Jim Maddox Properties LLC and Jim Maddox v. WEM Equity Capital Investments, Ltd.

Opinion issued August 19, 2014
In The
Court of Appeals
For The
First District of Texas
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NO. 01-13-00673-CV
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JIM MADDOX PROPERTIES, LLC AND JIM MADDOX, Appellants
V.
WEM EQUITY CAPITAL INVESTMENTS, LTD., Appellee
On Appeal from the 80th District Court
Harris County, Texas
Trial Court Case No. 2013-02018
OPINION
Appellants, Jim Maddox Properties, LLC and Jim Maddox (collectively,
“Maddox”), appeal the trial court’s grant of summary judgment in favor of
appellee, WEM Equity Capital Investments, Ltd. (“WEM”), on WEM’s breach of
contract claim. In three issues, Maddox argues that the trial court erred in granting
WEM’s motion for summary judgment because WEM failed to prove that Maddox
breached the contract and because WEM failed to prove as a matter of law that it
had not waived compliance with the payment terms of the contract.
We affirm.
Background
Maddox is in the commercial real estate brokerage business. He and
William E. McIlwain, the principal of WEM, were friends who frequently played
golf together. McIlwain, acting through WEM, agreed to loan Maddox money
when Maddox’s business took a downturn. At the time WEM made the loan to
Maddox, prior to 2011, there was no written agreement between the parties.
Subsequently, in 2012, Maddox completed two commercial property
transactions, one on May 21, 2012, and one on June 21, 2012. McIlwain presented
Maddox with a Promissory Note (“the Note”). Maddox signed the Note, dated
January 1, 2011, on June 25, 2012.
The Note provided that, “[f]or value received, on January 1, 2011,” Maddox
promised to pay WEM the sum of $159,046.34 and to pay interest at the rate of
twelve percent per annum. The Note further provided:
The principal of and all accrued but unpaid interest on this Promissory
Note and Security Agreement (this “Note”) shall be payable in full on
December 31, 2013. Notwithstanding anything in this Promissory
Note to the contrary however, payments will be made periodically by
[Maddox] as income is received by [Maddox] per the attached four
sheets marked Exhibits A, B, C, and D. [WEM] shall apply all
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payments from the pending transactions identified in Exhibits A, B, C,
and D first to the discharge of accrued interest and any balance shall
be applied to the redirection of principal. Payments shall be made
within five (5) business days after close of the referenced transactions.
Failure to comply with this paragraph shall constitute an event of
default.
In addition, the Note provided that, in the event of default, WEM “may
declare the entirety of the indebtedness evidenced hereby immediately due and
payable without notice” and that “in the event the entirety of this Promissory Note
is declared due, interest shall accrue at the lesser of eighteen percent (18%) or the
maximum applicable rate allowed by law from such time.” The Note also
contained provisions regarding payment of attorney’s fees, notice, and acceptable
methods of payment. Finally, the Note contained a merger clause: “This written
Note represents the final agreement between the parties and may not be
contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements of the parties. There are no unwritten oral agreements between the
parties.”
The Note referenced Exhibits A, B, C, and D. These exhibits provided
details regarding transactions after January 1, 2011, that were made subject to the
Note and that were pending with Maddox at or around the time the Note was
executed on June 25, 2012 (“the Pending Transactions”). Exhibit A listed five
Pending Transactions involving Maddox’s client CVS Pharmacies, with
approximate closing dates ranging from “April-12” to “3rd qtr. 2012” and expected
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income from those transactions totaling $215,000. Exhibits B, C, and D contained
similar information regarding twenty-one other Pending Transactions for
Maddox’s clients Golden Corral, Staples, and Walgreens.
WEM filed suit against Maddox on January 11, 2013, alleging a cause of
action for breach of contract. The original petition alleged that WEM and Maddox
“executed a $159,046.34 promissory note” on “January 1, 2011” which required
Maddox to pay WEM from the closings of each of the Pending Transactions
attached to the Note. WEM alleged that two such transactions closed “before June
30, 2012, but [Maddox] failed to apply the proceeds to the Note or make a single
payment under the Note.” WEM alleged that this constituted a default under the
Note, allowing it to accelerate the maturity of the Note. WEM further alleged that
Maddox’s “failure to pay is a material breach of contract” that had caused it both
direct and consequential damages. WEM also sought attorney’s fees under Texas
Civil Practice and Remedies Code Chapter 38. Maddox entered a general denial
and asserted the affirmative defenses of waiver, estoppel, laches, and failure of
consideration.
