Case No. 01-15-00192-CV

__________________________________________________

IN THE FIRST COURT OF APPEALS

HOUSTON, TEXAS

__________________________________________________

DANIEL MANDARINO, CARRIE MANDARINO, LAURA DOYLE, ROBERT CHURCH, 

BRETT BEALS and LINDA BEALS as Trustees of the Beals Family Revocable Trust, 

ROBERT CHURCH, ROBERT A. SCHALBE, WILLIAM H. GAY, JR., ERIC JOHNSTONE, 

RAFAL ZIELINSKI and VALLY MESTRONI, Appellants

v. 

SHERWOOD LANE INVESTMENTS, LLC, Appellee

____________________________________________________

From the 164TH Judicial District Court, of Harris County, Texas 

Trial Court Cause No. 2014-32347

Honorable Alexandra Smoots-Hogan, Judge Presiding

APPELLANTS’ BRIEF

TERI A. WALTER

Texas Bar No. 20815100

GLEN NORDT

Texas Bar No. 15076600

WALTER LAW FIRM, PC

1111 North Loop West, Suite 1115

Houston, TX 77008

Phone 713 529-2020

Fax 713 529-2266

Email twalter@prevaillawyers.com

Email gnordt@prevaillawyers.com

ATTORNEY FOR APPELLANTS

ORAL ARGUMENT REQUESTED

ACCEPTED

01-15-00192-CV

FIRST COURT OF APPEALS

HOUSTON, TEXAS

8/6/2015 6:33:16 PM

CHRISTOPHER PRINE

CLERK

 FILED IN 1st COURT OF APPEALS HOUSTON, TEXAS 8/6/2015 6:33:16 PM CHRISTOPHER A. PRINE Clerk
Case No. 01-15-00192-CV

DANIEL MANDARINO, CARRIE MANDARINO, LAURA DOYLE, ROBERT CHURCH, 

BRETT BEALS and LINDA BEALS as Trustees of the Beals Family Revocable Trust, 

ROBERT CHURCH, ROBERT A. SCHALBE, WILLIAM H. GAY, JR., ERIC JOHNSTONE, 

RAFAL ZIELINSKI and VALLY MESTRONI, Appellants

v.

SHERWOOD LANE INVESTMENTS, LLC, Appellee

IDENTITY OF PARTIES AND COUNSEL

Attorneys for Appellants DANIEL MANDARINO, CARRIE MANDARINO, LAURA

DOYLE, ROBERT CHURCH, BRETT BEALS and LINDA BEALS as Trustees of the Beals

Family Revocable Trust, ROBERT CHURCH, ROBERT A. SCHALBE, WILLIAM H. GAY,

JR., ERIC JOHNSTONE, RAFAL ZIELINSKI and VALLY MESTRONI:

TERI A. WALTER

Texas Bar No. 20815100

GLEN NORDT

Texas Bar No.15076600

WALTER LAW FIRM, PC

1111 North Loop West, Suite 1115

Houston, TX 77008

Phone 713 529-2020

Fax 713 529-2266

Email twalter@prevaillawyers.com

Email gnordt@prevaillawyers.com

i
Attorneys for Appellee SHERWOOD LANE INVESTMENTS, LLC:

Douglas A. Daniels

Texas Bar No. 00793579

Andrea L. Gentle

Texas Bar No. 24074266

DANIELS & GENTLE, LLP

6363 Woodway Suite 980

Houston, TX 77057

Phone 713 979 4279

Fax 713 979 4270

Email: douglas.daniels@danielsgentle.com

Email: andrea.gentle@danielsgentle.com

ii
TABLE OF CONTENTS

INDEX OF AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

STATEMENT OF THE CASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

STATEMENT ON ORAL ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ISSUES PRESENTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

STATEMENT OF FACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

SUMMARY OF THE ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Issue 1: The trial court erred in granting SHERWOOD’s Motion for Summary

Judgment, based on no evidence or insufficient evidence of the Note

and fact issues regarding the terms of the Note. . . . . . . . . . . . . . . . 10

Issue 2: The trial court erred in granting SHERWOOD’s Motion for Summary

Judgment based on fact issuesregarding the principal and interest due

on the Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Issue 3: The trial court erred in granting SHERWOOD’s Motion for Summary

Judgment because there was no evidence or insufficient evidence of

SHERWOOD's standing as an owner, holder, and/or holder in due

course of the Note. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Issue 4: The trial court erred in granting SHERWOOD’s Motion for Summary

Judgment and denying Appellants’ Motion for Summary Judgment

based on the two year statute oflimitationspursuant to Tex. Prop. Code

§ 51.003.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Issue 5: The trial court erred in granting SHERWOOD’s Motion for Summary

Judgment based on fact issues of fraud, fraudulent inducement and

fraud in a real estate transaction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

iii
PRAYER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

CERTIFICATE OF SERVICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

APPENDIX 1 - Final Judgment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix 1

APPENDIX 2 - Wraparound Promissory Note. . . . . . . . . . . . . . . . . . . . . . . Appendix 2

APPENDIX 3 - Statutory Text. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix 3

Tex. Prop. Code § 51.003(a) Deficiency Judgment. . . . . . . . . . . Appendix 3.1

Tex. Rev. Civ. Stat. art. 6132a-1 (RPLA) Sec. 8.01. . . . . . . . . . . . Appendix 3.1

Tex. Rev. Civ. Stat. art. 6132a-1 (RPLA) Sec. 8.04. . . . . . . . . . . . Appendix 3.2

Tex. Rev. Civ. Stat. art. 6132a-1 (RPLA) Sec. 8.05. . . . . . . . . . . . Appendix 3.3

Tex. Rev. Civ. Stat. art. 6132a-1 (RPLA) Sec. 13.06. . . . . . . . . . . Appendix 3.3

APPENDIX 4 - Diagram of Transactions.. . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix 4

APPENDIX 5 - Index of Persons and Companies.. . . . . . . . . . . . . . . . . . . . Appendix 5

APPENDIX 6 - Time Line of Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix 6

iv
INDEX OF AUTHORITIES

Cases

Baylor Univ. v. Sonnichesen, 221 S.W.3d 632, 635 (Tex. 2007).. . . . . . . . . . . . . . . 25

Boyd v. Diversified Financial Systems, 1 S.W.3d 888 (Tex. App. - Dallas, 1999, no

pet.) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 15

David J. Sacks, P.C. v. Haden, 266 S.W.3d 447, 450 (Tex. 2008). . . . . . . . . . . . . . . 25

Dutton v. Dutton, 18 S.W.3d 849, 853 (Tex. App.-Eastland 2000, pet. denied)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

El T. Mexican Restaurants, Inc. v. Bacon, 921 S.W.2d 247 Tex. App.-Houston [1st

Dist.] 1995, writ denied).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

First National Acceptance Company v. Dixon, 154 S.W.3d 218, (Tex. App.

Beaumont-2004, pet. denied.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008).. . . . . . . . . . . . . . . . . . . . . 46

Houston First Am. Sav. v. Musick, 650 S.W.2d 764, 767 (Tex. 1983). . . . . . . . . . . 29

HTS Servs., Inc. v. Hallwood Realty Partners, L.P., 190 S.W.3d 108, 113 (Tex. App.-

Houston [1st Dist.] 2005, no pet.).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

In Re Hawthorne Townhomes, L.P. v. Branch, 282 S.W.3d 131, 138 (Tex. App.-

Dallas 2009, orig. proceeding). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Italian Cowboy Partners, Ltd. v. Prudential Ins. Co., 341 S.W.3d 323, 328-337 (Tex.

2011). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46, 47

Lewis v. Davis, 145 Tex. 468; 199 S.W.2d 146, 148-149 (1947). . . . . . . . . . . . . . . 24

Mays v. Bank One, N.A., 150 S.W.3d 897 (Tex. App.-Dallas 2004, no pet.). . . 43, 44

v
Mega Child Care, Inc. v. Tex. Dep’t of Protective & Regulatory Servs., 29 S.W. 3d

303, 308 (Tex. App. - Houston [14th Dist] 2000, no pet.) . . . . . . . . . . . . . . . . . . . . 14

Moayedi v. Interstate 35/Chisam Road, L.P., 438 S.W.3d 1 (Tex. 2014).. . . . . . . . 39

Monsanto Co. v. Cornerstones Mun. Util. Dist., 865 S.W.2d 937, 939 (Tex. 1993)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 352 (Tex. 1990).. . . . . . . . . . . . . . 42

Nat'l Liab. & Fire Ins. Co. v. Allen, 15 S.W.3d 525, 527 (Tex. 2000) . . . . . . . . . . . . 42

Omaha Healthcare Ctr. v. Johnson, 334 S.W.3d 392, 394 (Tex. 2011). . . . . . . . . . 40

Peck v. Peck, 172 S.W.3d 26, 31 (Tex.App.-Dallas 2005, pet. denied). . . . . . . . . . 29

Phillips v. Phillips, 820 S.W.2d 785, 789 (Tex. 1991). . . . . . . . . . . . . . . . . . . . . . . . 24

RepublicBank Dallas, N.A. v. Interkal, Inc., 691 S.W.2d 605, 607 (Tex. 1985). . . . 27,

41

Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171 (Tex. 1997) . . . . . 46

Sowell v. International Interests, LP, 416 S.W.3d 593, (Tex. App.-Houston [14th

Dist] 2013, pet. denied). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

St. Luke's Episcopal Hosp. v. Agbor, 952 S.W.2d 503, 505 (Tex. 1997).. . 27, 28, 41,

