Flavor Finish Resurfacing, L. L. C. v. John Michael Ellerkamp ( 2012 )

Opinion issued August 30, 2012.
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-11-00099-CV
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FLAVOR FINISH RESURFACING, L.L.C., Appellant
V.
JOHN MICHAEL ELLERKAMP, Appellee
On Appeal from the County Civil Court at Law No. 1
Harris County, Texas
Trial Court Case No. 965467
MEMORANDUM OPINION
Appellant, Flavor Finish Resurfacing, L.L.C. (“Flavor Finish”), challenges
the trial court’s rendition of summary judgment in favor of appellee, John Michael
Ellerkamp, in Flavor Finish’s suit for breach of contract and fraud. In three issues,
Flavor Finish contends that the trial court erred in granting Ellerkamp summary
judgment.
We affirm in part and reverse and remand in part.
Background
In its original petition, Flavor Finish alleged that in early 2009, it provided
labor and materials for the painting and resurfacing of an apartment complex
owned by e2 Real Estate Partners III (“e2 Real Estate”). When e2 Real Estate
“failed to pay for all of the services rendered,” Flavor Finish filed a mechanic’s
lien on the real property for the unpaid labor and materials. Ellerkamp, e2 Real
Estate’s manager, then contacted Flavor Finish about releasing the mechanic’s lien.
On September 18, 2009, the parties executed two documents: (1) a Loan and
Security Agreement (“Loan Agreement”) in which e2 Real Estate agreed to pay
Flavor Finish in the amount of $12,246 and (2) a Promissory Note – Guaranty
(“Note/Guaranty”) guaranteeing repayment of the loan to Flavor Finish. Flavor
Finish then released the mechanic’s lien. e2 Real Estate made three out of twelve
payments due under the Loan Agreement before it defaulted.
Flavor Finish further alleged that Ellerkamp signed the Note/Guaranty as a
personal guarantor of e2 Real Estate’s debt obligation, and it asserted that
Ellerkamp and e2 Real Estate should be found jointly liable for the $9,184.50
remaining due under the Loan Agreement. Flavor Finish also alleged that
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Ellerkamp and e2 Real Estate committed fraud in signing the Note/Guaranty to
induce Flavor Finish into releasing the mechanic’s lien without any intent to repay
the loan. Shortly after Flavor Finish filed suit, e2 Real Estate filed for bankruptcy,
and Flavor Finish then dismissed its claims against e2 Real Estate.
In his second amended answer, Ellerkamp asserted that he signed the
Note/Guaranty in his representative capacity as an agent of e2 Real Estate and
raised the affirmative defense that Flavor Finish’s claims are barred under the
statute of frauds. Ellerkamp then filed his summary-judgment motion on Flavor
Finish’s breach-of-contract claim, arguing that there is no writing signed by him in
his individual capacity that satisfied the statute of frauds. Ellerkamp also filed a
no-evidence summary-judgment motion on the breach-of-contract and fraud
claims, arguing that there is no enforceable contract against Ellerkamp in his
individual capacity and no evidence that Ellerkamp made a promise or
misrepresentation to Flavor Finish.
Ellerkamp attached to his summary-judgment motion both the Loan
Agreement and the Note/Guaranty. The signature block in the Loan Agreement
was executed as follows:
Borrower: e2 Real Estate Partners, III, L.L.C.
By: /s/ Title: Manager, e2 Real
John M. ‘Mike’ Ellerkamp Estate Partners III, L.L.C.
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The Note/Guaranty contained the same signature block under the section
“Guaranty,” which is produced below,
4
In its summary-judgment response, Flavor Finish argued that the statute of
frauds does not bar its breach-of-contract claim because the plain language of the
above quoted documents “contemplate[d] a corporate obligation supported by a
personal guaranty, showing the borrower (e2 Real Estate) and the guarantor
(Ellerkamp) are separate and distinct parties.” Flavor Finish asserted alternatively
that the guaranty agreement is ambiguous and parol evidence indicates that Flavor
Finish released the mechanic’s lien because Ellerkamp personally guaranteed
payment of the debt. Flavor Finish further asserted that there is evidence that
Ellerkamp committed fraud.
