Breault, Robert O. v. John Psarovarkas

Opinion issued February 28, 2003 In The Court of Appeals For The First District of Texas NO. 01-01-00122-CV ROBERT O. BREAULT, Appellant V. JOHN PSAROVARKAS, Appellee * * * * JOHN PSAROVARKAS, Appellant V. ROBERT O. BREAULT, Appellee On Appeal from County Court No. 2 Galveston County, Texas Trial Court Cause No. 45,339 MEMORANDUM OPINION Robert O. Breault (“Breault”) sued John Psarovarkas (“Psarovarkas”) for nonpayment of a promissory note (hereafter referred to as “the Renewal Note”) made in 1997 in the amount of $56,538.00. The Renewal Note was given for the unpaid balance on a prior note (hereafter referred to as the “Real Estate Note”) made in 1994. Following a bench trial, the court entered judgment for Breault on the Real Estate Note instead of the Renewal Note listed in the pleadings. After certain credits were awarded to Psarovarkas for payments made, the court entered judgment for Breault for damages, attorney’s fees, interest, and costs. In five points of error, Breault asserts that (1) the court erred by entering a judgment not supported by the pleadings; (2) there is no evidence, or the evidence is insufficient to support a credit awarded in Psarovarkas’s favor; (3) the court erred by crediting the full amount of Psarovarkas’s monthly payments against the principal balance; (4) the court erred in crediting Psarovarkas based on an “I.O.U.”; and (5) the court abused its discretion by refusing to hold an evidentiary hearing on a post-trial motion for sanctions. In two points of error, Psarovarkas asserts that (1) the judgment merely enforces the terms of the Real Estate Note and the court erred in the date prejudgment interest commenced, and (2) a deposit into the registry of the court is not required to halt post-judgment interest when the judgment creditor has refused an unconditional tender. We reverse and remand. Background On June 17, 1994, Breault agreed to sell and Psarovarkas agreed to buy real property located at 1026 FM 2094, known as “Skipper’s Café.” Psarovarkas paid a $30,000 down-payment to Breault at the closing and signed a Real Estate Note for $95,000 principal at 8% interest per annum. Although there is no evidence of a written agreement outlining the detailed payment terms, it appears to be undisputed that the Real Estate Note “wrapped” two notes into one. Breault had previously purchased Skipper’s Café from Albert Gonzales and had agreed to make monthly payments on a lien note that Gonzales owed to League City Bank & Trust (“the Gonzales Note”). Psarovarkas was to pay the balance of the Gonzales Note in the amount of $53,703, by making monthly payments of $1,525.00. The $41,300 remainder of the Real Estate Note (“the Breault Equity Note”) was to be paid to Breault beginning on September 1, 1997 after the Gonzales Note was paid off. Psarovarkas made payments on the Gonzales Note until April 1996. At that time, he wanted to purchase an adjoining lot for parking facilities. As part of that purchase, Psarovarkas obtained financing from Frost Bank. Frost Bank paid the remaining balance of $29,806.06 on the Gonzales Note, but did not pay off the Breault Equity Note. In September 1997, Breault made demand upon Psarovarkas for payment of the Breault Equity Note. A subsequent note, the Renewal Note, which was highly disputed, was signed on September 25, 1997, and was to be a renewal of the Breault Equity Note that had not been paid. Breault asserted that when he confronted Psarovarkas regarding nonpayment of the Breault Equity Note, Psarovarkas stated that he wanted to pay in one lump sum instead of monthly. In response to that request, Breault presented Psarovarkas with the Renewal Note for $56,538.00 that included all principal and interest earned to date on the Breault Equity Note. Breault asserts that Psarovarkas signed the Renewal Note in the presence of Lisa Welcome Doyle, a notary public. Doyle testified that she witnessed Psarovarkas sign the document. Psarovarkas asserts that he did not sign the document himself, but that he had his dishwasher sign the document merely to appease Breault, and that he did not know that the document was legally binding or that Doyle was a notary public. Breault subsequently brought suit for nonpayment of the Renewal Note. Psarovarkas asserted that he purchased