42

Texas Employers’ Ins. Assn. v. Taylor, 283 S.W. 779, 780 (Tex. Com. App. 1926,

judgmt. adopted). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Westerngeco, L.L.L. v. Input/Output, Inc., 246 S.W.3d 776, 786 (Tex. App.-Houston

[14th Dist.] 2008, no pet.). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 25

vi
Statutes

Tex. Bus. & Com. Code § 3.114 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Tex. Bus. & Com. Code § 3.203(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30, 31

Tex. Bus. & Com. Code § 3.302 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Tex. Bus. Org. Code § 402.001(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Tex. Prop. Code § 51.003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 3, 8, 35, 40-43

Tex. Prop. Code § 51.005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Tex. Rev. Civ. Stat. art. 6132a-1, Revised Limited Partnership Act § 8.05. . . . 23, 28

Tex. Rev. Civ. Stat. art. 6132a-1, Revised Limited Partnership Act § 8.04. . . . 22, 28

Tex. Rev. Civ. Stat. art. 6132a-1, Revised Limited Partnership Act § 13.06. . . 26, 27

Tex. Rev. Civ. Stat. art. 6132a-1, Revised Limited Partnership Act § 8.01. . . . 20, 21

vii
STATEMENT OF THE CASE

This is a suit for the deficiency balance due on a promissory note after

foreclosure of the real property securing the note. Plaintiff/Appellee SHERWOOD

LANE INVESTMENTS, LLC, (SHERWOOD) is the assignee of the Note, on which

Defendants/Appellants DANIEL MANDARINO, CARRIE MANDARINO, LAURA DOYLE,

ROBERT CHURCH, BRETT BEALS and LINDA BEALS as Trustees of the Beals Family

Revocable Trust, ROBERT CHURCH, ROBERT A. SCHALBE, WILLIAM H. GAY, JR.,

RICCARDIO D. GAY, ERIC JOHNSTONE, RAFAL ZIELINSKI and VALLY MESTRONI were

makers. (CR 5).

The trial court granted summary judgment in favor of SHERWOOD on

December 19, 2014 (CR 396), and Defendants/Appellants’ Motion for New Trial was

heard on January 30, 2015 (CR 415), but no order wassigned granting or denying the

motion. Therefore, the Motion for New Trial was overruled by operation of law on

March 4, 2015.

1
 STATEMENT ON ORAL ARGUMENT

Appellants request oral argument. This case involves complex issues of the

rights of an entity to enter into new, long term contracts after it has been dissolved,

its right to do business has been terminated, and its certificate of registration

revoked. In addition, thisis a case of first impression regarding whether the statute

of limitations, Tex. Prop. Code § 51.003, appliesto the holder of a second lien, after

the first lien holder forecloses on the property securing the debts. Oral argument

would significantly aid the Court in deciding this case, by allowing a more complete

understanding of the facts presented, and the effect of the foreclosure of a first lien

on the rights of second lien holders and debtors.

2
ISSUES PRESENTED

Issue 1: The trial court erred in granting SHERWOOD’s Motion for Summary

Judgment, based on no evidence or insufficient evidence of the Note,

and fact issues regarding the terms of the Note.

Issue 2: The trial court erred in granting SHERWOOD’s Motion for Summary

Judgment based on fact issuesregarding the principal and interest due

on the Note.

Issue 3: The trial court erred in granting SHERWOOD’s Motion for Summary

judgment because there was no evidence or insufficient evidence of

SHERWOOD's standing as an owner, holder, and/or holder in due

course of the Note. 

Issue 4: The trial court erred in granting SHERWOOD’s Motion for Summary

Judgment and denying Appellants’ Motion for Summary Judgment

based onthe two year statute oflimitations pursuant to Tex. Prop.Code

§ 51.003.

Issue 5: The trial court erred in granting SHERWOOD’s Motion for Summary

Judgment based on fact issues of fraud, fraudulent inducement and

fraud in a real estate transaction.

3
STATEMENT OF FACTS

SHERWOOD seeksto enforce a “Wraparound Promissory Note” (Wraparound

Note) dated October 16, 2006 between Sherwood Pines, Ltd. as Payee and

Defendants/AppellantsasMakers(CR8, 66). The Wraparound Note wassubordinate

to the “Original Fixed Rate Note” (First Lien Note) between Morgan Guaranty Trust

Company as Lender and Sherwood Pines, Ltd. as Maker, dated June 27, 2001 (CR 66).

Both the First Lien Note and the Wraparound Note were secured by liens upon the

same real property - Sherwood Pines Apartments, 4211 Sherwood Lane, Houston,

Texas. (CR 173, 197).

Sherwood Pines, Ltd. was dissolved on November 4, 1999, when one of its

general partnersresigned (CR 220). Thereafter itsright to do business wasforfeited

on October 5, 2005 (CR 223), and its certificate of registration was cancelled on

February 6, 2006 (CR 224).

The Wraparound Note was dated October 16, 2006 (Wraparound Note, CR

66). Sherwood Pines, Ltd. assigned a portion of itsinterest in the Wraparound Note

(all except the right to receive a 2% penalty payment) to Lee Wallis, Inc., on or about

March 10, 2008 (CR 229). 

4
The holder of the First Lien Note foreclosed on the real property securing the

Note on April 6, 2010. (CR 209). 

Lee Wallis, Inc. assigned its interest in the Wraparound Note to SHERWOOD

on May 19, 2014. (CR 57). SHERWOOD filed suit to collect the unpaid deficiency

balance of the Wraparound Note on June 5, 2014. (CR 5).

5
SUMMARY OF THE ARGUMENT

The Wraparound Note was not properly in evidence, and there was a fact issue

as to the terms of the Wraparound Note. SHERWOOD did not prove up the

Wraparound Note as a business record of anyone, and the Note presented to the

court was incomplete on its face since “Exhibit A” to the Wraparound Note was

missing. Appellants objected to the Wraparound Note as hearsay and incomplete,

as well as to the competence of the witnesses purportedly authenticating the

Wraparound Note. Since the Wraparound Note was not properly in evidence, and

there were fact issues asto the terms of the Note, SHERWOOD’ssummary judgment

should not have been granted.

SHERWOOD presented the court with two conflicting affidavits as to the

amount of principal and due on the Wraparound Note. These conflicting affidavits

created a fact issue which precludes summary judgment.

SHERWOOD failed to present any competent summary judgment evidence of

its standing as an owner, holder, and/or holder in due course of the Wraparound

Note. The original payee of the Wraparound Note was Sherwood Pines, Ltd., a

purported Texaslimited partnershipwhichhadbeen dissolved on November 4, 1999,

upon the withdrawal of a general partner (CR 220). Thereafter, its right to do

6
business wasforfeited on October 5, 2005 (CR 223), and its certificate ofregistration

was cancelled on February 6, 2006 (CR 224). All of these events pre-date the October

16, 2006 Wraparound Note (CR 66). 

It is well settled Texas law that if one of the parties to a contract does not

exist, no contract can be formed as a matter of law. For the same reason, Sherwood

Pines, Ltd.’ssubsequent assignment of the Wraparound Note to Lee Wallis, Inc. was

also invalid, and therefore Lee Wallis, Inc.received no rights which it could assign to

SHERWOOD. Due to Sherwood Pines, Ltd.’s lack of capacity to enter into the

Wraparound Note, and the failure to transfer the entire instrument, SHERWOOD

does not have standing to enforce the Wraparound Note.

Sherwood Pines, Ltd. assigned a portion ofitsinterestin the Wraparound Note

(all except the right to receive a 2% penalty payment) to Lee Wallis, Inc., on or about

March 10, 2008 (CR 229). In addition, each ofthe purported assignments of the Note

omitted a part of the instrument - Exhibit A - and the missing portion has not been

explained. Where there is an attempted indorsement of less than the entire

instrument, the transferee obtains no rights to enforce the instrument.

SHERWOOD, as the purported assignee of the Wraparound Note, does not

qualify as a holder in due course, because SHERWOOD had actual or constructive

7
notice that the Wraparound Note wasin default when at the time it was assigned to

SHERWOOD, and because of the attempted partial assignment of the Note.

Therefore, SHERWOOD is subject to the same defenses that Appellants could have

asserted against the original lender, including the defenses of fraud, fraudulent

inducement, and fraud in a real estate transaction. 

The Wraparound Note was secured by a second lien on the Sherwood Pines

Apartments. The first lien holder foreclosed on the property on April 6, 2010, and

SHERWOOD’s suit was filed on June 5, 2014, more than four years after the

foreclosure. Tex. Prop. Code § 51.003 provides that if real property is sold at a

foreclosure sale for “lessthan the unpaid balance ofthe indebtednesssecured by the

real property, resulting in a deficiency, any action brought to recover the deficiency

must be brought within two years of the foreclosure sale.” The statute does not

require that the foreclosure be performed by the same lien holder who later seeks

a deficiency judgment. SHERWOOD failed to bring suit to recover the deficiency

balance due on the Note within the two year statute of limitations. 

Appellants asserted variousfrauddefenses and presented summary judgment

evidence that the Wraparound Note was intended to be a non-recourse note, (i.e.

Appellants were not intended to have had personal liability on the Note.) In

8
addition, the “merger clause” in the Wraparound Note is insufficiently worded to

preclude extrinsic evidence of fraudulent inducement and/or evidence that the

Wraparound Note should have been nonrecourse. APPELLANTS raised fact issues of

fraud, fraudulent inducement and fraud in a real estate transaction, precluding

summary judgment.