On April 3, 2013, WEM moved for traditional summary judgment on its
breach of contract claim. In its motion, WEM argued that Maddox was in default
on the Note “by failing to pay amounts due from commissions received by
[Maddox]. [Maddox] defaulted no later than June 30, 2012 when [he] failed to
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make payments from commissions received.” WEM further argued that the Note
expressly provided that all payments Maddox received from the Pending
Transactions were to be paid to WEM within five days after the transaction closed
and were to be applied first to accrued and unpaid interest and then to the
outstanding principal balance on the Note. WEM stated that Maddox “closed at
least two Pending Transactions prior to June 30, 2012, but [he] failed to apply any
of the proceeds to the Note or make a single payment under the Note,” thereby
defaulting under the terms of the Note. WEM identified two particular
transactions: a May 21, 2012 sale of a CVS Pharmacy site, resulting in a $50,000
commission to Maddox, and a June 21, 2012 sale of a Golden Corral site, resulting
in a $41,000 commission to Maddox.
With its motion for summary judgment, WEM presented a copy of the Note
and its exhibits setting forth the Pending Transactions. WEM also provided
McIlwain’s affidavit. McIlwain averred that “WEM loaned the principal amount
to [Maddox] prior to January 1, 2011. To date, no funds have been paid WEM to
satisfy any of the amounts due under the Note.” McIlwain also stated that Maddox
had received commissions for the May 21, 2012 and June 21, 2012 transactions.
McIlwain further averred that the “Note has not been amended, modified or
supplemented since its inception. WEM has not orally or in writing amended,
modified, supplemented or waived any rights under the Note. WEM has not
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consented or allowed [Maddox] to use any monies received by [Maddox] by,
through or under the [Pending Transactions].” McIlwain stated that the amount of
unpaid principal and accrued interest due and owing as of June 30, 2012, was
$190,243; that WEM accelerated the payment due according to the terms of the
Note on June 30, 2012; and that, beginning on July 1, 2012, the unpaid balance
began to accrue interest at the default rate of eighteen percent. He further averred
that, as of March 31, 2013, the amount of unpaid principal and accrued interest due
and owing was $217,522 and that the Note continued to accrue interest at a rate of
$94 per day.
WEM also supported its motion for summary judgment with portions of
Maddox’s deposition testimony. Maddox acknowledged entering into the Note
with WEM, and he stated that he signed the note on June 25, 2012, and that the
Note referenced “the most current sheets [detailing the Pending Transactions].
These sheets are dated 21 March, ‘12.” Maddox agreed that he had made no
payments under the Note. He also agreed that he closed a deal related to a CVS
Pharmacy on May 21, 2012, and that no portion of the $50,000 commission that he
received from that transaction was paid to WEM. He likewise acknowledged that
he closed a second transaction related to a Golden Corral restaurant on June 21,
2012, that resulted in a commission of $41,000, none of which was paid to WEM.
Maddox also testified in his deposition that, prior to entering into the written Note,
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he had an oral agreement with McIlwain and WEM. He agreed that the “oral
agreement was WEM would loan you these funds, you would pay those funds
back, but definitely you would pay them from these pending sheets.”
WEM also accompanied its motion for summary judgment with the affidavit
of counsel, averring to the work completed on the case and the amount of
reasonable and necessary attorney’s fees.
Maddox responded to the motion for summary judgment, arguing that,
although the Note was dated January 1, 2011, he did not sign it until June 2012,
eighteen months later. He further argued that the Note was drafted solely by WEM
and that the exhibits containing the Pending Transactions were attached to the Note
after he signed it. Maddox stated that the “alleged events of default occurred prior
to the signing of the Note.” Finally, Maddox argued that WEM waived payment of
the sums at the time Maddox received the funds.
Maddox provided his own affidavit with his response to WEM’s motion for
summary judgment. In his affidavit, Maddox averred that he signed the Note dated
January 1, 2011, on June 25, 2012, that the exhibits were not attached when he
signed the Note, and that he “can only assume Mr. McIlwain attached [the
exhibits] after he signed the Note.” He further stated that he had closed two of the
Pending Transactions for which he received commissions: a $50,000 commission
received on May 12, 2012, and a $41,000 commission that he received on June 21,
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2012. He further averred, “On the approximate date that I received both of these
commissions, both of which were prior to the date I signed the Note, I informed
Mr. McIlwain that I had received them and I told him I needed this money to pay
my living and business expenses. On both occasions Mr. McIlwain agreed to
allow me to keep all the money received from the commissions.”