Skipper’s Café for $62,500.00, not the $125,000.00 that Breault asserts was the sales price. The trial court made the following findings of fact and conclusions of law: Findings of Fact: 1. The parties contracted for Plaintiff [Breault] to sell and Defendant [Psarovarkas] to buy a certain piece of property for the purchase price of $125,000.00; 2. The date of sale and of the contract was June 17, 1994; 3. The parties agreed to an interest rate on the unpaid balance of the purchase price of 8% per annum; 4. Psarovarkas paid $12,500.00 toward the purchase price of the property at closing of the sale of property; 5. Psarovarkas paid an additional $30,000.00 cash to Breault toward the purchase price of the property on the same day as the closing of the sale of the property; 6. Psarovarkas made payments according to the original payment schedule agreed to in June 1994 to a League City Bank & Trust account as instructed by Breault totaling $28,975.00; 7. Psarovarkas paid an additional lump sum principal payment of $29,806.00 toward the purchase of this property when he paid off Breault’s underlying note in April of 1996; 8. Psarovarkas paid an additional $2,400.00 in taxes on the property to clear the title in April 1996; 9. Breault agreed to credit the $2,400.00 tax payment to the balance owed on the purchase price by Psarovarkas; 10. Taking all payments and credits into account, Psarovarkas owes a balance of $21,319.00 on the purchase price of the property; 11. The reasonable and necessary attorney’s fees for prosecution of this case are $10,470.00. Conclusions of Law: 1. Payment of Breault’s underlying note due and owing on the subject property constituted payment to Breault and constituted a credit to the amount owed to Breault by Psarovarkas; 2. Prejudgment interest is due from the original date of the contract, June 17, 1994, through August 28, 2000, the date set for entry of judgment, in the sum of $13,041.24; 3. Post-judgment interest is payable at the rate of 8% compounded per annum from October 19, 2000 until paid; 4. Psarovarkas must pay costs of court. Judgment not Supported by Pleadings In his first point of error, Breault complains that the trial court committed fundamental error by entering a judgment not supported by the pleadings. Breault sued Psarovarkas to recover the unpaid principal and interest on the Renewal Note dated September 25, 1997. The Modified Final Judgment ordered that “Robert O. Breault have and recover from John Psarovarkas, the sum of $21,319.00 actual damages for the balance due on a promissory note dated June 17, 1994.” The note referred to by the trial court in the judgment does not represent the note that Breault sued upon. Psarovarkas agrees that the trial court entered a judgment that was not supported by the pleadings, but asserts that the issues supporting the judgment were tried by consent. The entry of judgment must conform to the pleadings. Barnett v. Barnett, 640 S.W.2d 776, 777 (Tex. App.—Houston [1st Dist.] 1982, no writ); Tex. R. Civ. P. 301. Issues not raised by the pleadings that are tried by the express or implied consent of the parties shall be treated as if they had been raised in the pleadings. See Sage Street Assocs. v. Northdale Const. Co., 863 S.W.2d 438, 445 (Tex. 1993); Tex. R. Civ. P. 67. However, in Sage Street, the court reiterated that issues are not tried merely by the hearing of testimony thereon and that the record must be examined not just for evidence of the issue, but evidence of trial of the issue. See id. at 446. Psarovarkas contends that Breault cannot now complain of the court’s reliance on the Real Estate Note because Breault introduced it into evidence, elicited detailed testimony about the facts leading up to its execution, provided evidence regarding down-payments and installment payments on the Real Estate Note, provided evidence of other documents and discussions surrounding the transactions between the parties, and failed to object when Psarovarkas presented evidence of same. After reviewing the record, we find that the issue of nonpayment of the Real Estate Note was tried by implied consent. The 1994 Real Estate Note and the 1997 Renewal Note are both in support of the same transaction—the purchase of Skipper’s Café by Psarovarkas. According to the record, the vast majority of