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John Nelson v. Carlos Pasol and Jovita De Pasol
Case Number: 13-15-00379-CV
Judge: Dori Contreras
Court: Texas Court of Appeals, Thirteenth District on appeal from the 107th District Court of Cameron County
Plaintiff's Attorney: Mara Martinez and Everardo Garcia
Defendant's Attorney: Albert Villegas
Description: Appellant John Nelson challenges the trial court’s judgment awarding title to and possession of certain South Padre Island real property to appellees Carlos Pasol and
Jovita De Pasol (collectively the Pasols). We affirm.
Nelson inherited the subject property from his parents along with an $80,000 mortgage balance. He refinanced the mortgage with Wells Fargo in 2001 and the total debt was over $103,000. Before long, Nelson fell behind on the mortgage payments and on property taxes. In an effort to avoid foreclosure, Nelson executed a general warranty deed conveying the subject property to the Pasols on September 20, 2002. The deed recited that the Pasols would pay taxes on the property and would take the property subject to “all presently recorded and validly existing instruments.” The Pasols made payments to Wells Fargo, thereby avoiding the imminent foreclosure, and they continued to make tax and mortgage payments in the following years.2 They also made substantial improvements to the property.
In 2007, upon discovering that an “Assumption of Warranty Deed” instrument had been recorded in the public records, Nelson sought and obtained possession of the property via an ex parte Writ of Re-Entry issued by a Cameron County justice court. The Pasols then filed the underlying suit for declaratory judgment and trespass to try title seeking to regain possession. Their seventh amended petition, dated May 29, 2014, alleged various causes of action including fraud. Specifically, the Pasols asserted that the Writ of Re-Entry was fraudulently obtained by Nelson because the Pasols “were not and never have been [his] landlords.” Nelson answered the suit, asserted various affirmative defenses, and made counterclaims asserting, among other things, fraud and
2 In 2003, the Pasols refinanced the mortgage in their name and Nelson was released from any obligation to Wells Fargo.
violations of the Texas Deceptive Trade Practices Act (DTPA).3 In answering the counterclaims, the Pasols argued, among other things, that Nelson’s claims are barred by the two-, three-, and four-year statutes of limitations.
The parties’ dispute centers on the nature of the 2002 transaction. The Pasols contend that Nelson sold the property to them in exchange for their promise to take over the mortgage and tax payments. But Nelson maintains that the transaction was actually a loan from the Pasols, secured by the property and evidenced by a promissory note and deed of trust purportedly executed on the same day as the warranty deed. Copies of the purported instruments were entered into evidence. The Pasols disputed the authenticity of the deed of trust.
Following trial, a jury returned a mixed verdict. Specifically, the jury found that: (1) Nelson defrauded the Pasols by making an intentional misrepresentation in connection with the transaction at issue4; (2) the Pasols made substantial improvements to the property; (3) the Pasols and Nelson “agreed to make a loan secured by real estate”; and (4) the Pasols did not fraudulently induce Nelson to enter into the transaction, file a fraudulent document, or secure the execution of a document by deception. The jury additionally found that: (5) the Pasols failed “to comply with the legal requirements to foreclose on the loan secured by the real estate in question” but (6) Nelson was not entitled to any damages for the wrongful foreclosure, and (7) any harm to Nelson was not caused by fraud or gross negligence on the part of the Pasols.5
3 Dan Villegas, 200 West Main Street, Inc., and Jesus Manuel Castillo, subsequent purchasers of the property, were also named as defendants and counter-plaintiffs but are not parties to this appeal. We refer to all defendants collectively as Nelson. Additionally, Wells Fargo was added at some point as a third-party defendant but was not mentioned in the final judgment and is not a party to this appeal.
4 The jury was not asked to assess damages caused by Nelson’s fraud.
5 Jury charge question number nine asked whether the Pasols “fail[ed] to comply with the legal
Each side moved for entry of judgment in their favor. After a hearing, the trial court rendered judgment stating that the Pasols shall recover title to and possession of the subject property and that Nelson shall take nothing by way of his counterclaims.6 The judgment stated that it disposes of all parties and all claims and is appealable. Nelson filed a motion to modify the judgment and a motion for new trial which argued in part that Nelson was entitled to a settlement credit because Wells Fargo previously settled claims brought against it by the Pasols. See TEX. CIV. PRAC. & REM. CODE ANN. § 33.012(b) (West, Westlaw through 2017 R.S.). The motions were denied and this appeal followed.
requirements to foreclose on the loan, secured by the real estate in question, if any,” and included the following instruction:
In order to legally foreclose on a loan secured by real property, the lender must satisfy the following legal requirements:
Property notice of default and right to cure was not given as required by Texas Property Code Sec. 51.662.
