Opinion
No. 14-02-00627-CV
Memorandum Opinion filed June 29, 2004.
On Appeal from the 157th District Court, Harris County, Texas, Trial Court Cause No. 00-54077.
Affirmed in Part, Reversed and Remanded in Part.
Panel consists of Justices EDELMAN, FROST, and GUZMAN (EDELMAN, J., concurs without filing an opinion).
MEMORANDUM OPINION
This is a breach-of-contract case in which an equipment lessor was awarded summary judgment against the equipment lessee and its president, whom the equipment lessor claimed was liable under a personal guaranty. We find that the trial court correctly determined the unambiguous meaning of the president's unusual guaranty agreement and that appellants' challenges to the summary judgment lack merit, except that there is a genuine issue of material fact as to the reasonable attorney's fees to be awarded to the equipment lessor.
Accordingly, we reverse, sever, and remand this attorney's fees issue to the trial court, and in all other respects we affirm the trial court's judgment.
I. FACTUAL AND PROCEDURAL BACKGROUND
By means of a lease dated July 3, 1997 and a lease dated September 18, 1998, appellant Coastal Terminal Operators leased two cranes from appellee Essex Crane Rental Corp. After Coastal breached these leases by failing to make timely payments, Vincent Morano, the President of Essex at the time, called appellant James W. McPherson, the President of Coastal, to discuss Coastal's failure to pay under the leases. Following these conversations, McPherson sent a letter dated January 12, 2000, to Morano as a representative of Essex. This letter reads in its entirety as follows:
Please accept this letter as my personal guarantee to pay the outstanding balance owing to Essex Crane by Coastal Terminal Operators, Inc. in full out of the proceeds of the sale of Cargo Terminal Venture/Jacintoport to Seaboard Corporation as soon as funds are released at the time of closing. We will inform you as soon as this takes place. As you know, this is subject to Port of Houston Authority approval and favorable filing of HRS with antitrust officials. We do not foresee any problems as of this date.
Thank you for your continuing patience as we endeavor to resolve our financial problems.
The letter was signed by "James W. McPherson," and it was written on Coastal letterhead. Port Venture f/k/a Cargo Terminal Venture (referred to herein as "the Venture") is a venture that was owned 60% by HDI, Ltd. and 40% by McPherson Interests, Ltd. There is no evidence in the record that James McPherson owns or controls HDI, Ltd. McPherson Interests, Ltd. is a Texas limited liability company owned by members of McPherson's family. McPherson is the President of McPherson Interests and owns a 1% interest in that company. McPherson testified at one of his depositions that, after January 12, 2000, McPherson Interests had to sell its 40% interest in the Venture as a result of McPherson having been indicted. McPherson stated that the debt owed to McPherson Interests was not paid by the buyer of the interest and that McPherson Interests eventually foreclosed a security interest that it had in the 40% interest in the Venture, regaining this interest.
Stephen Jacobs, an attorney for the Venture in the Seaboard transaction, produced a letter agreement between HDI, McPherson Interests, and others dated June 14, 2000. This agreement is contained in the summary-judgment evidence and states as follows:
(1) Before May 30, 2000, the Venture sold and conveyed substantially all of its assets to Seaboard Corporation or its affiliate under an Asset Purchase Agreement dated May 12, 2000.
(2) McPherson Interests acknowledges that it has received an executed counterpart of the Asset Purchase Agreement and that it approves the transaction described therein for all purposes.
(3) On May 30, 2000, McPherson Interests duly conducted a foreclosure sale in which it acquired a 40% interest in the Venture from Houston Deepwater Connection, Inc.
(4) The $6,000,000 note executed by Houston Deepwater Connection, Inc. and payable to McPherson Interests was extinguished in full at the May 30, 2000 foreclosure sale.
(5) As of June 14, 2000, HDI and McPherson Interests are the sole partners in the Venture, with HDI owning a 60% interest and McPherson Interests owning a 40% interest.
