Opinion
NO. 09-11-00147-CV
09-27-2012
LARRY D. CORLEY AND ENERGY PROJECT SERVICES, INC., Appellants v. AMERICAN WELL CONTROL, INC., Appellee
On Appeal from the 410th District Court
Montgomery County, Texas
Trial Cause No. 10-01-00045 CV
MEMORANDUM OPINION
In this appeal, we are asked to determine whether a corporation, who was not a party to a guaranty, can recover as a third-party-beneficiary against an individual who signed a guaranty favoring another individual. We hold that American Well Control, Inc., the entity claiming that it was a third-party beneficiary of the guaranty, cannot enforce it. We also hold that American Well's remaining claims are insufficient to support the judgment rendered against Larry D. Corley, the guarantor. As a result, we reverse and render judgment that American Well recover nothing from Corley.
Background
In 2003, Suzan Taylor sold an approximate nine-acre tract to Energy Project Services, Inc. In a separate agreement, Corley guaranteed that EPSI would make the payments as they became due under EPSI's note. Taylor loaned EPSI $195,000 ("the Taylor note") to purchase the tract; a deed of trust in Taylor's favor secured the Taylor note. Subsequently, Taylor assigned the Taylor note to James Alm.
Corley is the sole shareholder of EPSI. Although EPSI and Corley filed a joint notice of appeal, EPSI's counsel states in the appellate brief that EPSI does not appeal the trial court's judgment against it.
In 2005 and 2006, EPSI sold approximately seven acres of the tract to Torque Master, Inc., subject to the note between EPSI and Taylor. Torque Master financed its purchase through loans from EPSI ("the Torque Master note"), which were secured by deeds of trust in EPSI's favor. The Torque Master note wrapped around the Taylor note: the document securing the loan states that the "lien created by this instrument shall be and remain second and inferior to the liens securing payment" of the Taylor note. Also, the terms of the Torque Master note required EPSI to notify Torque Master if it received "any notice of default" concerning the Taylor note.
In 2006, American Well bought the seven-acre tract from Torque Master and assumed the Torque Master note. Torque Master's warranty deed to American Well expressly states that the seven-acre tract was conveyed "subject to" EPSI's debt under the Taylor note, and contains language reflecting that the Torque Master note wrapped around the Taylor note.
Although American Well fulfilled its obligations under the Torque Master note, EPSI failed to meet its payment obligations under the Taylor note. In December 2008, EPSI and Alm modified the Taylor note, extending the payment schedule for three additional years (the "modified Taylor note"). Corley also signed a personal guaranty in connection with the modified Taylor note. Corley's 2008 guaranty of the modified Taylor note does not mention American Well; however, it expressly provides that the guaranty is enforceable by Alm and his "successors in interest[,]" and it includes an agreement which stated there were no oral agreements between Corley and Alm.
In 2009, EPSI again defaulted on its payment obligations under the modified Taylor note. According to Corley, neither he nor EPSI advised American Well that EPSI failed to pay the Taylor note on a timely basis, that EPSI and Alm agreed to modify the Taylor note, or that Corley had guaranteed EPSI's obligation to pay the modified Taylor note. After EPSI failed to meet its obligations under the modified Taylor note, Alm sent EPSI a notice of default. In July 2009, Alm accelerated EPSI's debt, giving EPSI notice of his intent to foreclose. According to Corley, neither he nor EPSI notified American Well of Alm's impending foreclosure or of EPSI's default.
When the foreclosure sale occurred, Alm purchased the entire nine-acre tract. In August 2009, American Well paid Alm $102,000 to purchase the seven-acre tract, approximately $74,600 more than the balance that it owed on the note held by EPSI. Subsequently, American Well sued EPSI and Corley. American Well's live pleading, its first amended petition, asserts a claim alleging that Corley and EPSI breached the terms of the Torque Master note. American Well also sought to hold Corley liable for breaching his guaranty with Alm, sought to impose a constructive trust on the funds of American Well that it alleged Corley had used "for his personal benefit[,]" and requested that Corley be held personally liable as EPSI's alter ego.
Following a bench trial, both parties provided the trial court with proposed findings of fact and conclusions of law. Later, the trial court entered findings and conclusions, concluding that EPSI breached its contract with Alm and that Corley breached his guaranty with Alm. The trial court also concluded that American Well "was a third party beneficiary to the contracts between EPSI, Larry Corley[,] and Alm."