Flavor Finish attached to its summary-judgment response the affidavit of
Randy Ross, the managing member for Flavor Finish, who testified that he was
contacted by Ellerkamp in reference to e2 Real Estate’s outstanding debt.
Ellerkamp told Ross that “e2 Real estate was having trouble paying its bills
because of a dispute with . . . its insurance company” and he wanted Flavor Finish
to release the mechanic’s lien “to enable [e2 Real Estate] to secure more
financing.” Ross was “reluctant to release the lien” and only did so because
“Ellerkamp, as an incentive, offered to sign a personal guaranty.” Flavor Finish
also attached to its summary-judgment response the affidavit of its attorney, Peter
Bagley, who testified that he had some communication with Ellerkamp, who “did
not refute the idea of a personal guaranty.” Bagley explained that eventually
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“Flavor Finish decided to handle [the] matter by itself,” and he was not involved in
the actual signing of the Loan Agreement or the Note/Guaranty. Flavor Finish also
attached to its response a series of e-mail messages between Bagley and Ellerkamp
that referenced a “personal guaranty.”
After a hearing, the trial court, without specifying the grounds on which it
relied, granted Ellerkamp’s summary-judgment motions, ordering that Flavor
Finish take nothing on its claims against Ellerkamp.
Standard of Review
To prevail on a summary-judgment motion, a movant has the burden of
proving that he is entitled to judgment as a matter of law and there is no genuine
issue of material fact. TEX. R. CIV. P. 166a(c); Cathey v. Booth, 900 S.W.2d 339,
341 (Tex. 1995). When a defendant moves for summary judgment, he must either
(1) disprove at least one essential element of the plaintiff’s cause of action or (2)
plead and conclusively establish each essential element of his affirmative defense,
thereby defeating the plaintiff’s cause of action. Cathey, 900 S.W.2d at 341;
Yazdchi v. Bank One, Tex., N.A., 177 S.W.3d 399, 404 (Tex. App.—Houston [1st
Dist.] 2005, pet. denied). When deciding whether there is a disputed, material fact
issue precluding summary judgment, evidence favorable to the non-movant will be
taken as true. Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548–49 (Tex.
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1985). Every reasonable inference must be indulged in favor of the non-movant
and any doubts must be resolved in his favor. Id. at 549.
When a party moves for summary judgment on the ground that there is no
evidence of one or more essential elements of the non-movant’s claims, the movant
must specifically state the elements of the non-movant’s claims as to which there is
no evidence. TEX. R. CIV. P. 166a(i); Spradlin v. State, 100 S.W.3d 372, 377 (Tex.
App.—Houston [1st Dist.] 2002, no pet.). The burden then shifts to the non-
movant to produce evidence that raises a fact issue on the challenged elements.
Spradlin, 100 S.W.3d at 377. “The court must grant the motion unless the
respondent produces summary judgment evidence raising a genuine issue of
material fact.” TEX. R. CIV. P. 166a(i).
Breach of Contract
In its first two issues, Flavor Finish argues that the trial court erred in
granting Ellerkamp summary judgment because “the controlling documents of this
case show that Ellerkamp signed a guaranty agreement in his individual capacity”
and, if the guaranty agreement is found to be ambiguous, extrinsic evidence
demonstrates that Flavor Finish only signed the documents under the assumption
that Ellerkamp was a personal guarantor.
In order to establish a breach-of-contract claim, a plaintiff must prove (1) the
existence of a valid contract between the plaintiff and the defendant, (2) the
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plaintiff’s performance or tender of performance, (3) the defendant’s breach of the
contract, and (4) the plaintiff’s damage as a result of the breach. Prime Prods.,
Inc. v. S.S.I. Plastics, Inc., 97 S.W.3d 631, 636 (Tex. App.—Houston [1st Dist.]
