Wasserberg v. Flooring Servs. of Tex., LLC

• Decision Date: 24 July 2012
• Docket Number: No. 14–11–00736–CV.,14–11–00736–CV.
• Citation: 376 S.W.3d 202
• Parties: Jonathan WASSERBERG and Jason Felt, Appellants v. FLOORING SERVICES OF TEXAS, LLC and Stewart Title Guaranty Co., Appellees.
• Court: Texas Court of Appeals

376 S.W.3d 202

Jonathan WASSERBERG and Jason Felt, Appellants

v.FLOORING SERVICES OF TEXAS, LLC and Stewart Title Guaranty Co., Appellees.

No. 14–11–00736–CV.

Court of Appeals of Texas,

Houston (14th Dist.).

July 24, 2012.

Andrew Patrick Parma, for appellants.

Paul J. McConnell, III, Ben A. Baring, Jr., Stewart Edmond Hoffer, Houston, for appellees.

Panel consists of Justices FROST, McCALLY, and MIRABAL.^*

OPINION

SHARON McCALLY, Justice.

Appellee Flooring Services of Texas, LLC (“FST”) provided goods and services for homes built and sold by Waterhill Companies Limited (“WCL”) ¹ in 2007. When WCL failed to make payments for such goods and services, FST sued WCL for breach of contract. FST also sued appellants Jonathan Wasserberg and Jason Felt, alleging that Wasserberg and Felt had personally guaranteed any debt owed by WCL to FST. FST added the homebuyers of the homes as defendants, seeking to foreclose on materialmen and mechanic's liens it claimed on the homes. Appellee Stewart Title Guaranty Co., the underwriter of title insurance policies that had been issued to the homebuyers who purchased the homes, intervened in the suit to recover amounts it paid on behalf of the homebuyers to settle the liens.

After a bench trial, the trial court rendered judgment in favor of FST and Stewart Title against WCL, Wasserberg, and Felt. Wasserberg and Felt appeal, and we affirm.

Background

In 2002, Wasserberg and Felt signed a credit application on behalf of “Waterhill Company, LLC,” in which Wasserberg and Felt purported to “personally guarantee all indebtedness hereunder” in their individual capacities to obtain a line of credit with “Flooring Services of Texas, LP.” Flooring Services of Texas, LP extended credit to Waterhill Company, LLC and continued to provide goods and services from that point forward, including after (1) Waterhill Company, LLC converted into WCL on November 11, 2003, and (2) Flooring Services of Texas, LP merged into FST on June 27, 2007.²

In late 2007, Wasserberg signed multiple “all bills paid” affidavits swearing that, with some exceptions, there were “no unpaid labor or material claims” against certain homes that WCL then sold to various homebuyers. The affidavits did not indicate that WCL had not paid numerous outstanding invoices for goods and services provided by FST with respect to the homes.

After FST unsuccessfully attempted to obtain payment from WCL on its delinquent account, FST sued WCL to recover the unpaid amounts. FST also sued Wasserberg and Felt based on their personal guaranties in the 2002 credit application. Additionally, FST filed notices of materialmen and mechanic's liens against a number of the homes that were sold, then added the homebuyers as defendants in the lawsuit to seek foreclosure of the liens.

Stewart Title, the underwriter of the title insurance policies that had been issued to the homebuyers, settled the claims related to the liens on behalf of the homebuyers, then intervened in FST's lawsuit to seek indemnity from WCL and Wasserberg for the settlement amounts. Stewart Title argued that, under Texas Property Code section 53.085(e), the “all bills paid” affidavits signed by Wasserberg rendered him personally liable for any damages resulting from the false or incorrect information in the affidavits.³

WCL never disputed that it owed a debt to FST for goods and services provided, but claimed that WCL was entitled to an offset because of FST's alleged shoddy workmanship in some of the homes. Wasserberg and Felt argued at trial that they were not personally liable for WCL's debt based on the personal guaranties in the 2002 credit application because the guaranties only applied to debt incurred by Waterhill Company, LLC for goods and services provided by Flooring Services of Texas, LP—not debts incurred for goods and services provided after the two companies became WCL and FST.

With respect to Stewart Title's claims that Wasserberg could be held personally liable for any damages resulting from false or incorrect information in the “all bills paid” affidavits, Wasserberg asserted at trial that the “all bills paid” affidavits were “not the document[s] that [he] signed.” The trial court construed this argument as an un-pleaded affirmative defense for which no evidence could be presented, and denied Wasserberg's motion for leave to file a trial amendment regarding that defense.

After a bench trial, the trial court signed a final judgment (1) awarding FST $81,010.40 in damages and $76,347.25 in attorney's fees against WCL, Wasserberg, and Felt, and (2) awarding Stewart Title $144,453.48 against WCL and Wasserberg.

Wasserberg and Felt both appeal, arguing that they cannot be held liable as a matter of law for WCL's debt based on the personal guaranties in the 2002 credit application. Wasserberg also argues that the trial court erroneously prevented him from proffering evidence showing that he is not personally liable for damages resulting from any false or incorrect information in the “all bills paid” affidavits.

