Opinion
01-20-00047-CV
01-31-2023
MARTIN KROESCHE, STEVE SCHONEFELD, AND WASSAR LOGISTICS, INC., Appellants/Cross-Appellees v. WASSAR LOGISTICS HOLDINGS, LLC, Appellee/Cross-Appellant
On Appeal from the 333rd District Court Harris County, Texas Trial Court Case No. 2016-54111
Panel consists of Justices Goodman, Rivas-Molloy, and Farris.
MEMORANDUM OPINION
April L. Farris, Justice
This appeal arises from a series of interrelated disputes that developed between several persons and companies after they bought the assets of Flo Trend, a manufacturer of water filtration equipment. Appellants are Wassar Logistics, Inc. ("Old Wassar"), Martin Kroesche, and Steve Schonefeld. Appellee is Wassar Logistics Holdings, LLC ("New Wassar").
Appellants appeal from a final judgment entered following a bench trial. In six issues, appellants assert that the trial court committed reversible error by:
(1) entering a take-nothing judgment on Kroesche's claim that New Wassar owes him $166,666.67 on a promissory note that New Wassar tendered after it fired Kroesche as president and invoked the company agreement's provision allowing New Wassar to repurchase his membership interest;
(2) refusing to award Old Wassar the reasonable and necessary attorney's fees that it incurred in securing a judgment of $14,410 for property taxes that New Wassar owes Old Wassar under a lease in which Old Wassar previously rented the Flo Trend building to New Wassar;
(3) entering a judgment for $322,926 against Kroesche and Schonefeld jointly and severally as guarantors of an advancing promissory note on which Old Wassar was the primary obligor, even though the trial court decreed that none of these three parties breached the advancing promissory note in a way that would allow acceleration of the note's debt;
(4) awarding New Wassar post-judgment interest at a rate of 18% per year on its judgment for $322,926 against Kroesche and Schonefeld jointly and severally as guarantors of Old Wassar's advancing promissory note;
(5) refusing to enter a net judgment or provide for a net recovery that awards damages solely to either appellants or appellee by offsetting the different amounts they owe to one another and requiring the side that is liable for the greater amount of damages to pay the resulting balance due; and
(6) decreeing that the doctrine of unclean hands (a) bars Kroesche from recovering on the promissory note for $166,666.67, and (b) bars Kroesche and Schonefeld from asserting a contribution claim against Glenn Massey, another person who guaranteed the advancing promissory note on which Old Wassar was the primary obligor.
New Wassar cross-appeals. In two issues, it asserts the trial court erred in refusing to award it (1) certain attorney's fees under a fee provision in New Wassar's company agreement because it was the prevailing party; and (2) certain other attorney's fees under Chapter 38 of the Civil Practice and Remedies Code because it prevailed on its claim for damages under the advancing promissory note. New Wassar also asks that we modify the trial court's judgment to delete its decree that Old Wassar, Kroesche, and Schonefeld did not breach the advancing promissory note in a way that triggered the note's acceleration provision.
For the reasons stated in this opinion, we sustain appellants' first issue and overrule appellants' remaining issues. In the cross-appeal, we sustain New Wassar's two issues and request for modification. In summary, we reverse the take-nothing judgment on Kroesche's claim for damages under the promissory note, render judgment in favor of Kroesche for the amount of principal due under the note, and remand to the trial court to conduct a new trial on the amount of interest due as damages under the promissory note. We further reverse the trial court's denial of New Wassar's attorney's fees under the company agreement and remand this cause to the trial court to determine whether New Wassar is entitled to fees under the company agreement and, if so, the amount of the fees to which it is entitled. We further reverse the part of the judgment denying New Wassar attorney's fees on its claim for damages under the advancing promissory note and remand this cause to the trial court to conduct a new trial as to the amount of New Wassar's reasonable and necessary attorney's fees consistent with our opinion. In addition, we modify the trial court's judgment to delete the part decreeing that appellants did not trigger the advancing promissory note's acceleration provision. We affirm the remainder of the trial court's judgment as modified.
BACKGROUND
Flo Trend
Flo Trend, a manufacturer of water filtration equipment, hired Martin Kroesche as chief operating officer in August 2014. During his tenure with the company, Kroesche hired Steven Schonefeld and Glenn Massey. Together, the three men eventually discussed buying the company from its owners (non-parties who are not involved in this litigation). They formed Wassar Logistics, Inc., or "Old Wassar," for this purpose.
By late November 2015, Kroesche, Schonefeld, and Massey had entered into an agreement with the owners to buy Flo Trend. They paid $500,000 toward the purchase of the company and took over day-to-day operations. But they did not yet own the company. They had to obtain additional financing to complete the transaction, which would close in February 2016. They had to secure the financing by the closing date. If they failed, Kroesche, Schonefeld, and Massey would lose the down payment.
In their financing search, they met Peter Shaper, Courtland Loeffler, and George Dempsey, investors who were interested in the Flo Trend purchase. Together, all six men formed Wassar Logistics Holdings, LLC, or "New Wassar," to complete the financing of the purchase of Flo Trend.
New Wassar bought Flo Trend's assets for $3 million. To pay this sum, it raised $1.5 million in equity and took on $1.5 million in debt.
Flo Trend's owners would not sell the company's assets unless the building was included in the sale. Old Wassar agreed to buy the building. Shaper, Loeffler, and Dempsey did not want to buy the building, which they believed was overpriced. Nonetheless, Old Wassar and New Wassar jointly funded the purchase of the building via a bank loan or loans. Old Wassar owned the building, and New Wassar paid rent to continue running Flo Trend's business in that building. As part of the financing arrangement between the companies, New Wassar made payments to the bank as rent, and Old Wassar executed an advancing promissory note in New Wassar's favor that grew by the same amount as each rental payment that New Wassar made. So long as the building lease was in effect between the two companies, Old Wassar was not obliged to make interest or other payments on this advancing promissory note. Kroesche, Schonefeld, and Massey all personally guaranteed payment of this note.
After the purchase of Flo Trend's assets, Kroesche, Schonefeld, and Massey ran the company's day-to-day operations. Kroesche was president.
Later, the relationship between the parties deteriorated. Schonefeld alleged that Kroesche mismanaged the business. By April 2016, Schonefeld was urging the company to fire Kroesche. New Wassar fired Kroesche on July 9, 2016.
Under the company agreement, New Wassar had the right to repurchase the membership units of fired employees like Kroesche. New Wassar tried to do so by tendering a promissory note to Kroesche for $166,666.67, the amount that Kroesche had invested in the company. Kroesche disagreed that this amount was adequate, asserting instead that the units were worth more than $1.5 million. Litigation ensued.
Procedural History
New Wassar filed a declaratory judgment action against Kroesche on August 15, 2016. New Wassar sought a declaration that, upon firing Kroesche, it had a right to repurchase his membership units in the company for $166,666.67.
Kroesche filed his own suit on September 1, 2016. Alleging that he remained a minority owner of New Wassar, he described his suit as a shareholder derivative action. He sued the majority shareholders: Shaper, Loeffler, Massey, Schonefeld, Dempsey, and several companies other than New Wassar. Contending that the majority shareholders had severely undervalued his units at $166,666.67, he asserted causes of action for fraud, breach of fiduciary duty, breach of contract, quantum meruit, and derivative claims, including shareholder oppression.
The parties jointly moved to consolidate the two suits. On October 19, 2016, the trial court signed an order consolidating them.
Over the course of the consolidated litigation, Kroesche insisted that the fair market value of his membership units was far more than $166,666.67. For example:
• in Kroesche's February 9, 2017 response to requests for disclosure, he said he sought "[i]n excess of $1,000,000" for his units and other damages;
• in Kroesche's April 24, 2017 supplemental response, he said he was "seeking damages in excess of $2,000,000" for his units; and
• in Kroesche's November 10, 2017 interrogatory answers, he said that the fair market value of his membership units was $5,000,000.
The nature of the parties' disputes changed over time in several significant ways. In February 2017, Schonefeld switched sides in the litigation after he was terminated from Flo Trend, joining Kroesche in his suit against the others. Like Kroesche, Schonefeld maintained that his membership interest in New Wassar was more valuable than the company said. In Schonefeld's June 10, 2017 response to requests for disclosure, he valued his units at more than $1,000,000. This dispute over the value of his membership units subsequently dropped out of the litigation after New Wassar paid Schonefeld $1,000 for his units.
On April 28, 2017, Kroesche and Schonefeld sued New Wassar itself for the first time. Several months later, on September 22, 2017, Old Wassar joined Kroesche and Schonefeld in suing New Wassar and its majority owners. Consequently, the two sides in the litigation now consisted of Old Wassar, Kroesche, and Schonefeld on one hand, and New Wassar and its majority owners on the other hand, with each side asserting claims for affirmative relief against the other.
The majority owners are not parties to this appeal.
On February 18, 2018, New Wassar sought leave to file an additional claim, specifically seeking $322,926 on the advancing promissory note that Old Wassar had signed as primary obligor and that Kroesche and Schonefeld had guaranteed. The trial court granted leave to do so about five weeks later. Initially, New Wassar sued both Old Wassar as the primary obligor on the advancing promissory note and Kroesche and Schonefeld as guarantors. Later, however, New Wassar dismissed its claim against Old Wassar with respect to its liability under the advancing promissory note. New Wassar maintained this claim solely against Kroesche and Schonefeld as guarantors.
Old Wassar, Kroesche, and Schonefeld filed what would be their live pleading at trial on July 17, 2018. They asserted claims for fraud and fraudulent inducement to obtain damages or recission of multiple contracts they had signed, including the New Wassar company agreement. If the trial court determined that the company agreement was valid, Kroesche alternatively sought a declaration that he was "entitled to a minimum of at least the $166,666.67" value that New Wassar had given to his membership units. Kroesche also alleged breach of contract for noncompliance with the company agreement's buyback provision "by failing to pay Kroesche fair market value for his" units. Consistent with their prior pleadings, Kroesche and Schonefeld asserted multiple other claims, including breach of fiduciary duty, other breaches of contract, quantum meruit, defamation, and theft or unjust enrichment. As claimed minority owners of New Wassar, Kroesche and Schonefeld requested examination of the company's books and appointment of a receiver. They asserted a contribution claim against Massey on the basis that he had also personally guaranteed the advancing promissory note signed by Old Wassar. Finally, among the requests for relief in the pleading's prayer, Old Wassar, Kroesche, and Schonefeld included a request for "monetary relief over $1,000,000."
On December 14, 2018, New Wassar moved for summary judgment on the fraud and fraudulent inducement claims. At the February 25, 2019 summary-judgment hearing, counsel for Old Wassar, Kroesche, and Schonefeld explained that they were seeking rescission on the basis of their fraud and fraudulent inducement claims. In the alternative to rescission, Kroesche claimed that he was entitled to the $166,666.67 that New Wassar had offered via the promissory note that it tendered for his units. Old Wassar, Kroesche, and Schonefeld disavowed their previous claims for $1 million or more in damages; their counsel stated, "We're not pursuing those amounts in trial."
Two days after the hearing, the trial court granted summary judgment in New Wassar's favor on the fraud and fraudulent inducement claims against it.
The summary judgment order also quashed a jury demand filed by Old Wassar, Kroesche, and Schonefeld, resolving a dispute over whether the company agreement contained a valid jury waiver. They petitioned for mandamus relief from the part of the order quashing their jury demand, and this Court denied the petition. In re Wassar Logistics, Inc., No. 01-19-00217-CV, 2019 WL 1442267 (Tex. App.- Houston [1st Dist.] Apr. 1, 2019, orig. proceeding) (per curiam) (mem. op.).
On April 2, 2019, two days before trial, Kroesche and Schonefeld nonsuited several claims without prejudice. They nonsuited their claims for breach of fiduciary duty and their request for appointment of a receiver. Kroesche nonsuited his claims for defamation and theft or unjust enrichment. Kroesche also nonsuited his request to examine New Wassar's company books, but Schonefeld did not nonsuit his request to examine the books.
Bench Trial
The parties tried a handful of claims to the bench. These claims included the following:
(1) Kroesche alleged that New Wassar owed him $166,666.67 under the promissory note that the company tendered to him to repurchase his units;
(2) Old Wassar alleged that New Wassar owed it $45,021.59 under the Flo Trend building lease for unpaid rent, late fees, unpaid taxes, and repairs;
(3) New Wassar alleged that Kroesche and Schonefeld owed it $322,926 as guarantors of the advancing promissory note executed by Old Wassar;
(4) in the event Kroesche and Schonefeld were found liable on the advancing promissory note, they alleged a right to contribution from Massey; and
(5) both sides introduced evidence of the attorney's fees and costs incurred in the litigation through the testimony of counsel and billing invoices.
The parties abandoned all other claims. Kroesche and Schonefeld expressly disavowed any claim that they were still members of New Wassar. Similarly, Old Wassar, Kroesche, and Schonefeld disavowed any claims for equitable relief other than any claim for offset or setoff they might have.
The parties asserted various defenses. Kroesche and Schonefeld contended that neither they nor Old Wassar owed anything on the advancing promissory note due to New Wassar's breach of the Flo Trend building lease. New Wassar, with leave of court, supplemented its pleadings during trial to assert lack or failure of consideration as a defense to Kroesche's promissory note claim. New Wassar denied liability under the Flo Trend building lease, except that it stipulated at the outset of trial that it owed $14,410 in unpaid property taxes.
At trial, Kroesche, Schonefeld, Shaper, and Loeffler testified. The only other witnesses were attorneys for both sides who primarily testified about their fees.
After New Wassar fired Kroesche, it decided to exercise its right to repurchase his membership units as authorized by the company agreement. On July 13, 2016, Shaper e-mailed Kroesche, proposing to pay the same amount for the units as Kroesche had invested in the company, so that the parties would not "have to argue valuation." On July 19, 2016, Shaper e-mailed Kroesche again to inform him that New Wassar intended to repurchase his units and had agreed to do so for the amount Kroesche had invested in the company "to avoid an argument" even though the company thought this amounted to paying him "a premium." At trial, Kroesche agreed that the company valued his units at $166,666.67.
But in a July 20, 2016 e-mail, Kroesche wrote to Shaper: "A[s] far as the redemption, this is being rejected and will be formally rejected." Kroesche also wrote that he wanted an independent valuation of his membership units. On July 26, 2016, a lawyer representing Kroesche wrote a letter to Shaper stating that the company's offer to repurchase his membership units was "rejected." Kroesche's lawyer continued by stating that they would "swiftly pursue litigation" if the parties did not reach an agreement on valuation and that in litigation Kroesche would "be seeking an amount in excess of $1.5 million for his interest." At trial, Kroesche testified that he did not recall this letter or recall authorizing his lawyer "to accept or negotiate amounts" with respect to the value of his units.
By mid-August 2016, New Wassar had filed its declaratory judgment action. Kroesche filed his countersuit within a couple of weeks, and litigation ensued.
Months after litigation began, on November 10, 2016, New Wassar's lawyer wrote Kroesche's lawyer a letter reiterating that the company had exercised its right to repurchase Kroesche's membership units under the company agreement. Enclosed with the letter was a promissory note for $166,666.67 signed by Shaper. New Wassar's lawyer requested that, upon receipt of the note, Kroesche sign and return a previously forwarded assignment agreement that would formally memorialize the transfer of his units back to the company.
At trial, Kroesche testified that he accepted the promissory note and signed it himself on November 17, 2016. He stated that New Wassar had not paid him the $166,666.67 that had since become due.
But Kroesche conceded that he did not sign and return the form assigning his units back to the company as New Wassar had requested. He further conceded that he never informed New Wassar in writing that he had signed the note, and he stated that he did not know where the original note he had signed was located. Nor did Kroesche know of any document in which he communicated that he had accepted the promissory note's terms and relinquished his units. Finally, Kroesche acknowledged that he had stated in discovery that the fair market value of his membership units was $5 million and that his pleading sought the fair market value, even though that was not the claim he was making at trial.
Shaper testified that Kroesche never said that he had accepted the promissory note, which would have rendered further litigation unnecessary. According to Shaper, Kroesche had always insisted that he was owed more for his membership units than offered in the promissory note, and Kroesche never returned his units. When asked whether he ever understood Kroesche to be trying to enforce the note in the ensuing litigation between the parties, Shaper answered, "The first time I ever heard that [$166,666.67] could settle this and we could have been done is yesterday when Mr. Kroesche was on the stand." New Wassar never paid the principal or interest due under the note.
Relations between Old Wassar and New Wassar deteriorated as the litigation continued. On April 17, 2017, Old Wassar, in its capacity as landlord, sent New Wassar a 185-day notice required to terminate the Flo Trend building lease. On August 10, 2017, New Wassar responded by invoking its right to terminate the lease within 60 days.
Both Shaper and Kroesche agreed that by Summer 2017, Flo Trend was experiencing cashflow problems. New Wassar had fallen behind in making its rent payments under the Flo Trend building lease (i.e., the payments New Wassar made to the bank), and the bank had sent default notices. According to Shaper, New Wassar was contemplating bankruptcy, and the bank was willing to work with the company to avoid that outcome. By September or October 2017, New Wassar brought its payments current and paid late fees owed to the bank. New Wassar renegotiated its debt with the bank and put more capital into the business, thereby preventing the bank from foreclosing on Flo Trend's building and other assets. In the wake of this deal, New Wassar still had to reduce its operations and staff to remain afloat.
In accordance with the end of the Flo Trend building lease, New Wassar moved out of the building by early October 2017. Afterward, Old Wassar became responsible for paying the bank for the debt on the building. The end of the lease also meant that Old Wassar had to begin making payments to New Wassar on the advancing promissory note. But Old Wassar did not do so, notwithstanding New Wassar's notices of default and acceleration.
