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04/28/95 CURTIS T. SPIVEY III AND SHERYL H. SPIVEY

April 28, 1995

CURTIS T. SPIVEY III AND SHERYL H. SPIVEY
v.
FIRST COMMERCIAL BANK



Appeal from Jefferson Circuit Court. (CV-91-7862).

Shores, Hornsby, C.j., and Kennedy, Ingram, and Cook, JJ., concur. Maddox, Houston, and Butts, JJ., concur in part and Dissent in part.

The opinion of the court was delivered by: Shores

On Rehearing Ex Mero Motu

SHORES, JUSTICE.

This Court's order of June 24, 1994, affirming the judgment, without opinion, and its July 29, 1994, order denying rehearing, are withdrawn.

Curtis T. Spivey III and his wife Sheryl H. Spivey appeal from a judgment based on a jury verdict for First Commercial Bank on the Spiveys' fraud claim and based on the jury's determination that the entire balance of the promissory note was subject to a mortgage held by First Commercial. We affirm in part, reverse in part, and remand.

This appeal arises from two cases consolidated for trial. On October 2, 1991, First Commercial Bank filed a complaint against the Spiveys, seeking a judgment on a promissory note and a judicial foreclosure on mortgages executed by the Spiveys to secure the note. On October 4, 1991, the Spiveys filed a complaint against First Commercial, in which they alleged breach of contract, breach of fiduciary duty, and fraud. They alleged that First Commercial had fraudulently induced them to enter into a loan agreement on October 31, 1990, and to give a mortgage on their property, by falsely representing to the Spiveys that they would be able to use the entire proceeds of the loan to pay for construction of their residence -- they alleged that in fact a substantial portion of the loan proceeds were actually used by first Commercial to pay off unsecured business-related loans of Curtis Spivey and Curt's Cars, Inc.

The transactions that led to this appeal began in February 1990, when Curtis T. Spivey III, as president of Curt's Cars, Inc., executed a promissory note to First Commercial Bank, specifically for business purposes. From February 1990 through June 1990, Curt's Cars, Inc., through Spivey as its president, entered into other business loan agreements with First Commercial Bank. None of the documents relating to those loans refers to personal purposes or to residential construction purposes. The Bank charged an interest rate on these business loans equal to the prime rate plus one percent.

On August 13, 1990, the Spiveys executed a promissory note to First Commercial Bank in the amount of $150,000 at an interest rate equal to the prime rate plus two percent. The note stated on its face that it was for construction of a personal residence located at Route 1, Box 533, Pinson, Alabama. In connection with the promissory note, the Spiveys gave First Commercial a first mortgage on the real property where the Spiveys' home was located and upon which the new house was to be constructed. This promissory note contained a statement providing that no modification of the note or any agreement securing the note was effective unless in writing and signed by the borrower and the lender.

The Spiveys executed a second promissory note, also secured by a mortgage on their real property, to First Commercial Bank on October 31, 1990, in the amount of $332,000. On the face of this note, the purpose is stated as being "construction" and "personal." The Spiveys also, at the same time, executed a construction loan agreement, which stated that the purpose of the loan was to pay the cost of construction. Both the note and the loan agreement contained statements providing that no modification of the note was effective unless in writing and signed by the borrower and the lender. The Spiveys also signed a "Truth-in-Lending Disclosure Form." On that form, under the column entitled "Amounts Paid to Others on My Behalf," there are no entries.

On November 6, 1990, First Commercial disbursed funds from the Spiveys' construction line of credit to satisfy the business debts of Curt's Cars, Inc., and Curtis Spivey. The Spiveys contend that the disbursement was made without their knowledge or acquiescence. The evidence reflects that the promissory note executed by the Spiveys on October 31, 1990, was altered by First Commercial after they had signed it, to add the designation "Master Note," to add the designation "Amended," and to list the loan numbers of Curt Spivey's business loans. The Bank contends that the Spiveys did not complain about the disbursement of funds from the October 31, 1990, line of credit until July 1991. The Spiveys argue that they complained to the Bank upon learning of the disbursement.

On May 20, 1991, the Spiveys signed a renewal note, which matured on August 20, 1991. The Spiveys made none of the interest payments on that loan, and on September 3, 1991, First Commercial sent a letter to the Spiveys informing them that they were in default. First Commercial Bank then sued the Spiveys on the promissory note of May 20, 1991, and sought foreclosure of the mortgage securing the note. The Spiveys sued First Commercial, alleging fraud and breach of contract. The cases were consolidated for trial.

The cases were tried in April 1993. At the beginning of his charges to the jury, the trial Judge directed a verdict in favor of First Commercial Bank on the promissory note of May 20, 1991, for $331,936.65, stating:

"I have decided as a matter of law that Curtis Spivey is liable for the full amount of the note plus interest accrued on the note from May 20, 1991, until the date of the judgment. The question still remaining for you to decide is the amount of the indebtedness owed to First Commercial which is subject to the mortgage."

The trial Judge then propounded these written interrogatories to the jury:

"1. With respect to the claim asserted by First Commercial Bank against Curtis T. Spivey, III, and Sheryl H. Spivey, state the amount of the indebtedness owed to First Commercial Bank by Curtis T. Spivey, III, ...


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