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michele-marie-wernecke-individually-and-as-parent-guardian-andor-next ( 2013 )


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  •                        NUMBER 13-12-00782-CV
    COURT OF APPEALS
    THIRTEENTH DISTRICT OF TEXAS
    CORPUS CHRISTI – EDINBURG
    MICHELE MARIE WERNECKE,
    INDIVIDUALLY AND AS
    PARENT, GUARDIAN AND/OR
    NEXT FRIEND OF JO. EW., A
    MINOR AND JOSHUA EDWARD
    WERNECKE,                                                       Appellants,
    v.
    W-BAR RANCHES, LTD., E&M
    RANCHES, L.T.D., AND 3JKC
    INVESTMENTS, LTD.,                                                Appellees.
    On appeal from the 94th District Court of
    Nueces County, Texas.
    MEMORANDUM OPINION
    Before Chief Justice Valdez and Justices Garza and Perkes
    Memorandum Opinion by Justice Garza
    This is an appeal from a summary judgment granted in a declaratory judgment
    action. Appellee limited partnerships W-Bar Ranches, Ltd., E&M Ranches, Ltd., and
    3JKC Investments, Ltd. (“W-Bar,” “E&M,” and “3JKC,” respectively), sought a
    declaration that the partnership agreements governing those entities should be
    rescinded as to Joshua Edward Wernecke, 1 a minor who was named in the agreements
    as a limited partner.         The trial court granted summary judgment in favor of the
    partnerships on the basis of unilateral mistake.                Appellants Joshua and his mother
    Michele Marie Wernecke, individually and as parent, guardian and/or next friend of
    Joshua, now challenge that ruling. We affirm.
    I. BACKGROUND
    Michele and Edward Wernecke were married in 1990. Five children were born
    during the marriage, including Joshua, born on January 4, 2000. Edward created the
    three partnerships over the next ten years. The partnership property consists of farming
    and ranching operations owned or purchased by Edward, as well as a life estate in
    certain real property inherited by Edward from his parents, with a remainder to Edward’s
    children.     Edward drafted partnership agreements for each of the three entities.
    According to Edward, the purpose of setting up the partnerships was to protect the land
    and agricultural operations for himself, for his wife, and for his children, grandchildren
    and descendants.
    1
    The parties refer to Joshua in their briefs as “Jo.E.W.” However, this is not a suit affecting the
    parent-child relationship, a parental-rights termination case, or a juvenile delinquency case. Cf. TEX. FAM.
    CODE ANN. § 109.002(d) (West Supp. 2011) (stating that, in a suit affecting the parent-child relationship,
    “[o]n the motion of the parties or on the court’s own motion, the appellate court in its opinion may identify
    the parties by fictitious names or by their initials only”); TEX. R. APP. P. 9.8(b)(2) (providing that, in an
    opinion in a parental-rights termination case, we must “use an alias to refer to a minor, and if necessary to
    protect the minor's identity, to the minor’s parent or other family member”); TEX. R. APP. P. 9.8(c)(2)
    (providing that, in an opinion in a juvenile proceeding under title 3 of the family code, we must “use an
    alias to refer to a minor and to the minor’s parent or other family member”). The parties have not
    requested that this Court refer to Joshua only by his initials in our opinion, and we see no reason or
    authority to do so under the applicable statute or rules.
    2
    Each of the partnership agreements named Joshua as an original limited
    partner. 2 In 2010, Edward and Michele divorced. During the divorce proceedings, it
    was revealed that Joshua is not, in fact, Edward’s biological child. As a result, Edward
    executed amendments to the partnership agreements removing Michele and Joshua as
    partners.
    Subsequently, appellants sent a demand seeking the fair value of Joshua’s
    interest in the partnerships. See TEX. BUS. ORGS. CODE ANN. § 153.111 (West 2011)
    (“Except as otherwise provided by Section 153.210 or the partnership agreement, on
    withdrawal a withdrawing limited partner is entitled to receive, not later than a
    reasonable time after withdrawal, the fair value of that limited partner's interest in the
    limited partnership as of the date of withdrawal.”). In response, the partnerships filed
    suit seeking a declaration that the partnership agreements are rescinded as to Joshua.
    Appellants answered the suit by generally denying the partnerships’ allegations and
    asserting the affirmative defenses of waiver and estoppel.               Appellants also filed a
    counterclaim for breach of the partnership agreements, demand for an accounting, and
    request for determination of redemptive terms. See 
    id. The partnerships
    filed a traditional motion for summary judgment based on
    unilateral mistake, claiming that Edward was under the mistaken belief that Joshua was
    his biological son when he included him as a limited partner. According to an affidavit
    by Edward, he named Joshua as a limited partner in the agreements only because he
    mistakenly believed that Joshua was his biological son; and he was “shocked” when he
    2
    Edward and Michele were included as general partners in the W-Bar partnership agreement.
    Edward was named as both a general and limited partner in E&M, while Michele was named as a limited
