Berry v. Encore Bank

Decision Date02 June 2015
Docket NumberNO. 01-14-00246-CV,01-14-00246-CV
PartiesALLEN L. BERRY, JOSEPH D. MCCORD, AND ROBERT G. TAYLOR, II, Appellants v. ENCORE BANK, Appellee
CourtTexas Court of Appeals

On Appeal from the 152nd District Court Harris County, Texas

Trial Court Case No. 2010-63264

MEMORANDUM OPINION

Allen Berry, Robert Taylor, and Joseph McCord guaranteed a loan from Encore Bank to BLyn II Holding, LLC, a Texas limited liability company ("Blyn") of which Berry, Taylor, and McCord were members. After Blyn defaulted on the loan, Encore sued the three guarantors, asserting causes of action for breach-of-contract and suit on a guaranty. All parties filed motions for summary judgment. The district court granted Encore Bank's two motions and denied the guarantors' motion. The district court also denied the guarantors' challenge to Encore Bank's summary-judgment evidence.

In five issues, the guarantors contend that the trial court erred by (1) denying their motion for summary judgment asserting that Encore's claims are barred by limitations, (2) granting Encore summary judgment on the guarantors' defense of mutual mistake, (3) granting Encore summary judgment on the guarantors' negligence and negligent misrepresentation counterclaims, (4) granting Encore summary judgment on its breach-of-contract and suit-on-guaranty claims, and (5) overruling the guarantors' objections to Encore's summary judgment evidence.

We affirm.

Background

This case arises from a default on a loan obtained to finance the refurbishment of a luxury yacht. The yacht was listed as collateral for the loan. Three of the businessmen affiliated with the borrower executed personal guarantees. The collateral was lost to another entity after the lender's interest in the collateral was primed1 by a maritime lien placed on the yacht by the entity thatrefurbished the yacht. The lender, Encore, then sought judgment against the three guarantors for the full amount of the loan, without any available offset due to the loss of the yacht as collateral. The district court granted Encore summary judgment and entered a final judgment against the guarantors.

A. The refurbishment project

Berry, McCord, and Taylor are personal friends who entered into a series of business transactions to purchase and renovate a luxury yacht named the Betty Lyn II. They planned to enter the yacht into the charter market "as a luxury, expedition style yacht." The friends formed Blyn and purchased the Betty Lyn II in December 2005.

Blyn selected Crimson Yachts and Horizon Shipbuilding, Inc., in Alabama, to refurbish the yacht. Contract negotiations began between Blyn and Crimson in May 2006. The yacht was delivered to Crimson's shipyard in June or July 2006. The refurbishment contract between Blyn and Crimson was signed on August 1, 2006, and Crimson began working on the project "on or before August 1, 2006."

B. Encore makes unsecured and secured loans

In August 2006, Encore made an unsecured loan to Blyn for $400,000 to pay Crimson's invoices. Encore made another unsecured loan of $600,000 two months later to meet Blyn's subsequent obligations to Crimson.

In October 2006 the Blyn members met with Crimson and Encore representatives to set a total budget for the project and discuss financing. The October 19 Encore Credit Approval Form notes that Crimson had already begun work on the yacht.

Blyn executed loan documents for a $6 million loan from Encore on March 28, 2007. Blyn also executed a First Preferred Ship Mortgage, a Promissory Note, and other "Loan Documents." The maturity date for the loan was listed as April 15, 2009.

C. The guaranty agreement

The terms of a guaranty agreement determine whether the lender is required to collect from the borrower or on the collateral before looking to the guarantor to satisfy the debt. See, e.g., Yamin v. Conn, L.P., No. 14-10-00597-CV, 2011 WL 4031218, at *6 (Tex. App.—Houston [14th Dist.] Sept. 13, 2011, no pet.) (mem. op.).

The three Blyn members—Berry, McCord, and Taylor—personally guaranteed the $6 million loan from Encore to Blyn to finance the yacht refurbishment. Under the terms of their guaranty contract, the three agreed to "unconditionally guarantee" the prompt payment "when due at maturity" of the principal amount of $6 million borrowed by Blyn, "including all principal, interest, charges, and attorneys' fees" which may become due. The guarantors waivednotice of loan renewals, modifications or rearrangements, as well as nonpayment, default, and demand. The guarantors agreed that, in case of default, the loan could be "accelerated, extended, modified, amended or renewed . . . [and that] any other indulgence may be granted with respect" to the loan by Encore.

