Incore Construction, Inc. and Francisco Casias, Jr. v. Incore, Inc. ( 2009 )

i i i i i i
MEMORANDUM OPINION
No. 04-08-00785-CV
INCORE CONSTRUCTION, INC. and Francisco Casias, Jr.,
Appellants
v.
INCORE, INC.,
Appellee
From the 150th Judicial District Court, Bexar County, Texas
Trial Court No. 2004-CI-08817
Honorable Janet Littlejohn, Judge Presiding
Opinion by: Catherine Stone, Chief Justice
Sitting: Catherine Stone, Chief Justice
Karen Angelini, Justice
Marialyn Barnard, Justice
Delivered and Filed: December 16, 2009
AFFIRMED
Incore Construction, Inc. and Frank Casias, Jr. appeal a judgment awarding damages to
Incore, Inc. for breach of contract. The primary issues raised on appeal are a challenge to the trial
court’s interpretation of a Management Agreement and a complaint regarding jury charge error. We
affirm the trial court’s judgment.
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BACKGROUND
John W. “Jack” Lopez owned Incore, Inc. (“Incore”), a construction business, for almost
fifteen years. Frank Casias, Jr. was interested in buying the business from Lopez. Prior to buying
the business, Casias began working for Incore in September of 1998, to gain a clear understanding
of its operations.
Casias did not want to be responsible for certain potential liability that Incore had in relation
to past projects. Accordingly, Casias formed a new construction company called Incore
Construction, Inc. (“ICI”). In January of 1999, ICI, Casias, Incore, and Lopez signed a General
Agreement of Indemnity with a bonding company to provide ICI performance and payment bonds.
Performance and payment bonds are an important asset in the construction industry. Bonds
with higher aggregate limits enable a construction company to bid on larger construction projects.
Part of the reason Incore had been so successful in the construction business was the high limits on
its bonds; i.e. $30,000,000 per project with a $65,000,000 aggregate limit.
In April of 1999, the sale of Incore’s business to ICI was documented with the following
contracts: (1) a Management Agreement; (2) a Stock Pledge Agreement; (3) a Security Agreement;
(4) a Promissory Note; and (5) an Equipment Lease Agreement. The Management Agreement set
forth the following services and assistance that Incore agreed to provide to ICI and Casias:
(1) Incore granted ICI a non-exclusive license to use the name “Incore;”
(2) Incore agreed to take certain actions with regard to bonding to the extent
Incore deemed it appropriate or necessary and desired to do so; and
(3) Incore agreed to manage the strategic planning, administrative, data
processing, accounting, record keeping, and back-office support departments
of ICI.
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In exchange for these services and assistance, ICI agreed to pay Incore the sum of $1,000,000, with
payments as follows: (1) $100,000 on December 31, 2001; and (2) $300,000 on each of December
31, 2002, December 31, 2003, and December 31, 2004.
When it began doing business in 1999, ICI had the same bonding limits as Incore, i.e.,
$30,000,000 per project with a $65,000,000 aggregate limit. In 2000, that bonding was terminated
and bonding was obtained through a new company, Great American Insurance Company (“GAIC”),
with limits of $2,000,000 per project and a $5,000,000 aggregate limit. In order for ICI to secure this
bonding, Lopez was required to sign a personal indemnity agreement.
In April of 2001, ICI, Casias, and Incore amended the payment arrangements under the
Management Agreement. Under the amended terms, ICI was required to pay Incore $10,857.15 per
month from June of 2002 through December of 2002, and $11,000 per month from January of 2003
until December of 2009. ICI began making the payments under the amended terms in June of 2002.
Although ICI had been in business for four years by January of 2003, its equity was
decreasing, which caused GAIC to express concerns. In February of 2003, GAIC informed ICI it
would not continue to provide bonds at the current limits unless ICI’s working capital position was
increased by $200,000 to a minimum of $275,000. In September of 2003, Lopez terminated his
personal indemnity to GAIC with regard to ICI’s bonding. As a result, GAIC refused to write ICI
any more bonds.
