Weng Enterprises, Inc. v. Embassy World Travel, Inc.

• Decision Date: 30 July 1992
• Docket Number: No. 01-91-00870-CV,01-91-00870-CV
• Citation: 837 S.W.2d 217
• Parties: WENG ENTERPRISES, INC., Appellant, v. EMBASSY WORLD TRAVEL, INC., William E. Frank, and Dorothy M. Frank, Appellees. (1st Dist.)
• Court: Texas Court of Appeals

Page 217

837 S.W.2d 217

WENG ENTERPRISES, INC., Appellant, v. EMBASSY WORLD TRAVEL, INC., William E. Frank, and Dorothy M Frank, Appellees.

No. 01-91-00870-CV.

Court of Appeals of Texas Houston (1st Dist.).

July 30, 1992.

Rehearing Denied Aug. 26, 1992.

Herbert Gee, Houston, for appellant.

Chris A. Spofford, Houston, for appellees.

Before OLIVER-PARROTT, C.J., and DUNN and WILSON, JJ.

OPINION

OLIVER-PARROTT, Chief Justice.

This is an appeal from a take-nothing judgment in a breach of contract action brought by appellant, Weng Enterprises, Inc. In two points of error, appellant argues the trial court erred in not allowing two fact witnesses to testify. Appellees, Embassy World Travel, Inc., William E. Frank, and Dorothy M. Frank, asserts three cross-points and argues the trial court erred in denying recovery of attorney's fees as provided for in the contract and in denying appellee a trial by jury in its counterclaim for "contingent consideration." Appellee also argues the trial court erred in entering a take-nothing judgment in its counterclaim because the judgment is against the great weight and preponderance of the evidence. We affirm in part and reverse and render in part.

Background

In January of 1986, appellant, Weng Enterprises, Inc. (Weng Enterprises), entered into a written agreement to purchase the corporate assets of appellee, Embassy World Travel, Inc. (Embassy World). ¹ As part of the $28,000 consideration for the purchase of the business, Weng Enterprises paid Embassy World $18,000. Under the terms of the agreement, the balance of $10,000 was to be paid on the date of closing. Upon closing, Embassy World agreed to deliver to Weng Enterprises a bill of sale for all the assets being purchased. Closing was contingent upon the transfer of ownership being approved by both the Airline Reporting Corporation (ARC) and the International Airlines Travel Agency Network (IATAN), as well as the consent of the lessors to the assumption by Weng Enterprises of the leases of the office space and computer equipment. Under the terms of the agreement, Weng Enterprises was bound to purchase the travel agency subject only to these conditions. The agreement also provided that closing would occur no later than August 20, 1986. The agreement contained the following "termination and default" clause providing Weng Enterprises with certain rights if closing did not occur:

If this transaction is not closed because of (a) failure to receive the approval of the transfer from ARC and IATAN prior to August 20, 1986, or (b) failure to obtain consent to the assumption of [Weng Enterprises] of the leases on the office space and the computerized equipment, or (c) other matters (not including default by [Embassy World] ) beyond control of [Weng Enterprises], [Embassy World] shall retain the sum of $3,000 out of the consideration theretofore paid by [Embassy World], the balance of such consideration shall be refunded to [Weng Enterprises] within 15 days of receipt of written notice of such disapproval, and the parties shall have no further obligation with each other.

According to the pleadings, Weng Enterprises did not receive approval from IATAN prior to August 20 and was unable to secure approval for its lease arrangements. Thus, pursuant to the termination provision noted above, it made a written demand for a refund of $15,000. In response to Embassy World's failure to respond to the written demand, Weng Enterprise brought a breach of contract action seeking to terminate the agreement and recover the $15,000.

At trial, Weng Enterprises called Keng Foow Chen, the vice-president of Weng Enterprises, and William E. Frank, a codefendant, to testify. Embassy World objected to each witness on the same ground; that Weng Enterprises had failed to respond to interrogatories and therefore, had not revealed that these were persons with knowledge of relevant facts. The trial court did not allow either witness to testify because Weng Enterprises did not show good cause for its failure to respond. After counsel for Weng Enterprises explained to the trial court that Chen and Frank were the only witnesses they intended to call, it rested its case-in-chief. After Weng Enterprises rested, Embassy World moved for a directed verdict, which the trial court granted. The trial court entered a take-nothing judgment against Weng Enterprises. Weng Enterprises is now appealing the trial court's exclusion of the witnesses.