The trial court rendered judgment, holding Corley and EPSI jointly and severally liable. The trial court awarded $75,000 on American Well's breach of contract claims, awarded attorney's fees, prejudgment interest, postjudgment interest, and costs of court. The trial court did not make findings on American Well's constructive trust or alter ego claims; instead, the trial court's judgment recites, "[a]ll relief not granted herein is denied." Although any party could have done so, no one asked the trial court for additional findings.
Issues
Corley raises two issues in his appeal. His first issue challenges the trial court's conclusion that he was liable in his individual capacity to American Well for having breached his guaranty; according to Corley, the guaranty was intended only for the benefit of his creditor, Alm. In issue two, Corley complains of the trial court's award of attorney's fees.
Breach of Contract Claims
In arguing his first issue, Corley contends that (1) American Well was not an intended third-party beneficiary of his agreement with Alm guaranteeing EPSI's payment of the modified Taylor note, (2) he was not individually obligated to "notify American Well Control of anything[,]" and (3) Alm did not assign his guaranty to American Well. In response, American Well contends that it established that it was a third-party beneficiary of Corley's agreement guaranteeing the payment of EPSI's debt to Alm. American Well also contends that it could enforce Corley's guaranty because Alm, after foreclosure, assigned Corley's guaranty to it.
First, we examine Corley's guaranty of the modified Taylor note. In doing so, we note that the trial court's determination of the meaning of an unambiguous contract is a question of law. See MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 650 (Tex. 1999). "The construction of an unambiguous contract is a question of law for the court, which we may consider under a de novo standard of review." Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011).
Here, one of the claims on which American Well succeeded was its claim that it was intended to be a beneficiary of Corley's guaranty. Generally, a third party may recover on a contract made between other parties only if the contracting "parties intended to secure a benefit to that third party, and only if the contracting parties entered into the contract directly for the third party's benefit." Stine v. Stewart, 80 S.W.3d 586, 589 (Tex. 2002); see also Tawes, 340 S.W.3d at 425 (holding that third parties may enforce a contract it did not sign "when the parties to the contract entered the agreement with the clear and express intention of directly benefitting the third party"). Determining the contracting parties' intent is based on an examination of the entire agreement, and we are to "give effect to all the contract's provisions so that none are rendered meaningless." Stine, 80 S.W.3d at 589. The mere fact that a person might receive an incidental benefit from a contract does not give that person a right of action to enforce the contract. Id. In determining whether a third party can enforce a contract, the intention of the contracting parties is controlling. S. Tex. Water Auth. v. Lomas, 223 S.W.3d 304, 306 (Tex. 2007). "The intent to confer a direct benefit upon a third party 'must be clearly and fully spelled out or enforcement by the third party must be denied.'" Id. (citing MCI Telecomms. Corp., 995 S.W.2d at 651). Courts may not create third-party beneficiary contracts by implication. Stine, 80 S.W.3d at 589. "[T]here is a presumption against conferring third- party-beneficiary status on noncontracting parties." Id.; see also Tawes, 340 S.W.3d at 425 ("All doubts must be resolved against conferring third-party beneficiary status.").
To recover as a third-party beneficiary of a contract, "the third party must show that he is either a donee or creditor beneficiary of, and not one who is benefited only incidentally by the performance of, the contract." MCI Telecomms. Corp., 995 S.W.2d at 651. According to American Well's brief, it "is a creditor beneficiary" of Corley's agreement with Alm, in which Corley guaranteed the payment of EPSI's note.
An agreement benefits a "creditor" beneficiary if, under the agreement, performance will come to the third party in satisfaction of a legal duty owed to the third party. Stine, 80 S.W.3d at 589. This duty may be indebtedness, a contractual obligation, or any other legally enforceable commitment owed to the third party. Id. According to American Well, in return for its post-foreclosure agreement to purchase the seven-acre tract from Alm, Alm assigned his rights under Corley's guaranty to American Well. Additionally, American Well argues that the language of Corley's guaranty indicates that the parties intended the guaranty to benefit Alm's successors.
