n o te a n d d e e d o f tru s t. A r l i ngt on a n d B M D s u ed t he Pl an on J anu ary 3, 2005 , t o e nj oi n t he f or ec l os ur e a nd t o ha ve t he not e a nd d e e d o ft r us tde cl ar ed i nva l i d a nd
une nf or ce abl e. I n a s i ngl e p l ea di ng f i l ed on J anu ary 24, 2005 , t he Pl an f i l ed a cou nt er cl ai m an d M cCl ur e i nt erven ed i n t he su i t, s ee ki ng j udgm entf ort he pr i nci pal am oun toft he not e pl us i nt er est , att or ney’ s f ees, and cost s. 2 A r l i ngton t ook M cC l ur e’ s deposi t i on on Januar y 5, 20 06 , and l ear ned t hat M cCl ur e h ad pai d t he bal anc e o n t he not e o n August31, 20 0 0 . A fte r t he depo si t i on, on Janu ar y 25 , 2 0 0 6 , M cC l ur e— i ndi vi dual l y and as Pl an t r us t ee — exe cut ed a d ocu m entt o “ m em or i al i z e”an d “ ac kno w l edg e”t he tra n s fe r o f th e n o te a n d th e d e e d o f tru s t fro m th e P l a n to M c C l u re . The pa rt i est r i ed t he ca set o t he ben ch. The t r i al cou rtr end er ed j udgm ent i n f avo rofM cCl ur e f or$64, 500 on t he not e pl us$112 , 403 . 08 i n i nt er es tan d5

$57, 939. 62 i n a t t or ne y’ sf e e sa nd c os t s , f or a t ot a l j ud gm e nto f$170 , 342. 70; itd e n ie d re lie ft o a ll o t h e rp a rt ie s . A r lin g t o n f ile d t h isa p p e a l. S t andar d ofRev i ew Fi ndi ngs of f act ent er ed i n a case t r i ed t o t he court have t he sam e f or ce a n d d i g n i tya s a j u ry ’s a n s w e rsto j u ryq u e s ti o n s . A nderson v. City of Seven Po i n ts , 8 0 6 S .W .2 d 7 9 1 , 7 9 4 (T e x . 1 9 9 1 ). T h e tri a l c o u rt’s fi n d i n g so f fa c t a re
r evi ew abl e f orl ega l an d f ac t ual su f f i ci enc y oft he evi den cet o s upportt hem by th e s a m e s ta n d a rd sth a t a re a p p l i e d i n re v i e w i n g e v i d e n c e s u p p o rti n g a j u ry ’s
a n s w e r. O rti

z v. Jones, 9 1 7 S .W .2 d 7 7 0 , 7 7 2 (T e x . 1 9 9 6 ); Ca ta lin av. Bla s del, 8 8 1 S .W .2 d 2 9 5 , 2 9 7 ( T e x . 1 9 9 4 ). W h e n fi n d i n g so f fa c t a re fi l e d a n d a re unch al l enged , t hey occu py t he sam e posi t i on and ar e ent i t l ed t o t he sam e
w ei ghtas t he ver di ct of a j ury; t heyar e b i ndi ng on an ap pel l at e c ourtunl es s t he
con t r ary i s es t abl i sh ed asa m att erofl aw ort her e i s no e vi den cet o s upportt he fi n d i n g . McGal

l i ard v. Kuhl

m ann , 7 2 2 S .W .2 d 6 9 4 , 6 9 6 (T e x . 1 9 8 6 ); Ram an Ch a n d l er Prop s . , L . C. v. Caldwel l ’ s Creek Hom eowners A ss’ n, I nc. , 178 S. W . 3d 3 8 4 , 3 9 0 (T e x . A p p .— F o rt W o rth 2 0 0 5 , p e t. d e n i e d ). A r l i ngton ar gues t hat t he t r i al court ’ s j udg m ent i s i ncor r ect as a m a t t er ofl aw f orsever al r easons. A part y assert i ng a “ m a tt e r o fl aw ” i ssue m ust
sur m oun tt w o hu rd le s . Fi r st , w e exam i ne t he r ecor d f orany evi dence
su pport i ng t he t r i al cou rt ' s f i ndi ngs , di sr ega r di ng a l l ev i den cet o t he con t r ary.6

S e c o n d , i f th e re i sn o e v i d e n c e to s u p p o rt th e fi n d i n g s , w e e x a m i n e th e e n ti re
r ecor d t o see i ft he contra ry pr opo si t i on i s est abl i shed as a m at t erofl aw . Ster ner v. Marathon Oi

l Co. , 7 6 7 S .W .2 d 6 8 6 , 6 9 0 (T e x .1 9 8 9 ).

