Opinion
NO. 03-14-00405-CV
04-20-2016
U.S. Foodservice, Inc. a/k/a US Foods, Inc., Appellant v. Winfield Project Management, LLC; and Brad Beutel, Appellees
FROM THE COUNTY COURT AT LAW NO. 2 OF TRAVIS COUNTY
NO. C-1-CV-003487, HONORABLE J. DAVID PHILLIPS, JUDGE PRESIDINGMEMORANDUM OPINION
U.S. Foodservice, Inc. (U.S. Foods) appeals a trial-court judgment imposing discovery sanctions to the benefit of appellee Winfield Project Management, LLC (Winfield) and denying recovery on claims U.S. Foods had asserted against appellee Brad Beutel. U.S. Foods contends that the discovery sanctions were an abuse of discretion and that a jury finding on which the take-nothing judgment as to Beutel rested was not supported by legally sufficient evidence. We agree with both contentions and, accordingly, reverse these portions of the trial court's judgment.
The underlying controversy stems from the demise of a once-popular Northwest Austin restaurant known as "The Hub," which ceased operations in late 2010. U.S. Foods had been a vendor of food and supplies to The Hub, and it claims that the restaurant left unpaid an outstanding balance on credit purchases of approximately $5,500. U.S. Foods sued in justice court to recover this alleged debt, plus contractual interest and attorney's fees, from the limited partnership through which The Hub had been operated (HUB Northwest Hills Partners, Ltd. (HUB)) and several other entities and individuals who had also been involved in the enterprise. These additional defendants included Winfield, which had been a general partner in HUB, and Beutel, whose involvement included serving as The Hub's bookkeeper, president or manager of Winfield, and—most critically for this case—a guarantor of HUB's credit obligations to U.S. Foods. The litigation yielded U.S. Foods default judgments against all defendants other than Winfield and Beutel, and these were made final through severance and are not challenged on appeal. U.S. Foods's claims against Winfield and Beutel proceeded to trial before the justice court, which yielded a judgment adverse to U.S. Foods. U.S. Foods then pursued trial de novo before a jury in the court below.
WINFIELD
In support of its claims against Winfield, U.S. Foods presented evidence that each of HUB's purchases had been governed by the terms of a contract formed in December 2007 through U.S. Foods's acceptance of a credit-account application submitted by HUB. As a component of the application, HUB agreed to a litany of "Terms and Conditions" as "consideration of the extension of credit by [U.S. Foods] to Applicant, or the delivery of goods and/or services." Among these were the obligations to make payment of the purchase price for any goods acquired from U.S. Foods in accordance with the terms stated on each invoice. Upon any default in performing that obligation, HUB agreed to immediately pay all outstanding balances due to U.S. Foods, plus interest and any costs incurred in collection, including reasonable attorney's fees. The Terms and Conditions further provided that upon U.S. Foods's approval of the application, it would, "in its sole discretion . . . assign Applicant a maximum credit line (if applicable) and shall have the right to increase, decrease or terminate Applicant's credit privileges under this Application and Agreement at any time without prior notice to Applicant, except as otherwise provided by law." HUB completed the application, including specifically agreeing to the Terms and Conditions, through Beutel in his capacity as president of Winfield, which at the time was undisputedly the general partner in HUB. Contemporaneously, Beutel also signed a "Personal Guaranty," whose terms we will explore as they become relevant to our analysis.
At the time, the entity was known as Winfield Management, LLC, but the name was subsequently changed to the current Winfield Project Management, LLC.
Beutel testified that in mid-2008, majority ownership and control of HUB was conveyed to entities owned directly or indirectly by Hutchison J. (Hutch) Utt, II, and Mary Patricia Utt. At that time, according to Beutel, Winfield had withdrawn as general partner and was replaced by an Utts-affiliated entity, Utt Hospitality, LLC. However, Beutel acknowledged that the participants had failed to give public notice of the ownership change or to comply with a Terms and Condition requiring HUB to "immediately notify [U.S. Foods] via certified mail of any sale of a significant portion of the assets or business of Applicant, or a sale of a substantial interest in the capital stock or other ownership interest of Applicant." Although the record is somewhat oblique on the subject, the parties seem to attribute Winfield's continued entanglement with HUB's obligations at least in part to these notice failures.
