Court Opinion

ID: 9665083
Source: CourtListenerOpinion
Date Created: 2023-08-24 00:39:11.264477+00
Date Added: 2024-06-11T18:15:12.787624
License: Public Domain

JONES, Justice,
dissenting.
As an appellate court, it is not our task to weigh evidence or balance equities anew, but only to ensure that the jury and trial court exercised those functions within certain broad limits of reasonableness and discretion. Because I believe the majority has strayed from this principle, I respectfully dissent.
The present case is superficially complex, but internally straightforward. Center Hill Joint Venture (“the joint venture”) owned a 25-acre tract of land, considered by the owners as three tracts, designated “A,” “B,” and “C.” A shopping center was constructed on Tract “C,” which comprised about half of the twenty-five acres and which was located in the middle of the property, effectively separating Tracts “A” and “B.” M.D. Fleetwood, appellee, sold his interest in the joint venture to the other venturers, after which he owned no interest in Tract “C” other than a deed-of-trust lien on all twenty-five acres as security for $1,391,000 the joint venture owed him as part of the purchase price for his interest in the joint venture. As another part of the bargained-for consideration for the sale *289of his interest in the joint venture, Fleet-wood was granted a 55% interest in a long-term lease to Tracts “A” and “B,” which Fleetwood and the joint venture hoped to develop later. Although filed of record before the deed of trust, the lease contained a provision subordinating the lease to Fleetwood’s deed-of-trust lien. Fleet-wood testified that he structured the transaction so that if it became necessary for him to foreclose on his superior lien, he could exercise his options in such a way as to “protect” his interest in the inferior lease.
Subsequently, the joint venture obtained a loan from Med Center Bank (“Med Center”), appellant, which was used to pay off the joint venture’s debt to Fleetwood. Without Fleetwood’s knowledge, the joint venture gave Med Center a deed-of-trust lien on Tract “A,” a substantial portion of the leased property, as well as Tract “C,” the shopping-center tract. Med Center was not aware at that time that the lease covering Tract “A” was junior to Fleetwood’s deed-of-trust lien. Obviously, therefore, Med Center had no expectation that its newly acquired deed-of-trust lien would or could be senior to the lease on Tract “A.” It is not surprising, then, that neither Med Center nor the remaining venturers informed Fleetwood that the Bank intended to be subrogated to Fleetwood’s superior lien position as to Tract “A.” Med Center had no such intention. Nor is it surprising that neither Med Center nor the joint venture asked Fleetwood for an assignment of his deed-of-trust lien. Instead, Fleetwood was asked for and gave a “full release” of that lien. Fleetwood believed his superior lien was being completely extinguished.
The joint venture subsequently defaulted on the Med Center loan, and Med Center foreclosed its lien. In so doing, Med Center did not foreclose on Tract “C,” in which Fleetwood owned no interest; rather, it foreclosed on Tract “A.” When Med Center learned that the lease included a provision subordinating it to Fleetwood’s lien, it took the position that it should be subro-gated to Fleetwood’s previous superior lien position, thus resulting in an extinguishment of the inferior lease. Fleetwood filed this suit to prevent Med Center from accomplishing that purpose.
HOLDING OF FLEETWOOD I
The trial court initially granted summary judgment in favor of Med Center. On appeal, we reversed the summary judgment and remanded the cause for trial on the merits. See Fleetwood v. Med Center Bank, 786 S.W.2d 550 (Tex.App.—Austin 1990, writ denied) (“Fleetwood I”). As we stated in Fleetwood I, the principle of sub-rogation in the present context is that
[o]ne who advances money to pay off an incumbrance on realty at the instance of either the owner of the property or the holder of the incumbrance, either on the express understanding, or under circumstances from which an understanding will be implied, that the advance made is to be secured by a first lien on the property ... will be subrogated to the rights of the prior incumbrancer under the security held by him, unless the superior or equal equities of others would be prejudiced thereby ....
Id. at 554 (quoting Sanger Bros. v. Ely & Walker Dry Goods Co., 207 S.W. 348, 349 (Tex.Civ.App.—Fort Worth 1918, writ ref’d)) (emphasis added). Based on the proviso emphasized above, we then held that
a transfer of the rights under a senior lien away from one who also holds a junior lien is a cognizable prejudice to the junior lienholder, to be considered by a court as part of the totality of the circumstances in deciding whether to grant subrogation to a third party who advanced money to pay off the senior lien.
