1001 McKINNEY LTD., Appellant, v. CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL, Credit Suisse First Boston LLC, Situs, Inc., Situs Capital Services, Inc., Situs Realty Services, Inc., and Situs Servicing Inc., Appellees.
No. 14-04-00844-CV.
Court of Appeals of Texas, Houston (14th Dist.).
Nov. 23, 2005.
Rehearing Overruled March 16, 2006.
Reagan W. Simpson, Reginald Ross Smith, Penn Christopher Huston, Houston, for appellees.
Panel consists of Chief Justice HEDGES, Justice FROST, and Senior Chief Justice MURPHY.*
OPINION
ADELE HEDGES, Chief Justice.
Appellant, 1001 McKinney, Ltd., filed suit against Credit Suisse First Boston
I. BACKGROUND
In the late 1990‘s, Larry Levine formed a partnership to renovate a downtown office building at 1001 McKinney. He named the partnership 1001 McKinney, Ltd. (the partnership). To fund the renovation, the partnership sought and obtained a loan in excess of $39 million from Credit Suisse First Boston (CSFB).1 The $39 million represented ninety percent of the funds needed to renovate the building. The remaining ten percent was provided by the individuals who made up the partnership.
In the process of renovation, the partnership discovered it needed an additional $7.5 million to complete the project. The partnership asserts the additional funds were needed to build extra office and retail space on the lower floors of the building. Levine and other representatives of the partnership met with Tony Poll and Mark Finerman of CSFB and discussed the partnership‘s need for additional funds. In his affidavit before the trial court, Levine stated that Poll and Finerman told him CSFB had “no problem” lending additional funds to the partnership. According to Levine, at a meeting in Las Vegas in November 1999, Poll and Finerman promised that CSFB would fund an additional $6.75 million and that the loan would be documented by January. In January, 2000, CSFB informed the partnership it would not lend the additional $6.75 million.
The partnership subsequently filed suit against CSFB Mortgage Capital, the entity that funded the original loan; CSFB LLC, its affiliate; and the Situs companies. The partnership alleged causes of action for (1) statutory and common law fraud, (2) civil conspiracy, (3) negligent misrepresentation, and (4) breach of oral contract. In its third amended petition, the partnership added a plea of promissory estoppel.
CSFB and the Situs defendants filed a motion for summary judgment in which they asserted that the statute of frauds codified in
Before trial, CSFB filed a motion for reconsideration of its prior motion for summary judgment. In that motion, CSFB renewed its argument that sections
Defendant‘s Motion for Summary Judgment is GRANTED as to Defendant Credit Suisse First Boston Mortgage Capital because
TEXAS BUS. & COM. CODE § 26.02 , and§ 26.01(b)(6) bars [sic] Plaintiff‘s action.Defendants’ Motion for Summary Judgment is GRANTED as to Defendant Credit Suisse First Boston LLC because there is no evidence that any actions were taken by an agent or representative of, at the direction of, or on the
behalf of Credit Suisse First Boston LLC. Defendants’ Motion for Summary Judgment is GRANTED as to Defendants Situs, Inc., Situs Capital Services, Inc., Situs Realty Services, Inc., and Situs Servicing Inc.
Appellant does not appeal the judgment in favor of the Situs defendants.
II. STANDARD OF REVIEW
Under the traditional standard for summary judgment, the movant has the burden to show there is no genuine issue of material fact and that judgment should be granted as a matter of law.
A no-evidence motion for summary judgment is proper when there is a complete absence of evidence of one or more essential elements of a claim or defense on which an adverse party has the burden of proof at trial.
III. SUMMARY JUDGMENT GROUNDS
In its first sub-issue, appellant contends the trial court erred in granting summary judgment on a ground that was not expressly presented in the motion for summary judgment. Appellant contends appellees did not raise the issue of the one-year statute of frauds found in
Appellees contend appellant had actual notice of the ground twenty-one days in advance of submission of the motion for reconsideration. Notice, however, is not the only purpose behind the supreme court‘s strict interpretation of
IV. STATUTE OF FRAUDS
Appellant contends that the trial court erred in granting summary judgment on the ground that the statute of frauds prevents enforcement of the alleged loan agreement. The trial court found that sections
one or more promises, promissory notes, agreements, undertakings, security agreements, deeds of trust or other documents, or commitments, or any combination of those actions or documents, pursuant to which a financial institution loans or delays repayment of or agrees to loan or delay repayment of money, goods, or another thing of value or to otherwise extend credit or make a financial accommodation.
