Agreed interlocutory appeal of two summary judgment orders: one concluding that the rule 11 agreement executed by appellants/cross-appellees—Arnold Curry, General Metal Fabricating Corporation, and GMF Leasing, Inc. (collectively the GMF Companies)—and appellees/cross-appellants—John Stergiou and Main Marine Repair and Industrial Cleaning Company (collectively, Stergiou)—was an enforceable settlement agreement, and the other finding that the rule 11 agreement did not confer any right to prepay the future payments owed under that agreement.[1]
Stergiou appeals the first order on the issue of enforceability, and the GMF Companies appeal the second order on the issue of prepayment.
The First Court of Appeals affirms both summary judgment orders.
 |
| Texas of Rule 11 verbatim |
General Metal Fabricating Corporation, G. M. F. Leasing Inc., and Arnold Curry v. John Stergiou and Main Marine Repair and Industrial Cleaning Co. (Tex.App.- Houston [1st Dist.] May 24, 2012)
OPINION BY JUSTICE HARVEY BROWN
[...]
Background
The GMF
Companies and Stergiou have been embroiled in litigation over the ownership of
certain shares of the GMF Companies’ stock for more than a decade. This case
has been tried, appealed, reversed and remanded, and tried again.See Stergiou
v. General Metal Fabricating Corp., 123 S.W.3d 1 (Tex. App.—Houston [1st Dist.]
2003, pet. denied); see also General Metal Fabricating, Inc. v. Stergiou, No.
01-08-00921-CV, 2009 WL 3673112, at *1 (Tex. App.—Houston [1st Dist.] Nov. 5,
2009, no pet.) (mem. op.).
While the
jury deliberated during the second trial, Curry, as the representative of the
GMF Companies, announced to the trial court that the parties had reached a
settlement, put the settlement terms on the record, and executed arule 11
agreement. After counsel for Stergiou read the rule 11 agreement on the record,
the trial court inquired of each party whether he understood and approved the
terms of the “proposed settlement.”Each party indicated his agreement, and the
trial court approved the settlement.
The specific
details of the rule 11 agreement were contingent upon the jury’s answers. If
the jury found infavor of the GMF Companies, Stergiou would assign all of the
stock at issue to Curry and the parties would execute a mutual release of all
claims.If the jury found in Stergiou’s favor, however, Curry would pay
Stergiou$300,000 for the return of the stock.Payment would be in the form of a
promissory note, with a $20,000 down payment being due “on or before May 3,
2006” and, “[c]ommencing on June 1, 2006” and “continuing monthly on the same
day of each month thereafter,” an “installment of $4,000.00 of principal and
interest [would be] due and payable until the Note ha[d] been paid in full.”
The note
would be “secured by a first lien Deed of Trust and Security Agreement covering
all furniture, fixtures, equipment, receivables (from the ordinary course of
business), inventory, and real property owned by the GMF Companies’ known [as]
(the White Buildings and the empty lot) (excluding the four lots the ‘Blue
Building’ resides upon and the ‘Blue Building’)of General Metal Fabrication,
Inc. and GMF Leasing, Inc.”The parties agreed “to execute all documents
necessary to effectuate [their] agreement including all financing statements
and deed(s) of trust” and to file a joint notice of non-suit with prejudice
within ten days of the trial court’s acceptance of the jury’s verdict.
The jury
returned a verdict for Stergiou. Although drafts of the additional documents
contemplated by the rule 11 agreement (i.e., the promissory note, the deeds of
trust, the security agreements, and the financing statements) were circulated
between them, the GMF Companies and Stergioudid not agree as to the specific
terms to be included in those documents.The agreed deadline for dismissing the
case pursuant to the settlement was twice extended to allow the parties
additional time to agree on the additional documents, but the additional
documents were never consummated.The GMF Companies eventually tendered to
Stergiouan executed motion to dismiss the lawsuit, one cashier’s check in the
amount of $20,000 for the down payment required by their settlement, and a
second cashier’s check for the remaining $280,000 owed.Stergiou rejected the
tender and moved for entry of judgment on the jury’s verdict.
