Kennedy v. Hyde

• Citation: 682 S.W.2d 525
• Decision Date: 12 December 1984
• Docket Number: No. C-2930,C-2930
• Parties: Forrest L. KENNEDY, Petitioner, v. Richard J. HYDE, et al., Respondent.
• Court: Supreme Court of Texas

Page 525

682 S.W.2d 525

Forrest L. KENNEDY, Petitioner, v. Richard J. HYDE, et al., Respondent.

No. C-2930.

Supreme Court of Texas.

Dec. 12, 1984.

Rehearing Denied Jan. 9, 1984.

McGregor & White, Charles B. McGregor and Gregg White, Waco, for petitioner.

Law, Snakard, Brown & Gambill, Walker C. Firedman and Larry L. Worden, R.G. Guthrie, Fort Worth, for respondent.

ROBERTSON, Justice.

The question presented in this case is whether Texas Rule of Civil Procedure 11 bars enforcement of a disputed oral settlement agreement. Herman J. Smith sold capital stock in the Mansfield State Bank to a number of buyers, including Forrest L. Kennedy, Richard J. Hyde, and the other respondents in this cause. Subsequently, some of these purchasers, including Hyde, sued Kennedy and other defendants not appealing, seeking to recover interest paid to Smith for defendants' benefit. Kennedy counterclaimed and also brought a third party action against Smith, alleging misrepresentation in the original stock sale.

Thereafter, the parties to the suit met for depositions, but instead became involved in settlement discussions. These discussions resulted in the drafting, revisions and eventual signing of documents settling the suit. All parties save Kennedy ultimately signed these documents.

Smith, Hyde and the other plaintiffs then amended their pleadings, alleging that although Kennedy refused to sign any of the settlement documents, he had nonetheless entered into an oral contract of settlement. As amended, the pleadings introduced the oral settlement as a basis for affirmative relief, seeking damages for breach of contract or specific performance. The oral agreement was also pleaded as a defense to Kennedy's claims, on theories of accord and satisfaction, novation, waiver and estoppel, among others. Kennedy likewise amended his pleadings to deny entering into any settlement agreement, and to point out the noncompliance of any alleged agreement with Rule 11 of the Texas Rules of Civil Procedure.

The trial court ordered a separate trial on the existence and validity of the alleged oral agreement. Pursuant to jury findings of an oral agreement to settle the lawsuit, the trial court rendered judgment against Kennedy, effectively enforcing the agreement according to its terms. The court of appeals affirmed, holding that Rule 11 does not prohibit the enforcement of disputed oral settlement agreements. 666 S.W.2d 325. We reverse the decisions of the courts below and remand the cause for trial.

For reasons soon apparent, a historical review of Rule 11 is in order. Tex.R.Civ.P. 11 states:

"No agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing, signed and filed with the papers as part of the record, or unless it be made in open court and entered of record."

This rule is not of recent origin, but can be traced in substantially its present form to District Court Rule 28, adopted in 1840 under the laws of the Republic of Texas, 1 Tex. 849, 852 (1848), and recodified as District and County Court Rule 47 in 1877 by authority of article V, section 25 of the Texas Constitution. See 47 Tex. 597, 625 (1877). ¹

The original rationale for the rule was stated cogently in Birdwell v. Cox, 18 Tex. 535, 537 (1857).

"Agreements of counsel, respecting the disposition of causes, which are merely verbal, are very liable to be misconstrued or forgotten, and to beget misunderstandings and controversies; and hence there is great propriety in the rule which requires that all agreements of counsel respecting their causes shall be in writing, and if not, the court will not enforce them. They will then speak for themselves, and the court can judge of their import, and proceed to act upon them with safety. The rule is a salutary one, and ought to be adhered to whenever counsel disagree as to what has transpired between them."

The requirement of a writing in District and County Court Rule 47 was litigated extensively. See generally L. Smoot, Annotated Rules of the Court of Texas 463-65 (1932). In Wootters v. Kauffman, 67 Tex. 488, 3 S.W. 465 (1887), the trial court refused to permit evidence of an oral stipulation of facts. In affirming, this court stated the general rule: "The agreement was oral, and ... cannot be deemed a written agreement, as required by the rules of practice prescribed by this court.... Not being in writing, it cannot be enforced as an agreement." Id. at 495-96, 3 S.W. at 467. ²

Matthews v. Looney, 132 Tex. 313, 123 S.W.2d 871 (1939), is illustrative of court interpretation of old Rule 47, and is in many respects similar to the instant cause. The parties to a will contest already set for trial appeared in court and announced that a settlement had been reached. The trial judge duly made a docket notation of "judgment by agreement." In preparing the consent decree, though, differences of opinion between the attorneys began to appear. Although testimony was conflicting, the Commission of Appeals noted, "[O]ne thing stands out as certain: No formal decree signed by attorneys for all parties was ever presented to the court for approval, or to the clerk for entry." 132 Tex. at 316, 123 S.W.2d at 872.