Appellant contends that
a state or federally chartered bank, savings bank, savings and loan association, or credit union, a holding company, subsidiary, or affiliate of such an institution, or a lender approved by the United States Secretary of Housing and Urban Development for participation in a mortgage insurance program under the National Housing Act (
12 U.S.C. Section 1701 et seq.).
In their reply to appellant‘s response, appellees attached the affidavit of Thomas M. Zingalli, the director in the Controller‘s Division of CSFB LLC. In his affidavit, Zingalli stated that the Controller‘s Division maintains the books and records of CSFB, including information regarding licenses and government approvals held by CSFB and its related companies. Zingalli stated that he had been an employee of
Appellant argues that (1) appellee‘s summary judgment proof shows no approval by the secretary of HUD, (2) Zingalli‘s affidavit is conclusory, and (3) the letter from HUD is hearsay. On motion for summary judgment, appellant did not raise the issue of approval by the secretary of HUD.
A. Zingalli Affidavit
Appellant contends that appellees’ summary judgment proof was insufficient to show that CSFB is a financial institution because Zingalli‘s affidavit is conclusory.
Zingalli‘s affidavit is sufficiently supported by underlying facts to show that CSFB is a financial institution within the meaning of
B. HUD Letter
Appellant challenges the letter from HUD as improper summary judgment proof because it is hearsay. Appellees respond that the letter is admissible under the public records exception to the hearsay rule. The public records exception to the hearsay rule provides, among other things: “Records, reports, statements or data compilations, in any form, of public offices or agencies setting forth (A) the activities of the office or agency ....” are not excluded by the hearsay rule.
The HUD letter is admissible as an exception to the hearsay rule because it meets the threshold requirements of
Appellant contends that the letter lacks trustworthiness because it appears to have been created for purposes of litigation. We disagree with this characterization. The letter is dated June 19, 2001, almost six months before the filing of appellant‘s suit in December 2001. Further, the question of whether appellees were financial institutions within the meaning of the statute of frauds was not raised until appellant‘s response to the motion for summary judgment filed September 15, 2003. The record does not support the contention that the letter was created for the purpose of this litigation. Therefore, the trial court did not abuse its discretion in admitting the HUD letter under the public records exception to the hearsay rule. The uncontroverted evidence establishes that the Department of Housing and Urban Development approved CSFB Mortgage Capital for participation in programs under the National Housing Act.
C. The Alleged Loan Agreement
Appellant alleges that Poll and Finerman were employees of CSFB LLC at the time they made the oral promise to lend $6.75 million. Appellant argues that because appellees presented evidence that CSFB Mortgage Capital is a financial institution, but not CSFB LLC, the statute of frauds does not apply to CSFB LLC.
Levine stated in his affidavit that Poll and Finerman agreed to lend the additional funds with terms similar, if not identical, to the original loan agreement. It is undisputed that the original loan was funded by CSFB Mortgage Capital. There is no evidence that any representative of appellant thought the loan would be funded by CSFB LLC. Because the alleged agreement was oral, the statute of frauds prohibits proof of the agreement. See
V. TORT CAUSES OF ACTION
In addition to breach of the oral contract, appellant alleged statutory fraud, negligent misrepresentation, and conspiracy causes of action. Appellant contends even if the statute of frauds prohibits enforcement of the alleged oral agreement, it can maintain the tort causes of action.
To determine whether the tort actions can be maintained, we look to the substance of the cause of action rather than the manner in which it was pleaded. Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 617-18 (Tex. 1986). Tort obligations are those imposed by law when a person breaches a duty that is independent from promises made between the parties to a contract; contractual obligations are those that result from an agreement between parties, which is breached. Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex. 1991). If the defendant‘s conduct would give rise to liability only because it breaches the parties’ agreement, the plaintiff‘s claim ordinarily sounds only in contract. Id. If the defendant‘s conduct would give rise to liability independent of the fact that an agreement exists between the parties, the plaintiff‘s claim may also sound in tort. Id.