After the
trial court entered judgment on the verdict, the parties continued to dispute
the effect and terms of the rule 11 agreement.They sought to resolve their
dispute by summary judgment.The GMF Parties and Stergioueach filed motions
asserting their competing interpretations of the agreement.The first set of
summary judgment motions concerned the enforceability of the rule 11
agreement.The GMF Companies contended the rule 11 agreement was an
enforceablecontract; Stergiou contended it was not.The second set of summary
judgment motions addressed the issue of prepayment.The GMF Companies asked the
trial court to find that Curry could pay the entire amount owed under the rule
11 agreement at once; Stergiou asked the trial court to require Curry to make
monthly installment payments.After the trial court determined that the rule 11
agreement was enforceable but did not permit prepayment, the parties agreed to
this interlocutory appeal to resolve the controlling questions of law.
Both the
trial court’s order permitting this interlocutory appeal and the parties’ joint
notice of appeal raise two issues:(1) whether the rule 11 agreement is an
enforceable agreement and (2) whether Curry had the right to prepay his debt
under the rule 11 agreement.
Standard of
Review
Our review
of a summary judgment is de novo.See Tex. Mun. Power Agency v. Pub.Util. Comm’n
of Tex., 253 S.W.3d 184, 192 (Tex. 2007); City of Galveston v. Tex. Gen. Land
Office, 196 S.W.3d 218, 221 (Tex. App.—Houston [1st Dist.] 2006, pet. denied).Under
the traditional summary judgment standard, the movant must show that no genuine
issue of material fact exists and judgment should be rendered as a matter of
law.Tex. R. Civ. P. 166a(c); City of Galveston, 196 S.W.3d at 221.We view all
evidence in a light favorable to the nonmovant and indulge every reasonable
inference in the nonmovant’s favor.City of Galveston, 196 S.W.3d at 221.When
both parties move for summary judgment and the trial court grants one motion
and denies the other, we consider both motions, their evidence, and their
issues, and we may render the judgment that the trial court should have
rendered.Mann Frankfort Stein &Lipp Advisors, Inc. v. Fielding, 289 S.W.3d
844, 848 (Tex. 2009); City of Galveston, 196 S.W.3d at 221.
Enforceability
of the Rule 11 Agreement
In his sole
issue on appeal, Stergiouchallenges the trial court’s determination that the
rule 11 agreement was enforceable.He asserts three reasons why the trial court
erred:(1) he and the GMF Companies never achieved anything more than an
“agreement to agree,” (2)compliance with the agreement could not be ordered
because its terms are too indefinite, and (3) the agreement does not satisfy
the statute of frauds.[2]Finding these reasons unpersuasive, we hold that the rule
11 agreement was enforceable and the trial court did not err in rendering
summary judgment against Stergiou on this issue.
A. Agreement to Agree
None of the
parties dispute that the rule 11 agreement required them to execute additional
documents—i.e., a promissory note, deed of trust, security agreement, and any
necessary financing statement.Stergiou arguesin his first sub-issuethat,
because the rule 11 agreement does not supply any information as to the
specific terms of those documents (e.g., information with respect to any right
or obligation to inspect, insure, maintain, or repair the collateral, the
notice and cure periods in the event of default, and any right of or
prohibition against prepayment), as a matter of law, it is nothing more than an
unenforceable “agreement to agree” and not a valid contract.[3]
The GMF
Companies dispute that these particular additional terms are material to the
issue of whether the parties intended to be immediately bound by the rule 11
agreement. They argueinstead that the rule 11 agreement is enforceable because
it contains all terms necessary to resolve the gravamen of the parties’ dispute
and the parties indicated their intent to be bound by it when they asked the
trial court to approve it, twice extended the deadline for dismissing the case,
and attempted to negotiate the terms of the additional documents.According to
the GMF Companies, that the rule 11 agreement contemplates the execution of
additional, more formal documents at a later date does not preclude its
enforcement.