We do not agree that the language of Corley's guaranty indicates the parties intended to bestow a benefit on American Well, who was not a party to the guaranty. The guaranty expressly identifies only three parties—the guarantor, Corley; the borrower, EPSI; and the lender, Alm. The guaranty also identifies the obligation being guaranteed as the outstanding principal balance of the modified Taylor note, which was $35,465.24 in 2008, when Corley and Alm entered into the modification. The last paragraph of the guaranty states that the agreement is the final agreement between the parties and that there are no unwritten oral agreements between the parties.
American Well focuses on a certain provision in the guaranty to support its argument that Corley and Alm intended the guaranty to benefit American Well. The eighth paragraph provides: "This guaranty binds [Corley] and [Corley's] heirs, successors, and assigns, and it benefits and may be enforced by [Alm] and [Alm's] successors in interest." American Well argues that it is Alm's "successor[] in interest."
However, American Well did not purchase EPSI's note; rather, American Well purchased the property after Alm foreclosed in a post-foreclosure sale. The documents before the trial court show that Alm released EPSI of its obligations under the modified Taylor note; Alm marked the face of EPSI's note "paid in full." Thus, the evidence before the trial court is no evidence that American Well succeeded to any of Alm's rights under the modified Taylor note or under Corley's guaranty.
Denying American Well status as a third-party beneficiary of Corley's guaranty is also consistent with the testimony from the trial. When Corley guaranteed that EPSI would pay the modified Taylor note, the record reflects that Alm was unaware that Torque Master and subsequently, American Well had purchased a portion of the tract from EPSI. Also, when Taylor first sold the nine-acre tract to EPSI, Torque Master could not have been Corley's intended beneficiary as Torque Master's purchase occurred much later. According to Corley, his agreement to guarantee the modified Taylor note was not intended to benefit anyone except Alm. Finally, a letter from Alm's attorney, written shortly after Alm foreclosed, states that EPSI's sale to Torque Master was hidden from Alm and that Alm was not notified of Torque Master's subsequent sale to American Well.
We conclude that American Well was not a creditor beneficiary of Corley's guarantee. The language of the guaranty does not support such a finding, nor do the relationships of the various parties involved in the transactions, as any inference that Alm, EPSI, and Corley intended anyone but Alm to benefit from Corley's guaranty is inconsistent with the evidence that was before the trial court.
American Well also was not a third-party donee beneficiary of the modified Taylor note. "An agreement benefits a 'donee' beneficiary if, under the contract, 'the performance promised will, when rendered, come to him as a pure donation.'" Stine, 80 S.W.3d at 589 (quoting MCI, 995 S.W.2d at 651). However, American Well does not argue that we should consider it as being a donee beneficiary to Corley's guaranty, nor have we found cases extending third-party donee beneficiary status to the broad class of potential persons who could claim that they would benefit from a debtor's satisfying its loan obligations. Under the facts of this case, we conclude that American Well cannot enforce Corley's agreement with Alm guaranteeing the payment of EPSI's note.
The trial court also found that Corley and EPSI "breached their agreement with American Well to inform American Well of defaults and allow American Well to cure any defaults." This finding is not supported by American Well's pleadings. Additionally, Corley asserts that no evidence supports the finding that he is individually liable for EPSI's having breached its obligation to notify American Well of EPSI's default. Even had American Well pleaded that Corley, individually, breached his duties under the Torque Master note, the agreement between Corley and Torque Master did not obligate Corley, in his individual capacity, to notify Torque Master of EPSI's default.
A legal sufficiency review of a no-evidence point must credit the favorable evidence if a reasonable fact finder could and disregard the contrary evidence unless a reasonable fact finder could not disregard it. City of Keller v. Wilson, 168 S.W.3d 802, 807, 827 (Tex. 2005). A reviewing court will sustain a no-evidence point when: (1) the record discloses a complete absence of evidence of a vital fact, (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact, (3) the evidence offered to prove a vital fact is no more than a mere scintilla, or (4) the evidence establishes conclusively the opposite of the vital fact. Marathon Corp. v. Pitzner, 106 S.W.3d 724, 727 (Tex. 2003); see also City of Keller, 168 S.W.3d at 807.
