Court Opinion

ID: 4044278
Source: CourtListenerOpinion
Date Created: 2016-09-28 23:33:58.855187+00
Date Added: 2024-06-11T14:29:50.010205
License: Public Domain

ACCEPTED
                                                                              04-14-00540-CV
                                                                   FOURTH COURT OF APPEALS
                                                                        SAN ANTONIO, TEXAS
                                                                          2/6/2015 9:52:10 AM
                                                                                KEITH HOTTLE
                                                                                       CLERK

                         NO. 04-14-00540-CV

                                                      FILED IN
                                               4th COURT OF APPEALS
                IN THE COURT OF APPEALS FOR THE SAN ANTONIO, TEXAS
               FOURTH COURT OF APPEALS DISTRICT02/6/2015 9:52:10 AM
                       SAN ANTONIO, TEXAS        KEITH E. HOTTLE
                                                       Clerk

                     LEVI AND MICHELLE MCKENZIE

                                                      Appellants
                                    v.

                      COMMUNITY NATIONAL BANK

                                                       Appellee

            On Appeal from the 38th Judicial District Court
                        Medina County, Texas
                The Hon. Camile G. Dubose, Presiding

                       BRIEF OF APPELLEE

LAW OFFICES OF ELIZABETH G. SMITH        HOUSTON DUNN, PLLC
Elizabeth G. Smith                       Nissa M. Dunn
State Bar No. 18577200                   State Bar No. 14766450
6655 First Park Ten, Suite 250           4040 Broadway St., Suite 440
San Antonio, Texas 78213                 San Antonio, Texas 78209
(210) 731-9177 – Telephone               (210) 775-0880 – Telephone
(210) 731-9130 – Fax                     (210) 826-0075 – Fax
beth@egsmithlaw.com                      nissa@hdappeals.com
                       ATTORNEYS FOR APPELLEE
                      COMMUNITY NATIONAL BANK

                     ORAL ARGUMENT REQUESTED
                                         TABLE OF CONTENTS
TABLE OF CONTENTS ........................................................................................ ii
INDEX OF AUTHORITIES................................................................................... iii
STATEMENT OF THE CASE ................................................................................ vi
ISSUES PRESENTED ......................................................................................... vi
STATEMENT OF FACTS ...................................................................................... 1
SUMMARY OF THE ARGUMENT .......................................................................... 4
ARGUMENT AND AUTHORITIES.......................................................................... 6
        I.       The McKenzies’ negligence claims are barred by the
                 economic loss rule and estoppel by contract. ............................. 6
                 A.       Economic Loss Rule .......................................................... 7
                 B.       Estoppel by Contract ........................................................ 8
        II.      The absence of a special relationship between CNB and
                 the McKenzies precludes imposition of an implied duty of
                 good faith and fair dealing. ....................................................... 10
        III.     CNB’s purported “partial disclosures” were neither
                 material nor misleading, and as a matter of law, cannot
                 support their fraudulent inducement claim. ............................ 12
PRAYER ......................................................................................................... 18
CERTIFICATE OF COMPLIANCE ........................................................................ 18
CERTIFICATE OF SERVICE ............................................................................... 19
APPENDIX

        Order Granting Community National Bank’s No Evidence
        Motion for Summary Judgment and Traditional Motion for
        Summary Judgment (signed May 5, 2014) .......................................... A

        Excerpts from McKenzie Loan Documents ......................................... B

                                                        ii
                                    INDEX OF AUTHORITIES

Cases
Anderson, Greenwood & Co. v. Martin,
 44 S.W.3d 200 (Tex.App. – Houston [14th Dist.] 2001, pet. denied) ..... 13
Bradf. v. Vento,
  48 S.W.3d 749 (Tex. 2001) ...................................................................6, 13
Browning’s Adm’x v. Atkinson,
  37 Tex. 633 (1872)...................................................................................... 9
Dillee v. Sisters of Charity of Incarnate Word Health Care Sys., Houston,
  Tex.,
  912 S.W.2d 307 (Tex.App. – Houston [14th Dist.] 1995, no writ) ........... 12
English v. Fisher,
 660 S.W.2d 521 (Tex. 1983) ..................................................................... 10
Equistar Chem., L.P. v. Dresser-Rand Co.,
 240 S.W.3d 864 (Tex. 2007)...................................................................... 8
Express One Int’l, Inc. v. Steinbeck,
  53 S.W.3d 895 (Tex.App. – Dallas 2001, no pet.) ...................................... 7
Fasken Land & Minerals, Ltd. v. Occidental Permian Ltd.,
  225 S.W.3d 577 (Tex.App. – El Paso 2005, pet. denied) ........................... 9
Federal Deposit Ins. Corp. v. Coleman,
  795 S.W.2d 706 (Tex. 1990) ..................................................................... 10
Fleming v. Tex. Coastal Bank of Pasadena,
  67 S.W.3d 459
  (Tex.App. – Houston [14th Dist.] 2002, pet. denied) .................... 15, 16, 17
GJP, Inc. v. Ghosh,
 251 S.W.3d 854 (Tex.App. – Austin 2008, no pet.) ................................. 14
Hawkins v. Campbell,
 226 S.W.2d 891 (Tex.Civ.App. – San Antonio 1950, writ ref’d n.r.e.) ..... 14

                                                    iii
Hawn v. Hawn,
 574 S.W.2d 883 (Tex.Civ.App. – Eastland 1978, writ ref’d n.r.e.) ............. 8
Holland v. Thompson,
 338 S.W.3d 586 (Tex.App. – El Paso 2010, pet. denied) ........................... 6
Holley v. Central Auto Parts,
 347 S.W.2d 341 (Tex.Civ.App. – Austin 1961, writ ref’d n.r.e.) ............... 14
In re Lyon Fin. Serv., Inc.,
  257 S.W.3d 228 (Tex. 2008) ..................................................................... 11
Ins. Co. of N. Am. v. Morris,
  981 S.W.2d 667 (Tex. 1998) ..................................................................... 12
Int’l Sec. Life Ins. Co. v. Finck,
  475 S.W.2d 363 (Tex.Civ.App. – Amarillo 1971),
  rev’d on other grounds, 496 S.W.2d 544 (Tex. 1973) ................................ 7
Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of America,
  341 S.W.3d 323 (Tex. 2011)...................................................................... 14
Jeffcoat v. Phillips,
  534 S.W.2d 168 (Tex.Civ.App. – Houston [14th Dist.] 1976, writ ref’d
  n.r.e.) ........................................................................................................ 14
Jim Walter Homes, Inc. v. Reed,
  711 S.W.2d 617 (Tex. 1986) ........................................................................ 7
Johnson v. Structured Asset Serv., LLC,
  148 S.W.3d 711 (Tex.App. – Dallas 2004, no pet.)..................................... 8
Jones Partners Constr., LLC v. Apopka Plaza Assoc., LLC,
  2006 WL 784892 (N.D.Tex 2006),
  aff’d, 227 Fed.App’x. 420 (5th Cir. 2007) ................................................ 13
Leeder v. Wells Fargo Bank N.A.,
  No. 04-13-00380-CV, 2014 WL 1714080
  (Tex.App. – San Antonio Apr. 30, 2014, no pet.) (mem. op.) ................ 6, 7
Nabors Drilling, U.S.A., Inc. v. Escoto,
 288 S.W.3d 401 (Tex. 2009) ...................................................................... 6

                                                         iv
Nat’l Prop. Holdings, L.P. v. Westergren,
 58 Tex.S.Ct.J. 204, 2015 WL 123099 (Tex. 2015) ...................................... 5
Nationsbank v. Perry Bros. Inc.,
 68 F.3d 466 (5th Cir. 1995) (not designated for publication) ................... 11
Ralston Purina Co. v. McKendrick,
 850 S.W.2d 629 (Tex.App. – San Antonio 1993, writ denied).......... 1, 7, 13
Skinner Custom Homes, Inc. v. Smith,
  397 S.W.3d 841 (Tex.App. – El Paso 2013, pet. denied) ............................ 8
Southwestern Bell Tel. Co. v. DeLanney,
  809 S.W.2d 493 (Tex. 1991) ....................................................................... 7
Strauss v. Ford Motor Co.,
  439 F. Supp. 2d 680 (N.D.Tex. 2006) ......................................................... 7
Stuebner Realty 19, Ltd. v. Cravens Rd. 88, Ltd.,
  817 S.W.2d 160 (Tex.App. – Houston [14th Dist.] 1991, no writ) .............. 9
Tarrant Cnty. Hosp. Dist. v. GE Auto. Serv., Inc.,
  156 S.W.3d 885 (Tex.App. – Fort Worth 2005, no pet.)............................ 8
Transport Ins. Co. v. Faircloth,
  898 S.W.2d 269 (Tex. 1995) .................................................................... 14
Will-Roye Investment Co. II v. Wash. Mut. Bank, FA,
 142 S.W.3d 393 (Tex.App. – El Paso 2004, no pet.) ................................. 11
Other Authorities
RESTATEMENT (SECOND) OF TORTS § 551(2) ..................................................... 1
W. Page Keeton, et al.,
 Prosser & Keeton on the Law of Torts, § 109 (5th ed. 1984) ................... 14

                                                  v
                         STATEMENT OF THE CASE

Nature of Case               Levi and Michelle McKenzie sued their
                             construction lender, Community National
                             Bank (CNB), for damages arising from a third
                             party builder’s defective construction of their
                             home and failure to pay subcontractors. 1 CR
                             15-34; 2 CR 366-74. The McKenzies alleged
                             causes of action against CNB for negligence,
                             breach of the duty of good faith and fair
                             dealing, and fraudulent inducement. Id.