After presentation of evidence, the trial court granted U.S. Foods a directed verdict on its claims against Winfield. It subsequently rendered judgment that U.S. Foods was entitled to recover from Winfield $9,822.07 in damages, plus $11,970 in attorney's fees. The judgment offset the damage award, however, with a $3,000 "credit," yielding a net damages award of $6,822.07. This "credit" portion of the judgment incorporated an earlier order in which the trial court had determined to apply the $3,000 reduction "in the event of a judgment for [U.S. Foods]." The prior order elaborated that $1,500 of the offset—or one-half of the total—represented a dollar-for-dollar reduction for portions of the common underlying debt that U.S. Foods had succeeded in recovering from Hutch Utt, one of the co-defendants against whom U.S. Foods had obtained a default judgment in the justice court. This portion of the credit is not in controversy on appeal. U.S. Foods's focus is instead on the remaining half of the offset, which the order termed a "further reduc[tion]" as a "sanction for discovery abuse."
See supra n. 2.
Nor is the underlying award of damages and attorney's fees against Winfield, as it did not perfect an appeal from the trial court's judgment.
The "discovery abuse" referenced in the court's order, the parties agree, referred to U.S. Foods's nondisclosure of an August 2012 written agreement between U.S. Foods and Hutch Utt and wife Patricia. In that agreement, U.S. Foods had agreed to accept $8,100 from the Utts in full satisfaction of the default judgment against them, to be paid in 36 monthly installments of $225 each. It is undisputed that appellees first learned of the existence of this agreement, and that some payments had been made under it, through a conversation between Beutel and Hutch Utt that occurred in late January 2013, a few days before the justice-court trial on U.S. Foods's claims against appellees. An email exchange had ensued in which appellees' counsel inquired about the matter, and U.S. Foods's counsel responded by promptly providing the total amount that the Utts had paid and, on the following day, producing a copy of the agreement.
That judgment had awarded U.S. Foods approximately $8,750, but U.S. Foods claimed that roughly $1,000 in post-judgment interest had accrued in the meantime.
Counsel represented that the Utts had paid a total of $1,410 before ceasing to make payments.
Appellees had then moved for "death-penalty" sanctions premised on the contention that the agreement had been responsive to an outstanding request for disclosure of "settlement agreements" they had served in mid-2011 and that U.S. Foods had further failed to supplement a response to that request in which its counsel had stated only that "[a]ll such documents in [U.S. Foods's] possession shall be produced." In support of their motion, appellees attached copies of the agreement, U.S. Foods's disclosure responses, and the aforementioned email exchange between counsel. U.S. Foods did not file a written response. The sanctions motion was eventually addressed by the trial court below during a hearing at which no additional evidence was presented. A reporter's record of the hearing was made, however, and it reflects that U.S. Foods's counsel conceded that the agreement had been a "settlement agreement" that "we should have produced" to appellees following its execution in August 2012. But counsel insisted that sanctions were not warranted under the circumstances, representing (but not producing evidence) that his failure to timely supplement discovery responses had been the product of an inadvertent oversight attributable to the severances in the case and a failure by counsel to "connect[] the dots" between events in the now-separate causes. Voicing concern that the nondisclosure, even if inadvertent, "does strike at the integrity of the system," the trial court opted to impose the sanctions previously described. The court did not elaborate on its reasoning regarding the particular award through its order or through findings of fact and conclusions of law, but it indicated on the record that it was seeking to effect a reduction in the principal debt owed to U.S. Foods that corresponded in amount to "whatever the payment was under the undisclosed settlement agreement," so as to "sort of double the credit for the payments not disclosed."
See Tex. R. Civ. P. 192.3(g), 194.2(h).
See id. R. 193.5.
Counsel added, "No doubt about it. [Counsel for appellees] was entitled to it."