Foreclosure was wrongful in that it was not conducted in accordance with Texas Property Code Sec. 51.002 and/or the Deed of Trust.
Texas Property Code 51.002 requires:
1. Written Notice to borrower of default, that is the note or loan is due and opportunity to cure
2. Written notice to borrower that note is being accelerated or that entire note is due
3. Written notice to borrower that property has been posted for foreclosure
4. Actual posting of real property for sale to the general public at Cameron County Courthouse;
5. Actual sale of property, to the highest bidder on date set out in foreclosure notices, at foreclosure sale, in proper location set out in notice.
The jury answered “yes.” Charge question number ten, asking what amount Nelson was entitled to for damages resulting from the Pasols’ wrongful foreclosure, instructed the jury to assess only one element: “The loss of rental income for the period that Pasols exercised complete control on the property.” The jury found zero damages.
6 “Pasol V. Villegas” was named as a plaintiff in the final judgment. Presumably this was a clerical error. We refer to all plaintiffs collectively as the Pasols.
Nelson argues by two issues on appeal that the trial court abused its discretion by “disregarding the findings of the jury” and entering a judgment notwithstanding the verdict. He further contends that the trial court erred by denying his motion for new trial, by “failing to consider the settling defendant[’]s payments and financial benefits that the [Pasols] received” and by “refus[ing] to consider equitable factors given the specific facts of the transaction and the unclean hands and conduct of the [Pasols].” The Pasols argue that the trial court’s judgment was proper given the jury’s finding of fraud against Nelson.
After the jury returns its verdict, if there is no irreconcilable conflict in the jury’s findings, the trial court is generally under a duty to render a judgment that conforms to that verdict. TEX. R. CIV. P. 301 (“The judgment of the court shall conform to the pleadings, the nature of the case proved and the verdict, if any, and shall be so framed as to give the party all the relief to which he may be entitled either in law or equity.”); see Cantu v. Hidalgo Cnty., 398 S.W.3d 824, 827 (Tex. App.—Corpus Christi 2012, pet. denied).7 When there is no irreconcilable conflict, a trial court may nevertheless disregard a jury finding if (1) the finding is immaterial or (2) there is no evidence to support one or more of the jury findings on issues necessary to liability. See TEX. R. CIV. P. 301; Spencer v. Eagle Star Ins. Co. of Am., 876 S.W.2d 154, 157 (Tex. 1994); Cantu, 398 S.W.3d at 827. A finding is “immaterial” when the corresponding question either: (1) should not have been submitted; (2) calls for a finding beyond the province of the jury, such as a
7 The parties both cite case law defining the abuse of discretion standard of review, but they do not cite any authority indicating that this standard applies to the question of whether the trial court rendered judgment properly conforming to the jury’s findings under rule of civil procedure 301. We note, in any event, that a trial court has no discretion in determining what the law is or in applying the law to the facts. Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992). Moreover, the denial of a motion for new trial is reviewed for abuse of discretion. Waffle House, Inc. v. Williams, 313 S.W.3d 796, 813 (Tex. 2010).
question of law; or (3) was properly submitted but has been rendered immaterial by other findings. Se. Pipe Line Co. v. Tichacek, 997 S.W.2d 166, 172 (Tex. 1999); Spencer, 876 S.W.2d at 157; Cantu, 398 S.W.3d at 827.
No party has explicitly contended, either at the trial court or on appeal, that the jury’s findings irreconcilably conflict, and no party contests the sufficiency of the evidence supporting the findings. The parties instead each assert that the jury’s findings, taken together, require judgment in their favor.