Course of Proceedings        CNB filed traditional and no evidence motions
                             for summary judgment on all the McKenzies’
                             claims. 2 CR 390-94, 395-450; 3 CR 451-647.

Trial Court’s Disposition    The trial court granted CNB’s motions in an
                             order dated May 5, 2014. 6 CR 1221; App. A.

                            ISSUES PRESENTED

     Did the trial court properly grant CNB’s motions for summary

judgment?

     1.     Are the McKenzies’ negligence claims barred by the economic
            loss rule and estoppel by contract?

     2.     Did the absence of a special relationship preclude imposition of
            an implied good faith duty on CNB?

     3.     Were CNB’s purported “partial disclosures” sufficiently material
            and misleading to support the McKenzies’ fraudulent
            inducement claim?

                                     vi
                                   STATEMENT OF FACTS

         On February 23, 2011, Levi and Michelle McKenzie contracted with

J.H. Storey Construction Company, Inc. to build a home. 2 CR 367, ¶ 7.

For purposes of obtaining financing, Justin Haby, J.H. Storey’s owner, 1

referred the McKenzies to Community National Bank (CNB) and Mary

Mangold, one of CNB’s loan officers. 3 CR 591. Levi met with Mangold in

February 2011, and claims Mangold told him that Storey “was a good

builder and they had built houses with them in the past.” 5 CR 1091. At the

time, CNB had not had any issues or problems with Storey’s construction

work, nor was CNB aware of any problems or construction work issues for

other CNB customers’ construction loans related to Storey. 2 6 CR 1181, ¶ 3.

         The McKenzies and CNB closed on the interim construction loan on

March 22, 2011.            In the loan documents they signed, the McKenzies

acknowledged and agreed that:

         •       The McKenzies should not sign any document before they
                 read and understood it. 2 CR 421; 3 CR 514.

1   In this brief, J.H. Storey and Haby will be referred to collectively as “Storey.”

2 The McKenzies criticize CNB for failing to inform them that Storey was in default on
his contracts with other homeowners. Brief of Appellants at 7. It is undisputed,
however, that these other homeowners experienced problems at about the same time as
the McKenzies – well after the loan documents were executed. See 4 CR 830, 837; 5 CR
1064. Therefore, any failure to disclose this information could not form the basis of the
McKenzies’ fraudulent inducement claim. See Ralston Purina Co. v. McKendrick, 850
S.W.2d 629, 633 (Tex.App. – San Antonio 1993, writ denied) (noting duty to disclose
certain matters before transaction consummated, citing RESTATEMENT (SECOND) OF
TORTS § 551(2)).
      •      The McKenzies had investigated Storey’s background,
             experience, and reputation. 3 CR 509, ¶ 4.

      •      CNB would not have any responsibility or liability for
             Storey or the quality of its materials or workmanship. 3
             CR 509, ¶ 4.

      •      Quality control of Storey’s work was the McKenzies’
             responsibility. To ensure the home was constructed in
             accordance with the McKenzies’ wishes, they were to
             inspect the work or have their own independent inspector
             review the work in progress. 2 CR 421.

      •      CNB had the right, but not the obligation, to inspect
             Storey’s work during construction, but any inspection by
             CNB would be solely for its benefit and CNB had no
             obligation to monitor or control Storey’s work. 3 CR 492.

      •      CNB had no obligation, either express or implied, to the
             McKenzies or third parties to verify that draws Storey
             requested were actually used to pay for labor or material
             used in connection with construction of the McKenzies’
             home. 3 CR 487.

      •      The McKenzies had selected Storey, and assumed all risks
             in the event Storey failed to pay for all labor and material
             furnished or otherwise failed to perform. 3 CR 487.3

      The McKenzies admitted they read the loan documents at closing,

which took two to three hours. 5 CR 909, 1007. Although those documents

clearly place responsibility on the McKenzies to monitor the quality of

Storey’s work and verify Storey’s payments to subcontractors, they now

3Relevant excerpts from the loan documents are highlighted and attached to this brief
as Appendix B.

                                         2
claim they believed that it was CNB’s obligation to ensure that “the money

was going to the proper place” – an understanding gained not from the loan

documents, but from “other people that had built homes.” 5 CR 941.

     Construction commenced shortly after closing, and over the next few

months, the McKenzies signed off on thirteen draw requests from Storey,

each certifying that the bills and invoices referenced in the requests had

been paid. 4 CR 523-83. Despite these certifications, Storey apparently

was not paying subcontractors who worked on the home, and the work that

had been performed on the home was defective.         2 CR 368, ¶¶ 11-12.

Consequently, in summer 2011 – after the McKenzies had approved

disbursement of almost all construction funds – Storey stopped all work on

the home, and in November 2011, the McKenzies locked Storey out. 5 CR

911-12.

     The McKenzies sued J.H. Storey in October 2011, and subsequently

filed a criminal complaint against Haby with the Medina County Sheriff’s

Office. 5 CR 913; 948. In an effort to accommodate the McKenzies and

permit them to resolve their dispute with Storey, CNB gave them several

extensions on the note. 2 CR 439 – 3 CR 463. Yet when the McKenzies

settled their lawsuit against Storey for $35,000, they made no effort to pay

off their construction loan, but instead sued CNB for negligence, breach of

                                     3
the duty of good faith and fair dealing, and fraudulent inducement. 1 CR

15-34. The McKenzies ultimately obtained permanent financing and paid

off CNB after filing suit, but persisted in their claims against CNB for

unspecified actual damages.

     CNB moved for summary judgment, arguing that: (1) the McKenzies’

negligence claim is barred by the economic loss rule and estoppel by

contract; (2) CNB owes the McKenzies no duty of good faith and fair

dealing as a matter of law; and (3) the absence of a duty based on non-

disclosure or partial disclosure precluded the McKenzies’ fraudulent

inducement claim. 2 CR 390-94, 395-411. The trial court granted CNB’s

motions and this appeal ensued. 6 CR 1221, 1240.

                      SUMMARY OF THE ARGUMENT

     CNB extended interim construction financing to the McKenzies in

reliance on their acknowledgment that they had selected and investigated

Storey’s background, experience, and reputation, and that CNB “will not

have any responsibility or liability whatever for [Storey] or the quality of

[its] materials or workmanship.” 3 CR 509 ¶¶ 1 & 4, 511; App. B. To that

end, the McKenzies signed loan documents in which they agreed that they

were responsible for monitoring and controlling the quality of Storey’s work

and assumed “all risks” in the event Storey failed to pay subcontractors or

                                     4
otherwise failed to perform.     2 CR 421; 3 CR 487, 514; App. B.         The

McKenzies apparently neglected to monitor Storey’s work in accordance

with their agreement, and after the majority of the loan proceeds had been

disbursed, they discovered that the work was defective and that certain

subcontractors had not been paid.             They now attempt to hold CNB

responsible for their resulting losses.

      It is not the courts’ role to protect parties from their own agreements.

Nat’l Prop. Holdings, L.P. v. Westergren, 58 Tex.S.Ct.J. 204, 208, 2015 WL
123099, *5 (Tex. 2015). But that is precisely what the McKenzies seek in

this lawsuit, claiming that CNB is liable based on negligence, breach of an

implied good faith duty, and fraudulent inducement because:                (1)

notwithstanding their acknowledgement that they read and understood the

loan documents, CNB failed to advise them of their obligations; and (2)

CNB represented that Storey was a “good builder.” The trial court properly

granted CNB’s motions for summary judgment on all the McKenzies’ claims

because:

      •     The economic loss rule and estoppel by contract bar their
            negligence claims;

      •     The absence of a special relationship between CNB and
            the McKenzies precludes imposition of an implied duty of
            good faith and fair dealing; and

                                          5
       •      CNB’s purported “partial disclosures” were neither
              material nor misleading, and as a matter of law, cannot
              support their fraudulent inducement claim.

                          ARGUMENT AND AUTHORITIES

I.     The McKenzies’ negligence claims are barred by the
       economic loss rule and estoppel by contract.

       Negligence actions require proof of: (1) a legal duty owed by one

person to another; (2) a breach of that duty; and (3) damages proximately

caused by the breach. Nabors Drilling, U.S.A., Inc. v. Escoto, 288 S.W.3d
401, 404 (Tex. 2009); Leeder v. Wells Fargo Bank N.A., No. 04-13-00380-

CV, 2014 WL 1714080, *4 (Tex.App. – San Antonio Apr. 30, 2014, no pet.)

(mem. op.). The McKenzies assert that CNB owed them a duty “by virtue of

their partial disclosure and representation regarding Mr. Haby and J.H.