786 S.W.2d at 555-56.
We concluded that Fleetwood’s interest in the lease, while simultaneously holding a more senior lien, effectively placed him in the same position as a junior lienholder who would suffer a “cognizable prejudice” by the substitution of someone else as the holder of the more senior lien. 786 S.W.2d at 556. Accordingly, we held that summary judgment for Med Center was not appropriate, and that the trial court should be allowed, after a trial on the merits, to *290exercise its chancery powers of equity. The Texas Supreme Court denied Med Center’s application for writ of error. Now, after allowing the trial court to conduct a jury trial while adhering rigorously to the principles we announced, the majority overrules the central holding of Fleetwood I.
EQUITABLE PRINCIPLES GOVERN
Subrogation is a doctrine of equity. Chicago Title Ins. Co. v. Lawrence Invs., Inc., 782 S.W.2d 332, 334 (Tex.App.—Fort Worth 1989, writ ref d). Where a new lender desires to be subrogated to the lien of a prior creditor by lending money to the debtor to pay off the prior creditor, even the existence of a “subrogation agreement” between the debtor and the new lender does not change the doctrine’s equitable nature:
Even when there is an agreement to sub-rogate, the so-called right of subrogation is not one inherent in the contract, but arises in equity and can therefore be withheld or applied as in equity seems meet according to sound judicial discretion, which is another way of saying, according to the dictates of justice. The doctrine of subrogation has its roots in the soil of justice and equity, and not in contract....
Martin v. Hickenlooper, 90 Utah 150, 59 P.2d 1139, 1143 (1936); see also Rock River Lumber Corp. v. Universal Mortgage Corp., 82 Wis.2d 235, 262 N.W.2d 114, 117 (1978); see generally Grant S. Nelson & Dale A. Whitman, Real Estate Finance Law § 10.1 (2d ed. 1985).
The standard of appellate review in a case governed by equitable principles is “clear abuse of discretion.” See, e.g., Tracy v. Annie’s Attic, Inc., 840 S.W.2d 527, 533 (Tex.App.—Tyler 1992, writ denied) (injunction); Hues v. Warren Petroleum Co., 814 S.W.2d 526, 529 (Tex.App.—Houston [14th Dist.] 1991, writ denied) (injunction); Isuani v. Manske-Sheffield Radiology Group, 805 S.W.2d 602, 606-07 (Tex.App.—Beaumont 1991, writ denied) (injunction); Reynolds-Penland Co. v. Hexter & Lobello, 567 S.W.2d 237, 246 (Tex.Civ.App.—Dallas 1978, writ dism’d by agr.) (excusing failure to exercise option); Mathews v. First Citizens Bank, 374 S.W.2d 794, 797 (Tex.Civ.App.—Dallas 1963, writ ref’d n.r.e.) (restoration).
A trial court abuses its discretion only when it acts in an unreasonable or arbitrary manner, or when it acts without reference to any guiding rules and principles. Beaumont Bank, N.A. v. Butter, 806 S.W.2d 223, 226 (Tex.1991); Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex.1985). The reviewing court may not substitute its judgment for that of the trial court. Davis v. Huey, 571 S.W.2d 859, 862 (Tex.1978). In an equity action, the trial court’s decision will not be reversed without a showing that an inequity resulted. Kneip v. Unitedbank-Victoria, 734 S.W.2d 130, 133 (Tex.App.—Corpus Christi 1987, no writ); Davis v. Carothers, 335 S.W.2d 631, 641 (Tex.Civ.App.—Waco 1960, writ dism’d by agr.).
JURY VERDICT
In Texas, the parties to an action governed by equitable principles are entitled to a jury trial. See Tex. Const. art. I, § 15; State v. Texas Pet Foods, Inc., 591 S.W.2d 800, 803 (Tex.1979); San Jacinto Oil Co. v. Culberson, 100 Tex. 462, 101 S.W. 197, 198 (1907). In such an action, the jury’s verdict is not merely advisory. Champlin Oil & Ref. Co. v. Chastain, 403 S.W.2d 376, 390 (Tex.1965). On the contrary, the verdict in an equity action is binding as to the facts determined by the jury. Texas Pet Foods, 591 S.W.2d at 803; Alamo Title Co. v. San Antonio Bar Ass’n, 360 S.W.2d 814, 816 (Tex.Civ.App.—Waco 1962, writ ref’d n.r.e.).