Nelson argues that, due to the jury’s finding that the 2002 transaction was a loan and not a sale, the trial court was compelled to award him title to and possession of the subject property, regardless of the jury’s other findings. He relies principally on Johnson v. Cherry, 726 S.W.2d 4 (Tex. 1987), in which the Texas Supreme Court also considered whether a particular transaction was a mortgage or a sale of land. In that case, Johnson owned 348 acres of land in Shelby County, 200 of which he claimed as his homestead. Id. at 5. The property was encumbered by nearly $120,000 in debts, and when Johnson began to suffer financial difficulties, he sought additional loans from a bank to avoid foreclosure, but he was not able to do so because of the property’s homestead status. Id. Johnson then contacted Cherry, a director of the bank, and the two executed the following documents: (1) a general warranty deed from Johnson to Cherry for the 348 acres; (2) a one-year lease agreement on the land from Cherry to Johnson; and (3) an option from Cherry to Johnson to repurchase the land. Id. In exchange, Johnson received $120,000 from Cherry, and Cherry agreed to assume the balance on another loan encumbering the land. Id. Johnson could exercise his option for $132,000 and reassumption of the other loan, for six months following conclusion of the lease,
conditioned on his payment of two semi-annual lease payments. Id. When Johnson failed to make the second lease payment, Cherry initiated eviction proceedings; Johnson then filed suit to cancel the deed, claiming that it was actually a constitutionally prohibited mortgage on Johnson’s homestead. Id. at 5 (citing TEX. CONST. art. XVI, § 50). The jury found that the instrument at issue was a mortgage and the trial court awarded the property to Johnson, but the court of appeals disagreed, finding as a matter of law that there was no mortgage because there was no enforceable debt and Johnson was under no obligation to repurchase. Id.
The Texas Supreme Court reinstated the trial court’s ruling awarding the property to Johnson, noting that the court of appeals had relied on obsolete case law. Id. at 6–7. The Court observed that “[t]he question of whether an instrument written as a deed is actually a deed or is in fact a mortgage is a question of fact” which may be “resolved by ascertaining the intent of the parties as disclosed by the contract or attending circumstances or both.” Id. at 6 (citing Wilbanks v. Wilbanks, 330 S.W.2d 607, 608 (Tex. 1960); Wells v. Hilburn, 98 S.W.2d 177, 180 (Tex. 1936)). The Court stated that “[e]ven when the instrument appears on its face to be a deed absolute, parol evidence is admissible to show that the parties actually intended the instrument as a mortgage” and it held that “[w]hen there is a fact finding that the parties intended the transaction to be a loan, and that finding is supported by probative evidence, the law will impute the existence of a debt.” Id. (citing Wilbanks, 330 S.W.2d at 608; Bradshaw v. McDonald, 216 S.W.2d 972, 973 (Tex. 1949); Wells, 98 S.W.2d at 180).
Because there was evidence adduced from which the jury could have found that the “mortgage was disguised as a deed,” the Johnson Court held that the trial court’s
judgment awarding the property to Johnson should have been upheld. Id. at 7. However, the Court additionally found that Cherry was entitled to a lien against the 148 acres of property not claimed as Johnson’s homestead, because “[a]n offer by Johnson to repay the loan was a condition precedent to his suit to convert the deed into a mortgage” and, although Johnson “failed to offer repayment, Cherry did not complain of Johnson’s error until he was before the court of appeals.” Id. at 8.
The Johnson Court approvingly cited Sudderth v. Howard, 560 S.W.2d 511, 513 (Tex. Civ. App.—Amarillo 1977, writ ref’d n.r.e.), another case where a plaintiff claimed that an unambiguous deed conveying property actually evinced a loan transaction. There, the jury found that the transaction was not intended as a sale, but was rather a mortgage disguised as a deed in order to circumvent restrictions on homestead encumbrances, and so the trial court properly rendered judgment cancelling the deed. Id. at 516. Moreover, the trial court correctly rendered judgment against the plaintiffs for the amount of the debt plus interest, notwithstanding the fact that the defendants did not ask for that amount in any pleading. Id. (“It is axiomatic that he who seeks equity must do equity, and one seeking cancellation of an instrument cannot repudiate it and retain the benefits therefrom; he should offer or tender a restoration and the court can accomplish that result by its judgment. . . . By its judgment rendered here, the court did so.”).