Storey’s reputation and business acumen as a homebuilder.”4                       Brief of

Appellants at 12. Assuming that Texas even recognizes a cause of action for

“negligent partial disclosure,” the McKenzies’ negligence claim is

nevertheless precluded by the economic loss rule and estoppel by contract. 5

4 The only “representation” attributed to CNB did not address Storey’s “business
acumen.” Rather, according to Levi, Mangold simply opined that Storey “was a good
builder.” 3 CR 591.
5
  The authorities the McKenzies cite address partial disclosure as the basis for a fraud
claim, not a cause of action for negligence. See Bradford v. Vento, 48 S.W.3d 749, 755-
56 (Tex. 2001) (noting that supreme court has never adopted a general duty based on
partial disclosure, but holding that if such a duty existed, evidence did not support jury’s
finding of fraud); Holland v. Thompson, 338 S.W.3d 586, 597-98 (Tex.App. – El Paso
2010, pet. denied) (discussing duty to disclose in the context of a claim for fraud);

                                             6
A.    Economic Loss Rule

      The economic loss rule precludes recovery of economic losses in

negligence when the loss is the subject matter of a contract between the

parties. Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494

(Tex. 1991); Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex.

1986); Leeder, 2014 WL 1714080 at *4. To overcome the rule, a claimant

must plead and prove either personal injury or property damage as

contrasted to mere economic harm.               Strauss v. Ford Motor Co., 439
F. Supp. 2d 680, 688 (N.D.Tex. 2006) (quoting Express One Int’l, Inc. v.

Steinbeck, 53 S.W.3d 895, 899 (Tex.App. – Dallas 2001, no pet.)). In this

case, the McKenzies have neither pleaded nor presented any evidence that

their damages are anything other than economic losses related to their loan

agreement with CNB.          As such, the economic loss rule precludes their

negligence claims as a matter of law.

      The McKenzies do not dispute that the economic loss rule applies.

Instead, they assert – incorrectly – that CNB waived reliance on the

economic loss rule because it did not plead the rule as an affirmative

defense. As the Texas Supreme Court has expressly recognized, because the

Ralston Purina, 850 S.W.2d at 636-37 (finding duty based on partial disclosure
sufficient to support fraudulent inducement claim); Int’l Sec. Life Ins. Co. v. Finck, 475
S.W.2d 363, 369-70 (Tex.Civ.App. – Amarillo 1971), rev’d on other grounds, 496
S.W.2d 544 (Tex. 1973) (discussing duty to speak based on partial disclosure as basis for
fraud claim).

                                            7
existence and amount of damages is part of a plaintiff’s cause of action, a

defendant is not required to assert the economic loss rule as an affirmative

defense. Equistar Chem., L.P. v. Dresser-Rand Co., 240 S.W.3d 864, 868

(Tex. 2007). See also Tarrant Cnty. Hosp. Dist. v. GE Auto. Serv., Inc., 156
S.W.3d 885, 895 (Tex.App. – Fort Worth 2005, no pet.). Rather, in order

to avoid summary judgment, it was the McKenzies’ burden to plead and

present evidence that they sustained personal injury or property damage

apart from economic damages.          Because they failed to do so, their

negligence claims fail as a matter of law.

B.    Estoppel by Contract

      Estoppel by contract is a form of quasi estoppel based on the idea that

a party to a contract cannot take a position inconsistent with its provisions,

to the prejudice of another. Johnson v. Structured Asset Serv., LLC, 148
S.W.3d 711, 721-22 (Tex.App. – Dallas 2004, no pet.); Hawn v. Hawn, 574
S.W.2d 883, 886 (Tex.Civ.App. – Eastland 1978, writ ref’d n.r.e.). Under

the doctrine of estoppel by contract, a party is bound by the terms of his

own contract unless it is set aside by fraud, accident, or mistake. Skinner

Custom Homes, Inc. v. Smith, 397 S.W.3d 841, 846 (Tex.App. – El Paso

2013, pet. denied); Johnson, 148 S.W.3d at 722.

                                      8
     In this case, the McKenzies admit that they signed the loan

documents, and they do not dispute that the terms of those documents

preclude their claims in this case. Rather, their sole argument is that CNB

failed to establish estoppel by contract because it did not present conclusive

proof of fraud by the McKenzies.

     Again, the McKenzies misstate Texas law. Unlike equitable estoppel

or estoppel in pais, estoppel by contract, as a form of quasi estoppel,

requires no showing of a false representation or detrimental reliance.

Fasken Land & Minerals, Ltd. v. Occidental Permian Ltd., 225 S.W.3d 577,

593 (Tex.App. – El Paso 2005, pet. denied); Stuebner Realty 19, Ltd. v.

Cravens Rd. 88, Ltd., 817 S.W.2d 160, 164 (Tex.App. – Houston [14th Dist.]

1991, no writ). For this reason, the McKenzies’ reliance on Browning’s

Adm’x v. Atkinson, 37 Tex. 633 (1872) – which discusses estoppel in pais –

is misplaced.

      The McKenzies signed loan documents in this case in which they

acknowledged they had investigated Storey, and agreed to: (1) inspect

Storey’s work for quality control; and (2) review Storey’s draw requests to

ensure that loan proceeds were properly disbursed. 3 CR 509, ¶ 4; 3 CR

514-15; App. B. In addition, the McKenzies affirmed that any inspection by

CNB was for its own benefit, and expressly acknowledged that CNB had no

                                      9
obligation to monitor or control Storey’s work for them. 3 CR 492; App. B.

Finally, the McKenzies specifically agreed to “assume all risks in the event

[Storey] fails to pay for all labor and material furnished or otherwise fails to

perform under the Contract.” 3 CR 487; App. B. Their own unequivocal

agreement     precludes     them     from     shifting    their   acknowledged

responsibilities (and liability for failure to fulfill them) to CNB.

II.   The absence of a special relationship between CNB and the
      McKenzies precludes imposition of an implied duty of good
      faith and fair dealing.

      The McKenzies next argue that summary judgment was improper

because CNB owed them a duty of good faith and fair dealing, and breached

that duty by failing to explain the terms contained in the loan documents

and not advising them to employ legal counsel. The Texas Supreme Court

has consistently held, however, that duty of good faith and fair dealing is

not imposed in every contract, but only in special relationships marked by

shared trust or an imbalance of bargaining power. Federal Deposit Ins.

Corp. v. Coleman, 795 S.W.2d 706, 708-09 (Tex. 1990); English v. Fisher,

660 S.W.2d 521, 524-25 (Tex. 1983) (Spears, J., concurring). Neither the

relationship between lender and borrower nor between a bank and its

customer is sufficient to give rise to a duty of good faith. Coleman, 795
10
S.W.2d at 709; Will-Roye Investment Co. II v. Wash. Mut. Bank, FA, 142
S.W.3d 393, 410 (Tex.App. – El Paso 2004, no pet.).

      While    acknowledging     these     well-established   principles,   the

McKenzies insist that a special relationship based on disparate bargaining

power imposed an implied good faith duty on CNB because it had superior

knowledge of construction financing and of Storey’s banking background.

But disparity of bargaining power does not occur merely because one party

is more sophisticated or occupies a more advantageous bargaining position.

See In re Lyon Fin. Serv., Inc., 257 S.W.3d 228, 233 (Tex. 2008) (orig.

proceeding) (plaintiff’s claim that he was not able to obtain legal advice, did

not have formal business school training, and was unaware of contract

provision when he signed it insufficient to show disparity of bargaining

power); Nationsbank v. Perry Bros. Inc., 68 F.3d 466, *1 (5th Cir. 1995)

(not designated for publication) (dominant position of bank to significant

disadvantage of borrower insufficient to establish special relationship

necessary to implied good faith duty under Texas law).

      Rather, a disparity of bargaining power exists only when one party

has no real choice in accepting the terms of the agreement. In re Lyon Fin.

Serv., Inc., 257 S.W.3d at 232; Dillee v. Sisters of Charity of Incarnate

Word Health Care Sys., Houston, Tex., 912 S.W.2d 307, 309 (Tex.App. –

                                      11
Houston [14th Dist.] 1995, no writ).      Because the McKenzies failed to

present any evidence showing they had no choice but to do business with

CNB, no implied duty of good faith and fair dealing can be imposed on CNB

and summary judgment on the McKenzies’ claim for breach of that non-

existent duty was proper.

III. CNB’s purported “partial disclosures” were neither
     material nor misleading, and as a matter of law, cannot
     support their fraudulent inducement claim.

     Finally, the McKenzies contend that CNB fraudulently induced them

to execute the loan documents because CNB failed to disclose that in the

past, Storey had received two loans from CNB to cover an overdraft while

waiting for payment from a contractor – loans Storey significantly paid

down but ultimately was unable to completely pay off. 4 CR 766-67. The

McKenzies admit that generally, no duty of disclosure arises without

evidence of a confidential or fiduciary relationship, which does not exist in

this case. Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998).

     Nevertheless, the McKenzies claim that CNB had a duty to disclose

based on statements by its loan officer, Mary Mangold, regarding Storey’s

reputation as a builder:

     Q.    Did Ms. Mangold make any statements to you about Mr.
           Haby’s, I guess for lack of a better phrase, reputation as a
           builder?