In October of 2003, ICI failed to pay Incore the amount owed to it under the amended terms
of the Management Agreement. Casias stated ICI’s inability to pay was due to its inability to obtain
bonds. In December of 2003, Casias’s father formed a new construction company, and ICI sold its
equipment and subcontracted its outstanding projects to the new company.
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In June of 2004, Incore sued Casias and ICI for breach of the Management Agreement and
for numerous other claims. Casias and ICI filed counter-claims and a third party claim against
Lopez. The pleadings were later amended to add Casias’s father and the new construction company
as parties.
In June of 2007, the parties filed competing motions for summary judgment seeking, in part,
to determine whether the language in the Management Agreement relating to the bonding services
imposed a duty of good faith on Incore or, if not, whether the Management Agreement was illusory.
The Honorable David Peeples initially signed an order imposing a duty of good faith with regard to
the bonding services. All of the pending claims between the parties were severed except the parties’
allegations regarding the breach of the Management Agreement. The case went to trial on that claim,
but the trial court declared a mistrial when the jury could not reach a verdict.
After the first trial, Incore filed a motion asking Judge Peeples to reconsider his prior ruling.
Judge Peeples reconsidered the competing motions for summary judgment and ruled that no duty of
good faith existed with regard to the bonding services and the Management Agreement was not
illusory. After a second trial based on Judge Peeples’s new interpretation of the agreement, a jury
found that ICI and Casias breached the Management Agreement, and the breach was not excused by
a breach of the Management Agreement by Incore. The trial court signed a judgment awarding
Incore $825,000, and ICI and Casias appeal the trial court’s judgment.
DISCUSSION
In their first issue, ICI and Casias assert the trial court erred in failing to interpret the
Management Agreement to impose a duty of good faith on Incore in exercising its discretion to
provide bonding assistance. Absent a duty of good faith, ICI and Casias contend Incore’s promise
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is illusory, making the Management Agreement unenforceable. Finally, ICI and Casias liken the
Management Agreement to a satisfaction contract and urge this court to hold that Incore’s discretion
must be exercised in good faith.
Incore responds that parties are free to contract and Texas courts are prohibited from
amending the terms of a contract. Incore also contends the Management Agreement does not limit
its discretion with regard to bonding assistance and the absence of a duty of good faith does not make
the Management Agreement illusory. Incore further asserts that even if the Management Agreement
was illusory, ICI and Casias could not rely on this for relief because they accepted performance under
the Management Agreement. Finally, Incore contends the Management Agreement is not a
satisfaction contract.
After reconsidering the competing motions for summary judgment, the trial court concluded
that there was no implied duty to act in good faith under paragraph 1.2 of the Management
Agreement. The standards for reviewing summary judgments are well settled. See Nixon v. Mr.
Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985). When cross-motions for summary judgment
are filed, each party bears the burden of establishing that it is entitled to judgment as a matter of law.
City of Garland v. Dallas Morning News, 22 S.W.3d 351, 356 (Tex. 2000). The appellate court
should determine all questions presented when the trial court grants one motion and denies the other.
Id. The appellate court should render the judgment that the trial court should have rendered. Id. at
356-57.
The section in the Management Agreement regarding bonding assistance provides:
1.2 Bonding. During the Term of this Agreement, to the extent Incore deems it
appropriate or necessary to [ICI’s] business needs, and subject to [ICI] being
acceptable to Incore’s bonding company and further subject to Incore’s desire
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at such times to provide such bonding, (i) Incore shall join indemnity with
[ICI] for the purpose of obtaining construction bonds, and (ii) Incore will
provide to the bonding company guarantees or other assurances to the extent
Incore deems it appropriate (collectively, “Bonding Support”). All fees,
charges, guarantees, or other charges of any nature which are related to bonds
issued on behalf of [ICI] shall be payable by [ICI]. Incore does not guarantee
that the bonding company will agree to issue bonds for any particular
construction project. Furthermore, no guaranty is given that Incore will
provide Bonding Support for any period of time or for any particular project.