Analysis

I. Personal Guaranties

Wasserberg and Felt argue in their first issue that the trial court improperly applied the personal guaranties in the 2002 credit application to debts incurred by WCL for goods and services provided by FST because “neither the party seeking to enforce the guarant[ies] nor the party whose performance was guaranteed is named by the existing document.”

A guaranty agreement creates a secondary obligation whereby the guarantor promises to be responsible for the debt of another and may be called upon to perform if the primary obligor fails to perform. Tenneco Oil Co. v. Gulsby Eng'g, Inc., 846 S.W.2d 599, 605 (Tex.App.-Houston [14th Dist.] 1993, writ denied). To recover under a guaranty contract, a party must show proof of (1) the existence and ownership of the guaranty contract; (2) the terms of the underlying contract by the holder; (3) the occurrence of the conditions upon which liability is based; and (4) the failure or refusal to perform the promise by the guarantor. Lee v. Martin Marietta Materials Sw., Ltd., 141 S.W.3d 719, 720–21 (Tex.App.-San Antonio 2004, no pet.) (citing Marshall v. Ford Motor Co., 878 S.W.2d 629, 631 (Tex.App.-Dallas 1994, no writ)).

According to the rule of strictissimi juris, a guarantor may require that the terms of his guaranty be strictly followed, and that the agreement not be extended beyond its precise terms by construction or implication. McKnight v. Va. Mirror Co., 463 S.W.2d 428, 430 (Tex.1971); FDIC v. Attayi, 745 S.W.2d 939, 943–44 (Tex.App.-Houston [1st Dist.] 1988, no writ.). Before we can apply the rule of strictissimi juris, however, we must examine the terms of the guaranty based on the language of the contract. See Attayi, 745 S.W.2d at 943–44. The interpretation of the guaranty is a question of law we review de novo. See Gulf Ins. Co. v. Burns Motors, Inc., 22 S.W.3d 417, 423 (Tex.2000).

Wasserberg and Felt's guaranties state, in relevant part:

In consideration of credit being extended to the above named firm, I personally guarantee all indebtedness hereunder. I further agree that this guarant[y] is an absolute, completed, and continuing one, and no notice of the indebtedness or an extension of credit already or hereinafter contracted by or extended need be given. The terms may be rearranged, extended and/or renewed without notice to me.

Wasserberg and Felt argue that the trial court violated the rule of strictissimi juris by interpreting the guaranties in a manner that (1) extends them to debts incurred by WCL; and (2) renders them enforceable by FST. We address these arguments separately.

A. Applicability to Debts Incurred by WCL

Wasserberg and Felt argue that “the alleged guaranty is quite plainly restricted to indebtedness incurred on behalf of Waterhill Company, LLC”—not WCL—because the personal guaranty was made “[i]n consideration of credit being extended to the above named firm,” which is Waterhill Company, LLC. Wasserberg and Felt assert that the guaranty only extends to indebtedness for goods or services that were provided before Waterhill Company, LLC converted to WCL because after that point, the only company mentioned in the guaranty “no longer exist[ed].”

However, Waterhill Company, LLC did not cease to exist upon conversion under Texas law. According to its Articles of Conversion admitted at trial, Waterhill Company, LLC converted to WCL pursuant to Texas Revised Limited Partnership Act section 2.15 and Texas Business Corporation Act article 5.17. The Articles of Conversion state further that “[t]he approval of the plan of conversion was duly authorized by all action required by the laws under which Waterhill Company, L.L.C. is incorporated and by its constituent documents.”

Texas Revised Limited Partnership Act section 2.15(g)(1) states: “When a conversion of a converting entity takes effect ... the converting entity shall continue to exist, without interruption, but in the organizational form of the converted entity rather than in its prior organizational form.” Act of May 28, 1997, 75th Leg., R.S., ch. 375, § 95, 1997 Tex. Gen. Laws 1516, 1586 (expired Jan. 1, 2010) (formerly Tex. Rev. Civ. Stat. Ann.. art. 6132a–1 § 2.15(g)(1)) (current version at Tex. Bus. Org. Code Ann. § 10.106 (West 2011) (eff. Jan. 1, 2006)). Additionally, Texas Business Corporation Act article 5.17 requires a plan of conversion to include “a statement that the converting entity is continuing in existence in the organizational form of the converted entity.” Act of May 28, 1997, 75th Leg., R.S., ch. 375, § 32, 1997 Tex. Gen. Laws 1516, 1547 (expired Jan. 1, 2010) (formerly Tex. Bus. Corp. Act Ann. art. 5.17 § C) (current version at Tex. Bus. Org. Code Ann. § 10.103 (West 2011) (eff. Jan. 1, 2006)). Contrary to Wasserberg and Felt's contention that there “is no evidence that the debt at issue was incurred on behalf of Waterhill Company L.L.C.,” the Articles of Conversion and Texas law...