                                     12
      A.    My understanding in our discussion was that he was a
            good builder and that he had built several houses in the
            area and that they had worked with him on several houses
            and that they were nice houses.

5 CR 1092. According to the McKenzies, Mangold’s statements constituted

a partial disclosure regarding Storey’s reputation, which in light of the

previous default conveyed a false impression. See Anderson, Greenwood &

Co. v. Martin, 44 S.W.3d 200, 213 (Tex.App. – Houston [14th Dist.] 2001,

pet. denied); Ralston Purina Co. v. McKendrick, 850 S.W.2d 629, 634-35

(Tex.App. – San Antonio 1993, writ denied).6 As demonstrated below,

however, no duty arose in this case because even when considered in light

of Storey’s previous default, the “partial disclosures” the McKenzies

attribute to CNB – which were no more than a matter of opinion – were

neither material nor misleading.

      To avoid summary judgment on their fraudulent inducement claim,

the McKenzies were required to adduce evidence that CNB’s alleged partial

disclosure was material. Jones Partners Constr., LLC v. Apopka Plaza

Assoc., LLC, 2006 WL 784892, *5 (N.D.Tex 2006), aff’d, 227 Fed.App’x.

420 (5th Cir. 2007) (duty to disclose not triggered where partial disclosures

are immaterial). Pure expressions of opinion are not representations of

6 Although several Texas intermediate appellate courts, including this Court, have
recognized a duty based on partial disclosure, the Texas Supreme Court has never
adopted such a duty. Bradford v. Vento, 48 S.W.3d at 655-56.

                                       13
material fact, however, and cannot provide a basis for a fraud claim.

Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of America, 341
S.W.3d 323, 337 (Tex. 2011); Transport Ins. Co. v. Faircloth, 898 S.W.2d
269, 276 (Tex. 1995).

     Statements using broad and vague, commendatory language praising

services as “good, proper, sufficient, and the like” represent no more than

“mere sales talk,” rather than statements of material fact. GJP, Inc. v.

Ghosh, 251 S.W.3d 854, 889 (Tex.App. – Austin 2008, no pet.) (quoting W.

Page Keeton, et al., Prosser & Keeton on the Law of Torts, § 109 (5th ed.

1984). See e.g., Jeffcoat v. Phillips, 534 S.W.2d 168, 171-72 (Tex.Civ.App. –

Houston [14th Dist.] 1976, writ ref’d n.r.e.) (representations that doctor was

“one of the finest surgeons in Harris County,” that plaintiff “should not be

afraid of him,” that “he had a real good reputation,” and that “he didn’t

have any bad reports against him” expressions of opinion); Holley v.

Central Auto Parts, 347 S.W.2d 341, 343 (Tex.Civ.App. – Austin 1961, writ

ref’d n.r.e.) (statement that tire rim was “a good one” amounted to no more

than opinion); Hawkins v. Campbell, 226 S.W.2d 891, 896 (Tex.Civ.App. –

San Antonio 1950, writ ref’d n.r.e.) (statement that price is a good price for

property merely an expression of opinion). In this case, Mangold’s alleged

statements – that Story was “a good builder” who had built “nice houses” –

                                     14
constitute no more than expressions of her opinion, and thus, cannot

support the McKenzies’ fraudulent inducement claim.

       Summary judgment was proper on the McKenzies’ fraudulent

inducement claim for the additional reason that the information they

believe should have been disclosed was not material to Mangold’s opinion

that Storey was a “good builder” who built “nice houses.” Notwithstanding

the McKenzies’ mischaracterizations in their brief, Mangold’s purported

statements did not relate to Storey’s “financial reputation” or his “business

acumen.” And although Storey’s default – which was the result of another

builder’s failure to pay – might have relevance to whether Storey was a

good bank customer, it says nothing about Storey’s competence as a

builder.

       The Fourteenth Court of Appeals addressed a similar situation in

Fleming v. Tex. Coastal Bank of Pasadena, 67 S.W.3d 459 (Tex.App. –

Houston [14th Dist.] 2002, pet. denied). In that case, Fleming met with

Cord, who convinced Fleming to invest in one of Cord’s ventures. Id. at

460.    To facilitate the investment, Cord told Fleming to purchase a

$280,000 CD from Texas Coastal Bank as collateral to secure a loan. Id.

While the documents were being prepared, Fleming asked the bank’s

president what he knew about Cord, who told Fleming that Cord generally

                                     15
carried six figures in his account, was a “good customer,” and that he

“didn’t really understand all of Cord’s business, but that, obviously, you

know, he had good business.” Id.

      Ultimately, the investment failed, the bank foreclosed on Fleming’s

CD, and Cord was convicted for his involvement in this and other

fraudulent investment schemes.      Id.   Fleming sued the bank and its

president for fraud based on partial disclosure, alleging that the bank was

obligated to tell him that Cord was a new customer, his accounts had

frequent returned items, he never took out any loans, he had traveled with

the bank’s president to Belize in an attempt to start a banking venture, and

a grand jury had subpoenaed records from his accounts at the bank. Id. at

461. The trial court granted the defendants’ traditional and no evidence

motions for summary judgment. Id.

      The court of appeals affirmed based in part on its holding that taking

the defendants’ partial disclosures as a whole, they were not so misleading

as to require further disclosure:

      Fleming admits [the bank president] told him “he didn’t really
      understand all of Cord’s business, but that, obviously, you
      know, he had good business.” In this context, no reasonable
      person could infer that [the bank president] was vouching for
      the soundness of Fleming’s investment. [The bank president’s]
      other comments, standing alone, might have given Fleming a
      false impression about the length, nature, or quality of Cord’s

                                    16
      banking relationship, but Fleming was not interested in being
      his banker.

Id. at 462.

      The court also held that recognizing a duty under the circumstances

would be contrary to public policy:

      [W]e decline to create a new duty of non-disclosure as a matter
      of public policy in this case because of the Hobson’s choice it
      would create for banks. A policy requiring banks to disclose to
      one customer the private banking information of another would
      in many cases violate state and federal law. It would also
      require banks to discourage one customer from doing business
      with another, inviting claims for tortious interference with their
      contractual relations.

Id. at 462 (citations omitted).

      Similarly, in this case, the information the McKenzies complain was

not disclosed relates to whether Storey was a good bank customer, not the

quality of his work as a builder. For this reason, the fact that CNB had

“special knowledge” of his previous default did not contradict or render

misleading Mangold’s opinion that he was a good builder.           And as in

Fleming, finding a duty to disclose under the circumstances presented by

this case would improperly require banks to disclose a customer’s private

banking information to another customer.        Because neither Mangold’s

opinion that Storey was a “good builder,” nor the unrelated information

regarding Storey’s previous default, supports the McKenzies’ fraudulent

                                      17
inducement claim, the trial court properly granted CNB’s motions for

summary judgment.

                                   PRAYER

      For these reasons, Appellee Community National Bank requests that

the trial court’s judgment be affirmed. Appellee further requests all relief to

which it may be entitled, at law or in equity.

                           Respectfully submitted,

LAW OFFICES OF ELIZABETH G. SMITH          HOUSTON DUNN, PLLC
Elizabeth G. Smith                         Nissa M. Dunn
State Bar No. 18577200                     State Bar No. 14766450
6655 First Park Ten, Suite 250             4040 Broadway St., Suite 440
San Antonio, Texas 78213                   San Antonio, Texas 78209
(210) 731-9177 – Telephone                 (210) 775-0880 – Telephone
(210) 731-9130 – Fax                       (210) 826-0075 – Fax
beth@egsmithlaw.com                        nissa@hdappeals.com

                            By/s/ Nissa M. Dunn
                               Nissa M. Dunn

                          ATTORNEYS FOR APPELLEE
                         COMMUNITY NATIONAL BANK

                       CERTIFICATE OF COMPLIANCE

     In accordance with Texas Rule of Appellate Procedure 9.4, the
undersigned certifies that the foregoing brief contains 3,996 words.