Kroesche and Schonefeld guaranteed the advancing promissory note. They guaranteed payment, not collection, meaning that New Wassar could seek payment directly from them without pursuing payment from Old Wassar. Kroesche testified that he did not think Old Wassar would owe New Wassar any amount on the advancing promissory note once offsets were applied. Schonefeld similarly testified that he had not paid what was owed on the note or his guarantee because it remained unclear how much they owed due to the competing liabilities alleged by the parties in the litigation. The advancing promissory note, however, states that all sums due under it "shall be payable without set off, counterclaim or any other deduction whatsoever."
Both sides introduced testimony and evidence as to New Wassar's alleged liabilities for breaching the Flo Trend lease. But with the exception of the $14,410 in unpaid property taxes, these alleged breaches are not at issue on appeal. As to the taxes, New Wassar stipulated to its liability and agreed to pay them. New Wassar's position was that Old Wassar had not presented the tax bill for payment, and Shaper testified that New Wassar would pay the taxes on receipt of the bill. Old Wassar, in turn, contended that it had sent New Wassar a notice in March 2018 advising that $14,410 in taxes were due.
Kroesche and Schonefeld later sold the Flo Trend building for $1.3 million. After paying the bank what it was owed, as well as a sales commission, they netted $672,512.79 total on the sale of the building. Schonefeld had acquired Massey's interest in the building beforehand.
Trial Court's Final Judgment
The trial court entered a final judgment declaring that Kroesche and Schonefeld are not members of New Wassar. The court then ordered that Kroesche take nothing on his claims for damages under the promissory note because he had rejected New Wassar's attempt to repurchase his membership units in the company for $166,666.67 as allowed under the company agreement.
The trial court further ordered and declared that New Wassar pay Old Wassar $14,410 for unpaid taxes under the Flo Trend building lease.
As to the advancing promissory note, the court declared that Old Wassar, Kroesche, and Schonefeld did not breach it in any manner sufficient to support acceleration of the note. But the court further ordered that all three parties jointly and severally owe New Wassar $322,926 on the advancing promissory note and that New Wassar shall have and recover judgment in that amount jointly and severally from Kroesche and Schonefeld. The court further ordered that the post-judgment interest rate on this judgment against Kroesche and Schonefeld shall be 18% per year.
The trial court further declared that Kroesche and Schonefeld are not entitled to restitution because they have unclean hands. The court further denied Kroesche's and Schonefeld's contribution claims against Massey because Massey did not have unclean hands, and because allowing them contribution from Massey would unjustly enrich them.
The court further ordered and decreed that an award of attorney's fees to any party would be neither equitable nor just.
Finally, the court ordered and decreed that all other relief not expressly granted in the judgment was denied.
DISCUSSION
The parties tried their disputes to the bench. Neither side secured findings of fact or conclusions of law in addition to the trial court's declaratory judgment. Thus, we will affirm the trial court's judgment on any theory supported by the evidence, subject to any challenge to the evidence for legal or factual sufficiency. Lopez v. Hansen, 947 S.W.2d 587, 589 (Tex. App.-Houston [1st Dist.] 1997, no writ).
I. Promissory Note for Repurchase of Kroesche's Membership Units
The trial court entered a judgment in which it declared that New Wassar had a right to repurchase Kroesche's membership units under the company agreement for $166,666.67, but Kroesche rejected the promissory note tendered to him to repurchase the units. It is undisputed that New Wassar has not paid this sum to Kroesche under the promissory note or otherwise. Nevertheless, the trial court adjudged that "Kroesche take nothing on his claim for damages under the promissory note." The judgment also declared that Kroesche is not a member of New Wassar. As such, the judgment effectively found that New Wassar owns Kroesche's membership units but owes him nothing in payment for them.
On appeal, Kroesche contends that the trial court erred by not awarding him $166,666.67 plus interest due under the promissory note. Kroesche maintains that he conclusively proved the four elements required to recover under the promissory note, and he conclusively proved that he accepted the promissory note. He also argues that New Wassar did not prove any affirmative defense to his claim for breach of the promissory note. Kroesche requests that we render judgment in his favor for $166,666.67 plus interest due under the note.
New Wassar defends the trial court's judgment on two grounds. First, New Wassar contends that Kroesche did not plead a promissory note claim before trial and that liability on the note was not tried by consent. Second, New Wassar contends that the evidence disproves several requirements intrinsic to a claim for breach of contract, specifically, acceptance, consideration, and mutual assent. We hold that the parties tried the issue by consent, Kroesche proved the elements of his claim, and New Wassar failed to prove an applicable affirmative defense.
A. Standard of Review
A promissory note is a type of contract showing an obligation to pay money. DeClaire v. G&B McIntosh Fam. Ltd. P'ship, 260 S.W.3d 34, 44 (Tex. App.- Houston [1st Dist.] 2008, no pet.) (op. on reh'g). The meaning of an unambiguous contract is a question of law, which we review de novo. Zurich Am. Ins. Co. v. Coastal Cargo of Tex., Inc., 596 S.W.3d 381, 385 (Tex. App.-Houston [1st Dist.] 2020, pet denied). Thus, to the extent we must interpret the promissory note, we do so as a matter of law.
When a party with the burden of proof loses at trial and asks us to render judgment in his favor, he must show that the evidence conclusively proves his right to the judgment he requests. Barnes v. Mathis, 353 S.W.3d 760, 762 (Tex. 2011) (per curiam). The evidence is conclusive when reasonable people cannot differ in their conclusions. Helix Energy Sols. Grp. v. Gold, 522 S.W.3d 427, 431 (Tex. 2017). This standard for conclusive evidence resembles the one for no evidence, inasmuch as we ask whether reasonable factfinders could differ about the fact determinations made by the trier of fact based on the evidence as a whole. See Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 340 (Tex. 1998).
But the burden of proof as to an affirmative defense, which seeks to defeat a plaintiff's claim without regard to the truth of the plaintiff's allegations, rests on the defendant. Philadelphia Indem. Ins. Co. v. White, 490 S.W.3d 468, 485 (Tex. 2016). Thus, when a plaintiff loses at trial based on a defendant's affirmative defense, the plaintiff may challenge the findings on the defense for legal and factual sufficiency. See, e.g., Pitts & Collard, L.L.P. v. Schechter, 369 S.W.3d 301, 311-17 (Tex. App.-Houston [1st Dist.] 2011, no pet.) (op. on reh'g) (plaintiff challenged sufficiency of evidence supporting findings in favor of defendant's affirmative defenses).
We will sustain a legal sufficiency challenge to an adverse finding on which the opposing party bore the burden of proof if our review of the evidence demonstrates a complete absence of a vital fact or the evidence offered is less than a scintilla. Burbage v. Burbage, 447 S.W.3d 249, 259 (Tex. 2014). Evidence is more than a scintilla if it would allow reasonable and fair-minded people to reach different conclusions. Id. Evidence that creates a mere surmise or suspicion of a vital fact constitutes less than a scintilla of evidence. Id. We consider the evidence in the light most favorable to the judgment, "crediting favorable evidence if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not." Id. (quoting City of Keller v. Wilson, 168 S.W.3d 802, 807 (Tex. 2005)).
B. Applicable Law
A promissory note is "an unconditional written promise, signed by the maker, to pay absolutely and in any event a certain sum of money either to, or to the order of, the bearer or a designated person." Charles R. Tips Fam. Tr. v. PB Com., 459 S.W.3d 147, 152 n.2 (Tex. App.-Houston [1st Dist.] 2015, no pet.) (quoting Promissory Note, Black's Law Dictionary (10th ed. 2014)). Although a promissory note is a type of contract, a plaintiff suing on a promissory note need not prove the elements of a breach of contract claim to recover. Clark v. Dedina, 658 S.W.2d 293, 295 (Tex. App.-Houston [1st Dist.] 1983, writ dism'd). Instead, the plaintiff must prove: (1) the existence of the note in question; (2) the defendant signed the note; (3) the plaintiff is the owner and holder of the note; and (4) a certain balance is due and owing on the note. Wells Fargo Bank v. Ballestas, 355 S.W.3d 187, 191 (Tex. App.-Houston [1st Dist.] 2011, no pet.).
"In an action by a holder of a promissory note against the maker, where execution of the note has not been denied, the introduction of the note in evidence makes a prima facie case for the holder." Strickland v. Coleman, 824 S.W.2d 188, 191 (Tex. App.-Houston [1st Dist.] 1991, no writ). If the plaintiff makes a prima facie case or otherwise proves the four elements of a promissory-note claim, he is entitled to recover on the promissory note unless the defendant establishes a defense to recovery. Groschke v. Gabriel, 824 S.W.2d 607, 610 (Tex. App.-Houston [1st Dist.] 1991, writ denied). Defenses to recovery on a promissory note include "want or failure of consideration, non-performance of a condition precedent, non-delivery, delivery for a special purpose, fraud in the inducement, or other defenses which would be available in an action on a simple contract." Strickland, 824 S.W.2d at 192.
C. Analysis
1. Fair Notice and Trial by Consent
New Wassar contends that Kroesche did not plead a cause of action for breach of the promissory note in his live pleading. We agree with New Wassar.
Texas law requires a plaintiff to include "a short statement of the cause of action sufficient to give fair notice of the claim" in his petition. Tex.R.Civ.P. 47(a). The purpose of this fair-notice standard is to ensure that the defendant receives information sufficient to allow him to prepare a defense. Kinder Morgan SACROC, LP v. Scurry Cnty., 622 S.W.3d 835, 849 (Tex. 2021). A pleading must identify the claim and relief sought by the plaintiff as well as the essential factual allegations underlying the plaintiff's claim so that the defendant can discern the nature and basic issues of the controversy and what evidence will be relevant. See id.
In his live pleading, Kroesche alleged several causes of action, none of which was explicitly labeled as an action for breach of the promissory note. Nor does Kroesche's live pleading state the elements required to recover on a promissory note.
Kroesche did include a cause of action for breach of contract, however. He alleged several different breaches with respect to several different contracts.
Kroesche alleged that New Wassar breached the company agreement "by failing to comply with the buyback provision provided therein by failing to pay Kroesche fair market value for his shares of stock after they had triggered the buyback provision." He further alleged that even if New Wassar's valuation was correct, the company "failed and refused to pay Kroesche in accordance with [its] own valuation." These allegations do not refer to the note.
Kroesche also alleged that New Wassar breached the company agreement by "failing to pay" him "$166,666.67," the amount at which New Wassar valued his membership interest. But Kroesche did not allege that New Wassar committed itself to this value in a promissory note or allege liability on a note.
In sum, Kroesche's live pleading did not state a cause of action for breach of the promissory note. Although a promissory note is a type of contract, the elements for breach of a promissory note and breach of a contract materially differ. See Clark, 658 S.W.2d at 295. Kroesche's pleadings did not state the elements of a claim for breach of a promissory note anywhere, and the breach-of-contract allegations included in his pleading did not refer to the disputed promissory note. Even with the benefit of a liberal construction, Kroesche's contract allegations did not mention the promissory note and his pleading therefore did not give New Wassar fair notice that he was alleging a cause of action for breach of the note. See Bos v. Smith, 556 S.W.3d 293, 306 (Tex. 2018) (stating that liberal construction of pleadings does not require court to read into petition that which is plainly not there).
New Wassar further contends that it did not try Kroesche's promissory note claim by consent and that he therefore waived appellate review of this issue. We disagree. The record demonstrates that the parties tried New Wassar's alleged liability on the note by consent.
A trial court cannot adjudicate claims or defenses that the parties do not raise in their pleadings, unless the parties try an unpled issue by consent. See Brumley v. McDuff, 616 S.W.3d 826, 831 (Tex. 2021) (stating that unpled issues should not be submitted to jury absent trial by consent). When both parties present evidence on an issue not included in their pleadings and the issue is developed at trial without objection, the parties have tried the issue by consent. Ingram v. Deere, 288 S.W.3d 886, 893 (Tex. 2009). Trial by consent cures any defect in the pleadings. Tex.R.Civ.P. 67; Ingram, 288 S.W.3d at 893. Nevertheless, the mere introduction of evidence relevant to an issue is not enough to show trial by consent. Bos, 556 S.W.3d at 306-07. Rather, the record must reflect that the parties actually tried the issue. Id. at 307. Thus, when evidence is relevant to multiple issues, such that its introduction would not necessarily have elicited an objection, the failure to object usually does not indicate trial by consent unless the record as a whole clearly shows otherwise. See id.; Moran v. Williamson, 498 S.W.3d 85, 97-98 (Tex. App-Houston [1st Dist.] 2016, pet. denied).
At the beginning of trial, the trial court asked the parties to identify the claims that they were asking the court to decide. Kroesche's counsel responded in part that his client was suing on an unpaid "promissory note for $166,000." New Wassar's counsel responded that this claim was "meritless." New Wassar's counsel later argued that "there's nothing in the petition suing on that note," but he conceded that he could be mistaken when Kroesche's counsel disagreed. New Wassar did not actually object to trying Kroesche's promissory note claim, and both sides introduced evidence that was only relevant to this claim.
Kroesche introduced the promissory note into evidence, along with an accompanying cover letter from a lawyer representing New Wassar. Kroesche testified that he accepted the note and signed it. He also testified that New Wassar had not paid the sum due on the note. On cross-examination, Kroesche conceded that a document assigning his membership units to New Wassar accompanied the promissory note but he did not sign and return the assignment to the company.
He further conceded that he never informed New Wassar in writing that he had signed the note. Kroesche testified that he did not know of any document in which he had told New Wassar that he had accepted the terms of the promissory note and relinquished his membership units. Kroesche explained that he did not sign and return the assignment because the company agreement's buyback provision was self-executing, and the effectiveness of the promissory note was not conditioned on the execution of the assignment or on him doing anything else.
Shaper testified that Kroesche never said he had accepted the promissory note's terms-$166,666.67 for his membership units-or said that litigation was unnecessary as a result. According to Shaper, Kroesche always insisted he was owed more than the sum stated in the note. When asked whether he ever understood that Kroesche was trying to enforce the note, Shaper answered: "The first time that I ever heard that 166 could settle this and we could have been done is yesterday when Mr. Kroesche was on the stand."
None of the preceding evidence, introduced without objection, is relevant to anything other than Kroesche's promissory note claim. Moreover, New Wassar asked for leave to file a trial amendment to assert lack or failure of consideration as a defense to the disputed promissory note. The trial court agreed to allow the trial amendment, and New Wassar filed a supplemental pleading in which it asserted that affirmative defense.
In sum, the record demonstrates that the parties tried Kroesche's promissory note claim by consent. Consequently, Kroesche has not waived appellate review of this issue, so we turn to the merits.
2. Enforceability of the Promissory Note
Kroesche contends that he conclusively proved his right to recover for breach of the promissory note because he undisputedly owns and holds an unpaid note signed by New Wassar that has a balance due and owing of $166,666.67 plus interest. New Wassar does not dispute that Kroesche conclusively proved the elements required to recover on a promissory note. Instead, New Wassar argues that Kroesche's promissory note claim fails because the note lacks consideration, Kroesche rejected the note, and there was no mutual assent to the note's terms.
Because it is undisputed that Kroesche conclusively proved the elements of his claim, New Wassar bore the burden of proving any defense to Kroesche's claim for breach of the note. See Clark, 658 S.W.2d at 295. We consider whether New Wassar proved any of the defenses it raised.
The trial court granted New Wassar leave to file an amended answer asserting the affirmative defense of lack or failure of consideration to the promissory note, and New Wassar amended its answer to assert this defense. New Wassar did not, however, seek leave or amend its petition to assert the other affirmative defenses that it raises on appeal: lack of acceptance and lack of mutual assent. Kroesche does not challenge these defenses on this basis. Therefore, we assume without deciding that the parties tried these affirmative defenses by consent.
a. Consideration
New Wassar pleaded lack of consideration as an affirmative defense to Kroesche's claim for breach of the promissory note. Specifically, New Wassar contends that Kroesche's units never transferred back to New Wassar, and therefore New Wassar provided no consideration for the promissory note. New Wassar argues that the units never transferred because Kroesche "never surrendered" the units; he did not execute and return the assignment agreement to New Wassar; and he consistently disputed that his units had transferred to New Wassar and that he was no longer a member of the company.
A defendant may assert lack of consideration as an affirmative defense to a claim for breach of a promissory note, so New Wassar bore the burden to prove a lack of consideration to defeat the claim. McLernon v. Dynegy, Inc., 347 S.W.3d 315, 335 (Tex. App.-Houston [14th Dist.] 2011, no pet.). "Consideration is a present exchange bargained for in return for a promise." Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 496 (Tex. 1991). It may consist of either a benefit to the promisor or a detriment to the promisee. Id. Consideration does not exist when a contract fails to impose obligations on both parties at its outset. Bryant v. Cady, 445 S.W.3d 815, 820 (Tex. App.-Texarkana 2014, no pet.). When an instrument recites that consideration has been given, we presume that consideration to be sufficient, but we allow parol evidence to prove a failure of consideration. McLernon, 347 S.W.3d at 335.
Here, the unchallenged portions of the trial court's judgment and the evidence presented at trial both confirm that the promissory note does not fail for lack of consideration. Turning first to the judgment, the judgment included a declaration and several findings of fact and conclusions of law relevant to Kroesche's promissory note claim. The final judgment grants New Wassar's request for a declaration that New Wassar had a right under the company agreement's buyback provision to repurchase Kroesche's units for $166,666.67, and New Wassar attempted to exercise this right. Significantly, the judgment also includes a finding or declaration that Kroesche is no longer a "member" of New Wassar.
