Action Powersports, Inc., D/B/A Wells Cycle, Inc., and Carl M. Wells v. 1STEL, Inc. ( 2016 )

In The
Court of Appeals
Sixth Appellate District of Texas at Texarkana
No. 06-16-00020-CV
ACTION POWERSPORTS, INC., D/B/A
WELLS CYCLE, INC., AND CARL M. WELLS, Appellants
V.
1STEL, INC., Appellee
On Appeal from the 413th District Court
Johnson County, Texas
Trial Court No. C201300332
Before Morriss, C.J., Moseley and Burgess, JJ.
Opinion by Justice Moseley
OPINION
After Action Powersports, Inc., d/b/a Wells Cycle, Inc. (Action), ceased paying the
monthly invoices for its telephone system, 1STEL, Inc. (1STEL), filed suit against Action and its
President, Carl Wells (Wells). 1STEL asserted a cause of action for breach of contract against
Action and Wells, individually, on its Master Service Agreement for Communications Services
(the Agreement), and against Wells, individually, for breach of the payment guaranty contained in
the Agreement. Although Action and Wells answered the lawsuit, they failed to appear at trial,
and the 413th Judicial District Court of Johnson County1 entered a post-answer default judgment
in favor of 1STEL. On appeal, Action and Wells complain that the trial court erred (1) in entering
judgment against Wells, individually, for breaching the payment guaranty, and (2) in failing to set
a hearing on their motion for new trial and allowing the same to be overruled as a matter of law.
We find no error by the trial court and affirm its judgment.
I. Background
On or about December 6, 2011, Action entered into the Agreement with 1STEL to install
a telephone system at its place of business in Ennis and to provide telephone and internet services
for a term of five years. The Agreement included the following clauses:
13. Governing Law and Exclusive Venue
This Agreement shall be construed under the laws of the State of Texas
without regard to choice of law principles. Customer further agrees that
exclusive venue with respect to any dispute between the parties shall be in
the state and federal courts of Johnson County, Texas.
1
Originally appealed to the Tenth Court of Appeals, this case was transferred to this Court by the Texas Supreme
Court pursuant to its docket equalization efforts. See TEX. GOV’T CODE ANN. § 73.001 (West 2013). We are unaware
of any conflict between precedent of the Tenth Court of Appeals and that of this Court on any relevant issue. See
TEX. R. APP. P. 41.3.
2
....
18. Guaranty
The undersigned hereby (1) personally guarantees all obligations of
Customer regarding payment for Services and all other amounts owed
hereunder, and (2) agrees to be bound by the governing law and exclusive
venue provision in Section 13 hereof.
The signature line indicates that the company entering into the Agreement is Action, and is signed
by Wells. Beneath his signature, Wells’ name is hand-printed and below that, his title of
“President” is hand-printed.
In May 2012, Action stopped paying its monthly invoice for services provided by 1STEL.
Under the terms of the Agreement, on July 12, 2012, 1STEL sent Action a final bill for $38,680.99,
which included unpaid invoices and non-recurring charges. After Action failed to pay the final
bill, 1STEL filed suit on July 23, 2013.
An original answer to the suit was filed on behalf of Action and Wells by their attorney,
Don A. Young, on September 26, 2013. Young died October 7, 2014, and no other attorney
thereafter entered an appearance on behalf of Action or Wells. When the attorney for 1STEL
learned in May 2015 of Young’s demise, he sent a letter directly to Action and Wells wherein he
reminded them that the case was still pending and requested that they have another attorney enter
an appearance on their behalf. When no attorney entered an appearance on their behalf, 1STEL’s
attorney sent a follow-up letter to Action and Wells July 31, 2015, advising them that he was
requesting a status conference hearing in light of Young’s death. On August 25, 2015, 1STEL’s
attorney mailed notice to Action and Wells, advising them that the requested status conference
hearing would be held September 9, 2015. Despite this action by ISTEL’s attorney, neither Action,
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nor Wells, nor an attorney representing either attended the hearing. At that hearing, 1STEL’s
attorney advised the court that he had spoken with Wells, who informed him that he (Wells) was
talking to some attorneys. 1STEL also introduced its attorney’s correspondence with Action and
Wells concerning the need for the defendants to retain new counsel. The trial court entered an
order September 10, 2015, directing Action and Wells to have an attorney enter an appearance on
their behalf on or before October 9, 2015. By letter dated September 10, 2015, 1STEL’s attorney
mailed Action and Wells a copy of that order by United States Postal Service certified mail and by
regular mail. The receipt for the certified mail was signed by Wells.