2002, pet. denied). Ellerkamp argues that because he did not sign the
Note/Guaranty in his individual capacity, there is no valid contract to enforce
against him. See TEX. BUS. & COM. CODE ANN. § 26.01(a), (b)(2) (Vernon 2009)
(stating that promise by one person to answer for debt of another must be in
writing and signed by person to be held to agreement in order to satisfy statute of
frauds). Flavor Finish asserts that the plain language of the Note/Guaranty
demonstrates a valid contract signed by Ellerkamp in his individual capacity.
Flavor Finish alternatively asserts that the Note/Guaranty is at least ambiguous as
to whether Ellerkamp signed the document in his representative or individual
capacity.
To be enforceable, a contract must use sufficiently certain language to
enable a court to determine the rights and responsibilities of the parties. T.O.
Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992). Our
primary concern in construing a written contract is to ascertain the true intent of
the parties as expressed in the instrument. Seagull Energy E & P, Inc. v. Eland
Energy, Inc., 207 S.W.3d 342, 345 (Tex. 2006); Valence Operating Co. v. Dorsett,
164 S.W.3d 656, 662 (Tex. 2005). Usually, the intent of the parties can be
8
discerned from the instrument itself. ExxonMobil Corp. v. Valence Operating Co.,
174 S.W.3d 303, 312 (Tex. App.—Houston [1st Dist.] 2005, pet. denied). When
an issue regarding the construction of a contract is presented, we must examine and
consider the entire writing in an effort to harmonize and give effect to all of the
provisions of the contract so that none will be rendered meaningless. Seagull
Energy E & P, Inc., 207 S.W.3d at 345. Contract terms will be given their plain,
ordinary, and generally accepted meanings unless the contract itself shows them to
be used in a technical or different sense. Dorsett, 164 S.W.3d at 662.
A contract is ambiguous only if its meaning is uncertain or if it is subject to
two or more reasonable interpretations. Seagull Energy E & P, Inc., 207 S.W.3d at
345; Edascio, L.L.C. v. NextiraOne L.L.C., 264 S.W.3d 786, 796–97 (Tex. App.—
Houston [1st Dist.] 2008, pet. denied). If a written contract is worded in such a
way that it can be given a definite or certain legal meaning, then the contract is not
ambiguous. SAS Inst., Inc. v. Breitenfeld, 167 S.W.3d 840, 841 (Tex. 2005). An
ambiguity does not arise simply because the parties advance conflicting
interpretations of the contract. Tex. Farm Bureau Mut. Ins. Co. v. Sturrock, 146
S.W.3d 123, 126 (Tex. 2004). When the parties have entered into an unambiguous
contract, the courts will enforce the intention of the parties as written in the
instrument. Sun Oil Co. (Delaware) v. Madeley, 626 S.W.2d 726, 731 (Tex.
1981).
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In support of its contention that Ellerkamp signed the Note/Guaranty in his
individual capacity, Flavor Finish argues that “the fact that a guaranty agreement
exists by itself is suggestive that Ellerkamp signed it in his individual capacity.”
Flavor Finish notes that it would be “superfluous” for e2 Real Estate to sign the
“Guaranty” section of the Note/Guaranty as a guarantor of its own debt. Flavor
Finish also relies upon Article I of the Loan Agreement, which defines “Borrower”
as e2 Real Estate Partners, but more broadly defines “Guarantor” as “without
limitation, e2 Real Estate Partners, III, L.L.C., along with each and all of the other
guarantors, sureties, and accommodation parties in connection with the
Indebtedness.” Flavor Finish further asserts that the Note/Guaranty states that the
“undersigned jointly and severally” promise to pay the debt, which indicates both a
borrower and a separate guarantor. Although the signature block on both the Loan
Agreement and the Note/Guaranty contain Ellerkamp’s professional title next to
his signature, Flavor Finish argues that the appearance of a corporate title is merely
descriptio personae, or a term used to identify a person rather than applied in a
technical sense. See, e.g., Neeley v. Intercity Mgmt. Corp., 632 S.W.2d 942, 948
(Tex. App.—Houston [1st Dist.] 1981, no writ).