evidence presented, both by witnesses and by exhibits, pertained to the 1994 Real Estate Note. Moreover, the record contains not just evidence of the issues applicable to the Real Estate Note, but also evidence of trial of the issues. The parties fully argued the following: the amount of the Real Estate Note, payments made and/or not made, verbal agreements made by the parties regarding the Real Estate Note, and amounts credited on the closing documents related to the Real Estate Note. After hearing this evidence, the court ruled on the specific issues argued by the parties relating to the Real Estate Note. We find that the record amply supports evidence of trial of the issues supporting the trial court’s judgment and overrule Breault’s first point of error. Application of Credits Breault complains that the trial court erred in applying three different credits to Psarovarkas. In his second point of error, Breault challenges the sufficiency of the evidence to support a $12,500 down-payment credit. In his third point of error, Breault complains that the trial court erred in crediting $28,975, the full amount of Psarovarkas’s monthly payments, instead of deducting interest. In his fourth point of error, Breault asserts that the trial court erred in crediting Psarovarkas with a $2,400 credit based on Breault’s “I.O.U.” Standard of Review When the trial court acts as a fact finder, we review its determinations under the legal and factual sufficiency standards. In re Doe, 19 S.W.3d 249, 253 (Tex. 2000). In a no-evidence challenge, we conduct a legal sufficiency review. Lee Lewis Const., Inc. v. Harrison, 70 S.W.3d 778, 782 (Tex. 2001). We review the evidence in a light that tends to support the finding of the disputed facts and disregard all evidence and inferences to the contrary. See id. If more than a scintilla of evidence exists, it is legally sufficient. Id. More than a scintilla of evidence exists if the evidence furnishes some reasonable basis for differing conclusions by reasonable minds about a vital fact’s existence. Id. at 782-83. We reverse the ruling for factual insufficiency of the evidence only if the ruling is so against the great weight and preponderance of the evidence as to be manifestly erroneous or unjust. Minucci v. Sogevalor, S.A., 14 S.W.3d 790, 794 (Tex. App.—Houston [1st Dist.] 2000, no pet.). $12,500 Credit In his second point of error, Breault asserts that the trial court erred by crediting Psarovarkas for $12,500.00 against the 1994 Real Estate Note because there is no evidence, or the evidence is insufficient to support the finding that Psarovarkas paid the $12,500.00. Viewing the evidence in a light that tends to support the findings and disregarding all evidence and inferences to the contrary, the record reveals the following: a. The settlement statement from Stewart Title indicates a $12,500 down- payment credit. b. Judy Wheeler, vice-president at Stewart Title, was the closing officer for the sale of property from Breault to Psarovarkas in 1994. Wheeler testified that Stewart Title received instructions to list $12,500 as a down-payment credit and that she understood that it had already been transferred between the parties. c. Psarovarkas testified that he paid a $12,500 down payment. d. Breault testified that, although he didn’t receive the $12,500, if it was paid, it would have been accounted for in the settlement papers. Based on the above, we find that more than a scintilla of evidence exists to support payment of the $12,500 by Psarovarkas and the evidence is therefore legally sufficient. Although there was testimony from Breault that he did not receive the $12,500, that does not render the verdict so against the great weight and preponderance of the evidence as to be manifestly erroneous or unjust. Breault’s second point of error is overruled. $28,975 Credit In his third point of error, Breault asserts that the trial court erred by crediting the full amount of Psarovarkas’s 19 $1,525.00 monthly payments against the principal balance of the Gonzales Note without deducting interest. In its findings of fact, the court found that Psarovarkas made payments to League City Bank & Trust (payment of the Gonzales Note) totaling $28,975.00. The court then credited this full amount in calculating the total payments made by Psarovarkas. When the parties do not agree otherwise, partial payments on an interest-bearing obligation are ordinarily applied first to accrued interest, and the balance is applied to principal. Cmty. Savings & Loan Assoc. v. Fisher, 409 S.W.2d 546, 550 (Tex. 1966); see Whalen v. Weaver, 464 S.W.2d 176, 180 (Tex. App.