J. P. Ryan Enterprises, Inc. v. Bill Matthaei ( 2007 )

In The

Court of Appeals

Ninth District of Texas at Beaumont ____________________

NO. 09-06-237 CV ____________________

J.P. RYAN ENTERPRISES, INC., Appellant

V.

BILL MATTHAEI, Appellee

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On Appeal from the 221st District Court Montgomery County, Texas Trial Cause No. 04-05-03379-CV

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MEMORANDUM OPINION

Bill Matthaei sued J.P. Ryan Enterprises, Inc. for breach of a contract for sales commissions. Matthaei pled that all conditions precedent had been performed. Because Ryan Enterprises had not specifically denied the performance or occurrence of any condition precedent in its answer, the trial court prohibited Ryan Enterprises from calling any witnesses in defense of the suit. In six appellate issues, Ryan Enterprises complains that the trial court erred: (1) in denying Ryan Enterprises an opportunity to present a defense, including affirmative defenses, except through bills of exception; (2) in ruling that Texas Rule of Civil Procedure 54 prevented Ryan Enterprises from requiring Matthaei to prove Matthaei's performance of any of the terms and duties under the contract; (3) in refusing to allow Ryan Enterprises to present evidence regarding the duties of a sales representative and the allocation of a commission when the representative performs only part of the required duties; (4) in awarding prejudgment interest "as additional compensation" from May 25, 2000; (5) in awarding prejudgment interest on the prejudgment interest awarded "as additional compensation"; and (6) in awarding appellate attorney's fees without support in the evidence and not predicted on success. By cross-points, Matthaei contends that the trial court erred in allowing Ryan Enterprises to present evidence on affirmative defenses because Ryan Enterprises's pleading of "all the defenses in Rule 94" failed to raise any affirmative defenses, and that the case should be remanded to receive evidence on attorney's fees for the appeal if the appellant prevails on its sixth issue. We reverse the judgment and remand for a new trial.

The contract between Matthaei and Ryan Enterprises required Matthaei to "[p]romote the sales of all products for which the business has a contractual agreement for payment of commissions and other products which may be a part of projects discovered while pursuing business." The contract described Matthaei's compensation, as follows:

The payment to Independent Contractor shall be 60% of net income paid to the business until the realization of $50,000.00 to the business. This shall be escalated to 70% as soon as orders entered reach the above amount in the . . . calendar year. . . . The next escalation to 80% is reached with the subsequent $50,000.00 net income to the business. Levels of compensation shall not be modified retroactively. Payment of commissions will be made within 10 working days of receipt of full payment to the business and documented upon written request from the Independent Contractor. Delays in payment after due date shall result in additional compensation due the Independent Contractor at 0.0616% per day beginning with the 10th day. Failure to meet the compensatory portion of this agreement shall constitute a revocation of all terms of the agreement. For purposes of defining compensations due, the delivery of a written purchase order from the customer to the business shall constitute 33% expected performance and compensation due the Independent Contractor upon completion of project.

The contract stated that "in the event that the business takes over a partially completed project, the Independent Contractor shall not be entitled to any compensation as liquidated damages for the Independent Contractor's failure to complete on a timely basis as designated on each project."

Ryan Enterprises received $151,757.32 on the job in dispute and paid $54,340.18 to other parties in its supply chain. Ryan Enterprises paid half the remaining amount, $31,201.75, to Matthaei on May 15, 2000. Matthaei negotiated the check, but below his endorsement wrote "accepted as one half of commission due me." Matthaei filed the suit on May 5, 2004. Ryan Enterprises was served on May 11, 2004.

The case was tried to the trial court. In response to defense counsel's opening argument, Matthaei's counsel invoked Texas Rule of Civil Procedure 54 and argued that Ryan Enterprises could not raise an issue on the plaintiff's performance of the contract. See Tex. R. Civ. P. 54 ("In pleading the performance or occurrence of conditions precedent, it shall be sufficient to aver generally that all conditions precedent have been performed or have occurred. When such performances or occurrences have been so plead, the party so pleading same shall be required to prove only such of them as are specifically denied by the opposite party."). The trial court did not rule immediately and Matthaei proceeded with his case-in-chief.