This finding that Kroesche is no longer a "member" of New Wassar is an implied finding that Kroesche's membership units had transferred to New Wassar. Under the company agreement, "Members" are defined as "the Class A Members and the Class B Members" listed in an exhibit to the company agreement "or any person who becomes a Member pursuant to the provisions in this Company Agreement for becoming a Member." Section 2.2 of the agreement concerns membership interests, and it classifies membership interests into Class A units and Class B units. Under the company agreement, Kroesche had to own units to have a membership interest in New Wassar. Therefore, by finding that Kroesche is no longer a member of New Wassar, the final judgment effectively determined that Kroesche no longer owns his units.
We are not free to disregard this implied finding that Kroesche's membership units transferred to New Wassar. Although Texas Rule of Civil Procedure 299a prohibits trial courts from reciting their findings of fact in the judgment, we consider the findings of fact contained in the judgment in this case as probative because the trial court did not file separate findings of fact and conclusions of law. See Tex. R. Civ. P. 299a; Gonzalez v. Razi, 338 S.W.3d 167, 175 (Tex. App.-Houston [1st Dist.] 2011, pet. denied) (stating that, despite Rule 299a's prohibition, findings recited in judgment will be accorded probative value so long as they do not conflict with findings recited in separate document); James J. Flanagan Shipping Corp. v. Del Monte Fresh Produce N.A., 403 S.W.3d 360, 364 (Tex. App.-Houston [1st Dist.] 2013, no pet.) (op. on reh'g) (according probative value to findings entered in judgment where record contained no other findings of fact).
Furthermore, legally and factually sufficient record evidence supports this finding that Kroesche's units have transferred to New Wassar. See Wood v. Wiggins, 650 S.W.3d 533, 543 (Tex. App.-Houston [1st Dist.] 2021, pet. denied) (stating that trial court's express and implied findings may be challenged for legal and factual sufficiency of evidence). Pursuant to the company agreement, New Wassar may exercise its right under the buyback provision by sending Kroesche written notice of "the date on which the repurchase is to be effective." The effective date of repurchase must be within ninety days after the date of the written notice. Section 12.4 of the agreement further provides, "On the closing of such repurchase, [the member] shall execute an assignment in form and substance reasonably acceptable to [New Wassar] at which time [New Wassar] shall either" pay a lump sum of cash or, "in the event that [New Wassar] does not have Available Cash," issue a promissory note for the repurchase price. Under the plain language of section 12.4, New Wassar had the right to set the date upon which the repurchase would become effective. See Great Am. Ins. Co. v. Primo, 512 S.W.3d 890, 893 (Tex. 2017) (stating that plain language of contract controls its interpretation).
In its November 10, 2016 letter providing written notice to Kroesche that it was repurchasing his units, New Wassar requested that Kroesche execute an assignment agreement. However, the letter also stated that New Wassar "believe[s] the Company Agreement is self-operative and such transfer has occurred in any event." (Emphasis added.) The italicized part of this sentence-that transfer of Kroesche's units "has occurred in any event"-is the effective date of repurchase. In other words, the transfer of ownership of Kroesche's units to New Wassar became effective on November 10, 2016. This date is within ninety days of the notice, and therefore it complies with the buyback provision.
Although Kroesche did not execute and return an assignment agreement, the buyback provision in the company agreement does not condition transfer of ownership of the units on an executed assignment agreement. The buyback provision does not require a new agreement at all. Rather, the buyback provision states that New Wassar chooses the effective date of the transfer of units, triggering the transfer of the units and New Wassar's duty to pay for them. The only clear and definite interpretation of this provision is that the assignment agreement serves only as formal documentation of the transfer that has already occurred. See id.
Furthermore, it is undisputed that New Wassar sent Kroesche the executed promissory note before it received an executed assignment from Kroesche. The promissory note stated that it was issued pursuant to the buyback provision and "for value received," which is convincing evidence that the value received was the transfer of the units. See McLernon, 347 S.W.3d at 335. With this payment, the transaction contemplated by the company agreement was nearly complete. Ownership of Kroesche's units had transferred to New Wassar, and New Wassar gave Kroesche a note promising to pay him $166,666.67 in principal plus interest in one year. New Wassar's argument that Kroesche was required to agree to assign the units to New Wassar in order to effect the transfer of their ownership is not supported by the plain language of the buyback provision. See Primo, 512 S.W.3d at 893 (stating that courts interpret contracts according to their plain language).
The purpose of the buyback provision supports our interpretation that the units transferred upon the effective date set by New Wassar. The buyback provision allows New Wassar to repurchase a member's units efficiently and fairly in the aftermath of the termination of the member's employment, which is typically when the parties' relations will be at their most contentious, as here. The provision vests New Wassar with nearly all the power and rights in the transaction. New Wassar has the sole right to determine whether and when to repurchase such units, the number of units it wishes to repurchase, their fair market value determined in good faith, the effective date of their transfer back to New Wassar, the manner of payment, and whether to pay immediately or to delay payment up to a year by issuing a promissory note.
The member, on the other hand, has almost no rights under the buyback provision. The only right enjoyed by the member is payment for his units at a price determined by New Wassar. Nothing in the buyback provision indicates that the parties' true intent when agreeing to the provision was that a terminated member could block the company's right to repurchase the member's units simply by refusing to execute an assignment agreement. See id. Such an interpretation would largely render New Wassar's right of repurchase meaningless. See Zurich Am. Ins. Co., 596 S.W.3d at 385 (stating that court must "consider contract's language as a whole, trying to give effect to all of its terms so that none are made meaningless"). Therefore, the buyback provision supports the trial court's implied finding that New Wassar has received Kroesche's membership units, which are consideration for the promissory note.
Additional evidence also confirms that the promissory note does not fail for lack of consideration. The buyback provision prioritizes an immediate cash payment by New Wassar to repurchase units, but it allows New Wassar to delay payment for up to one year by issuing an interest-bearing promissory note instead of cash. New Wassar chose to pay Kroesche for his units by issuing him a promissory note, thereby delaying payment up to one year. Thus, the note acts as a "buy now, pay later" provision for New Wassar. By issuing the promissory note, New Wassar obtained the benefit of delayed payment and the detriment of having to pay interest in addition to the repurchase price. Kroesche, on the other hand, had to wait a year for payment but also received interest payments in addition to the repurchase price. This is a "present exchange bargained for in return for a promise" from New Wassar to pay Kroesche later. See Roark, 813 S.W.2d at 496. Both parties obtained both a benefit and a detriment in the exchange, and each party therefore received consideration from the other party. See id.
b. Acceptance and Rejection
New Wassar also contends that no evidence shows Kroesche accepted the promissory note. It argues that Kroesche never communicated acceptance of the note, which Kroesche does not dispute. New Wassar also argues that Kroesche's pleadings, discovery responses, and conduct show that he rejected the promissory note because he contested the valuation of his units until trial, at which time he longer contested the value of the units. The final judgment recited that Kroesche rejected the promissory note.
Neither the buyback provision in the company agreement nor the promissory note mentions acceptance or rejection. Under the plain language of these contracts, acceptance of the promissory note is not required, and rejection of it is not permitted. As New Wassar concedes in its appellate brief, its "right to repurchase Kroesche's units was absolute, and not subject to rejection." As discussed above, the buyback provision gives New Wassar all the power in the transaction. New Wassar has the sole right under the company agreement to determine the value of the units that it wants to repurchase, the effective date of transfer, and the manner of payment. The buyback provision does not require or permit a new agreement between the parties. Indeed, New Wassar's written notice to Kroesche did not make an offer to repurchase his units or even request acceptance. New Wassar only stated that it "would appreciate acknowledgment of receipt" of the promissory note. The buyback provision does not relieve New Wassar of its obligation to pay Kroesche if he does not do so.
New Wassar's arguments concerning lack of acceptance and rejection do not mention the buyback provision or offer any evidence of a contrary interpretation of this provision or the promissory note. As with its argument concerning the assignment agreement, New Wassar's argument that Kroesche could block the transfer of his units back to New Wassar simply by rejecting the promissory note or by not communicating acceptance of it is not supported by the language of the buyback provision.
Furthermore, Kroesche undisputedly waited at least one year for payment from New Wassar for the units it bought back from him. In doing so, Kroesche fully performed under the promissory note. Even part "performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed." Fischer v. CTMI, L.L.C., 479 S.W.3d 231, 240 (Tex. 2016) (quoting Restatement (Second) of Contracts § 34(2)). Kroesche fully performed under the promissory note, and substantially performed under the buyback provision because he lost ownership of his units. New Wassar, on the other hand, has never paid Kroesche under the promissory note, even though it did not dispute the validity of the note at the time of its maturity. Therefore, New Wassar failed to perform under the promissory note. "The law favors finding agreements sufficiently definite for enforcement, particularly where one of the parties has performed his part of the contract." Id. (internal quotations, alterations, and citation omitted). Only at trial did New Wassar change its position to argue that the note was not binding. However, because Kroesche fully performed under the promissory note and New Wassar did not perform under it, we reject New Wassar's challenge to the validity of the note on the basis of lack of acceptance.
There is some evidence that New Wassar attempted to mail two interest payments to Kroesche at his home address, but Kroesche was in Mexico at the time and the envelopes were returned unopened and unsigned. However, it is undisputed that New Wassar did not attempt to make another payment. When the note matured, the parties were already engaged in this litigation. There is no evidence that New Wassar attempted to send Kroesche payment or pay the balance of the note into the court's registry at any time after the maturity date.
New Wassar relies on Jatoi v. Park Center, Inc. to argue that an acceptance not communicated to the offeror does not result in a binding contract. See 616 S.W.2d 399 (Tex. App.-Fort Worth 1981, writ ref'd n.r.e.). However, that case is inapposite. Jatoi offered to purchase shares in Park Center and Park Center's board passed a resolution accepting the offer, but the acceptance was not communicated to Jatoi. Id. at 400. The court found that Jatoi's offer for shares impliedly requested a return promise to sell her the shares, and it agreed with Park Center that an acceptance is not binding until delivered to the offeror. Id. at 400-01. But unlike here, the transaction at issue in Jatoi was not governed by a prior agreement between the parties. New Wassar's exercise of its right of repurchase was pursuant to the buyback provision in the company agreement, not an offer for a new agreement with Kroesche. Therefore, Jatoi is not analogous to the facts in this case and does not control our analysis.
New Wassar also argues that Kroesche repeatedly disputed the valuation of his units, which it argues constitutes a rejection of the note. We disagree. The value of Kroesche's units is a separate issue from the validity of the promissory note. Until trial, Kroesche contended that New Wassar had breached the company agreement by undervaluing his units. The company agreement gave New Wassar the unilateral right to value Kroesche's units at fair market value in good faith. While the company agreement did not provide Kroesche a contractual procedure to dispute the valuation, Kroesche was not without recourse to dispute New Wassar's valuation of his units. He had a legal right to assert a claim for breach of contract based on his contention that New Wassar did not comply with its contractual duty to value his units at fair market value in good faith. See Hall v. Lewis, 639 S.W.3d 197, 209 (Tex. App.- Houston [1st Dist.] 2021, no pet.) ("A breach of contract occurs when a party fails or refuses to do something it has promised to do.").
At trial, Kroesche abandoned his claim for breach of the company agreement and consequently abandoned his dispute over New Wassar's valuation of the units. Instead, he asserted a claim for breach of the promissory note. The face of the promissory note states the amount of principal due under the note and the applicable interest rate. Although the principal amount is equal to New Wassar's valuation of Kroesche's units, the valuation of the units is largely irrelevant to Kroesche's claim for damages under the promissory note. To recover under the promissory note, Kroesche need only show that a certain balance is due and owing on the note. See Ballestas, 355 S.W.3d at 191. Regardless of the value of the units, the face of the promissory note reflects the balance due and owing on the note because it is undisputed that New Wassar has not paid anything on this balance. Thus, the evidence conclusively proves the value of the promissory note. See Barnes, 353 S.W.3d at 762.
New Wassar attacks Kroesche for changing his position at trial. As the trial court noted, however, "that has happened a lot on this case from every side."
New Wassar finally argues that Kroesche did not demand payment of interest under the note. New Wassar had the burden to prove this affirmative defense, yet it does not cite to any record evidence in support of its argument on appeal. See Tex. R. App. P. 38.1(i) (requiring argument in appellate brief to be supported "with appropriate citations to authorities and to the record"); Guimaraes v. Brann, 562 S.W.3d 521, 545 (Tex. App.-Houston [1st Dist.] 2018, pet. denied) (stating that "a brief that does not contain citations to appropriate authorities and to the record for a given issue waives that issue"). Nothing in the buyback provision or promissory note requires Kroesche to demand payment of interest or principal to trigger New Wassar's liability to pay on the note, nor does either contract relieve New Wassar from its obligation to pay for the units if Kroesche does not demand payment.
We note that, prior to trial, neither party disputed that the minimum value of the units was $166,666.67, the principal amount under the promissory note. New Wassar does not explain why it did not pay Kroesche this amount while he argued for a higher valuation in his breach of contract claim. We hold that no evidence supports New Wassar's affirmative defense to the validity of the promissory note based on lack of acceptance or rejection. See Burbage, 447 S.W.3d at 259; Schechter, 369 S.W.3d at 311-17.
c. Mutual Assent
New Wassar also argues that the promissory note is invalid because Kroesche did not assent to its terms. This argument primarily relies on Kroesche's dispute over the value of his units. But as discussed above, the dispute over the valuation of the units is irrelevant to the issue of damages under the promissory note. Moreover, the buyback provision does not require or permit Kroesche to assent to the terms of the promissory note.
Furthermore, Kroesche performed under the promissory note by waiting a year for payment, and New Wassar did not perform under the note. It cannot now argue that its performance is excused because Kroesche did not assent to the terms of the promissory note under which he fully performed. There is no evidence or argument of a contrary interpretation of the buyback provision or the promissory note requiring mutual assent to the note. See Burbage, 447 S.W.3d at 259. We therefore conclude that Kroesche conclusively proved his right to recover the unpaid principal amount of $166,666.67 as damages under the promissory note. See Barnes, 353 S.W.3d at 762.
3. Interest Under the Promissory Note
Kroesche also contends that he is entitled to recover $25,865.60 in interest due under the promissory note. Kroesche argues that he calculated interest by applying a rate of 6% per annum to the 944 days between the date listed on the promissory note, August 23, 2016, and the date of judgment, March 20, 2020. New Wassar disputes that interest began accruing on August 23, arguing instead that interest began accruing on November 17, 2016, when Kroesche signed the promissory note. New Wassar does not otherwise dispute Kroesche's calculation of interest due under the note. Because Kroesche bore the burden of proof at trial on the issue of interest as damages under the promissory note, he must show on appeal that the evidence conclusively proves his right to the interest that he seeks to recover. See id.; see also Gold, 522 S.W.3d at 431 (stating that evidence is conclusive when reasonable people cannot differ in conclusion).
The note is dated August 23, 2016, and New Wassar signed it on this date. However, New Wassar did not deliver the executed note to Kroesche until November 10, 2016. Kroesche apparently signed the note on November 17, 2016, although as discussed above this was never communicated to New Wassar. The note expressly stated that it matured on August 23, 2017. The note provided for "interest from the date of this Promissory Note . . . on the unpaid principal balance at a rate equal to six percent (6.0%) per annum, computed on the basis of the actual number of days elapsed and a year of 365 days." Unpaid but accrued interest was payable in quarterly installments on November 30, 2016, and February 28, May 31, and August 23, 2017.
At trial, Kroesche's counsel asked Kroesche if the note stated "the principal on there, it says the interest rates, [6] percent, how that's calculated. It says payable in quarterly installments on [the days quoted above], etc. It gives the terms of the note[.]" Kroesche answered affirmatively, but he did not provide any other evidence concerning the accrual or calculation of interest under the terms of the promissory note. Although the note provides a clear method to calculate interest, Kroesche has not proved that he is entitled to the amount of interest he requests on appeal.
Moreover, New Wassar introduced some testimony that it mailed Kroesche two envelopes by certified mail containing payment by check for interest due under the note, but these envelopes were returned unsigned and unopened. Kroesche testified that he was in Mexico on the dates that New Wassar sent the checks and received them back in the mail. New Wassar's attempt to make payments on interest due under the note could affect its liability for interest due under the note, particularly any interest that accrued after the maturity date.
We therefore conclude that Kroesche conclusively proved his entitlement to interest under the promissory note, but he has not conclusively proved the amount of interest he is entitled to recover. The trial court must consider the issue of interest due under the note in the first instance. We sustain Kroesche's first issue.
II. Attorney's Fees for Breaching Lease by Failing to Pay Taxes
In its judgment, the trial court ordered New Wassar to pay Old Wassar $14,410 for unpaid property taxes under the lease agreement. On appeal, neither side disputes this aspect of the trial court's judgment. However, Old Wassar contends that the trial court erred in failing to award the attorney's fees it incurred securing this relief.
The lease agreement has an attorney's fees provision. This provision states:
ATTORNEY FEES. In the event of any suit or action to enforce any provision or recover damages arising out of breach of this Lease, the prevailing party shall be entitled to recover the reasonable fees and costs of one firm of attorneys in addition to any other relief afforded.