The Pasols urge that this case is instead controlled by Cosgrove v. Cade, 468 S.W.3d 32 (Tex. 2015). There, the parties entered into a contract stating that the Cades would sell two acres of land to Cosgrove with the Cades reserving the mineral rights. Id. at 35. However, the deed, which was signed and initialed by the Cades, unambiguously granted the land in fee simple to Cosgrove. Id. The Cades sued to recover the mineral
rights, but the Texas Supreme Court held that suit was barred by the four-year statute of limitations because the suit was “in effect a suit to reform the deed” and “[a] grantor who signs an unambiguous deed is presumed as a matter of law to have immediate knowledge of material omissions.” Id. at 34, 36 (noting that “[a] plainly evident omission on an unambiguous deed’s face is not a type of injury for which the discovery rule is available”).
According to the Pasols, Johnson and Sudderth are distinguishable because there is no homestead interest involved in this case. We do not find those cases distinguishable on that particular basis. In those cases, the plaintiffs sought cancellation of deeds on grounds that they were actually mortgages that violated homestead laws; whereas here, the jury found that the 2002 transaction between the Pasols and Nelson was actually a loan which was wrongfully foreclosed upon by the Pasols. Either way, Johnson and Sudderth show that the party conveying property by an unambiguous deed is not precluded from later bringing an action asserting that the transaction was not a sale but was rather a mortgage. See Johnson, 726 S.W.2d at 6 (“Even when the instrument appears on its face to be a deed absolute, parol evidence is admissible to show that the parties actually intended the instrument as a mortgage.”); Sudderth, 560 S.W.2d at 516.
Nevertheless, Johnson and Sudderth also demonstrate that, when a party files suit to establish that an unambiguous deed conveying property was actually a loan transaction secured by the property, this is in effect a suit seeking cancellation of the deed. See Johnson, 726 S.W.2d at 5; Sudderth, 560 S.W.2d at 516. And under Cosgrove, parties are charged with knowledge of the terms of an unambiguous deed at the time the deed is executed, so the party seeking cancellation of a deed must file suit within four years of the deed’s execution under the applicable statute of limitations. See Cosgrove, 468
S.W.3d at 35 (citing TEX. CIV. PRAC. & REM. CODE ANN. § 16.051 (West, Westlaw through 2017 R.S.)). Johnson and Sudderth are distinguishable from the instant case not because they involved homestead interests, but because there was no limitations issue raised in those cases.
Here, Nelson executed the general warranty deed on September 20, 2002 but did not seek re-entry on the premises or file his counterclaim seeking to cancel the deed until 2007. The Pasols pleaded the limitations issue and argued it at the charge conference and at the hearing on the motion for entry of judgment. Because the four-year statute of limitations applies, Nelson’s action for cancellation of the general warranty deed was barred. See TEX. CIV. PRAC. & REM. CODE ANN. § 16.051; Cosgrove, 468 S.W.3d at 35 (noting that the four-year limitations period applies to deed-reformation claims). It follows that the jury charge questions asking whether the 2002 transaction was a loan and whether the Pasols wrongfully foreclosed were improperly submitted, and the answers to those questions were immaterial. See TEX. R. CIV. P. 301; Spencer, 876 S.W.2d at 157; Cantu, 398 S.W.3d at 827. The trial court therefore did not err in disregarding those findings when it rendered its judgment.
Finally, we disagree with Nelson that the trial court erred by failing to consider amounts paid by Wells Fargo to the Pasols as part of the settlement agreement between those two parties. Section 33.012 of the civil practice and remedies code provides that “[i]f the claimant has settled with one or more persons, the court shall further reduce the amount of damages to be recovered by the claimant with respect to a cause of action by the sum of the dollar amounts of all settlements.” TEX. CIV. PRAC. & REM. CODE ANN. § 33.012(b). However, chapter 33 applies only to actions where a defendant, settling
person, or responsible third party is found responsible for a percentage of the harm for which relief is sought. See id. § 33.002(a) (West, Westlaw through 2017 R.S.). Here, there was no proportionate responsibility question in the jury charge, nor was there any finding that Wells Fargo was responsible for a percentage of the harm for which Nelson sought relief. Therefore, the trial court did not err in declining to apply a settlement credit under section 33.012. See White v. Zhou Pei, 452 S.W.3d 527, 544 (Tex. App.—Houston [14th Dist.] 2014, no pet.).
The trial court did not err in rendering judgment awarding the property to the Pasols and holding that Nelson take nothing by way of his counterclaims. We overrule Nelson’s issues on appeal.
Outcome: The judgment of the trial court is affirmed.