8-Plus Properties, LLC v. Invesco Commercial Enterprises, LLC ( 2019 )

Opinion issued August 15, 2019
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-17-00657-CV
———————————
8-PLUS PROPERTIES, LLC, Appellant
V.
INVESCO COMMERCIAL ENTERPRISES, LLC, Appellee
On Appeal from the 133rd District Court
Harris County, Texas
Trial Court Case No. 2015-39745
MEMORANDUM OPINION
Appellant, 8-Plus Properties, LLC (“8-Plus”), challenges the trial court’s
judgment, entered after a jury trial, in favor of appellee, Invesco Commercial
Enterprises, LLC (“Invesco”), on its claim against 8-Plus for specific performance
under a contract to sell commercial property. In three issues, 8-Plus contends that
the evidence is legally and factually insufficient to support the jury’s finding that
8-Plus agreed to sell the property at issue to Invesco and the trial court erred in
instructing the jury.
We reverse and remand.
Background
In its amended petition, Invesco alleged that, on January 19, 2015, it
executed a written agreement (the “Contract”) with 8-Plus to purchase a property
located at 8600 Cullen Boulevard, Houston, Harris County, Texas (the “Property”)
for $62,500. On February 11, 2015, Invesco and 8-Plus executed an amended
version of the Contract, which added an “as is” clause to section 7A.
Invesco delivered the executed Contract and $1,000 in earnest money to
First American Title Company, the escrow agent designated in the Contract. First
American Title Company issued a commitment for title insurance, which contained
a schedule listing various documents 8-Plus was required to provide at or before
closing, including a “Resolution of the Managers,” the purpose of which was to
“confirm who [was] authorized to execute documents on behalf of [8-Plus].” On
March 4, 2015, First American Title Company’s escrow officer sent an email to
8-Plus requesting the Resolution of Managers document, explaining it was the only
thing the officer needed from 8-Plus before the closing on the Property. The
officer further advised 8-Plus that “closing could not be scheduled and a closing
2
statement would not be prepared until the Resolution [of the Managers document]
was provided.”
As the scheduled closing date approached, Johnny Carroll, a “managing
member” of 8-Plus, advised Invesco and First American Title Company that he
was having trouble obtaining the Resolution of the Managers document because
“his brother decided he no longer want[ed] to sell” the Property. But Johnny,
nevertheless, assured Invesco and First American Title Company that the
Resolution of the Managers document was “forthcoming.” Ultimately, 8-Plus
never provided a Resolution of the Managers document. After the scheduled
closing date had passed, Johnny again assured Invesco that the document was
“forthcoming.” “Relying upon [Johnny’s] promises and representations, [Invesco]
allowed [8-Plus] additional time to perform its obligations under the [C]ontract.”
However, 8-Plus never furnished the Resolution of the Managers document and,
thus, the parties were never able to close on the Property with First American Title
Company pursuant to the Contract.
On May 29, 2015, Invesco sent an email to 8-Plus demanding performance
pursuant to the Contract. 8-Plus did not respond. Thus, on June 10, 2015, Invesco
sent 8-Plus a written notice of default and a demand for performance. In response
to the notice and demand, Johnny called Invesco and stated that his family did not
wish to sell the Property. Invesco reiterated its demand for 8-Plus to perform
3
pursuant to the Contract, but 8-Plus “repudiate[d] the [C]ontract and refused to
perform.” On July 2, 2015, Invesco tendered performance of its obligations
pursuant to the Contract at First American Title Company, “including but not
limited to, payment of the purchase price via wire transfer.” However, “[d]espite
numerous demands by [Invesco],” 8-Plus “continues to fail and refuse to sell the
Property” pursuant to the parties’ Contract.
Invesco brought claims against 8-Plus for specific performance, trespass to
try title, breach of contract, and a declaratory judgment. 8-Plus filed a general
denial and specific denial, asserting, among other things, that enforceability of the
Contract was “conditioned upon 8-Plus’s [other] member-managers approving the
sale” and that 8-Plus’s obligations to perform under the Contract were “conditional
[on] a resolution to sell the Property being approved by 8-Plus’s
member[-]managers.” It also asserted various affirmative defenses.
The parties filed cross-motions for summary judgment as a matter of law.