It is undisputed that a contractual fee provision, like this one, is mandatory and ordinarily requires a trial court to award attorney's fees. See, e.g., Weng Enters. v. Embassy World Travel, Inc., 837 S.W.2d 217, 222-23 & n.4 (Tex. App.-Houston [1st Dist.] 1992, no writ) (stating that contractual fee provision providing that prevailing party "shall be entitled to recover" attorney's fees was mandatory).
New Wassar nonetheless contends that the trial court did not err in failing to award fees for several reasons. New Wassar maintains that Old Wassar waived any right to fees by failing to complain of the unpaid taxes or seek corresponding attorney's fees in its live petition. New Wassar also maintains that Old Wassar waived any right to fees by failing to raise this issue in a post-judgment motion. Assuming the issue of fees is preserved for appellate review, New Wassar argues that there is no evidence that litigation was necessary to collect the taxes due under the lease. In addition, New Wassar contends that because it never received the tax bill from Old Wassar before trial, New Wassar did not have the notice and opportunity to cure that the lease agreement required to prove a default. Finally, New Wassar contends that Old Wassar failed to segregate recoverable fees from unrecoverable ones.
A. Standard of Review
When the parties' contract provides for the recovery of attorney's fees and costs, the terms of the contract are controlling. Peterson Grp. v. PLTQ Lotus Grp., 417 S.W.3d 46, 60 (Tex. App-Houston [1st Dist.] 2013, pet. denied). Here, the parties' contract provides for the recovery of reasonable fees and costs. We review a trial court's determination as to what constitutes a reasonable amount of fees and costs in a given case for an abuse of discretion. Keith v. Keith, 221 S.W.3d 156, 169 (Tex. App.-Houston [1st Dist.] 2006, no pet.). While evidentiary sufficiency issues are not independent grounds of review under the abuse-of-discretion standard, evidentiary sufficiency nonetheless is relevant in assessing whether the trial court abused its discretion. Kubbernus v. ECAL Partners, Ltd., 574 S.W.3d 444, 486 (Tex. App.-Houston [1st Dist.] 2018, pet. denied).
In general, we ask whether the trial court had enough evidence to exercise its discretion and, if so, whether it erred in applying its discretion. See id. When a trial court awards zero attorney's fees and costs to a prevailing party, we will affirm only if the evidence fails to show that an attorney provided services, fails to show the value of the services provided, affirmatively shows that no attorney's services were necessary, or affirmatively shows that any attorney's services provided were valueless. See Arrow Marble, LLC v. Est. of Killion, 441 S.W.3d 702, 708-09 (Tex. App.-Houston [1st Dist.] 2014, no pet.) (applying this evidentiary standard when statute mandates award of attorney's fees to prevailing party).
B. Analysis
1. Fair Notice and Trial by Consent
New Wassar is correct that Old Wassar did not include any complaint about taxes in its live petition. Instead, Old Wassar made the following allegation:
[Old Wassar] is also suing [New Wassar] for materially breaching its lease agreement with [Old Wassar] in various ways, including by failing to make payments to Cadence [Bank] that were required under that agreement and for other material breaches of that agreement.
But New Wassar agreed to try its tax liability by consent. Indeed, New Wassar stipulated to its liability for taxes under the lease. Its counsel stated:
I think we can cut to the chase and we can agree that the taxes are owed. There's never been a demand for the taxes. There's never been a presentment, there's never been a letter saying, Here's the dadgum tax bill. When are you going to pay it? I didn't see it until yesterday.
Now that I've seen it and talked it over with my clients, we're fine with doing what we're required to do under the contract, to pay those taxes. We would have done that years ago without the expenditure of attorney's fees if somebody had followed the lease by sending us a letter saying here's your tax bill.
Thus, New Wassar cannot rely on Old Wassar's failure to include the tax issue in its live petition as a defense to payment of the taxes or any corresponding attorney's fees.
As for whether Old Wassar included a request for fees in its live petition, the prayer for relief in the petition requested attorney's fees. This Court has stated that a general prayer for attorney's fees, standing alone, satisfies the requirement that relief granted in a trial court's judgment be supported by the pleadings. Morgan v. Morgan, 657 S.W.2d 484, 491 (Tex. App.-Houston [1st Dist.] 1983, writ dism'd); accord Tull v. Tull, 159 S.W.3d 758, 762 (Tex. App.-Dallas 2005, no pet.).
Moreover, the issue of Old Wassar's entitlement to attorney's fees for New Wassar's failure to pay taxes as required by the lease was tried by consent. New Wassar does not dispute that it was aware of the lease's provision for attorney's fees. Nor could it do so, as the law generally presumes that a party to a contract knows its terms. Nat'l Prop. Holdings, L.P. v. Westergren, 453 S.W.3d 419, 425 (Tex. 2015) (per curiam). New Wassar stipulated to liability for the taxes, and Old Wassar put on evidence of the fees it incurred as to New Wassar's alleged breaches of the lease agreement. New Wassar did not object to this evidence. See Bos, 556 S.W.3d at 306- 07; Ingram, 288 S.W.3d at 893.
2. Failure to Raise Fees in a Post-Judgment Motion
New Wassar contends that Old Wassar waived its right to recover fees because it did not challenge the trial court's refusal to award fees in a post-judgment motion. On appeal, however, Old Wassar makes two arguments relating to its attorney's fees. First, Old Wassar argues that it conclusively proved its right to recover $92,068, which is the full amount of attorney's fees and costs it incurred with respect to New Wassar's various alleged breaches of the lease agreement. Second, and in the alternative, Old Wassar argues that it introduced some evidence of fees, and the trial court therefore could not award no fees whatsoever given the mandatory fee provision in the lease.
Both of Old Wassar's arguments challenge the sufficiency of the evidence supporting the trial court's judgment. In a bench trial, a party may raise evidentiary sufficiency issues for the first time on appeal. Tex.R.App.P. 33.1(d). This includes challenging the legal or factual sufficiency of the evidence supporting an award of attorney's fees or the failure to award them. See Off. of Att'y Gen. of Tex. v. Burton, 369 S.W.3d 173, 174-76 (Tex. 2012) (per curiam) (holding that complaint that no evidence supported trial court's finding of zero arrearage in child support could be raised for first time on appeal from judgment rendered after bench trial); Young v. Terral, No. 01-14-00591-CV, 2015 WL 8942625, at *5 (Tex. App.-Houston [1st Dist.] Dec. 8, 2015, no pet.) (mem. op.) (considering sufficiency of evidence supporting attorney's fees award even though no objection was made during bench trial and issue was raised for first time on appeal). Thus, Old Wassar did not waive its right to complain about the trial court's refusal to award attorney's fees by failing to first raise this complaint in a post-judgment motion.
3. Sufficiency of Evidence For Award of Zero Fees and Costs
When New Wassar stipulated that it owed the taxes due under the lease, New Wassar also stated that Old Wassar, in its capacity as landlord and owner of the leased real property, had not sent New Wassar the bill for payment. New Wassar maintained that it would have paid these taxes without the need for litigation if Old Wassar had given New Wassar the bill to be paid. Consistent with this position, Shaper testified about the taxes: "If you'd present us with a bill, we would have gladly paid them at any time. We owe those taxes. We have no problem with that." Thus, on appeal, New Wassar contends that there is no evidence that Old Wassar had to incur any attorney's fees to recover the taxes owed under the lease.
No party disputes that the lease has a mandatory attorney's fees provision. Even so, the trial court was authorized to award zero fees and costs if the evidence failed to show that an attorney provided services, failed to show the value of the services provided, showed that no attorney's services were necessary, or showed that any services provided were valueless. See Arrow Marble, 441 S.W.3d at 708-09.
As already noted, Shaper testified that New Wassar would have paid the taxes due under the lease if Old Wassar had given New Wassar the bill to be paid. This testimony, New Wassar argues, affirmatively shows that no attorney's services were necessary for Old Wassar to recover the taxes owed under the lease.
Old Wassar contends that it did notify New Wassar about the taxes at issue. In a March 30, 2018 letter from Old Wassar's counsel to New Wassar, counsel identified $45,021.59 allegedly due under the lease. Counsel broke this figure down into several subcategories, including $14,410 due in taxes. The record does not indicate that the tax bill itself accompanied this letter. But based on this letter, Kroesche testified at trial that New Wassar knew of these unpaid taxes a year before trial and thus had the opportunity to pay them beforehand.
While the trial court sitting as the factfinder was within its right to credit Shaper's testimony and discount Kroesche's, the record contains documentary evidence-the March 30, 2018 letter-indicating that New Wassar knew of the taxes before trial. In addition, the lease unambiguously makes New Wassar liable for taxes assessed during the period it rented the Flo Trend building, a fact Shaper acknowledged. Consequently, the tax liability at issue could not possibly have come as a surprise to New Wassar. For these reasons, we do not think New Wassar's stipulation of liability the day trial began affirmatively shows that Old Wassar did not require an attorney's services.
The record, however, does not contain evidence showing that Old Wassar's counsel provided services in securing a judgment for these taxes or evidence of the fees or costs relating to any services that were provided in securing this relief. Old Wassar introduced into evidence thirty pages of invoices from its counsel. None of the time entries in these invoices refer to taxes or the subject tax dispute. Nor did Old Wassar's counsel testify about the tax dispute in his testimony about fees.
Instead, Old Wassar's counsel testified that his work relating to the lease and real estate term note for the Flo Trend building in general resulted in $92,068 in attorney's fees and costs. But in addition to the tax dispute, Old Wassar sought to recover for several other alleged breaches of the lease by New Wassar, including New Wassar's failure to pay rent, late fees, and repair costs. The parties spent substantial time and effort on these other alleged breaches of the lease during trial, particularly the late fees, but the tax dispute was resolved by stipulation at the outset of trial. Old Wassar did not obtain a judgment for any of these other alleged breaches, and it does not challenge the trial court's adverse judgment on these other breaches on appeal.
On this record, we hold that the trial court did not abuse its discretion in failing to award Old Wassar its attorney's fees and costs for the recovery of unpaid taxes owed by New Wassar under the lease's mandatory fee provision because:
• the sole evidence that Old Wassar timely raised the tax issue before trial is its March 30, 2018 letter, in which unpaid taxes are identified as one of many alleged breaches of the lease;
• there is no other evidence in the record indicating that the parties devoted time and energy to litigating whether New Wassar owed taxes under the lease or the amount of the taxes;
• New Wassar stipulated to liability for the taxes claimed by Old Wassar under the lease at the beginning of trial and the parties therefore spent next to no time on the dispute at trial;
• Old Wassar tried several other alleged breaches of the lease to the bench but did not obtain a favorable judgment as to these other breaches and does not challenge this adverse result on appeal;
• as a result, of the $92,068 in attorney's fees and costs that Old Wassar's counsel billed for lease-related disputes, none of these fees or costs had any value to the client except those relating to the taxes; and
• Old Wassar did not put on any evidence whatsoever as to the amount of attorney's fees and costs it incurred, if any, in connection with obtaining the judgment for the unpaid taxes.
In sum, the evidence fails to show the services provided by Old Wassar's counsel or their value as to the issue of unpaid taxes. See Arrow Marble, 441 S.W.3d at 708-09 (stating that factfinder can award zero fees and costs even though fees and costs are mandated by statute when record does not contain evidence of services or their value); see also Crounse v. State Farm Mut. Auto. Ins. Co., 336 S.W.3d 717, 722 (Tex. App.-Houston [1st Dist.] 2010, pet. denied) (affirming jury's award of zero attorney's fees given that jury heard conflicting evidence as to whether plaintiff submitted towing charge to defendant for payment and could have concluded that defendant would have paid towing charge without litigation had it been submitted for payment). We overrule appellants' second issue.
III. Advancing Promissory Note
The trial court decreed that Old Wassar, Kroesche, and Schonefeld did not breach the advancing promissory note "in any manner sufficient to support acceleration." But it also decreed that these three jointly and severally owe New Wassar $322,926 on this note and ordered that New Wassar recover this sum jointly and severally from the guarantors of the note, Kroesche and Schonefeld. The parties agree that the $322,926 figure mostly consists of damages that are only available if New Wassar had a right to accelerate the note.
Old Wassar, Kroesche, and Schonefeld argue that without acceleration the most they could conceivably owe on the advancing promissory note is $9,055, which represents the amount of unpaid monthly interest payments alleged by New Wassar. They further argue that no evidence supports acceleration of the advancing promissory note, and the trial court therefore erred in awarding damages only available upon acceleration as well as 18% annual post-judgment interest. Old Wassar, Kroesche, and Schonefeld maintain that post-judgment interest at a rate of 18% per year is also available only upon acceleration.
New Wassar contends that the evidence shows that Old Wassar defaulted by not making payments on the advancing promissory note as they became due. Old Wassar's default, in turn, triggered the advancing promissory note's acceleration provision when Old Wassar did not cure the default after notice. The $322,926 awarded at trial is the entire principal balance on the note owed by Old Wassar when it defaulted. New Wassar argues that Old Wassar, Kroesche, and Schonefeld offer no explanation or excuse in support of the trial court's decree that they had not triggered the acceleration provision. New Wassar argues that we should modify the trial court's judgment to omit the non-acceleration decree and affirm as modified.
A. Validity of the Trial Court's Judgment
Both sides argue that the trial court's judgment contradicts itself by (1) decreeing that Old Wassar, Kroesche, and Schonefeld did not breach the advancing promissory note in a way sufficient to trigger acceleration and (2) awarding New Wassar damages and post-judgment interest as though Old Wassar, Kroesche, and Schonefeld had triggered the note's acceleration provision. Each side challenges one of these contradictory aspects of the judgment while defending the other one.
When we encounter a judgment that contains conflicting provisions, we must resolve the conflict, if possible, and then review the parties' contentions about the judgment under the appropriate standard of review. Point Lookout W., Inc. v. Whorton, 742 S.W.2d 277, 278 (Tex. 1987) (per curiam). In resolving conflicts, we interpret the judgment to harmonize and give effect to all its provisions. Id.; see also Bender v. S. Pac. Transp. Co., 600 S.W.2d 257, 260 (Tex. 1980) (stating that courts must reconcile ostensibly conflicting jury findings if "there is any reasonably possible basis upon which they may be reconciled"); Indian Beach Prop. Owners' Ass'n v. Linden, 222 S.W.3d 682, 695 (Tex. App.-Houston [1st Dist.] 2007, no pet.) (applying standard articulated in Bender).
If conflicting provisions in a judgment are irreconcilable on their face, the judgment is void. Wells v. Stonerock, 37 S.W.2d 712, 713-14 (Tex. 1931); Hawk Leasing Co. v. Tex. Workforce Comm'n, 971 S.W.2d 598, 603 (Tex. App.-Dallas 1998, no pet.). For example, a judgment has an irreconcilable conflict if it awards a party two different amounts on the same claim or is so unintelligible that one cannot ascertain whether the amounts apply to the same claim or different ones. Wells, 37 S.W.2d at 713; Tex. Inst., Inc. v. Jordan, 602 S.W.2d 342, 343-44 (Tex. App.- Dallas 1980, no pet.). Similarly, a judgment has an irreconcilable conflict if it both allows and disallows recovery on a claim. Hawk Leasing, 971 S.W.2d at 602-03; see also Am. Cas. & Life Ins. Co. v. Boyd, 394 S.W.2d 685, 687-88 (Tex. App.- Tyler 1965, no writ) (concluding that order both granting and denying motion to dismiss was nullity without legal effect). When a judgment contains an irreconcilable conflict, we must reverse to the extent of the conflict and remand. Wells, 37 S.W.2d at 714; Hawk Leasing, 971 S.W.2d at 603.
The three pertinent provisions in the trial court's judgment provide that:
4. Neither Wassar, Inc., Kroesche, nor Schonefeld breached the Advancing Promissory Note in any manner sufficient to support acceleration of the note.
5. Wassar, Inc., Kroesche, and Schonefeld jointly and severally owe to Wassar Holdings, $322,926 on the Advancing Promissory Note.
* * *
10. Wassar Logistics Holdings, LLC, have and recover judgment of $322,296, jointly and severally, from Martin Kroesche and Steve Schonefeld, and post-judgment interest on that amount at the rate of 18% per annum.
We conclude that these provisions are not irreconcilable on their face. The trial court apparently determined-on a basis not recited in the judgment-that Old Wassar, Kroesche, and Schonefeld could owe the specified amount despite not having triggered the advancing promissory note's acceleration provision. The trial court may or may not be mistaken on the merits of this conclusion. Indeed, the parties insist that the trial court is mistaken in this regard. But even if the trial court is mistaken, these three provisions of the judgment are not irreconcilable, as they do not on their face address the same issues or subjects. See Linden, 222 S.W.3d at 695- 96 (holding that no conflict existed between jury findings addressing different material facts). One provision in the judgment addresses acceleration. The other two address liability. Unlike decisions involving judgments that were unintelligible, awarded different damages on the same claim, or simultaneously granted and denied the same relief, the judgment before us is clear: it rejects acceleration and awards a particular amount of damages. Thus, the judgment is not facially irreconcilable in a manner that renders it void.
We now turn to the parties' competing arguments about the merits of the judgment. Specifically, we consider whether the language of the advancing promissory note itself permitted the trial court to decide both that (1) Old Wassar, Kroesche, and Schonefeld did not breach the note in a way that triggered its acceleration provision, and (2) New Wassar was entitled to $322,926 in damages plus 18% post-judgment interest under the note without acceleration. See Whorton, 742 S.W.2d at 278.
B. Acceleration, Damages, and Interest on the Note
Though both sides phrase their complaints in terms of evidentiary sufficiency to an extent, the material facts as to the advancing promissory note are not in dispute.