This Court has noted that “there is no clear mode of signature that will
absolutely fix or avoid personal liability.” Gulf & Basco Co. v. Buchanan, 707
S.W.2d 655, 657 (Tex. App.—Houston [1st Dist.] 1986, writ ref’d n.r.e.). In
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Buchanan, Gulf & Basco challenged the trial court’s ruling that a guaranty
agreement was ambiguous on the issue of whether it was signed by Buchanan in
his personal or representative capacity. Id. at 656. The guaranty agreement was
signed by Buchanan under the handwritten designation, “Alan Buchanan Builders,
Inc.” Id. at 658. We explained that,
A signature followed by corporate office will result in personal
liability where the individual is clearly designated within the
instrument as personal surety for the principal. In such case, the
corporate office may be construed a descriptio personae of the
signator rather than indication of the capacity in which he signs.
Id. at 657. We held that the guaranty was ambiguous as to whether it was signed in
a representative or individual capacity and affirmed the trial court’s ruling. Id. at
659.
Here, looking only at the four corners of the controlling documents, we
conclude that the agreement is ambiguous as to whether Ellerkamp signed them in
his representative or individual capacity. Although the signature block contains
Ellerkamp’s corporate title, this, by itself, does not necessarily indicate that he
signed in a representative capacity; at the same time, the documents lack the
personal pronouns that generally establish an individual guaranty as a matter of
law. See, e.g., Material P’ships, Inc. v. Ventura, 102 S.W.3d 252, 258–60 (Tex.
App.—Houston [14th Dist.] 2003, pet. denied) (holding document was signed in
individual capacity, despite use of corporate letterhead and title in signature, where
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language “I, personally, guaranty” all liabilities of corporation unambiguously
indicated personal guaranty); Taylor-Made Hose, Inc. v. Wilkerson, 21 S.W.3d
484, 488–89 (Tex. App.—San Antonio 2000, pet. denied) (holding credit
application that stated defendant “personally agreed” to pay on corporation’s
delinquent account indicated defendant was individually liable on corporate debt,
despite use of corporate title in signature); Am. Petrofina Co. of Tex. v. Bryan, 519
S.W.2d 484, 487–88 (Tex. Civ. App.—El Paso 1975, no writ) (holding separate
guaranty agreement that stated, “I covenant and agree that jointly with the
Principal and severally I shall be liable and responsible” for corporate debt clearly
indicated personal guaranty, despite use of corporate title in signature).
Although the Note/Guaranty contains no personal pronouns, there is also
language in it that indicates a personal guaranty. For example, the Loan
Agreement defines “Borrower” exclusively as e2 Real Estate, but broadly defines
“Guarantor” to include “without limitation, e2 Real Estate Partners . . . along with
each and all of the other guarantors.” The Loan Agreement further makes
reference to “joint and several liability.” More importantly, the Note/Guaranty
itself begins with, “The undersigned jointly and severally promise to pay the debt.”
The reference to “joint and several liability” indicates that multiple parties were
intended to be liable on the debt, which is consistent with Ellerkamp’s individual
guaranty. Furthermore, in the Note/Guaranty, the “undersigned” is always
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accompanied by a plural verb. For example, the document states that, “[t]he
undersigned . . . promise to pay,” “the undersigned expressly agree,” and “the
undersigned do hereby guarantee payment.”
In addition, the mere fact that there is a guaranty in the first place indicates
that Ellerkamp, individually, was intended to be the guarantor. “A guaranty
creates a secondary obligation whereby the guarantor promises to answer for the
debt of another and may be called upon to perform once the primary obligor has
failed to perform.” Dann v. Team Bank, 788 S.W.2d 182, 183 (Tex. App.—Dallas
1990, no writ). “A guaranty requires three parties because it creates a secondary
obligation whereby the guarantor promises to answer for the debt of another.” Id.
at 184. “Under normal circumstances, a written collateral undertaking to secure a
corporate debt will be rendered meaningless if the primary debtor is found to be
the sole party liable thereunder.” Id.; see also Eubank v. First Nat’l Bank of
Bellville, 814 S.W.2d 130, 133–34 (Tex. App.—Corpus Christi 1991, no writ) (“To
treat [the corporation] as the guarantor as well as the borrower would negate the
purpose of the guaranty.”); Am. Petrofina, 519 S.W.2d at 487 (“This instrument is
a collateral undertaking to secure the debt of the corporation and if we were to hold
that this is not the obligation of the [a]ppellees we would have to hold that it is not
an obligation at all, and we would utterly destroy its effect.”). It is a well-accepted
rule of contract construction that a court should attempt to give effect to all the
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provisions of the contract so that none will be rendered meaningless. Seagull
Energy E & P, Inc., 207 S.W.3d at 345.