The guaranty created an independent obligation on the part of the guarantors to pay the full amount of the note "at maturity." The guaranty left to Encore's discretion, in case of an earlier default, whether to accelerate the obligation. It further provides that the

rights of Lender are cumulative and shall not be exhausted by its exercise of any of its rights hereunder or otherwise against Guarantor or by any number of successive actions until and unless all indebtedness constituting the Obligations have been paid, and other Obligations have been performed, including each of the obligations of Guarantor hereunder.

The guarantors "expressly waive[d] any right to the benefit of or to require or control application of any security or collateral or the proceeds" of that collateral and agreed that Encore had no duty, with respect to the guarantors, to apply security or collateral to the amount of the loan. The guaranty signed by all three guarantors states that it is "intended to be an absolute and unconditional guarantee of payment" and that the guarantors are not relying on any representations, written or oral, by Encore except those expressly included in the guaranty. Finally, the guarantors agreed that they were provided an opportunity toobtain legal advice regarding the guaranty and that they fully understand its implications and ramifications.

D. Default and litigation

In March 2008—two years into the refurbishment—a dispute developed between Blyn and Crimson regarding the increased cost of and anticipated completion date for the project. In late March or early April 2008, Blyn stopped paying Crimson's invoices. On April 4, 2008, Crimson declared Blyn to be in default for failure to pay Crimson's invoices.

Despite being in default on its obligations to Crimson, Blyn continued to meet its payment obligations to Encore by making interest payments as they became due. Blyn executed a note modification agreement on the original maturity date—April 15, 2009—extending the maturity date on the loan to March 15, 2010. The parties entered into a second note modification agreement on March 15, 2010, that extended the maturity date again to March 15, 2012. That same day, the guarantors executed a consent of guarantors, agreeing to the extension of the loan maturity date.

Crimson filed an in rem action against the yacht in June 2008 in the United States District Court for the Southern District of Alabama. Crimson asserted that it obtained a maritime lien on the yacht as soon as it began refurbishing the vessel and, as a result of Blyn's failure to pay its invoices, that it had the legal right toarrest the vessel and sell it to pay the lien. Following an appeal and remand, that court concluded that Crimson's maritime lien primed Encore's mortgage. Crimson Yachts v. M/Y Betty Lyn II, No. 08-0334-WS-C, 2010 WL 2104524, at *1-2 (S.D. Ala. May 25, 2010). Crimson then sold the yacht for less than the amount due and applied those funds towards Blyn's debt, which left no collateral to satisfy Blyn's obligations to Encore or to offset the guarantors' individual liability.

Litigation between Crimson and Blyn continued. The suit was transferred from Alabama to federal court in Texas. In early 2013, after the United States District Court for the Southern District of Texas entered an order awarding damages to Crimson with an offset for poor custodial care of the yacht, Blyn appealed to the Fifth Circuit, but the appeal was later dismissed. Horizon Shipbuilding Inc. v. BLyn II Holding LLC, No. C-12-60, 2012 WL 2911918 (S.D. Tex. July 16, 2012), appeal dism'd Jan. 3, 2013.

In the interim, Encore began litigation against the guarantors. On September 10, 2010—which was approximately four months after the federal court ruled that Crimson's maritime lien primed Encore's interest in the yacht—Encore sued the guarantors. Although the loan-maturity date had not yet passed, Encore asserted that Blyn was in non-monetary default on its loan by failing to meets its contractual obligations to Crimson. The guarantors were not served. They continued to make all required interest payments on the Blyn loan. The loanmatured on March 15, 2012, at which point the full amount of the loan became due, but neither Blyn nor the guarantors paid the loan balance. The guarantors were served with suit shortly after the loan maturity date passed.

The Parties' Competing Motions for Summary Judgment

Encore filed two summary-judgment motions, asserting both no-evidence and traditional summary-judgment points.2 In addition to seeking to recover on the guaranty, it also sought judgment on the guarantors' counterclaims and affirmative defenses.

The guarantors filed a single response to both of Encore's summary-judgment motions. The guarantors also filed objections to the affidavit of John Lingor, Encore's custodian of records, and other summary-judgment evidence. In addition to responding to Encore's two summary-judgment motions, the guarantors filed a cross-motion for summary judgment on their limitations affirmative defense.

The trial court granted Encore's two summary-judgment motions and denied the guarantors' summary-judgment motion. The trial court then entered a final judgment for Encore, awarding it $3.6 million for the outstanding principal balance...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT