Clement Njowo v. John Frederick Welling, Bobbie Lee McKinney A/K/A the Lee Company and the Welling Company, LLC ( 2018 )

Opinion issued August 28, 2018
In The
Court of Appeals
For The
First District of Texas
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NO. 01-17-00798-CV
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CLEMENT NJOWO, Appellant
V.
JOHN FREDERICK WELLING, BOBIE LEE MCKINNEY A/K/A THE
LEE COMPANY, AND THE WELLING COMPANY, LLC, Appellees
On Appeal from the 190th District Court
Harris County, Texas
Trial Court Case No. 201652783
MEMORANDUM OPINION
This is an investor’s suit seeking repayment of $125,000 loaned to another
investor. The lender, the borrower, and two third parties planned to invest the loan
proceeds in a hotel development. Instead, the borrower spent the proceeds. The
lender sued the borrower, Bobie McKinney. McKinney was served with process.
The borrower also sued third parties John Welling and the Welling Company LLC,
claiming conspiracy, breach of contract, and real estate fraud.
McKinney did not appear for trial. After a bench trial, the trial court rendered
a take-nothing judgment against the lender, Clement Njowo, on his claims against
McKinney, Welling, and the Welling Company. On appeal, Njowo contends that
the trial court erred in:
(1) ruling that McKinney was not a party to the suit;
(2) denying Njowo’s post-trial motion to reopen the evidence so that he could
show that McKinney had answered the suit; and
(3) sustaining objections to statements that McKinney made based on
hearsay.
We reverse the trial court’s take-nothing judgment as to Njowo’s claims
against McKinney and remand these claims for further proceedings. We affirm the
remainder of the judgment.
BACKGROUND
Njowo loaned $125,000 to McKinney for the construction of a hotel in
Cotulla, Texas, in return for a 25% interest in the development. When the hotel
failed to materialize and McKinney failed to repay the loan, Njowo sued McKinney,
alleging breach of contract and fraud, among other claims.
Njowo asserted the same claims against Welling and the Welling Company,
alleging that they conspired with McKinney to defraud Njowo, and that Welling had
pledged real property he owned as security for the loan.
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Pre-trial, Njowo proffered an April 7th affidavit that McKinney purportedly
made, averring that McKinney told Welling that McKinney had collected $125,000
from Njowo. Welling objected that the affidavit was inadmissible hearsay. Njowo
contended that the affidavit was McKinney’s pro se answer to the lawsuit. The trial
court deferred ruling on the affidavit’s admissibility to give Njowo an opportunity
to find proof in the record showing that McKinney had filed the affidavit in answer
to the lawsuit. Njowo did not subsequently try to introduce the affidavit into
evidence at trial. Nor did he seek or secure a definitive ruling on its admissibility.
McKinney did not appear at trial. The trial court ruled that McKinney was
not a party to the suit because he had not answered or appeared. It is undisputed,
however, that McKinney was named as a defendant in Njowo’s petition and served
with process. The parties do not contest that McKinney was properly served.
Njowo and Welling were the principal witnesses at trial. They gave different
accounts of the parties’ interactions.
Njowo testified that he met McKinney in July 2012. McKinney presented
Njowo with the opportunity to invest in a hotel construction project in Cotulla,
Texas, in November. They executed a one-page letter of understanding as to the
project in December. The letter stated:
Whereas: Clement Njowo desires to enter into an agreement for a
proposed development of a condo hotel in Cotulla, Texas. Clement
shall have 25% of the interest in the Cotulla, TX development.
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The Lee Company and Mr. Fred Welling agree to secure a $125,000.00
loan on property known as 11037 Windswept Way, Willis, TX 77318
subject to an existing mortgage of $400,000.00. The rate shall be 6%
per annum for a period of 36 months. Interest is to be paid yearly. The
mortgage shall be recorded as soon as the Conroe bank closes the
permanent loan.
Over time, Njowo wrote McKinney, individually, several checks totaling
$125,000, beginning in early December 2012. Each of these checks was made
payable to “Bob McKinney.” When Njowo signed the letter, he gave McKinney
two checks. According to Njowo, Welling “knew exactly everything what was
going on,” including the fact that Njowo already had written two checks. Njowo,
his wife, McKinney, and Welling had dinner to celebrate the venture.
Two or three weeks later, Njowo showed the letter of understanding to his
sister-in-law, who works at a bank. She recommended that Njowo obtain a note
documenting the $125,000 loan. In mid-January 2013, the Welling Company gave
Njowo a document entitled “Real Estate Lien Note.” This four-page document
identified The Welling Company as the borrower, but the copy introduced into
evidence by Njowo was incomplete. Its first three pages were numbered “Page __
of 4” and the third page ended mid-sentence; its fourth page—the signature page—
bore a different style of pagination and was numbered as page 8. Page 8 was signed
by Welling in his capacity as the company’s manager. Njowo testified that Welling
and McKinney reassured him that his loan was secured. Welling gave Njowo a deed
showing that the company held the real property described in the note. The parties
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do not dispute, however, that Njowo never loaned Welling or the Welling Company
any funds.