In support of the proposition that the signature block utilized in this case
alone establishes, as a matter of law, that Ellerkamp signed the documents in his
representative capacity only, he relies upon Suttles v. Thomas Bearden Co., 152
S.W.3d 607 (Tex. App.—Houston [1st. Dist.] 2004, no pet.). In Suttles, this Court
concluded that the signature block on a promissory note unambiguously
established that the note was signed only in a representative capacity. Id. at 614.
The defendant had signed the promissory note under the printed designation,
“Tracy Suttles, President,” and under a handwritten amendment at the bottom of
the page, “Tracy Suttles.” Id. at 610. We noted that for a negotiable instrument, if
a signature “shows unambiguously that [it] is made on behalf of the represented
person who is identified in the instrument, the representative is not liable on the
instrument.” Id. at 611–12 (quoting TEX. BUS. & COM. CODE ANN. § 3.402(b)(1)
(Vernon 2003)). However, a person signing an instrument is presumed to be an
“accommodation party” if the signature is “accompanied by words indicating the
signer is acting as a surety or guarantor with respect to the obligation of another
party in the instrument.” TEX. BUS. & COM. CODE ANN. § 3.419(c) (Vernon Supp.
2011). In Suttles, the defendant signed only a promissory note and there was no
guaranty language to be found anywhere in the document. 152 S.W.2d at 609. By
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contrast, in the instant case, both the Loan Agreement and the Note/Guaranty
include language consistent with a guaranty agreement, as opposed to a bare
promissory note, and Ellerkamp signed the Note/Guaranty under the section
entitled “Guaranty,” which itself indicates the liability of a third party. See, e.g.,
Dann, 788 S.W.2d at 183.
As a result, we cannot conclude that, as a matter of law, the signature blocks
at issue in this case unambiguously establish that Ellerkamp signed the documents
only in his representative capacity. At the same time, because the documents do
not include the use of personal pronouns, the words “personal” or “personally,” or
an express mention of Ellerkamp as individual guarantor, we cannot conclude that
he unambiguously signed the documents in his personal capacity either. Instead,
the representative structure of the signature block, combined with the use of the
words “jointly and severally,” the treatment of the “undersigned” as plural, and the
existence of a guaranty agreement, creates an ambiguity as to whether Ellerkamp
signed the Note/Guaranty in his representative or individual capacity.
Ellerkamp argues that, even if the Note/Guaranty is construed as an
individual guaranty, it would be barred by the statute of frauds because he is not
expressly named as the guarantor. He asserts that the statute of frauds requires “a
written memorandum which is complete within itself in every material detail,”
citing Cohen v. McCutchin, 565 S.W.2d 230 (Tex. 1978). However, in McCutchin,
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the court held that a letter did not satisfy the statute of frauds because it was not
signed by the deceased and did not disclose his identity. Id. at 232. Here, the
document is signed by the only party that could be an individual guarantor,
Ellerkamp, in a guaranty agreement that applies to “the undersigned.” This is
sufficient to satisfy the statute of frauds. See TEX. BUS. & COM. CODE ANN.
§ 26.01(a)(2) (stating that promise is not enforceable unless it is “signed by the
person to be charged with the promise or agreement”).
Accordingly, we hold that the trial court erred in granting summary
judgment in favor of Ellerkamp. There is a genuine issue of material fact
regarding what the parties intended the guaranty agreement to reflect. See, e.g.,
Lewis v. Vito, S.A., No. 01-05-00367-CV, 2006 WL 1767138, at *3 (Tex. App.—
Houston [1st Dist.] June 29, 2006, no pet.) (mem. op.) (“As a general rule,
ambiguity in an agreement presents a fact question that precludes the granting of
summary judgment.”); Gulf & Basco, 707 S.W.2d at 658 (holding, in bench trial,
that trial court did not err in conducting hearing to determine parties’ intent
regarding capacity of signator where “the manner of execution [was] susceptible of
two different and reasonable interpretations”).
