Heritage Life Ins. Co. v. Heritage Group Holding Corp.

• Decision Date: 27 April 1988
• Docket Number: No. 05-87-00570-CV,05-87-00570-CV
• Citation: 751 S.W.2d 229
• Parties: HERITAGE LIFE INSURANCE COMPANY, Appellant, v. HERITAGE GROUP HOLDING CORPORATION, Appellee.
• Court: Texas Court of Appeals

Page 229

751 S.W.2d 229

HERITAGE LIFE INSURANCE COMPANY, Appellant, v. HERITAGE GROUP HOLDING CORPORATION, Appellee.

No. 05-87-00570-CV.

Court of Appeals of Texas,

Dallas.

April 27, 1988.

Rehearing Denied June 9, 1988.

Kelly Akins, Janet E. Atkins, Dallas, for appellant.

Blair G. Francis, Dallas, for appellee.

Before HOWELL, STEWART, and ROWE, JJ.

ON MOTION FOR REHEARING

ROWE, Justice.

The opinion of this Court of February 16, 1988, is withdrawn, and the following opinion is substituted.

After a summary judgment in favor of Heritage Group Holding Corporation (Buyer), Heritage Life Insurance Company (Seller) appeals the judgment returning $10,000 in earnest money to Buyer. Seller asserts that the trial court erred in granting Buyer's motion for summary judgment and in denying Seller's motion for summary judgment. Buyer asserts a "cross-point" challenging the jurisdiction of this Court based on an untimely filed cost bond.

For the reasons stated below, we overrule the jurisdictional challenge and decide the appeal on its merits. We hold that the summary judgment proof establishes beyond dispute that Buyer is not entitled to return of the $10,000 earnest money. Accordingly, we reverse the summary judgment in favor of Buyer and render summary judgment in favor of Seller that Buyer take nothing. Seller's claim for attorney fees, asserted in an improperly brought declaratory judgment action, is denied.

This case evolves from the proposed sale of Heritage Life Insurance Company of Texas (Heritage of Texas) by Seller to Buyer by way of a 100 percent stock buyout. The initial contract of sale was executed by the Seller and by Clyde Fortenberry and C.H. McCoy who later assigned their rights to Buyer, a corporation owned 75 percent by McCoy and 25 percent by Fortenberry. The contract, in various sections, provided for a $250,000.00 sale price, compliance with the Texas insurance laws, a $10,000.00 earnest money deposit by the Buyer, and optional rescission by either party if approval of the sale was not given by the Texas Insurance Commission by July 15, 1985, later extended to September 20, 1985. It is uncontroverted that the Commission's approval was not gained by September 20, 1985, at which time Buyer demanded return of the earnest money. Seller refused to return the earnest money; and, consequently, this suit was brought.

Before reaching the substantive matters on appeal, we first address Buyer's jurisdictional "cross-point." Rule 41 of the Texas Rules of Appellate Procedure ¹ requires the cost bond to be filed no later than 90 days after the judgment is signed when a motion for new trial has been made. The filing of a cost bond is required under Rule 40 in order to perfect an appeal. In this case Seller failed to timely file its bond but applied for an extension of time to so file within 15 days as per Rule 41(a)(2). Buyer opposed Seller's motion, but this Court granted the motion following its traditional holdings in this area. In its brief on appeal, Buyer reargues this ruling by way of a "cross-point." We reaffirm our previous ruling.

Rule 41(a)(2) allows an appellate court to extend the time to file the cost bond if the bond is "filed not later than fifteen days after the last day allowed and, within the same period, a motion is filed in the appellate court reasonably explaining the need for such extension." The controversy in this case concerns what constitutes a "reasonable explanation." The Texas Supreme Court has held that "reasonably explaining" means "any plausible statement of circumstances indicating that failure to file within the [prescribed time period] was not deliberate or intentional, but was the result of inadvertence, mistake or mischance." Meshwert v. Meshwert, 549 S.W.2d 383, 384 (Tex.1977). In the case at bar, it appears that Seller's attorney miscalculated the due date by not properly applying Rule 41's "90 days from judgment" rule but by applying instead the repealed rule which calculated the due date from the order denying a motion for new trial. Although the attorney may have been mistaken as to the applicable law, it is clear that the mistake was not deliberate or intentional. Therefore, we hold that an attorney's miscalculation of the date upon which a cost bond is due stemming from a mistake in law is a "reasonable explanation" sufficient to satisfy Rule 41(a)(2). United States Fire Insurance Co. v. Stricklin, 547 S.W.2d 338, 340 (Tex.Civ.App.--Dallas 1977, no writ).

