Steven Jeffrey Johnson v. Michele Jean Johnson ( 2011 )

02-10-296-CV

COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH

NO. 02-10-00296-CV

STEVEN JEFFREY JOHNSON		APPELLANT
V.
MICHELE JEAN JOHNSON		APPELLEE

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FROM THE 342ND DISTRICT COURT OF TARRANT COUNTY

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MEMORANDUM OPINION[1]    

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I. Introduction

In one issue, Appellant Steven Jeffrey Johnson appeals the trial court’s summary judgment and order in favor of Appellee Michele Jean Johnson.  We affirm.

II.  Factual and Procedural Background

On February 3, 2010, pursuant to the parties’ “Agreement Incident to Divorce,” Steven, CEO of Cano Petroleum, Inc., executed a promissory note (the Note) in favor of Michele in the amount of $460,000, to mature on April 13, 2010.[2]     At the same time, the parties executed a “Security Agreement with Collateral Pledge and Appointment of Escrow Agent” (the Security Agreement) listing 92,000 shares of Cano stock as security for the Note.[3]    

In May 2010, after Steven defaulted, Michele brought suit to collect on the Note’s overdue principal.  Steven answered with a general denial and asserted two affirmative defenses:  (1) excuse from payment, because the Security Agreement “modified, supplemented, or nullified” the Note; and (2) impossibility, because at the time the Note matured, a mandatory stock-transaction blackout period associated with Cano’s proposed merger with another firm rendered performance impossible.  On June 22, 2010, Michele filed a motion for summary judgment.  Steven responded, reiterating the affirmative defenses set out above.  After a hearing, the trial court granted Michele’s motion and issued an order awarding Michele the principal—$460,000—plus pre- and post-judgment interest at a rate of five percent per annum computed from April 13, 2010.  This appeal followed.

III.  Standard of Review

In a summary judgment case, the issue on appeal is whether the movant met the summary judgment burden by establishing that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law.  Tex. R. Civ. P. 166a(c); Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009).  We review a summary judgment de novo.  Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010).

We take as true all evidence favorable to the nonmovant, and we indulge every reasonable inference and resolve any doubts in the nonmovant’s favor.  20801, Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008); Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003).  We consider the evidence presented in the light most favorable to the nonmovant, crediting evidence favorable to the nonmovant if reasonable jurors could and disregarding evidence contrary to the nonmovant unless reasonable jurors could not.  Mann Frankfort, 289 S.W.3d at 848.  We must consider whether reasonable and fair-minded jurors could differ in their conclusions in light of all of the evidence presented.  See Wal-Mart Stores, Inc. v. Spates, 186 S.W.3d 566, 568 (Tex. 2006); City of Keller v. Wilson, 168 S.W.3d 802, 822–24 (Tex. 2005).

If the defendant wishes to assert an affirmative defense to the motion, he must urge the defense in his response and present sufficient evidence to create a fact issue on each element of the defense.  See Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984); Anglo-Dutch Petroleum Int’l, Inc. v. Haskell, 193 S.W.3d 87, 95 (Tex. App.—Houston [1st Dist.] 2006, pet. denied) (citing Beathard Joint Venture v. W. Houston Airport Corp., 72 S.W.3d 426, 434 (Tex. App.—Texarkana 2002, no pet.); Jones v. Tex. Pac. Indem. Co., 853 S.W.2d 791, 795 (Tex. App.—Dallas 1993, no writ)).  The non-movant is not required to prove the affirmative defense as a matter of law; raising a fact issue is sufficient to defeat summary judgment. See Anglo-Dutch Petroleum, 193 S.W.3d at 95; see also Brownlee, 665 S.W.2d at 112.

IV.  Applicable Law

A.  Collection of a Promissory Note

To collect on a promissory note, a plaintiff must establish:  (1) that the note exists; (2) that the defendant signed the note; (3) that the plaintiff is the owner and holder of the note; and (4) that a certain balance is due and owing on the note.  Cadle Co. v. Regency Homes, Inc., 21 S.W.3d 670, 674 (Tex. App.—Austin 2000, pet. denied); see also Clark v. Dedina, 658 S.W.2d 293, 295–96 (Tex. App.—Houston [1st Dist.] 1983, writ dism’d).