On appeal, U.S. Foods seeks reversal of this sanction award. We review a trial court's imposition of sanctions for an abuse of discretion, i.e., whether "the trial court acted 'without reference to any guiding rules and principles,' such that its ruling was arbitrary or unreasonable." We make that determination based on our independent review of the entire record. U.S. Foods asserts that the trial court abused its discretion in several respects when imposing its sanctions award. While some of these grounds were waived below, U.S. Foods did preserve an appellate contention that the sanctions were not "just" as required by Texas Rule of Civil Procedure 215.2(b). Although the trial court's order did not specify the authority on which it was basing its sanctions award, nor did it track the language of any particular rule or statute, the substance of the award can only rest on Rule 215.2(b) and, therefore, must be "just." Whether sanctions are "just" entails a two-part inquiry. "First, the court must ensure that there is a direct relationship between the improper conduct and the sanction imposed; in other words, the court should examine whether punishment was imposed upon the true offender and tailored to remedy any prejudice discovery abuse caused." "Thus, the trial court must determine whether sanctions should be imposed on the party, its counsel, or both." "Second, just sanctions must not be excessive," i.e., "the court must make certain that less severe sanctions would not have been sufficient to promote compliance." If a trial court imposes a sanction that is not "just," it has abused its discretion.
American Flood Research, Inc. v. Jones, 192 S.W.3d 581, 583 (Tex. 2006) (per curiam) (quoting Cire v. Cummings, 134 S.W.3d 835, 838-39 (Tex. 2004)).
Id. (citing Chrysler Corp. v. Blackmon, 841 S.W.2d 844, 852 (Tex. 1992) (citing United States Fid. & Guar. Co. v. Rossa, 830 S.W.2d 668, 672 (Tex. App.—Waco 1992, writ denied))).
E.g., despite having conceded the issue below, U.S. Foods now attempts to dispute whether the August 2012 agreement with the Utts was actually a "settlement agreement" within the meaning of the Texas civil discovery rules. It similarly insists that we should give controlling effect to its counsel's representations that its failure to disclose the agreement had been inadvertent rather than intentional.
See Tex. R. Civ. P. 215.2(b) ("If a party . . . fails to comply with proper discovery requests . . . the court in which the action is pending may, after notice and hearing, make such orders in regard to the failure as are just," and providing non-exclusive list of authorized sanctions).
See American Flood, 192 S.W.3d at 583 (where sanctions order "neither referred to a specific rule nor tracked the language of any particular rule," order could be affirmed on any ground established by the record).
See Tex. R. Civ. P. 215.2.; see also Cherry Petersen Landry Albert LLP v. Cruz, 443 S.W.3d 441, 451 (Tex. App.—Dallas 2014, pet. denied) (imposition of sanctions under color of trial court's "inherent power" for "discovery abuse" that was known pretrial amounted to impermissible "judicial end-run" around the requirements and limitations of Rule 215 (quoting Dallas Cty. Constable Precinct 5 v. KingVision Pay-Per-View, Ltd., 219 S.W.3d 602, 610 (Tex. App.—Dallas 2007, no pet.) (quoting Travelers Indem. Co. of Conn. v. Mayfield, 923 S.W.2d 590, 594 (Tex. 1996) (orig. proceeding)))).
Rule 215.3 also authorizes a trial court that "finds a party is abusing the discovery process in . . . making or resisting discovery" to "impose any appropriate sanction authorized by paragraphs (1), (2), (3), (4), (5), and (8) of Rule 215.2(b)." Tex. R. Civ. P. 215.3. The sanctions awarded by the trial court here do not obviously correspond to any of the categories crossreferenced by Rule 215.3; for example, the court did not purport to link the sanctions to attorney's fees or expenses incurred by appellees by virtue of the nondisclosure, nor did appellees present any evidence as to any such harm. See id. R. 215.2(b)(2) (authorizing "an order charging all or any portion of the expenses of discovery or taxable court costs or both against the disobedient party or the attorney advising him"). Regardless, any sanctions awarded under Rule 215.3 would also have to be "just" because the rule incorporates that requirement through its crossreferences to Rule 215.2. TransAmerican Nat. Gas Corp. v. Powell, 811 S.W.2d 913, 917 (Tex. 1991).
American Flood, 192 S.W.3d at 583 (citing TransAmerican, 811 S.W.2d at 917).
Id.
TransAmerican, 811 S.W.2d at 917.
American Flood, 192 S.W.3d at 583 (citing TransAmerican, 811 S.W.2d at 917).
See id. (citing TransAmerican, 811 S.W.2d at 916).