The advancing promissory note was executed as part of the deal in which the parties bought Flo Trend. New Wassar loaned $900,000 to Old Wassar, and the advancing promissory note memorialized this debt.
Old Wassar was the obligor on the advancing promissory note. Kroesche and Schonefeld each guaranteed the note. Their guarantees provided that New Wassar could seek payment directly from them without first trying to collect payment from Old Wassar.
Old Wassar used the funds from the advancing promissory note in part to buy the Flo Trend building. The original owner of Flo Trend insisted that any purchase of the business include the building. Old Wassar negotiated to buy the building for $900,000, but the building did not appraise for this much. New Wassar therefore did not wish to participate in the building's purchase. As a result, Old Wassar became the building's sole owner afterward.
To buy the Flo Trend building, it was also necessary to obtain a loan from Cadence Bank. Both Old Wassar and New Wassar obtained a loan of $680,000 from the bank, and a real estate term note memorialized this debt. As between the two companies, they agreed to let Old Wassar use the $680,000 from this loan to pay down the amount it owed to New Wassar on the advancing promissory note, which reduced that debt to $220,000.
But the amount that Old Wassar owed New Wassar on the advancing promissory note increased over time. New Wassar rented the Flo Trend building from Old Wassar to continue Flo Trend's business operations there. Under the lease, New Wassar's rent was the monthly payment owed on the real estate term note, which New Wassar paid directly to the bank. In addition to this rent, New Wassar agreed not to charge Old Wassar interest that was otherwise due on the advancing promissory note for the duration of the lease. Because New Wassar's rent effectively paid down debt on a property that Old Wassar owned, any rental payment made by New Wassar was added to the amount Old Wassar owed on the advancing promissory note.
After the parties' relationship soured and litigation ensued, the Flo Trend building lease came to an end. In an April 17, 2017 letter, Old Wassar informed New Wassar that it intended to terminate the lease if the parties did not resolve their disputes. In a letter dated August 10, 2017, New Wassar gave the 60-day notice required to terminate the lease. Thus, New Wassar ceased renting the Flo Trend building in early October 2017. When the lease ended, so did the agreement that New Wassar would not charge Old Wassar interest on the advancing promissory note.
On November 7, 2017, New Wassar sent Old Wassar, care of its lawyer, a notice informing Old Wassar that it had defaulted on the advancing promissory note due to nonpayment. Specifically, the notice stated that Old Wassar had failed to pay $1,374 in interest that was due. The letter stated that if payment was not received within three days, all unpaid principal and any accrued and unpaid interest under the note would become due.
On January 5, 2018, New Wassar sent Old Wassar, Kroesche, and Schonefeld a letter notifying them that due to nonpayment of the $1,374 in interest, they had triggered the acceleration provision of the advancing promissory note. The letter specified that the outstanding balance due under the note, including interest, was $332,003. The letter also specified that the default rate of interest, which was 18% per year, would apply and interest would accumulate until the full balance on the note was paid. Finally, New Wassar stated that if it did not receive payment in full by January 12, 2018, it would bring suit to collect on the advancing promissory note.
It is undisputed that Old Wassar did not pay the overdue sum owed on the advancing promissory note when New Wassar requested payment. Because litigation was already pending, New Wassar sought leave from the trial court to bring suit on the advancing promissory note on February 8, 2018, and the court granted New Wassar leave to do so.
Shaper testified that Old Wassar did not pay the balance of the advancing promissory note when payment was requested. He further testified that Old Wassar had not paid the amount it owed on the advancing promissory note as of the trial date. Schonefeld likewise testified that the note had not been repaid.
At trial, Old Wassar, Kroesche, and Schonefeld did not dispute the preceding facts. Instead, Kroesche testified that they did not owe anything on the advancing promissory note due to New Wassar's offsetting liability to them on various claims. Kroesche said that the amount New Wassar owed them would more than offset any amount they owed New Wassar. Schonefeld indicated that the ongoing litigation between the parties made it unclear how much, if anything, he would owe on the advancing promissory note once any offset for New Wassar's liability was applied. At any rate, based on the prospect of an offset in some amount, Old Wassar, Kroesche, and Schonefeld maintained that any breach of the advancing promissory note on their part did not trigger its acceleration provision.
Given the lack of dispute about the material facts and the parties' contentions, the parties' quarrel boils down to a disagreement about the proper interpretation of the advancing promissory note in general and its acceleration clause in particular. Old Wassar, Kroesche, and Schonefeld contend that not all defaults on the advancing promissory note qualify for acceleration and that the trial court correctly decided that their particular default-failure to timely make an interest payment-did not do so. Thus, they contend, the trial court erred in awarding acceleration damages and applying a post-judgment interest rate that only applies in the event of acceleration. New Wassar, in contrast, contends that any default triggers the acceleration clause, and therefore the trial court erred in holding otherwise. New Wassar argues that the trial court nonetheless correctly awarded acceleration damages and post-judgment interest.
The interpretation of an unambiguous contract, like the advancing promissory note, is a question of law, which we review de novo. Zurich Am. Ins. Co., 596 S.W.3d at 385. The parties' intent, as they expressed it in the contract's language, is dispositive. Id. We consider the contract's language as a whole, trying to give effect to all its terms so none are rendered meaningless. Id. Unless the contract uses a word in some other sense, we give its words their plain, ordinary, and generally accepted meaning. Id.
The advancing promissory note required Old Wassar to make monthly interest payments on the debt owed under the note. The lease between Old Wassar and New Wassar suspended this obligation for the lease's duration.
The advancing promissory note addressed defaults and acceleration in a single provision. It provided that "time is of the essence" and further provided that "the whole principal sum" and "all interest accrued and unpaid" would "without notice become immediately due and payable" at New Wassar's option "upon the happening of any default hereunder" if Old Wassar continued to be in default "for three (3) business days after written notice" of default from New Wassar.
In the event of a default, the advancing promissory note also provided for interest on the unpaid principal and any other amounts due at the lesser of 18% per year or the weekly ceiling as defined by Chapter 303 of the Finance Code. See Tex. Fin. Code § 303.003(a) (providing method to calculate weekly ceiling). According to the Texas Credit Letter (Vol. 39, No. 38, Mar. 17, 2020), published by the Texas Office of the Consumer Credit Commissioner, the weekly ceiling on March 23, 2020, the date on which the trial court signed its judgment, was also 18%.
The referenced volume and number of the Texas Credit Letter is available online at https://occc.texas.gov/sites/default/files/uploads/credit-letters/credit_letters_2020.pdf.
Thus, under the unambiguous terms of the advancing promissory note, Old Wassar defaulted by not timely making the interest payment of $1,374. When Old Wassar failed to cure this default within three business days of New Wassar's notice, New Wassar had the option of accelerating the debt, which New Wassar did. Therefore, the trial court erred in declaring that Old Wassar did not breach the advancing promissory note "in any manner sufficient to support acceleration." But the trial court did not err in awarding New Wassar the full amount due on the note or in setting the post-judgment interest rate at 18% as required by the note.
The possibility of an offset in litigation does not alter this analysis. The advancing promissory note expressly provides: "All amounts due under this Note shall be payable without set off, counterclaim or any other deduction whatsoever." Thus, the unambiguous terms of the note prohibit an offset because an offset is a "set off." See Offset, Black's Law Dictionary (11th ed. 2019) (noting that courts "use the terms 'offset' and 'setoff' interchangeably" and that "concept of 'offset' recognizes that the debtor may satisfy a creditor's claim by acquiring a claim that serves to counterbalance or to compensate for the creditor's claim").
Nor do other provisions of the Finance Code alter the preceding analysis as to the correct post-judgment interest rate. Old Wassar, Kroesche, and Schonefeld contend that the post-judgment interest rate is governed by Section 304.002 of the Finance Code. But that section provides that post-judgment interest shall be equal to the lesser of 18% or the rate stated in the contract. Tex. Fin. Code § 304.002. Thus, the correct post-judgment interest rate on the advancing promissory note is 18%.
C. Modification of the Judgment
Whether or not the trial court erred in its acceleration ruling, Old Wassar argues that New Wassar cannot request modification of the trial court's judgment to delete the part decreeing that Old Wassar, Kroesche, and Schonefeld did not breach the advancing promissory note in a way sufficient to trigger acceleration because "New Wassar did not appeal this ruling." We disagree.
Although New Wassar requested modification in its response to appellants' opening brief on appeal, rather than in its own opening brief filed in support of its cross-appeal, this does not result in waiver under our rules of procedure. The rules require a party who seeks to alter the trial court's judgment to file a notice of appeal. Tex.R.App.P. 25.1(c). New Wassar filed its own notice of appeal, which entitles it to seek alteration of the trial court's judgment and authorizes us to modify the judgment to grant relief more favorable to New Wassar than the trial court did. See id.
We overrule appellants' third and fourth issues.
Furthermore, we sustain New Wassar's request to modify the trial court's judgment to delete the erroneous decree that appellants did not breach the advancing promissory note in a way that triggered acceleration of the note.
IV. Net Judgment or Recovery
The trial court ordered New Wassar to pay Old Wassar $14,410 for the unpaid taxes owed under the lease. The trial court likewise ordered that New Wasser recover $322,926 on the advancing promissory note plus post-judgment interest at a rate of 18% per year jointly and severally from Kroesche and Schonefeld but not Old Wassar. And our judgment leaves these awards intact.
Old Wassar, Kroesche, and Schonefeld argue that we should modify these awards to provide for a net judgment. In other words, they argue that the judgment should only award damages to New Wassar for $308,516, a figure calculated by subtracting the lesser award ($14,410) from the greater one ($322,926). Old Wassar, Kroesche, and Schonefeld do not cite any authority in support of this argument. Nor does their brief identify a standard of review for assessing their argument.
A. Standard of Review
When opposing parties have established the right to recover from each other in different amounts, whether these amounts must be offset so that the trial court's judgment awards a net recovery to one side is a question of law, which we review de novo. See Montgomery v. Gallas, 257 S.W. 956, 957 (Tex. App.-San Antonio 1923, writ ref'd) (holding that trial court "was without discretion" to refuse to apply full amount of valid, outstanding setoffs towards judgment award).
B. Applicable Law
Rule of Civil Procedure 301 requires there be just "one final judgment" in a case unless the law specifically provides otherwise. Tex.R.Civ.P. 301. The rule also states that judgment "may, in a proper case, be given for or against one or more of several plaintiffs, and for or against one or more of several defendants[.]" Id. While the rule does not explicitly mandate a net judgment, courts have interpreted the rule as requiring rendition of a net judgment or the award of a net recovery to the party who secures greater relief when both the plaintiff and the defendant are entitled to recover differing amounts from one another. E.g., Chilton Ins. Co. v. Pate & Pate Enters., 930 S.W.2d 877, 894 (Tex. App.-San Antonio 1996, writ denied). Rule 302 explicitly mandates this result when a defendant prevails on a counterclaim that exceeds a claim proved by the plaintiff. Tex.R.Civ.P. 302; see also Isaacs v. Bishop, 249 S.W.3d 100, 112 (Tex. App.-Texarkana 2008, pet. denied) (citing Rule 302 for broader proposition that when opposing parties are entitled to recover from one another, trial court is to render judgment for balance of larger recovery).
The object of rendering a net judgment is to adjust the obligations between the parties and permit enforcement of the judgment solely for the balance due. Nalle v. Harrell, 12 S.W.2d 550, 551 (Tex. [Comm'n Op.] 1929); Anderson v. Vinson Expl., Inc., 832 S.W.2d 657, 666-67 (Tex. App.-El Paso 1992, writ denied). To offset the parties' obligations, their obligations must be mutual. Sommers v. Concepcion, 20 S.W.3d 27, 35 (Tex. App.-Houston [14th Dist.] 2000, pet. denied); Anderson, 832 S.W.2d at 667. In other words, a court can only offset obligations existing between the same parties. Alon USA, LP v. State, 222 S.W.3d 19, 29-30 (Tex. App.-Dallas 2005, pet. denied); see also F.D.I.C. v. Projects Am. Corp., 828 S.W.2d 771, 772-73 (Tex. App.-Texarkana 1992, writ denied) (stating that to offset indebtedness in judgment there must be mutuality between same parties in same capacity).
C. Analysis
Offsetting the parties' obligations is inappropriate in this case because their obligations are not mutual. Under the judgment, New Wassar is liable to Old Wassar for $14,410, and Kroesche and Schonefeld are jointly and severally liable to New Wassar for $322,926. These two obligations do not exist between the same parties such that they may be offset. New Wassar may collect all $322,926 from either Kroesche or Schonefeld. See Burchfield v. Prosperity Bank, 408 S.W.3d 542, 548 (Tex. App.-Houston [1st Dist.] 2013, no pet.) (stating that party may proceed to judgment against all who are jointly and severally liable subject only to limitation that party cannot collect more than it is owed under judgment). Although Old Wassar, as the primary obligor on the advancing promissory note, likewise owes this sum to New Wassar, New Wassar did not seek or secure judgment against it in this amount. In addition, New Wassar owes the $14,410 solely to Old Wassar, not to Kroesche or Schonefeld. Kroesche and Schonefeld thus are not entitled to an offset for this sum. As a result, there is no way to offset the parties' respective obligations in this case.
We overrule appellants' fifth issue.
V. Unclean Hands
The trial court declared that Kroesche and Schonefeld are not entitled to restitution because of their unclean hands. The trial court further declared that Kroesche and Schonefeld are not entitled to contribution from Massey, who guaranteed the advancing promissory note before Schonefeld purchased his interest in Old Wassar, due to their unclean hands.
Kroesche and Schonefeld contend that the unclean hands doctrine applies solely to equitable claims and thus is not a basis for denying relief on their legal claims, particularly Kroesche's claim that New Wassar owes him $166,666.67 on the promissory note, and on Kroesche's and Schonefeld's claims for contribution.
A. Promissory Note Claim
We acknowledge that the doctrine of unclean hands generally applies only to equitable claims, not to legal claims. See In re Nolle, 265 S.W.3d 487, 494 (Tex. App.-Houston [1st Dist.] 2008, orig. proceeding) (stating that unclean hands doctrine is "affirmative defense available when the plaintiff is seeking an equitable remedy"). However, nothing in the judgment indicates that the unclean hands ruling applied to appellants' claims for damages under the promissory note or for breach of the lease. Appellants offer no analysis or legal authority showing how the judgment could be so interpreted, see Tex. R. App. P. 38.1(i), and they concede that the trial court apparently "only intended for this ruling to preclude Kroesche's and Schonefeld's equitable claims for contribution[.]" Therefore, we overrule this part of appellants' sixth issue.
B. Contribution, Equity, and Error Preservation
Contrary to our procedural rules, Kroesche and Schonefeld have not cited any legal authority in support of their contribution claim. See id. In a nutshell, they argue that Massey is liable to them for contribution because, just as they did, he guaranteed the advancing promissory note. They contend that their contribution claim is legal in nature rather than equitable and thus is not subject to a defense of unclean hands.
We disagree. A claim for contribution between co-guarantors is equitable in nature. See Orr v. Broussard, 565 S.W.3d 415, 420 (Tex. App.-Houston [14th Dist.] 2018, no pet.); Miller v. Miles, 400 S.W.2d 4, 7 (Tex. App.-Tyler 1966, writ ref'd n.r.e.). Co-guarantors are obliged to bear the loss equally among themselves when the principal debtor defaults. Orr, 565 S.W.3d at 420. This obligation between co-guarantors arises not from the debt, but from an implied promise between them to reimburse any who pays more than his proportionate share of the debt as a result of the default. Miller, 400 S.W.2d at 7; see also McGehee v. Hagan, 367 S.W.3d 848, 852 (Tex. App.-Houston [14th Dist.] 2012, pet. denied) (agreeing that right of contribution arises from implied promise rather than underlying debt stated in note). Thus, as an equitable claim, the obligation of contribution between co-guarantors is subject to equitable defenses, including the doctrine of unclean hands. See Stewart Beach Condo. Homeowners Ass'n v. Gili N Prop Invs., LLC, 481 S.W.3d 336, 351 (Tex. App-Houston [1st Dist.] 2015, no pet.) (stating that unclean hands doctrine allows court to refuse to grant equitable relief to one whose conduct relating to same matter has been unconscientious, unjust, or marked by lack of good faith).
Kroesche and Schonefeld have not briefed the trial court's unclean-hands declarations on the merits. Their brief does not contain citations to the record or to legal authority concerning the issue of unclean hands. See Tex. R. App. P. 38.1(g), (i) (requiring both statement of facts and argument to contain citations to appellate record). Therefore, they have not preserved for appellate review the merits of the trial court's unclean-hands declarations. See Guimaraes, 562 S.W.3d at 545 (stating that party fails to preserve issue for review when brief lacks citations to record and discussion of authorities necessary to evaluate merits of issue).
We overrule appellants' sixth issue.
VI. New Wassar's Attorney's Fees
In its cross-appeal, New Wassar challenges the denial of its request for attorney's fees. The judgment declared that it is not equitable or just to award attorney's fees to either side. Thus, the trial court did not award fees or costs. New Wassar asserts that, as the prevailing party, it is entitled to reasonable attorney's fees and costs on two independent grounds. In its first issue, New Wassar argues it is entitled to recover the fees and costs it incurred in defeating all the claims that Old Wassar, Kroesche, and Schonefeld asserted based on the company agreement due to its mandatory fee provision. In its second issue, New Wassar argues it is entitled to recover the fees and costs that it incurred in enforcing the advancing promissory note under Chapter 38 of the Civil Practice and Remedies Code.