9
ARGUMENT

Issue 1: The trial court erred in granting SHERWOOD’s Motion for Summary

Judgment, based on no evidence or insufficient evidence of the Note

and fact issues regarding the terms of the Note.

The Wraparound Note which is the basis of SHERWOOD’s claim against

Appellants, (CR 66) was not properly proved up because the copy of the Note which

submitted as summary judgment evidence was incomplete on its face, and there is

no evidence of any exception to the hearsay rule which would make the document

admissible. Appellants objected to these evidentiary defects, and sought a ruling

from the court on their objections (CR 143, 398).

SHERWOOD attempted to authenticate the Wraparound Note and its

indorsements and assignment by three affidavits- one by John Gilmore (Exhibit A to

the Motion for Summary Judgment, CR 49), one by James Hale (Exhibit B to the

Motion for Summary Judgment, CR 53), and one by Herb Richardson (Exhibit C to the

Motion for Summary Judgment, CR 62). The Wraparound Note itself was attached

as Exhibit C-1 to the Motion for Summary Judgment (CR 66). However, none ofthese

witnesseswere competent to authenticate the Wraparound Note or the subsequent

indorsements and assignment of the Wraparound Note, and none attempted to

authenticate the Note, indorsements or assignment as business records of any

10
company. Instead, the witnessesmerely testified that the document was a “true and

correct copy” of the Note, despite the fact that the document wasincomplete on its

face, since it was missing Exhibit A.

Affidavit of John Gilmore

At the time Sherwood Pines, Ltd was formed, John Gilmore was one of its

general partners(CR 218), but he resigned as a general partner on November 4, 1999

(CR 220), which dissolved the partnership by operation oflaw. Sherwood Pines, Ltd.,

had itsright to do businessin Texasterminated by the Secretary of State on October

5, 2005. Sherwood Pines, Ltd’s right to do business was never reinstated, and its

certificate ofregistration was cancelled on February 6, 2006 (CR 224), approximately

six months prior to the date on the Wraparound Note. Nevertheless, John Gilmore’s

affidavit attemptsto authenticate both the Wraparound Note and the indorsement

of the Wraparound Note to Lee Wallis, Inc. on March 10, 2008, long after Sherwood

Pines, Ltd. lost itslegal existence and ability to act (CR 49, 74). Essentially, all of John 

Gilmore’stestimony is about the purported acts of an entity which did not exist and

did not have the authority to act at the time of the acts described. 

John Gilmore attests to the Wraparound Note only as “a true and correct

copy” but does not attempt to authenticate Note or the indorsement as a business

11
record of any company (CR 49). John Gilmore does not testify that the document

submitted as summary judgment evidence is the complete document indorsed by

[the defunct entity] Sherwood Pines., Ltd., and does not mention or explain the

missing Exhibit A.

Affidavit of James Hale

The affidavit ofJames Hale (CR 53), President of Lee Wallis, Inc., also attempts

to authenticate the Wraparound Note, and the indorsement of the Note to Lee

Wallis, Inc. However, neither the Wraparound Note nor the indorsement are

authenticated as a business record of any company. James Hale’s affidavit states

only that the Wraparound Note attached to the Affidavit of Herbert Richardson is a

“true and correct copy” of the Note signed by Appellants (a fact of which he could

not have had any personal knowledge), that the indorsement of the Note by Lee

Wallis, Inc., to SHERWOOD is a “true and correct copy” of the indorsement, and that

the assignment of the Wraparound Note to SHERWOOD is a “true and correct copy”

of the assignment. James Hale does not testify that the document submitted as

summary judgment evidence is the complete document received by Lee Wallis, Inc.

from the defunct entity Sherwood Pines, Ltd., and does not mention or explain the

missing Exhibit A. James Hale’s affidavit does not properly authenticate the

12
Wraparound Note, either of the indorsements ofthe Note, or the Assignment ofthe

Note to SHERWOOD, all of which are critical to SHERWOOD’s claim.

Affidavit of Herbert Richardson

The affidavit of Herbert Richardson, a former partner in Sherwood Pines, Ltd., 

similarly attempts to authenticate Wraparound Note, the indorsements and

assignment of the Wraparound Note to SHERWOOD, merely as a “true and correct

copy” of those documents(CR 62). There is no testimony that the documents are a

business record of any company, and Herbert Richardson’s testimony as to the

actions of Sherwood Pines, Ltd., attemptsto establish the purported acts of an entity

which did not exist at the time of those acts. Herbert Richardson not testify that the

document submitted as summary judgment evidence is the complete document

received by SHERWOOD from Lee Wallis, Inc., and does not mention or explain the

missing Exhibit A.

Appellants filed objections to the Affidavits of John Gilmore, James Hale and

Herbert Richardson and the exhibits to those affidavits as lacking competence,

hearsay, double hearsay, relevance, and to the incomplete copy of the Wraparound

Note, and sought a ruling on those objections(CR 143, 398). All such objectionswere

effectively overruled by the court.

13
Hearsay

Hearsay is a statement, other than one made by the declarant while testifying

at the trial or hearing, offered in evidence to prove the truth of the matter asserted.

TRE 801(d). A document is hearsay when the proponent offers the document as

evidence of the truth of the matters asserted in the document, and authentication

of a document is required as a condition precedent to admissibility. TRE 901(a). 

A bare assertion that a particular document is a specifically described item is

insufficient authentication. Mega Child Care, Inc. v. Tex. Dep’t of Protective &

Regulatory Servs., 29 S.W. 3d 303, 308 (Tex. App. - Houston [14th Dist] 2000, no pet.) 

Although that case found that the error was harmless where there was no allegation

or suggestion that the document was not what the proponent claimed, in this case

there is a very serious dispute about the terms of the Note, specifically the nonrecourse feature, and the document is incomplete on its face. 

A contract may sometimes be admitted as an operative fact, taking it out of

hearsay status, Boyd v. Diversified Financial Systems, 1 S.W.3d 888 (Tex. App. -

Dallas, 1999, no pet.) but to do so would presumably require that the entire

document be offered into evidence. In Boyd,the court allowed a note and guaranty

into evidence at a trial on testimony that they were true and exact copies of the

14
originals, and noted that the Defendants had not denied executionofthe documents

under oath. However, in Boyd, there was no dispute about the completeness of the

documents, and the documents were admitted at a trial, rather than in a summary

judgment proceeding. This case is an appeal from a summary judgment, in which the 

dispute is not execution of the document, but rather that the entire document was

not offered into evidence, and there are critical terms which were omitted and not

explained.

SHERWOOD relies on the terms of the incomplete Wraparound Note (CR 66),

the indorsement to Lee Wallis, Inc. (CR 74), and the indorsement and assignment of

the Wraparound Note to SHERWOOD (CR 57, 74) for the truth of the matters

asserted in those documents- that Appellants have personal liability to SHERWOOD.

Since SHERWOOD failed to produce the entire document or to explain the missing

piece, SHERWOOD has not established the incomplete document as an operative

fact. Further, SHERWOOD has not properly authenticated any of the documents as

business records, and the documents do not meet any other hearsay exception.

15
Barriers to Admission of the Note, Indorsements and Assignment

SHERWOOD had two problems to solve in order to authenticate the Note,

indorsements and assignment. First, whether it is possible to authenticate the acts

of an entity that does not have the authority to do business at the time of those acts,

and second, whether it is possible to authenticate an incomplete copy of a contract

as an operative fact. 

As to the first problem, the law is that a nonexistent business entity cannot

enter into a contract. Westerngeco, L.L.L. v. Input/Output, Inc., 246 S.W.3d 776, 786

(Tex. App.-Houston [14th Dist.] 2008, no pet). While there are exceptions for the

actions of winding up the entity, none of those apply here. (These exceptions are

more fully discussed under Issue 3). It stands to reason that an entity which cannot

enter into a contract cannot validly assign that contract later, nor can it rely on the

contract document as an operative fact, in orderto makethedocument non-hearsay.

The only possible way to authenticate the document would be as a business record

of the defunct entity. However, there is no such evidence.

Further, SHERWOOD cannottreat an incomplete contract as an operative fact,

and a part ofthe Wraparound Note ismissing. Exhibit A, which isreferenced on page

3 of the Note (CR 68) is not contained within any of the evidence offered by

16
SHERWOOD. Although the Note suggeststhat Exhibit A contains a description ofthe

property securing the Note, until the missing portion of the document is produced

and the complete document authenticated, no one can confirm what provisions

might be contained in Exhibit A. This is especially critical where Appellants have

offered evidence that the Wraparound Note wasto have been a non-recourse note.

Appellants’ Response to SHERWOOD’s Motion for Summary Judgment 

provided a copy of the Commercial Contract - Improved Property, (Exhibit A to

Response to Motion for Summary Judgment, CR 155, and Commercial Contract

Financing Addendum,CR 169-172), a letter from the broker handling the transaction,

(Exhibit K to Response to Motion for Summary Judgment, CR 231) and Appellants’

affidavitsthat the seller financing contemplated by the contract “will not provide for

liability (personal or corporate) against maker in the event of default” (Exhibits L

through W, Response to Motion for Summary Judgment, CR 232-256, and Supp CR

3 emphasis added). 

