Adams v. McFadden

• Decision Date: 29 July 2009
• Docket Number: No. 08-07-00071-CV.,08-07-00071-CV.
• Citation: 296 S.W.3d 743
• Parties: Joy B. ADAMS d/b/a Ellyson Abstract & Title Co., and Ellyson Abstract & Title Co., L.L.C., Appellants, v. David Bruce McFADDEN as Independent Executor of the Estate of Freida H. McFadden, Deceased, Appellee.
• Court: Texas Court of Appeals

296 S.W.3d 743

Joy B. ADAMS d/b/a Ellyson Abstract & Title Co., and Ellyson Abstract & Title Co., L.L.C., Appellants, v. David Bruce McFADDEN as Independent Executor of the Estate of Freida H. McFadden, Deceased, Appellee.

No. 08-07-00071-CV.

Court of Appeals of Texas, El Paso.

July 29, 2009.

Rehearing Overruled September 2, 2009.

Michael F. Forrester, Alpine, TX, for Appellants.

Steven L. Clack, Attorney At Law, Kerrville, TX, for Appellee.

Before CHEW, C.J., McCLURE, and CARR, JJ.

OPINION

ANN CRAWFORD McCLURE, Justice.

Joy B. Adams and Ellyson Abstract & Title Company, L.L.C. appeal from a judgment rendered in favor of David Bruce McFadden as Independent Executor of the Estate of Freida H. McFadden.¹ We affirm the judgment with regard to liability and damages. We reverse that portion of the judgment awarding attorneys' fees and remand for a new trial on that issue.

FACTUAL SUMMARY

In 1982 or 1983, Freida McFadden purchased Ellyson Abstract and Title Company with offices located in Fort Stockton and Alpine, Texas. For the majority of this time period, it was the only title company in Fort Stockton. Joy Adams worked for Freida in the Alpine office for two or three years and Freida sold Joy the Alpine office in 1986 or 1987. In 1999, Joy discussed purchasing the Fort Stockton office for $300,000 but the transaction was not consummated. Around November 2000, Joy learned through a third party that Freida wanted to sell the Fort Stockton company for $150,000. Joy called Freida and agreed to purchase Ellyson Abstract for that price. Joy contacted an attorney Freida had recommended to draft the documents. On December 22, 2000, Joy and Freida executed an Improved Property Commercial Contract conveying the real property to Joy and her husband, E.P. "Apache" Adams, for the purchase price of $150,000. On January 5, 2001, Freida executed a bill of sale conveying to Joy and Apache all of the personal property situated at the offices of Ellyson Abstract & Title Company in Fort Stockton, including but not limited to "all furniture, fixtures, computers including all soft ware and any records contained in the hard drive, all files, all card files of legal transactions, typewriters, calculators, adding machines, copiers, telephones, all office supplies, and any and all other personal property situated at the location of Ellyson Abstract and Title Company." At the time of sale, there were two title insurance commitments with pending closings. These commitments related to large tracts of land and were referred to as the "Windfarm Projects." One was referred to as the Chicago Abstract Project and the other as the Stewart Title Project. Only the Stewart Title project eventually closed through Ellyson Abstract.

McFadden alleged—and the jury found—that Freida and Joy had an oral agreement that Freida would receive the proceeds from the two pending title commitments because they had been written before the sale. In the year following Joy's purchase of the business, Ellyson Abstract & Title Co., L.L.C., received $416,475.30 from the Stewart Title deal. Joy did not notify Freida that the money had been received and she threatened the employees at Ellyson Abstract with termination if any of them informed Freida about it. Freida's attorney wrote a letter to Joy demanding that she pay her the proceeds received on the Windfarm Project, but Joy did not do so. Freida died on July 19, 2003 and her son, Bruce McFadden, in his capacity as executor of his mother's estate, filed suit against Joy Adams, E.P. Adams, and Ellyson Abstract & Title Company, L.L.C., asserting claims for breach of contract, conversion, breach of fiduciary duty, and common law fraud. A jury found in McFadden's favor on the breach of contract, breach of fiduciary duty and conversion claims but found in favor of Joy on the fraud claim. The jury awarded actual damages in the amount of $169,036.32 and reasonable attorneys' fees in the amount of $205,000. The jury also found that Joy intentionally breached her fiduciary duty, but it did not award exemplary damages. The trial court entered judgment in favor of McFadden based on the jury's verdict.

ILLEGALITY

In Issue One, Appellants contend that an oral agreement requiring Joy to pay the proceeds from the premium issued on the title policy is illegal as a matter of law because at the time the proceeds were received Freida no longer had a license to conduct insurance business, and therefore, Joy could not legally pay her the premium. For the same reason, Appellants also argue that the contract is unenforceable as a matter of law.