A. Fee Recovery Under the Company Agreement
New Wassar contends that it is entitled to recover the attorney's fees and costs it incurred in defending against claims that Old Wassar, Kroesche, and Schonefeld asserted under the company agreement because the agreement contains a provision entitling the prevailing party in such disputes to recover attorney's fees.
1. Standard of Review
In general, we review whether a party is entitled to attorney's fees, as opposed to the reasonableness of the amount of fees sought by the party, de novo. See, e.g., Holland v. Wal-Mart Stores, 1 S.W.3d 91, 94 (Tex. 1999) (per curiam) (stating that availability of attorney's fees under statute is question of law for court to decide); WWW.URBAN.INC. v. Drummond, 508 S.W.3d 657, 665 n.3 (Tex. App.-Houston [1st Dist.] 2016, no pet.) (noting that availability of attorney's fees under either statute or contract is question of law for court to decide).
2. Applicable Law
In a proceeding under the Declaratory Judgments Act ("DJA"), a trial court "may award costs and reasonable and necessary attorney's fees as are equitable and just." Tex. Civ. Prac. & Rem. Code § 37.009. The DJA leaves the decision to award fees to the trial court's discretion, subject to the Act's standards: reasonableness, necessity, equity, and justness. Bocquet v. Herring, 972 S.W.2d 19, 20-21 (Tex. 1998); e.g., Robinson v. Budget Rent-A-Car Sys., Inc., 51 S.W.3d 425, 433 (Tex. App.-Houston [1st Dist.] 2001, pet. denied) (holding that trial court did not abuse its discretion in refusing to award fees under DJA because party's fees were excessive and incurred due to its own conduct).
But parties may agree to a fee-recovery standard that is more or less restrictive than statutory standards. E.g., Rohrmoos Venture v. UTSW DVA Healthcare, LLP, 578 S.W.3d 469, 484 (Tex. 2019) (saying so as to standard set forth in Chapter 38 of Civil Practice and Remedies Code). When they do so, their contract is controlling. E.g., Intercontinental Grp. P'ship v. KB Home Lone Star L.P., 295 S.W.3d 650, 653 (Tex. 2009) (concluding that contractual fee provision, rather than Chapter 38, was controlling); Peterson Grp., 417 S.W.3d at 60 (stating that contractual fee provision controls over statutory standard for recovery of fees).
When a contract provides that the successful or prevailing party "shall be entitled to recover reasonable attorney's fees," the fee-recovery provision is mandatory. Weng Enters., 837 S.W.2d at 222-23 & n.4; see also Bocquet, 972 S.W.2d at 20 (stating that statutes providing party "may recover," "shall be awarded," or "is entitled to" attorney's fees are not discretionary). The prevailing party is the party who is vindicated by the judgment. Drummond, 508 S.W.3d at 666; see Weng Enters., 837 S.W.2d at 222 (stating that prevailing party is "party who successfully prosecutes the action or successfully defends against the action on the main issue"). Therefore, when a party contractually entitled to fees puts on sufficient evidence of those fees, a trial court errs in refusing to award them. See Weng Enters., 837 S.W.2d at 223; G. Richard Goins Constr. Co. v. S.B. McLaughlin Assocs., Inc., 930 S.W.2d 124, 130 (Tex. App.-Tyler 1996, writ denied); see also Robbins v. Capozzi, 100 S.W.3d 18, 26-27 (Tex. App.-Tyler 2002, no pet.) (rejecting claim that trial court erred in awarding fees under contractual provision mandating recovery of fees); Norrell v. Aransas Cnty. Navigation Dist. No. 1, 1 S.W.3d 296, 303 (Tex. App.-Corpus Christi-Edinburg 1999, pet. dism'd) (same).
3. Analysis
The trial court declared that an award of fees would not be equitable or just. But that is the standard for recovering fees under the DJA, not the company agreement. Thus, the trial court erred in denying New Wassar fees on this basis. See Peterson Grp., 417 S.W.3d at 60 (holding that contract controls on issue of fee recovery).
The company agreement's provision as to attorney's fees states:
Section 13.13 Attorneys' Fees. In the event any party to this Company Agreement shall be required to initiate legal proceedings to enforce performance of any term or condition of this Company Agreement, including, but not limited to, the payment of monies or the enjoining of any action prohibited hereunder, the prevailing party shall be entitled to recover such sums in addition to any other damages or compensation received, as will reimburse the prevailing party for reasonable attorneys' fees and court costs incurred on account thereof notwithstanding the nature of the claim or cause of action asserted by the prevailing party.
As this provision states that "the prevailing party shall be entitled to recover" attorney's fees, it is mandatory in character. See Weng Enters., 837 S.W.2d at 222- 23 & n.4 (holding similar "shall be entitled" language was mandatory).
Many of the parties' claims and defenses involved disputes about the proper interpretation, enforceability, and enforcement of the company agreement's terms. New Wassar ultimately prevailed on some but not all issues relating to the enforcement of the company agreement's terms that the parties litigated to a final conclusion.
For example, after New Wassar sued seeking a declaration of its rights under the company agreement, Old Wassar, Kroesche, and Schonefeld alleged that New Wassar engaged in fraud and fraudulently induced them into signing the company agreement. They sought damages or rescission on this basis. About a month before trial, the trial court granted summary judgment in New Wassar's favor on these fraud and fraudulent inducement claims. This partial summary judgment later merged with the final judgment. See Sustainable Tex. Oyster Res. Mgmt., L.L.C. v. Hannah Reef, Inc., 623 S.W.3d 851, 863 (Tex. App.-Houston [1st Dist.] 2020, pet. denied). On appeal, Old Wassar, Kroesche, and Schonefeld have not challenged the summary judgment as to these fraud-related claims.
In the alternative, if the trial court found the company agreement to be valid, Kroesche alleged that New Wassar breached the agreement by failing to comply with its buyback provision, which required the company to pay him the fair market value for his membership units. He sought damages or rescission. Kroesche abandoned this claim at trial, opting instead to try and enforce the promissory note for $166,666.67. This claim likewise arose from the enforcement of the company agreement: New Wassar offered the promissory note in exchange for Kroesche's membership units, which the company was entitled to repurchase under the company agreement's buyback provision. Although New Wassar prevailed on this promissory note claim at trial, we have reversed this aspect of the trial court's judgment. Therefore, New Wassar has not prevailed on Kroesche's promissory note claim. See Drummond, 508 S.W.3d at 666; Weng Enters., 837 S.W.2d at 222.
In addition, the company agreement contains a waiver of the right to trial by jury in any litigation arising under or connected with the agreement. Old Wassar, Kroesche, and Schonefeld nonetheless demanded a jury, and the parties litigated whether trial would be to a jury in whole or part. The trial court ultimately sided with New Wassar, quashing Old Wassar's, Kroesche's, and Schonefeld's jury demands. They unsuccessfully petitioned for mandamus relief from the trial court's ruling. A few days after we denied their petition, the parties tried their claims to the bench.
New Wassar argues that it is the prevailing party because it prevailed on all claims arising out of the company agreement. Although New Wassar successfully prosecuted its declaratory judgment action and defended against some claims, we disagree with New Wassar that it "defeated every single cause of action asserted by" appellants. Most significantly, as discussed above, this Court has reversed the trial court's take-nothing judgment on Kroesche's claim for damages under the promissory note, which arises under the company agreement, and remanded the issue of interest due under the note for a new trial. Generally, we will reverse and remand an attorney's fees issue when we reverse and remand a claim that forms the basis of the fee recovery. See Pointe W. Ctr., LLC v. It's Alive, Inc., 476 S.W.3d 141, 153 (Tex. App.-Houston [1st Dist.] 2015, pet. denied). Moreover, New Wassar did not brief the issue of whether it is the prevailing party under the company agreement where it prevailed on some but not all claims arising under the agreement. Furthermore, as discussed below, we are also remanding New Wassar's second issue concerning attorney's fees to the trial court for further proceedings. Under these circumstances, we conclude that the trial court should determine in the first instance whether New Wassar was the prevailing party entitled to attorney's fees under the company agreement and, if so, the amount of attorney's fees to which it is entitled. We sustain New Wassar's first issue.
B. Fee Recovery Under Chapter 38
Unlike the company agreement, the advancing promissory note does not contain a provision entitling the prevailing party in a dispute to recover attorney's fees. But New Wassar nonetheless contends that it is entitled to the fees it incurred in enforcing the advancing promissory note under Chapter 38 of the Civil Practice and Remedies Code because New Wassar prevailed on a contract claim.
1. Standard of Review
Whether a party is entitled to attorney's fees under Chapter 38 is a question of law that we review de novo. See, e.g., Holland, 1 S.W.3d at 94 (stating that availability of statutory attorney's fees is question of law for court to decide); Alta Mesa Holdings, L.P. v. Ives, 488 S.W.3d 438, 453 (Tex. App.-Houston [14th Dist.] 2016, pet. denied) (stating that availability of fees under Chapter 38 is question of law for court to decide).
2. Applicable Law
When a party asserts a contract claim and seeks declaratory relief that duplicates its contract claim or merely tacks a claim for declaratory relief onto a standard suit based on a matured breach of contract, Chapter 38 displaces the DJA with respect to the recovery of attorney's fees. MBM Fin. Corp. v. Woodlands Operating Co., 292 S.W.3d 660, 669-70 (Tex. 2009); TEC Olmos, LLC v. ConocoPhillips Co., 555 S.W.3d 176, 188-89 (Tex. App.-Houston [1st Dist.] 2018, pet. denied) (holding that claims for breach of contract and declaratory relief must be independent of each other to obtain fees under DJA).
Under Chapter 38, a party may recover reasonable attorney's fees, in addition to the amount of a valid claim and costs, for several different types of claims, including claims based on an oral or written contract. Tex. Civ. Prac. & Rem. Code § 38.001(b)(8). Thus, to be entitled to fees under this statute, a party must recover damages on a contract claim (or one of the other types of claims enumerated in Chapter 38). MBM Fin. Corp., 292 S.W.3d at 666; see also Energen Res. MAQ, Inc. v. Dalbosco, 23 S.W.3d 551, 558 (Tex. App.-Houston [1st Dist.] 2000, pet. denied) (holding that party defending against contract claim cannot recover attorney's fees under Chapter 38 even if defense is successful). When a party does so and presents evidence of its reasonable attorney's fees, the trial court has no discretion to refuse to award fees altogether. Ventling v. Johnson, 466 S.W.3d 143, 154 (Tex. 2015).
3. Analysis
The trial court declared that an award of fees would not be equitable or just. That, however, is the standard for recovering fees under the DJA, not Chapter 38. Thus, the trial court erred in denying New Wassar fees on this basis. See MBM Fin. Corp., 292 S.W.3d at 669-70 (stating that Chapter 38 displaces DJA "when a claim for declaratory relief is merely tacked onto a standard suit based on a matured breach of contract").
New Wassar successfully sued to recover $322,926 under the advancing promissory note. The trial court's final judgment declares that Old Wassar, Kroesche, and Schonefeld jointly and severally owe New Wassar this sum. As New Wassar chose to sue Kroesche and Schonefeld alone, in their capacity as guarantors, the judgment orders that New Wassar recover the amount of $322,296 against Kroesche and Schonefeld jointly and severally. Having prevailed on this contract claim and recovered damages, New Wassar is entitled to recover its corresponding reasonable attorney's fees under Chapter 38.
For these reasons, the trial court erred in refusing to award New Wassar any attorney's fees whatsoever under Chapter 38 as to the advancing promissory note.
C. Remand for Determination of Reasonable Fees
New Wassar requests that we render judgment awarding it fees in the amount it requested at trial or in whatever amount this Court deems reasonable. Alternatively, New Wassar requests that we remand this cause to the trial court for a new trial on the amount of fees it is entitled to recover.
The parties disagree about the reasonableness and necessity of the attorney's fees sought by New Wassar in the trial court. The reasonableness and necessity of attorney's fees are questions of fact for the factfinder. Rohrmoos Venture, 578 S.W.3d at 489. Thus, in general, when a trial court errs in refusing to award any fees whatsoever to a party who is legally entitled to recover fees under a contract or statute, the correct remedy is to remand the cause to the trial court for a new trial as to the amount of the party's reasonable and necessary attorney's fees. See Atl. Richfield Co. v. Long Trs., 860 S.W.2d 439, 450-51 (Tex. App.-Texarkana 1993, writ denied) (holding that "appellate court should not usurp factfinding function of the trial court" by deciding what amount of fees is reasonable in first instance). The sole exception is when the evidence conclusively proves the amount of reasonable and necessary attorney's fees. See Ragsdale v. Progressive Voters League, 801 S.W.2d 880, 882 (Tex. 1990) (per curiam) (stating that appellate court can award fees as matter of law based on testimony of interested party, provided that it is not contradicted by any other evidence and is clear, direct, positive, and free from contradiction, inaccuracies, or circumstances tending to cast suspicion upon it). Evidence of fees is conclusive if (1) the evidence could readily be contradicted if untrue; (2) the evidence is clear, direct, and positive; and (3) no circumstances tend to discredit or impeach the evidence. Rosenblatt v. Freedom Life Ins. Co. of Am., 240 S.W.3d 315, 321 (Tex. App.-Houston [1st Dist.] 2007, no pet.).
The evidence of the reasonableness and necessity of New Wassar's fees is too vague to qualify as clear, direct, and positive. Three different attorneys represented New Wassar during different periods of the litigation: Paul Dobrowski, Ashish Mahendru, and Andrew McKinney. Each one briefly testified in support of their fees in general terms. They also introduced their firms' respective billing records. But the three attorneys did not testify about these voluminous billing records in any detail. Thus, New Wassar effectively made parsing these records and assessing the reasonableness and necessity of the fees and costs documented within them a task for the trial court to undertake on its own. Because the trial court erroneously concluded that New Wassar was not entitled to any fees, it did not undertake this task. And this appeal is not the proper forum to undertake this laborious analysis for the first time, particularly given that the parties' briefs do not contain detailed discussion of these records. See, e.g., Manon v. Solis, 142 S.W.3d 380, 391 (Tex. App.-Houston [14th Dist.] 2004, pet. denied) (stating that "appellate court has no duty to search a voluminous record without sufficient guidance" from party to assess existence of reversible error).
Moreover, the record does not show that New Wassar conclusively proved the reasonableness and necessity of all the fees it seeks to recover in at least two respects. First, New Wassar's counsel testified at trial that he did not segregate fees based on the various causes of action at issue. On appeal, New Wassar maintains that the company agreement does not require it to segregate its fees in this manner. However, while the company agreement allows the recovery of fees regardless of "the nature of the claim," it only allows the recovery of fees incurred to enforce the agreement. Old Wassar, Kroesche, and Schonefeld asserted multiple claims that were independent of the company agreement, including claims for breach of other contracts, like the Flo Trend building lease, quantum meruit, defamation, and theft or unjust enrichment. New Wassar could not rely on the company agreement to recover fees incurred defending itself against these independent claims because these claims do not involve the enforcement of the agreement. New Wassar likewise could not recover these fees under Chapter 38 because the statute requires a party to recover damages on a claim to recoup fees corresponding to that claim. See Energen Res. MAQ, 23 S.W.3d at 558 (holding that party who successfully defends against claim is not entitled to recover Chapter 38 fees). Thus, New Wassar's failure to segregate tends to discredit or cast doubt on its claim that all the fees it sought to recover at trial were both reasonable and necessary.
Second, New Wassar's counsel testified that his client would reasonably incur $100,000 in attorney's fees for an appeal to this court and another $100,000 in fees for an appeal to the Supreme Court of Texas. In contrast, opposing counsel testified that reasonable fees for an appeal to this court would be about $50,000 and another $25,000 for an appeal to the supreme court. Thus, New Wassar's evidence as to reasonable appellate attorney's fees is not conclusive because it was not uncontradicted. See Rosenblatt, 240 S.W.3d at 321.
We sustain New Wassar's second issue to the extent New Wassar contends the trial court erred in denying its requests for fees on its claim under the advancing promissory note altogether. But because New Wassar has not conclusively proved that it is entitled to all the attorney's fees it sought to recover under the advancing promissory note in the trial court, the trial court must consider the reasonableness and necessity of New Wassar's attorney's fees and costs in the first instance.
CONCLUSION
We conclude that the trial court erred by (1) entering a take-nothing judgment on Kroesche's claim for damages under the promissory note; (2) not determining whether New Wassar was the prevailing party under the company agreement; (3) refusing to award New Wassar any attorney's fees on its claim for damages under the advancing promissory note; and (4) decreeing that Old Wassar, Kroesche, and Schonefeld did not breach the advancing promissory note in a way that triggered its acceleration provision. Therefore, we reverse the take-nothing judgment on Kroesche's claim for damages under the promissory note, render judgment in favor of Kroesche for the principal amount of $166,666.67 due under the note, and remand for a new trial on the amount of interest due as damages under the promissory note. We further reverse the denial of attorney's fees to New Wassar under the company agreement and remand to the trial court to determine whether New Wassar is entitled to fees under the agreement and, if so, the amount of the fees to which it is entitled. We further reverse the part of the judgment denying New Wassar attorney's fees on its claim for damages under the advancing promissory note and remand for a new trial on the amount of New Wassar's reasonable and necessary attorney's fees. Finally, we modify the trial court's judgment to delete the part of the judgment decreeing that Old Wassar, Kroesche, and Schonefeld did not trigger the advancing promissory note's acceleration provision, and we affirm the remainder of the trial court's judgment as modified.
Goodman, J., dissenting.