                                        /s/ Nissa M. Dunn
                                        NISSA M. DUNN

                                      18
                        CERTIFICATE OF SERVICE

     The undersigned certifies that a true and correct copy of the foregoing
Appellee’s Brief has been delivered, pursuant to the Texas Rules of
Appellate Procedure, on the 6th day of February, 2015, to the following:

Eric A. Pullen                           Via E-service and/or E-mail
Sarah A. Reyes
PULMAN, CAPPUCCIO, PULLEN
BENSON & JONES, LLP
2161 NW Military Highway, Suite 400
San Antonio, Texas 78213
epullen@pulmanlaw.com
sreyes@pulmanlaw.com

                                      /s/ Nissa M. Dunn
                                      NISSA M. DUNN

                                    19
        A

  Order Granting
Motions for Summary
     Judgment
--   •

         Apr. 25. 2014 9:36AM                                                                     No. 4367 P. 3

                                                 Cause No. 13-05-21843-CV

               LEVI and MICHELLE McKenzie,
                     Plaintiffs
                                                            §
                                                            §
                                                                   IN THE DISTRICT COURT
                                                                                                          Houf~:~~ ffYV
               vs.                                          §      38TH JUDICIAL DISTRICT
                                                            §                                                    MAY 05 201%
               COMMUNITY NATIONAL BANK,                     §
                   Defendant                                §

                 ORDER GRANTING COMMUNITY NATIONAL BANK'S NO EVIDENCE MOTIO"
                           FOR SUMMARY JUDGMENT AND TRADITIONAL
                                MOTION FOR SUMMARY JUDGMENT

                         On April 7, 2014, came on to be considered Defendant, Community National Bank's

               ("Bank") No Evidence Motion for Sununa1y Judgment, and Traditional Motion for Summary

               Judgment against Levi McKenzie and Michelle McKenzie, Plaintiffs herein. The Court, after
                                                                             '
               examining the pleadings timely filed, Defendant Bank's No Evidence Motion for Snnm1ary

               Judgment, Defendant's Traditional Motion for Sununary Judgment, Plaintiffs Response to both

               motions, Defendant's Reply and the summary judgment evidence admitted for consideration,

               determined that Defendant Community National Bank is entitled to summary jud.gment as

               follows·:

                         IT IS ORDERED that Defendant's No Evidence Motion for Summary Judgment, and

               Traditional Motion for Summary Judgment       are GRANTED and Plaintiffs, Levi and Michelle
               McKenzie take nothing against Defendant, Conununity National Bank, that all claims asserted

               by Plaintiffs are denied.

                         IT IS FURTHER ORDERED that Defendant's request for attorney fees is denied.

               All reliefrequested in this case and not expressly granted is denied. This judgment finally

                                                                             B1:2.1 OS!Pleudings.. McKtnziv v CNDIMSJ/OrdcrMSJ
               rage 1 of 2

                                                                                                                                 Page 1221
•
 •
     -·
     •
                                                                                        I~   r.   II :H..,J       V   II

          disposes of all parties ancl claims and is appealable.

                    SIGNED on the   tf day of t::J;::

          APPROVED:
          Law Offices of Elizabeth G. Smith
          6655 First Park Ten, Suite 250
          San Antonio, Texas 78213
          P: 210-731-9177 F: 210-731-9130

          by~~~ulj
             Elizabet G. Smith
             State Bar No. 18577200
          Attomey for Community National Bank, Defendant

          APPROVED:
          Pulman, Cappuccio, Pullen & Benson
          2161 NW Military Hwy., #400
          San Antonio, TX 78213
          P:222-9494 F: 892-1610
          Epullen@pulmanlaw.com

                 Chrissy 1. Schwennsen
                 State Bar No. 24073786
          Attorney for Plaintiffs, Levi and Michelle McKenzie

                                             "   ·'

                                                                                                              .
                                                                   BU 1. OS!Ptcadings, McKenzie v CNBflv!SJ/OrderMSJ

          Pag~2   of 2   ·

                                                                                                                           Page 1222
     B

Excerpts from
McKenzie Loan
 Documents
- ············-   _·-·-·--··· --·-----.----------·---:--;-:-- - - - - - -·- -------·--·-----,
                  .. ...

                                                                 ;
                                                                     r-·

                           Owner'S!Borrower!::                Levi McKc:n·.dc Michell~: Mc:Kcn:lit
                           C<>nlructor:
                            Property:                         Lot C Count)' 'Rout! ~66, Ric• M ecli1111, Tcxns 78066
                            Let\dcr:                          Community NntiER THE LA'1-V. You are nboU1 to enter
                           into a trnn~oction to build a. new home or remodel existing residential property. Texas law r~quires your conlrnctor
                           to provide you with this britf overview of some of your ri~l1ts 1 .responsibiliti~, tlnd risks in this transaction .
                                     CONVEYANCE TO CONTRAC'TOH PROHJIHTED. Your contractor may no1 requ.1re you to convey
                           your real property to your contractor as a condition to the ugrecmcnt for the construction of improvements .on your
                           property.
                                     KNOW YOUR CONTR."'CTOR.                 Before you enter into youi agreement for lhe construction of
                           Improvements to your real property, make sure that you hnve investigated your contractor. Obtain and verify
                           references from other people who have used the contractor for the r:ype and size of construction project on your
                           property.
                                    GET IT IN WRlTlNG. Make sure that you have a writt~n agrccmelit ·with your C(1:ttractor that includes:
                            (1) n description of the work tht contractor is to perform; (2) the required or estimated time for comph:tion of the
                            work; (3) the cos: of the work or how the cost will be determined; and (4) the procedure and method of payment,
                            including provisions for statutory retninag1:.and conditions for fin~l payment. 1f your comractot made a promise,
                            wsrranry, or represenla1iion to you concerning the work the contractor is to perform, make sure thar promise,
                            warranry, or representation is specified in th~ writtc:n agreement. An oral prornise that is not included in the
                            wricteu agreement may not be enforceable under Texas law.          ·
                                     .READ BEFORE ·you SIGN. Do not sign any document before: you have rtad and understood it.
                            NEVER SJGN A DOCUMENT TliAT INCLUDES AN UNTRUE STATEMENT. Take your time in
                           reviewing documents. If you borrow money from a lender to pay for the improvements, you are entitled to have the
                           IOJ\n closing docamcnts furnished co you f(}r review at lcnst one busir.ess day before the closing. Do nor waive this
                           requirement unless a bona. fide emergency or nnother good cause exists, and make sure you understand the
                           documents before )'Oll sign them. Tf you fail to comply with the terrns of the documents. you could lose your
                           property, You arc entitled ·to have your own attorney r~view any_documents. If )'OU have any question about the
                           me:ming of n document~ consult an attorney.                          ·
                                     GET A LIST Ol' SUl3CONTRACTORS AND SU l'PLIERS, Before construction commences, your
                           contractor is required to provide you with" list of the subcontracrors ·~nd suppliers the contractor intends to usc on
                           your project. Your contl'ector is required to supply updated information Qu any subcontr&ctors and suppliers added
                           nficr the list is prov.ided. Your contractor is not required to supply this information if you sign a written waiver of
                           your rights·to receive this information.                                                                       ·
                                     MONlTOR THE WORK. Lenders aud govcrnmemnl authorities m~y inspect the work in progress from
                           time {O time for their own purposes. The!ie inspections are not intended as qu~lity contro! inspections. Qtt:tlity
                                        t'
                           control is mnn~r for you nnd your contrr.cto.r. To ensure thM your home is being co:tstructed in 0\C<.:.ordancc; with
                           your wishes and specifications, you should in~pect the work yourself or have your own independent inspector
                           review tire work in progress.
                                    MONlTOn l'A YME.NTS. ifyoll usc a lender, your lender is required to provide you with a periodic
                           statement .showing the money disbur:;ed by the lender ftom the proceeds of your loan. Each tirne yowr contractor
                           T e:u1 Rej,ldr.nlial Constn..ctio r. Conlrjjcl 0\sdo.sun:

                                                                                                             OPcir:t(ln t'IIUCflitm, l.l.P.·Miiutton. l'cxus 200<;·1009
                                                                                                                         161?09031 I (Doc ld64?3 Rcv. O wn ttcn or
oral ngjremcnl. r.cgnrding the construction of nil or nn.y portion of lht: Improvements thcr.eof hf1S been c.ntered into
by Con.t ;tcLor or to the ~est of Contractor's knowledge by ony subcontr;Jctor; (iv) Contr;~ctor hns r)OI subord inated
the lien nd securi1y int~re.sc granlt!d under the Contract to :~oy oth~:w lien or security interest which m11y affecl the
'Prop~!'1~· (v) Cor':llractof has not pledged, assigned or 01hcrwise encumbered the Contract or the Hesidential
Constru tion Note; and kvi) the funds to be advanced hertundcr, togtther wilh other funds in the Account are
sufflcit to fully consc/-uc\ the l mprovcm~nl.S, pay all exptnse:r. nc<:cssmy for such <:onstnJction and otherwise
                             I
discharg,e contractor's oyigalions under the conlract.                            . .       .             · . ..