Contract Law
governs Rule 11 Settlement Agreements
Contract law
governs agreements made in open court pursuant to rule 11. Ronin v. Lerner, 7
S.W.3d 883, 886 (Tex. App.—Houston [1st Dist.] 1999, no pet.). A contract is
legally binding only if its terms are sufficiently definite to enable a court
to understand the parties’ obligations. See Fort Worth Indep. Sch. Dist. v.
City of Fort Worth, 22 S.W.3d 831, 846 (Tex. 2000).“ Each contract should be
considered separately to determine its material terms.” T.O. Stanley Boot Co.,
Inc. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992).Although the
contract’s material terms must be agreed upon before a court may enforce the
contract, a binding settlement contract may exist even if the parties
contemplate that a more formal document memorializing their agreement will be
executed at a later date. See City of Fort Worth, 22 S.W.3d at 846;Foreca, S.A.
v. GRD Dev. Co., 758 S.W.2d 744, 745-46 (Tex. 1988); see also McLendon v.
McLendon, 847 S.W.2d 601, 606-07 (Tex. App.—Dallas 1992, writ denied) (“[T]he
attempts by the parties to reduce the rule 11 stipulations to writing do not
affect the nature and effect of the stipulations dictated at the [hearing in
open court.]”).When an agreement leaves material matters open for future
adjustment and agreement on the additional matters never occurs, however, the
agreement is not binding upon the parties. City of Fort Worth, 22 S.W.3d at846.
Whether the rule
11 agreement is an enforceable settlement agreement—or whether it fails for
lack of an essential term—is a question of law. See Ronin, 7 S.W.3d at 888; see
also Martin v. Martin, 326 S.W.3d 741, 746 (Tex. App.—Texarkana 2010, pet.
denied) (“The question of whether an agreement is an unenforceable agreement to
agree is a question of law, not a question for the jury.”).The parties’ intent
to be bound, however, generally is a question of fact. See Herring v. Herron
Lakes Estates Owners Ass’n, Inc., No. 14-09-00772-CV, 2011 WL 2739517, at *3
(Tex. App.—Houston [14th Dist.] Jan. 4, 2011, no pet.) (mem. op.) (citing Foreca,
758 S.W.2d at 746).We may determine the issue as a matter of law only if an
unambiguous writing shows that the parties intended to be bound by the
agreement. Herring, 2011 WL 2739517 at *3 (citing Padilla v. LaFrance, 907
S.W.2d 454, 461-62 (Tex. 1995)).
We begin by
noting that nothing in the rule 11 agreement indicates the parties did not
intend to be bound. Like most settlement agreements, the rule 11 agreement
included essential terms for the payment of money in exchange for the
performance of some act: Stergiou would return his shares of the GMF Companies’
stock, Curry would pay $300,000, and together the parties would dismiss the
lawsuit with prejudice. See Padilla, 907 S.W.2d at 460-61 (noting that material
terms of rule 11 settlement agreement include payment and release of claims);
see also CherCo Props., Inc. v. Law, Snakard & Gambill, P.C., 985 S.W.2d
262, 266 (Tex. App.—Fort Worth 1999, no pet.) (holding settlement agreement
that included terms of payment and statement that parties would execute mutual
releases contained all material terms).The rule 11 agreement further detailed
when the stock would be returned (“upon payment of the $20,000 down payment . .
. and the execution of all documents necessary to provide the security
described therein”), how and when the money would be paid (in the form of a
“promissory note” with “$20,000 of principal . . . paid on or before May 3,
2006” and monthly installments of $4,000 thereafter), the interest that would
accrue (“6.5% per annum”), and the nature of the collateral (“all furniture,
fixtures, equipment, receivables (from the ordinary course of business),
inventory, and real property owned by the GMF Companies known [as] (the White
Buildings and the empty lot) (excluding the four lots the ‘Blue Building’
resides upon and the ‘Blue Building’”)).See T.O. Stanley Boot Co., 847 S.W.2d
at 221 (noting that material terms of contract to loan money are amount to be
loaned, maturity date of loan, interest rate, and repayment terms).