B. Business and Commerce Code Section 3.117

Business and commerce code section 3.117, titled “Other Agreements Affecting Instrument,” states in relevant part that

the obligation of a party to an instrument to pay the instrument may be modified, supplemented, or nullified by a separate agreement of the obligor and a person entitled to enforce the instrument, if the instrument is issued or the obligation is incurred in reliance on the agreement or as part of the same transaction giving rise to the agreement.  To the extent an obligation is modified, supplemented, or nullified by an agreement under this section, the agreement is a defense to the obligation.

Tex. Bus. & Com. Code Ann. § 3.117 (West 2002). “The separate agreement might be a security agreement . . . that contradicts the terms of the instrument.”  Id. § 3.117 cmt. 1 (West Supp. 2010) (emphasis added).

Additionally, where two or more instruments, executed contemporaneously or at different times, pertain to the same transaction, the instruments will be read together, even though they do not expressly refer to each other.  Bd. of Ins. Comm’rs v. Great S. Life Ins. Co., 150 Tex. 258, 267, 239 S.W.2d 803, 809 (1951); see also Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000) (stating that it is “well-established law that instruments pertaining to the same transaction may be read together to ascertain the parties’ intent”).

C. Impossibility of Performance

There are two general types of impossibility:  (1) objective, and (2) subjective.  Walston v. Anglo-Dutch Petroleum (Tenge) L.L.C., No. 14-07-00959-CV, 2009 WL 2176320, at *6 n.2 (Tex. App.—Houston [14th Dist.] July 23, 2009, no pet.) (mem. op.); Janak v. FDIC, 586 S.W.2d 902, 906–07 (Tex. Civ. App.—Houston [1st Dist.] 1979, no writ).  Objective impossibility relates solely to the nature of the promise.  See Janak, 586 S.W.2d at 906–07. Something is objectively impossible if “the thing cannot be done,” such as an inability “to perform the promise to settle [a] claim by entering an agreed judgment in the lawsuit which had been dismissed” prior to the completion of the agreement.  See Grayson v. Grayson Armature Large Motor Div., Inc., No. 14-09-00748-CV, 2010 WL 2361432, at *5 (Tex. App.—Houston [14th Dist.] June 15, 2010, pet. denied) (mem. op.). Subjective impossibility is due wholly to the inability of the individual promisor.  See id.  Something is subjectively impossible if “I cannot do it,” such as when a promisor’s financial inability to pay makes it impossible for the promisor to perform.  See id.

Objective impossibility can serve as a defense in a breach of contract suit. Janak, 586 S.W.2d at 906–07.  However, a party cannot escape contract liability by claiming subjective impossibility; subjective impossibility neither prevents the formation of the contract nor discharges a duty created by a contract.  See Grayson, 2010 WL 2361432, at *5; Walston, 2009 WL 2176320, at *6 n.2; Janak, 586 S.W.2d at 906–07.

V. Analysis

Because the parties do not dispute (1) that the Note and Security Agreement exist and are valid, (2) that Steven executed the Note in Michele’s favor for $460,000, (3) that Michele is the Note’s owner and holder, and (4) that Steven did not meet his obligation when the Note matured, we conclude that Michele has met her burden under rule 166a(c).  Thus, unless Steven raised a fact issue supporting his affirmative defenses sufficient to defeat Michele’s motion for summary judgment, the trial court did not err by granting summary judgment as a matter of law for Michele.  See Brownlee, 665 S.W.2d at 112; Anglo-Dutch Petroleum Int’l, Inc., 193 S.W.3d at 95.