Njowo testified that he went to see Welling in March 2014 because he had not
received the interest payment due on the loan in January. According to Njowo,
Welling told Njowo to see McKinney about payment. In May, McKinney paid
Njowo the interest due. In late 2015, McKinney also paid some additional interest
due. When McKinney stopped responding to Njowo’s inquiries about payment,
Njowo hired a lawyer who sent McKinney and Welling demand letters in June 2016.
On cross-examination, Njowo agreed that he did not speak to Welling before
he signed the letter of understanding and wrote checks to McKinney. Welling was
not present when McKinney and Njowo discussed the project in November 2012 or
in December when Njowo signed the letter and gave checks to McKinney. Njowo
acknowledged that Welling did not tell him that McKinney was authorized to accept
checks on behalf of the venture. Njowo also acknowledged that he did not tell
Welling that he had given checks as installments for the loan to McKinney,
individually. Njowo learned that the hotel construction project was not going to
move forward sometime in Spring 2013. When Njowo learned this, however, he did
not ask for his money back or seek an accounting.
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In direct contradiction to Njowo’s testimony, Welling denied receiving any
loan funding from Njowo. Welling denied that Njowo ever asked him about a loan
or any interest on a loan.
McKinney introduced Welling to Njowo, who was to provide the $125,000 in
funds if Welling obtained the property to build the hotel. Welling characterized their
December 2012 letter of understanding as an agreement to agree, if the parties
moved forward with acquiring land in Cotulla for a hotel development. Welling
never moved forward with the project. Njowo never advanced any money to
Welling because Njowo would have had to fund the project only if they purchased
the land in Cotulla. According to Welling, the January 2013 note was drafted in
anticipation of Njowo’s loan to the Welling Company, had the project moved
forward and Welling had received the funds.
Welling testified that he was not present for discussions between McKinney
and Njowo about the hotel project that predated the signing of the letter of
understanding and that he did not have any discussions with Njowo beforehand.
Welling did not recall a telephone call with McKinney and Njowo after they signed
the letter of understanding. He did remember having dinner with Njowo afterward.
Welling said that they discussed the project’s possibilities over dinner, but he did
not recall specifics. Njowo did not inform Welling that he had given McKinney any
money. Nor was Welling aware that Njowo already had given McKinney $125,000
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when the real estate lien note was given to Njowo. Welling did not tell Njowo that
McKinney was authorized to accept money on Welling’s behalf.
According to Welling, Njowo did not inform Welling that Njowo had given
$125,000 to McKinney or that he thought Welling owed him that money. Welling
did not recollect Njowo coming to see him in 2014 to discuss non-payment of
interest on the note or telling Njowo to see McKinney for payment. Welling testified
that Njowo never indicated to him that interest was due on a note. Welling
represented that the first time he learned of Njowo’s claims was when he received
the June 2016 demand letter from Njowo’s lawyer.
The trial court wrote the parties that it intended to render a take-nothing
judgment because Njowo had not met his burden of proof against Welling, and it
asked that the defendants submit a proposed judgment. Before the trial court signed
a judgment, Njowo moved to reopen the evidence. He contended that McKinney
had appeared after he was served with discovery. On June 2, 2017, Njowo filed an
affidavit with the trial court, that was purportedly signed by McKinney on April 7,
2017. Njowo contended that the affidavit constituted a pro se answer and
demonstrated that McKinney had appeared in the case. The clerk’s record contains
an affidavit by the process server, verifying the receipt of certified mail, indicating
that McKinney was served, but it does not contain the April affidavit before Njowo
filed it. The trial court denied the motion.
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The trial court rendered a final take-nothing judgment against Njowo on all of
his claims. It also made findings of fact and conclusions of law. Among other
things, the trial court found or concluded that:
● the letter of understanding for the hotel development contemplated the
execution of other documents and omitted material terms, and thus was an
agreement to agree;
● for example, the letter of understanding did not include “any language
requiring Njowo to loan to Welling (or Welling to repay) any money”;
● Welling thus did not contractually bind himself to participate in the hotel
construction project and ultimately decided not to do so;
● Welling did not learn that Njowo had given $125,000 to McKinney until
after Welling had decided not to participate in the project;
● Njowo’s ostensible knowledge about the project, “including all statements
attributed to Welling and McKinney’s purported relationship with
Welling,” came from McKinney alone;
● McKinney was “responsible for 100% of Njowo’s damages”; and
● Welling and his company did not conspire with McKinney or aid or abet
McKinney to commit any unlawful act.
