Quintero v. Jim Walter Homes, Inc.

• Decision Date: 31 December 1985
• Docket Number: No. 13-84-452-CV,13-84-452-CV
• Citation: 709 S.W.2d 225
• Parties: Louis P. QUINTERO and Paula Quintero, Appellants, v. JIM WALTER HOMES, INC., Appellee.
• Court: Texas Court of Appeals

Page 225

709 S.W.2d 225

Louis P. QUINTERO and Paula Quintero, Appellants, v. JIM WALTER HOMES, INC., Appellee.

No. 13-84-452-CV.

Court of Appeals of Texas Corpus Christi.

Dec. 31, 1985.

Rehearing Denied March 20, 1986.

Second Rehearing Denied April 17, 1986.

F.I. Gandy, Jr., Corpus Christi, for appellants.

Mike Mills, McAllen, for appellee.

Before NYE, C.J., and BENAVIDES and DORSEY, JJ.

OPINION

NYE, Chief Justice.

Appellants Louis Quintero and Paula Quintero sued Jim Walter Homes, Inc., for violations of the Deceptive Trade Practices Act and the Consumer Credit Code. The Quinteros alleged that, during contractual negotiations for the purchase and construction of a new home, the salesman for Jim Walter Homes made misrepresentations about the quality of the home to their damage. A judgment for over $78,000 was initially entered in favor of the Quinteros. This was later set aside by the trial court and replaced by a take-nothing judgment. The Quinteros appeal the trial court's decision to set aside the judgment in their favor and seek to have the initial judgment reinstated.

In 1976, Jim Walter Homes contracted to build a home for Louis and Paula Quintero in a "good, substantial, and workmanlike manner." Dissatisfied with their new home, the Quinteros retained attorney Hector Gonzalez, who filed a lawsuit on their behalf in 1978. Because he had several hundred similar lawsuits pending against Jim Walter Homes, Gonzalez arranged for another attorney, the Honorable Francis Gandy, to actually try the Quintero case, with the Quinteros' consent. Attorney Gandy successfully recovered a jury verdict in favor of the Quinteros on April 20, 1981. A judgment on the verdict was entered on May 27, 1981, for $78,385.65. The judgment also released the Quinteros from their installment note debt to Jim Walter Homes in the principal sum of $38,424.40.

In the meantime, attorney Gonzalez negotiated an aggregate settlement with Jim Walter Homes on behalf of 349 of his clients for $1.8 million dollars. This was to be divided among his clients according to a formula devised by attorney Gonzalez and overseen by Jim Walter Homes' legal staff. On June 11, two weeks after the judgment had been signed, attorney Gonzalez called the Quinteros to his office to discuss settling their case with Jim Walter Homes. Neither the Quinteros, nor Gonzalez, nor the attorneys for Jim Walter Homes were aware at that time that attorney Gandy had obtained the May 27 judgment. Only attorney Gandy, who had taken the time to check the file at the Courthouse, knew that the trial court had finally entered the judgment. He was unaware of and was not involved with the settlement negotiations between Jim Walter Homes and attorney Gonzalez.

As a result of a conversation with the office manager for attorney Gonzalez, the Quinteros decided to go ahead and settle their claim against Jim Walter Homes. They agreed to join with all the other clients of Gonzalez and share in the settlement and signed a release of their claims against Jim Walter Homes. A joint motion to dismiss the Quinteros' suit was signed by attorney Gonzalez and by Jim Walter Homes' attorney on June 11, 1981. Under the terms of this settlement agreement, the Quinteros were to receive about $3900.00 cash and certain deductions on their note payable to Jim Walter Homes. The total value of their part of the settlement was $13,687.00.

On June 22, 1981, Gandy informed the Quinteros of the May 27, 1981, judgment in their favor. The Quinteros immediately notified the trial court that they disproved of the settlement and release and were revoking Gonzalez' authority to represent them any further.

Although the attorneys for Jim Walter Homes knew that the Quinteros no longer consented to the joint motion to dismiss, they nonetheless filed the consent dismissal motion with the trial court. Pursuant to the motion, the trial court (impliedly) set aside its first judgment, favorable to the Quinteros, and entered a new judgment on August 18, 1981, which dismissed their suit against Jim Walter Homes.

The Quinteros appealed the dismissal of their case to this Court in Quintero v. Jim Walter Homes, Inc., 648 S.W.2d 746 (Tex.App.--Corpus Christi), rev'd, 654 S.W.2d 442 (Tex.1983). That initial appeal dealt solely with the procedural issue of whether a judgment of dismissal can be based on a joint motion to dismiss where one party has repudiated his consent to the joint motion. On writ of error, the Supreme Court held that a party has the right to revoke his consent to a joint motion to dismiss at any time before the rendition of judgment and that the trial court had therefore erred in granting the motion. Quintero v. Jim Walter Homes, Inc., 654 S.W.2d 442, 444 (Tex.1983). Since the joint motion to dismiss was the only pleading before the trial court upon which a judgment of dismissal could have been rendered, the Supreme Court ordered that the dismissal be set aside and remanded the case to the trial court to determine if Jim Walter Homes could plead and prove an enforceable settlement agreement under the release signed by the Quinteros.