    partner. The 3JKC agreement provides that Edward is a limited partner and excludes Michele entirely.
    3
    learned, after Michele filed for divorce in 2010, that Joshua was not biologically related
    to him. The partnerships’ motion also stated that, because the partnership agreements
    “must be rescinded as to [Joshua],” he and Michele must take nothing by their
    counterclaims.
    In their response to the partnerships’ summary judgment motion, appellants
    urged that summary judgment would be improper because there is a fact issue
    regarding whether the provisions in the partnership agreements naming Joshua as a
    partner were material. See, e.g., James T. Taylor & Son, Inc. v. Arlington Indep. Sch.
    Dist., 
    160 Tex. 617
    , 620 (1960) (noting that, in order to obtain equitable rescission of a
    contract by virtue of unilateral mistake, it must be shown that the mistake, among other
    things, related to a material feature of the contract). In support of this argument, and in
    support of their waiver and estoppel affirmative defenses, appellants pointed to the
    partnership agreements themselves, in which individuals other than Joshua who are not
    biological children of Edward are named as limited partners.
    The trial court granted the partnerships’ motion, declaring the agreements
    rescinded as to Joshua and ordering that Joshua and Michele take nothing by their
    counterclaims.   Joshua and Michele filed a motion for reconsideration, which was
    denied. This appeal ensued.
    II. DISCUSSION
    A.    Standard of Review
    In a traditional motion for summary judgment, the movant has the burden to
    establish that no genuine issue of material fact exists and that it is entitled to judgment
    as a matter of law. TEX. R. CIV. P. 166a(c). If the movant meets its burden, the burden
    4
    shifts to the non-movant to produce summary judgment evidence that raises a fact
    issue. Rhone-Poulenc, Inc. v. Steel, 
    997 S.W.2d 217
    , 222 (Tex. 1999).
    We review the granting of a traditional motion for summary judgment de novo.
    Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 
    289 S.W.3d 844
    , 848 (Tex.
    2009). We review the evidence presented in the motion and response in the light most
    favorable to the party against whom the summary judgment was rendered, crediting
    evidence favorable to that party if reasonable jurors could and disregarding contrary
    evidence unless reasonable jurors could not. 
    Id. When a
    defendant moves for summary judgment based on an affirmative
    defense, such as unilateral mistake, the defendant, as movant, bears the burden of
    conclusively proving each essential element of that defense. Fed. Deposit Ins. Corp. v.
    Lenk, 
    361 S.W.3d 602
    , 609 (Tex. 2012); Velsicol Chem. Corp. v. Winograd, 
    956 S.W.2d 529
    , 530 (Tex. 1997) (per curiam). A matter is conclusively established if reasonable
    people could not differ as to the conclusion to be drawn from the evidence. City of
    Keller v. Wilson, 
    168 S.W.3d 802
    , 816 (Tex. 2005).
    B.    Applicable Law
    A court may set aside a contract based on unilateral mistake if a party shows
    that: (1) the mistake is of so great a consequence that to enforce the contract would be
    unconscionable; (2) the mistake relates to a material feature of the contract; (3) the
    mistake occurred despite ordinary care; and (4) setting aside the contract does not
    prejudice the other party except for the loss of the bargain. James T. Taylor & 
    Son, 160 Tex. at 620
    ; Toler v. Sanders, 
    371 S.W.3d 477
    , 481–82 (Tex. App.—Houston [1st Dist.]
    2012, no pet.); Welkener v. Welkener, 
    71 S.W.3d 364
    , 366 (Tex. App.—Corpus Christi
    5
    2001, no pet.).
    On appeal, appellants cite the 1973 Texas Supreme Court case of Johnson v.
    Snell in arguing that a party claiming unilateral mistake must show, as an essential
    element of its claim, that the mistake was known by, or induced by acts of, the other
    party. See 
    504 S.W.2d 397
    , 399 (Tex. 1973) (“A mistake by only one party to an
    agreement, not known to or induced by acts of the other party will not constitute
    grounds for relief.”); see also Smith-Gilbard v. Perry, 
    332 S.W.3d 709
    , 713–14 (Tex.
    App.—Dallas 2011, no pet.) (same); Zapatero v. Canales, 
    730 S.W.2d 111
    , 114 (Tex.
    App.—San Antonio 1987, pet. ref’d n.r.e.) (same). We disagree. The case primarily
    cited by the Johnson Court, Morris v. Millers Mutual Fire Insurance Co. of Texas, stated
    merely that “[a] mistake by only one party to the agreement where it is not induced by
    the acts of the other party will usually not constitute grounds for relief.” 
    343 S.W.2d 269
    , 271 (Tex. Civ. App.—Dallas 1961, no pet.) (emphasis added).             This is not
    inconsistent with the Texas Supreme Court’s pronouncement in James T. Taylor & Son
    that “equitable relief will be granted against a unilateral mistake when the conditions of
    remediable mistake [i.e., the four elements set 
    forth supra
    ] are 
    present.” 160 Tex. at 620
    . Accordingly, we conclude, consistent with a majority of appellate courts, that it is
    unnecessary for a party claiming unilateral mistake to prove that the other party had
    knowledge of the mistake or induced the mistake; rather, it is only necessary to
    establish the elements set forth in James T. Taylor & Son and its progeny. Accord
    
