Gary Anders/Love Y. Nance v. Love Y. Nance/Gary Anders ( 2004 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-03-00589-CV
Gary Anders/Love Y. Nance, Appellants
v.
Love Y. Nance/Gary Anders, Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 53RD JUDICIAL DISTRICT
NO. FM105319, HONORABLE ROSE SPECTOR, JUDGE PRESIDING
M E M OR A N D U M O P I N I O N
This case concerns a dispute between former husband and wife, Gary Anders and
Love Y. Nance, over the meaning of “royalty interest” as it appears in a mediated settlement
agreement (the Agreement) they executed prior to the entry of their divorce. The district court
incorporated the Agreement into the final divorce decree. Anders appeals the part of the divorce
decree ordering him to pay $50,000 to Nance pursuant to the Agreement. Nance also appeals the
ruling, claiming the Agreement actually entitles her to a payment of $100,000 from Anders. At issue
is the interpretation of one provision of the Agreement, in which Anders agrees to pay Nance 20%
of total royalties and income received from the Advanced Marination System, a commercial food-
preparation process patented by Anders and others. We will strike the portion of the divorce decree
awarding Nance $50,000, modify the decree accordingly, and affirm the judgment of the district
court as modified.
BACKGROUND
Anders and Nance filed for divorce in August 2001. While the divorce was pending,
both parties agreed to mediation and in late November 2002 entered into the Agreement, which
settles division of the community property and apportions tax liability. It states in relevant part:
Furthermore, the parties agree that Love Nance will receive 20% of the total royalty
interest and other income from the Advanced Marination System or any project
stemming from this project, including, but not limited to, the contract with Blentech
Corporation and Maritek, LLC.
The Agreement also provides that Anders pay Nance $25,000 by cashier’s check no later than
November 26, 2002, approximately four days after the Agreement was signed. A-K Food
Technology is the corporation that Anders formed with his business partners, Dan and Marilyn King,
to develop and market the Advanced Marination System. Anders and Nance, the Kings, and possibly
one other person owned the corporation together.1 Anders’s and Nance’s ownership interest in A-K
Food Technology is listed as a community-property asset that is awarded to Anders pursuant to the
Agreement.
Anders was approximately one hour late in tendering payment of the $25,000 to
Nance, and on that basis she asked the district court to void the Agreement. That motion was denied.
Anders moved for judgment on the Agreement, to which Nance filed two separate amended
1
The record refers to both the Delaware-registered corporation “A-K Food Technology,
Inc.,” with Anders, Nance, the Kings, and Rodney Varner as shareholders, as well as the Texas-
registered corporation, “A-K Food Technology of Arkansas, Inc.,” with Anders and the Kings as
shareholders. The corporate identity is not in dispute, however, so we refer to the corporation simply
as “A-K Food Technology.”
2
responses. She first argued that the Agreement was an unenforceable “agreement to agree,” and
secondly she asked to be awarded 20% of a $500,000 royalty advance that A-K Food Technology
had received prior to the Agreement. The royalty advance had been received in five separate
payments of $100,000 over a twelve-month period ending in August 2002. At a hearing on July 1,
2003, the district court entered judgment on the Agreement and awarded Nance the sum of $50,000.
The district court found that Anders’s interest in the $500,000 royalty receipts was community
property and that Nance was entitled to 20% of the community’s interest in the prior royalty payment
under the terms of the Agreement. Nance had sought $100,000, but the district court concluded that
she was entitled to only $50,000, apparently due to the community’s partial ownership of the
corporation. The next day, both parties signed a final divorce decree incorporating the judgment.
Both parties then filed petitions to modify the divorce decree. Anders argued that the
Agreement addressed 20% of future royalties from the Advanced Marination System and did not
apply to the income received over the twelve-month period prior to the Agreement—income that was
no longer in the possession of either party. Nance argued that the Agreement awards her 20% of the
total royalty and income, which can only mean she is entitled to $100,000—20% of the $500,000
received by A-K Food Technology as a royalty advance prior to the Agreement. The district court
denied both petitions to modify, and both parties now advance the same positions on appeal.
STANDARD OF REVIEW
The issue before us is one of contract interpretation. Construction of an unambiguous
contract is a question of law for the court, which we review de novo. See Edwards v. Lone Star Gas
Co., 782 S.W.2d 840, 841 (Tex. 1990); Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). If a
3
written contract is so worded that it can be given a definite or certain legal meaning, then it is not
ambiguous. Trinity Indus., Inc. v. Ashland, Inc., 53 S.W.3d 852, 860 (Tex. App.—Austin 2001, pet.
denied). Whether a contract is ambiguous is a question of law for the court to decide. New York Life
Ins. Co. v. Miller, 114 S.W.3d 114, 121 (Tex. App.—Austin 2003, no pet.) (citing Friendswood Dev.
Co. v. McDade + Co., 926 S.W.2d 280, 282 (Tex. 1996)). The determination of ambiguity is made
by looking at the contract as a whole in light of the circumstances present at the time the contract was
executed. Miller, 114 S.W.3d at 121. Absent a finding of ambiguity, a court will consider neither
the parties’ interpretations nor extraneous evidence to determine the true meaning of the instrument.
National Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995).
The primary concern of a court in construing a written contract is to ascertain the true
intent of the parties as expressed in the instrument. Id. In order to ascertain the true intentions of
the parties as expressed in a contract, courts should examine and consider the entire writing in an
effort to harmonize and give effect to all the provisions of the contract so that none will be rendered
meaningless. Coker, 650 S.W.2d at 393. Language used by parties in a contract should be accorded
its plain, grammatical meaning unless it definitely appears that the intention of the parties would
thereby be defeated. Lyons v. Montgomery, 701 S.W.2d 641, 643 (Tex. 1985).