On remand, the trial court concluded that the release was valid and enforceable, even though the Quinteros had revoked their consent, and entered a take-nothing judgment against the Quinteros on November 9, 1984. The Quinteros appeal that decision and seek reinstatement of the initial judgment in their favor of May 27, 1981.

In their last three points of error, the Quinteros allege that the trial court's conclusion was erroneous. They claim that since no one involved in the settlement negotiations knew of the judgment's existence, a "mistake of fact" existed which allows them to annul the release. Their argument tracks the general rule that a contract made under a mistake or ignorance of material facts is voidable and relievable in equity. See, e.g., A.L.G. Enterprises v. Huffman, 660 S.W.2d 603 (Tex.App.--Corpus Christi 1983), modified, 672 S.W.2d 230 (Tex.1984).

We overrule these last three grounds of error. The attorney who tried the case for the Quinteros, Francis Gandy, had knowledge of the judgment's existence several weeks before the Quinteros signed the release and settlement agreement. The knowledge of an attorney is imputed to his client. Fonseca v. County of Hidalgo, 527 S.W.2d 474 (Tex.Civ.App.--Corpus Christi 1975, writ ref'd n.r.e.); Dixon v. United States Fidelity & Guaranty Co., 293 S.W. 291 (Tex.Civ.App.--Texarkana 1926, writ dism'd w.o.j.). This knowledge includes not only that which an attorney knows, but also that which with due diligence he could have learned. Texas Employers Insurance Association v. Wermske, 349 S.W.2d 90 (Tex.1961); Fonseca at 479. With due diligence, Gonzalez easily could have learned of the entry of the judgment. Thus, one of the attorneys for the Quinteros knew, and the other should have known of the judgment's existence at the time the Quinteros signed the release. As we noted in Fonseca at 479, "a party is as fully concluded by the acts of his attorney as if he were acting for himself. A Court will not set aside a judgment because of the negligence or mistakes of his attorney." The Quinteros' last three points are overruled.

In their first four points of error, the Quinteros allege that the release and settlement agreement were invalid because they were made in contravention of Disciplinary Rule 5-106 of the Texas Code of Professional Responsibility. Supreme Court of Texas, Rules Governing the State Bar of Texas art. XII, § 8 (Code of Professional Responsibility) DR 5-106 (1973). To this we agree.

The Quinteros contend that their attorney, Hector Gonzalez, violated Disciplinary Rule 5-106 of the Code, which provides:

(a) A lawyer who represents two or more clients shall not make or participate in the making of an aggregate settlement of the claims of or against his clients, unless each client has consented to the settlement after being advised of the existence and nature of all the claims involved in the proposed settlement, of the total amount of the settlement, and of the participation of each person in the settlement.

The trial court was correct in finding that Hector Gonzalez violated this rule. The Quinteros were not informed of the nature and settlement amounts of all the claims involved in the aggregate settlement, nor were they given a list showing the names and amounts to be received by the other settling plaintiffs.

It is noteworthy, too, that the Supreme Court in its earlier opinion in this case referred to DR 5-106 when discussing the aggregate settlement agreement. Quintero v. Jim Walter Homes, Inc., 654 S.W.2d 442, 443 n. 1 (Tex.1983).

The Quinteros contend that since Gonzalez violated the Code of Professional Responsibility in the method by which he acquired their consent, the release and settlement agreement are void and unenforceable.

In Fleming v. Campbell, 537 S.W.2d 118 (Tex.Civ.App.--Houston [14th Dist.] 1976, writ ref'd n.r.e.), the Houston Court addressed the enforceability of a contract formed in violation of a Disciplinary Rule. DR 2-107, then as now, provided that a lawyer may not divide his fee with another, non-affiliated lawyer unless the client consents after full disclosure of the fee division arrangement. In a suit brought by the referring attorney to enforce an alleged oral fee-splitting agreement, the court declared:

We hold that the referral fee contract claimed by Fleming is as a matter of law against the public policy expressed in Disciplinary Rule 2-107 that no attorney's fees shall be divided unless the client's consent is obtained after full disclosure. Fleming's claimed referral fee contract being violative of our public policy is void and unenforceable. Lewis v. Davis, 145 Tex. 468, 199 S.W.2d 146 (1947).

Fleming at 119 (emphasis ours).

Like DR 2-107, DR 5-106 requires that the client be fully informed before his consent to an agreement is obtained. Although the...