Steven first argues that the trial court erred by granting summary judgment because reading the contemporaneously executed Note and Security Agreement together, as required by business and commerce code section 3.117, shows that he relied on his ability to sell the stock to meet the terms of the Note. He further argues that because he could not sell the Cano stock referenced in both the Note and the Security Agreement, he should have been relieved of his obligation under the Note.  But Steven fails to point to, and we fail to find, any language in the Security Agreement that contradicts the Note or shows that the parties agreed that the Note’s obligation would be satisfied solely from the sale of Steven’s Cano stock.  See Tex. Bus. & Comm. Code Ann. § 3.117 cmt. 1; see also Brownlee, 665 S.W.2d at 112 (holding that defendant’s asserting legal conclusion that original agreement “was modified” was insufficient to defeat plaintiff’s summary judgment motion).  We also find nothing extraordinary in the language of the Note or the Security Agreement to show anything other than that the parties agreed that Steven’s Cano stock would serve as collateral for the underlying obligation in the same manner that collateral generally serves to secure the performance of an outstanding obligation.  In fact, the Security Agreement provides that Steven had “the right at any time to substitute certificates of deposit” in place of the Cano stock as security for the Note, thus, the terms of the instrument itself directly contradict Steven’s assertion that the parties intended that only his Cano stock be used to satisfy his obligation under the Note.  We, therefore conclude that Steven failed to raise a fact issue relative to his section 3.117 defense sufficient to defeat Michele’s motion for summary judgment.

Steven next argues that the trial court erred by failing to excuse his performance because it was impossible for him to sell his Cano stock. Steven relies on Centex Corp. v. Dalton, 840 S.W.2d 952 (Tex. 1992), to support his argument.  However, in Centex, the supreme court found that a cease-and-desist order issued by a regulatory agency endowed with appropriate legal authority made it illegal for Centex to perform (to pay Dalton) under the agreement.  Id. at 954. Here, the stock-sale moratorium Steven claims made his performance impossible did not make payment to Michele illegal; rather it simply temporarily impacted Steven’s ability to sell the stock[4]    —an asset that he could have used, but was not required to use, to satisfy his obligation.  See Huffines v. Swor Sand & Gravel Co., Inc., 750 S.W.2d 38, 40 (Tex. App.—Fort Worth 1988, no writ) (“Texas courts have held contractual obligations cannot be avoided simply because the obligor’s performance has become more economically burdensome than anticipated.”).  And, because we conclude above that the Cano stock was not the exclusive method for Steven to satisfy his obligation, and because Steven did not raise any other argument to show that his performance under the Note was impossible, his claim of subjective impossibility does not excuse his performance under the Note, and he has failed to raise a fact issue supporting his affirmative defense of impossibility.  See Grayson, 2010 WL 2361432, at *5–6; Walston, 2009 WL 2176320, at *6 n.2; Janak, 586 S.W.2d at 906–07.

Accordingly, because he failed to raise a fact issue on each element of his affirmative defenses sufficient to defeat Michele’s motion for summary judgment, we overrule Steven’s sole issue.

VI.  Conclusion

Having overruled Steven’s sole issue, we affirm the trial court’s summary judgment and final order.

BOB MCCOY
JUSTICE

PANEL: LIVINGSTON, C.J.; MCCOY and GABRIEL, JJ.

DELIVERED:  August 4, 2011

ATTACHMENT TO 2-10-296-CV, JOHNSON V. JOHNSON

NOTE AND SECURITY AGREEMENT REFERENCED IN FOOT NOTE 2

***Please note that scanned page 18, a title page, was intentionally omitted.***

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[1]    See Tex. R. App. P. 47.4.

[2]    Although executed in February 2010, the Note was originally drafted on April 13, 2007, and called for quarterly interest payments on the principal beginning on May 1, 2007.

[3]    The Note and Security Agreement are appended to the end of this opinion.

[4]    Steven implies that it was illegal for him to sell his Cano stock, but he cites no regulatory authority in his brief and supported his assertion in the trial court only with an internal Cano memorandum that imposed a trading moratorium on Cano stock due to the proposed merger.  Although the memorandum did not state that trading Cano stock was illegal during this period, it required employees desiring to trade Cano stock during the blackout period to consult with Cano’s chief financial officer or corporate secretary and general counsel.  But, even if it was illegal for Steven to sell the Cano stock during the blackout period, it would not change the outcome of this appeal.