At trial, Embassy World sought to recover attorney's fees incurred in its defense of Weng Enterprise's breach of contract action. Embassy World argued that the agreement provided for the recovery of attorney's fees by the prevailing party in any lawsuit brought for the enforcement of the agreement. Thus, it was entitled to recover $4,367.25 of attorney's fees and costs it incurred in its defense. The trial court held that Embassy World was not entitled to recover attorney's fees for the defense of a lawsuit suit.

Embassy World also filed a counterclaim asserting that it was entitled to recover $4,000 in "contingent consideration" under the terms of the agreement. According to Embassy World, the agreement provided that if Weng Enterprises earned in excess of $200,000 in net sales, between the time period it began operations and the date of closing, Embassy World would be entitled to $4,000 as additional consideration for the purchase of the agency. The trial court found the agreement had not closed and thus Embassy World was not entitled to recover under the terms of the agreement. Embassy World brings three cross-points that are detailed below.

Weng Enterprises

In its first and second points of error, Weng Enterprises argues the trial court abused its discretion by precluding Chen and Frank from testifying because good cause was shown for its failure to respond to interrogatories propounded by Embassy World. ²

Once a litigant proves that its opponent did not list a witness in response to interrogatories, the sanction is automatic--exclusion of the evidence. Sharp v. Broadway Nat'l Bank, 784 S.W.2d 669, 671 (Tex.1990); Morrow v. H.E.B., Inc., 714 S.W.2d 297, 298 (Tex.1986). To escape the automatic sanction, the party who calls the unidentified witness must show good cause for failing to respond and good cause must be shown in the record. Sharp, 784 S.W.2d at 671; Gee v. Liberty Mut. Fire Ins. Co., 765 S.W.2d 394, 395 (Tex.1989); TEX.R.CIV.P. 215(5). The trial court has discretion to determine whether the offering party has met its burden of showing good cause to admit the testimony, but the trial court has no discretion to admit testimony excluded by TEX.R.CIV.P. 215(5) without a showing of good cause. Alvarado v. Farah Manufacturing Co. Inc., 830 S.W.2d 911, 913-914 (Tex.1992).

The burden was on Weng Enterprises to show good cause for not responding to Embassy World's interrogatories. Gee, 765 S.W.2d at 395; TEX.R.CIV.P. 215(5). Weng Enterprises showing of good cause for failing to respond was to assert that the parties had a scheduled deposition and that it was Weng Enterprises' understanding that the "matters covered by the interrogatories would be covered at the scheduled deposition." ³

In Sharp, however, the supreme court held that an unidentified witness could not testify, even though his deposition has been taken. Sharp, 784 S.W.2d at 669. The absence of surprise, unfairness, or ambush is not enough to satisfy show good cause. Id. at 671. A party is entitled to prepare for trial assured that an unidentified witness will not testify. Id. The fact that it might have been understood that the matters covered in the interrogatories were to be covered in the deposition does not excuse the failure to respond to a proper discovery request. The identification of witnesses in response to discovery must be in writing. This avoids the inevitable disputes over who said what when. Id. The sanction for failing to respond to interrogatories is automatic exclusion of the unidentified witnesses' testimony. Morrow, 714 S.W.2d at 298. Thus, with respect to the unidentified witness Chen, Weng Enterprises failed to show good cause. Absent a showing of good cause, the trial court had no discretion to allow Chen to testify. Alvarado at 913-914.

With respect to the unidentified witness Frank, Weng Enterprises argues that a distinction should be made because Frank is a party to the lawsuit. Weng Enterprises called Frank, an adverse party, to testify, and Frank objected to his own testimony. This is not a case where the party called himself to testify, and the opposing party objects. This distinction was recognized in National Union Fire Ins. Co. v. Wyar, 821 S.W.2d 291, 293 (Tex.App.--Houston [1st Dist.] 1991, no writ), where this Court held the trial court abused its discretion in not allowing a unidentified witness, who was also a party to the lawsuit, to testify. This Court limited its holding, noting that it was not holding that "every party in every case can always present fact testimony without naming itself in answer to discovery." Id. at 294. Because it was a case where there was only one party plaintiff and the plaintiff was an individual, this Court considered lack of surprise a compelling factor favoring the admission of the testimony. Id.

Consistent with this Court's holding in National, we find the trial court abused its discretion by precluding Frank from testifying. However, we find that Weng Enterprises failed to preserve error. Rule 103(a)(2) of the Texas Rules of Civil Evidence provides that error may not be predicated upon a ruling which excludes evidence unless a substantial right of the party is affected, and the substance of the evidence was made known to the court by offer. In National, we were able to review the testimony of the unidentified witnesses because it had been preserved by way of a bill of exceptions. This is not the case here. There being no other evidence or testimony presented by Weng...