Dorsett v. Cross

• Decision Date: 27 March 2003
• Docket Number: No. 01-01-00739-CV.,01-01-00739-CV.
• Citation: 106 S.W.3d 213
• Parties: William Grant DORSETT, Appellant, v. Nancy Swanson CROSS, Appellee.
• Court: Texas Court of Appeals

106 S.W.3d 213

William Grant DORSETT, Appellant, v. Nancy Swanson CROSS, Appellee.

No. 01-01-00739-CV.

Court of Appeals of Texas, Houston (1st Dist.).

March 27, 2003.

Rehearing Overruled May 16, 2003.

COPYRIGHT MATERIAL OMITTED

Jeffrey Douglas Kyle, Christian, Smith & Jewell, Houston, Lynn J. Klement, Angleton, for Appellant.

Harry Herzog, Herzog, Carp & McManu, Houston, for Appellee.

Panel consists of Justices HEDGES, KEYES, and EVANS.¹

OPINION

EVELYN V. KEYES, Justice.

In this breach of contract case, Nancy Swanson Cross, plaintiff/appellee, sued William Grant Dorsett, defendant/appellant, to collect on a promissory note for the payment of securities, payable on demand, in the principal amount of $56,000 (the Note). On appeal, Dorsett challenges the sufficiency of the evidence to support the jury's findings and contends certain testimony was improperly admitted. We affirm.

Factual & Procedural Background

This is a suit by Cross to collect the price of her stock pursuant to the Note executed in her favor by Dorsett. The Note was expressly made subject to the terms of an Agreement for Purchase and Sale of Stock dated July 1, 1993 (the Stock Sale Agreement). The Stock Sale Agreement was executed by Cross and three other persons as Sellers and by Dorsett as Purchaser of stock in Accent Services, Inc. (the Corporation).

Under the terms of the Stock Sale Agreement, the Sellers promised to transfer the stock into Dorsett's name, to deliver the stock certificates into escrow, and to make certain documents of the Corporation set out in "Exhibit A" to the Stock Sale Agreement available for inspection by Dorsett so that he could perform due diligence. Dorsett promised to execute a promissory note in favor of each Seller for the purchase price of the stock and to deposit $10,000 into escrow as earnest money upon delivery of the stock to Sellers' attorney, to give written notice of receipt of the documents within three business days of their receipt, and to perform due diligence. The Stock Sale Agreement gave Dorsett 30 days after receipt of the documents to close the stock purchase transaction. If he elected not to close the transaction, he promised to deliver to the Sellers his written communication of his desire to rescind, at which point he would forfeit his $10,000 earnest money. If he elected to close, he promised to pay 20% cash down to each Seller and to substitute installment notes for the balance of the purchase price in place of the promissory notes executed in favor of the Sellers at the initial Closing.

Following the transfer of stock into Dorsett's name, the delivery of the stock to Sellers' attorney, and Dorsett's deposit of the $10,000 in earnest money into escrow, the Sellers made the documents listed in Exhibit "A" to the Stock Sale Agreement available for Dorset's due diligence inspection. Dorsett, however, failed to acknowledge their receipt, as required by the Stock Sale Agreement. He also refused to review the documents, and did not complete his due diligence. He neither closed the transaction within 30 days of receipt of the documents nor sent written notice of rescission to the Sellers; nor did he pay for the stock. After Cross made demand on Dorsett for payment for her stock pursuant to the Note, Dorsett announced that he was exercising his right of rescission. Cross filed this suit for recovery of the purchase price.

The trial court charged the jury to find: (a) whether Dorsett had failed to comply with the terms of the Note; and (b) if so, whether his failure to comply was excused by Cross's previous failure to comply with a material obligation of the Note or with the Stock Sale Agreement. The jury found that Dorsett failed to comply with the Note (Question No. 1) and that his lack of compliance with the Note was not excused by Cross's failure to comply with the Note (Question No. 2) or with the Stock Sale Agreement (Question No. 3). In determining the amount of damages, the jury was instructed to consider only the unpaid principal balance of the Note; it assessed damages in the amount of 856,000. The trial court entered judgment on the verdict.

Sufficiency of the Evidence

Dorsett argues in his first and second points of error that (1) there is no evidence to support the jury's finding that he failed to comply with the terms of the $56,000 Note because the Note was expressly made subject to the provisions of the Stock Sale Agreement; the Stock Sale Agreement provided that he would conduct a due diligence analysis of documents reflecting the Corporation's financial condition; the Stock Sale Agreement did not impose any deadline on him for completion of his due diligence; and, because he never completed the required due diligence, there is no evidence he failed to comply with the Note; and (2) the jury's finding that he failed to comply with the terms of the Note does not constitute a basis for entry of judgment against him because the Stock Sale Agreement expressly limited his liability, if he did not close the stock purchase transaction, to the $10,000 earnest money he deposited with the Sellers. We consider these issues together.