In the present case, the following facts were established by the jury’s verdict:
Question No. 1: Med Center intended to base its loan to the joint venture only on Tract “C” (the shopping center tract), and not on Tract “A.”
Question No. 2: Fleetwood knew that Med Center intended to base its loan to the joint venture on Tract “C.”
Question No. 3: Med Center did not base its loan to the joint venture on the reasonable expectation that it would *291obtain a secured position in Tract “A” that was superior to the lease.
Question No. 4A: At the time of Med Center’s loan to the joint venture, Fleetwood did not know of any intention by Med Center to be substituted into Fleetwood’s lien position.
Question No. 5: Fleetwood would suffer substantial harm as a result of the loan from Med Center if Med Center were given a security interest in Tract “A” that was superior to the lease.
Question No. 6: Med Center was negligent in attempting to achieve a priority lien position with respect to Tract “A.”
Question No. 7: Fleetwood exercised reasonable diligence to avoid the potential of loss of a superior position in Tract “A.”
The jury’s findings are amply supported by evidence in the record. Indeed, Med Center does not actually contest the sufficiency of the evidence. In Med Center’s brief to this Court, point of error three does include a stated challenge to the legal and factual sufficiency of the evidence to support the jury’s findings. However, the relevant “arguments and authorities” section of the brief presents a “grouped” argument under multiple points of error, and nowhere in that section does Med Center attack the sufficiency of the evidence to support the jury’s findings. Accordingly, any such challenge has been waived. See La Sara Grain Co. v. First Nat’l Bank, 673 S.W.2d 558, 568 (Tex.1984); Peterson v. Dean Witter Reynolds, Inc., 805 S.W.2d 541, 552 (Tex.App.—Dallas 1991, no writ). The jury’s findings are, therefore, binding on this Court. Cf. McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex.1986).
The jury’s verdict here is extremely important. First, the jury found that Fleet-wood would suffer “substantial harm” if Med Center were given a security interest in Tract “A” that was superior to the lease. As discussed above, prejudice to holders of intervening interests is a long-recognized exception to equitable subrogation. And as we explained in Fleetwood I, the very removal of the “protection” of owning the more senior lien should be a cognizable prejudice to the junior lienholder, even before the junior lien is actually threatened by foreclosure of the senior lien. 786 S.W.2d at 555-56.
Next, the jury found that Med Center had been negligent, but that Fleetwood had exercised reasonable diligence. When the right to subrogation is wholly dependent on equitable principles, negligence on the part of one seeking subrogation is of some importance. Providence Inst, for Sav. v. Sims, 441 S.W.2d 516, 519 (Tex.1969).
Finally, and perhaps most significantly, the jury found that Med Center did not have a reasonable expectation that it would obtain a secured position in Tract “A” that was superior to the lease; indeed, the jury found that Med Center never intended to base its loan on Tract “A,” but only on Tract “C.” These findings are of special significance in this case because “[sjubro-gation of the lender is based on the general principle that one who advances money upon a justifiable expectation of receiving security is entitled to the security.” Nelson & Whitman, supra at 714 (emphasis added). Since Med Center had no expectation at all — justifiable or otherwise — of receiving a superior lien on Tract “A,” how can the trial court have abused its discretion in refusing to use its equity power to award such a lien? Moreover, the granting of subrogation to Med Center in these circumstances would defeat the expectations of Fleetwood, because he had crafted the transaction to have protection for his interest in the lease, he had been diligent in doing so, and he was led to believe that his superior lien was being completely extinguished.
For the trial court, this was probably a difficult case of balancing equities. Had I been the trial judge, exercising traditional powers of equity, I am not sure which way I would have ruled. For an appellate court, however, merely reviewing the trial court’s decision under an abuse-of-discretion standard, the case is easier. Where binding determinations of fact have been made that Fleetwood would suffer harm, that Fleetwood exercised reasonable diligence, that Med Center was negligent, and *292that Med Center never intended or expected to be secured by a superior lien on Tract “A” in the first place, the trial court’s refusal to grant Med Center the equitable remedy of subrogation cannot, in my opinion, be considered arbitrary, unreasonable, or without reference to any guiding rules and principles. If it can be, then subrogation is no longer an equitable doctrine, but one governed by bright-line, as-a-matter-of-law principles.
I would affirm the trial court’s judgment.