(6) At the closing of the Asset Purchase Agreement, the Venture received an undisclosed amount of cash and, concurrent with the June 14, 2000 letter agreement, it distributed $250,000 of this money to McPherson Interests.
This letter agreement was signed by HDI. James McPherson also executed this agreement on behalf of McPherson Interests as its President. James McPherson also signed this agreement five more times — once in his individual capacity and also as representative of the following corporations: Jacintoport Corporation, Coastal Terminal Operators, Inc., Coastal Stevedoring Corp., and Diversified Laborers, Inc.
Jacobs also produced a letter agreement dated May 16, 2002, that is part of the summary-judgment evidence. In this document, the parties state that they still have not reached final agreement regarding the amounts of cash distributions from the Venture to which HDI and McPherson Interests are entitled. However, the document states that, nonetheless, HDI has consented from time to time to the Venture's distribution of money to McPherson Interests and that HDI consents to a $600,000 distribution from the Venture to McPherson Interests on May 16, 2002. Jacobs also produced two $300,000 checks drawn on the Venture's account and made payable to McPherson Interests. Mc Pherson testified that, on behalf of McPherson Interests, he endorsed these checks over to Jacintoport Corporation and deposited them into Jacintoport's bank account.
At his deposition, Jacobs testified as follows:
(1) The Venture definitely consummated a sale to Seaboard Corporation.
(2) In exchange for a payment (the amount of which is protected by a confidentiality agreement), Seaboard purchased virtually all of the Venture's assets, except for an agreement under which the Venture received royalties from a company.
(3) Included in the assets that the Venture sold to Seaboard were two leases the Venture had with the Port of Houston covering two facilities that were commonly known as Jacinto Port.
(4) The Venture has paid approximately $800,000 from the proceeds of the Seaboard transaction to McPherson Interests.
(5) In connection with the Seaboard transaction, Coastal Terminal Venture changed its name to Port Venture.
(6) The two checks endorsed by James McPherson on behalf of McPherson Interests and dated May 16, 2002 were payments from the Venture directly related to the sales proceeds received from Seaboard.
The transcript of Jacobs's deposition is part of the summary-judgment evidence.
At his February 27, 2001 deposition, which is part of the summary-judgment evidence, James McPherson testified as follows:
(1) As of February 27, 2001, McPherson Interests owned a 40% interest in the Venture.
(2) As of February 27, 2001, McPherson Interests had not received from the Venture its 40% share of the sales proceeds from the Seaboard transaction.
(3) The proceeds from the sale to Seaboard that are to be distributed by the Venture are the proceeds James McPherson was referring to in his January 12, 2000 letter.
(4) McPherson was not assisted by an attorney in drafting his January 12, 2000 letter.
(5) In January of 2000, Morano (President of Essex) "agreed for [McPherson] to pay him out of the proceeds from Seaboard."
(6) Jacintoport Corporation is owned by McPherson's daughter, and McPherson is an officer and a director of the company.
(7) Jacintoport Corporation is not currently in business and has not been in business since April of 1999.
(8) Jacintoport Corporation is not owed any money from the Venture.
At his July 9, 2002 deposition, which is part of the summary-judgment evidence, James McPherson testified as follows:
(1) In his January 12, 2000 letter, McPherson did agree to pay the indebtedness to Essex out of the sale of CTV Jacintoport to Seaboard; however, this sale was never actually consummated because the sale changed after January 12, 2000, when Jacintoport Corporation and its assets were not involved in the sale.
(2) McPherson was confused at his February, 2001, deposition when he stated that the sale had been consummated.
(3) The Venture has funded $1.2 to $1.6 million to McPherson Interests.
(4) The original understanding was that the full sales price from the Seaboard transaction would be funded in one lump sum; however, it was less than anticipated, although still in excess of the debt to Essex.
(5) McPherson anticipated the money was going to be funded to McPherson Interests and McPherson Interests would then fund the money to Coastal.
(6) McPherson anticipated Coastal would be a continuing, operating entity with a large volume of business, but it is not.