Under normal circumstances, it is a relatively simple matter to properly prove

up a note, even after multiple assignments, and even where the original lender is no

longer in business. Such records are normally in the possession of or transferred to

someone who can testify that the records are what they purport to be, and the

17
subsequent assignees can similarly testify to a complete copy of the documents

being authenticated. In this case, however, SHERWOOD was granted a judgment

without producing a complete copy of the documents on which their claim is based,

without proper authentication of the documents as businessrecords of any holder,

and over Appellants’ challenges asto the missing terms ofthe documents. These are

the kinds of issues that the rules of evidence are designed to prevent. 

SHERWOOD should notbepermittedto claimthat Appellants all have personal

liability on a note without properly authenticating complete documents, especially

where Appellants provided summary judgment evidence to the contrary. Since the

Note was not properly in evidence, granting the summary judgment was error.

Alternatively, the incomplete document, along with Appellants’ evidence that the

Note was to have been non-recourse, create fact issues which preclude summary

judgment.

Issue 2: The trial court erred in granting SHERWOOD’s Motion for Summary

Judgment based on fact issuesregarding the principal and interest due

on the Note.

SHERWOOD’sMotion for Summary Judgmentincludedtwo different affidavits

from John Compton, a CPA who was retained to calculate the interest due on the

Wraparound Note (CR 76, 292). 

18
In the first affidavit,JohnCompton based histestimony on an incorrect original

principal amount, (aswell as other unauthenticated hearsay). The Wraparound Note

has a discrepancy between the numerical amount and the words stated as the

original principal amount of the loan (CR 66). The Wraparound Note showsthat the

original principal amount of the second lien is “Five Hundred Sixty-five Thousand

Dollars ($569,529.87)” (CR 67, emphasis added)1. John Compton’s first affidavit

reflectsthat he based his calculationsonthenumerical amount, $569,529.87 (CR76).

Where there is a conflict between the numerical amount and the wordsstating the

amount of a note, the words control, Tex. Bus. & Com. Code § 3.114. Based on this

incorrect principal amount, John Compton concluded in his first affidavit that the

unpaid principal and interest on the Wraparound Note was $1,044,481.18.

Appellants objected to John Compton’s affidavit on the basisthat his affidavit

contained unsupported assumptions, baseless hearsay, and hearsay within hearsay,

relevancy, and parol evidence (CR 143, 146, 398). SHERWOOD then filed a Reply to

the Response to Motion for Summary Judgment (CR 282) which included a second

affidavit from John Compton (CR 292). In thissecond affidavit, John Compton bases

1

Each quote of the Wraparound Note made herein is solely for the purpose

of argument, and not as any waiver of Appellants’ objections to the admissibility

of the document. 

19
his calculations on the correct, lower, original principal amount of $565,000.00, and

reaches an unpaid balance of $1,058,640.53. 

SHERWOOD submitted two conflicting affidavitsfrom the same witness asits

summary judgment evidence of the amount due. Therefore, SHERWOOD’s own

summary judgment evidence created a fact issue which precludes the court from

granting summary judgment.

Issue 3: The trial court erred in granting SHERWOOD’s Motion for Summary

Judgment because there was no evidence or insufficient evidence of

SHERWOOD's standing as an owner, holder, and/or holder in due

course of the Note.

SHERWOOD Does Not Have Standing as an Owner Because the Note was Void

Sherwood Pines, Ltd. was formed on October 26, 1999, with Herbert B.

Richardson and John E. Gilmore asthe General Partners(Secretary of State records,

Exhibit G, Appellants’ Response to Motion for Summary Judgment, CR 217). The

BusinessOrganizations Code providesthat a limited partnership created prior to the

Texas Business Organizations Code (effective January 1, 2006), is governed by the

prior Tex. Rev. Civ. Stat. art. 6132a-1, Texas Revised Limited Partnership Act,(RLPA)

§ 8.01, Tex.Bus.Org. Code § 402.001(b). Accordingly, Sherwood Pines, Ltd. issubject

to the statutory provisions of the RLPA, rather than the current Texas Business

Organizations Act.

20
RLPA § 8.01 provides that “A limited partnership is dissolved and its affairs

shall be wound up” in the event of withdrawal of a general partner, unless certain

exceptions apply.

The pertinent parts of RLPA § 8.01 state as follows:

“Sec. 801. A limited partnership is dissolved and its affairs shall be wound up

only on the first of the following to occur:

(3) an event of withdrawal of a general partner unless:

(A) there remains at least one general partner and the partnership

agreement permitsthe business ofthe limited partnership to be carried

on by the remaining general partner or general partners, and that

general partner or those general partners do so; or

(B) within 90 days after the event of withdrawal, all remaining partners

(or another group or percentage of partners as specified by the

partnership agreement) agree in writing to continue the business ofthe

limited partnership and to the extent that they desire or if there are no

remaining general partners, agree to the appointment, effective as of

the date of withdrawal, of one or more new general partners; or 

(4) entry of a decree of judicial dissolution under Section 8.02 of this Act.

[emphasis added].

John Gilmore, one of Sherwood Pines, Ltd.’s general partners, resigned on

November 4, 1999 (Secretary of State Records, Exhibit G, Appellants’ Response to

Motion for Summary Judgment, CR 220). There was no evidence or argument from

SHERWOOD that any of the exceptions under § 8.01(3)(a), § 8.01(3)(b) or § 8.01(4)

21
apply. Sherwood Pines, Ltd. was therefore automatically dissolved by operation of

law on November 4, 1999.

Once dissolved, Sherwood Pines, Ltd. wasstatutorily required to “wind up” its

business affairs assoon asreasonably practicable RLPA § 8.04 (b). Any future lawful

acts of Sherwood Pines, Ltd. were statutorily limited to acts of “winding up” its

business affairs RPLA § 8.04(b). 

Acts of “winding up” are specifically limited by statute to acts disposing of a

dissolved limited partnership’s assets and liabilities, as set forth in RPLA § 8.04(b),

which states as follows: 

“(b) On the dissolution of a limited partnership and until the filing of a

certificate of cancellation as provided by Section 2.03 of this Act, unless a

written partnership agreement provides otherwise, the persons winding up

the limited partnership’s affairs may, in the name of and for and on behalf of

the limited partnership:

(1) prosecute and defend civil, criminal, or administrative suits;

(2) settle and close the limited partnership’s business;

(3) dispose of and convey the limited partnership’s property for cash, unless

a written partnership agreement permits a transfer on noncash terms;

(4) discharge or make reasonable provision to pay the limited partnership’s

liabilities; and

(5) distribute to the partners any remaining assets ofthe limited partnership.” 

[emphasis added].

22
The statute only allows a dissolved limited partnership to dispose of its assets

and liabilities by winding up its business affairs, but does not allow for acquisition of

new assets.

RLPA§ 8.05 governs howa dissolved limited partnership isrequired to dispose

of its assets. The statute states as follows:

“Disposition of assets: Sec. 8.05. On the winding up of a limited partnership, 

its assets shall be paid or transferred as follows:

(1) to the extent otherwise permitted by law, to creditors, including partners

who are creditors other than solely as a result of the application of Section

6.06 ofthis Act, in satisfaction of liabilities ofthe limited partnership, whether

by payment or the making of reasonable provision for the payment thereof;

(2) unless otherwise provided by the partnership agreement, to partners and

former partners in satisfaction of the partnership’s liability for distributions

under Section 6.01 of this Act or payments under Section 6.04 of this Act; and

(3) unless otherwise provided by the partnership agreement, to partnersfirst

for the return of their capital and second with respect to their partnership

interests, in the proportions provided by Section 5.04 of this Act.” [emphasis

added].

The statute does not allow a dissolved limited partnership to acquire new

property, to incur a new multimillion dollar debt, or to take on long term seller

financing of property acquired after dissolution as a part of winding up. Once

dissolved, the only lawful actsthat Sherwood Pines, Ltd. could take were to dispose

of its assets and liabilities. However Sherwood Pines, Ltd., attempted to do all these

23
things, since its purchase of the Sherwood Pines Apartments in 2001, as well as the

sale and seller financing in 2006 all occurred years after its 1999 dissolution.

It is well settled that a contract to do a thing which cannot be performed

without a violation of the law is void, whether the parties knew the law or not. 

Texas Employers’ Ins. Assn. v. Taylor, 283 S.W. 779, 780 (Tex. Com. App. 1926,

judgmt. adopted); Lewis v. Davis, 145 Tex. 468; 199 S.W.2d 146, 148-149 (1947). 

It is also well settled that a contract that is illegal is void as a matter of public

policy. Phillips v. Phillips, 820 S.W.2d 785, 789 (Tex. 1991). Thus, once dissolved, any

contract entered intoby Sherwood Pines, Ltd.which resulted in Sherwood Pines, Ltd.

acquiring new debt or new assets would be unlawful and, since such acts cannot be

a part of “winding up”.

Two years after its dissolution, Sherwood Pines, Ltd. exceeded the statutory

boundaries placed upon a dissolved limited partnership for winding up its business

affairs, when it purchased the Sherwood Pines Apartments property in 2001 (CR 

173). Likewise, Sherwood Pines, Ltd., exceeded its boundaries when the property

wassold to Appellantsin 2006, and Sherwood Pines, Ltd. attempted to exchange the

real property for a Wraparound Note payable over five years, ending June 1, 2011,

more than eleven years after dissolution (CR 66).

24
For the same reason, the subsequent indorsement of the void Wraparound

Note to Lee Wallis, Inc. was void, as was Lee Wallis, Inc.’s subsequent indorsement

of the void Wraparound Note to SHERWOOD. All of the contractual documents

upon which SHERWOOD’s suit is based are void. 