Even so, no attorney appeared on behalf of Action and Wells, and by letter dated
October 14, 2015, 1STEL’s attorney sent Action and Wells notice that a final hearing had been set
in the case for December 15, 2015, sending it by certified mail. Wells signed the return receipt for
the notice on October 16, 2015. Neither Action nor Wells appeared at the final hearing (either
personally or by counsel). The trial court entered its judgment in favor of 1STEL on its breach of
contract claims,2 wherein it awarded ISTEL judgment jointly and severally against Action and
Wells, for $45,154.93, together with attorney fees of $3,087.50, costs of court, and post-judgment
interest.
Action and Wells filed a verified motion for a new trial. In their motion, Action and Wells
alleged that their attorney had died October 7, 2014, and that no attorney had made an appearance
on their behalf after that time. Although they acknowledged having received communications
from 1STEL’s attorney, they laid the cause of their lack of response to the fact that they had
2
In their briefs, both parties interpret the judgment against Wells as a judgment for his breach of the payment guaranty.
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received no notice from the trial court itself. They did not deny receiving notice of the final
hearing, but alleged that they were not aware that a hearing could be set without notice from the
trial court or its clerk and that their failure to appear was because they were not aware the trial
court had approved the trial date. They also alleged that they had meritorious defenses of offset
and failure of performance by 1STEL and that Wells did not personally guarantee payment under
the Agreement. Finally, they alleged that a new trial would neither cause delay to nor prejudice
1STEL.
1STEL’s objection to the motion for new trial was supported by the affidavit of its
president. 1STEL alleged that Action and Wells had received multiple notices regarding the case
and directed the attention of the trial court to the exhibits introduced at the final hearing evidencing
its attorney’s efforts to encourage them to retain a new attorney, notices sent to them regarding the
scheduling of the status conference hearing and the order resulting from it, and the notice of final
hearing received by Wells. Although Action and Wells filed a response they did not controvert
any of the allegations made, or evidence presented, by 1STEL. Although Action and Wells
requested a hearing on their motion, no hearing was held, and the motion was overruled as a matter
of law.
II. Wells’ Personal Liability
In their first point of error,3 Action and Wells assert that the trial court erred in entering
judgment against Wells, individually, because the petition on its face shows the invalidity of the
claim against him in his individual capacity. He argues that the Agreement shows that he executed
3
The first point of error applies only to Wells.
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it only in his capacity as president of Action (not in his individual capacity) and that since the
Agreement was incorporated into the petition, the petition on its face shows that the claim against
him individually on the guaranty of payment was invalid.4 Wells also argues that there is no
evidence to show that he is liable in his individual capacity. 1STEL argues first that Wells waived
this point of error under Rule 33.1 of the Texas Rules of Appellate Procedure. It then argues that
even if he had not waived the point of error, the Agreement shows him to be personally liable
under the guaranty of payment as a matter of law.
III. Lack of Waiver
Initially, we address 1STEL’s claim of waiver. It argues that because Wells failed to assert
in any trial-level pleading before judgment that he was not personally liable, he has preserved
nothing for our review under Rule 33.1 of the appellate rules. However, Rule 33.1 provides that
“[i]n a civil case, the overruling by operation of law of a motion for new trial or a motion to modify
the judgment preserves for appellate review a complaint properly made in the motion, unless taking
evidence was necessary to properly present the complaint in the trial court.” TEX. R. APP. P.
33.1(b). In this case, Wells asserted his defense that he was not personally liable in his motion for
new trial, a motion which was overruled by operation of law. As we address below, this defense
could be determined as a matter of law, so no taking of evidence was necessary to present it to the
trial court. Thus, this error was preserved for our review under the appellate rules.