Invesco argued, among other things, that Johnny had actual authority to execute
the Contract on behalf of 8-Plus because he was designated as a “governing
person” and “managing member” in 8-Plus’s certificate of formation filed with the
Texas Secretary of State. In contrast, 8-Plus argued that Johnny lacked authority to
execute the Contract on behalf of 8-Plus without unanimous approval from the
other seven members of 8-Plus and, thus, no enforceable contract was formed. The
4
trial court denied summary-judgment on all of Invesco’s substantive claims,
including the issue of Johnny’s authority, and the case proceeded to trial before a
jury.
At trial, Johnny testified that he is a member of 8-Plus, a limited liability
company, and designated as its registered agent under the certificate of formation
on file with the Texas Secretary of State. He also explained that 8-Plus, in its
certificate of formation, elected to not have managers and to, instead, be governed
by its members. The governing persons listed in the certificate of formation are
Johnny and his siblings, who are the remaining members of 8-Plus. Johnny
testified that 8-Plus was formed to “manage real estate that [his] dad left” the
family when he passed away. Although 8-Plus had begun drafting a proposed
company agreement to govern the affairs of the company, it was never completed
so there was not one in place at the time the Contract was signed. However,
Johnny testified that the members of 8-Plus “verbally” agreed that “to have
anything . . . approved” required “all members [to] approve it, all the members.”
Johnny further testified that he first learned that Invesco was interested in
purchasing the Property when he received a phone call from his sister, Glory, who
had spoken with a representative of Invesco named Matt Abdallah. Johnny
explained that Glory forwarded Invesco’s inquiry to him because he “handle[s]
contracts” for 8-Plus. He further explained that he has a lot of experience in
5
“negotiating” government contracts, but not necessarily in negotiating commercial
contracts such as the one at issue in this case.
When Johnny later called Abdallah about Invesco’s interest in the Property,
Abdallah asked him what 8-Plus would “want for the [P]roperty,” and Johnny told
him to “make [them] an offer” in writing. Johnny later received a written offer
from Invesco to purchase the Property for $50,000. Johnny told Abdallah that
$50,000 would not “even start” negotiations if he were to take that offer to his
siblings. Johnny and Abdallah “negotiated a couple of times” and eventually
agreed upon $62,500 as a “good price to submit to the company for approval from
other members.”
According to Johnny, he received a written contract from Invesco to
purchase the Property for $62,500, and the Contract included a closing date of
March 31, 2015. Johnny reviewed the Contract, proposed revisions, initialed pages
where required, and signed the Contract on behalf of 8-Plus as a Limited Liability
Company (“LLC”) “member” on January 19, 2015. Johnny testified, however, that
as far as he was concerned “[they] were still negotiating”; the Contract was was “a
negotiating document,” an “offer of negotiation” and “not a contract” because all
of his siblings had not yet signed it. He further testified that, before the sale could
close, “all [of his siblings’] signatures [needed to be] included on the closing
documents.” Johnny explained that he communicated to Abdallah that he did not
6
intend to sign any offers from Abdallah on behalf of the other members of 8-Plus.
Nevertheless, Johnny did not propose a provision preventing the Contract from
becoming binding unless and until all members of 8-Plus approve the transaction.
Although he maintained that the Contract was “not a binding contract,” Johnny
admitted that he had read and understood the entire Contract before signing it,
including the provision that stated, “[t]his [C]ontract is binding on the parties.”
Further, on February 11, 2015, Johnny and Abdallah agreed to an “as is”
amendment to the Contract. Regarding the addition of the “as is” clause, Johnny
testified that “some of the members suggested [that he] do it.” Johnny and
Abdallah also decided to “clean up” the Contract, incorporating Johnny’s
handwritten revisions from January 19, 2015. Abdallah signed the Contract, again,
for Invesco. And Johnny signed the Contract on behalf of 8-Plus as an “LLC
member.” However, Johnny testified that he told Abdallah at that time that he had
“concerns” about his “family members not signing” because “not everybody [had]
agreed to it.” Even though he signed the amended Contract on February 11, 2015,
he testified that he told Abdallah that he still needed his “other seven members to
agree.”
Johnny also explained that on both occasions that he signed the Contract, he
told Abdallah that he needed him to “[s]end the offer back” with “signature lines
for [his] siblings” “so [that] they can sign off on it” because he could “negotiate,”
7
but could not “sign for them.” He further testified that, regarding the additional
signatures from his siblings, Abdallah had told him “don’t worry about it, do it at
closing.” Nevertheless, Johnny admitted that he did not attend the March 31, 2015
closing because he did not believe there was a “binding contract” to sell the
Property.