5.     rroccdurc for ponstrucrion A.dvfl ncc:s. Lender shall have no obltgatlon, Cllher express or rmphtd, to
Borrow r, or to ony thiid porties, to verify thnt advances rnndc hereunder ~re actu:.llly used to pay for labor or
material· used in connetti<>n with the consl rLIC[ion of the Improvements. Borrow~r understands that if amoums
properly owing arc nm actually paid, Iabore~ or m~tterill l mcn may file liens Bgainst the Pr~pctt~. Borrower
                          1
understa ds thnl BotTower has sc:lcctecl the Contractor, and then::by agrees to nssume all nsks m the event
Contrac r fails to pay l~r all labor and material furnished, or otherwise fails to pt:rforrn under the Contract. The
                          '
proceed~ of the Loan and ony f\mds held in tile Account shall be adv11nced at such times us Contra~tor has earned a
ponion r amounts due ~nder the •1pprovcd Work Schedule or Contract (the: "Completed Work"). A written draw
request or each advnncc shull be delivered lo Lender ct lcust three (3) business days prior to the date on which
such ad ance is to be mpde. The draw requ~sl shall be in 11 fonn acceptable to Lender. lf requested by Lender,
cnch su h rcqut,<;;f mus~ be accompanied by· pertioent invoices, receipts. certificates, iien waivers anc.l other
documer ts. Lender s'ha~J .hnve no obl-igation to mnke any ndvcmcc if, m the time (he request for such advnncc is
made, B rrower or Conyilctor is in default with respect to any provisi on of this Agreement or of any instrument
referred o herein. Eachj draw request shall be deemed a reprcstntat.ion and warranty hy Borrower and Contractor
thnl no uch default exists. The amount of each construction advance shaH be for the items lisred in the drnw
request, s approved by ~-ender, lc..~s the total qf leled     Work. 1 cnder ha~ the:: rit~ht l'IS a condition precedent to the issuance <1f a chcclc to rec1uire an
i~spc.cti n of the Work           r
                                the inspector or appraiser of ils choice, ut the expense of the Borrower, and to require~
utle sea ch of the Propfrty or title policy cndon:emcnt. A min imum o f three (3) and ;~ maximum of ten (10)
insp.ecti ns may be requ red by Lender. The expcnsc to the Bon·ower of each iospcclion shall nol exceed $0,00.
Bo.rro~ · llgrces to utili· e the checks and wire transfers dclivcrecl to il by Lender fol' delivery to the Contractor
~tnctly 1 uccordunce .w~ h the provisions ~f thi.s Agreement. Borrower ~iii nol .e~dorsc: or deliver to C~ntractor
nny of tl· e checks recc1v.e,id frm:n Lender cvtdcncmg the LoZ~n proceeds ur1t1l the port1on of the: Work for wh1ch each
ci1eck is to pay hns bee1~ completed by the Conlmclor, and until Contractor, hns represented lo HoJTOwcr that it
R~)hlend.    Conuructlon Lo11r. A~rcetol ct•l .l)u rnpvcr· ~ Name

                               I
                               I                                    3
                                  '                                                       OBS821031 I [Doc ld 56SO Re\•,07.07.10]
                                  '

                              I

                                                                                                                                    Page 487
--···--·-------·~-..-·-------------~---------

     9.        TUght of lllSpccrion. The Borrower and Contractor shall furnish the Lendcl' with a complete duplicate set
     of Plan. and Specifications. The Lender has the ri£hl, bul nor the obligati(Jn, duri ng construction of the
     Improve nenL<> to inspect the snme nnd require to be repaireti or replaced, ell Borrower's expense. any mnterial or
     workma ship thot do~!; not comply with tile Pllln~ and Specifications. Such inspection shall not cost more them
     $0.00.      rninirnurn of three (3) ton mnximun; of ten (10) shall be required by Lender. Such inspections shall be
     d~emed o be for the benefit of the Lender only und sn~dl crcnte no liability or ,·esponsibilily 10 the Borrower, the:
     panics xprcssly ackn(lw)cdge th1tt Lender has no obi igntion to monitor or <:ontro! 1he work for Borrower.
     Lcndcl''!i agretrnent to advance fu nds under this Agrccm;;nt is expressly condilionccl upon its continuing right to
     inspc:cl +c })ropcrry. Lender may inspecr rhe IJropcrLy l.ltany reasonuble time to determine the progress and quality
     of the Wfrk and the condition of the lmp.rovc~enl!i , but Ler,dr.r shall not be Jiuble for t~e perfonnancc or default of
     nny con cwtor or subcontractor, or for any fa1lure to construct, complete, pro1ecr or msurc the Improvements or
     material. , or for the pll)'ll'\elll of tmy cost or expense incurl'ed in connection therewith, or for 1he pe.foJmance or
     non-per rmance of any obligntion of Borrower or Comrnctor; and nothing1 including withottt limitation any
     disburse ent hereunder or the deposit or acceptance of 1my document or instrumen t• .shall be construed nJ; a
     represen atim1, wnrrnnty, or waiver express or implied, on Lender's part. lm:spcctive of tl default under tht
     Contrncl <)r work agrecmcnc by Co.nlroctor or for its failure to complete or perform aU Work rt:guired of iLunder
     lhc Con iiCt, Borrower shnll have no right to offset, counterclaim or defense ngainst Lender because of any claim
     13orrowc· may hnve Rgninst Contractor. The obligations ;nising under che Contract or Plans find Specifications
     between Contractor und Borrower are !itpnrnte and independent of any obJiga1ions arising hereundcl' among the
     undersi 1ed. Lender may pc:rforrn Any inspection by or throu~h any employee, agenl, or independent contractor.

     10.           ~ght
                    of Lender to Complete or Secure . Borrower and Contracto r ugn:c that, if construction of the
     Jmprovcp1ents is delayed or suspended for .e period ill excess of fi fteen {I 5} dnys, or if Contractor fails to supply
     workmc? and rnRtr:rials which art! sCttisfaclory to Lender ut any time during the progress of the construction, or if
     Contrac r or MY other persons engaged in such constl\lction or any part thereof refuses, omits or neglects to
     supply a quantity of material or workmen necessary lo complete the Work within the required time period, or if
     Borrowe ·or Contractor shall be in default with rcspec.t to any provision hereof or any provisions of the inswumenls
     attached hereto, lender may (but is not obligat.cd) noel is hereby nulhorized, in its sole discrerion, upon five (5)
     days wri Len nolicc: to BoiTower lmd Contractor, to proccc;d with the construcrion of the lmprovernents. For these
     purpose , Lender, and any persons tl\llhorizcd or employed by it. arc cxptessly nuthorizecl to enter i.nto and upon
     said Pro crty and .Improvements and take <:harge thereof, together with nil mnterials. equipment and othet' personal
     property thereo11 and to proceed with the construction of said lmprovements, or to l'equirc Borrower and Contractor
     to compete construction, with uny such changes, alterutions, n(lditions or modifications as may be deerr•c::d
     nc:cessn . or expcdienr by Lender, and to do whatever Lender may. in its sole discretion, deem necessary to insure
     comploti n of the co nslruction, nil to the end that the Propelly shall constitute che bl':Sl prnclicable security for the
     LoM. 1' construction is dcl·ayed or suspended, Lc:.ndor, in Lt!ndcr's discretion, and without notice to Bon-ower or
     Con.tract r , may take such st.eps lruc:l i(IH   Lo:.an A~rtemtr>l- f}Clrrowe•·'s f1111mc

                                                                                           08.5l!2103li[Doc ld S6!i0 R«v. 07.(17.10)

                                                                                                                                       Page 492
,,·?'.:-•. .       ..~ ~:··   ·.7; ·...· ..·.:.         ,·.                                                                                                                                                                                          .. .,...           . .· . • . .   :.
                                                                                                                                                                                                                                                                                            ·.   .· .

                                                                                                           .r..·. ·,·
,,~~~:,;>;. ~ ,:.:.•
                                                                                                                                                                                                               r : .
                                                                                                                                                                                                                                                                ·. ·.    •'

                                                                                                                                                                                                                      ... .

                             ···.·                                                                                                                                   •     ·!

                                                      Lender:                               <:;o~·unity ~~tiomilBank                                                      ..        .
                                                      Bon·ow_r.. ·                       . LeYi · d(~~.e ~n~ \d!e; ~ch.~lle_1\1<:Kcnzie   .
                                                    .' ·prt,pc . .                      . Lot Cq'Unty ~oad366, Rio .l\:1ePina, T~xas 78066
                                                                                                                      •••• •        •         •   •   •   .••. 1 .   ••         •

                                                    .. ·.·                                                             Residential
                                                                                                                          -·

                                                                                                                                .
                                                                                                                                   Construction
                                                                                                                                          •