Each tort claim alleged in appellant‘s petition arises from the alleged oral agreement. When the injury is only the economic loss to the subject of the contract itself, the action sounds in contract alone. Reed, 711 S.W.2d at 617-18. Where, as here, a plaintiff is seeking to recover what he would have gained had the promise been performed, the gist of his cause of action is the breach of the promise. Haase v. Glazner, 62 S.W.3d 795, 799 (Tex. 2001). Because appellant‘s tort causes of action for statutory fraud, negligent misrepresentation, and conspiracy arise from the alleged oral agreement, summary judgment on those claims is proper.
VI. PROMISSORY ESTOPPEL
Appellant contends that appellees are estopped from claiming the statute of frauds as a defense to their breach of contract claim because Poll and Finerman promised to prepare and sign written agreements to document the new loan. For promissory estoppel to create an exception to the statute of frauds, there must have been a promise to sign a written agreement that had been prepared and that would satisfy the requirements of the statute of frauds. Nagle v. Nagle, 633 S.W.2d 796, 800 (Tex. 1982). It is the promise to sign a written agreement or enter into a written agreement that is determinative. Southmark Corp. v. Life Investors, Inc., 851 F.2d 763, 769 (5th Cir. 1988). Promissory estoppel sufficient to remove a contract from the statute of frauds requires that the promisor agree to sign a document that had already been prepared or “whose wording had been agreed upon” that would satisfy the statute of frauds. Id. at 766. A mere promise to prepare a written contract is not sufficient. Beta Drilling, Inc. v. Durkee, 821 S.W.2d 739, 741 (Tex. App.—Houston [14th Dist.] 1992, writ denied).
Here, Levine testified that Poll and Finerman promised to make the additional loan under the same terms as the original loan. Poll and Finerman promised to prepare and sign written agreements to document the new loan. No documents were prepared. Further, Levine testified in his deposition that the parties never agreed on the wording of the loan document. Appellant presented no evidence that a written agreement had been prepared or that the parties had agreed on the wording of the agreement. Therefore, appellant failed to raise the essential elements of its claim of estoppel.
VII. COMMON LAW FRAUD
Appellant also asserted a cause of action for common law fraud. Appellant contends its fraud claim may not contravene the statute of frauds to the extent it seeks out-of-pocket damages incurred in reliance on appellees’ alleged misrepresentations. See Haase, 62 S.W.3d at 799. In its petition, appellant alleges it continued to renovate the building and enter into lease agreements in reliance that appellees would lend the additional $6.75 million. The summary judgment record reveals the partnership relied on the alleged promise to lend additional funds and continued construction of the entire available office and retail space in the building. Reliance damages, such as money spent on additional construction, are not part of the benefit of the alleged bargain between the parties. See Haase, 62 S.W.3d at 800 (holding that
To prevail on its fraud claim, appellant must show that it actually and justifiably relied on the representation and thereby suffered injury. Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001). Appellees contend that even if appellant can show reliance damages, it cannot show that it justifiably relied on the alleged promises made by Poll and Finerman. Appellees argue that Levine and his partners were sophisticated developers and knew that any oral loan agreement would not be enforceable. Appellant, on the other hand, presented summary judgment proof that it had a business relationship with appellees and was justified in relying on the alleged promise to fund the additional loan.
In the context of common law fraud, courts have uniformly treated the issue of justifiable reliance as a question for the factfinder. Coston v. Bank of Malvern, 991 F.2d 257, 260 (5th Cir. 1993); Hall v. Harris County Water Control & Improvement Dist. No. 50, 683 S.W.2d 863, 868 (Tex. App.—Houston [14th Dist.] 1984, no writ) (whether plaintiff reasonably relied on promise is generally a question of fact). In this case, appellant presented evidence that it relied on appellees’ promise by leasing office space and entering into agreements with tenants for improvements that could not otherwise be made without the additional funding. Appellees, on the other hand, presented evidence that appellant is a sophisticated developer and was not justified in relying on an oral promise to lend money. The question of justifiable reliance depends heavily on the relationship between the parties and their relative sophistication.