Njowo appeals.
DISCUSSION
Njowo challenges the trial court’s ruling that McKinney was not a party.
Njowo does not challenge the legal or factual sufficiency of the evidence. As to
Welling, the only issues that Njowo presents concern the trial court’s evidentiary
rulings. Specifically, Njowo challenges the trial court’s rulings excluding
McKinney’s hearsay statements.
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I. McKinney’s Status as a Party
Njowo contends that the trial court erred in ruling that McKinney was not a
party to the suit. Welling concedes that the trial court erred, but contends its error
was harmless.
The trial court ruled that McKinney was not a party because he had not
answered or otherwise appeared. However, the parties do not dispute that McKinney
was served with valid process, and he thus was a party to Njowo’s suit. See Velasco
v. Ayala, 312 S.W.3d 783, 798 (Tex. App.—Houston [1st Dist.] 2009, no pet.)
(personal jurisdiction over defendant invoked by valid service of process). Whether
McKinney answered, otherwise appeared, or attended trial does not affect his status
as a properly joined party to the suit.
The error was not harmless. By proceeding to trial without seeking a default
judgment, Njowo waived any right to judgment he had based on McKinney’s failure
to answer or appear. See Shows v. Man Engines & Components, 364 S.W.3d 348,
358–59 (Tex. App.—Houston [14th Dist.] 2012), judgm’t aff’d, 434 S.W.3d 132
(Tex. 2014). Based on the evidence at trial, however, the trial court found that
McKinney was “responsible for 100% of Njowo’s damages.” The trial court’s
earlier ruling that McKinney was not a party precluded it from rendering a judgment
in Njowo’s favor against McKinney based on this finding and thereby “probably
caused the rendition of an improper judgment.” TEX. R. APP. P. 44.1(a)(1).
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Accordingly, we hold that the trial court erred in holding that McKinney was
not a party. We reverse the take-nothing judgment as to Njowo’s claims against
McKinney and remand those claims to the trial court for further proceedings
consistent with this opinion.
II. Motion to Reopen the Evidence
Njowo contends that the trial court erred in refusing to reopen the evidence
after trial to allow him to prove that McKinney had filed an answer to the suit. We
review the trial court’s ruling for abuse of discretion. See TEX. R. CIV. P. 270; In re
J.M.W., 470 S.W.3d 544, 556 (Tex. App.—Houston [14th Dist.] 2014, no pet.). The
trial court did not abuse its discretion because (1) the proffered evidence was
cumulative inasmuch as the record showed that McKinney was properly served with
process and thus was a party regardless of whether he answered; and (2) Njowo’s
lawyer—not McKinney or McKinney’s lawyer—filed McKinney’s affidavit, and
thus Njowo has not demonstrated that McKinney answered the lawsuit. See J.M.W.,
470 S.W.3d at 556–57 (if proffered evidence is not decisive, trial court does not
abuse discretion in denying motion to reopen). McKinney was a party to the suit
because he was properly served with process.
III. Evidentiary Rulings
Njowo contends that the trial court erred in excluding as hearsay McKinney’s
purported April 7 affidavit and Njowo’s testimony about statements that McKinney
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made to Njowo. Welling responds that Njowo failed to preserve error and that, in
any event, the affidavit and statements were inadmissible hearsay not subject to an
exception.
A. Standard of review
We review a trial court’s rulings admitting or excluding evidence for abuse of
discretion. U-Haul Int’l v. Waldrip, 380 S.W.3d 118, 132 (Tex. 2012). A trial court
abuses its discretion if it acts without regard for guiding rules or principles. Id. To
preserve error as to the exclusion of evidence, a party must obtain a ruling from the
trial court and make an offer of proof, unless the substance of the evidence is clear
from context. TEX. R. EVID. 103(a)(2); TEX. R. APP. P. 33.1(a)(2)(A).
B. Analysis
1. McKinney’s affidavit
During pre-trial, Njowo sought to introduce McKinney’s affidavit, which
stated that McKinney told Welling that Njowo had loaned McKinney the $125,000.
Welling objected that the affidavit was hearsay. Njowo responded that the affidavit
was admissible as McKinney’s pro se answer to the suit. The trial court deferred
ruling on the affidavit’s admissibility to allow Njowo to show that McKinney had
filed the affidavit in answer to the suit. Njowo did not subsequently try to introduce
the affidavit into evidence. Nor did he seek or secure a ruling on its admissibility.
Njowo therefore has not preserved this issue for our review. See TEX. R. APP. P.
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33.1(a)(2)(A); see, e.g., Hahn v. Love, 394 S.W.3d 14, 36 (Tex. App.—Houston [1st
Dist.] 2012, pet. denied) (party failed to preserve error as to exclusion of exhibits by
not trying to introduce them into evidence after trial court deferred consideration of
their admissibility); Carlile v. RLS Legal Solutions, 138 S.W.3d 403, 411 (Tex.