Maddox also provided excerpts from his deposition with his response to
WEM’s motion for summary judgment. Maddox’s deposition testimony
established that WEM loaned the funds prior to the preparation of the Note, and
Maddox agreed that the Note “dates back to January 1, 2011.” Maddox further
agreed that the exhibits outlining the Pending Transactions were referenced by the
Note, but, he testified, “I had no control over the exhibits that he attached. He
[McIlwain] was aware that the two closings had taken place, and that I had not
paid him because I needed the money for living expenses.” Maddox also agreed
that he did not pay WEM “even under [the] oral agreement prior to the Note.”
The trial court granted WEM’s motion for summary judgment. This appeal
followed.
Motion for Summary Judgment
Maddox argues that the trial court erred in granting WEM’s motion for
summary judgment because WEM failed to prove that Maddox breached the
contract and because WEM failed to establish as a matter of law that it did not
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waive compliance with the payment terms of the contract, as required to overcome
Maddox’s affirmative defense of waiver.
A. Standard of Review
We review de novo the trial court’s ruling on a summary judgment motion.
Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848
(Tex. 2009). To prevail on a traditional motion for summary judgment, the movant
must establish that no genuine issues of material fact exist and that it is entitled to
judgment as a matter of law. TEX. R. CIV. P. 166a(c); Little v. Tex. Dep’t of
Criminal Justice, 148 S.W.3d 374, 381 (Tex. 2004).
“[S]ummary judgments must stand or fall on their own merits, and the
nonmovant’s failure to answer or respond cannot supply by default the summary
judgment proof necessary to establish the movant’s right.” McConnell v. Southside
Indep. Sch. Dist., 858 S.W.2d 337, 343 (Tex. 1993). The standards for reviewing a
motion for summary judgment are well established. Nixon v. Mr. Prop. Mgmt.
Co., 690 S.W.2d 546, 548 (Tex. 1985). The movant for summary judgment has the
burden of showing that there is no genuine issue of material fact and that it is
entitled to judgment as a matter of law. Id. In deciding whether there is a disputed
material fact issue precluding summary judgment, evidence favorable to the
nonmovant will be taken as true. Id. at 548–49. Every reasonable inference must
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be indulged in favor of the nonmovant and any doubt resolved in its favor. Id. at
549.
When the plaintiff moves for summary judgment, the plaintiff must
conclusively prove all elements of its cause of action as a matter of law. Kyle v.
Countrywide Home Loans, Inc., 232 S.W.3d 355, 358 (Tex. App.—Dallas 2007,
pet. denied) (citing TEX. R. CIV. P. 166a(c)); see also TEX. R. CIV. P. 166a(a)
(providing that party seeking to recover upon claim may, at any time after adverse
party has appeared or answered, move for summary judgment). A matter is
conclusively proven if ordinary minds could not differ as to the conclusion to be
drawn from the evidence. Hall v. Sonic Drive-In of Angleton, Inc., 177 S.W.3d
636, 643–44 (Tex. App.—Houston [1st Dist.] 2005, pet. denied) (citing Triton Oil
& Gas Corp. v. Marine Contractors & Supply, Inc., 644 S.W.2d 443, 446 (Tex.
1982)).
If the movant meets its burden as set out above, the burden then shifts to the
nonmovant to raise a genuine issue of material fact precluding summary judgment.
Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex. 1995). To defeat
summary judgment by raising an affirmative defense, the nonmovant must do more
than just plead the affirmative defense. Lunsford Consulting Grp., Inc. v. Crescent
Real Estate Funding VIII, L.P., 77 S.W.3d 473, 475–76 (Tex. App.—Houston [1st
Dist.] 2002, no pet.) (citing Am. Petrofina, Inc. v. Allen, 887 S.W.2d 829, 830
10
(Tex. 1994)). He must come forward with evidence sufficient to raise a genuine
issue of material fact on each element of his affirmative defense. 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).
The evidence raises a genuine issue of fact if reasonable and fair-minded
jurors could differ in their conclusions in light of all of the summary judgment
evidence. Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 755 (Tex.
2007) (per curiam). To determine if the nonmovant has raised a fact issue, we
review the evidence in the light most favorable to the nonmovant, crediting
favorable evidence if reasonable jurors could do so, and disregarding contrary
evidence unless reasonable jurors could not. Fielding, 289 S.W.3d at 848. We
indulge every reasonable inference and resolve any doubts in the nonmovant’s
favor. Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002).
B. WEM’s Motion for Summary Judgment
WEM alleges that Maddox breached the Note by failing to pay the
commissions he earned on May 21, 2012, and June 21, 2012, to WEM under the
terms of the Note.
A promissory note is a contract evincing an obligation to pay money.
