Tuscarora Corp. v. HJS Industries, Inc., 6

• Decision Date: 31 May 1990
• Docket Number: No. 13-88-312-CV,No. 7,I,No. 6,6,7,13-88-312-CV
• Citation: 794 S.W.2d 435
• Parties: The TUSCARORA CORPORATION, Tuscarora Acquisition Companync., and Tuscarora Acquisition Companync., Appellants, v. HJS INDUSTRIES, INC., Appellee.
• Court: Texas Court of Appeals

Page 435

794 S.W.2d 435

The TUSCARORA CORPORATION, Tuscarora Acquisition Company No 6, Inc., and Tuscarora Acquisition Company No. 7 Inc., Appellants, v. HJS INDUSTRIES, INC., Appellee.

No. 13-88-312-CV.

Court of Appeals of Texas Corpus Christi.

May 31, 1990.

Rehearing Overruled Aug. 31, 1990.

Frank E. Perez, Royston, Rayzor, Vickery & Williams, Brownsville, Daniel Virnich, Denver, Colo., Ron Hole, Atlas & Hall, McAllen, Jack Pew, Jr., Jackson, Walker, Winstead, Cantwell, Dallas, for appellants.

John Haywood, Law Offices of John Haywood, P.C., Brownsville, for appellee.

Before SEERDEN, UTTER and DORSEY, JJ.

OPINION

SEERDEN, Justice.

A jury found that Ellett Brothers (Ellett), a sporting goods and firearms distributor owned by The Tuscarora Corp., ¹ breached an exclusive contract to buy guns, causing HJS Industries, Inc. (HJS) lost profits of $44,157.00 and consequential damages of $95,710.30. The trial court entered judgment on the verdict, including attorney's fees, and added costs and interest. While HJS had also sued Presco Industries (Presco), from which Tuscarora bought Ellett's assets, Presco did not appear, and the judgment is against both Presco and Tuscarora, jointly and severally.

Tuscarora raises fourteen points of error. HJS has filed a conditional cross-appeal in which, by twenty points, it complains that the trial court refused to submit issues and instructions to the jury on three theories, other than the contract theory, which it claims to have also pleaded and proved. We reverse the judgment of the trial court.

HJS, a small company which Herman J. Seminiano and his wife, Caryl Seminiano, owned and operated, manufactured two models of handguns, the Frontier Four and the Lone Star. Ellett, a national distributor of handguns and sporting goods, contracted with HJS to distribute these guns nationally. This suit arises out of the nature of the agreement between HJS and Ellett, whether the agreement was breached and, if it was, whether Tuscarora assumed the liability for the breach when it acquired Ellett from Presco.

In answer to special issues, the jury found that Presco d/b/a Ellett contracted with HJS for the purchase of 4800 guns, that the contract was performable within one year starting in September, 1983, and ending in September, 1984, and that Presco d/b/a Ellett breached the contract, causing HJS to lose profits and suffer consequential damages.

The jury further found that Tuscarora assumed the liabilities and obligations of Presco, that both Presco and Tuscarora breached their duty of good faith in the performance of the contractual obligations with HJS, and that the breach of these duties proximately caused damage to HJS, and assessed various amounts of damages and attorney's fees. Based upon the jury verdict, the court entered judgment against Presco and Tuscarora jointly and severally for $193,346.76, which included pre-judgment interest and attorney's fees. The judgment denied any relief against Ellett Brothers, Inc.

The HJS/Ellett contract is reflected in a letter dated August 15, 1983, from HJS to Ellett and in a purchase order from Ellett to HJS dated October 5, 1983. The letter of August 15th purports to confirm the discussions between representatives of the two companies and sets out, among other items, that Ellett will be the exclusive national distributor for HJS products, that HJS will furnish a combined volume of 400 units per month (a unit consists of either of the two guns manufactured by HJS), starting with 50 units per month until back orders are filled, and increasing at a minimum of volume of 50 units per month. Ellett issued a purchase order dated October 5, 1983, for 2800 of the Frontier Four model and 2000 of the Lone Star model, at a total cost of $308,000.00 to be billed and shipped to Presco d/b/a Ellett. A letter accompanying the purchase order requested HJS to release the guns at the rate of 400 per month, unless otherwise notified.

The evidence regarding performance of this contract is conflicting. It is undisputed that during the term of the contract only 225 guns were sent from HJS to Ellett. Each party blamed the other for this. The jury resolved this issue against appellant, and Tuscarora does not dispute the sufficiency of the evidence on which that finding is based.