Viewing the facts most favorably to appellant, we believe that a genuine issue of material fact exists as to whether appellant reasonably relied to its detriment on appellees’ promises. Any justifiable reliance the jury may find on retrial stems from the verbal representation made in Las Vegas in November, 1999. Therefore, on remand, out-of-pocket damages are limited to those expenses incurred between the date of the alleged oral agreement in November 1999 and the date in January 2000 when appellees informed appellant they would not fund the loan. Therefore, to the extent appellant seeks out-of-pocket damages that occurred after the alleged oral agreement to lend additional money, in reliance on the alleged oral promise, summary judgment is not proper.
VIII. CONCLUSION
Under the facts of this case, to the extent that appellant seeks to recover the benefit of the bargain damages related to an alleged oral agreement that is unenforceable under the statute of frauds, the statute bars appellant‘s tort and contract causes of action. Appellant‘s common law fraud claim for out-of-pocket damages incurred in reliance on the alleged promise survives the statute of frauds. Accordingly, we reverse the trial court‘s judgment insofar as it finds the statute of frauds precludes appellant‘s fraud claim for out-of-pocket damages and remand to the trial court for proceedings consistent with this opinion. We affirm the summary judgment with regard to appellant‘s remaining causes of action.
FROST, J., concurring and dissenting.
KEM THOMPSON FROST, Justice, concurring and dissenting.
The statute of frauds bars any recovery by 1001 McKinney Ltd. (the “Borrower“)
I. Contract Claims Against the Lender‘s Parent
The court reaches the correct result in determining that the Borrower‘s contract claim is unenforceable based upon
A. The Borrower waived its objections to the summary-judgment proof.
The majority addresses the merits of the Borrower‘s objections to the affidavit of Thomas Zingalli, a Director in the Controller‘s Division of the Lender‘s Parent, and the documents described in his affidavit. With one exception, it is unnecessary to reach the Borrower‘s arguments regarding the alleged inadmissibility of the summary-judgment proof because under this court‘s precedent, the asserted objections were waived when the Borrower failed to secure rulings on them. See Nowak v. DAS Invest. Corp., 110 S.W.3d 677, 679 (Tex. App.—Houston [14th Dist.] 2003, no pet.) (stating objection to summary-judgment affidavit waived by failure to obtain ruling). The exception is the objection that the Zingalli affidavit is conclusory. Though no objection was needed to preserve this issue for appellate review,3 it has no merit. The Zingalli affidavit is clear and specific and gives the factual foundation for the matters stated. It is not conclusory. See Hou-Tex, Inc. v. Landmark Graphics, 26 S.W.3d 103, 112 (Tex. App.—Houston [14th Dist.] 2000, no pet.) (holding summary-judgment affidavit was not conclusory). The court should not reach the merits of any of the other objections to the Zingalli affidavit because these objections were waived when the Borrower failed to obtain rulings from the trial court at or very near the time the trial court ruled on the motion for summary judgment. See Dolcefino v. Randolph, 19 S.W.3d 906, 926 (Tex. App.—Houston [14th Dist.] 2000, no pet.).
B. The Lender‘s Parent did not establish that it fell within the definition of “financial institution” under Section 26.02(a)(1); however, the loan agreement alleged by the Borrower is nevertheless unenforceable under section 26.02(b).
The Borrower asserts that the Lender‘s Parent is not entitled to the benefit of
(1) “Financial institution” means a state or federally chartered bank, savings bank, savings and loan association, or credit union, a holding company, subsidiary, or affiliate of such an institution, or a lender approved by the United States Secretary of Housing and Urban Development for participation in a mortgage insurance program under the National Housing Act (
12 U.S.C. Section 1701 et seq.).
Neither the Lender nor the Lender‘s Parent established that either of them was a state or federally chartered bank, savings bank, savings and loan association, or credit union, or a holding company, subsidiary, or affiliate of such an institution. The summary-judgment proof establishes only that the Lender is a HUD-approved lender as that term is used in
Nonetheless, the Lender‘s Parent is entitled to summary judgment on the Borrower‘s alleged oral contract claim. The reason, however, is that the purported loan agreement—as alleged by the Borrower—is not enforceable under
“Loan agreement” means one or more promises, promissory notes, agreements, undertakings, security agreements, deeds of trust or other documents, or commitments, or any combination of those actions or documents, pursuant to which a financial institution loans or delays repayment of or agrees to loan or delay repayment of money, goods, or another thing of value or to otherwise extend credit or make a financial accommodation. The term does not include a promise, promissory note, agreement, undertaking, document, or commitment relating to:
(A) a credit card or charge card; or
(B) an open-end account, as that term is defined by Section 301.002, Finance Code, intended or used primarily for personal, family, or household use.