Once dissolved, any act taken by Sherwood Pines, Ltd. outside of the scope of

winding up was effectively the act of a nonexistent legal entity. A nonexistent entity

cannot enter into a contract. Westerngeco, L.L.L. v. Input/Output, Inc., 246 S.W.3d

776, 786 (Tex. App.-Houston [14th Dist.] 2008, no pet.). 

Mutual assent is an essential element of a binding contract. Baylor Univ. v.

Sonnichesen, 221 S.W.3d 632, 635 (Tex. 2007). To establish mutual assent requires

a “meeting of the minds” on the essential terms of the contract. David J. Sacks, P.C.

v. Haden, 266 S.W.3d 447, 450 (Tex. 2008). If one of the parties to a contract does

not legally exist, no contract can be formed, as there is no meeting of the minds. In

Re Hawthorne Townhomes, L.P. v. Branch, 282 S.W.3d 131, 138 (Tex. App.-Dallas

2009, orig. proceeding). The Hawthorne Townhomes case also involved a defunct

limited partnership. See also HTS Servs., Inc. v. Hallwood Realty Partners, L.P., 190

S.W.3d 108, 113 (Tex. App.-Houston [1st Dist.] 2005, no pet.), stating that if a limited

partnership did not exist at the time the parties entered in a consulting agreement, 

25
then the nonexistent limited partnership entity “was not, and could not have been

a party to the consulting agreement.”

SHERWOOD incorrectly argued at the trial court level that any post dissolution

contract entered into by a dissolved limited partnership is always enforceable, even

if it exceeds the statutory limits of “winding up”. SHERWOOD relies on the portion

of RLPA § 13.06 that states that “The forfeiture of the right to transact business in

thisstate does not impair the validity of a contract or act of the limited partnership.

. .” SHERWOOD’sreliance on § 13.06 is misplaced, because while forfeiture does not

impair the validity of an existing contract, it also does not create validity for a new

contract entered intoafter the forfeiture. Nothing in the statute makes an otherwise

unlawful, invalid contract lawful.

Regardless, RLPA § 13.06 is not applicable to the actions of Shewood Pines,

Ltd., since it only appliesto limited partnerships who have only had their right to do

business forfeited, as opposed to being a limited partnership which was also

dissolved.

RLPA § 13.06 states as follows:

“(a) A domestic or foreign limited partnership that fails to file a report

required under Section 13.05 of this Act when due forfeits its right to

transact business in this state.

26
(b) A forfeiture under this section takes effect without judicial

ascertainment. The secretary of state shall enter on the record kept in

the secretary's office relating to the limited partnership a notation that

the right to transact business has been forfeited together with the date

of forfeiture. . . .

(c) Unless the right of the limited partnership to transact business is

revived in accordance with Section 13.07 of this Act [Section 13.07 sets

forth how a limited partnership can be reinstated if it forfeited itsright

to transact businessfor noncompliance with Section 13.06 of this Act], 

the limited partnership may not maintain an action, suit, or proceeding

in a court of this state, and a successor or assignee of the limited

partnership may not maintain an action, suit, or proceeding in a court

of this state on a right, claim, or demand arising out of the transaction

of business by the limited partnership in thisstate. The forfeiture ofthe

right to transact business in this state does not impair the validity of a

contract or act of the limited partnership and does not prevent the

limited partnership from defending an action, suit, or proceeding in a

court of this state.

(d) This section does not affect the liability of a limited partner in the limited

partnership.” .

RPLA § 13.06 [emphasis added]

RPLA § 13.06 states clearly that it is only applicable to limited partnerships

whose right to do business has been forfeited. The word “dissolved” is not contained

anywhere in the statute.

Texaslaw requires courtsto interpret a statute by following the plain reading

of the words used in the statute, and to take statutes as the courts find them. St.

Luke's Episcopal Hosp. v.Agbor, 952 S.W.2d 503, 505 (Tex. 1997), citing RepublicBank

27
Dallas, N.A. v. Interkal, Inc., 691 S.W.2d 605, 607 (Tex. 1985). If the meaning of the

statutory language is unambiguous, as it is here, then courts must adopt the

interpretation supported by the plain meaning of the provision's words. St. Luke's

Episcopal Hosp. at 505.

Sherwood Pines, Ltd. was dissolved November 4, 1999, and forfeited itsright

to do business on October 5, 2005, both of which occurred long before the

Wraparound Note on November 16, 2006. Accordingly, the WraparoundNote was

a void, unlawful and unenforceable contract because Sherwood Pines, Ltd.’s act of

entering into it was not a lawful act of “winding up” its business affairs.

Finally, SHERWOOD argued at the trial court that even though Sherwood

Pines, Ltd.was dissolved, it continued in existence until the certificate of cancellation

was filed on February 6, 2006. Assuming that Sherwood Pines, Ltd. continued to

exist until the certificate of cancellation was filed, it could do so only for the limited

purpose of winding up its affairs. Any act outside ofthe statutory criteria for winding

up is unlawful and void. RLPA §§ 8.04, 8.05. However, even this argument would

notextendSherwoodPines, Ltd.’s existence long enough to validate the Wraparound

Note, since the certificate of cancellation is more than eight months prior to the

Wraparound Note.

28
Standing is an essential element of subject matter jurisdiction. El T. Mexican

Restaurants, Inc. v. Bacon, 921 S.W.2d 247 Tex. App.-Houston [1st Dist.] 1995, writ

denied). SHERWOOD is required to show that it has standing in order to pursue a

claim to enforce the Wraparound Note. SHERWOOD does not have standing to

enforce a void note, which SHERWOOD obtained by way of two subsequent void

indorsements of that note.

SHERWOOD Does Not Have Standing as a Holder, Because All Attempted

Indorsements Were Incomplete.

SHERWOOD’s pleadings have consistently contended that the Wraparound

Note is a negotiable instrument. Assertions of fact in the live pleadings of a party are

formal judicial admissions. Houston First Am. Sav. v. Musick, 650 S.W.2d 764, 767

(Tex. 1983). The facts alleged or admitted in the live pleadings of a party are binding

on the pleader. Houston First Am. Sav. at 769. A judicially admitted fact is

established as a matter of law, and the admitting party may not dispute it or

introduce evidence contrary to it. Peck v. Peck, 172 S.W.3d 26, 31 (Tex.App.-Dallas

2005, pet. denied); Dutton v. Dutton, 18 S.W.3d 849, 853 (Tex. App.-Eastland 2000,

pet. denied).

Having judicially admitted the Wraparound Note is a negotiable instrument,

SHERWOOD had the burden to prove it was the lawful holder of the Wraparound

29
Note. SHERWOOD’s burden includedprovingSherwoodPines, Ltd.properly indorsed

the Wraparound Note to Lee Wallis, Inc., and that thereafter Lee Wallis, Inc.properly

indorsed the Wraparound Note to SHERWOOD. 

Inorderto properly indorse the Wraparound Note, the indorsementsbothhad

to be legally effective. However, neither indorsement was legally effective, as in

both instancesthe instrument purportedly indorsed wasincomplete because Exhibit

A to the Wraparound Note is apparently missing. Where there is an attempted

transfer of less than the entire instrument, the transferee obtains no rights to

enforce the instrument. The transferee cannot be a holder of the instrument,

because it is not in possession of the complete document. Tex. Bus. & Com. Code

§ 3.203(d).

The second full paragraph of page two of the Wraparound Note states as

follows:

“The payment hereof is secured by a vendor’s lien retained in Deed of even

date herewith to the undersigned, and is additionally secured by a Deed of

Trust to Hank Schwaeble, Trustee, said Deed and Deed of Trust covering and

conveying the property described in attached Exhibit “A”. [emphasis added].

However, Exhibit A was not attached either to the Wraparound Note or the

subsequent attempted assignments. (Wraparound Note, CR 66, purported 

indorsement from Sherwood Pines, Ltd. to Lee Wallis, Inc., CR 74, purported

30
Assignment from Lee Wallis, Inc. to SHERWOOD, Exhibit B, Affidavit of James Hale

SHERWOOD’s Motion for Summary Judgment, CR 57).

SHERWOOD’s summary judgment evidence reflects that the attempted

indorsement of the Wraparound Note from Sherwood Pines, Ltd. to Lee Wallis, Inc.

was missing at least one page, meaning what Lee Wallis, Inc. received was an

incomplete negotiable instrument. Likewise, the Wraparound Note purportedly

indorsed from Lee Wallis, Inc. to SHERWOOD was also missing Exhibit A.

SHERWOOD’s summary judgment evidence established only that the parties

attempted to indorse incomplete negotiable instruments.

An attempted indorsement of an incomplete negotiable instrument is

ineffective, void and of no force or effect.

“If a transferor [of a negotiable instrument] purportsto transfer lessthan the

entire instrument, negotiation of the instrument does not occur.” [emphasis

added]. Tex. Bus. & Com. Code § 3.203(d).

SHERWOOD has judicially admitted the Wraparound Note was a negotiable

instrument. No attempted indorsement of a negotiable instrument lawfully takes

place unlessthe entire instrument istransferred. Tomeetsits burden of establishing

that it was entitled to summary judgment, SHERWOOD had to offer viable summary

judgment evidence proving the entire negotiable instrument (theWraparoundNote)

31
was lawfully indorsed first from Sherwood Pines, Ltd. to Lee Wallis, Inc., and then

lawfully indorsed from Lee Wallis, Inc. to SHERWOOD. Therefore, unless the entire

Wraparound Note was indorsed both times, then there was no negotiation of the

Wraparound Note and the transferees obtained no rightsto enforce the instrument.