D i sc us si on 1. I l l e ga l ity un de rE RI SA as a bart o enf or ci ng t he note. I n hi s f i r st i ssue, A r l i ngton ar gues t hatt he note i s unenf or ceabl e because th e u n d e rl y i n g tr a n sa c ti o n w a s a n i l l e g a l l o a n fr o m an E R I S A p l a n to a n en ti ty i n w h i c h a “ p a rtyi n i n te re s t”

— M c C l u re — o w n e d a n i n te re s t. S ee 2 9 U. S . C. A. § 11 06 ( W est 19 99 ) ( pr ohi bi t i ng l oan ort r ansf erofasset s f r om an ER I S A pl an to o r fo r th e b e n e fi t o f a p a rtyi n i n te re s t). C o u rtsg e n e ra l l y w i l l n o t e n fo rc e i l l e g a l c o n tra c ts . Plum lee v. Paddock, 83 2 S . W . 2d 75 7, 75 9 ( Tex . A pp. — FortW ort h 1 99 2, w r i tdeni ed) . The po l i cy i s nott o pr ot ec torpuni sh ei t herpa rt y t o t he con t r ac t , but i s f ort he ben ef i tof th e p u b l i c . Id. C ourt s w i l l gener al l y l eave t he p a rt i es t o an i l l egal cont r act
w her e i tf i nds t hem and ar e n o m o re li kel y t o ai d one at t em pt i ng t o enf or ce su ch a c o n t r ac tt han t heyar e d i sp os ed i n f avo roft he part y w ho us est he i l l e g a l i tyto a v o i d l i a b i l i ty . Id. Butw her e t he i l l ega l i t y do esnot app ea r on t he fac e o f t h e co n tr a c t, i t w i l l n o t be h e l d v o i d u n le ss the fac ts sh o w i n g i ts i l l e g a l i tya re b e fo re th e c o u rt. L e wisv. D a vis , 145 Te x. 468, 199 S. W . 2d 146,7

1 4 9 (1 9 4 7 ). Ille g a lit yisa n a f f ir m a t iv e d e f e n s e , a n d t h e p a rt ys e e k in g t o a v o id th e c o n tra c t h a sth e b u rd e n o f p ro v i n g i ts i l l e g a l i ty . T EX . R. C IV . P. 94. I n t hi s c a s e , the c ont r ac ti n que st i on i s noti l l ega l on i t s f ac e, an d A rl i n g to n fa i l e d to p ro v e i ts i l l e g a l i ty a s a m a tte r o f l a w b e c a u s e — a sM c C l u re p o in t so u t
— E R I S A c o n t a in se x c e p t io n st h a tp e r m itlo a n se v e n t o a p a rt yin i nt er es t . The Pl an m ade t he l oan unde r l yi ng t he not e t o Ar l i ngt on, i ndi vi dua l l y, nott o M cCl ur e o rBM D . Thus , unde rt he pr ovi si onsofERI SA i d e n ti f i ed by A rl i n g to n , th e l o a n w a s n o t o n i ts fac e a p roh i b i ted l o a n to a p a rt yi n i n tere st. S ee 29 U . S. C . A . § 1106 . O t herev i den ce , an d e sp ec i al l y M c C l ur e’ s ow n t est i m ony, show s t hatA r l i ngton, i ndi vi dual l y, w as a s t r aw m an and t hat M cCl ur e i nt end ed t he l oan t o be nef i t BM D ; M cCl ur e t es t i f i ed t hathekn ew he
w as notsupposed t o l oan m oney f r om t he Pl an t o an ent i t y w i t h w hi ch he w as i nvol ved and t hathe t ol d A r l i ngton t hathe ( M cC l ur e) coul d not l oan t he m oney t o hi m sel fand w oul d t her ef or e l oan t he m oney t o A r l i ngton, per sonal l y, w ho as
m anagerofBM D coul d “do w i t h i tas necess ary. ” ButERI SA pr ovi desf oratl ea st t w o e xce pt i onst o t he pr ohi bi t i on on l oan s f r om a pl an t o a pa rt y i n i nt er es t . Sec t i on 1101( a) ( 1) pr ovi des t hatt he pr ohi bi t i o n doe s notap pl y t o “ a p l an w hi ch i s unf unde d a nd i s m ai nt ai ned by
an em pl oye rpr i m ar i l y f ort he pur pos e o fpr ovi di ng de f er r ed com pen sa t i on f or a sel ectgr ou p o f m a n agem entorhi ghl y com pensat ed em pl oyees. ” Id.8