We
acknowledge that the rule 11 agreement required the parties to execute a
promissory note, a deed of trust, a security agreement, and a financing
statement, and that, as an affidavit included in Stergiou’s summary judgment
evidence suggests, the “forms” for those documents include certain standard
provisions for things like collateral descriptions; defaults; inspection
rights; insurance, maintenance, and repair of collateral; and prepayment of the
debt. However, to the extent these particular provisions are missing from the
rule 11 agreement, the two cases on which Stergiou primarily relies do not
persuade us that those provisions were essential to an enforceable settlement
of this case.[4]See Martin, 326 S.W.3d at 741; see also DKH Homes, LP v. Kilgo,
No. 03-10-00656-CV, 2011 WL 1811435, at *3-4 (Tex. App.—Austin May 11, 2011, no
pet.) (mem. op.).
In Martin,
two brothers had a dispute over the management of their closely-held corporation.326
S.W.3d at 743.In an effort to settle their dispute over “corporate control,”
the brothers reached a “settlement agreement” that, among other things,
required them to negotiate a shareholder agreement. Id. at 743-44.They never
agreed as to the terms of the shareholder agreement. The court of appeals
concluded that their settlement was not an enforceable agreement because the
to-be-negotiated shareholder agreement “would be the foundational document of
[the company] and would define the [brothers’] rights vis-à-vis each other and
[the company].”Id. at 754.Here, the additional documents do not have the same
“foundational” importance to the underlying dispute. The essence of Stergiou
and Curry’s rule 11 agreement is the promise to pay $300,000in exchange for the
return of the GMF Companies’ stock and the dismissal of the lawsuit. Although
the rule 11 agreement requires Curry to make installment payments for a number
of years, it does not require Stergiou and Curry to have a relationship akin to
the parties in Martin, who continued to be involved in the operation of the
same closely-held corporation.
In Kilgo, a
homebuilder alleged that the Kilgos failed to comply with a contractual
obligation to build a new home.2011 WL 1811435, at *1.The court of appeals determined
that the parties’ agreement did not include terms essential to a contract for
the construction of a new home. Id. at *3.The agreement did not include any
information defining the undertaking, such as the size of the house
contemplated, the price of the house on a per-square-foot or other basis, or
the time for completing construction. Id. Here, unlike in Kilgo, the terms that
Stergiou asserts are essential—i.e., those terms describing the parties’
obligations to insure, maintain, and repair the collateral, the notice and cure
periods for default, and the right of prepayment—do not define the undertaking
in the rule 11 agreement to pay for the return of Stergiou’s stock in the GMF
Companies.
Instead,
this case is more analogous to Montanaro v. Montanaro, 946 S.W.2d 428 (Tex.
App.—Corpus Christi 1997, no writ). Montanaro was a suit for an accounting,
dissolution of a family-owned partnership, fraud, and breach of fiduciary
duties. The parties agreed on the general terms of their settlement, including
payment obligations and the release of claims. Id. at 429.The payment
obligations were to be secured by a to-be-drafted promissory note, but despite
having exchanged drafts, the parties could not agree on the promissory note’s
terms. Id. at 431.The court of appeals concluded that the record nevertheless
established the essential terms of a settlement agreement because, like
Stergiou and the GMF Companies, the parties agreed as to the exact amount of
the payments and the period over which they were to be made. Id. “Additional
terms regarding overdue, or post-maturity, interest and acceleration upon
default were not necessary to enable the parties to comply with the terms of
the note, or the underlying settlement agreement.”Id. Likewise here, we
conclude that the particular terms of the additional documents were not
material and therefore did not destroy the rule 11 agreement’s effectiveness,
and we hold that the rule 11 agreement is not an unenforceable “agreement to
agree.”