The obligation to notify American Well of EPSI's default arises from the language contained in the agreement between Torque Master and EPSI. Although Corley signed the Torque Master note, he did so in his capacity as president of EPSI, not in his individual capacity.See Latham v. Houston Flour Mills, 3 S.W. 462, 463 (1887) ("The signature of the corporation has to be made by some one of its officers or agents, and the fact that the office of the individual signing next to the corporate name, is stated, shows that he is the officer by whom the signatures was made for the corporation, and that he did not intend to become personally bound for the payment of the note."); Robertson v. Bland, 517 S.W.2d 676, 678 (Tex. Civ. App.—Houston [1st Dist.] 1974, writ dism'd w.o.j.). When American Well subsequently purchased the seven-acre tract from Torque Master, it assumed Torque Master's obligations under the note held by EPSI. While ESPI became obligated to notify American Well if EPSI defaulted on its obligations under the modified Taylor note, that duty was owed by EPSI and not by Corley under the terms of the Torque Master note.
Although no particular form of signature is required for the corporate officer who desires to sign a document in his or her capacity as an officer of the corporation, the EPSI deed to Torque Master, as well as Torque Master's note, contain signature lines just below EPSI's typewritten name. The first of the signature lines contains Corley's signature, the second line contains Corley's printed name, and the third indicates that Corley was "Its: President[.]"
Generally, duties owed by corporations are not considered to be obligations owed by corporate officers in their individual capacities. See Leitch v. Hornsby, 935 S.W.2d 114, 117 (Tex. 1996) (noting, with respect to negligence claims, that "individual liability arises only when the officer or agent owes an independent duty of reasonable care to the injured party apart from the employer's duty"). In this case, we would expect to see language in the contract indicating that certain obligations were being undertaken individually, had that been what the parties to the contract intended. Generally, a corporate official's liability for a corporate obligation is procured by having a corporate official sign a personal guaranty. Here, we have neither with respect to the agreement made between Torque Master and EPSI. The Torque Master note places no obligation on Corley, individually, to notify anyone in the event of EPSI's default on the modified Taylor note. While Corley guaranteed EPSI's payment obligation, that agreement does not show that he promised, individually, to notify others if EPSI defaulted. With respect to whether Corley individually undertook duties under the agreements at issue, the agreements are not ambiguous. There is no evidence to support the trial court's finding that Corley, individually, was guilty of failing to notify American Well of EPSI's default.
The trial court also reached the legal conclusion that American Well was "a successor in interest to Alm on the Guaranty." In its brief, American Well asserts that a provision in the deed that Alm used to transfer the seven-acre tract to it makes it Alm's "successor in interest[.]" The provision on which it relies provides:
TO HAVE AND TO HOLD the above described premises, together with all and singular the rights and appurtenances thereto in anywise belonging unto the said Grantee, its successors, assigns and legal representatives forever. And Grantor does hereby bind himself, his heirs, executors and administrators to WARRANT AND FOREVER DEFEND all and singular the said premises unto the said Grantee, its successors, assigns and legal representatives, against every person whomsoever claiming or to claim the same or any part thereof, by through and under Grantor, but not otherwise.
We disagree that Alm's deed to American Well transferred Alm's rights under Corley's guaranty to American Well. Generally, to recover for the breach of a guaranty agreement under a note, the assignee of the note must establish: (1) the existence and ownership of the guaranty agreement, (2) the terms of the underlying contract by the holder, (3) the occurrence of the conditions upon which liability is based, and (4) the failure or refusal to perform the promise by the guarantor. Escalante v. Luckie, 77 S.W.3d 410, 416 (Tex. App.—Eastland 2002, pet. denied); Marshall v. Ford Motor Co., 878 S.W.2d 629, 631 (Tex. App.—Dallas 1994, no writ). A party may establish the existence and ownership of a note with proof that the party is the named payee and that the party has possession of the note and can produce it in court. See Escalante, 77 S.W.3d at 416. These are the same requirements in proving ownership of a guaranty. See id.
We find no document in the record in which Alm assigned Corley's guaranty to American Well, and American Well does not suggest any other document provides for the assignment. Instead, the record shows that American Well purchased the property from Alm in a post-foreclosure sale. Therefore, because American Well did not establish that Alm assigned Corley's guaranty to it, American Well cannot recover in an action to enforce it. See Escalante, 77 S.W.3d at 416; Marshall, 878 S.W.2d at 631.
Having carefully examined the relevant agreements as well as the testimony from the trial, we conclude that, as a matter of law,
(1) American Well, as a nonparty to Corley's agreement with Alm to guarantee payment of EPSI's note, is not a third-party beneficiary of the guaranty.