Buyer relies on the case of Home Insurance Co. v. Espinoza, 644 S.W.2d 44 (Tex.App.--Corpus Christi 1982, writ ref'd n.r.e.), which directly opposes our holding in this case. Under similar facts, the Corpus Christi Court held that the failure to timely file a cost bond resulting from an attorney's failure to adequately familiarize herself with the basic rules of appellate procedure does not constitute a reasonable explanation as a matter of law. Id., at 45. We view the Corpus Christi Court as following the "reasonable diligence" standard. This standard was rejected by Justice Guittard in his dissenting opinion in Sloan v. Passman, 538 S.W.2d 1, 1 (Tex.Civ.App.--Dallas 1976) (Guittard, J., dissenting, approved in United States Fire Insurance Co. v. Stricklin, 547 S.W.2d 338 (Tex.Civ.App.--Dallas 1977, no writ)). Justice Guittard followed the "Craddock " standard of inadvertence, mistake, or mischance. This same language was used by the Texas Supreme Court in Meshwert, 549 S.W.2d at 384. Under Mershert, Stricklin, and Sloan, the "reasonable explanation" required by Rule 41(a)(2) focuses on a lack of deliberate or intentional failure to comply. See Meshwert, 549 S.W.2d at 384. Anything short of deliberate or intentional noncompliance falls within the area of inadvertence, mistake, or mischance. Consequently, we decline to follow Espinoza and overrule Buyer's "cross-point."

We now turn to Seller's substantive points of error. Seller complains in point of error number one that the trial court erred in granting summary judgment for Buyer. In point of error number two, Seller asserts that the trial court erred in denying summary judgment for Seller. Since both of these points of error concern the same facts and legal issues, we address them concurrently.

The rights and obligations of the parties in this case are controlled by the contract. The contract covers nine pages but has six clauses relevant to this appeal. Section 1.1 ² provides that 100% of the stock of Heritage of Texas will be transferred. Section 3.4 ³ provides that Buyer will acquire title to all assets of Heritage of Texas. Section 5.1 ⁴ provides that the sale is subject to the approval of the Commissioner of Insurance of the State of Texas and that Article 21.49-1 of the Texas Insurance Code will be complied with. Section 5.2(b) ⁵ provides that Buyer's obligations are conditioned on there being no material breaches of Seller's representations and warranties. Section 7.1 ⁶ provides that if the approval by the Commissioner of Insurance is not secured by July 15, 1985 (later extended to September 30, 1985), either party may terminate the agreement. Section 11.1 ⁷ provides for the disposition of $10,000 in earnest money.

The record reveals that approval by the Commissioner of Insurance was never obtained. It also reveals that, prior to the section 7.1 approval cut-off date, Buyer made a decision to no longer attempt to comply with the Commissioner's required disclosures due to the high cost of such compliance. In addition, the record reveals that during the same time period Seller notified Buyer that it planned to continue selling insurance in Texas under Seller's (parent company) name; and, therefore, it questioned whether the Commissioner would allow Buyer to continue using the Heritage of Texas (subsidiary) name since the names were so similar.

Buyer's motion for summary judgment and its defense on appeal centers around sections 7.1 and 11.1 of the contract which give an option to rescind with full reimbursement if the Commissioner of Insurance has not approved the sale prior to a specified date. Buyer contends that the proper construction of these sections mandates the return of its earnest money no matter what caused the Commissioner not to approve the sale. We disagree with this construction.

Neither party has pleaded ambiguity in this case; therefore, the construction of the contract is a question of law for the courts. Westwind Exploration, Inc. v. Homestate Savings Association, 696 S.W.2d 378, 381 (Tex.1985). Buyer would have this Court look to sections 7.1 and 11.1 wearing blinders. However, to ascertain the true intent of the parties, courts must consider the entire writing, giving effect to all provisions of the contract. Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983). "No single provision taken alone will be given controlling effect." Id. We must read sections 7.1 and 11.1, therefore, in conjunction with section 5.1 which sets out the effect of the Texas insurance laws on this contract.

Section 5.1 appears in the contract under the heading "Representations and Warranties by Buyer" and is the first provision which specifies that the agreement is subject to approval of the Commissioner of Insurance. Section 5.1, however, also provides that this approval will come "after full compliance with all of the conditions precedent required by Article 21.49-1 of the Texas Insurance Code ..." (emphasis ours). Article 21.49-1(5) of the Texas Insurance Code Annotated (Vernon 1981) itemizes the filing requirements to be met by persons seeking to obtain control of a domestic insurer, including the filing of financial statements of the buyers. Since this Court must favor that construction of a contract which gives effect to every clause as used by the parties, Westwind Exploration, Inc., 696 S.W.2d at 382, we view section 5.1 as modifying both sections 7.1 and 11.1. When the sections are thusly integrated, Buyer becomes affirmatively obliged to...