—Houston [1st Dist.] 1970, writ ref’d n.r.e.). Here, there is no evidence of any agreement of the parties regarding principal and interest. An amortization schedule was signed in June of 1994; however, the schedule does not contain any provisions regarding such terms. Therefore, we find that the trial court erred in crediting the entire $28,975 to Psarovarkas. We sustain Breault’s third point of error and reverse and remand with an instruction to the trial court that Psarovarkas be credited only with that portion of his payments properly allocated to principal and not to interest. $2,400 Credit In his fourth point of error, Breault asserts that the trial court erred by crediting Psarovarkas with a $2,400.00 credit based on Breault’s “I.O.U.” Specifically, Breault asserts that Psarovarkas is not entitled to the credit because (1) his pleadings will not support the judgment, (2) he waived any right thereto in open court, and (3) the condition precedent to Breault’s duty to pay never occurred. Because we have found that the Real Estate Note was tried by implied consent and that both the Real Estate Note and the Renewal Note were in support of the same transaction, we do not agree with Breault’s first point that the pleadings do not support the judgment. Furthermore, Breault signed an “I.O.U.” on his own letterhead, admitting that he owed Psarovarkas $2,400 and instructing Psarovarkas that he could subtract the amount from the “Note.” Breault also asserts that Psarovarkas waived any right to the $2,400 credit during Psarovarkas’s testimony in open court. In support of this claim, Breault refers to the following portion of Psarovarkas’s testimony as he was being questioned by Breault’s attorney: Q.You don’t know of any sums of money that Mr. Breault owes you, do you? A.If Mr. Breault owes me money? Q. Yeah. A.I don’t want any money from Mr. Breault. I don’t even want the $2400 that I paid taxes to Gonzales. Q.All right. So that’s your testimony, you don’t want any sums of money from Mr. Breault? A.I don’t want no money from Mr. Breault. However, Psarovarkas also made the following statement immediately following the last statement above, “I just want these people to leave me alone; so, I can work.” Additionally, during the next day of testimony while questioned by Psarovarkas’s attorney, Psarovarkas made the following statements: Q.. . . I think yesterday you were asked if you wanted all of this money back that you had over paid. . . . (followed by an objection and discussion) Did you know that you had over paid? A.No, ma’am. Q.Would you have sued Mr. Breault trying to get money back? A. Of course. Q. But you didn’t know? A. No. Q.Once he sued you and I figured it out, did you ask me then to see if I could collect that? A. Yes, ma’am. Q.When you said that you didn’t want the money back, you just wanted to work yesterday, did you mean that you wouldn’t have sued for it to begin with because you didn’t know? A. Yes, because I didn’t know. In a nonjury trial, the judge is the trier of fact and it is his prerogative and responsibility to weigh the credibility of the witnesses and the evidence. Cheek v. Humphreys, 800 S.W.2d 596, 598 (Tex. App.—Houston [14th Dist.] 1990, writ denied). We do not agree with Breault’s argument that Psarovarkas automatically disclaimed his interest by making a quasi-admission against interest at trial. Considering all of the testimony, we find that the trial judge could have found that the Psarovarkas did not disclaim his interest and was entitled to the credit. Breault also asserts that Psarovarkas was not entitled to the $2,400 credit because the condition precedent to Psarovarkas’s duty to pay never occurred. The “I.O.U.” executed by Breault states as follows: Psarovarkas: I OWE YOU $2,400 dollars. Yo [sic] You may subtract this amount from your Note to me, or pay the full amount ,of [sic] the note am [sic] Iwill [sic] reimburse you the $2400. Breault’s argument that Psarovarkas was not entitled to the credit is based on the claim that, because