(2) The trial court erred in granting American Well a judgment against Corley based on American Well's claim as a third-party beneficiary of the guaranty. See MCI Telecomms. Corp., 995 S.W.2d at 650-51.
(3) No evidence supports the trial court's conclusions that Corley, individually, was obligated to notify American Well of EPSI's default of its payment obligations by virtue of any provision in the Torque Master note.
(4) No evidence supports American Well's claim that Alm assigned his right, if any remained after foreclosure, under the guaranty to American Well.
Equitable Relief
We also find error to the extent the trial court's judgment might be construed to be based on an equitable subrogation theory. First, we note that American Well pled only two equitable claims, one asking that a constructive trust be placed on Corley's assets and the other asking the court to pierce EPSI's corporate veil and hold Corley liable for EPSI's conduct. The trial court's judgment is not based on either of these theories, and American Well did not secure any findings on them. A subrogation claim, as found by the trial court, even when we liberally construe the pleadings, was neither pleaded nor tried by consent. See SmithKline Beecham Corp. v. Doe, 903 S.W.2d 347, 354-55 (Tex. 1995) (directing that petitions must give fair and adequate notice of the claims being asserted, and, if the reviewing court cannot reasonably infer that the petition contains a claim, then it must conclude the petition does not contain the claim, even under a liberal construction).
The trial court's judgment recites that it granted judgment in American Well's favor "for breach of contract" but does not expressly mention any of American Well's claims for equitable relief. The trial court's damage award also states that it was "for the breach of contract[.]" However, the trial court's judgment also states that the judgment is "consistent with the Final Findings of Fact and Conclusions of Law[;]" the trial court's conclusions of law include the trial court's determination that "American Well is entitled to equitable subrogation from EPSI and Larry Corley."
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American Well first mentioned the concept of subrogation in final argument. After doing so, Corley's attorney objected, stating that Corley "does not waive and does not agree to a trial amendment to allow [American Well] to raise on the day of trial a concept of equitable subrogation for the first time. In [its] pleadings it was third-party beneficiary or alter ego." Thereafter, the record does not reflect that American Well asked for leave to amend its pleadings, nor does the record contain a pleading alleging a subrogation claim. See Tex. R. Civ. P. 66; see also State Bar of Tex. v. Kilpatrick, 874 S.W.2d 656, 658 (Tex. 1994).
"A judgment must be based upon pleadings, and as this Court has stated, '(A) plaintiff may not sustain a favorable judgment on an unpleaded cause of action, in the absence of trial by consent . . . .'" Stoner v. Thompson, 578 S.W.2d 679, 682-83 (Tex. 1979) (quoting Oil Field Haulers Ass'n, Inc. v. R.R Comm'n, 381 S.W.2d 183, 191 (Tex. 1964)). We conclude that American Well was not entitled to recover on a theory of equitable subrogation. We sustain Corley's first issue.
Attorney's Fees
In issue two, Corley argues the trial court's award of attorney's fees should be reversed. Because American Well has not obtained a recovery against Corley on its breach of contract claim, we conclude that the award of attorney's fees against him should also be reversed. See Holland v. Wal-Mart Stores, Inc., 1 S.W.3d 91, 95 (Tex. 1999) ("We have consistently held that a prevailing party cannot recover attorney's fees from an opposing party unless permitted by statute or by contract between the parties."). Therefore, we sustain Corley's second issue.
Conclusion
Although it filed a notice of appeal, EPSI has not challenged the trial court's liability findings or any of the awards against it in this appeal. Therefore, the awards against EPSI are affirmed. With respect to the judgment the trial court rendered against Corley, we reverse the trial court's judgment and render judgment that American Well take nothing against Corley.
Under Texas Rule of Appellate Procedure 43.2, we can reverse the trial court's judgment in part, modify the judgment, and affirm as modified. Therefore, we modify the trial court's judgment deleting language making Corley jointly and severally liable for the damages attributed to EPSI. We further modify the judgment so that the judgment awards damages solely against EPSI. Finally, we modify the judgment to state that American Well shall take nothing from Corley, and to state that all costs of court are taxed solely against EPSI. In all other respects, the trial court's judgment is affirmed, as modified.
AFFIRMED AS MODIFIED IN PART, REVERSED AND RENDERED IN PART.
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HOLLIS HORTON
Justice
Before Gaultney, Kreger, and Horton, JJ.