Abdallah, an asset property manager for Invesco, testified that Invesco
became interested in the Property because it is a parking lot adjacent to Farmer’s
Fresh Meat, which needed more parking spaces for its business. The owner of the
Property was listed on the Harris County Appraisal District’s website as Orenzer
Carroll. He called Orenzer, who told him that she did not “handle these things,”
but she then put her daughter, Glory, on the phone. Abdallah spoke with Glory
and told her that he was interested in purchasing the Property. Glory told him that
she would pass along his information to her brother, Johnny, who was “the one
who handle[d] all of [their] properties” and “the one in charge.”
A few days later Johnny called Abdallah and introduced himself as calling
on “behalf of 8-Plus Properties.” Abdallah offered 8-Plus $50,000 for the
Property, which, according to Abdallah, was twenty-five percent above fair market
value. Johnny told him that was “something that [they] could work with” and
asked Abdallah to put the offer in writing.
8
Abdallah used a standardized form promulgated by the Texas Association of
Realtors and “simply filled in the blanks” for the names of the seller and buyer, the
purchase price, and the closing date. Abdallah also indicated the purchase was for
“all cash.” A few days after their conversation, on January 8, 2015, Abdallah
emailed a completed form to Johnny as Invesco’s offer to 8-Plus for the purchase
of the Property.
Upon receiving the email, Johnny called Abdallah to tell him “that price
[was] not going to cut it” because it was “too low.” When Abdallah asked him
what price would be enough to “get the deal done” for him and his family, Johnny
told him $70,000. Eventually, they settled on a purchase price of $62,500.
Abdallah testified that he understood that he and Johnny had reached “a formal
agreement.” And according to Abdallah, at no point during their conversations did
Johnny tell Abdallah that the other members of 8-Plus were not willing to sell.
Abdallah understood that Johnny to have been negotiating “on behalf of 8-Plus.”
Abdallah testified that he revised the Contract to reflect the new agreed-upon
purchase price for the Property and sent the revised Contract to Johnny by email.
About eleven days later, Johnny returned a signed copy of the Contract to
Abdallah, after removing “basically [sixty] percent of the [C]ontract” and also
adding some additional language that he wanted included in the Contract.
9
Abdallah testified that he took the Contract to Abdullah Kamal, an owner
and member of Invesco, for his review. Kamal ultimately initialed Johnny’s
changes and signed the Contract on behalf of Invesco. Abdallah believed this to be
“the absolute final agreement” between Invesco and 8-Plus for the purchase of the
Property. He took it, along with a check for the earnest money in the amount of
$1,000 to First American Title Company. He further testified that he would not
have “performed” these, and other,1 “obligations as buyer” if he did not think there
was a binding contract in place.
A couple of weeks later, Johnny called Abdallah “out of the blue” and asked
him to meet in person on a “very urgent matter.” At their meeting, Johnny
disclosed to Abdallah that there had previously been a gas station on the Property
and he requested that Invesco agree to an amendment to purchase the property “as
is.” At no point during their conversation did Johnny ever tell Abdallah that he
needed approval from the other members of 8-Plus to sell the Property.
According to Abdallah, at all times during their discussions and
negotiations, Johnny never mentioned that he needed approval from all of the
members of 8-Plus to sell the Property. As Abdallah explained, “[i]t never even
came up. He was acting under the official capacity of 8-Plus Properties as the
managing member. He was the boss.” And there was nothing in the Contract that
1
Abdallah also testified that he had a survey performed as required of Invesco
under the Contract.
10
conditioned the sale of the Property upon the approval from the other members of
8-Plus. Abdallah further testified that Johnny never told him that he needed to add
all eight members of 8-Plus to the signature page. However, Abdallah also
testified that “of course [he] knew [that Johnny] was consulting [with] his family
members and LLC members” and Abdallah agreed that he knew that Johnny’s
family would have a say in whether or not the property could be sold.
Abdallah additionally explained that, as the closing date approached, Johnny
called him “many times” asking when they were “going to close” because he was
“very eager to sell this piece of property.” But Abdallah admitted he had never
seen any signed document saying Johnny alone had the authority to sell the
Property.
Kamal, an attorney and member of Invesco, testified that by the time he
received the Contract for Invesco to review and sign, it had already been signed by
“the seller.” Before signing the Contract on behalf of Invesco, he performed due
diligence to determine whether 8-Plus was a “real entity,” whether the “person
representing the entity ha[d] authority to do so,” and whether “the nature of the
agreement that they are agreeing to [was] within the scope of that entity.” He said
he visited the Texas Secretary of State’s website and spoke with a representative of
the office to confirm that 8-Plus was a member-managed LLC and that Johnny was
a member-manager. He also confirmed that it was organized “for any lawful
11
purpose.” Kamal further testified that he accepted and initialed all changes
proposed by Johnny and signed the Contract on behalf of Invesco and as a member
of that LLC.