4
A default judgment may be erroneous “if (1) the petition . . . does not attempt to state a cause of action within the
jurisdiction of the court, or (2) the petition . . . does not give fair notice to the defendant of the claim asserted, or (3) the
petition affirmatively discloses the invalidity of such claim.” Stoner v. Thompson, 578 S.W.2d 679, 684–85 (Tex,
1979); see McLeod v. Gyr, 439 S.W.3d 639, 651 (Tex. App.—Dallas 2014, pet. denied).
6
A. Standard of Review
Wells’ assertion that there is no evidence supporting his individual liability amounts to a
challenge to the legal sufficiency of the evidence. In our legal sufficiency review, we determine
“whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict
under review.” Petrohawk Props., L.P. v. Jones, 455 S.W.3d 753, 770 (Tex. App.—Texarkana
2015, pet. dism’d) (quoting City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005); Basley v.
Adoni Holdings, LLC, 373 S.W.3d 577, 582 (Tex. App.—Texarkana 2012, no pet.)). We will find
that the evidence is legally insufficient only if
(1) there is a complete absence of evidence of a vital fact; (2) the rules of law or of
evidence bar the court from giving weight to the only evidence offered to prove a
vital fact; (3) there is no more than a mere scintilla of evidence offered to prove a
vital fact; or (4) the opposite of the vital fact is conclusively established by the
evidence.
Id. (citing Jelinek v. Casas, 328 S.W.3d 526, 532 (Tex. 2010)). There is more than a scintilla of
evidence “when the evidence reaches a level enabling reasonable and fair-minded people to differ
in their conclusions.” Id. (citing Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex.
1997)). “Less than a scintilla of evidence exists when the evidence is ‘so weak as to do no more
than create a mere surmise or suspicion’ of a fact.” Id. (quoting King Ranch, Inc. v. Chapman,
118 S.W.3d 742, 751 (Tex. 2003) (quoting Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex.
1983))).
It is undisputed that the only evidence of Wells’ individual liability is the Agreement. In
addition, the Agreement is the basis of Wells’ argument that the petition shows on its face that
1STEL’s claim against him is invalid. Therefore, the resolution of this point of error requires us
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to construe the Agreement. “The construction of an unambiguous contract is a question of law
which we review de novo.” Id. at 765 (citing Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011)).
If the wording of a contract can be given “a certain or definite legal meaning or interpretation,” it
is not ambiguous. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). When the contract is
unambiguous, “the instrument alone will be deemed to express the intention of the parties for it is
objective, not subjective, intent that controls.” City of Pinehurst v. Spooner Addition Water Co.,
432 S.W.2d 515, 518 (Tex. 1968). “A contract is not ambiguous simply because the parties
disagree over its meaning.” Dynegy Midstream Servs., Ltd. P’ship v. Apache Corp., 294 S.W.3d
164, 168 (Tex. 2009). Only when a contract’s “meaning is uncertain and doubtful or is reasonably
susceptible to more than one interpretation” is it deemed ambiguous. Craig Sessions, M.D., P.A.
v. TH Healthcare, Ltd., 412 S.W.3d 738, 743 (Tex. App.—Texarkana 2013, no pet.) (quoting
Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996)). In construing a contract,
“we assume the parties intended ‘every clause to have some effect and in some measure to evidence
their agreement.’” Petrohawk Props., 455 S.W.3d at 775 (quoting City of Pinehurst, 432 S.W.2d
at 518).
B. Analysis
Several of our sister courts of appeals have construed language similar to that found in the
Agreement to make the corporate signatory personally liable under a guaranty agreement
contained in a credit application. See 84 Lumber Co., L.P. v. Powers, 393 S.W.3d 299 (Tex.
App.—Houston [1st Dist.] 2012, pet denied); Taylor–Made Hose, Inc. v. Wilkerson, 21 S.W.3d
484 (Tex. App.—San Antonio 2000, pet. denied); Austin Hardwoods, Inc. v. Vanden Berghe, 917
8
S.W.2d 320 (Tex. App.—El Paso 1995, writ denied). In Wilkerson, Wilkerson signed an
application for a credit account with Taylor-Made on behalf of North American Transit, Inc.