DISCUSSION
The Agreement clearly provides that, in the division of the community property,
Anders shall receive all of the corporate assets of A-K Food Technology. The evidence shows that
the $500,000 royalty advance was paid directly to the corporation and was a corporate asset. Anders
4
testified that the $500,000 had already been spent by the time of the mediation.2 Among the various
community-property assets listed in the schedule attached to the Agreement, there is no separate
entry of a $500,000 royalty advance received either by A-K Food Technology or by Anders and
Nance personally. Therefore, it is logical to conclude that the $500,000 royalty advance is not
treated in the Agreement as an existing community-property asset, but as part of the total corporate
assets of A-K Food Technology, the community’s share of which were awarded exclusively to
Anders. In fact, at oral argument, counsel for Nance conceded that previous royalty payments to A-
K Food Technology would necessarily be considered corporate assets and that, under the Agreement,
Anders was to receive all of the community interest in the corporate assets of A-K Food Technology.
Furthermore, Nance’s interpretation would necessitate that Anders pay her a lump sum of $100,000,
when there is no discussion in the Agreement of how and when such an obligation was to be paid.
It is unlikely that Anders and Nance would omit any specific mention of the reasonable time period
or terms of payment for what would likely be the single most valuable asset of the marriage. Indeed,
they took pains to clarify the time and conditions under which Anders was to pay Nance $25,000
pursuant to a separate provision of the Agreement.
Other provisions of the Agreement compel the conclusion that Nance is entitled to
20% of future payments only. In the same section that outlines the 20% payment, the Agreement
reads, “The parties agree that Love Nance shall receive the royalty interest payment directly from
2
At least one Texas court has held it to be error to divide a property interest that is no longer
in existence at the time of divorce. See Seibert v. Seibert, 759 S.W.2d 768, 769-70 (Tex. App.—El
Paso 1988, writ denied).
5
Blentech Corporation and Maritek LLC, or any future entities from [sic] the Advanced Marination
System.” (Emphasis added.) When a written contract is so worded that it can be given a certain or
definite legal meaning or interpretation, it is not ambiguous. Trinity Indus., 53 S.W.3d at 860.
Courts should not strain to create an ambiguity in a contract if, in doing so, they defeat the probable
intentions of the parties. Appleton v. Appleton, 76 S.W.3d 78, 84 (Tex. App.—Houston [14th Dist.]
2002, no pet.). Requiring Anders to pay directly to Nance $50,000 or $100,000 in royalties would
create an ambiguity by directly contradicting the express language that calls for all of Nance’s 20%
interest to be paid to her directly from Blentech and Maritek. Such a provision seems to address
royalties to be paid in the future by Blentech, Maritek, or other entities, not payments received in the
past by A-K Food Technology. Any ambiguity is avoided by giving plain meaning to the language
of this provision that any income Nance is to receive in the form of royalties will be paid to her
directly by Blentech and Maritek, not by Anders or A-K Food Technology. Such payments could
only be received in the future, because the prior royalty advance of $500,000 had already been
received by A-K Food Technology and then apparently used to pay corporate debts and distributed
to the corporate shareholders.
The provisions of the Agreement regarding income-tax liability also indicate the
parties’ intent to award Nance only future royalties. There is evidence that these provisions were
drafted by Nance’s tax attorneys after the mediation. The intent is clear that each party assume the
tax liability generated by assets or income each receives under the Agreement:
The parties agree that Love Nance shall be indemnified from any liability for state
or federal taxes, income or other taxes, which might be assessed from any operations
of A-K Food Technology Inc, whether assessed against the corporation, Gary Anders
6
or Love Nance. Such indemnity shall be for any and all periods through calendar
year 2002. Nothing in this paragraph shall relieve Love Nance from any liability for
income taxes relative to royalties or other income she might receive in the future
from the assignment of such intellectual property or contractual rights.
We start with the premise that any royalties received are corporate assets, including
the royalty advance of $500,000. All tax liability for the operations of A-K Food Technology are
to be paid by Anders; he is to indemnify Nance from any tax liability on corporate activities through
calendar year 2002, whether assessed against Anders, Nance, or A-K Food Technology. “Nothing
in this paragraph,” however, “shall relieve Love Nance from any liability for income taxes relative
to royalties or other income she might receive in the future from the assignment” under the
Agreement. In keeping with the pattern of assessing tax liability to the spouse who receives the
income or the asset generating the income, it appears the Agreement contemplated Nance’s receipt
of future royalties on which she would be liable for income taxes, not advance royalties received by
A-K Food Technology in calendar year 2002 and before, on which Anders must pay all tax liability
and indemnify Nance. We conclude that the Agreement awards Nancy only future royalties.
Because this literal meaning can be clearly derived from the language of the contract itself, it is not
ambiguous. See Trinity Indus., 53 S.W.3d at 860. Thus, we are not required to consider the
interpretations asserted by either party to determine the Agreement’s true meaning. See National
Union, 907 S.W.2d at 520.
Because we conclude that the Agreement awards Nance only future royalties, the
district court erred in awarding Nance any amount of past royalties, and we need not address whether
Nance was entitled to $50,000 or $100,000.
7
CONCLUSION
When viewed in its entirety, the Agreement clearly provides that Nance is to receive
20% of future royalty payments. Therefore, it was error for the district court to conclude that the
Agreement entitled Nance to any share of past royalty payments. We strike the portion of the divorce
decree awarding Nance $50,000, modify the decree accordingly, and affirm the district court’s
judgment as modified.
__________________________________________
Bea Ann Smith, Justice
Before Justices Kidd, B. A. Smith and Pemberton
Modified and, as Modified, Affirmed
Filed: March 18, 2004
8