To hold
otherwise would undermine well-established policy favoring the peaceable
resolution of disputes by agreement and would encourage continued litigation of
disputes that have already been decided by agreement. See Kennedy v. Hyde, 682
S.W.2d 525, 529 (Tex. 1984) (noting that “[i]n a day of burgeoning litigation
and crowded dockets, the amicable settlement of lawsuits is greatly to be
desired”). Moreover, the parties behaved as though their settlement was
binding. The transcript of the trial court’s proceedings reflects that the
parties were entering into a settlement agreement. Stergiou’s counsel dictated
the terms of the agreement into the record. Each party, on the record, appeared
in open court and expressed under oath that they had reached an agreement, had
reviewed and understood its terms, had authority to enter into that agreement,
and wished the trial court to approve it. The trial court did so. At no time
did either Stergiou or Curry state on the record that the rule 11 agreement was
only a preliminary agreement. See Ronin, 7 S.W.3d at 888 (considering lack of
statement on record that rule 11 agreement was only preliminary a factor in
enforcing the agreement).
The timing
and circumstances under which the rule 11 agreement was executed also indicate
the parties’ intent to be bound. The specific terms of the settlement were
contingent on the jury’s verdict. If the rule 11 agreement was only
preliminary, and not intended to be final until the details of the additional
documents were agreed upon, the party that prevailed before the jury would
prefer the “win” over the compromised settlement and would have little
incentive to agree to those details. Stergiou did not present any summary
judgment evidence establishing that his intent was otherwise. And, after the
trial court approved the rule 11 agreement, the parties exchanged drafts of the
additional documents contemplated by the rule 11 agreement, and they twice extended
the agreed deadline for dismissing the lawsuit in order to continue negotiating
the terms of the additional documents.
On this
record, we overrule Stergiou’s first sub-issue.
B. Definiteness of Terms
Stergiou’s next
complaint—that the rule 11 agreement cannot be enforced as written—is closely
related to the issue already decided. Stergiou contends that the rule 11
agreement cannot be enforced until the additional documents are actually
executed, which is not possible because there has not been any agreement as to
the terms of those additional documents and a reviewing court cannot supply the
terms not agreed upon. That is, a court cannot force Stergiou or Curry to
accept one or the other’s version of the additional documents.
In support of
his contention, Stergiou argues this case is analogous to Nash v. Conatser, 410
S.W.2d 512 (Tex. App.—Dallas 1966, no writ).There, the court observed that
specific performance of a contract cannot be ordered when the contract is
unenforceable for lack of material terms. Id. at 519-21.We have already
disapproved of Stergiou’s assertion that the rule 11 agreement lacked material
terms by overruling Stergiou’s first issue, so Nash is not controlling here.
Because the
rule 11 agreement set out the amounts to be paid for the return of the GMF
Companies’ stock and the dismissal of the lawsuit, how those amounts were to be
paid and when, and the interest rate, the parties’ obligations are sufficiently
defined.We hold that the terms of the rule 11 agreement are not so indefinite
so as to preclude its enforcement, and we overrule Stergiou’s second sub-issue.
C. Statute of Frauds
Part of the
dispute on appeal concerns the description of the security for Curry’s promise
to pay Stergiou $300,000 for the return of his stock. The rule 11 agreement
provides that the promissory note “will be secured by a first lien Deed of
Trust and Security Agreement covering all furniture, fixtures, equipment,
receivables (from the ordinary course of business), inventory, and real
property owned by the GMF Companies known [as] (the White Buildings and the
empty lot) (excluding the four lots the ‘Blue Building’ resides upon and the
‘Blue Building’) of General Metal Fabrication, Inc. and GMF Leasing, Inc.”
Stergiou argues
that we should reverse the trial court’s summary judgment and render judgment
that the rule 11 agreement is not enforceable because it does not sufficiently
describe the real property offered as security. This argument rests on the
premise that the rule 11 agreement is a contract for the sale of real estate
and thus subject to the statute of frauds. See Tex. Bus. & Comm. Code Ann.
§ 26.01(b)(4) (West 2009) (statute of frauds).Without deciding whether that
premise is sound, we conclude that the rule 11 agreement, together with the
writings referenced by it, describes the property in a manner sufficient to
satisfy the statute of frauds.