    Toler, 371 S.W.3d at 481
    –82; Ross v. Union Carbide Corp., 
    296 S.W.3d 206
    , 220 (Tex.
    App.—Houston [14th Dist.] 2009, pet. denied); City of The Colony v. N. Tex. Mun. Water
    Dist., 
    272 S.W.3d 699
    , 737 (Tex. App.—Fort Worth 2008, pet. dism’d); Prudential Ins.
    6
    Co. of Am. & Four Partners LLC v. Italian Cowboy Partners Ltd., 
    270 S.W.3d 192
    , 205
    (Tex. App.—Eastland 2008), rev’d on other grounds, 
    341 S.W.3d 323
    (Tex. 2011);
    Kendziorski v. Saunders, 
    191 S.W.3d 395
    , 407 (Tex. App.—Austin 2006, no pet.); Kent
    v. Holmes, 
    139 S.W.3d 120
    , 132 (Tex. App.—Texarkana 2004), rev’d on other grounds,
    
    221 S.W.3d 622
    , 626 (Tex. 2007); 
    Welkener, 71 S.W.3d at 366
    .
    C.      Analysis
    We first must determine whether the partnerships established their entitlement to
    judgment as a matter of law on the basis of unilateral mistake. See TEX. R. CIV. P.
    166a(c). The partnerships’ summary judgment motion alleges:
    The true intention of the agreements was to pass Edward’s property on to
    his children and grandchildren. Because Edward was mistaken that
    [Joshua] was his child and thus included him in these agreements as a
    limited partner with an ownership interest in this family property by
    mistake, Edward’s mistake was of so great a consequence that to enforce
    these family partnerships with a non-family member as a limited partner
    would be unconscionable. Edward’s four biological children and his future
    grandchildren would be disinherited of at least a portion of the estate. A
    non-heir would have the same standing and rights to the property as an
    heir. This cannot be permitted when Edward never intended such a result
    and the partnership agreements expressly state the same.
    The evidence attached to the motion included the partnership agreements, each of
    which contain a section entitled “Purpose and Nature of Partnership,” which state in
    part:
    The purpose of the Partnership is to preserve the ranch properties we
    currently own as a single viable economic unit of sufficient size to be able
    to make a living from ranching for our selves [sic], our children and
    grandchildren. Our purpose is to keep the ranch in one operation and to
    pass it on to our children and grandchildren without dividing the properties
    to allow one or more of our children the opportunity to ranch the property
    in partnership in the future. . . .
    Each agreement also states that only direct descendants of Edward and Michele may
    7
    become additional limited partners. The summary judgment evidence also contains an
    affidavit by Edward 3 stating that the purpose of the partnership agreements was to
    “pass on my property to my biological children, descendants and heirs,” as well as an
    affidavit by Edward’s brother-in-law, Joe Ellis, stating in relevant part:
    Throughout his marriage to Michele, Edward thought all the children in
    their household were his biological children. He never indicated to me any
    suspicion that the five children were not his, until Michele filed for divorce
    in 2010. At that time Edward became suspicious and had the last three
    children paternity tested. When [Joshua] was determined not to be
    Edward’s biological child, he expressed utter shock and disbelief.
    We find that the partnerships met their initial burden to establish their entitlement
    to judgment on the basis of unilateral mistake. 4 First, they established that enforcement
    of the agreement would be unconscionable. See James T. Taylor & 
    Son, 160 Tex. at 3
                Appellants contend on appeal that Edward’s affidavit was conclusory and therefore not
    competent summary judgment evidence. See, e.g., Villacana v. Campbell, 
    929 S.W.2d 69
    , 73 (Tex.
    App.—Corpus Christi 1996, writ denied) (“Summary judgment should not be granted when the cause of
    action depends on proof of facts not ordinarily subject to absolute verification or denial, e.g., intent,
    reliance, reasonable care, or uncertainty.”); see also Green v. Indus. Specialty Contractors, 
    1 S.W.3d 126
    , 130 (Tex. App.—Houston [1st Dist.] 1999, no pet.) (citing City of Wilmer v. Laidlaw Waste Sys., Inc.,
    