Milton Carroll, Johnny’s brother and another member of 8-Plus, testified
that he had seen the certificate of formation for 8-Plus and was not aware of
another agreement that governed the LLC. He further testified that Johnny told
him about Invesco’s offer to purchase the Property, but he and at least two other
member-siblings were opposed to the sale. He testified that Johnny did not have
the authority to execute the Contract on behalf of 8-Plus because all eight of the
member-siblings must agree to sell any of 8-Plus’s properties and “no one person
can obligate the other seven [siblings] to anything.” When asked if the certificate
of formation limited Johnny’s authority to act on behalf of 8-Plus, Milton answered
that it “says what it says.”
The trial court provided the parties with its proposed charge, which included
the following question and instruction:
QUESTION NO. 1
Did 8-Plus agree to sell the real property located at 8600 Cullen
Blvd., Houston, Texas, to Invesco?
In deciding whether the parties reached an agreement, you may
consider what they said and did in light of the surrounding
circumstances, including any earlier course of dealing. You
may not consider the parties’ unexpressed thoughts or
intentions.
12
A party’s conduct includes the conduct of another who acts
with the party’s authority or apparent authority.
Authority for another to act for a party must arise from the
party’s agreement that the other act on behalf and for the
benefit of the party. If a party so authorizes another to perform
an act, that other party is also authorized to do whatever else is
proper, usual, and necessary to perform the act expressly
authorized.
Apparent authority exists if a party (1) knowingly permits
another to hold himself out as having authority or, (2) through
lack of ordinary care, bestows on another such indications of
authority that lead a reasonably prudent person to rely on the
apparent existence of authority to his detriment. Only the acts
of the party sought to be charged with responsibility for the
conduct of another may be considered in determining whether
apparent authority exists.
At the charge conference, 8-Plus objected to the exclusion of the following
instruction along with Question No. 1, pursuant to Section 101.254 of the Texas
Business Organizations Code,2 and tendered the following proposed instruction to
the trial court:
Each governing person of a limited liability company and each officer
of a limited liability company vested with actual or apparent authority
by the governing authority of the company is an agent of the company
for purposes of carrying out the company’s business.[3]
....
2
See TEX. BUS. ORGS. CODE ANN. § 101.254.
3
This proposed instruction is a direct quote from Texas Business Organizations
Code section 101.254(a). See id. § 101.254(a).
13
An act committed by an agent of a limited liability company for the
purpose of apparently carrying out the ordinary course of business of
the company, including the execution of an instrument, document,
mortgage, or conveyance in the name of the company, binds the
company unless:
(1) the agent does not have actual authority to act for the
company; and
(2) the person with whom the agent is dealing has knowledge of
the agent’s lack of actual authority.[4]
....
An act in the ordinary course of business is the normal routine in
managing a trade or business, a regular course of procedure, or the
habitual or mechanical performance of an established procedure.[5]
The trial court overruled 8-Plus’s objections and refused these proposed
instructions.
8-Plus also objected to submission of the following instruction in the trial
court’s charge on apparent authority:
Apparent authority exists if a party (1) knowingly permits another to
hold himself out as having authority or, (2) through lack of ordinary
care, bestows on another such indications of authority that lead a
reasonably prudent person to rely on the apparent existence of
authority to his detriment. Only the acts of the party sought to be
charged with responsibility for the conduct of another may be
considered in determining whether apparent authority exists.
4
This proposed instruction is a direct quote from Texas Business Organizations
Code section 101.254(b). See id. § 101.254(b).
5
8-Plus cited an unpublished opinion from the federal district court for the Southern
District of Texas for its authority for this instruction. See St. Star Designs, LLC v.
Gregory, No. Civ. A. H-11-0915, 2011 WL 3925070, at *2 (S.D. Tex. Sept. 7,
2011).
14
Specifically, 8-Plus argued that the apparent authority language in the trial court’s
instruction was incorrect because Texas law requires a “reasonably prudent
person” to “act[] with diligence and discretion to ascertain the agent’s authority.”
Accordingly, 8-Plus submitted the following instruction on apparent authority to
the trial court:
Apparent authority exists if a party (1) knowingly permits another to
hold himself out as having authority or, (2) through lack of ordinary
care, bestows on another such indications of authority that lead a
reasonably prudent person acting with diligence and discretion to
ascertain the agent’s authority and rely on the apparent existence of
authority to his detriment. Only the acts of the party sought to be
charged with responsibility for the conduct of another may be
considered in determining whether apparent authority exists.