An illusory promise is a promise that fails to bind the promisor who retains the option of
discontinuing performance. Light v. Centel Cellular Co., 883 S.W.2d 642, 645 (Tex. 1994),
modified by, Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 651 (Tex. 2006); In
re H.E. Butt Groc. Co., 17 S.W.3d 360, 370 (Tex. App.—Houston [14th Dist.] 2000, orig.
proceeding); O’Farrill Avila v. Gonzalez, 974 S.W.2d 237, 244 (Tex. App.—San Antonio 1998, pet.
denied). In this case, ICI and Casias argue that absent a duty of good faith, Incore’s promise to
provide Bonding Support is illusory. What ICI and Casias ignore, however, is that the provision
regarding the Bonding Support is not a separate and divisible contract. See Pace Corp. v. Jackson,
284 S.W.2d 340, 344 (Tex. 1955). Instead, the Bonding Support provision is part of an integrated
agreement in which Incore, Inc. promised to: (1) grant ICI a non-exclusive license to use its name;
(2) provide bonding assistance at its discretion if it desires; and (3) perform other management
services. What constitutes consideration is a question of law, and one consideration will support
multiple promises by the other party. Allen v. American Gen. Fin., Inc., 251 S.W.3d 676, 688 (Tex.
App.—San Antonio 2007, pet. granted); Birdwell v. Birdwell, 819 S.W.2d 223, 228 (Tex.
App.—Fort Worth 1992, writ denied); Fortner v. Fannin Bank in Windom, 634 S.W.2d 74, 77 (Tex.
App.—Austin 1982, no writ). Each of Incore’s promises provided consideration for the Management
Agreement; therefore, the argument by ICI and Casias that the Management Agreement is illusory
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absent the imposition of a duty of good faith with regard to the Bonding Support fails.
Moreover, even if this court were to hold that the promises were not mutual at the time of
contracting, performance can render a contract enforceable. See Mann Frankfort Stein & Lipp
Advisors, Inc. v. Fielding, 289 S.W.3d 844, 849-50 (Tex. 2009) (agreement can become enforceable
when a party performs an illusory promise); Alex Sheshunoff Mgmt. Servs., L.P., 209 S.W.3d at 651
(performance of illusory promise renders contract enforceable); In re H.E. Butt Groc. Co., 17 S.W.3d
at 370 (contract formed by performance of illusory promise); O’Farrill Avila, 974 S.W.2d at 244
(even if promises are not mutual at the time of contracting, performance on the agreement renders
the contracts enforceable). In this case, Incore provided Bonding Support for four years after the
sales transaction closed. Therefore, Incore’s performance would have rendered the Management
Agreement enforceable even if it had been unenforceable when signed. See O’Farrill Avila, 974
S.W.2d at 244 (noting even a partial performance of a promise can render a contract valid and
enforceable) (quoting Hutchings v. Slemons, 141 Tex. 448, 174 S.W.2d 487, 489 (1943)); see also
Belew v. Rector, 202 S.W.3d 849, 855 (Tex. App.—Eastland 2006, no pet. ) (party accepting partial
performance cannot raise lack of consideration as a defense); Gaede v. SK Investments, Inc., 38
S.W.3d 753, 760-61 (Tex. App.—Houston [14th Dist.] 2001, pet. denied) (partial performance
constitutes sufficient consideration to establish mutuality of obligation).
“As a rule, parties have the right to contract as they see fit as long as their agreement does
not violate the law or public policy.” In re Prudential Ins. Co. of America, 148 S.W.3d 124, 129
(Tex. 2004). Parties are bound by the terms of their agreement as written, and this court cannot
rewrite the agreement to change its terms. Alamo Community College Dist. v. Miller, 274 S.W.3d
779, 785-86 (Tex. App.—San Antonio 2008, no pet.). Because the Management Agreement as
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written was supported by adequate consideration, the agreement was not illusory, and the trial court
did not err in refusing to imply a duty of good faith with regard to Incore’s provision of Bonding
Support. Alternatively, Incore’s provision of Bonding Support rendered the Management Agreement
enforceable, precluding ICI and Casias from claiming lack of consideration as a defense.