    890 S.W.2d 459
    , 467 (Tex. App.—Dallas), aff’d, 
    904 S.W.2d 656
    , 660–61 (Tex. 1995)) (“[A]n objection
    that an affidavit is conclusory is an objection to the substance of the affidavit that can be raised for the
    first time on appeal.”). We need not address this issue because of our conclusion herein that summary
    judgment was proper based on evidence other than Edward’s affidavit. See TEX. R. APP. P. 47.1.
    4
    We note that a unilateral mistake by one party, combined with knowledge of that mistake by the
    other party, is considered equivalent to a mutual mistake and may be rescinded without a showing of
    unconscionability. Davis v. Grammer, 
    750 S.W.2d 766
    , 768 (Tex. 1988); Victoria Bank & Trust Co. v.
    Brady, 
    779 S.W.2d 893
    , 903–04 (Tex. App.—Corpus Christi 1989), rev’d in part on other grounds, 
    811 S.W.2d 931
    (Tex. 1991); see City of The Colony v. N. Tex. Mun. Water Dist., 
    272 S.W.3d 699
    , 735 (Tex.
    App.—Fort Worth 2008, pet. dism’d) (“The elements of mutual mistake are . . . (1) a mistake of fact, (2)
    held mutually by the parties, and (3) which materially affects the agreed-upon exchange.”). That is, what
    might otherwise be considered a unilateral mistake may make a contract voidable if the mistake on the
    part of one party is the result of “the inequitable conduct of the other party, such as the making of
    misleading or incorrect representations by one possessed of superior knowledge and in whom trust and
    confidence have properly been reposed.” Damstra v. Starr, 
    585 S.W.2d 817
    , 820 (Tex. Civ. App.—
    Texarkana 1979, no writ). Here, however, there was no evidence adduced that Michele had knowledge
    of the identity of Joshua’s father at the time the partnership agreements were executed. Moreover, the
    partnerships did not argue mutual mistake in their summary judgment motion. Accordingly, we may not
    affirm the summary judgment on these grounds. See TEX. R. CIV. P. 166a(c) (“Issues not expressly
    presented to the trial court by written motion, answer or other response shall not be considered on appeal
    as grounds for reversal.”).
    8
    620 (setting forth essential elements of unilateral mistake).                 “Unconscionable” is
    generally defined as “shockingly unfair or unjust.”            MERRIAM W EBSTER’S COLLEGIATE
    DICTIONARY 1286 (10th ed. 1996).           However, Texas courts have held that the term
    carries no precise legal definition. Besteman v. Pitcock, 
    272 S.W.3d 777
    , 787 (Tex.
    App.—Texarkana 2008, no pet.); Arthur’s Garage, Inc. v. Racal-Chubb Sec. Sys., 
    997 S.W.2d 803
    , 815 (Tex. App.—Dallas 1999, no pet.).                    “Unconscionability is to be
    determined in light of a variety of factors, which aim to prevent oppression and unfair
    surprise; in general, a contract will be found unconscionable if it is grossly one-sided.”
    In re Poly-America, L.P., 
    262 S.W.3d 337
    , 348 (Tex. 2008) (orig. proceeding). 5 The
    partnership agreements, which were part of the summary judgment record, establish
    that keeping Joshua as a partner would, as the partnerships argue, “essentially
    disinherit[] Edward’s true heirs of a portion of his estate and give[] a non-heir rights and
    privileges with respect to [the partnership] property.”            We believe this evidence is
    sufficient to establish that enforcement of the agreements as written would be
    unconscionable.
    Second, the partnership agreements show that only “direct descendants” of
    Edward and Michele were eligible to become limited partners.                   The identity of the
    various limited partners was a material provision of the agreements. See James T.
    Taylor & 
    Son, 160 Tex. at 620
    ; see also BLACK’S LAW DICTIONARY 1066 (9th ed.)
    (defining “material” as “[h]aving some logical connection with the consequential facts” or
    “[o]f such a nature that knowledge of the item would affect a person’s decision-making;
    significant; essential”).
    5
    The parties have cited, and we have located, no case law evaluating unconscionability in the
    context of a unilateral mistake defense.
    9
    Third, Ellis’s affidavit—which states that “Edward thought all the children in their
    household were his biological children” and that “[w]hen [Joshua] was determined not to
    be Edward’s biological child, he expressed utter shock and disbelief”—establishes that
    Edward’s mistake occurred despite his exercise of ordinary care. See James T. Taylor
    & 
    Son, 160 Tex. at 620
    .