SHERWOOD asserted at the trial court level that even if Exhibit “A” was

missing from the copies of the Wraparound Note and itssubsequent indorsements,

the trial court’s ruling denying Appellants’ objections to SHERWOOD’S summary

judgment evidence constituted “harmless error.” 

To the contrary, the missing Exhibit A has the legal impact of rendering the

alleged indorsements of the Wraparound Note invalid. If the indorsements are

invalid, then SHERWOOD is not a lawful holder of the Wraparound Note, and thus

lacks standing to sue to enforce it. 

SHERWOOD failed tomeet its burden that it isthe owner and/or holder ofthe

Wraparound Note and that it has standing to bring this lawsuit when it failed to

proffer into evidence a copy of both indorsements of a complete negotiable

instrument. At best, a material fact issues exist asto whether either indorsement of

the Wraparound Note were legally effective. Either way, the trial court erred in

granting summary judgment for SHERWOOD.

32
SHERWOOD Does Not Have Standing as a Holder in Due Course Because It Was

Aware of the Prior Default

Under Texas law, for an assignee of a negotiable instrument to qualify as a

holder in due course, the assignee/holder must prove that “the holder took the

instrument for value, in good faith, without notice that the instrument is overdue or

has been dishonored. . .” Tex. Bus. & Com. Code § 3.302. However, at the time the

Wraparound Note was endorsed to SHERWOOD, SHERWOOD had actual and/or

constructive notice that the Wraparound Note was overdue, in default or had been

dishonored.

The Wraparound Note required Appellants to assume the First Lien Note no

later than April 20, 2007, or pay a two percent penalty. (Wraparound Note, Exhibit

C-1, SHERWOOD’s Motion for Summary Judgment, CR 67). However, the First Lien

Note was not assumed, and the two percent penalty payment was not made by any

of the makers. (Affidavits of Appellants, Exhibits L through W, Response to Motion

for Summary Judgment, CR 232-256, and Supp. CR 3-4) Therefore, the Wraparound

Note was already in default in 2007. 

Herbert B. Richardson was a general partner of Sherwood Pines, Ltd. As a

general partner, Richardson would have been aware of the default on the

Wraparound Note when Sherwood Pines, Ltd. endorsed the Wraparound Note on

33
March 10, 2008, to Lee Wallis, Inc. (Affidavit of Herbert B. Richardson, Exhibit C to

SHERWOOD’s Motion for Summary Judgment, CR 62, and Secretary of State’s

Records, Exhibit G, Response to Motion for Summary Judgment, CR 218). Herbert

B. Richardson was also a “Governing Person” of SHERWOOD at the time that entity

was formed in 2014. (Secretary of State records, Exhibit H, Response to Motion for

Summary Judgment, CR 226).

Through Herbert B. Richardson, SHERWOOD had actual and/or constructive

knowledge that the Wraparound Note was in default at the time it received the

purported assignment and indorsement of the Wraparound Note. 

SHERWOOD is also prevented from being a holder in due course, because only

a part ofthe Payee’srights under the Wraparound Note were transferred. Although

not indicated in the indorsement, the right to receive the two percent penalty

payment was retained by Sherwood Pines, Ltd. when it indorsed the note to Lee

Wallis, Inc. (Indorsement by Sherwood Pines, Ltd. to Lee Wallis, Inc., Exhibit C-1,

SHERWOOD’s Motion for Summary Judgment, CR 74, and Assignment by Sherwood

Pines, Ltd. to , Lee Wallis, Inc. Exhibit I, Response to Motion for Summary Judgment,

CR 229). A partial assignee of a note is not a holder in due course. First National

34
Acceptance Company v. Dixon, 154 S.W.3d 218, (Tex. App. Beaumont-2004, pet.

denied.) 

SHERWOOD received the Wraparound Note with actual and/or constructive

notice that the Note was in default. Therefore, SHERWOOD is not a holder in due

course, and accepted Wraparound Note subject to any claims or defenses that

Appellants may assert.

SHERWOOD has nostanding as an owner, holder or holder in due course ofthe

Wraparound Note, and therefore no legal basis on which to enforce the Note against

Appellants.

Issue 4: The trial court erred in granting SHERWOOD’s Motion for Summary

Judgment and denying Appellants’ Motion for Summary Judgment

based onthe two year statute oflimitations pursuant to Tex. Prop.Code

§ 51.003.

Appellants filed a Supplemental Response to the Motion for Summary

Judgment, and Cross Motion for Summary Judgment, based on the two year statute

of limitations under Tex. Prop. Code § 51.003 (CR 318). That statute provides:

“If the price at which real property is sold at a foreclosure sale under

Section 51.002 [non-judicial foreclosure] islessthan the unpaid balance

of the indebtedness secured by the real property, resulting in a

deficiency, any action brought to recover the deficiency must be

brought within two years ofthe foreclosure sale and is governed by this

Section.”

35
SHERWOOD’s deficiency claimwasfiledmorethanfour years after foreclosure

ofthe property which secured the Wraparound Note, and istherefore barred by the

statute of limitations.

WhenSherwoodPines, Ltd.,bought SherwoodPinesApartments,thepurchase

wasfinanced by a First Lien Note dated June 27, 2001 between Sherwood Pines, Ltd.

as borrower, and Morgan Guaranty Trust Company of New York as lender (CR 173,

180).

In 2006, Sherwood Pines, Ltd. sold the real property securing the First Lien

Note to Appellants. (SHERWOOD’s Motion for Summary Judgment, page 2, CR 33;

SHERWOOD’s Original Petition, pages 8-9, CR 12-13; and Commercial Contract -

Improved Property, Exhibit A, Appellants’ Response to Motion for Summary

Judgment, CR 155). To finance the sale, Sherwood Pines, Ltd., entered into a

Wraparound Promissory Note (Wraparound Note), with Appellants as makers and

Sherwood Pines, Ltdaspayee. (SHERWOOD’sMotion for Summary Judgment, CR66,

Appellants’ Response to Motion for Summary Judgment Exhibit A, CR 169).

36
The “Indebtedness” of the Wraparound Note

The Wraparound Note SHERWOOD seeks to enforce contains language

specifically tying it and the First Lien Note together. The second paragraph of the

Wraparound Note stated in pertinent part as follows:

“The First Lien Principal Amount shall be coextensive to, and include,

the entire amount of principal, interest, taxes, reserves, fees and

charges comprised by and owing on that certain Fixed Rate Note

executed on June 27, 2001 (between Sherwood Pines, Ltd., as maker,

and Morgan Guaranty Trust Company of New York..., and secured by

that certain deed of trust dated June 27, 2001...” (CR 66). 

The Wraparound Note further states on page 3, the sixth paragraph, in 

pertinent part:

“This is a wrap-around note. Included in the principal amount of this

note isthe unpaid balance left due and owing on the Wrapped Note...” 

(CR 68).

The second paragraph on page 3 of the Wraparound Note provides that the

entire indebtedness of the Wraparound Note was secured by its Deed of Trust, as

follows:

“The payment hereof is secured by a vendor’s lien retained in Deed of

even date herewith to the undersigned, and is additionally secured by

a Deed of Trust to Hank Schwaeble, Trustee, said Deed and Deed of

Trust covering and conveying the property describedinattached Exhibit

A.”

(SHERWOOD’s Motion for Summary Judgment, Exhibit C-1, CR 68).

37
The real property described in the Deed of Trust securing the Wraparound

Note isthe exact same real property which also secured the First Lien Note (“Original

Fixed Rate Note” or “Wrapped Note”).

The “Indebtedness” secured by the Wraparound Note’s Deed of Trust:

The Deed of Trust securing the Wraparound Note further defined the

“Indebtedness” being secured as follows:

“Indebtedness. The indebtedness secured by this Deed of Trust (the

“Indebtedness”) includes all other indebtedness and obligations of

Borrower [Appellants] to Beneficiary [Sherwood Pines, Ltd.], whether

presently existing or in any manner or means hereafter incurred...” 

(Appellants’ Response to Motion for Summary Judgment, Deed of

Trust, Exhibit C Page 9, CR 197, 205).

Page 2 of the Deed of Trust stated securing the Wraparound Note states:

“This conveyance, however, is made in Trust to secure payment of one

(1) promissory note of even date herewith in the principal sum of Three

Million Four-Hundred Thousand and NO/100 dollars ($3,420,000.00)

executed by Grantors [Appellants], payable to the order of Sherwood

Pines, Ltd...”

As more particularly described below, this conveyance is intended to

secure wraparound financing for an existing debt on the Property, and

said debt is sometimes referred to as the “Underlying Debt.”

(Deed of Trust, page 2, Exhibit B, Appellants’ Response Motion for Summary

Judgment, CR 198). 

38
Theplain reading ofthe documentation shows that the principal balanceofthe

Wraparound Note included the principal balance that Sherwood Pines, Ltd. owed on

the First Lien Note. Both notes were secured by the exact same real property, by two

separate Deeds of Trust. (Deed of Trust securing First Lien Note, Exhibit B,

Appellants’ Response to Motion for Summary Judgment, CR 173, and Deed of Trust

securing Wraparound Note, Exhibit D, Appellants’ Response to Motion for Summary

Judgment, CR 197).