§ 110 1( a) ( 1) ( W es t1999 ) . Sec ond, t he pr ohi bi t i on do e s n o t a p p l y t o “ [ a] ny l oan s m adeby t he pl an t o p a rt i esi n i nt er es tw ho a r e p art i ci pan t s or b e n e fi c i a ri e s o f t h e p l a n i f su c h l o a n s . . . a re a v a i l a b l e to a l l su c h p a rt i c i p a n ts and ben ef i ci ar i es on a r easonabl y equi val entbasi s. ” Id. § 1 1 0 8 (b )(1 ) ( W est 19 99 ) . A r l i ngton pr esent ed no evi dence r egar di ng t hese t w o excepti ons. Thus , wh i l e t h e r e i s s o me e v i d e n c e t h a t t h e l o a n wa s p r o h i b i t ed by ER I S A , t he evi dence does not pr ove t hatt he l oan w as i l l egal as a m at t erofl aw . Th us, A r l i ngton di d not car ry hi s bur den of pr ovi ng i l l egal i t y as a m at t er ofl aw , a n d w e o v e rru l e h i sfi rs t i s s u e . S ee S ter ner, 767 S. W . 2d a t690. 2. Th e exi st ence oft he note. I n hi s se con d i ss ue, A r l i ngt on a r gue s t hatt he t r i alco urter r ed by g r ant i ng j udg m enton t he note “because t her e i s no not e. ” A r l i ngton ex p l ai ns t hat bec aus e t he not e di d not r ef l ec t t he r ea l i t y of t he t r ans ac t i on— a l oan f r om t he Pl an t o BM D

— t he not e i s a s ham , w hi ch, hear gue s, pr ec l ude s M cCl ure f r om e s ta b l i s h i n g th e e x i s te n c e o f th e n o te a sa m a tte r o f l a w . See Donca ster v. Her n a iz , 1 6 1 S .W .3 d 5 9 4 , 6 0 2 (T e x . A p p .— S a n A n to n i o 2 0 0 5 , n o p e t .) (s e ttin g o u t e s s e n ti a l e l e m e n ts o f s u i t o n a n o te , i n c l u d i n g e x i s te n c e o f a n o te ). A rl i n g to n cit e s n o a u th o ri ty fo r th e p rop o sit i o n th a t a n o te i s n o t a n o te
w hen i tdoe s notac cur at el y re fl e c t the r ea l i t y ofa t r ans ac t i on, an d ourow n9

r es ea r ch f i ndsnone . M cCl ur e p r ove d t he exi sten c e o fa not e b y of f er i ng t he note i t sel fi nt o evi dence. W e t her ef or e over r ul e A ppel l ant ’ s second i ssue. 3. A r l i ngton as t he m akeroft he note. In a s i m i l a r v e i n , A rl i n g to n a rg u e s i n h i s th i rd i s s u e th a t th e tri a l c o u rt’s j udg m enti s er r oneo us as a m at t er of l aw because A r l i ngton w as not t he m aker
o f th e n o te . S e ei