DISSENTING OPINION
Gordon Goodman, Justice
The majority reverses the trial court's judgment, holding that Wassar Logistics Holdings, LLC owes Martin Kroesche $166,666.67 under a promissory note that the company tendered to repurchase Kroesche's membership interest. Because the record contains sufficient evidence to support the trial court's finding that Kroesche rejected the promissory note and conclusively establishes Wassar Logistics Holdings' defense of lack of consideration with respect to the promissory note, the majority errs. Thus, I respectfully dissent from the majority's judgment.
BACKGROUND
Wassar Logistics Holdings fired Kroesche in July 2016. When the company did so, it tried to repurchase his membership units under the company agreement.
The company agreement's unit-repurchase provision states that the company "shall have the right at any time to repurchase" upon written notice the membership units of any member whose employment terminates "for any reason." On the closing date of the repurchase, the agreement mandates that the terminated member "execute an assignment" as to his units, "at which time" the company shall either pay him the repurchase price or issue a note for the repurchase price with a maturity date of no later than one year "after the assignment." Under the definitions provided in the company agreement, the repurchase price is to be the fair market value of the units. For units like the ones at issue, which were not publicly traded, "the determination" as to fair market value "shall be made in good faith" by the company's members.
In a July 2016 e-mail to Kroesche, Peter Shaper, the company's vice president, proposed to pay the same amount for Kroesche's membership units that Kroesche had invested in the company as a capital contribution at formation, which was $166,666.67, so that the parties would not have to quarrel about the value of the units. In a second e-mail sent about a week after the first one, Shaper again told Kroesche that the company intended to repurchase his units at this price. Even though the units were not worth this amount, Shaper explained, the company's members had voted to pay this price to avoid any dispute as to the units' value.
The day after Shaper's second e-mail, Kroesche responded by e-mail. In his response, Kroesche stated that he "rejected" the company's proposal and preferred "a true valuation" of his membership units from a disinterested party. Within a week of this response, a lawyer representing Kroesche wrote a letter to Shaper. In his letter, Kroesche's lawyer reiterated that the company's "offer" to repurchase Kroesche's membership units was "rejected." Kroesche's lawyer stated that he would "swiftly pursue litigation" unless the company bought the units at "an agreed valuation" and advised that Kroesche would seek more than $1,500,000 in any such litigation.
Wassar Logistics Holdings filed suit in August 2016. The company sought a declaratory judgment that it had the right under the company agreement to repurchase Kroesche's membership units for $166,666.67 after it had fired him.
Kroesche filed a separate suit in September 2016. He contended among other things that the company's members had undervalued his units at $166,666.67. He also contended that he remained a member of the company and retained his units.
Within a month-and-a-half or so, the two lawsuits were consolidated.
After consolidation, in November 2016, the lawyer representing Wassar Logistics Holdings wrote to Kroesche's lawyer, stating that the company had exercised its right under the company agreement to repurchase Kroesche's membership units. Enclosed with the letter was a promissory note in the amount of $166,666.67, representing the amount the company said Kroesche was entitled to for his units. The company's lawyer requested that Kroesche execute an agreement reassigning his units to the company as well but advised that the company's position was that the membership units had been reassigned to the company in any event because the company agreement's unit-repurchase provision was self-executing.
The enclosed promissory note stated that Wassar Logistics Holdings issued the note for value received and pursuant to the provision of the company agreement entitling the company to repurchase the membership units of a member upon the termination of his employment. The note also recited several conditions to which the holder agreed by accepting the note. The note was signed by Shaper, in his capacity as vice president of the company. The note also included blanks for Kroesche to sign and date to indicate that he had "accepted and agreed" to the note's terms.
Kroesche did not acknowledge receipt of the promissory note. Nor did he sign and return the agreement reassigning his membership units to the company.
Throughout the litigation, Kroesche asserted the fair market value of his membership units was far more than $166,666.67. In fact, his valuation markedly increased as the litigation progressed. In his February 2017 response to requests for disclosure, he sought more than $1,000,000 for his membership units and other damages. In an April 2017 supplemental response, Kroesche stated he sought more than $2,000,000 in damages. By November 2017, in his interrogatory answers, Kroesche stated the fair market value of his membership units was $5,000,000.
In July 2018, Kroesche filed his twelfth amended petition, which was his live pleading at the time of trial. In his petition, Kroesche contested the validity of the company agreement on grounds of fraud and fraudulent inducement. In the event the agreement was valid, he alternatively sued for the fair market value of his membership units. He maintained that Wassar Logistics Holdings had violated the company agreement by failing to pay him the fair market value of his units. Moreover, even if the company's valuation was correct, he maintained the company had violated the company agreement by failing to pay him that amount for his units. However, his petition did not state a claim for breach of the promissory note.
Several months later, Wassar Logistics Holdings moved for summary judgment on Kroesche's fraud and fraudulent inducement claims. At the February 2019 summary-judgment hearing, Kroesche's lawyer explained that he sought rescission of the company agreement on the basis of his fraud and fraudulent inducement claims. In the alternative to rescission, Kroesche claimed-for the very first time during the litigation-that he was entitled to $166,666.67 under the promissory note. Kroesche disavowed his claims for a million or more dollars. His lawyer represented that Kroesche would not be seeking those damages at trial.
Two days after the hearing, the trial court granted summary judgment in the company's favor on the fraud and fraudulent inducement claims. This summary judgment merged into the final judgment. Kroesche does not challenge it on appeal.
About a month later, in April 2019, the parties tried this case to the bench.
At the trial's outset, the trial court asked the parties to identify the claims that they were asking the court to decide. Kroesche's lawyer stipulated that Kroesche was not a member of the company. In addition, Kroesche's lawyer represented that Kroesche was seeking to recover $166,666.67 under the promissory note. Later, during trial, Wassar Logistics Holdings sought and obtained permission from the trial court to supplement its pleadings to assert a defense of lack of consideration.
At trial, Kroesche testified that he accepted and signed the promissory note in November 2016, the same month the company sent it to his lawyer. He further testified that the company had not paid him the $166,666.67 promised since it became due. Under the note's terms, this amount became due in late August 2017.
Kroesche conceded he never informed Wassar Logistics Holdings in writing that he had signed and accepted the promissory note. He testified that he did not know the whereabouts of the original copy of the note bearing his signature.
Kroesche also agreed that he had not signed or returned the agreement reassigning his membership units to the company. He stated he was unaware of any communication in which he acknowledged the units no longer belonged to him.
Shaper similarly testified that Kroesche had never said he accepted the promissory note and that further litigation would therefore be unnecessary. According to Shaper, Kroesche had always insisted he was owed more for his membership units than the note's $166,666.67. When asked whether he ever understood Kroesche was trying to enforce the note in the ensuing litigation between the parties, Shaper answered that he had not known until Kroesche took the stand.
No other witnesses offered relevant testimony about the promissory note.
The trial court entered a final judgment declaring that Kroesche is not a member of Wassar Logistics Holdings. The trial court then ordered that Kroesche take nothing on his claims for damages under the promissory note because he had rejected Wassar Logistics Holdings' attempt to repurchase his membership units in the company for $166,666.67 under the company agreement. Kroesche appeals.
DISCUSSION
Kroesche contends in part that the trial court erred in not awarding him $166,666.67 under the promissory note that Wassar Logistics Holdings tendered in exchange for his membership units after terminating his employment with the company. He maintains the trial court erred because he conclusively proved his right to recover on the note and no evidence supports the trial court's ruling that he rejected the note. The majority agrees with Kroesche and reverses the judgment.
For two independent reasons, I would affirm the trial court's judgment. First, legally sufficient evidence supports the trial court's finding that Kroesche rejected the promissory note. Second, Wassar Logistics Holdings conclusively proved its defense of lack of consideration with respect to the promissory note it tendered.
Standard of Review
The parties tried their dispute to the bench. Neither side secured findings of fact or conclusions of law in addition to the trial court's declaratory judgment. Thus, we must affirm the trial court's judgment on any theory supported by the evidence, subject to any challenge to the evidence for legal or factual sufficiency. Lopez v. Hansen, 947 S.W.2d 587, 589 (Tex. App.-Houston [1st Dist.] 1997, no writ); see also Am. First Nat'l Bank v. Jordan-Lewis Dev., No. 01-09-00990-CV, 2011 WL 2732779, at *4 (Tex. App.-Houston [1st Dist.] July 14, 2011, no pet.) (mem. op.) (declaratory judgment is reviewed like any other judgment and judgment rendered after bench trial must be upheld on any legal theory supported by evidence).
A trial court must not include findings in its judgment. Tex.R.Civ.P. 299a. But when, as here, a trial court does so, we treat these findings as valid, subject to any challenge for legal or factual sufficiency. George Joseph Assets v. Chenevert, 557 S.W.3d 755, 764-65 (Tex. App.-Houston [14th Dist.] 2018, pet. denied). Any omitted findings that are supported by the evidence will be implied in the judgment's favor. Id. at 764.
As explained below in my discussion of the law applicable to promissory notes, in the context of a promissory note, rejection and lack of consideration are defenses on which the party trying to avoid the note carries the burden of proof.
On appeal, Kroesche challenges the legal sufficiency of the trial court's ruling that he rejected the promissory note and thus is not due $166,666.67 under the note.
When a party challenges the legal sufficiency of the evidence supporting an adverse finding on an issue on which he did not bear the burden of proof, he must show that no evidence supports the finding. Kubbernus v. ECAL Partners, 574 S.W.3d 444, 478 (Tex. App.-Houston [1st Dist.] 2018, pet. denied). No evidence supports a finding in four cases: when there is a complete absence of evidence of a vital fact, rules of law or evidence bar us from giving weight to the sole evidence offered to prove a vital fact, the evidence offered to prove a vital fact is no more than a scintilla, or the evidence conclusively establishes the opposite of the vital fact. Id.
That said, we consider the evidence in the light most favorable to the factfinder's findings, crediting favorable evidence if a reasonable factfinder could and disregarding contrary evidence unless a reasonable factfinder could not. Eagle Oil & Gas v. Shale Expl., 549 S.W.3d 256, 269 (Tex. App.-Houston [1st Dist.] 2018, pet. dism'd). We defer to the factfinder on matters of witness credibility. Id.
Applicable Law
Promissory
A promissory note is a contract showing an obligation to pay money. DeClaire v. G & B McIntosh Fam. Ltd. P'ship, 260 S.W.3d 34, 44 (Tex. App.-Houston [1st Dist.] 2008, no pet.). It consists of "[a]n unconditional written promise, signed by the maker, to pay absolutely and in any event a certain sum of money either to, or to the order of, the bearer or a designated person." Charles R. Tips Fam. Tr. v. PB Com., 459 S.W.3d 147, 152 n.2 (Tex. App.-Houston [1st Dist.] 2015, no pet.).
Though a promissory note is a contract, a plaintiff suing on one need not prove the elements of breach of contract. Clark v. Dedina, 658 S.W.2d 293, 295 (Tex. App.-Houston [1st Dist.] 1983, writ dism'd). Instead, the plaintiff must prove: (1) the existence of the note; (2) the defendant signed the note; (3) the plaintiff is the owner and holder of the note; and (4) a certain balance is due and owing on the note. Wells Fargo Bank v. Ballestas, 355 S.W.3d 187, 191 (Tex. App.-Houston [1st Dist.] 2011, no pet.). When the plaintiff is the holder of the promissory note, the suit is against the maker, and the maker does not deny executing the note, the admission of the note into evidence makes a prima facie case for recovery. Strickland v. Coleman, 824 S.W.2d 188, 191 (Tex. App.-Houston [1st Dist.] 1991, no writ).
If the plaintiff makes a prima facie case or proves the four elements of a promissory-note claim, he is entitled to recover unless the defendant establishes a defense. Groschke v. Gabriel, 824 S.W.2d 607, 610 (Tex. App.-Houston [1st Dist.] 1991, writ denied). Defenses to recovery on a note include "want or failure of consideration, non-performance of a condition precedent, non-delivery, delivery for a special purpose, fraud in the inducement, or other defenses which would be available in an action on a simple contract." Strickland, 824 S.W.2d at 192.
Acceptance and Rejection
An offer, or contractual proposal, and acceptance of the proposal are essential elements of contract formation. APMD Holdings v. Praesidium Med. Prof'l Liab. Ins. Co., 555 S.W.3d 697, 707 (Tex. App.-Houston [1st Dist.] 2018, no pet.).
If a person expresses an intent to not accept a contractual proposal, this expression of intent constitutes a rejection. Restatement (Second) of Contracts § 38(2) (1981). Rejection terminates the power to accept. Id. § 36(1)(a). Once a person rejects a proposal, he cannot revive and accept it later. Davis v. Tex. Farm Bureau Ins., 470 S.W.3d 97, 105 (Tex. App.-Houston [1st Dist.] 2015, no pet.).
Even without an expression of intent to reject a contractual proposal, the lapse of time may terminate the power to accept. Restatement (Second) of Contracts § 36(1)(b) (1981). If no time is specified in a proposal, the power of acceptance remains open only for a reasonable time. Id. § 41(1); Advantage Physical Therapy v. Cruse, 165 S.W.3d 21, 26 (Tex. App.-Houston [14th Dist.] 2005, no pet.).
What constitutes a reasonable time to accept is usually a question of fact, turning on the circumstances. Restatement (Second) of Contracts § 41(2) (1981); see Christy v. Andrus, 722 S.W.2d 822, 824 (Tex. App.-Eastland 1987, writ ref'd n.r.e.) (agreeing with Restatement in general but holding that what is reasonable time to accept becomes question of law when material facts are undisputed and that 15-month delay before accepting proposal was unreasonable as matter of law).
In general, silence and inaction do not constitute acceptance of a contractual proposal. Restatement (Second) of Contracts § 69(1) (1981). A person ordinarily must somehow express his acceptance of the proposal. Id.; Advantage Physical Therapy, 165 S.W.3d at 26. The exact means by which a person expresses his acceptance of the proposal is inconsequential, so long as he effectively makes his acceptance known to the party who made the proposal. Forged Components v. Guzman, 409 S.W.3d 91, 101 (Tex. App.-Houston [1st Dist.] 2013, no pet.).
Contract law recognizes three limited situations in which silence and inaction may nevertheless operate as an acceptance that creates a binding agreement:
(a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.
(b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.
(c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.
Restatement (Second) of Contracts § 69(1) (1981). These three situations are exceptions to the general rule. Advantage Physical Therapy, 165 S.W.3d at 26.
In these exceptional situations when the law recognizes that a person's silence and inaction may be an expression of acceptance, the question of whether silence and inaction actually expressed acceptance is a question of fact. Supply Pro v. Ecosorb Int'l, No. 01-15-00621-CV, 2016 WL 4543136, at *5 (Tex. App.-Houston [1st Dist.] Aug. 30, 2016, pet. denied) (mem. op.). Likewise, whether an ambiguous response to a contractual proposal constitutes acceptance is a question of fact. Id.
Lack of Consideration
Contract formation requires a manifestation of mutual assent to a bargained-for exchange of promises, exchange of performances, or an exchange of a promise for a performance. Restatement (Second) of Contracts §§ 3, 17 (1981). The element of exchange is what the law commonly calls consideration. Id. § 17, cmt. d.; see TMC Worldwide v. Gray, 178 S.W.3d 29, 37 (Tex. App.-Houston [1st Dist.] 2005, no pet.) (describing consideration as present exchange bargained for in return for promise, consisting either of benefit to promisor or detriment to promisee).
For there to be valid consideration, the exchange that forms the basis of the bargain must be contemporaneous. TMC Worldwide, 178 S.W.3d at 37-38. Absent a contemporaneous exchange of consideration when the parties execute the contract, the promise is illusory, and the contract is unenforceable. Id. In other words, lack of consideration occurs when a contract does not impose obligations on both parties at its inception. See id. at 37 (question is whether parties make mutually binding commitments at moment agreement is made); Burges v. Mosley, 304 S.W.3d 623, 628 (Tex. App.-Tyler 2010, no pet.) (consideration must exist at outset).
Like any other contract, a promissory note must be supported by valid consideration. Suttles v. Thomas Bearden Co., 152 S.W.3d 607, 614 (Tex. App.- Houston [1st Dist.] 2004, no pet.); see also Roman v. Roman, 193 S.W.3d 40, 50 (Tex. App.-Houston [1st Dist.] 2006, pet. denied) (observing that consideration is fundamental element of every valid contract). Thus, "something of real and legally cognizable value" must be "given in exchange for a promise to pay under a promissory note" for the note to be valid and binding. Suttles, 152 S.W.3d at 614.
What constitutes consideration is a question of law. Eurecat U.S. v. Marklund, 527 S.W.3d 367, 387 (Tex. App.-Houston [14th Dist.] 2017, no pet.); see also Neurodiagnostic Tex v. Pierce, 506 S.W.3d 153, 163 (Tex. App.-Tyler 2016, no pet.) (though consideration presents question of law, fact issues precluding summary judgment may exist when evidence does not conclusively prove consideration).
When a written instrument contains a recital of consideration, we presume this consideration is sufficient. Westfield Dev. v. Rubashkin, No. 01-05-00526-CV, 2007 WL 491115, at *3 (Tex. App.-Houston [1st Dist.] Feb. 15, 2007, no pet.) (mem. op.). But a recital is not conclusive as to whether consideration exists; witness testimony is admissible to show lack of consideration. Id.; McLernon v. Dynegy, Inc., 347 S.W.3d 315, 335 (Tex. App.-Houston [14th Dist.] 2011, no pet.).
Analysis
Substantial Evidence Supports the Trial Court's Rejection Finding
The trial court ruled that Kroesche take nothing on his promissory-note claim, finding that Wassar Logistics Holdings tried to repurchase his membership units as it was entitled to do under the company agreement but that he rejected the note.