Psarovarkas did not pay the 1997 Renewal Note, Psarovarkas is not entitled to the credit, and that, if any credit was due to Psarovarkas, it should have been against the 1997 Renewal Note instead of the 1994 Real Estate Note. We disagree. The “I.O.U.” does not designate that it applies only to payment of the 1997 Renewal Note—it merely refers to a note. Additionally, because we have found that the Real Estate Note was tried by implied consent and Psarovarkas made payments specifically towards the Real Estate Note, the $2,400 credit can be applied to the Real Estate Note. We overrule Breault’s fourth point of error. Evidentiary Hearing on Sanctions In his fifth point of error, Breault asserts that the trial court abused its discretion by denying Breault the right to an evidentiary hearing on a post-trial motion for sanctions. Breault sought to have Psarovarkas sanctioned for filing a frivolous claim that required Breault to expend $1,900.00 in additional costs. In support of his motion for sanctions, Breault cited “Defendant’s Original Answer,” filed September 8, 1998, in which Psarovarkas asserted an affirmative defense of fraud, stating that the signature on the Renewal Note was not his signature and the notarization on the note was fraudulent. Because of Psarovarkas’s claim, Breault hired an expert documents examiner to review the signature, expending $1,900.00 to do so. Psarovarkas filed a “First Amended Answer and Counterclaim” less than a month before trial, which deleted this affirmative defense. Breault argues that Rule 13 of the Texas Rules of Civil Procedure requires a trial court to hold an evidentiary hearing on a motion to award sanctions and that the trial court abused its discretion by failing to hold such a hearing. We disagree with Breault’s interpretation of Rule 13. Rule 13 requires a court that finds a violation of Rule 13 to “upon motion or upon its own initiative, after notice and hearing, impose an appropriate sanction.” Tex. R. Civ. P. 13. Thus, this rule requires a court to hold a hearing prior to applying sanctions. The rule does not require a hearing prior to denying sanctions. The trial court did hold a hearing in response to Breault’s “Motion for New Trial and Amended Motion to Modify Judgment” and “Motion to Rule for Costs and Sanctions.” At the hearing, the trial court refused to hear arguments on sanctions and excluded the evidence offered by Breault in support of his motion for sanctions. Whether the exclusion was a refusal to hold an evidentiary hearing or denial of sanctions is not important, because, under Rule 13, a trial court is not required to hold an evidentiary hearing prior to denying sanctions. Therefore, we find no abuse of discretion and overrule Breault’s fifth point of error. Psarovarkas’s Points of Error Prejudgment Interest In his first point of error, Psarovarkas complains that the trial court erred in awarding prejudgment interest from the inception date of the Real Estate Note. The trial court ordered that Breault recover from Psarovarkas, interest due on the Real Estate Note from June 17, 1994, to August 28, 2000. Psarovarkas asserts that the accrual date for prejudgment interest should be March 24, 1998, which is 180 days from the date that Psarovarkas received notice of the claim, instead of June 17, 1994. “Prejudgment interest is ‘compensation allowed by law as additional damages for lost use of the money due as damages during the lapse of time between the accrual of the claim and the date of judgment.’” Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 528 (Tex. 1998) (quoting Cavnar v. Quality Control Parking, Inc., 696 S.W.2d 549, 552 (Tex. 1985)). The two legal sources for an award of prejudgment interest are general principles of equity, and an enabling statute. See id. Statutory provisions for prejudgment interest apply only to cases involving claims of wrongful death, personal injury, property damage, and condemnation. Lee v. Lee, 47 S.W.3d 767, 799-800 (Tex. App.