d. (id e n tify i ng t he def endan t ’ s si gnatur e on a note as an essent i al el em entofa sui t on a note) . A r l i ngton contends t hatal l t hr ee part i es t o t he t r ans ac t i on— A r l i ngt on, M cCl ur e, and Reag an— agr eet hatA r l i ngt on si gne d t he not e i n a r epr es ent at i ve ca pac i t y and , t her ef or e, t hatA r l i ngt on i s not per so nal l y l i abl e o n t he not e. I n t hi s con nec t i on, A r l i ngt on c i t ess ec t i on 3 .4 0 2 (b) o f th e b u sine ss a n d co m m e rce co d e , w h i c h p rov i d e s i n p e rt i n e n t pa rt , “t he r epr esent at i ve i s l i abl e on t he i nst r um entunl ess t he r epr esent at i ve pr oves t hatt he or i gi nalpa rt i es d i d n o t i nt end t he r epr es ent at i ve t o bel i abl e o n t he i nst r um ent . ” T EX . B US . & C OMM . C ODE A NN . § 3 .4 0 2 (b ) (V e rn o n 2 0 0 2 ). The t es t i m ony ci t ed by Ar l i ngt on do esnotpr oveco ncl us i vel y t hatt he
o ri g i n a l p a rti e sd i d n o t i n te n d h i m to b e l i a b l e o n t h e i n s t r u m e n t. M c C l u re te s ti fi e d , “[W ]em a d e a n a g re e m e n t . . . th a t [R e a g a n ] w o u l d b e re s p o n s i b l e -- to [ A rl i n g to n ] fo r on e -t h i rd o f i t an d I p e rso n a ll y w o u l d b e res p o n sibl e to [A rl i n g to n ] fo r o n e -th i rd o f i t, a n d h e w o u l d b e re s p o n s i b l e fo r th e o th e r th i rd .” R e a g a n te s ti fi e d , “M yu n d e rs ta n d i n g w a sth a t w e e a c h o w e d a th i rd o f i t.”3 ... A rl i n g to n a l s o c i te sa p o s t-tri a l b ri e f i n w h i c h M c C l u re s ta te d , “T h e re

i sn o d i s p u te th a t A rl i n g to n s i g n e d i n a re p re s e n ta ti v e c a p a c i ty . . . .”M c C l u re hasab and one d t hats t at em ent on app ea l ; i n hi s app el l at e br i ef , he st at es , “ But th e n o te i tse l f w a s i n e v i d e n c e , a n d i t sh o w s th a t A rl i n g to n sign e d t h e n o te i n d i v i d u a l l y .” 10 A r l i ngt on a l one t es t i f i ed t hat hi s ow n obl i gat i on on t he not e w asonl y t hr ough h i sp a rt i c i p a t i o n i n B M D. 3Rat hert han pr o v e c oncl usi vel y t hatA r l i ngton w as notp e r s o n a l l yl i a b l e f o rt h e n o t e o ra n yp a rto fi t , t h e f o r e g o i n g t e st i m ony s h o w sth a t M c C l u re a n d R e a g a n i n te n d e d th a t A rl i n g to n w o u l d b e l i a b l e fo r a t hi r d oft he n o te a n d , by an or al si de agr eem ent , t hatM cC l ur e and R eagan
w oul d a ss um e l i abi l i t y f orone - t hi r d e ac h. A r l i ng to n pos esa hypo t het i ca l : I fReag an had f ai l ed t o pa y on e- t hi r d of t he n ot e, co ul d M cCl ur e o rt he Pl an su e Rea gan on t he not e? Ar l i ngt on s ays t he answ e r is “ n o , ” and w e do not di sagr ee. Reagan di d not si gn t he note; A r l i ngt on di d. I f M cCl ur e had att em pt ed t o e nf or cet he not e a gai ns tReag an, t hi s l i t i gat i on m i ght have had a di f f er entr esul t. Bu tt he und i sput abl e f act
r em ai nst hatA r l i ngt on s i gne d t he not e, an d t he e v i den cedoe s notpr ove con cl us i vel y t hat the p art i esdi d noti nt end A r l i ngt on t o bel i abl e o n t he i nst r um ent . Ther ef or e, w e over r ul e A r l i ngton’ s t hi r d i ssue.11