Bill Matthaei testified that he personally drafted the contract's compensation clause. The disputed transaction involved a sale of medium voltage electrical terminations. The product was purchased from a company called G & W, sent to a company called Power Supply for relabeling and shipping; Ryan Enterprises then sold the product to a wholesale house called Graybar, who "marked it up" and sold it to Texas Instruments. Matthaei explained his duties included "[p]romoting the sale of the product . . . and obtaining a purchase order and . . . subsequent to that I would receive equipment at the wholesale place, relabel the equipment and reship it to the other location." . . . On cross-examination, Matthaei testified that his commission was conditioned upon payment being received. According to Matthaei, quality issues could come up after the customer paid for the equipment, but he denied that problems with the equipment arose in the transaction involved in this dispute. Matthaei admitted that he performed no engineering or specification work "[o]ther than meeting with [Texas Instrument's] people" because they were fairly familiar with the equipment and "were probably the most knowledgeable customer that I had ever dealt with in terms of the type of equipment that we were using." Matthaei admitted that John Ryan made a trip to the manufacturer to confirm the quality of the equipment before Matthaei entered the purchase order, but claimed there were no problems with the equipment after it was installed at Texas Instruments. Regarding when his right to payment of the commission arose, Matthaei testified that Ryan Enterprises had been paid sometime in April 2000. According to Matthaei, his right to additional compensation commenced on May 25, 2000, ten days after Ryan Enterprises paid him half of the commission. When counsel for Ryan Enterprises attempted to cross-examine Matthaei regarding the performance required by the contract, counsel for Matthaei objected on the grounds that Ryan Enterprises failed to make specific denials under Rule 54. The trial court asked counsel for Ryan Enterprises why Matthaei was not entitled to the full sixty percent commission. Counsel explained that, by giving Ryan Enterprises a purchase order, Matthaei had done one-third of the work, and that Matthaei was expected to go with the Texas Instruments engineer to G & W as part of his performance under the contract. The trial court ruled that Rule 54 applied and found that "all the conditions precedent have been met. . . . for recovery under the contract."

Matthaei called John Ryan as an adverse witness. Ryan testified that Matthaei was paid a thirty percent commission. Upon examination by counsel for Ryan Enterprises, John Ryan explained that Matthaei obtained the purchase order, thereby earning one-third of his commission. Ryan testified as follows:

There were a number of discussions about performance and what needed to be done to earn the additional balance of the 67 percent and it was my position that Bill fully earned the 33 percent of the 60, not 50 percent. And we've talked about that and I said, look, you just didn't perform the balance of what needs to be done on this project and I told him we were -- we would agree to pay him more than the 33 but not the full commission. So, we agreed to a 50 percent of the normal 60.

. . . .

I spoke to him at length on a number of occasions about what needed to be done on this project and I was told he didn't have time to do it.

. . . .

There was [sic] a number of technical support issues that needed to be completed. As Bill had stated, the Texas Instruments was on the verge of not placing any -- any of his business with us because of severe quality control problems. . . . The other 67 percent is that support, is handling the factory issues, quality control issues, the technical support issues that the customer expects to have happen. . . . So Bill just said, look, I am not doing this, I have got other things I have got to do, you are going to have to handle it. So I handled it.

Ryan claimed the fifty percent split was the product of negotiation between the parties. According to Ryan, before May 5, 2000, Matthaei was "well aware" that he would not receive the full commission and as a settlement, they had agreed to payment of half of the commission. Ryan claimed Matthaei did not participate in any of the work to resolve the quality control issues. He testified as follows:

A typical process is when the job is complete -- when the money all comes in and we sit down and say, okay, there's -- in Bill's case it was 33 percent of the 60 went for getting the order and the balance went for technical support during engineering and getting problems resolved and handling the customer, the end user. At that point we sit down and there can be -- in cases before this and cases after, there can be two or three salesmen involved. Bill is not the only independent contractor that works for us. We have multiple people working on projects like this, and the commissions are divided at the end of the project based on who did what.

. . . .

There were other projects that everyone works on. The percent of full commission, who gets 60 percent -- we can't pay 60 percent to three salespeople who work on the same project. The commission splits are very common. Probably more than 50 percent of the orders that we do there is a split of commissions because everyone works together to accomplish what needs to be accomplished.

Q. And did Mr. Matthaei have -- after the contract we're talking about here was signed did he split commissions with Ryan Sales where he had not done all the work?

A. Right. Commission splits with Bill Wharton, with others who did part of the work. You get paid for what you do. If you bring in the order typically you get 25 percent. Bill modified that 33 which everyone accepted. But if all you do is bring in an order, really all you have earned is 33 percent of the 60. If other people handle other work, they earn the balance of the commissions to it.

After Matthaei's counsel testified regarding attorney's fees and rested, counsel for Ryan Enterprises informed the trial court that, because the contract did not describe the performance required to earn the sixty-seven percent of the commission beyond the thirty-three percent for turning in the purchase order, he would present witnesses to testify regarding industry and company practice. John Ryan presented additional bill of exception testimony that he personally took at least a dozen meetings and several trips with Texas Instruments on the disputed job. The trial court excluded the testimony but allowed Ryan Enterprises to perfect bills of exception. After hearing the bills, the trial court noted "I think that the decision might be different if we didn't have the Rule 54 problem" and asked the parties to brief the issue. The court coordinator subsequently notified the parties that the judge had made the following docket entry:

Feb 8, 2006 Court finding that Rule 54 invoked by Plaintiff precluded Def from producing any evidence that all conditions precedent had not been met. Finding for Plaintiff. Attorney's fees in amount of $9,600.00.

In its response to Matthaei's motion for judgment, Ryan Enterprises moved to re-open the evidence "in support of their defenses to Plaintiff's claim of breach of contract (not as to 'conditions precedent' as alleged by Plaintiff) and their affirmative defenses."