A motion for entry of judgment nunc pro tunc was then filed, with an unsigned form of judgment attached. This form, movants alleged, "contained the terms of the agreement which the parties had made at the time of the announcement in open court of settlement." Id.

The description of the action then taken by the Matthews trial court closely parallels the procedure followed in the trial of this cause.

"On July 13, 1935, trial was had upon the motion to enter judgment. Much testimony, consisting largely of that of interested attorneys, was taken. This testimony appears to have related almost altogether to negotiations and discussions between attorneys prior to the announcement in court, and for some months thereafter. From this testimony it appears that the court manifestly was trying the question of whether or not there had ever been an agreement reached by the parties, and was attempting to reach a conclusion as to the terms of the agreement which they had actually made.... On one or more points the evidence of the attorneys was contradictory and conflicting."

132 Tex. at 316, 123 S.W.2d at 872.

The Commission of Appeals refused to treat the lower court decision as a judgment nunc pro tunc, observing that "[t]he purpose is to enter a so-called judgment by agreement not evidenced by written decree when announcement of settlement was made, and not made in open court in an enforceable manner." 132 Tex. at 317, 123 S.W.2d at 872. The Commission of Appeals reversed the decisions of the courts below and remanded for a trial on the merits, holding that "the agreed judgment, if actually orally consummated, was not announced in all of its essential details in open court, and was not 'entered of record.' " 132 Tex. at 319, 123 S.W.2d at 873.

A final Rule 47 case bears mention. In Foster v. Gossett, 17 S.W.2d 469 (Tex.Civ.App --Texarkana 1929, writ dism'd), the court of civil appeals held that evidence of a settlement agreement was properly excluded, concluding that "the compromise offer referred to was made by attorneys representing parties to the suit and accepted by attorneys representing other parties thereto, and that same was not enforceable because not evidenced as required by Rule 47 for the government of district and county courts." Id. at 470 (emphasis added).

Rule 11 of the Texas Rules of Civil Procedure became effective on September 1, 1941. By its wording, Rule 11 mandates that "[n]o agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing ...." The rule has been held applicable to a wide variety of agreements concerning lawsuits, including stipulations as to the testimony of absent witnesses, Austin v. Austin, 603 S.W.2d 204 (Tex.1980), and agreements to limit the issues in dispute. City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671 (Tex.1979); see also 3 R. McDonald, Texas Civil Practice in District and County Courts § 10.12.3 n. 6 (1983). On at least two recent occasions, this court has strongly implied that a settlement agreement is also to be judged by Rule 11 standards. Williams v. Hollingsworth, 568 S.W.2d 130, 131 (Tex.1978); Vickrey v. American Youth Camps, Inc., 532 S.W.2d 292, 292 (Tex.1976).

The court of appeals in the instant case attempts to avoid application of Rule 11 by making a fine distinction, stating that "the purpose of rule 11 is to authorize rendition of agreed judgments." 666 S.W.2d at 327. As we understand the opinion, an agreement in compliance with Rule 11 would authorize an agreed judgment on the merits of the underlying suit. An agreement in violation of Rule 11 would support the same result in the same suit. The sole distinction would be that in the latter case, the judgment would recite that it was based on breach of the contract to settle the suit, rather than incorporating the terms of the contract to settle the suit.

Given this interpretation, no "agreement between attorneys or parties touching any suit pending" need comply with Rule 11. For example, since any stipulation could be characterized as a contract, see, e.g., Keller Industries, Inc. v. O.O. Reeves, 656 S.W.2d 221, 228 (Tex.App.--Austin 1983, writ ref'd n.r.e.), any stipulation failing to comply with Rule 11 could nonetheless be enforced as a contract.

This court will not eviscerate Rule 11. Nor does the authority cited by the court of appeals support such a narrow interpretation. In Burnaman v. Heaton, 150 Tex. 333, 240 S.W.2d 288 (1951), this court refused to sanction a consent judgment where consent was withdrawn prior to rendition of judgment. The agreement in Burnaman, however, complied with the requirements of Rule 11. The face of the opinion in Stewart v. Mathes, 528 S.W.2d 116 (Tex.Civ.App.--Beaumont 1978, no writ)...