4. M cC l ur e as t he hol deroft he note. I n hi s f ourt h i ss ue, A r l i ngt on ar gue s t hat M cCl ur e c ann otr ec ove ron t he
n o te b e c a u s e h e i s n o t th e n o te ’s h o l d e r. S ee D oncaster, 161 S. W . 3d a t602 ( i den t i f yi ng t he pl ai nt i f f ’ s st at usashol der oft he not e a s an es se nt i alel em ent ofa su i tt o e nf or cet he not e) . Ar l i ngt on c ont end s t hatbe ca us e t he Pl an di d not t r ansfe r the n ot e t o M cCl ur e u nt i l f i ve and ha l fye ar s aft erM cCl ur e p ai d t he
n o te , M c C l u re d o e sn o t h a v e th e ri g h t to e n fo rc e th e n o te . A r l i ngt on c i t est he f ol l ow i ng pa rt s ofbus i nes s and co m m er ceco de
se c ti o n 3 .2 0 3 i n su p p o rto f his arg u m e n t: ( a) A n i ns t r um enti s tra n s fe rred w hen i ti s del i ver ed by a pe r so n ot hert han i t s i ss uerf ort he pur pos e o fgi vi n g t o t he per so n rec e i v i n g d e l i v e ry th e ri g h t t o en fo rce the i n stru m e n t. ( b) Tr ansf erofan i nst r um ent , w het herornott he t r ansf eri s a n e g o ti a ti o n , v e sts i n the tr a n sfe ree an yri g h t o f t h e tr a n sfe ror to enf or cet he i ns t r um ent , i ncl udi n g a n y r i ghtasa hol deri n due cou r se . T h e t r a n s f e r e e c a n n o t a c q u i r e r i g h t s o f a h o l d e r i n due cou r seby a trans f er , di r ec t l y ori ndi r ec t l y, f r om a hol deri n due cou r sei ft he t r ans f er eeen gag ed i n f r aud ori l l ega l i t y a f f ec t i ng t he i n stru m e n t. T EX . B US . & C OMM . C ODE A NN . § 3 . 20 3( a)

- ( b) ( V er non 20 02 ) . A r l i ngton ar gues th a t th e re i sn o e v i d e n c e th a t t h e P l a n d e l i v e re d th e n o te to M c C l u re b e fo re Jan uary 26, 2006 ; t hus , heco nt end s, M cCl ur e i s n oten t i t l ed t o e nf or cet he note.12

A r l i ngt on’ s ar gum enti m pl i est hats om et hi n g p rohi bi t ed t he Pl an f r om d e liv e r in g t h e n o t e t o A r lin g t o n o n J a n u a ry2 6 , 2 0 0 6 , b u th e d o e sn o te x p la in
w hy t he Jan uary 26 del i very a nd t r ans f er w asnotef f ec t i ve orw hy t he pas sa ge o f t i m e b e tw e e n M c C lu r e ’s p a y m e n t of th e n o te a n d d e l i v e ry i s s i g n i fi c a n t. A c c o rd i n g l y , w e h o l d th a t M c C l u re w a se n ti tl e d to e n fo rc e th e n o te . S eeT EX . B US . & C OMM . C ODE A NN . § 3 . 30 1 ( V er non 20 02 ) ( i denti f yi ng per sons ent i t l ed t o enf or ce i nst r um ent s, i ncl udi ng t he hol deroft he i nst r um entand a non hol der i n p o s s e s s i o n o f th e i n s tru m e n t w h o h a sth eri g h ts o f a h o l d e r). A r l i ngt on a l so ar gue s t hats ec t i on 3. 203 ( b) pr ec l ude s M cCl ur e f r om e n fo rci n g the n o te b e c a u se h e en g a g e d i n “i l l e g a l i ty a ffec ti n g the i n stru m e n t”
w hen heca us ed t he Pl an t o m ak e a l oan pr ohi bi t ed by E RI SA . Butasw e h ave al r ea d y c o n cl ude d, A r l i ngt on f ai l ed t o pr ovet hatERI SA pr ohi bi t ed t he t r ansact i on as a m at t er of l aw , and w e r ej ect hi s ar gum ent t hat th e a ll eged i l l e g a l i ty p re c l u d e s M c C l u re fro m e n fo rc i n g th e n o te . W e o v e rru l e A rl i n g to n ’s f ourt h i ssue. ( 5) M cCl ur e’ s pay m entoft he not e a s a b art o rec ove ry. I n h i sf i f t h i s s ue , Ar l i ng t on c on t e nd st ha tn ot hi ng i so w e d on t hen o te b e c a u s e M c C l u re p a i d th e n o te i n fu l l o n A u g u s t 3 1 , 2 0 0 0 . S ee D oncaster, 16 1 S . W . 3d at60 2 ( i denti f yi ng a bal a n c e d u e and ow i ng un dera not e as an e s s e n ti a l e l e m e n t o f a s u i t o n a n o te ). A rl i n g to n c i te sn o a u th o ri tyto s u p p o rt13