At the conclusion of McFadden's case-in-chief, Appellants moved for an instructed verdict on the ground that the oral contract, if it existed, was illegal. In support of their motion, Appellants asked the trial court to take judicial notice of their motion for summary judgment and the attached records from the Texas Department of Insurance showing that the licenses of Ellyson Abstract were cancelled on June 14, 2001 and Freida's license was cancelled on June 22, 2001.² The court inquired why it should take judicial notice and asked Appellants whether they wished to introduce the evidence before the jury. Appellants insisted it was a question of law. The trial court did not affirmatively take judicial notice but simply instructed counsel to proceed. The court overruled the motion for instructed verdict on the ground of illegality.

Appellants did not request the submission of any questions to the jury on their affirmative defense of illegality³ or their defense of impossibility of performance. Appellants raised the issue again in their motion for new trial. In the section of their motion challenging the legal and factual sufficiency of the evidence supporting the jury's finding that Joy breached the oral agreement, Appellants stated: "As a matter of law, Joy Adams could not share proceeds of a title insurance premium with Freida McFadden and could not therefore have breached any agreement which may have existed. As more fully stated in Defendants' Motion for Summary Judgment, any such agreement is rendered void because such a contract would violate the law and by the doctrine of impossibility." Appellants also filed a motion for judgment notwithstanding the verdict. Citing Sections 2502.051⁴ and 2502.053⁵ of the Texas Insurance Code, they alleged that McFadden's causes of action were "barred as a matter of law" because any oral agreement for Joy to pay Freida proceeds from the title policies was void and unenforceable. The trial court overruled both motions.

The validity of a contract is generally a question of law. Farah v. Mafrige & Kormanik, P.C., 927 S.W.2d 663, 678 (Tex.App.-Houston [1st Dist.] 1996, no writ). An illegal contract is one in which the parties undertake what the law forbids. Franklin v. Jackson, 847 S.W.2d 306, 309 (Tex.App.-El Paso 1992, writ denied). A contract to do a thing which cannot be performed without a violation of the law is void. Id. Because the contract violates the law, it imposes no legal obligation on the parties. Miller v. Long-Bell Lumber Co., 148 Tex. 160, 222 S.W.2d 244, 246 (Tex.1949); Franklin, 847 S.W.2d at 309. However, a contract which could have been performed in a legal manner will not be declared void simply because it may have been performed in an illegal manner. Franklin, 847 S.W.2d at 309, citing Lewis v. Davis, 145 Tex. 468, 199 S.W.2d 146, 148-49 (1947); Wade v. Jones, 526 S.W.2d 160, 162-63 (Tex.Civ.App.-Dallas 1975, no writ). The law presumes that contracts are legal, and the burden to prove illegality is on the party asserting it, in this case, Appellants. See Franklin, 847 S.W.2d at 310. Unless the face of the contract shows it is illegal, the party asserting illegality must present evidence demonstrating the illegality before a court may declare the contract void. See Lewis, 199 S.W.2d at 149; Franklin, 847 S.W.2d at 310.

We begin with the presumption that the contract is legal. Appellants did not introduce any evidence establishing that the contract was illegal at the time it was made. Nor do they allege that Freida did not hold the appropriate licenses at the time of the oral agreement that Joy would pay her the proceeds received from the two Windfarm Projects. Because the contract could have been performed in a legal fashion at the time it was made, Appellants had the burden to introduce evidence proving illegality. This they failed to do. We overrule Issue One.

UNENFORCEABILITY

In their second issue, Appellants maintain that the oral agreement is unenforceable because the written agreement is unambiguous and constitutes the entire agreement of the parties. Appellants contend that Joy acquired the right to the premiums earned from the windmill projects when she purchased the business because Freida conveyed the "files" to her as part of the transaction, which included the right to those premiums. In their reply brief, Appellants have expanded upon this argument. Pointing to an integration clause in the written contract, they allege that the oral agreement is unenforceable and the written agreement must be enforced as written and cannot be added to or varied by parol evidence.

The parol evidence rule is a rule of substantive contract law, not evidence. Hubacek v. Ennis State Bank, 159 Tex. 166, 317 S.W.2d 30, 31 (1958); DeClaire v. G & B McIntosh Family Limited Partnership, 260 S.W.3d 34, 45 (Tex.App.-Houston [1st Dist.] 2008, no pet. h.). We review parol evidence questions de novo, as questions of law. DeClaire, 260 S.W.3d at 45.

When the parties have concluded a valid, integrated agreement, the parol evidence rule precludes enforcement of a prior or contemporaneous inconsistent agreement. Edascio, L.L.C. v. NextiraOne L.L.C., 264 S.W.3d 786, 796 (Tex. App.-Houston [1st Dist.] 2008, pet. filed); ISG State Operations, Inc. v. National Heritage Insurance Company, 234 S.W.3d 711, 719 (Tex.App.-Eastland 2007, pet. denied). The...