DeClaire v. G & B McIntosh Family Ltd. P’ship, 260 S.W.3d 34, 44 (Tex. App.—
Houston [1st Dist.] 2008, no pet.) (citing Dorsett v. Cross, 106 S.W.3d 213, 217
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(Tex. App.—Houston [1st Dist.] 2003, pet. denied)). As such, the construction of
its terms is controlled by the rules generally applicable to interpreting contracts.
Id. Thus, to be entitled to summary judgment on its claim, WEM was required to
show, as a matter of law: (1) the existence of a valid contract; (2) its performance
or tender of performance; (3) breach of the contract; and (4) damage as a result of
the breach. See Wincheck v. Am. Express Travel Related Servs., Co., 232 S.W.3d
197, 202 (Tex. App.—Houston [1st Dist.] 2007, no pet.) (citing Prime Prods., Inc.
v. S.S.I. Plastics, Inc., 97 S.W.3d 631, 636 (Tex. App.—Houston [1st Dist.] 2002,
pet. denied)); see also Dorsett v. Hispanic Hous. & Educ. Corp., 389 S.W.3d 609,
613 (Tex. App.—Houston [14th Dist.] 2012, no pet.) (“To recover on a promissory
note, the plaintiff must prove: (1) the note in question; (2) the party sued signed the
note; (3) the plaintiff is the owner or holder of the note; and (4) a certain balance is
due and owing on the note.”).
The elements of a valid contract are: (1) an offer, (2) an acceptance, (3) a
meeting of the minds, (4) each party’s consent to the terms, and (5) execution and
delivery of the contract with the intent that it be mutual and binding. DeClaire,
260 S.W.3d at 44 (citing Prime Prods., Inc., 97 S.W.3d at 636). The determination
of a meeting of the minds, and thus offer and acceptance, is based on the objective
standard of what the parties said and did and not on their subjective state of mind.
Id. The delivery of the note is “made for the purpose of giving effect to the
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instrument according to its terms, unless it be shown that by agreement of the
parties, including the payee, the delivery was made for some other purpose.” Id.
Here, both parties agree that WEM loaned money to Maddox pursuant to an
oral agreement prior to January 1, 2011. The parties subsequently memorialized
this agreement in the Note. As Maddox’s own deposition testimony indicates,
under the terms of both the original oral agreement and the Note, Maddox was
required to repay the loan from WEM from commissions received on the Pending
Transactions. The Note contains all the terms of a valid contract in that it provides
that Maddox promised to pay WEM $159,046.34 according to the payment
provisions stated in the Note, which required Maddox to pay WEM commissions
from the Pending Transactions referenced in the Note and attached as exhibits to
satisfy this debt. Furthermore, the parties agreed under the express terms of the
Note that the Note was effective as of January 1, 2011.
WEM further provided evidence that it performed its obligation under the
Note. McIlwain and Maddox, in both his affidavit and deposition testimony,
agreed that WEM loaned Maddox $159,046.34. WEM established that Maddox
received commissions from two of the Pending Transactions but that he did not
make any payment on the Note, thus breaching the terms of the Note. Maddox
does not dispute that he received the commissions; nor does he dispute that he did
not pay any sums from the commissions to WEM under the terms of the Note.
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Finally, WEM established its damages under the terms of the Note to include the
entire unpaid principal balance plus accrued and unpaid interest.
Thus, WEM established the existence of the Note—a valid agreement—that
was signed by Maddox; its own tender of performance; Maddox’s subsequent
breach by failing to pay in accordance with the Note’s terms; and its damages in
the amount of the unpaid principal, interest, and attorney’s fees. See Dorsett, 389
S.W.3d at 613; Wincheck, 232 S.W.3d at 202. We conclude that WEM
conclusively proved all elements of its breach of contract claim against Maddox as
a matter of law. See Kyle, 232 S.W.3d at 358.
We overrule Maddox’s issue arguing that WEM failed to conclusively
establish that Maddox breached their agreement.
The burden then shifted to Maddox to raise a genuine issue of material fact
precluding summary judgment. See Centeq Realty, 899 S.W.2d at 197. Maddox
could defeat WEM’s motion for summary judgment by coming forward with
evidence sufficient to raise a genuine issue of material fact on one essential
element of WEM’s claim or on each element of his affirmative defense of waiver,
requiring remand for trial. See id. (holding that to defeat plaintiff’s entitlement to
summary judgment, nonmovant must raise material fact issue as to one essential
element of plaintiff’s claim); Haskell, 193 S.W.3d at 95 (holding that defendant
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seeking to defeat motion for summary judgment by raising affirmative defense
must raise genuine issue of material fact on each element of defense).