hi s ar gum ent on t hi s i ss ue. Rul e 38. 1( h) r equ i r es a b r i eft o c ont ai n bot h c i t at i on to a u th o ri ty a n d su b sta n ti v e a n a l y sis i n reg a rd to a n i ss u e , a n d th e fai l u r e to i n c l u d e e i th e r w a i v e sa n i s s u e o n a p p e a l . T EX . R. A PP . P . 3 8 .1 (h ); Hueyv. Huey , 200 S . W . 3d 851, 854 ( Tex. A pp. — D al l as2006 , no p et.); M c I ntyre v. W i l son , 5 0 S .W .3 d 6 7 4 , 6 8 2 (T e x . A p p .— D a l l a s2 0 0 1 , p e t. d e n i e d ). M or eover , busi ness and com m er ce code sect i on 3 . 60 2( a) pr ovi des t hat “a n i n stru m e n t i s p a i d to th e ex ten t pa y m e n t i s m a d e . . . b yo r on b e h a l f of a part y obl i ged t o pay t he i nst r um ent . ” T EX . B US . & C OMM . C ODE A NN . § 3 . 60 2( a) (V e rn o n S u p p . 2 0 0 7 ). H e re , th e e v i d e n c e c l e a rl ys h o w sth a t w h i l e M c C l u re
r epai d t he Pl an, he di d not m ake such paym ent on behal fofA r l i ngton. Thu s, t h e n o t e w a sn o t“ p a id ,” a n d a b a la n c e w a s d u e a n d o w in g a t t h e t im e o ft r ia l. W e over r ul e A r l i ngton’ s f i f t h i ssue. ( 6) Li m it at i ons I n hi s si xt h i ss ue, A r l i ngt on a r gue s t hatM cCl ur e’ s su i ti s bar r ed by l i m i t at i ons. H i s ar gum entcom pr i ses t w o al t er nat i ve t hr ust s: Fi r st , he ar gues t h a tt h e f o u r - y e a rs t a t u t e o fl i mi t a t i o n ss e to u ti n c i v i l p r a c t i c e a n d r em edi es c o d e s e c t io n 1 6 .0 3 5 , r a t h e rt h a n t h e s ix -y e a rlim it a t io n sp e r io d s e to u tin b u s in e s sa n d c o m m e r c e c o d e s e c t io n 3 .1 1 8 , a p p lie sb e c a u s e M c C lu r e ’s s u itis
an ac t i on i nvol vi ng a r ea l p ro p e rt y l i en. Sec ond, hear gue s i n t he al t er nat i ve t hatM cC l ur e’ s sui ti s r eal l y an at t em ptto enfor ce t he or al si de deal bet w een14