Under
Although the trial court granted summary judgment in favor of the Lender in part based upon the
II. Common-Law-Fraud Claim
Although the court correctly affirms the trial court‘s summary-judgment as to the Borrower‘s claims for statutory fraud, negligent misrepresentation, breach of oral contract, and promissory estoppel, the court errs in reversing the trial court‘s judgment as to the common-law fraud claim. The Borrower cannot prevail on its common-law fraud claim because the Borrower cannot show justifiable reliance upon the alleged misrepresentations.
Because one of the essential elements of the Borrower‘s common-law fraud claim is that the Borrower justifiably relied upon the alleged misrepresentation by the Credit Suisse Parties, if the Borrower cannot demonstrate this element, it cannot possibly prevail on its fraud claim. See Ernst & Young, 51 S.W.3d at 577 (stating that justifiable reliance is an essential element in a common-law fraud claim). In their motion for summary judgment, the Credit Suisse Parties asserted a no-evidence ground as to this essential element of the Borrower‘s common-law fraud claim. The Borrower failed to come forward with evidence creating a genuine issue of material fact demonstrating justifiable reliance upon the Credit Suisse Parties’ alleged oral loan agreement.
The Borrower claims that Poll and Finerman made the alleged oral loan commit-
According to the Texas Supreme Court, the defrauded party must actually and justifiably rely upon the alleged fraudulent representation. Ernst & Young, 51 S.W.3d at 577. The majority opinion states that “[i]n the context of common-law fraud, courts have uniformly treated the issue of justifiable reliance as a question for the factfinder.”6 If there is a genuine issue of material fact as to whether reliance was justifiable in a common-law fraud case, then, of course, the factfinder should determine this issue. But the issue of whether reliance was justifiable in a common-law fraud case does not always have to be determined by the factfinder and may be determined as a matter of law. See Little v. Liquid Air Corp., 37 F.3d 1069, 1075-76 (5th Cir. 1994) (stating in per curiam, en banc opinion, that regardless of the type of claim being asserted, trial courts must always grant summary judgment where critical evidence is so weak or tenuous on an essential fact that it could not support a judgment in favor of the nonmovant); In re Absolute Res. Corp., 76 F.Supp.2d 723, 731 (N.D. Tex. 1999) (granting summary judgment as to fraud claim and holding there was no genuine issue of material fact as to whether alleged reliance by plaintiff on alleged oral assurances that loan would be finalized was justifiable); Bennett v. Cochran, No. 14-00-01160-CV, 2004 WL 852298, at *6 (Tex. App.—Houston [14th Dist.] April 22, 2004, no pet.) (holding in memorandum opinion that, as a matter of law, there was no evidence to support the jury‘s finding that plaintiff‘s reliance was justifiable); Atlantic Lloyds Ins. Co. v. Butler, 137 S.W.3d 199, 226-27 (Tex. App.—Houston [1st Dist.] 2004, pet. denied) (affirming summary judgment as to fraud claim because there was no genuine issue of material fact as to whether the plaintiff‘s alleged reliance was justifiable); Beal Bank, S.S.B. v. Schleider, 124 S.W.3d 640, 651-52 (Tex. App.—Houston [14th Dist.] 2003, pet. denied) (holding that there was no evidence to support the jury‘s finding that plaintiff‘s alleged reliance on lender‘s alleged statements was justifiable); Bluebonnet Sav. Bank, F.S.B. v. Grayridge Apartment Homes, Inc., 907 S.W.2d 904, 909 (Tex. App.—Houston [1st Dist.] 1995, writ denied) (holding there was no evidence to support jury‘s finding that alleged reliance by borrower on alleged oral assurances by lender that loan restructuring proposal would be accepted was justifiable).