(Emphasis added.) The trial court overruled 8-Plus’s objection and refused its
proposed instruction.
During deliberations, the jury submitted the following question to the trial
court:
Can one member of a member[-]managed LLC conduct business
independently of other members in the absence of another document
specifying who [can] and who cannot perform business.
The trial court provided the following answer:
The Court under the law is not permitted to answer the question you
presented. Please refer to and follow the instructions already given
you and continue your deliberations.
15
After deliberating, the jury returned a verdict in favor of Invesco. It unanimously
answered “Yes” to Question 1 regarding whether 8-Plus agreed to sell the Property
to Invesco.
Jury Charge Error
In its first issue, 8-Plus argues that the trial court erred in instructing the jury
because it “committed harmful error by refusing 8-Plus’s tendered instructions to
Question No. 1.”
A. Standard of Review
We review de novo whether an instruction or definition in a jury charge is
legally correct. Transcont’l Ins. Co. v. Crump, 330 S.W.3d 211, 221 (Tex. 2010).
If a charge is legally correct, then the trial court has broad discretion in submitting
questions, instructions, and definitions. Hyundai Motor Co. v. Rodriguez, 995
S.W.2d 661, 664 (Tex. 1999). Accordingly, we review a trial court’s decision to
deny a requested instruction for an abuse of discretion. Thota v. Young, 366
S.W.3d 678, 687 (Tex. 2012). One way a trial court may abuse its discretion is by
failing to follow guiding rules and principles. Columbia Rio Grande Healthcare,
L.P. v. Hawley, 284 S.W.3d 851, 856 (Tex. 2009). An instruction is proper if it
assists the jury, accurately states the law, and finds support in the pleadings and
evidence. Id. at 855; see also Gunn v. McCoy, 554 S.W.3d 645, 675 (Tex. 2018).
16
However, even if we find error, we will reverse a judgment for charge error
only if the error was harmful, meaning the error probably caused the rendition of
an improper judgment or prevented a party from properly presenting the case on
appeal. Gunn, 554 S.W.3d at 675; Thota, 366 S.W.3d at 687. Charge error is
generally considered harmful if it relates to a contested, critical issue. Hawley, 284
S.W.3d at 856. In determining whether an erroneous instruction or definition
probably caused an improper judgment or prevented proper presentation of a case
to an appellate court, we examine the entire record. Crump, 330 S.W.3d at 225.
B. Alleged Error
The trial court submitted to the jury the pattern jury instruction on actual and
apparent authority, which provides:
Authority for another to act for a party must arise from the party’s
agreement that the other act on behalf and for the benefit of the party.
If a party so authorizes another to perform an act, that other party is
also authorized to do whatever else is proper, usual, and necessary to
perform the act expressly authorized.
Apparent authority exists if a party (1) knowingly permits another to
hold himself out as having authority or, (2) through lack of ordinary
care, bestows on another such indications of authority that lead a
reasonably prudent person to rely on the apparent existence of
authority to his detriment. Only the acts of the party sought to be
charged with responsibility for the conduct of another may be
considered in determining whether apparent authority exists.
TEXAS PATTERN JURY CHARGES: BUSINESS, CONSUMER, INSURANCE &
EMPLOYMENT § 101.4 (2012 ed.). 8-Plus argues that the trial court committed
17
reversible error by (1) “refusing to instruct the jury on the requirements for a
member’s actions to be binding on a limited liability company under Section
101.254 of the Texas Business Organizations Code”; and (2) instructing the jury
with a “legally incorrect standard for apparent authority.”
1. Refused Instructions Regarding Section 101.254
The Texas Business Organizations Code explains the authority of agents of a
limited liability company (“LLC”) as follows:
(a) Except as provided by this title and Title 1, each governing person
of a limited liability company and each officer of a limited liability
company vested with actual or apparent authority by the governing
authority of the company is an agent of the company for purposes of
carrying out the company’s business.
(b) An act committed by an agent of a limited liability company
described by Subsection (a) for the purpose of apparently carrying out
the ordinary course of business of the company, including the
execution of an instrument, document, mortgage, or conveyance in the
name of the company, binds the company unless:
(1) the agent does not have actual authority to act for the
company; and
(2) the person with whom the agent is dealing has knowledge
of the agent’s lack of actual authority.