In December, 1984, Preston Kerr, owner of 50% of the stock in Presco, Inc., of which Ellett Brothers was a wholly-owned subsidiary, agreed with Tuscarora to structure a transaction so that either I) Presco would merge with Tuscarora, II) Tuscarora would purchase the stock of Presco, or III) Tuscarora would buy all the assets and liabilities of Presco. The total consideration for the transaction was to be $6,100,000.00. This transaction culminated in an Asset Purchase Agreement between Preston Kerr, Presco Industries, and Tuscarora on January 30, 1985. Through this agreement, Tuscarora purchased all the assets of Presco except one particularly described promissory note, free of all liabilities except those appellant expressly assumed.

By its first two points of error, appellant claims that under the unambiguous written agreements, appellants did not assume the liability asserted here, and that there is either no evidence or insufficient evidence that appellants assumed this obligation. Tuscarora argued at trial that it bought all of Ellett's assets (except for a certain promissory note), but only assumed some of the liabilities with the instrument styled "Assets Purchase Agreement" effective January 30, 1985. It argued that liability for any breach of the HJS/Ellett contract was not transferred.

If there is no ambiguity, contract construction is a question of law for the court. Westwind Exploration, Inc. v. Homestate Sav. Ass'n, 696 S.W.2d 378, 381 (Tex.1985); Cambridge Oil Co. v. Huggins, 765 S.W.2d 540, 543 (Tex.App.--Corpus Christi 1989, writ denied). Whether a contract is ambiguous is a question of law for the court to decide by looking at the contract as a whole in the light of the circumstances existing at the time it was made. Reilly v. Rangers Management, Inc., 727 S.W.2d 527, 529 (Tex.1987). Only if the court finds a contract ambiguous is a fact issue created. Security State Bank v. Valley Wide Electrical Supply Co., 752 S.W.2d 661, 665 (Tex.App.--Corpus Christi 1988, writ denied); see Cohen v. Rains, 769 S.W.2d 380, 389 (Tex.App.--Fort Worth 1989, writ denied).

We determine whether this particular liability was transferred as a matter of contract law from the terms of the Asset Purchase Agreement. Paragraph 3 of the agreement states,

Except as otherwise provided herein, the Purchaser agrees to assume and pay when due all liabilities and obligations of the Company (i) referred to or reflected in the Financial Statements referred to in paragraph 5(e) hereof, (ii) incurred in the ordinary course of business from October 31, 1984 through and including the time of closing, and (iii) except as otherwise provided hereinafter, disclosed on the Disclosure Statement referred to in paragraph 5 hereof. (Emphasis added).

Paragraph 3 continues by naming excluded liabilities, none of which include the liability in this suit.

The Disclosure Statement, indexed to the Asset Purchase Agreement, lists as specifically assumed:

(v) 1. Purchase orders entered into in the ordinary course of business....

3. Contracts entered into in the ordinary course of business of a type not required to be described or reflected in the Financial Statements (e.g. automobile leases, copy machine leases and service agreements, etc.) ...

General: Liability to be assumed include obligations entered into in the ordinary course of business before November 1, 1984 of a type not required by generally accepted accounting principles to be reflected in the Financial Statements.

Paragraph 5 of the Asset Purchase Agreement states:

Representatives and Warranties of the Company and the Shareholder. In order to induce the Purchaser to enter into this Agreement and the transactions contemplated hereby, the Company and the Shareholder hereby represent and warrant to the Purchaser that, except as otherwise set forth in the Disclosure Statement ...

(v) Contracts. The Company has no presently existing contract or commitment extending beyond January 31, 1985, or involving payment by the Company of more than $10,000 in any year except those described in the Financial Statements.

HJS argues that since the purchase order for the 4800 guns was entered into in the ordinary course of business, Tuscarora assumed liability for it under (v) 1 of the Disclosure Statement. One of its witnesses opined that liability was transferred through the "General" paragraph of the Disclosure Statement. Tuscarora argues that (v) 1 only transfers commitments extending beyond January 31, 1985.

One of the main differences in the approaches of Tuscarora and of HJS in interpreting the contract is that HJS views the liability as the purchase order which was not honored and Tuscarora defines it as "the lawsuit" or as threatened litigation. Tuscarora bases its view on the fact that HJS's attorney's demand letter arrived at Ellett a few days before the consummation of the transfer from Presco to Tac 6. By its view the liability then became "threatened litigation" and necessarily was no longer an unfulfilled contract or purchase order.

The contract between HJS and Ellett Brothers for the purchase of the 4800 guns was to be performed within one year ending in September, 1984. In June, 1984, Ellett advised HJS by letter that it would not accept any more guns.

Tex.Bus. & Com.Code Ann. § 2.106(c) (Vernon 1968) provides that when a contract terminates, "all obligations which are still executory on both sides are discharged but any right based on prior breach of performance survives." ² As a matter of law, the liability for nonperformance of the contract was different from the obligation imposed by the contract while it was in force.

We now...