Furthermore, the two cases cited by the majority do not support the proposition that justifiable reliance should always be
Factors used to determine whether reliance was justifiable include the sophistication of the parties and the nature of the transaction. See Beal Bank, 124 S.W.3d at 651-52; Coastal Bank S.S.B. v. Chase Bank of Texas, N.A., 135 S.W.3d 840, 843 (Tex. App.—Houston [1st Dist.] 2004, no pet.). The party claiming fraud must exercise ordinary care to protect its interests and is assumed to know all facts that would be discovered by a reasonably prudent person similarly situated. Wil-Roye Inv. Co. II v. Washington Mut. Bank, F.A., 142 S.W.3d 393, 411 (Tex. App.—El Paso 2004, no pet.). In the context of bargaining between sophisticated and adversarial parties, reliance upon a misrepresentation that easily would be refuted with reasonable diligence is not justifiable. Atlantic Lloyds Ins. Co. v. Butler, 137 S.W.3d 199, 226 (Tex. App.—Houston [1st Dist.] 2004, pet. denied); Coastal Bank S.S.B., 135 S.W.3d at 843. A party‘s failure to exercise care is not excused by mere confidence in the honesty and integrity of the other party. Coastal Bank, 135 S.W.3d at 843. Subjective beliefs will not make reliance justifiable. Nor will mere subjective trust transform an arm‘s length dealing into a relationship that carries a fiduciary duty. Meyer v. Cathey, 167 S.W.3d 327, 331 (Tex. 2005). Likewise, a cordial business relationship of long duration is not evidence of a confidential or fiduciary relationship. Farah v. Mafrige & Kormanik, P.C., 927 S.W.2d 663, 675 (Tex. App.—Houston [1st Dist.] 1996, no writ). Generally, the relationship between a borrower and a lender is an arm‘s length business relationship in which both parties are looking out for their own interests.
This court recently examined the issue of justifiable reliance in a lending relationship in Beal Bank, a case in which the borrower-plaintiff (Schleider) claimed the lender-defendant (Beal Bank) made an oral agreement to extend the payment time on the Borrower‘s promissory note despite the original note stating that the loan could only be modified in writing. 124 S.W.3d at 645-46. The borrower had been in business for nearly thirty years and had negotiated several such loans. Id. at 652. In rejecting the borrower‘s fraud claim, this court concluded that an experienced businessman‘s alleged reliance upon an oral representation by a bank employee was not justifiable as a matter of law. Id.
At the time in question, the Borrower was a partnership headed by an experienced commercial real estate developer (Levine) and, by any relevant measure, was a very sophisticated business party. The Borrower had developed a course of dealing with the Lender through a previous, complex, multi-million-dollar loan transaction in which both parties were represented by counsel. The parties, operating at arm‘s length, were adversarial, and thus the Borrower was required to exercise ordinary care in its dealings with the Lender and the Lender‘s Parent.7
The summary-judgment record establishes that Levine was familiar with the practices and procedures generally associated with obtaining a commercial loan. For example, he understood that any loan commitments were subject to loan-committee approval, adequate due diligence, and proper loan documentation. More importantly, Levine was familiar with the particular lending practices and procedures employed by the Lender, the Borrower having been through the extensive loan process with the Lender in the recent past in a transaction involving the same property as the alleged oral loan agreement made the subject of the Borrower‘s fraud claim.
The parties’ previous transaction involving a loan secured by the property was memorialized in an eighty-eight-page, single-spaced Loan Agreement negotiated by the parties’ lawyers under circumstances in which each party was looking out for its own interests and operating at arm‘s length in an adversarial context. The Loan Agreement for the original loan was signed only after extensive loan committee procedures required to garner approval for the loan. The transaction was highly structured and extensively documented in a two-volume closing binder consisting of thirty-nine separate documents. The Loan Agreement has a five-page table of contents, more than 225 defined terms, and a dozen pages of covenants required of the Borrower as part of the Lender‘s agreement to fund the loan. According to the Borrower, the loan orally promised in Las Vegas was to be a mirror image of the previous transaction between the parties.