M cCl ur e, A r l i ngt on, and Reaga n r at her t han a su i t on t he not e, an d t he or al s i de
a g re e m e n t i ss u bj e c t to a fo u r-y e a r s ta tu te o f l i m i ta ti o n s . Bu si ness and com m er ce code sect i on 3 . 11 8( a) est abl i shes a s ix -year l i m i t at i onspe r i od f oran ac t i on t o e n fo rc e t he obl i gat i on ofa part y t o pa y a
n o te . Id. § 3. 118 ( a) ( V er non 2002) . Buts ubs ec t i on ( h) pr ovi dest hats ec t i on 3 .1 1 8 d o e sn o ta p p lyt o a n a c t io n in v o lv in g a r e a l p r o p e rt y lie n c o v e r e d b yc iv il p ra c ti c e a n d re m e d i e sc o d e s e c ti o n 1 6 .0 3 5 . Id. § 3. 118 ( h) . Ci vi l pr ac t i cean d
rem e d i e s c o d ese c ti o n 1 6 .0 3 5 es tab l i sh e s a fou r- y e a r l i m i tati o n s p e ri o d fo r su i ts f ort he r ec ove ry of r ea l pr ope rt y unde r a r ea l pr ope rt y l i en ort he f or ec l os ur e o f
a re a l p ro p e rtyl i e n . T EX . C IV . P RA C . & R EM . C ODE A NN . § 16. 035 ( a) ( V er non 2 0 0 2 ). A rl i n g to n a rg u e sth a t M c C l u re ’ss u i t i sg o v e rn e d b ys e c ti o n 1 6 .0 3 5 ’s f our - yea rl i m i t at i onspe r i od be ca us e i ti nvol ves a r ea l pr ope rt y l i en. The C or pus C hr i st ico urt r ej ec t ed a si m i l ar ar gum enti n A guero v. Ram i rez , 70 S . W . 3d 372 ( Tex. A pp. — C or pusChr i st i 200 2, pet . den i ed) . I n t hatca se , A gue r o s i gne d a
n o te p a y a b l e to R a m i re z , se c u re d b ya d e e d o f tru s t a n d a v e n d o r’sl i e n . Id. at 3 7 3 . A g u e ro d e fa u l te d , a n d fi v e y e a rsl a te r R a m i re zfi l e d s u i t o n th e n o te . Id. A guer o ar gue d th atRam i r ez’ s sui tw as bar r ed by sect i on 1 6. 03 5’ s f our - year l i m i t at i onspe r i od; Ram i r ezar gue d t h a t h i s su i tw ast i m el y un ders ec t i on 3 .1 1 8 (a )’s s i x -y e a r l i m i ta ti o n sp e ri o d . Id. a t 3 7 3

– 7 4 . T h e c o u rt o f a p p e a lsh e ld15

th a t th e s i x -y e a r s ta tu te a p p l i e d . Id. at375. W her e t her e i s a d ebts ec ur ed by
a n o te, w h i c h i s, i n tu rn, se c u red b ya l i e n , th e n o te a n d l i e n co n sti tu te s e p a rate
o b l i g a ti o n s . Id. at374. Bec aus e Ram i r ezs ued t o e nf or cet he not e, nott he l i en, t he si x- yea rs t at ut e a ppl i ed: I fRam i r ezw ass ui ng t o e nf or cet he l i en, t he de e d o f tru st , or seeki ng t o f or ecl ose on t he pr opert y used as secur i t y, t he f our - year sta tu te o f l i m i tati o n s w o u l d ap p l y . A f t e r t h e ex p i rati o n o f a fo u r-y e a r p e r io d , th e ri g h t t o su e to e n fo rce the l i e n an d to fo re c l o s e o n th e p ro p e rtyi sl o s t. [ C i t a t i o n o m i tte d .] H o w e v e r, R am i r ez i s onl y sui ng t o enf or ce paym ent on t he pr om i ssory note. H i s sui ti s st i l l act i onab l e. Id. a t375. Li ke R am i r ez, M cC l ur e sued t o enf or ce t he note, nott o enf or ce t he l i en orf or ec l os e o n t he pr ope rt y. Ther ef or e, s ec t i on 3. 118 ( a) ’ s si x- yea rl i m i t at i ons p e ri o d a p p l i e s . T h e n o te ’so ri g i n a l m a tu ri tyd a te w a sM a y 1 4 , 2 0 0 0 . M c C l u re i nt e rve ne d i n t he l a w su i t a nd a s s e rt e d hi ss ui to n t hen ot e o n Ja nu a ry 24, 2 0 0 5 , l e ss tha n six y e a rs l a ter. T h u s, ev e n i f w e i g n o re th e tw o ag ree m e n ts ext end i ng t he not e’ s m at ur i t y da t e, M cCl ur e’ s cl ai m w ast i m el y un dert he si xyearst at ut e ofl i m i t at i ons. I n t h e s e c o n d p a rto fh i sl i mi t a t i o n sa r g u me n t , Ar l i n g t o n c o n t e n d st hat M c C lu r e ’s s u i t i s s u bje c tt o t h e f o u r -y e a rlim it a t io n sp e r io d s e to u tin c iv il p r a c t ic e a n d re m e d ie sc o d e s e c t io n 1 6 . 0 0 4 (a )( 3 ) b e c a u s eM c C lu r e isre a lly
su i ng t o e nf or cet he or als i de agr ee m entbe t w ee n M cCl ur e, A r l i ngt o n , an d16