The holder of the First Lien Note foreclosed upon the real property securing

both notes on April 6, 2010 (Substitute Trustee’sDeed, Exhibit F, Response toMotion

for Summary Judgment, CR209). The foreclosure sale price was apparently sufficient

to wipe out the remaining debt owed on the First Lien Note. Since a portion of the

Wraparound Note included the amount owed under the First Lien Note, that portion

of the indebtedness of the Wraparound Note was effectively paid by applying the

foreclosure sale price to the balance due. SHERWOOD’s claim against Appellants is

for a deficiency balance which remained unpaid following the foreclosure of the

property securing both the First Lien Note and the Wraparound Note. 

The very definition of “deficiency” is the amount remaining on a debt after

applying the proceeds realized at a foreclosure sale. Moayedi v. Interstate

39
35/Chisam Road, L.P., 438 S.W.3d 1 (Tex. 2014). Since the foreclosure sales price

was “lessthan the unpaid balance of the indebtednesssecured by the real property,

resulting in a deficiency,” then as a matter of law, SHERWOOD’s cause of action is

a deficiency claim and therefore governed by Tex. Prop. Code § 51.003. That statute

requires a deficiency claim to be brought within two years of the April 6, 2010

foreclosure. SHERWOOD’s claim, however, was brought more than four years after

the foreclosure, on June 5, 2014 (CR 5). 

In an effort to circumvent the missed statute of limitations, SHERWOOD has

referred to its deficiency action as a suit on a negotiable instrument. However, artful

pleading does not alter the underlying nature of a claim. Omaha Healthcare Ctr. v.

Johnson, 334 S.W.3d 392, 394 (Tex. 2011). It is worth noting that SHERWOOD’s

argument would make the statute meaningless,since virtually every deficiency claim

will be based on a negotiable instrument evidencing the debt which wassecured by

the real property. SHERWOOD can call its deficiency action any name it wishes, but

by statutory definition, it is a deficiency suit and issubject to the two year statute of

limitations.

SHERWOOD further contends this is not a deficiency suit because neither

SHERWOOD nor the prior holders of the Wraparound Note performed the

40
foreclosure. However, this argument attemptsto add newelement(s) to § 51.003(a)

that the statute does not contain. The statute applies to anyaction to collect an

unpaid balance remaining after foreclosure upon the real property securing the

indebtedness. The statute does not require that the foreclosure be performed by the

same creditor seeking to recover the unpaid balance ofthe indebtedness, or that the

deficiency result from foreclosure of the same deed of trust. 

For SHERWOOD’ssuit to constitute a deficiency action,the only requirement

is that the price at which the real property is sold at a foreclosure sale be less than

the unpaid balance of the indebtednesssecured by the real property. Thisis exactly

the basis of SHERWOOD’s claim.

Rules of Statutory Construction

The rules of statutory interpretation as set forth by the Texas Supreme Court

require a statute to be read in accordance with the plain language used in the

statute. Additional language or elements may not be added, and courts must take

statutes as they find them. St. Luke's Episcopal Hosp. at 505 (Tex.1997), citing

RepublicBank Dallas, N.A. v. Interkal, Inc., 691 S.W.2d 605, 607 (Tex.1985). If the

meaning of the statutory language is unambiguous, then courts must adopt the

41
interpretation supported by the plain meaning of the provision's words. St. Luke's

Episcopal Hosp., at 505.

Under the plain reading of § 51.003(a), it is not necessary that the holder of

the Wraparound Note have conducted the foreclosure, nor thattheforeclosure have

been conducted by virtue of the same Deed of Trust securing the Wraparound Note.

Neither one of those two additional elements are contained in the statute.

In construing a statute, the court's objective isto determine and give effect to

legislative intent. A court must look at the statute’s plain and common meaning, and

not look to extraneous matters for an intent that the statute does not state. 

Nat'l Liab. & Fire Ins. Co. v. Allen, 15 S.W.3d 525, 527 (Tex. 2000) and Monsanto Co.

v. Cornerstones Mun. Util. Dist., 865 S.W.2d 937, 939 (Tex. 1993); Moreno v. Sterling

Drug, Inc., 787 S.W.2d 348, 352 (Tex. 1990), stating that in interpreting a statute, the

Legislature'sintent is determined from the plain and common meaning ofthe words

used in the statute.

Using all ofthe foregoing criteria for statutory construction as outlined by the

Texas Supreme Court, Tex. Prop. Code § 51.003(a) should be interpreted by this

Court exactly as it is worded. As statutorily defined, SHERWOOD has filed a

deficiency action.

42
There is no case law on point for the question of whether the two year statute

of limitations applies in this case. The two closest cases factually are Sowell v.

International Interests, LP, 416 S.W.3d 593, (Tex. App.-Houston [14th Dist] 2013, pet.

denied), and Mays v. Bank One, N.A., 150 S.W.3d 897 (Tex. App.-Dallas 2004, no

pet.), but both are readily distinguishable.

The factsin Sowell were very different, since the lender wassuing a guarantor,

under a guaranty agreement, in a suit brought within two years of the foreclosure.

The Sowell court examined a conflict in the application of the two and four year

limitations statutes, and held that the suit was governed by the four year statute of

limitations, but that limitations would be extended until two years after the date of

the foreclosure sale. Sowell at 599. The lender in Sowell filed suit within two years

of the foreclosure, and so the suit was timely. This case is not a suit on a guaranty

agreement, but a suit against the makers of the Note, suit wasfiled well outside the

two year statute.

The Mays case has a similar fact pattern to this case, since it was a suit by a

second lien holder againstthe maker of a note. However, the issue in Mays was not

whether the 2 year statute oflimitations applied (Tex. Prop. Code § 51.003), but how

to calculate the deficiency on the second lien note (Tex. Prop. Code § 51.005). The

43
Mays court found that although the foreclosure of the first lien extinguished the

second lien (creating a deficiency), Mays could not use the foreclosure bid price of

the first lienholder (Bank of America) to determine the deficiency on Bank One’s

second lien. The Mays court was considering an entirely different statute, on a

different question than the issue raised in this case. 

The Two Statutory Two Year Limitations Period Expired Priorto SHERWOOD’s Suit

The foreclosure took place on April 6, 2010. (Appellants Response to Motion

for Summary Judgment, Exhibit D, Substitute Trustee’sdeed, CR209). Thisdeficiency

action was filed on June 5, 2014, more than four years after the foreclosure.

(SHERWOOD’sOriginalPetition,CR 5). Therefore, SHERWOOD’s claim istime barred.

The trial court erred in granting SHERWOOD’s Motion for Summary Judgment, and

in denying Appellant’s Cross Motion for Summary Judgment.

Issue 5: The trial court erred in granting SHERWOOD’s Motion for Summary

Judgment based on fact issues of fraud, fraudulent inducement and

fraud in a real estate transaction.

At the time Appellants entered into the contract to purchase the Sherwood

Pines Apartments from Sherwood Pines, Ltd., the parties agreed that the

Wraparound Note would be a nonrecourse note, with no personal or corporate

liability to in the event of a default. (Exhibit A, Commercial Contract - Improved

44
Property, Response toMotion for Summary Judgment,CR 155;Commercial Contract

Financing Addendum, Exhibit K, Response to Motion for Summary Judgment, CR

169-172; Letter from the broker handling the transaction, Exhibit K, Response to

Motion for Summary Judgment CR 231, and Appellants’ affidavits Exhibits L through

W, CR 232-256 and Supp CR 3-4, Response to Motion for Summary Judgment).

The original sales contract that gave rise to the Wraparound Note specifically

provided that “The note will not provide for liability (personal or corporate) against

the maker in the event of default.” (Exhibit A, Commercial Contract - Improved

Property, Seller Financing Addendum, page two, paragraph C, CR 155). The broker

who sold the property confirms that the intention of the parties was that the

Wraparound Note was to have been a nonrecourse note (Letter from the broker

handling the transaction, Exhibit K, Response to Motion for Summary Judgment CR

231). But for the fraudulent misrepresentation by Sherwood Pines, Ltd. regarding

the nature of the Wraparound Note, Appellants would not have signed the

Wraparound Note. SHERWOOD’s Summary Judgment Motion should have been

denied based upon the fact issues arising from the defenses based in fraud.

The “merger clause” in the Wraparound Note does not preclude Appellants

from introducing summary judgment evidence that the contract was supposed to

45
contain different terms than those which appear in the subject terms. Italian

Cowboy Partners, Ltd. v. Prudential Ins. Co., 341 S.W.3d 323, 328-337 (Tex. 2011).

In its holding in Italian Cowboy, the Texas Supreme Court distinguished its

earlier holdingsin Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171 (Tex.

1997) and Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008), in which the court

had enforced a merger clause and precluded evidence of fraud. In allowing the

admissibility of extrinsic evidence of fraud and terms which differed from those in

the final contract, the Italian Cowboy Court distinguished the contract before it from

those in the Schlumberger and Forest Oil decisions. The Court held that since the

contract at issue did not contain express language disclaiming reliance, extrinsic

evidence of fraud was admissible. The Court reiterated its holdings in previous

decisionsthat to disclaim reliance in a merger clause, the parties must use clear and

unequivocal language. Italian Cowboy at 336, citing the Court’s earlier holdings in

Schlumberger at 179-180 and Forest Oil at 62.

Without a clearly expressed and unequivocal intent to disclaim reliance or

waive claimsfor fraudulent inducement, a merger clause has never had the effect of

precluding claims for fraudulent inducement. Italian Cowboy at 334. The language

of the Wraparound Note before this Court also failsto disclaim reliance. In fact, the

46
merger clause at issue contains language similar to the merger clause in the Italian

Cowboy decision.