Finally, with regard to the argument regarding satisfaction contracts, under the terms of the
contracts in the cases cited by ICI and Casias, the courts imposed a “good faith” requirement to
provide consideration and prevent the contracts from being illusory. See, e.g., Black Lake Pipe Line
Co. v. Union Const. Co., Inc., 538 S.W.2d 80, 88-89 (Tex. 1976), overruled on other grounds,
Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989); Young v. Neatherlin, 102 S.W.3d
415, 420 (Tex. App.—Houston [14th Dist.] 2003, no pet.); Zep Mfg. Co. v. Harthcock, 824 S.W.2d
654, 659 (Tex. App.—Dallas 1992, no pet.); Young v. Warren, 444 S.W.2d 777, 780 (Tex. Civ.
App.—Beaumont 1969, writ ref’d n.r.e.). Because we hold that the Management Agreement is
supported by adequate consideration, this court need not construe the Bonding Support provision in
the Management Agreement as a satisfaction contract in order to make the agreement enforceable.
JURY CHARGE
In their second issue, ICI and Casias assert that their affirmative claim against Incore for
breach of the Management Agreement was severed before the formal charge conference.
Alternatively, ICI and Casias assert that the trial court erred in failing to submit their affirmative
claim against Incore for breach of the Management Agreement in the jury charge.
During oral argument, counsel for Incore argued that any decision by this court with regard
to whether ICI and Casias’s claim was severed would be advisory because the issue is not ripe for
our consideration. The central concern of the ripeness doctrine is “whether the case involves
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uncertain or contingent future events that may not occur as anticipated, or indeed may not occur at
all.” Perry v. Del Rio, 66 S.W.3d 239, 249-50 (Tex. 2001). In assessing ripeness, we must “evaluate
both the fitness of the issues for judicial decision and the hardship to the parties of withholding court
consideration.” Id. at 250 (quoting Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967)).
In this case, this court is required to resolve whether ICI and Casias’s counterclaim for breach
of the management agreement was severed in order to resolve the second issue being raised in this
appeal. If the claim was severed, ICI and Casias concede that the jury charge contained no error.
If the claim was not severed, this court would need to address whether the jury charge contained
error to resolve the second issue. Moreover, withholding our consideration of the issue would result
in a hardship to the parties since they would be left uncertain as to what claims remained to be
resolved in future proceedings. Accordingly, we reject Incore’s argument that the issue of severance
is not ripe for our consideration.
Before trial, ICI and Casias filed a motion to sever. The motion initially noted that the
underlying cause was principally a dispute over the non-performance of the Management Agreement.
The motion later asserted, “The heart of the dispute relates to the Management Agreement. The
issue of who materially breached the Management Agreement should be tried first and then a second
trial”would “be pared down and much reduced.” ICI and Casias then requested the trial court “to
sever all of the claims that do not relate to who materially breached the Management Agreement.”
The order granting the motion to sever, which was signed by the Honorable Michael Peden,
stated that the following claims were severed:
(xviii) ICI and Frank Casias’[s] claims for breach of contract against Jack Lopez,
Incore, Inc., and Sonterra Office Park, L.P., as stated in Paragraphs 54
through 64 of the Answer; however, with respect to the claim for breach of
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the Management Agreement as to damages and attorney’s fees only, with
respect to all other claims for breach of contract as to the entirety of each
claim including damages and attorney’s fees.
At the beginning of the formal charge conference, the following exchange occurred with
regard to the severance:
MR. POWELL: Judge, before we do Question No. 1, could we ask for your ruling
on the record?
The parties have agreed to sever for the separate action Incore Construction’s
and Frank Casias’s breach of the management agreement claim as against Incore, Inc.
Could we ask for a ruling on that?
THE COURT [Judge Littlejohn]: Right. In clarification of the order entered by Judge
Peden on April the 2nd, 2008, as it relates to the motion to sever out or the agreed
order to sever out, item sub paragraph No. 18 is clarified and the Court grants the
severance of Incore Construction and Frank Casias’s claims against Incore, Inc.
MR. POWELL: Thank you, Your Honor.
THE COURT: Somebody needs to bring me an order on that, too.
MR. POWELL: We’ll bring you a written order. With that said, we have no
objections on the Defendant’s part to Question No.1.