App.—Houston [14th Dist.] 2004, no pet.) (same).
2. Njowo’s testimony as to McKinney’s out-of-court statements
At several points during trial, Njowo proffered testimony about out-of-court
statements that McKinney allegedly made to Welling or to Njowo. Welling objected
that this testimony was hearsay and the trial court sustained his objections. The
record shows that Njowo intended to testify that McKinney:
● called Welling in Njowo’s presence and told Welling that Njowo had
funded the $125,000 loan;
● called Njowo and told him that there was a problem with one of the checks
that he had given to McKinney;
● reassured Njowo that he had nothing to worry about when he expressed
concern that his loan was not documented with a note;
● acknowledged that the first interest payment due to Njowo on the loan in
January 2014 went unpaid; and
● told Njowo that he would receive the money due to him in due course once
Welling sold the house he had pledged as security.
Because the substance of the excluded statements is evident from context, Njowo
was not required to make an offer of proof to preserve error. See TEX. R. EVID.
103(a)(2); see, e.g., Stearns v. Martens, 476 S.W.3d 541, 550 (Tex. App.—Houston
[14th Dist.] 2015, no pet.) (offer of proof not necessary because colloquy between
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counsel and court as to proposed testimony and objection to it made its substance
apparent); Melendez v. Exxon Corp., 998 S.W.2d 266, 278 (Tex. App.—Houston
[14th Dist.] 1999, no pet.) (offer of proof not necessary because substance of
testimony was apparent from questions asked by counsel).
Because McKinney was a party, McKinney’s out-of-court statements would
not have been hearsay had they been offered against McKinney. TEX. R. EVID.
801(e)(2)(A); Bay Area Healthcare Grp. v. McShane, 239 S.W.3d 231, 235 (Tex.
2007) (per curiam); see, e.g., Oyster Creek Fin. Corp. v. Richwood Invs. II, 176
S.W.3d 307, 317 (Tex. App.—Houston [1st Dist.] 2004, pet. denied) (party’s prior
testimony was admission by party-opponent and thus not hearsay), overruled on
other grounds by Sky View at Las Palmas v. Mendez, No. 17-0140, 2018 WL
2449349, at *4 n.8 (Tex. June 1, 2018).
While a party’s out-of-court statements may be offered against the party who
made them, this exclusion does not allow a litigant to offer the out-of-court
statements made by one party against another party for the truth of the matter
asserted, absent another exclusion from, or exception to, the hearsay rule. See TEX.
R. EVID. 801(e)(2); Tryco Enters. v. Robinson, 390 S.W.3d 497, 506 (Tex. App.—
Houston [1st Dist.] 2012, pet. dism’d); see, e.g., Mowery v. McNamara, 424 S.W.2d
252, 254 (Tex. Civ. App.—Houston [1st Dist.] 1968, no writ) (plaintiff’s testimony
as to statements made by one defendant was hearsay as to different defendant).
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Njowo contends that his testimony about McKinney’s out-of-court statements
was not hearsay as to Welling because McKinney and Welling were co-conspirators.
See TEX. R. EVID. 801(e)(2)(E). Njowo did not make this argument in the trial court,
however, and thus it is not preserved for our review. See TEX. R. APP. P. 33.1(a)(1).
Regardless, the trial court, which was the factfinder, determined that Welling did not
conspire with McKinney. Njowo has not challenged this finding on appeal. See
Milton M. Cooke Co. v. First Bank & Tr., 290 S.W.3d 297, 303 (Tex. App.—
Houston [1st Dist.] 2009, no pet.) (unchallenged findings of fact made by court in
bench trial bind appellate court unless contrary is conclusively established or no
evidence supports finding). Welling testified that he did not learn Njowo had loaned
McKinney $125,000 until he received a demand letter, and Welling denied receiving
any funds from Njowo for the project. Because some evidence supports the trial
court’s finding that Welling did not conspire with McKinney to defraud Njowo,
Njowo has not demonstrated that Rule 801(e)(2)(E)’s exclusion of co-conspirator
statements from the hearsay rule applies.
We hold that the trial court did not abuse its discretion in excluding Njowo’s
offer of McKinney’s out-of-court statements as inadmissible hearsay to the extent
that Njowo sought to introduce them into evidence against Welling or the Welling
Company.
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CONCLUSION
We reverse the trial court’s take-nothing judgment against Njowo as to
Njowo’s claims against McKinney, and we remand these claims for a new trial. We
affirm the remainder of the trial court’s judgment.
Jane Bland
Justice
Panel consists of Justices Keyes, Bland, and Massengale.
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