Before the previous loan closed, the Borrower expressly acknowledged that the loan for which it had applied remained contingent upon approval by the Lender‘s internal loan committee and the execution and delivery of definitive agreements. The Loan Agreement contained a provision in which the Borrower expressly acknowledged that “no officer or administrator of Lender has the power or authority from Lender to make an oral extension or
Moreover, in their prior dealings the parties specifically addressed the importance of memorializing in writing any agreements by which the Borrower would seek to bind the Lender. In their previous transaction, the parties addressed the need for writings generally, stating in their Loan Agreement:
Borrower recognizes that, in general, borrowers who experience difficulties in honoring their loan obligations, in an effort to inhibit or impede lenders from exercising the rights and remedies available to lenders pursuant to mortgages, notes, loan agreements or other instruments evidencing or affecting loan transactions, frequently present in court the argument, often without merit, that some loan officer or administrator of Lender made an oral modification or made some statement which could be interpreted as an extension or modification or amendment of one or more debt instruments and that the borrower relied to its detriment upon such “oral modification of the loan document.” For that reason, and in order to protect Lender from such allegations in connection with the transaction contemplated by this Agreement, Borrower acknowledges that this Agreement, the Mortgage, the Note and the other Loan Documents and all instruments referred to in any of them can be extended, modified or amended only in a writing executed by Lender and Borrower and that none of the rights or benefits of Lender can be waived permanently except in a written document executed by Lender. Borrower further acknowledges Borrower‘s understanding that no officer or administrator of Lender has the power or the authority from Lender to make an oral extension or modification or amendment of any such instrument or agreement on behalf of Lender.8
Thus, as part of their course of dealing, these parties had established through their conduct and interaction a common basis of understanding and a practice of not relying on unwritten promises and agreements in their business relationship.
It is against this backdrop of prior dealings in similar circumstances that we must determine if the Borrower justifiably relied on the Lender‘s alleged oral promise to loan additional funds on the same property. Likewise, it is the individual characteristics of this Borrower and its appreciation of the facts and circumstances at the time of the alleged fraud that we must consider in determining if the alleged reliance was justifiable. See Haralson v. E.F. Hutton Group, Inc., 919 F.2d 1014, 1026 (5th Cir. 1990), overruled on other grounds, Gustafson v. Alloyd Co., 513 U.S. 561, 584 (1995). As a matter of logic, how could the Borrower have justifiably relied on statements that were belied by its own experience?
Just as the individual borrower-plaintiff in Beal Bank was not justified in relying upon the bank‘s alleged oral representation that it would grant an extension of an existing loan, the Borrower—a sophisticated business entity that had agreed not to rely on unwritten promises in a prior transaction with the same party on the same property—was not justified in relying on the alleged unwritten promise of the Credit Suisse Parties that they would lend additional funds. See Beal Bank, 124 S.W.3d at 651-52. The summary-judgment proof does not raise a genuine issue of material fact as to whether the Borrower justifiably relied on these
The Borrower attempts to distinguish Beal Bank, claiming that the additional $6.75 million was not a modification of the original loan but rather an entirely separate loan. Essentially, the Borrower argues that it had no reason to believe that the requirements of the original multi-million dollar loan would apply to this new multi-million dollar loan even though the Borrower alleges that the loan documentation for the latter was to have been a mirror image of the original loan. Knowing that a modification of the existing loan could be enforced only if in writing, and knowing from its own recent experience with obtaining a loan secured by this property, from this lender, that approval from a lending committee was required, the Borrower could not have justifiably relied on an alleged promise that a new loan commitment could be created without a writing and without any of the procedures required with the original loan.
Given the prior dealings between the parties and the Borrower‘s express, written acknowledgment that no officer of the Lender had the power or authority to make an oral agreement on its behalf, the Borrower could not have justifiably relied on having created an enforceable loan agreement by virtue of oral statements allegedly made during a trip to Las Vegas. Indeed, to the extent the Borrower relied on the alleged oral statements of the Credit Suisse Parties, that reliance was unreasonable in light of the information apparent to the Borrower. Under these circumstances, the law may properly say that any loss is the responsibility of the Borrower. Because the Borrower failed to raise a material issue on an essential element of common-law fraud, the Borrower‘s fraud claim necessarily fails. This court should overrule the Borrower‘s challenge to the trial court‘s summary judgment on the fraud claim and affirm the judgment of the trial court in all respects.
ADELE HEDGES
CHIEF JUSTICE
Corazon Labao FERRER, An Heir and Assignee of Arturo Labao, Appellant, v. Noemi GUEVARA, Appellee.
No. 08-04-00200-CV.
Court of Appeals of Texas, El Paso.
Dec. 1, 2005.