                                                                                                                                             . ·L oan -                                           •    •   +

~~~~~\ ;:~;.;~: .:·.:          .                                                                                           Borr9wer's -~ffidavit
 ~   ..   (                                                                                                                                                                                                                    Lo~n·. #   35803880
     I    •
                                                      BEFO                 ;~: :t~
                                                                             un.d ·f$i~~ :.ailthqrity cin this day perspnaliy ~p~r~d· ~e ~nde~igned · (h~~ein..after .c~l~ed
                                                              . ~·),: perst5n~Jly kq~ :tP.·~¢.::'10 ·~ the:person-whos.e ria~e ~ s_u~ri~d J:l~~to. :and !lP<>n. havlng been·_._
..                                                           sw9rp ~pon: ~a~ .:. ~(iP.9~~~fJ14:su:ies)~ :conne¢ti,on wii:h a t,rulsaction 'iri'volying the co.nstruction -of certain
~: ..~=:. ·~. . . · .                        .·.      nnprov en:ts.'on:me.P . pertf~'~roperty.J desctjbed above:             .         ·. ·             .
~~t~~i:~:<: :: . . . .' . ... . . .·.. :- . . . . "" ' .'                         ·:. ·.
i,~b~~:: .-.:_
             :/·. .·~: :.:,- .: B9rr~~ r. ¥f.ehy. wa.rra· ts : a~~'· n:~~~entS (~~~iclt . ~arranties,.· cOvenants, agr9em~nts,.' an~ t'epreserita~iq~ sha.ll ·.
!~~(r;.: .. ,.!,·.                           . ..· survive ht:,.maki~g ()fa . . an.~··~.u ad~ante.s) as fol lows:
~\:'~ · ~              ...              ~-                                                                ..                                      .                                                                                                                                          -     ·.. ·;'•

~P;•. :.·· .                       ·                         .. L      i~lia·~ct.:· .~· .::.~~~~-ha~:be~~-''advi"~..by th_ eLend~ that ~ndci.is rdy.ing tlp9lllhe recitals herei.n
 ··;··· ··                                                             con~tn¢ iti ·· ~tieWon' ~.ili~;·a.mong:·6t.Ocr. things; neg~tia~ng· and ·.cifilblishlng:. the · 1n~~t: ~h.rgr:s to.
.~ ·:.;                                                                B9~~·p- in. ':• .n'tdtiiri·~iih!;'a ~~~ge lo~·- C'L6~(\·~j;:. and. •fha{thi~ . ~ffldS:vi(J;uls. ~" ex~~U\eQ. hy:
·.. .                                                                .Bo~~er in.¢().: e~~o~t~iih::'thatin'oitga:g~loan, W;if.~t .this. A'ffi&vit.h·~:·b.eeli/~~~ied · ~y-~~rrowcr·
i :·.. .
~P.-
                                                                     . f~~ lhe ~~rl>:~~~- ·.··-{iJ,)nducin~ ~~~s'ieliancc: on -~~ reci~:s- h~~-~:~ntt~-~:~: ~d:~Y iti~u~·ingJi~?d~r:
                                                                     · l9;a~y.ana.: fu. -..~~~r.·~e-R~_sia~{i'~ Loan A~,rt)e.n~ f<:;onsy·ucq9ul;t?~w-~grectnenC) execute.d .by
.:~... :. ....
          ·.. ·
                                                                       ~der, ·Son-Q ··. ~:and €()ntrad.Or tcrbe da~ed
                                                                       ce~i~ I~pt-Qv -: ···en~ ·                                    · ·.. ··. ·
                                                                                                                                                                                as
                                                                                                                      of 1\mding·, whlch 'fi.Ulds·'wiH finance tbe eon$tructicm of'
                                                                                                                  ·.·">" .                                                                    · · ··           ·. . · .. ·                      ·
;~~:;<,:          ..                                                                     •, ..

b~::_: ·:·;:.:.~/-':··                 · · =·:                · 2.     Ti~·e.·...~~/ ._:i~~.·.:oi.:~il~..i>e:~tthe th:ne· o~cl~i~·the fee' si~P.J~~~~~cit~~i~~!o/~·)1ie.~~o~~ i~~
     . ... :~. .        ··.: -~ ..             ·.                      'ih~·       same. a_l.:
                                                                                      . ~i'9P.~r:tY·~es~bed- i~ the Deed· o~ Trus f;~ctn:ing_:.~ ··IiOJe·~(W~ll- ~Vide~~~ · the ~an)·                                                                   ,·
                                                                     . :t:x~u!fd .~Y a~ ::.\9#_~:-~·:.~~~~r~ ~~dated· \he_~m~ date· as Ws··'Affi.4•~.~ ~"Jb~re·.are n6 lie~,-cl~~-- or
:.' ~         .                                                         cliarg~ again . the :Pipp;ettY;, offici than Jho~e -.that arc·~lowed ·jri ·:the:loan.do.c~nts. or that :have· been
                                                                     · previ~~lY .app. ···veil ~~d ·atreed to by L~·ndcr.-·                                                                 · ' ··             ·          ··   ·
                                                                              ·.   .. . .        .   ·. . .. ·.   .            .   . .,

                                                               3~ ·. No \v9rk ·p'e ormed ...No ~~rl.c..~f any                                                             kind :(1nc1uding-:tht       rle~~~~ti~n -ilr Tem6v.il of fll1Y. exiSting.
 .. ·. .
                                                              ..·•· ;!~!ti!&~~:::E:;:~~Fa2~c2ft~1;:3~:!-Z
                                                                      Impro've~cnts ~Y·    . "  ..·
                                                                                  ._
                                                                                   . . . Ins_trument.·.:.              r:epresent8tions:and-cemflcati.ons'.
                                                   . : '. · · . .·:· · · · '. _· · · subiniit'ea ·o r caused to· be supm'itie'd to.'r..endedn connection with the
                                                                                                                                                                              ~n :.wamin~~.                                                                                                                                                  m~~~·                   joo
                                                                                                                                                                                                                                                                                                                                                    ·aJl ·j~_for.mation a~d mate~al
                                                                                                                                                                                                                                                                                                                                                L~ .arc tr.u~ and co}Te~~. a:nd·there'                                                                              ·"· ·..·
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          .I

                . . ' . •. .                                      .: I         .•.           ~ :.                 . ha~~ -:been' .nO. m!lteriaL changes in :the condit~OnS affecting. any of .s'u~h. warranties,                                                                                                                                                                                                                        repr.e.Sentarlo!'s~· .. .. ... ·. .
                      · ··.. .-· ·. .. · :_,., ·                                                                  ' c(irt1fiC:~'tions~ihfornu~~o~'~.ma~na(prior~'th~d~teofthi~~ffidavlt. __         · ·. · .                                                                                                                                                                                                                               ·      · .. ·:.. :::..:'. -
                ~         : ···~·                                                                                            . . . ... .. ..'• . .   . .. .. . .•·               . .·          :                                                                                                                                                                                                                                                                        .

                ;.::\~:-\::~. <·>r .-                                                                  12.               ~~v~~~~: ~~·:Boi~~~er~.': ~~:· ex~~c~ti~m :and.dcli~e~ o:f_a.Il . docume~ts,. e~-~cUled or delhi~~ by or·on·                                                                                                                                                                                                                                                                                              ... .' .
                •'-- ~ -<                                        :<~~ ·-:: _.~_. -.' ·                                   ~half,of.'Boriow~r.. ~- -p~irung                                                                                                          ici·..fu:~ LOan_hav.h -~ee~·. duly a·utho!i.ied :.~d approvc:4 by:the -paey                                                                                                                                           ..
            i:_·.:;·~_:,·_ ·.,·:_~- _:·'·. ·._ ·._·._: ·_ :· .:·,.·~·: :_·,~:·>·:. .
            .             ..::··.· .·_,
                                    -.··_:·.....
                                            :                            __    ..                           ~xe9urd·~n~. ~:s~~~th·.~?f.~¥~~- an:' .eq~~-t~te;..~e vali(r i~d· _btrirl.ing~bl,i&ati,?t1sih.·o.fBfo~1. 1. ·t~~fob:-eeabt:.t~ .i~ ~ _-:..
                                                                                                      .·•.:.~ec~                                                                                                                                           . . . ·.:·
                          . .                                     .                        ::·                   . 3Jl.c e . ~t ·.,~J~l~; r~sp~uve ·.tenns• ~J:U the. pa,YnlC?J1t .P.r:. peiJo~¢ ereo .... :WJ.. . ~ su ~e:e .J~:':t'~o '/ .. __
                                                                                                                                                                                    . .                                                        . · _·. · ·-:-~. . ::
            _::.: . . .: .·...... :                                                                  ... · . ~ffs~·'· Clairils or.l3eft;~e$ O·h:Vhitb B9rrOW~ is aw,are-::J3.cirrow~r ~~l. peif~nn- ~u:~pJig~~O!;l~Und~~ .1h~ ;·..,;. ;.' ·. ·.·:- ·:.:·..<;:.-:..:,. ~··.::
            :; ~;~·:":_· . · ... . ·.. · \ : ~.. . • . ·: -Coritr.act,.-·Note and:_se6\n1ty lnstriimeh~ .and prornptl}; ~y:wheri 'due;:trom. th'c·pi'oceeds ·pf.fric:..Loan~ a.If :.\' ·.:· <)~ ....::~.-~·_:'/.·..:'~.
           ·:·-~::\:.~ :.··\~.,;:,::-.;~~ ·';:.:-.:.-.'·'~ . ·;. · c~· ch#Be5.-·anc~·. t:Xpe~~:;-in~~e~.)q ~-i?~i~ti~n·; ·wi~~:~~ ..co·~~ctio~. :.o()lllJ>~cmcn~;- ~i?ITOW.er :.:' .-...·          ..                  .
           -.~-.-.~3>.:·::~):·.:{ ~) -:'.·.,.,-. : .             ,..:s~!:-_~:- ~;·Pr#~~ryy}ree~:anan.cf~~·u~~c~ ;~~ch:~~~d;~a~. sai~ P~peuy odmprovcm~n~--~~:4~~~·-'in>va.ltJe..                                                                                                                                                                                                                                                     . . ·.:. ~- ·: .,'. .                                           ~: :.::,;:_·_
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    :;. )J
            :·.:,')"·,' .i;/~ : .. . J;:•if~bti.;~~[?i~~i~~~~ r.,;~~:~~ :n-.,x~ of.·any ~-~~ ~ ~ incilimd bY L~rider tJ' ...· . ;i~'',; );:1
          "·· -.... . ~ :.. .,... ··.:." -..:: . .' corinectioipN.ith:.:rii.'i.~sirii·o~il::df-tbe'~ari,: a~d-that:'te~'dei :~ay 4ed'tlcf'fl:Q~_a:ey. aayance tO'be· made. any: . '::                                                                                                                                                                                                                                                                                                                . :. ..··-~-. " '··. ·.-~
          ::_:-·~:·?.;~:<:;·;~~~~>)                             :~~t ~~~·.fOr· tbe~pa~~~-Qf ~!lY unp~id: iij~reSi.:·o~ing.tc;t~nd~·r:·or. ~ny~_i~{~pei1se~~-·C~~es. . ::. ··.·.... .-': ~ ..· -·~
                                                                           I         • -     ::::.            . : "

          ·:·':·. /':-~: /~:,.: :~?? :~:·.:·:<-. ·           .: li~;:& ~c~ihh~~l.~· ret~~~ ·;(>·.tlje -~WCtioti ~r ~e·i~proy~~. or-~.P~# 1li~.:~r~:-. ~t:apy oth~r:.:.=:. ,· · ,..- ' · . ; .....=~ -. . :
          :.~:(-',. ·:-~ :':_     :.-.:t~..'::",. : ·..-·.: . .m:oo~ntS·~~a,ty;tor tf?e'j>aymentof ~e ci>stof cQristt1:'9ting ~c i~P,i'ov~~tsiand VJ~· ~~mf$Q .4~~~:d: . ~ .       ,.. .:':·.'·. ., ..j