We need go no farther than the first prong of the justness inquiry. Simply put, the record reveals an absence of the required relationship between the "discovery abuse" made the basis for sanctions (the failure to disclose promptly the August 2012 agreement between U.S. Foods and the Utts); prejudice (if any) to Winfield from that omission; and the particular sanction the court imposed as a remedy (a reduction in the amount of U.S. Foods's recoverable damages that corresponded precisely in amount to the dollar-for-dollar credit for the Utts' payments and had the effect simply of doubling the credit). Nor does Winfield persuasively identify any such relationship in the record. The closest it comes is to posit that U.S. Foods's failure to timely produce the agreement may have deprived appellees of leverage in some abortive settlement negotiations in which the parties had previously engaged. But the record supports no more than speculation that timely disclosure would have had any positive impact on appellees' prospects of settling with U.S. Foods, let alone illuminates how any such harm would be remedied by a doubling of the dollar-for-dollar credit appellees obtained by virtue of payments made to U.S. Foods by other defendants. Similarly, appellees presented no evidence that they incurred additional attorney's fees, expenses, or other identifiable harm that can be attributed to the "discovery abuse." And even if such proof had been made, the record fails to reflect any rationale or consideration as to why this sanction should be imposed, as it was, solely to the detriment of U.S. Foods as opposed to its counsel alternatively or additionally.
While we might well imagine a different result founded on a different record and theories, on the record here we must conclude that the sanctions imposed by the trial court do not "relate directly to the abuse found," as a "just" sanction must. Rather, they amount to a prohibited "arbitrary monetary penalt[y] unrelated to any harm." Accordingly, the sanctions award was an abuse of discretion and must be reversed.
Transamerican, 811 S.W.2d at 917.
Paradigm Oil, Inc. v. Retamco Operating, Inc., 372 S.W.3d 177, 187 (Tex. 2012) ("Sanctions for discovery abuse should not be dispensed as arbitrary monetary penalties unrelated to any harm." (citing Ford Motor Co. v. Tyson, 943 S.W.2d 527, 534-35 (Tex. App.—Dallas 1997, orig. proceeding)); see also Wythe II Corp. v. Stone, 342 S.W.3d 96, 108-10 (Tex. App.—Beaumont 2011, pet. denied), cert. denied, 132 S. Ct. 1150 (2012) (holding that discovery sanction in form of penalty equaling one percent of settlement amount in underlying litigation was not authorized by Rule 215).
BEUTEL
In addition to its claims against Winfield, U.S. Foods sought recovery from Beutel based on the Personal Guaranty he had signed contemporaneously with his execution of the credit-account application on behalf of Winfield and HUB. The Personal Guaranty states in part that the signatory "hereby personally and unconditionally guaranties the payment by Applicant [i.e., HUB] to [U.S. Foods] of all amounts due and owing now, and from time to time hereafter ('Liabilities'), from [HUB] to [U.S. Foods]." It further provides that "Guarantor expressly waives notice from [U.S. Foods] of its acceptance and reliance on this Personal Guaranty . . . , notice of sales made to [HUB], and notice of default by [HUB]," and that "[t]he obligations of Guarantor hereunder shall not be affected, excused, modified or impaired upon the happening, from time to time, of any event." Similar to the Terms and Conditions, the Personal Guaranty also entitled U.S. Foods to recover interest and reasonable attorney's fees in the event of a default by the guarantor. Invoking the Personal Guaranty, U.S. Foods had made demand of Beutel to pay HUB's outstanding obligations, Beutel had refused, and U.S. Foods had sought its damages, interest, and attorney's fees premised on this alleged default by Beutel.
Beutel joined issue with a general denial and affirmative defenses, and at trial relied on two basic defensive theories. First, Beutel claimed that he had revoked the guarantee before HUB had incurred the indebtedness at issue. A U.S. Foods representative testified otherwise, and the jury resolved that factual dispute in U.S. Foods's favor through an affirmative answer to a broad-form liability question inquiring whether Beutel had "fail[ed] to comply with any contract he had with [U.S. Foods] to guarantee payment of the debts of The Hub." Beutel has not challenged this finding on appeal.
The Personal Guaranty permitted revocation, but "only upon the prior written notice of Guarantor delivered to [U.S. Foods] via certified mail." Beutel testified that he had sent such a letter and, in the alternative, attempted also to rely on the April 9, 2009 email he had sent to U.S. Foods and Hutch Utt, discussed below.