(7) Out of the proceeds McPherson Interests has received, it advanced $900,000 to satisfy in part an obligation to the Texas Workers' Compensation Insurance Commission owed by Jacintoport Corporation, Coastal, and McPherson in his individual capacity.
(8) To the best of McPherson's recollection, McPherson Interests was not liable on this obligation to the Texas Workers' Compensation Insurance Commission.
(9) McPherson also used some of the distribution of the Seaboard sales proceeds to pay his personal income taxes and some salaries, including his own salary.
(10) McPherson did not use the money from the Seaboard transaction to pay Essex because the transaction did not involve one lump-sum payment and Coastal did not have an operating facility as McPherson allegedly anticipated.
(11) When McPherson received the two $300,000 checks in May of 2002, he endorsed them over to Jacintoport Corporation and deposited them in Jacintoport's bank account.
(12) Jacintoport then paid out "most all of the money" by checks that were signed by James McPherson.
(13) Of the $1.6 million received by McPherson Interests from the sale to Seaboard, probably not a substantial amount is still around.
(14) The two $300,000 checks, dated May 16, 2002, were not part of the proceeds that McPherson Interests received.
No proceeds of the Seaboard transaction were ever paid to Essex. Coastal and McPherson have not otherwise satisfied the obligations in question. Essex sued Coastal for breach of the leases and McPherson for breach of the January 12, 2000 letter agreement, which Essex asserts is a guaranty. Essex filed a motion for summary judgment and a supplemental motion for summary judgment. The trial court granted these motions and awarded Essex judgment against Coastal and McPherson, jointly and severally, in the amount of $461,104.44, plus attorney's fees, interest, and costs.
II. ISSUES PRESENTED
On appeal, Coastal and McPherson assert the following arguments under their first issue:
(1) The trial court erred in granting summary judgment because the January 12, 2000 letter agreement is ambiguous.
(2) The trial court erred in granting summary judgment because of genuine issues of fact regarding the defenses of failure of consideration and mutual mistake.
(3) The trial court erred in granting summary judgment because of a material fact issue regarding Essex's alleged failure to perform a condition precedent.
(4) The trial court erred in granting summary judgment because of fact issues regarding the affirmative defense of unconscionability.
(5) The trial court erred in granting summary judgment because there is a genuine issue of material fact regarding the reasonable attorney's fees that should be awarded to Essex for the prosecution of its contract claims.
Coastal and McPherson also assert a second issue; however, that issue is now moot because the relief requested has been granted by this court in its abatement order of April 22, 2004. See Coastal Terminal Operators v. Essex Crane Rental Corp., 133 S.W.3d 335 (Tex. App.-Houston [14th Dist.] 2004, order) (per curiam).
III. STANDARD OF REVIEW
In reviewing the trial court's summary judgment, we must determine whether Essex showed there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. See KPMG Peat Marwick v. Harrison Cty. Housing Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999). In conducting our review, we take as true all evidence favorable to nonmovants Coastal and McPherson, and we make all reasonable inferences in their favor. See id.
III. ISSUES AND ANALYSIS
A. Did the trial court err in granting summary judgment because the January 12, 2000 letter agreement is ambiguous?
McPherson asserts that summary judgment was improper because the January 12, 2000 letter agreement is ambiguous. Whether a contract is ambiguous is a question of law for the court's determination. Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). If the contract is subject to two or more reasonable interpretations, the contract is ambiguous, thereby creating a fact issue as to the parties' intent. Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996). On the other hand, if the written instrument is worded so that it can be given a certain or definite legal meaning or interpretation, then it is not ambiguous, and the court will construe the contract as a matter of law. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983).
McPherson asserts that his letter of January 12, 2000, is ambiguous because it is susceptible to the following interpretations:
(1) McPherson promises that the outstanding balance of Coastal's debt to Essex will be paid in full out of the proceeds from the sale of Cargo Terminal Venture/Jacintoport to Seaboard as soon as funds from this transaction are released to a company affiliated with McPherson, regardless of changes in the structure of the transaction; furthermore, if such payment is not made, then McPherson will be personally liable to pay this debt to the extent it is not paid out of these proceeds.