Beside her signature, it indicated that she was vice-president of the company. Above her signature
was a provision stating, “I, [sic] personally agree to pay all invoices and cost of collection
including, but not limited to[,] collections agency fees, court costs, and reasonable attorney’s fees
on any amount remaining unpaid after 90 days.” Wilkerson, 21 S.W.3d at 486. After the company
failed to pay its account and filed for bankruptcy, Taylor-Made filed suit against Wilkerson on the
guaranty agreement. Id. at 486–87. After summary judgment was entered in favor of Taylor-
Made, Wilkerson appealed, asserting that there was no evidence that she was individually liable
for the debt and that there was no evidence that the contract was enforceable against her since there
was no writing signed by her in her individual capacity. Id. at 487. Taylor-Made argued that the
credit application itself established Wilkerson’s liability. Id. The San Antonio Court of Appeals
agreed with Taylor-Made, finding that under the unambiguous language of the guaranty contract,
Wilkerson had personally agreed to pay the company’s delinquent account and that she “made
herself personally liable for the corporation’s debt.” Id. at 488.
Similarly, in 84 Lumber Co., Powers signed a credit application on behalf of his corporation
as its president. Above his signature, a paragraph provided, “I DO UNCONDITIONALLY AND
IRREVOCABLY PERSONALLY GUARANTEE THIS CREDIT ACCOUNT AND []ENTS OF
ANY AND ALL AMOUNTS DUE BY THE ABOVE BUSINESS.” 84 Lumber Co., 393 S.W.3d
at 302. The Houston Court of Appeals reversed a summary judgment in favor of Powers and
rendered judgment for 84 Lumber, finding that, notwithstanding the missing language, the contract
9
was clear and unambiguous and that by signing the contract Powers had created his individual
liability for the debt of the corporation. Id. at 305, 308.
As in Wilkerson and 84 Lumber Co., Wells signed the Agreement on behalf of Action as
its president. This was required in order to bind the corporation to the Agreement. Under the
Agreement, Action was obligated to pay all invoices for the services rendered by 1STEL for a
period of five years. If it defaulted on payment of the invoices, it would also be obligated for
additional charges as provided in the Agreement. Section 18 of the Agreement also provides that
by signing the Agreement, Wells “personally guarantee[d] all obligations of [Action] regarding
payment for Services and all other amounts owed [t]hereunder.” The purpose of the guaranty was
to secure any debt owed by Action. See Vince Poscente Int’l, Inc. v. Compass Bank, 460 S.W.3d
211, 219 (Tex. App.—Dallas 2015, no pet.). Under Wells’ interpretation, Action would be
guaranteeing its own debt, which would render this provision meaningless. Further, Section 18
also states that “the undersigned . . . . agrees to be bound by the governing law and exclusive venue
provision in Section 13 hereof.” In Section 13, Action agreed that Texas law would be controlling
and venue of any dispute between the parties would be in the courts of Johnson County, Texas.
Since “we assume the parties intended ‘every clause to have some effect and in some measure to
evidence their agreement,’” Petrohawk Props., 455 S.W.3d at 775 (quoting City of Pinehurst, 432
S.W.2d at 518), this section clearly evidences that Wells, individually, was agreeing to be bound
by the governing law and venue provisions in any dispute between Wells and 1STEL. Likewise,
Section 18 clearly and unambiguously provides that Wells, individually, guaranteed the payment
of any amounts owed by Action under the Agreement.
10
Since the Agreement was attached to the original petition, we find that the petition did not
show on its face the invalidity of 1STEL’s claim against Wells. Further, since the Agreement was
introduced into evidence at the final hearing, we find that sufficient evidence supported the trial
court’s judgment against Wells individually. We overrule this point of error.
IV. Motion for A New Trial
In their second point of error, Action and Wells assert that the trial court erred in failing to
conduct a hearing on their motion for new trial, thereby allowing their motion to be overruled as a
matter of law. They argue that their verified motion for new trial established the Craddock5
requirements for a new trial after default judgment and therefore that the trial court was required
to have a hearing on its motion and to grant a new trial. We disagree.
A. Standard of Review
We review the denial of a motion for new trial under an abuse-of-discretion standard.
Director, State Employees Workers’ Compensation Div. v. Evans, 889 S.W.2d 266, 268 (Tex.