Beutel's second theory was an affirmative defense of excuse or discharge from his guarantee obligations by virtue of a "material alteration" of the underlying HUB contractual obligations whose performance he had guaranteed. This defense is rooted in the longstanding jurisprudential policy that guarantors or sureties should not be bound to risks beyond those they have actually contracted to assume. It is for this reason that Texas courts have long held that guarantee or surety agreements must be "strictly construed" in the sense of not being extended beyond their precise unambiguous terms. A corollary is that a guarantor will not be bound to the extent the primary obligor and obligee have varied the underlying obligation being guaranteed to any "material degree" without the guarantor's consent. Accordingly, a guarantor is discharged from performance of a guarantee if it can prove: (1) a material alteration of the underlying contract (i.e., one impacting the risk that the guarantor had agreed to assume); (2) made without the guarantor's consent; and (3) to the guarantor's detriment (i.e., prejudicial to its interest).
See, e.g., Vastine v. Bank of Dallas, 808 S.W.2d 463, 464-65 (Tex. 1991); Reece v. First State Bank of Denton, 566 S.W.2d 296, 297 (Tex. 1978); McKnight v. Virginia Mirror Co., 463 S.W.2d 428, 430 (Tex. 1971).
See Vastine, 808 S.W.2d at 464-65; McKnight, 463 S.W.2d at 430.
See Vastine, 808 S.W.2d at 464.
See id. (citing Old Colony Ins. Co. v. City of Quitman, 352 S.W.2d 452, 455 (Tex. 1961)); United Concrete Pipe Corp. v. Spin-Line Co., 430 S.W.2d 360, 365-66 (Tex. 1968); Barnes v. Old Am. Mut. Fire Ins. Co., No. 03-07-00404-CV, 2010 WL 668913, at *5 (Tex. App.—Austin Feb. 26, 2010, no pet.) (mem. op.).
Although both the Personal Guaranty and the Terms and Conditions provide that their interpretation and application shall be governed by Maryland law, both sides ground their arguments entirely in Texas authorities without mention of the choiceoflaw provisions. Absent any asserted basis to think otherwise, we will assume without deciding that there are no differences between Texas and Maryland law that are material to this appeal. See El Paso Mktg., L.P. v. Wolf Hollow I, L.P., 383 S.W.3d 138, 144 n.26 (Tex. 2012) ("the parties have not pointed to any material difference between New York law and Texas law, so we presume they are the same" (citing CocaCola Co. v. Harmar Bottling Co., 218 S.W.3d 671, 685 (Tex. 2006))).
To meet his burden in this regard, Beutel relied on undisputed evidence that in April 2009, U.S. Foods had changed the credit terms it was extending to HUB in connection with each purchase HUB made. Upon U.S. Foods's initial approval of HUB's credit application (which occurred on December 19, 2007, the day after Beutel's execution of the Terms and Conditions and Personal Guaranty), U.S. Foods indicated on HUB's application form, in blanks provided for that purpose, that the "Credit Terms Approved" were "Net 7 credit card." That phrase, it is undisputed, meant that HUB would be obligated to pay the outstanding balances on each invoice within seven days of issuance and that the form of payment would be a charge to a credit card. It is likewise undisputed that Beutel had in fact provided his own credit card information for that purpose and that this was the manner in which HUB's credit purchases from U.S. Foods were paid until April 2009. At that juncture, U.S. Foods "updated" the credit terms in response to an email in which Beutel had demanded that his credit card no longer be charged for HUB's balances. The new credit terms extended by U.S. Foods were "Net 14," i.e., payment due within fourteen days after invoice.
The email was addressed to both U.S. Foods and Hutch Utt, and referenced overdue payments allegedly owing from Utt to a Beutel family limited partnership that held a minority interest in HUB.
In Beutel's view, this change in credit terms amounted to the sort of "material alteration" of HUB's underlying obligations to U.S. Foods that could potentially discharge him from his obligations as guarantor. He further testified that he regarded the change as prejudicial to his interests because it had the effect of increasing the duration of each HUB indebtedness for which he had exposure. And, while Beutel acknowledged that he had continued to serve as The Hub's bookkeeper and had direct involvement in the issuance of numerous payment checks on behalf of HUB to U.S. Foods, he denied having received any notice of the new credit terms with each purchase or to have consented to them.