We sustain Flavor Finish’s second issue.
Within its third issue, Flavor Finish also argues that the trial court erred in
granting Ellerkamp’s no-evidence summary-judgment motion with respect to its
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breach-of-contract claim. Having held that there is genuine issue of material fact
as to whether Ellerkamp signed the documents in his individual capacity, we
sustain Flavor Finish’s third issue as well regarding his breach-of-contract claim.
Fraud
In its third issue, Flavor Finish argues that the trial court also erred in
granting Ellerkamp’s no-evidence summary-judgment motion because Flavor
Finish “presented more than a scintilla of evidence” for each element of its claim
of fraud.
To establish a claim for fraud, a plaintiff must prove that the defendant made
a material misrepresentation, which the defendant knew was false or made
recklessly without any knowledge of its truth, with the intent that it should be acted
upon by the plaintiff, and the plaintiff actually relied on the misrepresentation and
suffered injury. In re FirstMerit Bank, N.A ., 52 S.W.3d 749, 758 (Tex. 2001).
An action for fraud pertaining to a promise of future performance requires,
as relevant here, a showing that the promisor, at the time that the promise was
made, had no intention of performing the act. Formosa Plastics Corp. USA v.
Presidio Eng’rs and Contractors, 960 S.W.2d 41, 47 (Tex. 1988). The mere
failure to perform under a contract does not constitute sufficient evidence of fraud.
Id. at 48. Rather, a plaintiff alleging a fraud claim must demonstrate that the
defendant, at the time that he or she made the representation, had intent to deceive
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and had no intent to perform; the evidence presented must be relevant to the
promisor’s intent at the time that the representation was made. Id. However,
“[w]hile a party’s intent is determined at the time the party made the
representation, it may be inferred from the party’s subsequent acts after the
representation is made. . . . ‘Slight circumstantial evidence’ of fraud, when
considered with the breach of promise to perform, is sufficient to support a finding
of fraudulent intent.” Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434–35
(Tex. 1986) (quoting Maulding v. Niemeyer, 241 S.W.2d 733, 737 (Tex. Civ.
App.—El Paso 1951) (orig. proceeding)).
Flavor Finish asserts that Ellerkamp made a material representation that he
knew was false when he represented that he would provide a personal guaranty.
However, Flavor Finish presented no evidence that, at the time of the
representation, Ellerkamp knew it to be false or had no intention of performing the
act. Its only evidence is that Ellerkamp had “offered to sign a personal guaranty”
to Ross and discussed a personal guaranty with Bagley via e-mail. However, Ross
continued to say that he “concluded the negotiations” without Bagley; thus,
Ellerkamp’s representation was merely a statement made during negotiations prior
to the signing of the Note/Guaranty. There is no indication that, at the time of the
representation, Ellerkamp knew it to be false or misrepresented the terms of the
contract he drafted after subsequent negotiations. Accordingly, we hold that the
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trial court did not err in granting Ellerkamp summary judgment on Flavor Finish’s
claim for fraud. See In re FirstMerit Bank, 52 S.W.3d at 758 (holding there was
no evidence to support claim for fraud where the only alleged misrepresentations
were during prior negotiations and there was no evidence defendants “actually
misrepresented the [contract’s] terms . . . or that they made any false material
representations with regard to the [contract] itself”).
We overrule Flavor Finish’s third issue regarding its claim for fraud.
Conclusion
We affirm the portion of the trial court’s judgment concerning Flavor
Finish’s fraud claim. We reverse the portion of the trial court’s judgment
concerning Flavor Finish’s breach-of-contract claim, and we remand this claim to
the trial court for further proceedings consistent with this opinion.
Terry Jennings
Justice
Panel consists of Justices Jennings, Sharp, and Brown.
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