R e a g a n to e a c h p a yo n e -th i rd o f th e n o te . S ee T EX . C IV . P RA C . & R EM . C ODE A NN . § 16. 004 ( a) ( 3) ( V er non 2002) ( es t abl i sh i ng a f our - yea rl i m i t at i onspe r i od
on s ui t s f orde bt ) . Ar l i ngt on r ea so ns t hati fM cCl ur e w er e a ct ual l y s ui ng on t he
n o te, r at hert han t he si de agr ee m ent , hew oul d ha ve cl ai m ed t he f ul l am ount oft he note l ess paym ent s, notone- t hi r d o f th e n o te l ess paym ent s. H e al so p o in t st o M c C lu r e ’s p o s t -t r ia l b r ie f , in w h ic h M c C lu r e s t a t e d , “ A l l M c C lu r e is
r equest i ng i s t hatA r l i ngton pay hi s one- t hi r d pert he part i es[ ‘ ] agr eem ent . ” W e d i sa g ree w i th A rl i n g to n ’s ch a rac teri za ti o n o f M c C l u re’s s u i t. O n i ts f ac e, M cCl ur e’ s cl ai m i s a su i t on t he not e. M cCl ur e c oul d ha ve su ed A r l i ngt on f o rt h e f a c e v a lu e o ft h e n o t e le s s p a y m e n t s ; h a d h e d o n e s o , A r lin g t o n c o u ld hav e a ss ert ed t he si de agr ee m ent as a def ens e t o t w o- t hi r ds of t he deb t . The f ac tt hatM cCl ur e l i m i t ed hi s dem and unde rt he not e i n l i ghtoft he si de
a g ree m e n t w o rks i n A rl i n g to n ’s fav o r b y l i m i ti n g h i s l i a b i l i ty o n th e n o te b ytw o t hi r ds ; i t doe s not con vert M cCl ur e’ s cl ai m f r om a su i t on t he not e t o a s ui ton t he si de agr eem ent . W e t he re f or e hol d t hatM cC l ur e’ s cl ai m i s t i m el y und er se c ti o n 3 .1 1 8 (a)’ s s i x -ye a r l i m i tati o n s p e ri o d , a n d w e o v e rr u l e A rl i n g to n ’s si x th i ssue. C onc l us i on H a v in g o v e r r u le d A r lin g t o n ’s f ir s ts ix i s s u e s , w e n e e d n o tre a c h h is
se v e n th a n d e i g h th i ss u e s, i n w h i c h h e arg u e s th a t M c C l u re w a s n o t en ti tl e d to17

re c o v e r o n h i sa l te rn a ti v e c l a i m s fo r d e b t a n d q u a n tu m m e ru i t. S eeT EX . R. A PP . P . 4 7 .1 . W e affi rm the tr i a l co u rt ’s j u d g m e n t.

A N N E GA RD N ER J U S T I C E PA N EL A : H O LM A N , G A RD N ER, an d M C C O Y, JJ. DEL I VERE D: M a r c h 20, 2008