Based on this evidence, the trial court submitted a jury question referable to Beutel's material-alteration defense. The jury answered the question in the affirmative. The trial court incorporated this finding into its final judgment alongside the jury's finding that Beutel had breached the guarantee agreement and rendered its take-nothing judgment based on the findings. Consequently, the take-nothing judgment rests entirely on the jury's affirmative answer to the material-alteration question, as absent that finding the jury's finding as to breach would have established Beutel's liability as guarantor.
U.S. Foods timely objected to the trial court's submission of a material-alteration question as unsupported by legally sufficient evidence and also preserved the complaint through a post-verdict motion to disregard the jury's finding. It brings this legal-sufficiency challenge forward on appeal. The chief thrust of its argument is that its changes to HUB's credit terms in April 2009 were not "material alterations" as a matter of law because they had no effect on the risks that Beutel had agreed to assume through the Personal Guaranty. We agree.
Our analysis begins by examining the text of the Personal Guaranty to ascertain the terms to which Beutel agreed. As previously noted, it provides that Beutel "hereby personally and unconditionally guaranties the payment by [HUB] to [U.S. Foods] of all amounts due and owing now, and from time to time hereafter ('Liabilities'), from [HUB] to [U.S. Foods]." Beutel similarly agreed thereby that his "obligations . . . shall not be affected, excused, modified or impaired upon the happening, from time to time, of any event." Read in conjunction with the Terms and Conditions that Beutel contemporaneously executed on behalf of Winfield and HUB, the unambiguous contractual language reflects that Beutel undertook to guarantee unconditionally any payment obligations that HUB incurred through its purchases from U.S. Foods, i.e., an unconditional continuing guarantee of any such obligations that HUB would incur in the future. Neither the text of the Personal Guaranty nor that of the Terms and Conditions refer to any specific credit terms. To the contrary, the Terms and Conditions leaves the credit terms U.S. Foods extends in each purchase transaction to U.S. Foods's "sole discretion" and further provides that U.S. Foods shall have broad rights "to increase, decrease or terminate [HUB's] credit privileges under this Application and Agreement at any time." In sum, Beutel agreed to an unconditional personal continuing guarantee of any and all payment obligations HUB would incur through its purchases from U.S. Foods without respect to the specific credit terms U.S. Foods extended to HUB in each transaction. Consequently, any changes to those credit terms did not, as a matter of law, effect a material alteration to the underlying contractual obligations of HUB that Beutel had agreed unconditionally to guarantee.
See Moayedi v. Interstate 35/Chisam Rd., L.P., 438 S.W.3d 1, 7 (Tex. 2014) ("Courts construe unambiguous guaranty agreements as any other contract." (citing Coker v. Coker, 650 S.W.2d 391, 393-94 (Tex. 1983))); McKnight, 463 S.W.2d at 430 ("After the terms of aguaranty agreement have been ascertained, the rule of strictissimi juris applies, meaning that the guarantor is entitled to have his agreement strictly construed and that it may not be extended by construction or implication beyond the precise terms of his contract." (emphasis added)); Barnes, 2010 WL 668913, at *8 (recognizing that meaning of unambiguous guarantee agreement is determined through ordinary contract-construction principles).
See In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135 (Tex. 2004) ("agreements executed at the same time, with the same purpose, and as part of the same transaction, are construed together" (citing Jim Walter Homes, Inc. v. Schuenemann, 668 S.W.2d 324, 327 (Tex. 1984))).
See Barnes, 2010 WL 668913, at *4 ("A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is simply a divisible offer for a series of separate unilateral contracts, and contemplates a series of transactions between a debtor and a creditor, rather than a single debt. A continuing guaranty is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable.").
See Spin-Line Co., 430 S.W.2d at 365-66 (no discharge for material alteration of underlying contract where change did not increase the risk of injury the guarantor had assumed); Berry v. Encore Bank, No. 01-14-00246-CV, 2015 WL 3485970, at *9 (Tex. App.—Houston [1st Dist.] June 2, 2015, pet. denied) (as matter of law, loss of collateral not material alteration giving rise to discharge where guarantee agreement did not require creditor to take action against collateral before asserting claim against guarantor).