C. Maddox’s Affirmative Defense of Waiver
Maddox argues that he raised a genuine issue of material fact on his
affirmative defense of waiver by presenting his own affidavit and deposition
testimony that, at the time he received the commissions, McIlwain allowed him to
keep the entirety of the commissions to pay personal expenses. WEM argues that
the trial court could not consider any of Maddox’s evidence regarding the alleged
waiver because it was barred by the express language of the Note and by the parol
evidence rule.
Waiver is the intentional relinquishment of a known right or intentional
conduct inconsistent with claiming that right. Jernigan v. Langley, 111 S.W.3d
153, 156 (Tex. 2003). Waiver is ordinarily a question of fact, but when the
surrounding facts and circumstances are undisputed, as here, the question becomes
one of law. Id. at 156–57.
It is undisputed that Maddox signed the Note memorializing the terms of the
parties’ agreement on June 25, 2012, after he received the May 21, 2012 and June
21, 2012 commissions. It is likewise undisputed that, under the plain language of
the Note, the parties intended that it be effective as of January 1, 2011, and that it
cover the Pending Transactions referenced in the Note. The Note also contained a
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merger clause: “This written Note represents the final agreement between the
parties and may not be contradicted by evidence of prior, contemporaneous, or
subsequent oral agreements of the parties. There are no unwritten oral agreements
between the parties.”
Even taking as true Maddox’s assertion that McIlwain told him to keep the
commissions to pay personal expenses, these representations constituted a prior or
contemporaneous oral agreement that was merged into the written agreement
signed on June 25, 2012, and determined by the parties to have been in effect as of
January 1, 2011. The parties agreed that the terms of the Note “may not be
contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements of the parties,” and courts are bound to enforce the express terms of the
agreement as agreed to by the parties; thus, Maddox’s affidavit and deposition
testimony cannot serve to contradict the agreement of the parties as expressed in
the contract. See, e.g., Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s
London, 327 S.W.3d 118, 126–27 (Tex. 2010) (“The parties’ intent is governed by
what they said in the . . . contract, not by what one side or the other alleges they
intended to say but did not.”); David J. Sacks, P.C. v. Haden, 266 S.W.3d 447, 450
(Tex. 2008) (“An unambiguous contract will be enforced as written. . . .”). Thus,
the Note itself conclusively refutes Maddox’s contentions that WEM intentionally
relinquished a known right with respect to commissions on the Pending
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Transactions owed to WEM under the express terms of the Note. By seeking the
written memorialization of its agreement with Maddox in June 2012 in the form of
the Note, WEM demonstrated an intention to enforce the terms of the agreement
requiring Maddox to pay WEM commissions received from the Pending
Transactions. Therefore, Maddox’s affirmative defense of waiver is unavailing. 1
See Jernigan, 111 S.W.2d at 156.
We conclude that Maddox failed to raise a genuine issue of material fact
regarding his affirmative defense. See Centeq, 899 S.W.2d at 197; Haskell, 193
S.W.3d at 95. Accordingly, we hold that the trial court did not err in granting
summary judgment in favor of WEM on its breach of contract claims. See Kyle,
232 S.W.3d at 358.
1
Furthermore, the parol evidence rule prohibits consideration of Maddox’s
evidence regarding McIlwain’s permission for him to keep the entirety of the
commissions at issue to pay personal expenses. The parol evidence rule is a rule
of substantive law. DeClaire v. G & B McIntosh Family Ltd. P’ship, 260 S.W.3d
34, 45 (Tex. App.—Houston [1st Dist.] 2008, no pet.). “When parties reduce an
agreement to writing, the law of parol evidence presumes, in the absence of fraud,
accident, or mistake, that any prior or contemporaneous oral or written agreements
merged into the written agreement and, therefore, that any provisions not set out in
writing were either abandoned before execution of the agreement or, alternatively,
were never made and are thus excluded from consideration in interpreting the
written agreement.” Id. (emphasis added). “Evidence that violates the parol
evidence rule has no legal effect and ‘merely constitutes proof of facts that are
immaterial and inoperative.’” Id. (quoting Piper, Stiles & Ladd v. Fid. & Deposit
Co., 435 S.W.2d 934, 940 (Tex. Civ. App.—Houston [1st Dist.] 1968, writ ref’d
n.r.e.)).
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We overrule Maddox’s issue arguing that WEM failed to prove as a matter
of law that it had not waived compliance with the payment terms of the contract.
Conclusion
We affirm the judgment of the trial court.
Evelyn V. Keyes
Justice
Panel consists of Justices Keyes, Sharp, and Huddle.
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