The statute
of frauds does not require that a complete description of the land to be
conveyed appear in a single document. See Padilla, 907 S.W.2d at 460 (holding
that series of letters between parties satisfied statute of frauds).A property
description is sufficient if the writing furnishes within itself, or by
reference to some other existing writing, the means or data by which the
particular land to be conveyed may be identified with reasonable certainty. See
AIC Mgmt. v. Crews, 246 S.W.3d 640, 645 (Tex. 2008).The description of the land
may be obtained from documents that are prepared in the course of the
transaction, even if those documents are prepared after the parties’ contract
for sale. See Porter v. Reaves, 728 S.W.2d 948, 949 (Tex. App.—Fort Worth 1987,
no writ) (description of land as “1/2 of 20-acre tract” satisfied statute of
frauds because location of tract was not disputed, the parties referenced a
drawing of the tract in their contract, and seller was required to furnish
“current survey” of land after contract was executed); see also Adams v.
Abbott, 254 S.W.2d 78, 80 (Tex. 1952) (description furnished by exchange of
correspondence between the parties)
The GMF
Companies’ summary judgment evidence included Curry’s affidavit testimony that
they owned three tracts of land, which were commonly referred to as the “Blue
Building,” the “White Buildings,” and the “empty lot.”Stergiou’s attorney
drafted the rule 11 agreement using those same terms. Although the rule 11
agreement describes the property to be secured by the deed of trust only as the
“White Buildings” and “empty lot,” but not “the four lots the ‘Blue Building’
resides upon and the ‘Blue Building,’” the various deeds of trust and the
security agreements circulated as drafts between the parties contain sufficient
legal descriptions of those properties. The “White Buildings” are described as:
Lots Five
(5), Six (6), Fifteen (15) and Sixteen (16), in Block Fifty-Four (54), of
KING’S COURT, an addition in Harris County, Texas, according to the map of the
plat thereof recorded in Volume 7, Page 65 of the Map Records of Harris County,
Texas.
The “empty
lot” is described as:
Lots 7, 8, 9
and 10, in Block 54 of KING’S COURT, an addition in Harris County, Texas,
according to the map or plat thereof recorded in Volume 7, Page 65 of the Map
of Records of Harris County, Texas.
These same
legal descriptions appear in the drafts prepared by Stergiou and in the drafts
prepared by the GMF Companies. Thus, there was no dispute between the parties
regarding the identification of the real estate.
For this
reason, we hold that the statute of frauds does not bar enforcement of the rule
11 agreement, and we overrule Stergiou’s third sub-issue.
Interpretation
of the Rule 11 Agreement
Having
determined that the rule 11 agreement is enforceable, we now consider whether, as
argued by the GMF Companies in their appeal, the agreement authorized Curry to
pay the entire amount owed under the agreement at one time In four issues, the
GMF Companies contend (1) the rule 11 agreement included a right of prepayment,
(2) Curry’s tender of the full $300,000 constituted substantial performance of
the rule 11 agreement, (3) by refusing that tender, Stergiou waived his right
to interest under the rule 11 agreement, and (4) Stergiou’s failure to mitigate
his damages by accepting the tender relieves Curry of any continuing burden to
make interest payments. For reasons discussed below, only the GMF Companies’
first issue is properly within the scope of this agreed interlocutory appeal.
A. Right to Prepay
The rule 11
agreement provided that the GMF Companies will pay Stergiou $300,000, in the
form of a promissory note and on the following terms:
There is no
dispute that, pursuant to these provisions, the GMF Companies tendered the full
$300,000 owed to Stergioubefore the down-payment deadline.
In their
first issue, the GMF Companies argue that the trial court erred in determining
that they had no right to prepay the full $300,000 because the agreement
included language permitting payment of the $20,000 down “on or before” a certain
date.They assert that, “when an instrument permits a payment “on or before” a
certain date, the maker—while required to make the minimum payment due by that
date—also has the right to prepay any other amount, so long as he does so by
the due date.And, the right to prepay is not simply a right to pay early, but a
right to avoid paying unearned interest.”Stergiou responds that the “on or
before” language applied only to the $20,000 down payment and did not confer
any general right to prepay the future payments owed.According to Stergiou, the
interpretation urged by the GMF Companies would vitiate his right to receive
interest and a long-term payout under the settlement.