    Finally, the agreements themselves show that setting aside the agreements
    would not prejudice appellants except for the loss of the bargain. See 
    id. Because the
    partnerships established their entitlement to judgment as a matter of
    law on the basis of unilateral mistake, appellants were therefore under a burden to
    produce evidence raising a fact issue. TEX. R. CIV. P. 166a(c). In their response to the
    partnerships’ motion and on appeal, Michele and Joshua do not dispute that:            (1)
    enforcement of the contract as written, with Joshua as a limited partner, would be
    unconscionable; (2) Edward’s mistake occurred despite his exercise of ordinary care; or
    (3) that setting aside the contract would not prejudice Michele and Joshua except for
    loss of the bargain. See James T. Taylor & 
    Son, 160 Tex. at 620
    . Instead, appellants
    only challenge the materiality element of the partnerships’ unilateral mistake theory. In
    particular, they note that the partnership agreements named as limited partners non-
    biological children of Edward other than Joshua—i.e., Michele and Edward himself—
    and they argue that this constitutes evidence creating a fact issue as to whether
    Edward’s mistake “relates to a material feature of the contract.” See 
    id. They also
    claim that the inclusion of Michele and Edward as limited partners “constitutes summary
    judgment evidence of the relinquishment of [the partnerships’] alleged right to restrict
    10
    limited partner status to biological children of [Edward].” 6
    We disagree. The fact that Edward named himself and his then-wife as partners
    does not conflict with the stated goal of the partnerships—i.e., “to preserve the ranch
    properties we currently own as a single viable economic unit of sufficient size to be able
    to make a living from ranching for our selves [sic], our children and grandchildren”—and
    it does not constitute evidence raising a fact issue as to whether the identities of the
    limited partners was a material feature of the partnership agreements.                     Moreover,
    Edward’s action in naming himself and Michele as partners does not constitute an
    “intentional relinquishment of a known right or intentional conduct inconsistent with
    claiming that right” so as to support appellants’ waiver argument.                 See Jernigan v.
    Langley, 
    111 S.W.3d 153
    , 156 (Tex. 2003).
    Appellants further argue that there is a fact issue as to materiality because two of
    the children had judicially admitted that the partnerships were not, as Edward claimed,
    established for the benefit of the children. In particular, appellants point to a petition in
    intervention filed in the Werneckes’ divorce proceeding by Jonathan Wernecke and
    Katie Wernecke, two of the Werneckes’ children.                 In the petition for intervention,
    Jonathan and Katie asserted that their parents breached their fiduciary duties to them
    by, among other things, placing Jonathan and Katie’s property in the partnerships and
    using royalties belonging to Jonathan and Katie in order to pay down community debts.
    Appellants claim that these allegations constitute “at least some evidence that the
    biological child requirement found in parts of the [partnership agreements] were not
    material.” Again, we disagree. Even if we were to assume as true the allegations made
    6
    This assertion apparently corresponds to appellants’ “waiver and estoppel” defense as pleaded
    in their answer to the partnerships’ suit and as asserted in their response to the summary judgment
    motion.
    11
    by Jonathan and Katie, that would say nothing about whether the identity of the limited
    partners is “a material feature of the contract.” Appellants dispute that Edward intended
    only biological heirs to be limited partners, but they do not dispute that the purpose of
    the partnerships was to ensure that the property inherited by Edward would be
    preserved for particular, identifiable people. Appellants’ evidence did not raise a fact
    issue as to the element of materiality.
    Appellants failed to produce evidence raising a fact issue as to any of the
    elements of unilateral mistake.      Accordingly, summary judgment in favor of the
    partnerships was proper. See TEX. R. CIV. P. 166a(c). We overrule appellants’ issue on
    appeal.
    III. CONCLUSION
    The trial court’s summary judgment is affirmed.
    ________________________
    DORI CONTRERAS GARZA,
    Justice
    Delivered and filed the
    3rd day of October, 2013.
    12
    

