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Farmers & Merchants Bank v. Hodges

Court of Appeals of Texas, Eleventh District

June 28, 2019

FARMERS & MERCHANTS BANK, Appellant
v.
ROBERTA HODGES, Appellee

          On Appeal from the 220th District Court Comanche County, Texas Trial Court Cause No. CV16015.

          Panel consists of: Bailey, C.J., Stretcher, J., and Wright, S.C.J. [3]

          MEMORANDUM OPINION

          John M. Bailey Chief Justice.

         This is an appeal from a jury trial wherein the jury awarded the plaintiff, Roberta Hodges, a judgment in excess of $300, 000. Hodges applied for a loan from Farmers & Merchants Bank (FMB) in order to purchase a feed store. After the loan transaction failed to close, Hodges sued FMB, asserting claims for fraud, negligent misrepresentation, breach of fiduciary duty, and promissory estoppel. The jury found in favor of Hodges on all her causes of action, and the trial court rendered judgment in favor of Hodges on her fraud claim.

         In its first issue on appeal, FMB contends that the jury's finding that Hodges attempted to obtain the loan under false pretenses bars her recovery on all causes of action.[1] In four additional issues, FMB challenges the legal and factual sufficiency of the evidence to support the jury's award of damages and the jury's findings that FMB's conduct caused any of Hodges's damages, that FMB acted with fraudulent intent, and that FMB owed Hodges a fiduciary duty. We sustain FMB's third issue to the extent that it challenges the legal sufficiency of the evidence to establish that FMB's conduct caused any of Hodges's damages. Because this determination is dispositive of the case, we reverse the judgment of the trial court and render judgment that Hodges take nothing against FMB.

         Background Facts

         Hodges sought to obtain a commercial loan from FMB in order to purchase Stephens Feed & Fertilizer (Stephens Feed) in De Leon from Terry and Marsha Stephens (collectively, the Stephenses). Hodges originally applied for the loan in 2012, but FMB denied the application. After learning about the option of purchasing a loan guarantee from the United States Department of Agriculture (USDA), Hodges applied for a loan from FMB a second time.

         Hodges dealt primarily with loan officer Tim Beaty, a vice president of FMB. Hodges worked with Beaty for over a year. Hodges initially represented to FMB that she had agreed to pay $335, 000 for Stephens Feed, but later told Beaty that she had agreed to a new purchase price of $297, 000. The Stephenses, however, never agreed to lower the purchase price. Rather, Hodges had a separate agreement with Terry Stephens to pay the remaining $38, 000. Hodges admitted that she told FMB that the price had been reduced in order to increase the probability that the USDA would approve the loan guarantee application.

         In August 2013, Hodges signed a written contract to purchase Stephens Feed from the Stephenses for $296, 000[2] and provided FMB with a copy of the contract. Although Hodges's $38, 000 "side deal" had been reduced to writing, she did not provide FMB with a copy of that contract. When Hodges was asked why she did not tell Beaty about the side deal, Hodges testified that she did not tell him because "[t]hat was between me and Terry [Stephens]." Hodges testified that the purpose of the side deal was that she and Terry Stephens thought it would be "simpler" and "quicker" if they "went under [$]300, 000 for the loan with the USDA." Hodges testified that the purchase price "with Mr. Stephens" was always $335, 000. Beaty testified that the bank did not become aware of the side deal until after the underlying lawsuit was filed.

         Beaty repeatedly told Hodges that he was working on her loan guarantee application and would submit it to the USDA for approval. Hodges testified that, Beaty told her during a phone call in January 2014 that "he was going to do the loan" with an interest rate of about five percent. Before FMB approved the loan or submitted the USDA loan guarantee application, Hodges, through her company Hodges Ag Center, Inc., entered into a contract with Stephens Feed to lease its property, equipment, and vehicles on a month-to-month basis. FMB officially approved Hodges's loan application, pending the USDA guarantee, through a written memorandum on November 5, 2014.

         The feed store was encumbered by a lien held by First National Bank (First National), and in October 2014, First National sought to foreclose on its lien. First National agreed to delay foreclosure if Hodges or Terry Stephens paid $20, 000 toward the equipment loan and if Hodges made all future lease payments payable to both Terry Stephens and First National. Hodges did not pay First National the initial $20, 000 and failed to make any lease payments for the feed store for January through April of 2015. Subsequently, First National foreclosed on Stephens Feed's equipment and sold the equipment to a third party. Upon learning that the feed store's equipment had been sold, FMB advised Hodges that it would not provide her with a loan.

         Hodges sued FMB, asserting multiple causes of action. In essence, Hodges argued that FMB's failure to timely submit her loan guarantee application to the USDA prevented her from purchasing Stephens Feed and caused her significant financial harm. The jury found in favor of Hodges on her claims of fraud, breach of fiduciary duty, negligent misrepresentation, and promissory estoppel. However, the jury also found that Hodges had knowingly provided false, incorrect, or misleading information to FMB with the intention to secure a loan through false pretenses.

         FMB filed a motion for entry of judgment, arguing that the jury's false pretenses determination barred Hodges's recovery because she had unclean hands. FMB also challenged the legal and factual sufficiency of the evidence to support the jury's verdict and requested a take-nothing judgment. The trial court entered judgment in favor of Hodges on the fraud claim and awarded her $310, 000 in damages. The ...


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