Standard of Review

We may consider only the evidence and inferences that tend to support the jury's finding and must disregard all evidence and inferences to the contrary. Southwest Key Program, Inc. v. Gil-Perez, 81 S.W.3d 269, 274 (Tex.2002). Thus, we must examine the record only to find whether there is evidence that supports the jury's finding. Lenz v. Lenz, 79 S.W.3d 10, 19 (Tex.2002).

In deciding whether there is legally sufficient evidence to support the jury's finding on the issue of whether Dorsett failed to comply with the terms of the Note, we must first ascertain Dorsett's contractual obligations under that instrument. When interpreting a contract to determine the intention of the parties, all writings pertaining to the same transaction will be construed together. See DeWitt County Electric Co-op., Inc. v. Parks, 1 S.W.3d 96, 102 (Tex.1999). Because the Note expressly states that it is executed pursuant to the parties' Stock Sale Agreement, we must examine its provisions in the light of that Stock Sale Agreement. Fort Worth Ind. Sch. Dist. v. Fort Worth, 22 S.W.3d 831, 840-42 (Tex.2000).

Breach of Contract and Excuse of Performance

A promissory note is nothing more than a contract evincing an obligation to pay money. Amarillo Nat'l Bank v. Dilday, 693 S.W.2d 38, 41 (Tex.App.-Amarillo 1985, no writ). As such, the construction of its terms is controlled by the rules generally applicable to interpreting contracts. Id.

The elements of a breach of contract action are (1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of the contract by the defendant; and (4) damages sustained by the plaintiff as a result of the breach. Frost Nat'l Bank v. Burge, 29 S.W.3d 580, 593 (Tex.App.-Houston [14th Dist.] 2000, no pet.). A breach occurs when a party fails or refuses to do something he has promised to do. Townewest Homeowners Ass'n, Inc. v. Warner Communication Inc., 826 S.W.2d 638, 640 (Tex.App.-Houston [14th Dist.] 1992, no writ); Intermedics, Inc. v. Grady, 683 S.W.2d 842, 845 (Tex.App.-Houston [1st Dist.] 1984, writ ref'd n.r.e.). A cause of action for breach of a promise to pay arises when a demand for payment has been made and refused. Intermedics, 683 S.W.2d at 845.

One party's promise conditioned on satisfaction with another party's performance of a condition generally requires performance of the condition that is satisfactory in the exercise of honest judgment; the decision on the question of satisfactory performance must be made in good faith. Atomic Fuel Extraction Corp. v. Slick's Estate, 386 S.W.2d 180, 185 (Tex.Civ.App.-San Antonio 1964, writ ref'd n.r.e.). Prevention of performance by one party excuses performance by the other party, both of conditions precedent to performance and of promise. O'Shea v. Int'l Bus. Mach. Corp., 578 S.W.2d 844, 846 (Tex.Civ.App.-Houston [1st Dist.] 1979, writ ref'd n.r.e.); Atomic Fuel Extraction Corp., 386 S.W.2d at 186. When the obligation of a party to a contract depends upon a certain condition's being performed, and the fulfillment of the condition is prevented by the act of the other party, the condition is considered fulfilled. Houston County v. Leo L. Landauer & Assocs., Inc., 424 S.W.2d 458, 464 (Tex.Civ. App.-Tyler 1968, writ ref'd n.r.e.).

When a contract has been substantially performed and an attempt to complete performance is refused, the refusal excuses any further attempt to perform by the party offering performance and entitles that party to recover under the contract. Longview Constr. & Dev., Inc. v. Loggins Constr. Co., 523 S.W.2d 771, 779 (Tex.Civ.App.-Tyler 1975, writ dism'd by agreement); Cox v. KTM Drilling, Inc., 395 S.W.2d 851, 853 (Tex.Civ. App.-Amarillo 1965, writ ref'd n.r.e.). A party who is in default may not complain of the recovery of damages by the other party, nor set up a subsequent default by the other party, nor urge such a subsequent default where the obligation of performance by one party presupposes the doing of some act by the other party which he fails or refuses to do. Moore County Carbon Co. v. Whitten, 140 S.W.2d 880, 883 (Tex.Civ.App.-Amarillo 1940, writ dism'd judgm't cor.).

Conditions Precedent to Final Closing

Under the essential terms of the Stock Sale Agreement, several events had to occur before the consummation of the stock purchase transaction, hence before the Note became due and payable. These conditional events were as follows:

First, upon execution of the Stock Purchase Agreement, two things had to be done, as provided in paragraph 3(a) of the Stock Sale Agreement: (1) the Sellers had to deliver their stock to their attorney to be held by him in escrow until all stipulated amounts and notes have been paid; and (2) the Purchaser had to deliver his executed demand note to each of the...