(c) An act committed by an agent of a limited liability company
described by Subsection (a) that is not apparently for carrying out the
ordinary course of business of the company binds the company only if
the act is authorized in accordance with this title.
18
TEX. BUS. ORGS. CODE ANN. § 101.254. “Governing person” is defined as “a
person serving as part of the governing authority of an entity.” Id. § 1.002(37).
“[G]overning authority” with respect to a limited liability company is defined as:
(1) the managers of the company, if the company’s certificate of
formation state that the company will have one or more managers; or
(2) the members of the company, if the company’s certificate of
formation states that the company will not have managers.
Id. § 101.251.
The following two instructions submitted by 8-Plus and refused by the trial
court directly track the language in Texas Business and Organizations Code section
101.254(a)–(b) regarding an LLC agent’s authority to bind the LLC with his
actions:
Each governing person of a limited liability company and each officer
of a limited liability company vested with actual or apparent authority
by the governing authority of the company is an agent of the company
for purposes of carrying out the company’s business.[6]
....
An act committed by an agent of a limited liability company for the
purpose of apparently carrying out the ordinary course of business of
the company, including the execution of an instrument, document,
mortgage, or conveyance in the name of the company, binds the
company unless:
(1) the agent does not have actual authority to act for the
company; and
6
See TEX. BUS. ORGS. CODE ANN. § 101.254(a).
19
(2) the person with whom the agent is dealing has knowledge of
the agent’s lack of actual authority.[7]
8-Plus also argues that the trial court erred in omitting this additional
instruction from Question No. 1 to the jury charge:
An act in the ordinary course of business is the normal routine in
managing a trade or business, a regular course of procedure, or the
habitual or mechanical performance of an established procedure.[8]
Although this instruction is not based on language in the statute, it is grounded in
well-established statutory construction principles. The source relied upon by
8-Plus in support of this proposed instruction relies on definitions from Black’s
Law Dictionary. See St. Star Designs, LLC v. Gregory, Civ. Action No.
H-11-0915, 2011 WL 3925070, at *2 (S.D. Tex. Sept. 7, 2011). Such reliance is
appropriate where, as here, “a statute uses a word that it does not define.” See
Jaster v. Comet II Constr., Inc., 438 S.W.3d 556, 563 (Tex. 2014). Under such
circumstances, it is the court’s “task[] to determine and apply the word’s common,
ordinary meaning.” Id. And courts “look to a wide variety of sources, including
dictionary definitions, treatises and commentaries, our own prior constructions of
the word in other contexts.” Id.
7
See id. § 101.254(b).
8
8-Plus cited an unpublished opinion from the federal district court for the Southern
District of Texas for its authority for this instruction. See St. Star Designs, 2011
WL 3925070, at *2.
20
In this case, it is undisputed that Johnny is a member-manager of 8-Plus and
a person with governing authority, as designated in 8-Plus’s certificate of
formation on file with the Texas Secretary of State. As a result, Johnny was acting
as an agent for 8-Plus when he signed the Contract with Invesco, if “vested with
actual or apparent authority” by 8-Plus to carry out the ordinary course of business
for the company. See TEX. BUS. ORGS. CODE ANN. § 101.254(a). Presuming
Johnny meets the statutory requirements for agency in this case, then 8-Plus is
bound by his actions in executing the Contract with Invesco to purchase the
Property unless Johnny lacked actual authority and Invesco had knowledge of
Johnny’s “lack of actual authority.” Id. § 101.254(b).
The following three issues were hotly-disputed and pivotal fact issues at
trial: (1) whether Johnny had actual authority to execute the Contract to purchase
the Property, (2) whether Invesco had knowledge of Johnny’s alleged lack of
actual authority to execute the Contract, and (3) whether Johnny’s actions in
executing the Contract were within the ordinary course of business of 8-Plus.
Johnny is listed as a person with governing authority to act on behalf of
8-Plus in the company’s certificate of formation. The certificate of formation
further provides that the company was “formed . . . for the transaction of any and
all lawful purposes for which a limited liability company may be organized under
[the] Texas Business Organizations Code,” although 8-Plus disputed that selling
21
property was within the “purpose” of the company and argued that Johnny did not
have authority to act in selling the Property without unanimous approval from the
other members. 8-Plus maintained throughout trial that there was a verbal
agreement amongst its members that no member could take an action on behalf of
the company without unanimous approval. But it is uncontested that there was no
written agreement in place which provides for this governance.