(2) McPherson promises that the outstanding balance of Coastal's debt to Essex will be paid in full out of the proceeds from the sale of Cargo Terminal Venture/Jacintoport to Seaboard as soon as funds from this transaction are released to a company affiliated with McPherson; however, such payment need not be made if the structure of the Seaboard transaction changes from that anticipated on January 12, 2000.
(3) McPherson promises to do his best to see that the outstanding balance of Coastal's debt to Essex will be paid in full out of the proceeds from the sale of Cargo Terminal Venture/Jacintoport to Seaboard as soon as funds from this transaction are released to a company affiliated with McPherson, regardless of any unanticipated change in the structure of the transaction. However, if McPherson's efforts are unsuccessful, McPherson has no personal liability under any circumstances.
(4) McPherson promises that the outstanding balance of Coastal's debt to Essex will be paid in full out of any proceeds from the sale of Cargo Terminal Venture/Jacintoport to Seaboard as soon as funds from this transaction are released to McPherson in his personal capacity or to Coastal.
Although McPherson is correct that the January 12, 2000 letter agreement is arguably susceptible to the above interpretations, the fact that the parties put forth conflicting interpretations does not create an ambiguity. See Columbia Gas Transmission Corp., 940 S.W.2d at 589. For an ambiguity to exist, at least two of the interpretations must be reasonable. Id. We conclude that interpretations two through four above are not reasonable. See id.
The second interpretation is not reasonable because nothing in the letter indicates that the structure of the transaction or the persons negotiating the transaction are relevant to the obligation to pay Essex out of the proceeds. It would not be reasonable to allow McPherson to alter the obligation to pay Essex based on variables in the transaction. The third interpretation would render the words "[p]lease accept this letter as my personal guarantee. . . ." meaningless because there would be no possible personal liability for McPherson on his personal guarantee. A guaranty agreement is a contract in which one party agrees to be responsible for the performance of another party even if he does not have direct control. Material Partnerships, Inc. v. Ventura, 102 S.W.3d 252, 258 (Tex. App.-Houston [14 Dist.] 2003, pet. denied). Though this letter is an unusual form of guaranty, in that McPherson is guarantying that one of his affiliated companies will pay the Essex debt, rather than guarantying that Essex will pay it, to give meaning to the words "personal guarantee," there must be personal liability for McPherson if the guarantied performance does not occur. See Material Partnerships, Inc., 102 S.W.3d at 258-61 263-64 (Frost, J., concurring). Finally, the fourth interpretation is not reasonable because there is no reason to expect that the proceeds would be released to McPherson personally or to Coastal and it is not reasonable for McPherson to be able to avoid liability by simply making sure that the proceeds are not transferred to himself or to Coastal. In sum, the competing interpretations advanced by McPherson are not reasonable and therefore do not create an ambiguity. See Columbia Gas Transmission Corp., 940 S.W.2d at 589-93; Material Partnerships, Inc., 102 S.W.3d at 258-61 263-64 (Frost, J., concurring). Therefore, we conclude that the trial court did not err in its implicit ruling that the January 12, 2000 letter agreement is unambiguous.
B. Did the trial court err in granting summary judgment because of fact issues regarding the affirmative defense of lack of consideration?
McPherson also asserts that there is a fact issue regarding his affirmative defense of lack of consideration to support his guaranty agreement. Although McPherson's live pleading at the time of the trial court's judgment contained a verification page, that page was not signed by McPherson or notarized. As a result of this pleading defect, McPherson waived that defense. See TEX. R. CIV. P. 93(9); Murphy v. Canion, 797 S.W.2d 944, 949 (Tex. App.-Houston [14th Dist.] 1990, no writ) (holding failure to assert lack of consideration by verified denial waived that defense). Accordingly, the trial court did not err in granting judgment despite McPherson's argument that his agreement lacked consideration.