Document Info

Docket Number: 13-12-00782-CV

Filed Date: 10/3/2013

Precedential Status: Precedential

Modified Date: 4/17/2021

Authorities (24)

Damstra v. Starr , 1979 Tex. App. LEXIS 3882 ( 1979 )

Kent v. Holmes , 2004 Tex. App. LEXIS 5844 ( 2004 )

Smith-Gilbard v. Perry , 2011 Tex. App. LEXIS 878 ( 2011 )

City of Wilmer v. Laidlaw Waste System (Dallas), Inc. , 1994 Tex. App. LEXIS 3221 ( 1994 )

Besteman v. Pitcock , 2008 Tex. App. LEXIS 9025 ( 2008 )

Morris v. Millers Mutual Fire Insurance Co. of Texas , 1961 Tex. App. LEXIS 1702 ( 1961 )

Velsicol Chemical Corp. v. Winograd , 956 S.W.2d 529 ( 1997 )

Holmes v. Kent , 50 Tex. Sup. Ct. J. 613 ( 2007 )

Zapatero v. Canales , 1987 Tex. App. LEXIS 7500 ( 1987 )

Laidlaw Waste Systems (Dallas), Inc. v. City of Wilmer , 904 S.W.2d 656 ( 1995 )

City of the Colony v. North Texas Municipal Water District , 272 S.W.3d 699 ( 2008 )

Davis v. Grammer , 31 Tex. Sup. Ct. J. 404 ( 1988 )

Arthur's Garage, Inc. v. Racal-Chubb Security Systems, Inc. , 1999 Tex. App. LEXIS 5205 ( 1999 )

Victoria Bank & Trust Co. v. Brady , 1989 Tex. App. LEXIS 2663 ( 1989 )

Welkener v. Welkener , 2001 Tex. App. LEXIS 5281 ( 2001 )

City of Keller v. Wilson , 48 Tex. Sup. Ct. J. 848 ( 2005 )

Jernigan v. Langley , 46 Tex. Sup. Ct. J. 1010 ( 2003 )

Green v. Industrial Specialty Contractors, Inc. , 1999 Tex. App. LEXIS 2151 ( 1999 )

Villacana v. Campbell , 929 S.W.2d 69 ( 1996 )

Prudential Insurance Co. of America v. Italian Cowboy ... , 270 S.W.3d 192 ( 2008 )

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