Kroesche argues that by introducing the promissory note bearing his signature into evidence, he proved his right to recover. Kroesche further argues that no evidence supports the trial court's finding that he rejected the note. Rather, he maintains, the evidence conclusively shows that he accepted the note. I disagree.
The only evidence that Kroesche introduced in support of acceptance consists of (1) a copy of the note that he signed and dated; and (2) his own testimony that he signed the note the day he received it in November 2016 and that he accepted it. So, given that rejection is a contractual defense in the context of this suit, the dispositive issue is whether the record contains evidence supporting the trial court's contrary finding. See Kubbernus, 574 S.W.3d at 478 (party who on appeal challenges legal sufficiency of evidence supporting adverse finding on issue on which he did not have burden of proof at trial must show that no evidence supports challenged finding).
The record contains ample evidence supporting the trial court's finding.
Kroesche conceded he never informed Wassar Logistics Holdings that he had signed or accepted the promissory note. Nor does the record reflect that he expressed his acceptance in some other way. Silence and inaction of this sort are inconsistent with acceptance, which usually must be expressed to be effective. See Forged Components, 409 S.W.3d at 101; Advantage Physical Therapy, 165 S.W.3d at 26.
The law recognizes three exceptions in which silence and inaction may be consistent with acceptance. Restatement (Second) of Contracts § 69(1) (1981). However, on their face, two of the three-those relating to the acceptance of services and course of dealing or usage of trade-do not apply. See id. § 69(1)(a), (c).
The lone exception that could arguably apply concerns situations in which the proposing party signals that acceptance may be expressed by silence and inaction, and the other party by his silence and inaction intends to accept the proposal. Id. § 69(1)(b). In the November 2016 letter enclosing the promissory note, Wassar Logistics Holdings' lawyer wrote that the company would appreciate it if Kroesche acknowledged receipt of the note and requested he execute the agreement reassigning his units to the company but expressed the company's belief that the company agreement was self-executing and his units now belonged to the company in any event. This arguably could be understood as an indication that Wassar Logistics Holdings intended that Kroesche could make no response whatsoever and still accept the note. Indeed, the company seems to have said in the letter that it would consider the note and reassignment effective no matter what Kroesche did.
But that still leaves unaddressed the issue of whether Kroesche intended his failure to acknowledge the note, sign and return the agreement reassigning his units, or otherwise respond to the company's letter as an acceptance. The record contains substantial evidence from which a factfinder could reasonably find that Kroesche did not intend to accept the note or reassignment through his silence and inaction.
Kroesche's conduct after receipt of the note was inconsistent with acceptance. For more than two years afterward, Kroesche continued to prosecute his suit. In his suit, he sought to invalidate the company agreement under which the note was issued based on allegations of fraudulent inducement and fraud. In the alternative, if the agreement proved to be valid, Kroesche asserted the fair market value of his membership units far exceeded the $166,666.67 stated in the note and sought to recover their true value. Even at the time of trial, Kroesche's live pleading did not state a claim for breach of the promissory note. That claim was tried by consent.
Consistent with Kroesche's litigation positions, Shaper testified that he had not understood Kroesche to be alleging a claim for breach of the promissory note. Shaper said Kroesche had always insisted he was owed more than $166,666.67.
When, as here, an exception to the general rule that silence and inaction do not constitute acceptance is arguably in play, the issue of whether silence and inaction were actually intended as acceptance presents a question of fact. See Supply Pro, 2016 WL 4543136, at *5. Here, the evidence was disputed, and substantial evidence supports the trial court's ultimate finding that Kroesche rejected the promissory note. To the extent the dispositive issue boils down to whether some evidence supports an implicit finding that Kroesche did not intend acceptance by his silence and inaction, that finding too enjoys substantial evidentiary support.
In this regard, it is important to note the role that witness credibility played in the trial court's evaluation of the evidence. Kroesche's key evidence that he accepted the note in silence is his testimony that he did so coupled with his say-so that his copy of the note-signed and dated in November 2016-is accurate. But the trial court was entitled to disbelieve Kroesche, especially given that his testimony was inconsistent with the positions he took during years of litigation. See Eagle Oil & Gas, 549 S.W.3d at 269 (appellate court defers to factfinder on credibility); see also McKeehan v. Wilmington Sav. Fund Soc'y, 554 S.W.3d 692, 698 (Tex. App.- Houston [1st Dist.] 2018, no pet.) (factfinder is sole arbiter of credibility, may believe one witness and disbelieve another, and resolves evidentiary conflicts).
Kroesche eventually did change his positions and pursue recovery under the promissory note. But he did not do so until February 2019, at the summary-judgment hearing, more than two years after he filed suit and received the note from the company and approximately a month before trial. The trial court could have reasonably found that he tried to change course too late to recover under the note.
As noted, the trial court could have reasonably found that Kroesche's conduct after receipt of the note was inconsistent with acceptance. In other words, Kroesche's conduct could reasonably be seen as rejecting the note. See Restatement (Second) of Contracts § 38(2) (1981) (expression of intent to not accept contractual proposal constitutes expression of intent to reject proposal). Once Kroesche rejected the note, he could not accept it later because a rejection terminates the power to accept a contractual proposal. See id. § 36(1)(a); Davis, 470 S.W.3d at 105.
Moreover, even if one does not construe Kroesche's conduct after receipt of the note as a rejection, the trial court could have reasonably found that the company's proposal was no longer on the table by the time Kroesche changed his positions in the litigation. When, as here, the proposing party does not state a period for acceptance, the law implies that the proposal remains open for a reasonable time. See Advantage Physical Therapy, 165 S.W.3d at 26. What constitutes a reasonable amount of time ordinarily is a question of fact. See Christy, 722 S.W.2d at 824. Could the trial court have reasonably found that it was unreasonable for Kroesche to wait more than two years after receipt of the note to announce his acceptance, given that the parties were engaged in litigation during this time that focused in significant part on what, if anything, the company owed him for his membership units? To ask this question is to answer it. Of course, the trial court could have done so. See id.
In sum, no matter how one examines this case, the record contains ample evidence supporting the trial court's finding that Kroesche rejected the note. Because substantial evidence supports this finding, Kroesche's evidentiary challenge fails.
Wassar Logistics Holdings Conclusively Proved Lack of Consideration
Kroesche's evidentiary challenge also fails for an additional reason: the evidence conclusively proves the company's defense of lack of consideration.
In finding that Kroesche rejected the promissory note, the trial court necessarily disbelieved his account that he silently accepted it on receipt. And because Kroesche therefore only accepted the note at some later point in time, such as when he changed positions in the suit, the two sides did not contemporaneously agree to the bargain the note struck-reassignment of his units for $166,666.67. As there was not a contemporaneous exchange of consideration, the note is not binding. See TMC Worldwide, 178 S.W.3d at 37-38; Burges, 304 S.W.3d at 628.
Wassar Logistics Holdings received nothing in exchange for its November 2016 promise to pay Kroesche $166,666.67. Kroesche continued to insist for more than two years afterward that, if the company agreement was even valid (a claim he disputed), he continued to hold his membership units and the company owed him far more than the sum stated in the note for their repurchase. But the note, which explicitly references the company agreement's unit-repurchase provision, is premised on an exchange of $166,666.67 for Kroesche's membership units. Without a contemporaneous agreement that the company had in fact repurchased these units for the stated price, there was no bargained-for exchange between the parties.
Hence, the trial court's judgment likewise could and should be upheld on the basis of Wassar Logistics Holdings' defense of lack of consideration. See Lopez, 947 S.W.2d at 589 (appellate court must affirm on any theory supported by evidence).
The Majority's Analysis is Contrary to the Law and Facts
The result the majority reaches has some intuitive appeal: Wassar Logistics Holdings receives Kroesche's membership units and Kroesche receives payment for their value. The company agreement envisions this exchange in situations like this one, when the company and a member part ways. This is how it should have worked.
But it did not work out this way because Kroesche effectively relinquished his right to payment for his membership units. He did so by (1) rejecting the promissory note after the company tendered it to him in exchange for his units; (2) alleging he was entitled to the fair market value of his units as ascertained by an independent valuation but then abandoning this claim on the eve of trial; and (3) trying to simultaneously revive the promissory note and recover solely based on the note.
The majority holds otherwise. In the majority's view, neither rejection nor lack of consideration pose an obstacle to recovery under the promissory note.
With respect to the trial court's ruling that Kroesche rejected the note, the majority concludes that Kroesche could not reject the note as a matter of law. The majority bases this conclusion on its interpretation of the company agreement, which the majority interprets as allowing the company on written notice to unilaterally repurchase a terminated member's units at a price the company sets. According to the majority, the terminated member's units are reassigned at this price even if he contests the repurchase or the company's valuation in litigation. The majority concludes that concepts like acceptance and rejection are immaterial to the repurchase and reassignment of the membership units because neither the company agreement nor the promissory note make any explicit reference to these concepts.
As an initial matter, the majority is mistaken in saying that the promissory note does not refer to the concept of acceptance. The note contains blanks for Kroesche to sign and date it. These blanks are preceded by the phrase "accepted and agreed to by holder." In addition, near the beginning, the note contains language providing that the holder agrees to multiple specified terms by accepting the note. In short, the promissory note expressly incorporates the concept of acceptance, which entails the possibility of rejection too. The majority has misinterpreted the note.
Acceptance is an essential element of contract formation. APMD Holdings, 555 S.W.3d at 707. As our Supreme Court reiterated earlier this year, offer and acceptance are prerequisites of a valid, binding contract. Angel, Tr. for Gobsmack Gift Tr. v. Tauch, 642 S.W.3d 481, 483 (Tex. 2022). Promissory notes are not excepted from this blackletter law. See Strickland, 824 S.W.2d at 192 (stating that contract defenses may be asserted as defenses to promissory notes); see also DeClaire, 260 S.W.3d at 44 (noting that promissory note's terms are interpreted according to rules that generally govern contract interpretation and applying contract-formation elements to promissory note, including offer and acceptance).
The company agreement does not alter this analysis. Under the company agreement, the company initiates the repurchase of membership units by giving written notice that it intends to do so and specifying the date of repurchase, with the repurchase price being the fair market value of the units, as determined in good faith by the company's members if the units are not publicly traded. On the date of repurchase, the company agreement requires the terminated member to execute an agreement reassigning his units to the company and the company must at the same time pay him the repurchase price or issue a promissory note for the repurchase price. Any note shall have a maturity date no later than one year after the reassignment.
The promissory note expressly references the company agreement's unit-repurchase provision, and it was made to effect the repurchase outlined in the unit-repurchase provision. Thus, I have no quarrel with the majority's contention that the note and agreement must be read together. See WPS v. Expro Ams., 369 S.W.3d 384, 405-06 (Tex. App.-Houston [1st Dist.] 2012, pet. denied) (observing that written instruments pertaining to same transaction should be construed together to ascertain parties' intent, even if they are executed at different times or do not refer to each other). But when the note and the company agreement are read together, they do not dispense with concepts like acceptance or produce the result the majority reaches.
Under the unit-repurchase provision, the execution of an agreement reassigning membership units and payment or a promise to pay for them are required to occur at the same time. Hence, these are reciprocal obligations: the terminated member is not entitled to payment without reassigning his units, and the company is not entitled to reassignment without providing for payment. This is the bargained-for exchange the provision requires: units for immediate or deferred payment.
But this contemporaneous exchange never took place. When Wassar Logistics Holdings first broached the subject of repurchasing Kroesche's units, Kroesche rebuffed the proposal. Kroesche also refused to execute an agreement reassigning his units to the company. After the parties had sued each other, Wassar Logistics Holdings issued a promissory note for $166,666.67 for the repurchase of the units, asserting that the units reverted to the company whether or not Kroesche reassigned them. For his part, Kroesche did not acknowledge the note and continued to maintain that the fair market value of his units far exceeded the amount stated in the note.
The majority maintains that Kroesche's failure to acknowledge the promissory note, refusal to reassign his units to the company, and pursuit of litigation for an independent valuation of his units does not amount to a rejection of the note. In the majority's view, Kroesche could refuse to execute an agreement reassigning his units and still be paid for them or receive a promise to pay without his refusal constituting a rejection because his units reverted to the company upon its tender of the promissory note under the terms of the company agreement as a matter of law.
The correctness of this aspect of the majority's interpretation of the company agreement's unit-repurchase provision is debatable. As previously discussed, Kroesche did not abide by the procedure required by the unit-repurchase provision, and Wassar Logistics Holdings then tendered the promissory note in circumstances the provision does not address. But assuming the majority is correct for argument's sake, the issue before us is not whether Kroesche's units reverted to the company as a matter of law when it tendered the promissory note to Kroesche or whether his refusal to execute an agreement reassigning his units to the company was effective in thwarting their reassignment. The issue is whether Kroesche's conduct expressed an intent to reject the exchange the company agreement requires and the associated promissory note. Even if it is true, as the majority says, that Kroesche was not legally entitled to refuse to reassign his units and they reverted to the company despite his refusal to reassign them, the question is whether his refusal-effective or not- accompanied by silence and inaction as to the promissory note itself conveyed an intent not to be bound by the proposal Wassar Logistics Holdings put forward.
Based on the evidence, the trial court found that Kroesche rejected the promissory note. Substantial evidence supports this finding. And the majority cannot transform this fact issue about Kroesche's expressed intent to accept or reject the note into a question of law by interpreting the company agreement to mean that his expressed intent was legally incapable of affecting whether his membership units reverted to the company upon tender of the note. See DeClaire, 260 S.W.3d at 44 (whether party accepted proposal is determined based on what he said and did).
As to Wassar Logistics Holdings' defense of lack of consideration, the majority contends that the company's promise to pay was in fact supported by consideration on two independent grounds. Because a terminated member's units revert back to the company when the company tenders a promissory note for their repurchase under the company agreement's unit-repurchase provision, the majority reasons, the company's promise to pay was made in exchange for the units. In addition, the majority says that the company's right to defer payment for a year, rather than pay at the time of repurchase, constitutes consideration for the note.
Once again, accepting the majority's interpretation of the company agreement's unit-repurchase provision for argument's sake, the majority's explanation as to how the provision is intended to operate does not take into account Kroesche's efforts to thwart the intended operation of the unit-repurchase provision.
After Kroesche rebuffed Wassar Logistics Holdings' attempt to repurchase his membership units, the company sued him seeking a declaratory judgment that it had the right to repurchase his units under the company agreement. With respect to the company's declaratory judgment action, Kroesche filed a general denial. Kroesche also countersued the company. In his live pleading, Kroesche continued to assert one or more derivative claims, something only a member may do because a derivative claim is one made by a minority stakeholder on behalf of the company for wrongs against the company. In re Murrin Bros. 1885, 603 S.W.3d 53, 58 (Tex. 2019). Thus, he implicitly claimed that he continued to be a member and retained his membership units. Kroesche did not disclaim membership until the first day of trial, when his lawyer stipulated that Kroesche was not a member of the company.
Under the company agreement's unit-repurchase provision, Kroesche was required to execute an agreement reassigning his shares to the company when it tendered the promissory note. Kroesche refused. The majority overlooks his refusal, reasoning that his membership units reverted back to the company anyway, and the company therefore received its due under the provision, more or less. In actuality, what Wassar Logistics Holdings received was years of litigation, in which Kroesche disputed that the unit-repurchase provision operated in this fashion. It was not until the trial court, consistent with Kroesche's last-minute stipulation, decreed that Kroesche was not a member of the company that the company received what it was entitled to under the unit-purchase provision and in exchange for its promise to pay. Before the decree, Kroesche refused to make the bargained-for exchange required by the company agreement's unit-repurchase provision and the associated note.
For the same reason, the majority's contention that the company's right to defer payment for a year is consideration for its promise to pay fails. Under the unit-repurchase provision, the company is entitled to tender a promissory note for the repurchase price, provided that the note's maturity date is no later than one year "after the assignment," which Kroesche did not execute. The maturity date stated in the note fell in August 2017. Kroesche did not stipulate that he was no longer a member of the company without a corresponding membership interest until trial in April 2019. Thus, by the time the company's payment ostensibly became due, Kroesche still claimed that he retained his membership units. He did not disavow this claim for more than a year-and-a-half after the maturity date. Thus, Wassar Logistics Holdings did not receive anything in exchange for its right to defer payment. Again, it was the trial court's decree that gave the company the units.
Finally, it is worth revisiting the subject of acceptance and rejection in light of the majority's position on consideration. Under the majority's interpretation of the unit-repurchase provision, Kroesche's refusal to perform an obligation expressly stated in the provision-execution of an agreement reassigning his membership units-is excused and he remains entitled to payment for his units under this provision and the associated promissory note. But an acceptance must conform to the material terms of the offer, or it is a rejection and counteroffer. See Davis, 470 S.W.3d at 104-05 (stating that proposed material change to contractual proposal is counteroffer and counteroffer is rejection, not acceptance, of original proposal). Here, Kroesche effectively proposed a deal more to his liking at the summary-judgment hearing, one in which he had a right to be paid under the note despite hitherto disputing the reassignment of his units and litigating this issue, and he tried to recover exclusively based on the note at trial while abandoning his prior claim to recover the fair market value of his units. There is no basis in law or fact that would require Wassar Logistics Holdings to accept his counterproposal at this late date.
CONCLUSION
Because the trial court did not err in finding that Kroesche rejected the promissory note, and Wassar Logistics Holdings conclusively proved its defense of lack of consideration in any event, I would affirm. I therefore respectfully dissent.