C. Did the trial court err in granting summary judgment because of fact issues regarding the affirmative defense of mutual mistake?
McPherson also asserts the trial court erred because there is a fact issue regarding mutual mistake. Under the doctrine of mutual mistake, when parties to an agreement have contracted under a misconception or ignorance of a material fact, the agreement will be avoided. Walden v. Affiliated Computer Services, Inc., 97 S.W.3d 303, 325-26 (Tex. App.-Houston [14th Dist.] 2003, pet. denied). To prove a mutual mistake, however, the evidence must show that both parties were acting under the same misunderstanding of the same material fact. Id. Applying the familiar standard of review, we conclude that the summary-judgment evidence did not raise a genuine issue of fact that both parties were acting under the same misunderstanding of the same material fact. Accordingly, the trial court did not err in concluding that this defense fails as a matter of law. See Walden, 97 S.W.3d at 325-26.
D. Did the trial court err in granting summary judgment because of fact issues regarding Essex's alleged failure to perform a condition precedent?
McPherson and Coastal also argue the trial court erred in granting summary judgment because of a material fact issue regarding Essex's alleged failure to perform a condition precedent. Because Essex pleaded that all conditions precedent had been performed, Essex was required to prove only the conditions precedent that McPherson or Coastal specifically denied. See TEX. R. CIV. P. 54. In their answers, Coastal and McPherson did not deny that Essex failed to perform any specific alleged condition precedent; rather, they "specifically den[ied] that all conditions precedent to Plaintiff's right to recover have occurred or been performed." This denial, however, is not sufficient under Texas Rule of Civil Procedure 54. See TEX. R. CIV. P. 54; Wade and Sons, Inc. v. American Standard, Inc., 127 S.W.3d 814, 825-26 (Tex. App.-San Antonio 2003, pet. denied). Rule 54 requires the opposing party to specifically deny which conditions precedent have not been performed or have not occurred. See TEX. R. CIV. P. 54. To require the pleading party to prove an alleged condition precedent, the opposing party must specify in its denial the conditions precedent that allegedly have not been satisfied; it is not sufficient to simply deny that all conditions precedent have been satisfied, even if the word "specifically" is included in the denial. See TEX. R. CIV. P. 54; Wade and Sons, Inc., 127 S.W.3d at 825-26. Because they did not specify in their denials any conditions precedent that allegedly had not been satisfied, McPherson and Coastal waived their right to complain on appeal about any alleged failure to satisfy conditions precedent. See TEX. R. CIV. P. 54; Wade and Sons, Inc., 127 S.W.3d at 825-26.
E. Did the trial court err in granting summary judgment because of fact issues regarding the affirmative defense of unconscionability?
McPherson also asserts that there is a fact issue regarding whether enforcing his January 12, 2000 letter agreement against him would violate public policy and be unconscionable because there is a genuine issue of fact as to whether he received or controlled any proceeds from the transaction referenced in that agreement. The high threshold of proof required of McPherson to prove unconscionability is well-established, as is the strong policy of Texas in favor of freedom of contract. See Marsh v. Marsh, 949 S.W.2d 734, 740 (Tex. App.-Houston [14th Dist.] 1997, no writ) (stating burden of proof that must be satisfied by party alleging unconscionability); Churchill Forge, Inc. v. Brown, 61 S.W.3d 368, 371 (Tex. 2001) (stating that Texas has a "strong commitment to the principle of contractual freedom"). McPherson has not shown that he signed the January 12, 2000 letter agreement as a result of mutual mistake, fraud, or oppression or that the agreement is so one-sided that it rises to the level of substantive unconscionability. See Marsh, 949 S.W.2d at 739-43 (stating that disproportionate terms and unfairness alone is not sufficient to show unconscionability and holding that agreement was not unconscionable). A party who knowingly enters a lawful but improvident contract is not entitled to protection by the courts, and absent mistake, fraud, or oppression, the courts are not interested in the wisdom of contracts voluntarily entered into between parties compos mentis and sui juris. See id. at 740. We conclude that, as a matter of law, the January 12, 2000 letter agreement is not unconscionable. Accordingly, the trial court did not err in rejecting McPherson's unconscionability argument.