After the jury returned its verdict, the issue of the severance was revisited at a hearing on a
motion to enter judgment:
MR. POWELL: And to recall the Court’s attention, this was agreed to. We really
should just be at the point of signing it because on the record this exact severance
was agreed to by Mr. Regan and us. And it was the precursor to the jury charge. And
as the Court pointed out to us and then mentioned again today, we didn’t have a
breach of contract affirmative claim in this jury charge. We had an issue of: Was our
performance excused due to an affirmative defense? And as the Court pointed out,
affirmative claims and affirmative defenses are different portions of the Pattern Jury
Charge, different language, different standards.
And so to facilitate our jury charge, Mr. Regan and I both agreed to exactly
the severance that I have got in this agreed order, which the judge then granted, based
on our agreement. So basically what he’s doing now is pulling back his agreement,
which was already granted on the record.
So we feel –
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****
MR. POWELL: The early paragraphs [of paragraphs 54 through 64 of the jury
charge], Judge, are breach of the management agreement claims that we’re asking to
be severed. And we have submitted to the Court a proposed jury charge with our
breach of contract as an affirmative claim. And based on our agreement to sever it,
it was removed and we didn’t have any objection to the jury charge. So if he were
allowed to go back and undue [sic] his agreement to the severance, we would have
objected that the Court didn’t submit our affirmative breach of contract claim, which
is what we submitted to the Court. But, again, our failure to object was based on the
Court’s granting the severance. And then you asked us to put it in writing, and all we
did was put it in writing exactly what the Court granted.
Although the trial court stated that it thought the claim was severed out, the trial court subsequently
declined to sign a clarification order on the basis that such a ruling would be an advisory opinion
regarding the claims to be tried at the subsequent trial of the severed claims. The trial court
concluded that the judge presiding over the subsequent trial would need to decide what claims
remained pending.
Although we agree that the liability portion of ICI and Casias’s breach of Management
Agreement claim was expressly excluded from the severed claims in Judge Peden’s order, Incore
argues that ICI and Casias waived their ability to rely on the trial court’s ruling clarifying the
severance at the formal charge conference because: (1) the trial court did not sign a written
clarification order; or (2) ICI and Casias waived their right to complain about the trial court’s refusal
to sign a clarification order by accepting the ruling that the judge presiding over the subsequent trial
would need to determine which claims remained to be tried. We disagree with Incore’s argument
because the statements at the formal charge conference rose to the level of a Rule 11 agreement
based on Incore’s failure to object when the attorney for ICI and Casias stated that the parties agreed
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to sever the claim. Moreover, ICI and Casias did not accept the trial court’s ruling; they simply were
unable to convince the trial court to sign the written clarification order.
Rule 11 permits an agreement to be enforced if it is made in open court and entered of record.
TEX . R. CIV . P. 11. When the attorney for ICI and Casias stated, “The parties have agreed to sever
for the separate action Incore Construction’s and Frank Casias’s breach of the management
agreement claim as against Incore, Inc.,” his statement constituted evidence that an agreement
existed. Banda v. Garcia, 955 S.W.2d 270, 272 (Tex. 1997). The trial court then stated it was
granting the agreed order to sever, and the entire claim by ICI and Casias for breach of the
Management Agreement was severed from the underlying clause. Since the parties’ agreement is
enforceable under Rule 11, neither the trial court’s refusal to subsequently sign a written clarification
order nor the inability of ICI and Casias to convince the trial court to sign the written clarification
order resulted in a waiver. Although the severance may not make logical sense, the parties are bound
by their agreement. Because we conclude ICI and Casias’s claim against Incore for breach of the
Management Agreement was severed, we need not address the alternative contention that the jury
charge contained error with regard to that claim.
CONCLUSION
The trial court properly interpreted the Management Agreement as not containing a duty of
good faith with regard to the Bonding Support. The statements made at the formal charge conference
gave rise to a Rule 11 agreement with regard to the severance of ICI’s and Casias’s counterclaim
against Incore for breach of the management agreement. The trial court’s judgment is affirmed.
Catherine Stone, Chief Justice
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