None of the
parties argue that the rule 11 agreement’s payment provisions are
ambiguous.When a contract is not ambiguous, we construe it according to the
plain meaning of its express wording and enforce it as written.Chapman v.
Abbot, 251 S.W.3d 612, 616−17 (Tex. App.—Houston [1st Dist.] 2007, no
pet.).Extrinsic evidence may not be used to create an ambiguity.See Balandran
v. Safeco Ins. Co. of Am., 972 S.W.2d 738, 745.We may, however, examine the
contract as a whole in light of the circumstances present when the contract was
entered.See Transcontinental Gas Pipeline Corp. v. Texaco, Inc., 35 S.W.3d 658,
666 (Tex. App.—Houston [1st Dist.] 2000, pet. denied).
The words
“on or before” have a particular meaning in Texas case law.Over one hundred
years ago the Texas Supreme Court wrote:“The words ‘on or before’ are of such
common use in promissory notes as to be well understood to mean, ‘immediately
or at any time in advance of,’ ‘a period named.’”Lovenberg v. Henry, 140 S.W.
1079, 1080 (Tex. 1911).The GMF Companies rely on this well-established
definition to support their assertion of a right to prepay the entire amount
owing under the rule 11 agreement.But there is a critical distinction in the
authorities cited by the GMF Companies:in each casethe “on or before” language
immediately preceded the payment at issue or the contract included an express
right of prepayment.See Cmty.Sav.& Loan Ass’n v. Fisher, 409 S.W.2d 546,
547 (Tex. 1966) (note included express provision for prepayment of “entire
balance before maturity”);Novosad v. Svrcek, 102 S.W.2d 393, 394 (Tex. 1937)
(involving three payment obligations, each using “on or before” language);
Lovenberg, 140 S.W. at 1080 (involving single payment obligation using “on or
before” language); Karam v. Ballou, 673 S.W.2d 643, 643 (Tex. App.—Texarkana
1984, writ ref’dn.r.e.) (involving two payment obligations, each using “on or
before” language); Fortson v Burns, 479 S.W.2d 722, 723 (Tex. App.—Waco 1972,
writ ref’dn.r.e.) (involving monthly installment obligations, each installment
being due “on or before” certain date).
To apply these
authorities here, we would have to presume that, by including the “on or
before” language in the down payment provision, the parties intended it to
apply to all of the payment provisions even though that language is not
included in the provision for the future payments that are at issue.We note
that thestructure of the rule 11 agreement counsels against making such a
presumption.The down-payment provision and the future-payment provision are
separately stated in separate bullet-pointed paragraphs using complete
punctuation.
The GMF
Companies argue that giving too much weight to the structure of the rule 11
agreement ignores their undisputed intent to provide a mechanism by which they
could avoid paying Stergiou interest on the balance owed.Curry explained in his
affidavit that “[he] did not believe [he] would have access to $300,000, which
would be required in the event the jury’s verdict went against GMF.[He]
therefore sought to include a provision in the [rule 11 agreement] that would
allow GMF to pay the $300,000 settlement amount if the jury’s verdict required
GMF to pay that amount.”But this is evidence that Curry was concerned the GMF
Companies could pay the $300,000 owed at all, not that his concern was for the
avoidance of interest.
A plain, literal
reading of the words used in the rule 11 agreement compels a conclusion that
the agreement did not confer any right of prepayment with respect to the GMF
Companies’ future payment obligations. Consequently, the trial court did not
err in granting summary judgment against the GMF Companies on this issue, and
we overrule their first issue.
B. Substantial Performance, Waiver, and
Mitigation
In their
remaining issues, the GMF Companies argue that they substantially performed
under the rule 11 agreement, that Stergiou waived his right to collect interest
on the settlement amount by refusing the GMF Companies’ tender of full payment
under the rule 11 agreement, and that Stergiou failed to mitigate his damages.
Thetrial court, however, authorized this interlocutory appeal only from to “two
orders … on the parties’ cross motions for summary judgment on the issues of
whether (1) their Rule 11 settlement agreement is enforceable, granted in favor
of [the GMF Companies], and (2) [the GMF Companies] had the right to prepay the
amount due under the Rule 11 settlement agreement, granted in favor of
[Stergiou].”See Act of May 27, 2005, 79th Leg., R.S., ch. 1051, § 1, 2005 Tex.