F. Did the trial court err in granting summary judgment because there is a fact issue regarding attorney's fees?
McPherson and Coastal also assert that there is a fact issue precluding summary judgment as to the reasonable attorney's fees that should be awarded to Essex for prosecution of this suit in the trial court. They also claim that the statements in Essex's attorney's fees affidavit regarding appellate fees are conclusory, making summary judgment improper as to these fees. We agree with both assertions.
Essex's attorney established a prima facie case for recovery of attorney's fees in his affidavit. In the absence of controverting proof, the affidavit would be sufficient to support the trial court's summary judgment. See Bethel v. Butler Drilling Co., 635 S.W.2d 834, 841 (Tex. App.-Houston [14th Dist.] 1982, writ ref'd n.r.e.). However, the affidavit of appellants' attorney constituted controverting expert testimony and raised a genuine issue of material fact regarding the reasonable attorney's fees that should be awarded to Essex for prosecution of this suit in the trial court. See Engel v. Pettit, 713 S.W.2d 770, 771-73 (Tex. App.-Houston [14th Dist.] 1986, no writ) (holding that trial court erred in granting summary judgment because of fact issue raised by attorney's fees affidavit of nonmovant). Essex asserts that the controverting affidavit is invalid and insufficient to raise a fact issue because it does not state that the facts set forth therein are true and correct. Essex does not cite, and we have not found, any place in the record where Essex objected on this basis in the trial court or any order ruling on such an objection. Therefore, Essex has waived this objection. See TEX. R. CIV. P. 166a (f) (stating "[d]efects in the form of affidavits or attachments will not be grounds for reversal unless specifically pointed out by objection by an opposing party with opportunity, but refusal, to amend"); Grand Prairie Indep. Sch. Dist. v. Vaughn, 792 S.W.2d 944, 945 (Tex. 1990) (stating objection based on affidavit's failure to explicitly state that it was based on personal knowledge and that witness was competent was waived by failure to object in the trial court); Youngblood v. U.S. Silica Co., 130 S.W.3d 461, 468-69 (Tex. App.-Texarkana 2004, pet. filed) (holding objection based on affidavit's failure to explicitly state that statements therein were "true and correct" and within affiant's personal knowledge was waived by failure to object and obtain ruling in the trial court). We conclude there is a genuine issue of material fact precluding summary judgment as to reasonable attorney's fees in the trial court.
As to the appellate fees, McPherson and Coastal assert that summary judgment was not proper because Essex provided only conclusory statements in its counsel's affidavit to support the reasonableness of these fees. We have reviewed this affidavit, and we conclude that the statements regarding appellate fees are conclusory and that there is no evidence to support the reasonableness of these fees. See Burrow v. Arce, 997 S.W.2d 229, 235-37 (Tex. 1999) (holding that conclusory affidavits made by an expert are legally insufficient to support summary judgment); Ramirez v. Transcontinental Ins. Co., 881 S.W.2d 818, 829 (Tex. App.-Houston [14th Dist.] 1994, writ denied) (holding party need not assert objection in trial court to argue on appeal that language in affidavit is conclusory). Therefore, we conclude that the issue of the amount and reasonableness of the trial and appellate attorney's fees to be awarded Essex should be severed and remanded to the trial court for trial.
IV. CONCLUSION
The January 12, 2000 letter agreement is unambiguous. The trial court did not err in granting summary judgment and rejecting appellants' arguments based on failure of consideration, mutual mistake, conditions precedent, and unconscionability. However, Essex did not conclusively prove its entitlement to reasonable attorney's fees. Accordingly, as to the attorney's fees issue only, we sustain the first issue asserted by McPherson and Coastal and reverse the trial court's judgment. We sever and remand for trial the issue of the amount and reasonableness of the trial and appellate attorney's fees to be awarded Essex. In all other respects, we affirm the trial court's judgment.