In his testimony, Johnny insisted on several occasions that he informed
Abdallah that he did not have authority to sell the Property without unanimous
consent from the other members of 8-Plus and that the Contract needed a signature
line for each member. However, Abdallah maintained that he was not aware that
Johnny lacked authority to sign the agreement on behalf of 8-Plus. And he
believed that Johnny had obtained any necessary approval on behalf of the other
members, if required, before negotiating or acting on behalf of 8-Plus. Abdallah
further testified that Johnny gave him no reason to believe that the Contract was
not a final, binding agreement and that they even executed an “amendment” to the
Contract after execution per Johnny’s request and allegedly upon the insistence of
his sister, Glory.
Nowhere in its brief or at trial did Invesco argue that section 101.254 does
not apply in this case. In fact, at the charge conference, in objecting to the charge
on other grounds, Invesco argued that “the agency issues in this case are governed
22
by the Texas Business Organizations Code under . . . Section 101.254(a) and (b)
and (c).” Further, Invesco’s argument that the instructions proposed by 8-Plus
abrogate common law is without merit. 8-Plus does not argue that these
instructions should have been given in place of the common law definitions of
actual and apparent authority, but, rather, in addition to the specific statutory
language at issue. And, a jury charge submitting liability under a statute should
track the statutory language as closely as possible, although it may be altered to
conform to the case and a court should not burden the jury with surplus
instructions. See Regal Fin. Co., Ltd. v. Tex Star Motors, Inc., 355 S.W.3d 595,
601 (Tex. 2010). In this case, the proposed instructions were not superfluous and
would have aided the jury in its deliberations. This is supported by the jury’s
question to the trial court during deliberations which asked whether a single
member’s actions could bind an LLC.
We conclude that this conflicting evidence demonstrates that the evidence
pertaining to 8-Plus’s proposed jury instructions was hotly disputed. As such, the
instructions proposed by 8-Plus pursuant to section 101.254 of the Texas Business
Organizations Code would have aided the jury in answering Question No. 1
concerning whether 8-Plus agreed to sell the Property to Invesco. Accordingly,
8-Plus’s proposed instructions were proper.
23
2. Apparent Authority Instruction
8-Plus also argues that the trial court “committed reversible error” in regard
to Question No. 1 of the jury charge because it used “the legally incorrect standard
for apparent authority under Gaines v. Kelly, 235 S.W.3d 179 (Tex. 2007).”
The trial court submitted the following instruction on apparent authority:
Apparent authority exists if a party (1) knowingly permits another to
hold himself out as having authority or, (2) through lack of ordinary
care, bestows on another such indications of authority that lead a
reasonably prudent person to rely on the apparent existence of
authority to his detriment. Only the acts of the party sought to be
charged with responsibility for the conduct of another may be
considered in determining whether apparent authority exists.
8-Plus objected to this instruction, and requested the following instruction be
submitted to the jury instead, adding the language in bold from the Gaines opinion:
Apparent authority exists if a party (1) knowingly permits another to
hold himself out as having authority or, (2) through lack of ordinary
care, bestows on another such indications of authority that lead a
reasonably prudent person acting with diligence and discretion to
ascertain the agent’s authority and rely on the apparent existence of
authority to his detriment. Only the acts of the party sought to be
charged with responsibility for the conduct of another may be
considered in determining whether apparent authority exists.
(Emphasis added.) The trial court overruled 8-Plus’s objection and refused its
proposed instruction.
The language proposed by 8-Plus is taken directly from Gaines, in which the
Texas Supreme Court set forth the standard for apparent authority as follows:
24
Apparent authority, we have said, is based on estoppel, arising “either
from a principal knowingly permitting an agent to hold [himself] out
as having authority or by a principal’s actions which lack such
ordinary care as to clothe an agent with the indicia of authority, thus
leading a reasonably prudent person to believe that the agent has the
authority [he] purports to exercise.” Baptist Mem[’l] Hosp. Sys. v.
Sampson, 969 S.W.2d 945, 948 (Tex. 1998). We have further noted
that the principal’s full knowledge of all material facts is essential to
establish a claim of apparent authority based on estoppel. Rourke v.
Garza, 530 S.W.2d 794, 803 (Tex. 1975) (citing Hallmark v. United
Fid. Life Ins. Co., 155 Tex. 291, 286 S.W.2d 133 (1956)). Moreover,
when making that determination, only the conduct of the principal is
relevant. NationsBank, N.A. v. Dilling, 922 S.W.2d 950, 953 (Tex.