         ;'_.·.~ ·:.-:~·- ~·'..:-( ·::..': _::<-. .          . ~~-app}i'ed s~~l_ J#··~e:~mha'~d-yari~~. u.nder'the':'Lo.an ~ent. :.:---,·- ' ·.. : . . . ; .. . .'            :·-~· :>..~:· . :· :1
        ~::-/.:•> ~~·:.~···:_:.' ~: ·_ :._: _.',, t',,~~ - .                                                              - ~· · :: ·.:.~~,, < ..:." . .:· ::<·:
                                                                                                                  r . ... • • • ,; _..        ,   ,::            ·'..  '        . ' '
                                                                                                                                                                             . ..                                                                                                                                                   " .... , ....'     .~.=. :: ~:; : ...·.. :                                                                     .             •.                                                                 · .~ : ...~
       ::: r".'.....· ~·~.-.•.. _,:.",·:<;::;:.~~-i. :: . .
                                         .,··. • .•-. ...; .
                                                                                                      .14.'
                                                                                                       ·: ·· .
                                                                                                               : Indemnification~  , . ', '
                                                                                                                                           ·,.' tlult ·Borrower· herewith .inderrinifies                  .r             , .• '       ' . ·. •. ·: ,   ,       •    . ,   ·   ,        .   ·, , " '   · ..., •   •         .
                                                                                                                                                                                                                                                                                                                               ·&nd.'· 0:hcilds~;Lendcr
                                                                                                                                                                                                                                                                                                                                '         '
                                                                                                                                                                                                                                                                                                                                                                   .hahn •
                                                                                                                                                                                                                                                                                                                                             .· ~ .: , ·· , ; ;1r, . ••r"'• . •'
                                                                                                                                                                                                                                                                                                                                                                                                             less ·from any·.and an
                                                                                                                                                                                                                                                                                                                                                                                                                           '    ~         •    •   .'    '   •           •       •   ~
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         ·· ·· : ·,-:;    '       ·,,

         ,··.'-;!·>:..··. i)t:::~·: :~:.:-.~·     . :~ . ·~~ . : ~J!,!?.~ .~~~!.~·-,.-~e~d5.: ,9asmP~ . ~st$, ~-Cs. - -~~ ·o~t)i~~n~~r ~~~r~(ii~•; .'l?.~t ..~~~. li~i~d: t?...,..·. : ...
                                                                               -..:                                                                                                                                                                                                                                                                                                                                                                                                                                     ..·: :.· .·
       .';~:(,~·: ._.-: .-~::·. :_ . ·._ .    .. ··.. a~.~efs:.r~~· ~bic~::L.~f\¥r ~y· ~~cilr tlia.t ll).any way:_reli.tc.to.' or. arise_~.ui_ of'lht'~onsti:Uctiotf'O.f.'the ;·                                                                                                                                                                                                                                                                                                                                            . .. .'· 1

      J.."''.:· : . !:: · · .·.:--. .' . . :-                      ·.
                                                                                                                        rpf.
       ~i'~:~:;:.:~,':;:~::~: _:< / .. :.-: ....~: - : OV~~~~-:. ~~<~\<~·;: ·:.: ·,:·:i·:.:i>·~: .~· ...' .'\· . ·.• . . ··. ; , • ....·.·.·:..•. ,·.• -\7,·.-·-:,;>:•A • . . ~:...··. .· ..;•:':.
                                                                                                                        .B~ro~q ·:u_nrl~tandS.':iha.t':~s.·A~qavlt.
                                                                                                                               iS ma4e ;for-the:puipO~..ofJild1JCing lhe(~er·tntd~e J'he · · .:                                     :·._...'(:,;;::,:: ... ;~~
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         <·::·\:'·:;!
       :iL>:·., >:_             >:
                                · . ··.·:..... . ...:'-~~~ey: ~rsu~~.~ ~~- -tcrrms pt Yi~.:u.:~ ·d~wne~t5; ~1~! ·u~_. ttiC:·ti)J~ ·a'nd .~c~racy. of ·tf1C . . · . . -:;.·.:··.:.·._. ·:.!
       £:Y,;(~'~J·:·:.: :::~:/ ··.: · ~-:. -::.:.·_ s.~~m 'r$::· :maae.·:~~-· this :A~()av1t itl ..ta~~it1g silcb_·toari"p~ec9S;,. :·Furt\}ei~· P..ofro.~~ a~,to.'in~'#m~fy •nd.                                                      ·. .:. · ·. ·j
            .
      :~::~: .:\'·~: :.:·.~·: ,.                             >.· ···
                                                       .s ~"~: Lt
                                                               .: ·dei:',l:urim1ess.",:~gaih$t~ostS... .~a~~~·. a.tto~s fees. e.xpense5_8.nd.lia'bi)ities which_ kmay·:incui.o.r:slist_ain··:.:                                            :.·. ·· ··!
      ~;~s.;       -:~:·:   ·::·.'    . .  .    .'                                         jQcprrec~oCs.$  :or:ariy~f                                           row{letion    insirig"thctitr~tn   ·~nd.                       ~: :                                                                                                                                                                                                                                    win':. .: .·: .·:.. :·_.;.:·.::
  ~ --.:·                 ~                            J~· :~t ·;·..... .:;:l. ·\ .. · :: ··:
                                                                                                                                   ·. · . ·.
                                                                                                                        EXEStJTE? this
                                                                                                                                                                                       . . .-· -....._..:.;
                                                                                                                                                                                                 .              .
                                                                                                                                                                                                                            < · PJ
                                                                                                                                                                                                                                ·
                                                                                                                                                                                                                                . ··. ~ · ~:·: . ~, i./·.·_:· .' . .u .
                                                                                                                                                                                                                                     ? . ·
                                                                                                                                                                                                                    ·. P~ day·of~HCl::GAC\ • 20..J,....L. . · . ·
                                                                                                                                                                                                                                                                        ..                                                                                                                            ·.                                                              ' · ·; ,. :·:_·. · ::::~~~~~~~~~r~~ut.ltv
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         ·\:·:.- :,_:.,~~;~;::..:~.;·f·..:..._.r,.::.!:;
                    ,<·
                                                                                                                                                                                                                                                                                                                                                                                                                                                                      .. ..                               .

                                                                                                                                                                                                                                 ..          •'
                                                                                                                                                                                                                                                                                                           .. · ..   :..                                             ·'
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                                                                                     C-T--h--:-          ' - · -~
                                                                                              . ...;-(...;__    _ .                                                                         -____,.....~~
                                                                                                                                                                                                        -)-:-

~;..\: , .                -.                                             . · ·· R~ld~.. :1.~~t~iutuoa                                                                     lA~ ~~·rower's AnldaVlt:(Bor'rowu.'i Nam~)
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 ,·.
  ..,,
~.-                                                                                                               .          .
r;r:. .. . ·
                                                                                                          ..
                                                                                                                        .i        ·                                                                                         , .                                                        3

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               ..           -~     :.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Page 511
Lender:              Com.r:lUJti.ry N ntiona! Bart k
Borrowt.r:           Levi McKcm.ic lmd wit'(:, Michelle Md(eu:dc
Ccmrac.:ior:         J J1 S tor'e)' Construct ion, 1 11(;:.
Propcny;             L ot C Councy Ro11d 366, Rio Mcd inn, Tcxtts 78066

                                 Disclosul·e Stat~ment Requi r~d for
                              Tcxa.s Residcnthtl Co nstruc tion Cont r~ct'
                                Sec. 53.255(B) T·ex~Is ·r roperty Code
                                                                                                           J,.