Although the record is somewhat confusing, we discern that the trial court ultimately disregarded all of the evidence elicited by counsel for Ryan Enterprises, including his examination of John Ryan during Matthaei's case-in-chief. This is significant because much of the material presented in the bills of exception was also elicited through Ryan's trial testimony. By excluding all of Ryan Enterprises's evidence, refusing to permit Ryan Enterprises to offer any evidence on its general denial, and summarily ruling that Matthaei's uncontroverted pleadings established that he satisfied all conditions for recovery under the contract, the trial court essentially entered a directed verdict.

As support for his position that all of Ryan Enterprises's proffered evidence was inadmissible under Rule 54, Matthaei cites two cases in which the plaintiff made a general pleading of conditions precedent under Rule 54. See Greathouse v. Charter Nat'l Bank - Sw., 851 S.W.2d 173, 177 (Tex. 1992); Betty Leavell Realty Co. v. Raggio, 669 S.W.2d 102 (Tex. 1984). Greathouse involved a deficiency suit in which the defendant challenged the commercial reasonableness of the sale of the collateral for the first time in a motion for judgment. Greathouse, 851 S.W.2d at 173. The Supreme Court held that the statutory requirement of a commercially reasonable disposition of collateral is a condition precedent that may be pled by a general averment under Rule 54. Id. at 176-77. The other case involved a suit to recover a real estate commission. See Betty Leavell Realty Co., 669 S.W.2d at 102. The real estate contract conditioned the agent's right to a commission upon the purchaser obtaining financing within 20 days. Id. at 103. The defendant in that case pled that the purchaser failed to obtain financing within 20 days as required by the contract. Id. The pleadings effectively placed upon the plaintiff the burden of proving that the purchaser satisfied the condition precedent for recovery of the commission. Id. at 104. Both cases involved conditions precedent, not performance and breach of the contract.

This case bears more similarity to the case in which a church seeking to recover a claim for water damage on an insurance contract pled the occurrence of conditions precedent, and the insurance company relied on its general denial. See Love of God Holiness Temple Church v. Union Standard Ins. Co., 860 S.W.2d 179, 180 (Tex. App.--Texarkana 1993, writ denied). On appeal, the church argued the insurance company failed to plead any unfulfilled condition precedent and thus waived all defenses against liability. Id. The appellate court noted that the dispute related to coverage under the policy, not merely to a condition to suit on the policy. Id. at 181. Although the insured pled the occurrence of conditions precedent, the insurance company's general denial placed in controversy the allegations in the church's pleadings that water damage was an insured peril and that the roof and interior of the church building were damaged by water due to severe inclement weather. See id.

Rule 54 provides a mechanism through which a plaintiff may avoid having to prove that he met conditions precedent that are not in dispute. See Tex. R. Civ. P. 54. In the absence of a limiting clause, whether a certain contractual provision is a condition, rather than a promise, must be determined from the contract as a whole and from the intent of the parties. Hohenberg Bros. Co. v. George E. Gibbons & Co., 537 S.W.2d 1, 3 (Tex. 1976). In this case, the trial court applied Rule 54 to not only relieve the plaintiff of the burden of proving the occurrence of conditions precedent, but also relieved the plaintiff of the burden of proving the elements of his cause of action and prohibited the defendant from presenting evidence to challenge the elements of the plaintiff's cause of action. Matthaei specifically alleged that he "earned a commission in the amount of $62,403.50 under the terms of the contract." The general denial filed by Ryan Enterprises placed that specific allegation in controversy. Matthaei had the burden at trial to prove that he earned a commission in the amount of $62,403.50 under the terms of the contract, and Ryan Enterprises had the right to challenge Matthaei's evidence with evidence that Matthaei did not earn a commission in that amount under the terms of the contract. By refusing the defendant the right to present this evidence, the trial court effectively ruled for the plaintiff without considering the merits of the controversy. We hold the trial court erred in restricting its consideration of the evidence relevant to the dispute, and that the error probably caused the rendition of an improper judgment. Point of error two is sustained.

If meritorious, Ryan Enterprises's other issues would afford identical relief. Therefore, we decline to address points of error one, three, four, five, and six. Because it is contingent upon our sustaining a point of error we do not reach, we decline to address cross-point one.

In his second cross-point, Matthaei contends the trial court erred in allowing Ryan Enterprises to present evidence on its affirmative defenses on an answer that alleged, "Defendant also pleads all the defenses in Rule 94 of the Texas Rules of Civil Procedure." The trial court did not allow Ryan Enterprises to present any defense and permitted it to call witnesses only through bills of exception. Matthaei does not provide record references for any evidence admitted over his specific objection based upon Rule 94. Matthaei fails to demonstrate that he preserved the error raised on appeal. See Tex. R. App. P. 33.1. In any event, Matthaei has not demonstrated why any error would entitle him to an affirmance of the judgment. Cross-point two is overruled. We reverse the judgment and remand the case to the trial court for a new trial.

REVERSED AND REMANDED.

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STEVE McKEITHEN

Chief Justice

Submitted on February 15, 2007

Opinion Delivered April 26, 2007

Before McKeithen, C.J., Gaultney and Horton, JJ.