In contending otherwise, Beutel argues first that he presented legally sufficient evidence of "material alteration" consisting of his testimony that he terminated the guarantee agreement. Beutel overlooks that the proper focus of his material-alteration defense is whether there had been a material alteration of the underlying contractual obligations between HUB and U.S. Foods that he had agreed to guarantee, not whether he had terminated or altered the terms by which he had guaranteed that underlying risk. Morever, Beutel's argument is contrary to the jury's finding that he breached the guarantee agreement, and he has preserved no challenge to that finding.
See, e.g., Vastine, 808 S.W.2d at 464-65.
Beyond this, Beutel emphasizes the concept that guarantee agreements must be "strictly construed." But the point of that doctrine, as previously noted, is that guarantee agreements should not be construed to extend beyond their precise unambiguous terms, not that courts rewrite those agreed-upon terms so the guarantor can win. Where, as here, the precise unambiguous terms of a guarantee agreement reflect that a guarantor has undertaken a particular risk, courts are bound to give effect to those terms. Similarly unavailing is Beutel's assertion that a material-alteration defense categorically presents a question of fact for the jury. While it is true that there sometimes can exist embedded fact issues regarding the nature and terms of the underlying contract, the ultimate issue of whether there has been a material alteration of that underlying contract is one of law. More generally, construction of an unambiguous contract is fundamentally a question of law for the court.
See Moayedi, 438 S.W.3d at 7; McKnight, 463 S.W.2d at 430.
See, e.g., Reece, 566 S.W.2d at 297-98 (after acknowledging "rule of strictissimi juris," holding that guarantee at issue unambiguously bound guarantor to underlying indebtedness); see also Barnes, 2010 WL 668913, at *5-6 (relying on unambiguous text of guarantee and underlying contracts to hold that "material-alteration defense failed as a matter of law").
See, e.g., Frost Nat'l Bank v. Burge, 29 S.W.3d 580, 588-90 (Tex. App.—Houston [14th Dist.] 2000, no pet.) (embedded fact issues as to maturity date of underlying note where defense of mistake had been raised).
Id. at 590.
Moayedi, 438 S.W.3d at 7.
In light of the unambiguous language of the Personal Guaranty and Terms and Conditions, evidence that U.S. Foods changed the credit terms it was extending in its transactions with HUB did not raise a fact issue as to material alteration of the obligations that Beutel had guaranteed. Accordingly, the trial court erred in submitting the material-alteration question to the jury and in refusing to disregard the jury's finding.
In the event we sustained this contention, U.S. Foods has prayed that we reverse the take-nothing judgment on its claims against Beutel, render judgment as to his liability, and remand to the trial court for determination of the amount of damages and attorney's fees it can recover from him. However, because Beutel's liability is "contested" within the meaning of Texas Rule of Appellate Procedure 44.1(b), we are constrained to remanding for a new trial on liability as well as damages and attorney's fees.
The trial court below had submitted questions inquiring as to the amount of damages and reasonable attorney's fees that were conditioned on the jury's affirmative finding of breach and a failure to find material alteration. Accordingly, the jury did not reach those questions.
Tex. R. App. P. 44.1(b) ("The court may not order a separate trial solely on unliquidated damages if liability is contested."); see Estrada v. Dillon, 44 S.W.3d 558, 562 (Tex. 2001) (liability is "contested" within meaning of Rule 44.1(b) if defendant has filed a general denial, as the effect of that pleading "extends to contesting liability in the event of remand on appeal").
CONCLUSION
We reverse the trial court's sanctions award and render judgment that Winfield take nothing on that claim. Accordingly, we modify the trial court's judgment to reduce its $3,000 credit against the damages awarded U.S. Foods from Winfield to $1,500 (i.e., deleting the amount of the sanctions award from the credit) and correspondingly increase U.S. Foods's net damages recovery against Winfield from $6,822.07 to $8,322.07. We also reverse the trial court's take-nothing judgment on U.S. Foods's claims against Beutel, but must remand those claims for a new trial.
As reflected in the preceding analysis, the judgment award of $11,970.00 in attorney's fees from Winfield is not challenged on appeal and is unaffected by our judgment. --------
/s/_________
Bob Pemberton, Justice Before Justices Puryear, Pemberton, and Field Reversed and Rendered in part; Reversed and Remanded in part Filed: April 20, 2016