1996) (per curiam). Finally, the standard is that of a reasonably
prudent person, using diligence and discretion to ascertain the agent’s
authority. Chastain v. Cooper & Reed, 152 Tex. 322, 257 S.W.2d
422, 427 (1953). Thus, to determine an agent’s apparent authority we
examine the conduct of the principal and the reasonableness of the
third party’s assumptions about authority.
Gaines, 235 S.W.3d at 182–83. And this Court has recognized that “reasonable
diligence to ascertain [an] agent’s authority” is part of the standard under Texas
law for determining whether a person is reasonably prudent in the context of
dealing with an agent with apparent authority.9 See Reliant Energy Servs., Inc. v.
Cotton Valley Compression, L.L.C., 336 S.W.3d 764, 784, 785 (Tex. App.—
Houston [1st Dist.] 2011, no pet.) (quoting Gaines, 235 S.W.3d at 182–83).
However, in that case, because neither party objected to the instruction on apparent
authority in the trial court’s charge to the jury, the “jury was authorized, under the
9
The cases relied upon by Invesco to the contrary pre-date Gaines or do not address
any dispute over what standard should be applied to a reasonably prudent
third-party in the context of an apparent-authority analysis.
25
charge given, to find apparent authority without evidence of . . . diligence and
discretion.” Id. at 788.
Here, 8-Plus did object to the trial court’s failure to include the language
from Gaines regarding the standard of “using diligence and discretion to ascertain
the agent’s authority” in the context of apparent authority. Accordingly, the
instruction proposed by 8-Plus, tracking the language in the Gaines opinion, was
proper.
C. Harm Analysis
Even if we determine that a trial court committed jury-charge error, we will
only reverse if the error was harmful. See Gunn, 554 S.W.3d at 675; Thota, 366
S.W.3d at 687. Charge error is generally considered harmful if it relates to a
contested, critical issue. Hawley, 284 S.W.3d at 856.10
In this case, the jury presumably found that Johnny had actual or apparent
authority to bind 8-Plus in unanimously answering “yes” to Question No. 1 of the
trial court’s charge asking if 8-Plus agreed to sell the Property to Invesco. And
there is nothing that instructs the jury that if Johnny lacks actual authority and
Invesco is aware that he lacks actual authority, that it could not find that 8-Plus
10
Invesco asserts that the trial court, pursuant to its motion, struck 8-Plus’s
affirmative defense regarding authority. This is not evidenced by the record.
Instead, the record reflects that the trial court granted a motion in limine to prevent
8-Plus from introducing new affirmative defenses at trial that had not been
previously pled without first approaching the bench and requesting permission
from the trial court. In granting this motion in limine, the trial court specifically
explained that 8-Plus could “raise [its] affirmative defenses . . . [already] on file.”
26
was bound by Johnny’s actions under a theory of apparent authority. In other
words, the instructions accompanying Question No. 1 of the jury charge allowed
the jury to make a finding that 8-Plus agreed to sell the Property to Invesco without
first determining whether Johnny lacked actual authority to bind 8-Plus and, if so,
whether Invesco had knowledge that he lacked such authority. This omits a
specific finding required by the statute governing agency in this case, which
provides that an LLC is not bound by the acts of its agents if the agent acts without
actual authority and the person dealing with the agent is aware that the agent lacks
actual authority. See TEX. BUS. ORGS. CODE ANN. §101.254(b) (LLC bound by
acts of agents unless agent lacks actual authority and “person with whom the agent
is dealing has knowledge of the agent’s lack of actual authority”). We cannot
assume that the jury considered evidence about Invesco’s knowledge regarding
Johnny’s authority without instructions advising the jury to do so. See Union Pac.
R.R. Co. v. Williams, 85 S.W.3d 162, 170 (Tex. 2002).
Accordingly, we hold that the trial court’s refusal to submit an instruction to
Question No. 1 of the jury charge that required the jury to consider whether Johnny
lacked actual authority and, if so, whether Invesco was aware that he lacked actual
authority consistent with Texas Business Organizations Code section 101.254(b),
was harmful error. Because we hold that error regarding this instruction was
harmful, and reverse and remand on this ground, we need not reach the harm
27
analysis regarding 8-Plus’s remaining allegations of charge error or its challenge to
the judgment on legal and factual sufficiency grounds. TEX. R. APP. P. 47.1.
Conclusion
We reverse the judgment of the trial court and remand for further
proceedings consistent with this opinion. We dismiss all pending motions as moot.
Julie Countiss
Justice
Panel consists of Chief Justice Radack and Justices Goodman and Countiss.
28