Gen. Laws 3512, 3513, amended by Act of May 25, 2011, 82nd Leg., R.S., ch. 203,
§ 3.01, 2011 Tex. Gen. Laws 759, 761 (current version at Tex. Civ. Prac. &
Rem. Code § 51.014(d) (West Supp. 2011).[5]The two orders referenced were
attached to the joint notice of appeal signed by counsel for the GMF Companies
and Stergiou.Consistent with the trial court’s order permitting the appeal, the
summary judgment orders make clear that they are decisions on the issues of
enforceability and prepayment.The joint notice of appeal raises these same two
issues, and only these two issues.
Given that
the trial court’s orders and the parties’ joint notice of appeal frame the
issues to be decided in the same narrow manner, we conclude that the GMF
Companies’ arguments regarding theirsubstantial performance of the rule 11
agreement, Stergiou’s waiver of the right to receive interest, and Stergiou’s
alleged failure to mitigate damages are outside the scope of this appeal.We
therefore overrule the GMF Companies’ second, third, and fourth issues.
Conclusion
Having
concluded that the trial court did not err in determining that the Rule 11
Agreement was enforceable but that it did not provide for prepayment of the
obligations thereunder, we affirm the trial court’s summary judgments.
Harvey Brown
Justice
Panel
consists of Justices Jennings, Sharp, and Brown.
Justice
Sharp, dissenting.
--------------------------------------------------------------------------------
[1] See Tex. Civ. Prac. & Rem. Code
Ann. § 51.014(d) (West 2011).
[2] Although Stergiou frames his appeal as
raising a single issue challenging the trial court’s enforceability ruling, we
consider each of the reasons he asserts for error as a separate sub-issue in
the order set out above.
[3] In the alternative, Stergiou asserts
that there is a fact issue as to whether the execution of the additional
documents was a condition precedent to the formation of a binding rule 11
agreement. Stergiou did not make this argument in either his motion for summary
judgment on enforceability or his response to Curry’s competing motion on that
issue, so we cannot conclude that the trial court should have rendered summary
judgment in his favor on that ground. Travis v. City of Mesquite, 830 S.W.2d
94, 100 (Tex. 1992) (issues on appeal “must have been actually presented to and
considered by the trial court”). But we note that nothing in the rule 11
agreement indicates that the parties did not intend to be bound by the terms of
their settlement until such time as the additional documents were actually
executed. At the most, the language providing that Stergiou was to return his
shares of the stock upon “execution of all documents necessary to provide the
security described” can be construed as a condition precedent to Stergiou’s
performance under the agreement, not as a condition precedent to the formation
of a binding contract. If we were to hold as Stergiou suggests, trial courts
would have difficulty approving settlements entered on the eve of trial or, as
here, during the jury’s deliberations because the parties generally will
require additional time to prepare the formal documents memorializing their
agreement.
[4] We do not agree that all of the
“standard” terms noted by Stergiou’s real estate expert were missing from the
rule 11 agreement. For instance, Stergiou complains that the rule 11 agreement
does not identify the specific personal and real property that is collateral,
but the agreement does. It specifically identified the security as being “all
furniture, fixtures, equipment, receivables (from the ordinary course of
business), inventory, and real property owned by the GMF Companies known [as]
(the White Buildings and the empty lot) (excluding the four lots the ‘Blue
Building’ resides upon and the ‘Blue Building’)[.]”
[5] The former version of section
51.014(d) is still in effect as to cases filed in the trial court before
September 1, 2011. Act of May 25, 2011, 82nd Leg., R.S., ch. 203, § 6.01, 2011
Tex.Gen. Laws 758, 761.
SOURCE:
HOUSTON COURT OF APPEALS - 01-11-00460-CV – 5/25/12
CASE STYLE:
General Metal Fabricating Corporation, GMF Leasing, Inc., and Arnold Curry
vs. John Stergiou and Main Marine Repair
Industrial Cleaning Company
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