—Houston [14th Dist.] 2001, pet. denied) (citing Tex. Fin.Code Ann. §§ 304.102, 304.201). Because the claims in this case do not fall within the statutory provisions, an award of prejudgment interest in this case is governed by the common law. See Kenneco, 962 S.W.2d at 530. Under the common law, prejudgment interest begins to accrue on the earlier of (1) 180 days after the date a defendant receives written notice of a claim or (2) the date suit is filed. See id. at 531. A “claim” is a demand for compensation or an assertion of a right to be paid. Id. Psarovarkas admits that the first date he received notice of a claim would be the date he was approached by Breault with the Renewal Note, which was September 25, 1997. Therefore, the appropriate date for prejudgment interest to begin would be 180 days from September 25, 1997, which is March 24, 1998. We sustain Psarovarkas’s first point of error and remand to the trial court for the calculation of prejudgment interest. Post-judgment Interest In his second point of error, Psarovarkas asserts that the trial court erred in awarding post-judgment interest. Specifically, Psarovarkas contends that he presented evidence that he made a full and unconditional tender of the amount of the court’s judgment to Breault, prior to entry of both the first judgment on October 18, 2000 and the final modified judgment on December 28, 2000. As Breault points out, a tender into the registry of the trial court of all sums due under the judgment is a means of halting post-judgment interest. See St. Paul Mercury Ins. Co. v. Billiot, 342 S.W.2d 161, 164 (Tex. App.—Beaumont 1960, writ ref’d). However, another means of terminating post-judgment interest is accomplished by making a timely, unconditional tender of payment of the judgment. See Trevino v. City of Houston, 695 S.W.2d 289, 291 (Tex. App.—Houston [1st Dist.] 1985, writ ref’d n.r.e.). A tender is an unconditional offer by a debtor to pay a sum not less than the full amount due on a debt or obligation. Bray v. Cadle Co., 880 S.W.2d 813, 818 (Tex. App.—Houston [14th Dist.] 1994, writ denied). The burden of proving a valid tender is on the party asserting it. Id. A formal tender is excused when the creditor has indicated he is unwilling to accept what is due in discharge of the debt. Strickland v. Coleman, 824 S.W.2d 188, 193 (Tex.App.—Houston [1st Dist.] 1991, no writ). Because there is no dispute that Psarovarkas did not offer a tender into the registry of the court, we must decide whether Psarovarkas made a timely, unconditional tender of payment of the judgment. Psarovarkas made his first offer of tender on August 24, 2000 by facsimile letter. Although trial proceedings had concluded on July 25, 2000, the court had not yet entered judgment. Psarovarkas’s letter states, “[I]n conformity with the judgment you prepared for my signature I am hereby offering to tender the full amount of the court’s judgment as follows . . . .” Because judgment had not yet been entered, and because we find no evidence in the record to verify whether such tender was in conformity with the claimed judgment prepared by Breault, we cannot find that Psarovarkas’s first offer was an unconditional tender. Subsequently, the trial court entered judgment on October 18, 2000. Psarovarkas sent another offer of tender via letter facsimile on October 19, 2000, stating an offer to pay the court’s judgment on October 23, 2000. We find that a comparison of the offer letter to the judgment demonstrates an unconditional tender of payment in accordance with the judgment. Breault claims that the offer was not an unconditional tender because it did not include post-judgment interest earned to date of the proposed payment. We disagree. The offer letter clearly states that it includes five days post-judgment interest from October 19 through October 23. We sustain Psarovarkas’s second point of error and remand to the trial court for deletion of the award of post-judgment interest. Conclusion We reverse that portion of the judgment that awards Breault $21,319 in actual damages and remand that portion of the judgment to the trial court to determine the proper allocation of principal to be credited against the balance of the Gonzales Note. We also remand the cause to the trial court for the purposes of re-calculating prejudgment interest based on the dates as stated in this opinion. In addition, we reverse that portion of the judgment that awards post-judgment interest and remand the cause to the trial court for signing of a final judgment that awards no post-judgment interest. Laura C. Higley Justice Panel consists of Justices Taft, Keyes, and Higley.