1994). After a default judgment, the “trial court abuses its discretion by not granting a new trial
when all three elements of the Craddock test are met.” Id. (citing Bank One, Tex., N.A. v. Moody,
830 S.W.2d 81, 85 (Tex. 1992)). Craddock provides that a new trial should be granted after a
default judgment when
[1] the failure of the defendant to answer before judgment was not intentional, or
the result of conscious indifference on his part, but was due to a mistake or an
accident; [2] provided the motion for a new trial sets up a meritorious defense and
[3] is filed at a time when the granting thereof will occasion no delay or otherwise
work an injury to the plaintiff.
5
See Craddock v. Sunshine Bus Lines, Inc., 133 S.W.2d 124, 126 (Tex. 1939).
11
Id. (quoting Craddock, 133 S.W.2d at 126). The Craddock requirements are applicable to post-
answer default judgments. Id.; Ivy v. Carrell, 407 S.W.2d 212, 214 (Tex. 1966).
The defaulting party has the burden of setting forth facts establishing all three elements of
the Craddock test. Scenic Mountain Med. Ctr. v. Castillo, 162 S.W.3d 587, 590 (Tex. App.—
El Paso 2005, no pet.). When no hearing is held, we look to the motion for new trial and any
accompanying affidavits to determine if this burden is met. See In re Marriage of Woods, No. 06-
13-00123-CV, 2014 WL 4437795 (Tex. App.—Texarkana Apr. 25, 2014, no pet.) (mem. op.). If
the motion and accompanying affidavits fail to establish any prong of the Craddock test, then the
trial court’s denial of a new trial will be upheld. See Holt Atherton Indus., Inc. v. Heine, 835
S.W.2d 80, 83 (Tex. 1992); Ivy, 407 S.W.2d at 215.
B. Analysis
Craddock requires that the motion for new trial set up a meritorious defense. We determine
here whether Action and Wells met this burden “based on the facts alleged in the motion and the
supporting affidavit, regardless of whether those facts are controverted.” Woods, 2014 WL
4437795, at *4 (citing Evans, 889 S.W.2d at 270). Setting up a meritorious defense “means ‘[t]he
motion must allege facts which in law would constitute a defense to the cause of action asserted
by the plaintiff, and must be supported by affidavits or other evidence proving prima facie that the
defendant has such meritorious defense.’” Estate of Pollack v. McMurrey, 858 S.W.2d 388, 392
(Tex. 1993) (quoting Ivy, 407 S.W.2d at 214). This is required “to prevent the reopening of cases
to try out fictitious or unmeritorious defenses.” Ivy, 407 S.W.2d at 214. Therefore, “conclusory
12
allegations are insufficient.” Heine, 835 S.W.2d at 82 (citing Folsom Invs., Inc. v. Troutz, 632
S.W.2d 872, 875 (Tex. App.—Fort Worth 1982, writ ref’d n.r.e.)).
In their motion for new trial, Action and Wells alleged
8. The Plaintiff’s cause of action is based upon a Contract alleged to
have been breached by the Defendants and to this cause of action the Defendants
can and do set up a meritorious defense as follows: [Action] alleges that it is
entitled to offsets for any claims presented by the Plaintiff in that the Plaintiff did
not provide the services as promised. [Wells] alleges that he is not responsible in
his individual capacity as he did not provide any personal guarantee of the Contract.
The only other allegation in their motion relevant to a claimed meritorious defense was that the
Agreement was not signed by Wells in his individual capacity. Action and Wells filed no
supporting affidavits, although Wells verified under oath that the statements contained in the
motion for new trial were within his personal knowledge and that they were true and correct.
As we have previously discussed, the Agreement established that Wells provided a
personal guarantee and was liable in his individual capacity. Therefore, the motion for new trial
set up no meritorious defense for Wells. Further, the allegations that Action is entitled to offsets
and that 1STEL failed to provide the promised services are conclusory. There are no facts alleged
showing what services 1STEL failed to provide or establishing that Action was entitled to an offset.
Therefore, the motion did not set up a meritorious defense for Action. Since the motion for new
trial did not contain allegations of fact that constituted a meritorious defense for either Action or
Wells, we find that the trial court did not err in overruling the motion for new trial. See Ivy, 407
S.W.2d at 215. We overrule this point of error.
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We affirm the judgment of the trial court.
Bailey C. Moseley
Justice
Date Submitted: August 2, 2016
Date Decided: August 5, 2016
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