The pertinent language in the Wraparound Note in this case states:

“THIS NOTE REPRESENTS THE FINALAGREEMENT BETWEENTHE PAYEE

AND THE MAKER AND EXCEPT AS OTHERWISE EXPRESSLY INDICATED

ABOVE MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,

CONTEMPORANEOUS, ORSUBSEQUENT AGREEMENTSOF THEPARTIES

AND MAKER AGREES THERE ARE NO UNWRITTEN ORAL AGREEMENTS

BETWEEN PAYEE AND MAKER.” (Wraparound Note, SHERWOOD’s

Motion for Summary Judgment, Exhibit C-1, Page 4, CR 69).

The pertinent language in Italian Cowboy case was:

“14.21 Entire Agreement. This lease constitutes the entire agreement

between the parties hereto with respect to the subject matter hereof,

and no subsequent amendment or agreement shall be binding upon

either party unless it is signed by each party...” Italian Cowboy at 328.

The language of the two clauses is effectively the same, and neither clause

contains language specifically waiving “reliance” or specifically “waiving a claim for

fraudulentinducement”. Therefore, the merger clause in the Wraparound Note does

not preclude evidence of fraud and/or fraudulent inducement.

Summary judgment was improper because Appellants’ summary judgment

evidence raised a material fact issue that the Wraparound Note was to have been a

nonrecourse note.

47
PRAYER

AppellantsDANIELMANDARINO,CARRIEMANDARINO, LAURADOYLE,ROBERT

CHURCH, BRETT BEALS and LINDA BEALS as Trustees of the Beals Family Revocable

Trust, ROBERT CHURCH, ROBERT A. SCHALBE, WILLIAM H. GAY, JR., RICCARDIO D.

GAY, ERIC JOHNSTONE, RAFAL ZIELINSKI and VALLY MESTRONI pray that the court

reverse the judgment of the trial court, and render judgment in favor of Appellants.

Respectfully Submitted,

WALTER LAW FIRM, P.C.

 /s/ Teri A. Walter 

TERI A. WALTER

Texas Bar No. 20815100

GLEN NORDT

Texas Bar No. 15076600

1111 North Loop West Suite 1115

Houston, TX 77008

Phone 713 529-2020

Fax 713 529-2266

Email: twalter@prevaillawyers.com

Email: gnordt@prevaillawyers.com

ATTORNEY FOR APPELLANTS

DANIEL MANDARINO, CARRIE MANDARINO, 

LAURA DOYLE, ROBERT CHURCH, BRETT 

BEALS and LINDA BEALS as Trustees fo the 

Beals Family Revocable Trust, ROBERT 

CHURCH, ROBERT A. SCHALBE, WILLIAM H.

GAY, JR., RICCARDIO D. GAY, ERIC JOHNSTONE, 

RAFAL ZIELINSKI and VALLY MESTRONI 

48
CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing has been mailed to all parties of

record in this matter in accordance with the Texas Rules of Civil Procedure, by

certified mail, return receipt requested, by hand delivery or by fax, on this the 6th 

 day of August , 2015.

 /s/ Teri A. Walter 

Teri A. Walter

Douglas A. Daniels

Andrea L. Gentle

Daniels & Gentle, LLP

6363 Woodway Suite 980

Houston, TX 77057

49
UnofficialCopyOfficeofChrisDanielDistrictClerk

Appendix 1.1
UnofficialCopyOfficeofChrisDanielDistrictClerk

Appendix 1.2
Appendix 2.1
Appendix 2.2
Appendix 2.3
Appendix 2.4
Appendix 2.5
Appendix 2.6
Appendix 2.7
Appendix 2.8
Appendix 2.9
APPENDIX 3 - Statutory Text

Tex. Prop. Code § 51.003(a) Deficiency Judgment

If the price at which real property issold at a foreclosure under Section

51.002 is less than the unpaid balance of the indebtedness secured by

the real property, resulting in a deficiency, any action brought to

recover the deficiency must be brought within two years of the

foreclosure sale and is governed by this section.

Texas Revised Limited Partnership Act, Tex. Rev. Civ. Stat. art. 6132a-1 (RPLA)

Article 8. Dissolution

Tex. Rev. Civ. Stat. art. 6132a-1, Revised Limited Partnership Act 

Dissolution

Sec. 8.01. A limited partnership is dissolved and its affairsshall be wound up only on

the first of the following to occur:

(1) the occurrence of events specified in the partnership agreement to cause

dissolution unless within 90 days after the event causing the dissolution, all

remaining partners (or another group or percentage of partners as specified

by the partnership agreement) agree in writing to continue the business ofthe

limited partnership;

(2) written consent of all partners to dissolution;

(3) an event of withdrawal of a general partner, unless:

(A) there remains at least one general partner and the partnership

agreement permitsthe business ofthe limited partnership to be carried

on by the remaining general partner or general partners, and that

general partner or those general partners do so; or

(B) within 90 days after the event of withdrawal, all remaining partners

(or another group orpercentage of partners as specified by the

Appendix 3.1
partnership agreement) agree in writing to continue the business ofthe

limited partnership and, to the extent that they desire or if there are no

remaining general partners, agree to the appointment, effective as of

the date of withdrawal, of one or more new general partners; or

(4) entry of a decree of judicial dissolution under Section 8.02 of this Act.

Sec. 8.04.

(a) Except as provided in the partnership agreement, on the dissolution of a limited

partnership, the partnership's affairs shall be wound up as soon as reasonably

practicable, and the winding up shall be accomplished by the general partners who

have not wrongfully dissolved a limited partnership or, if there are none who have

not wrongfully dissolved the partnership, by the limited partners or a person chosen

by the limited partners. In addition, a court of competent jurisdiction, on cause

shown, may wind up the limited partnership's affairs on application of any partner

or the partner'slegal representative or assignee and, in connection with the winding

up, may appoint a person to carry out the liquidation and may make all other orders,

directions, and inquiries that the circumstances require.

(b) On the dissolution of a limited partnership and until the filing of a certificate of

cancellation as provided by Section 2.03 of this Act, unless a written partnership

agreement provides otherwise, the persons winding up the limited partnership's

affairs may, in the name of and for and on behalf of the limited partnership:

(1) prosecute and defend civil, criminal, or administrative suits;

(2) settle and close the limited partnership's business;

(3) dispose of and convey the limited partnership's property for cash, unless

a written partnership agreement permits a transfer on noncash terms;

(4) discharge or make reasonable provision to pay the limited partnership's

liabilities; and

(5) distribute to the partners any remaining assets of the limited partnership.

Appendix 3.2
(c) The acts described in Subsection (b) ofthissection do not create liability oflimited

partners that did not exist before the actions to wind up the affairs of the

partnership were taken.

Disposition of assets

Sec. 8.05. On the winding up of a limited partnership, its assets shall be paid or

transferred as follows:

(1) to the extent otherwise permitted by law, to creditors, including partners

who are creditors other than solely as a result of the application of Section

6.06 ofthis Act, in satisfaction ofliabilities ofthe limited partnership, whether

by payment or the making of reasonable provision for payment thereof;

(2) unless otherwise provided by the partnership agreement, to partners and

former partners in satisfaction of the partnership's liability for distributions

under Section 6.01 of this Act or payments under Section 6.04 of this Act; and

(3) unless otherwise provided by the partnership agreement, to partnersfirst

for the return of their capital and second with respect to their partnership

interests, in the proportions provided by Section 5.04 of this Act.

Forfeiture of right to transact business for failure to file periodic report

Sec. 13.06.

(a) A domestic or foreign limited partnership that failsto file a report required under

Section 13.05 of this Act when due forfeitsitsright to transact businessin thisstate.

(b) A forfeiture under this section takes effect without judicial ascertainment. The

secretary of state shall enter on the record kept in the secretary's office relating to

the limited partnership a notation that the right to transact business has been

forfeited together with the date offorfeiture.Notice ofthe forfeiture shall be mailed

to the limited partnership at:

(1) the registered office of the limited partnership;

Appendix 3.3
(2) the last known address of the limited partnership; or

(3) any other place of business of the limited partnership.

(c) Unless the right of the limited partnership to transact business is revived in

accordance with Section 13.07 of this Act, the limited partnership may not maintain

an action, suit, or proceeding in a court of this state, and a successor or assignee of

the limited partnership may not maintain an action, suit, or proceeding in a court of

this state on a right, claim, or demand arising out of the transaction of business by

the limited partnership in this state. The forfeiture of the right to transact business

in thisstate does not impair the validity of a contract or act ofthe limited partnership

and does not prevent the limited partnership from defending an action, suit, or

proceeding in a court of this state.

(d) This section does not affect the liability of a limited partner in the limited

partnership.

Appendix 3.4
Appendix 4
APPENDIX 5 - Index of Persons and Companies

Beals, Bret as Trustee of the Beals Family Revocable Trust, one

of the makers of the Wraparound Note, and

Appellant (CR 66, 73, 242).

Beals, Linda as Trustee of the Beals Family Revocable Trust, one

of the makers of the Wraparound Note, and

Appellant (CR 66, 73, 244).

Cal State Investment Limited Partnership One of the makers of the Wraparound

Note, and Buyer ofthe Sherwood Pines

Apartments (CR 66, 69, 155).

Church, Robert One of the makers of the Wraparound Note, and

Appellant (CR 66, 71, 239).

Compton, Jeffrey CPA who performed calculations as to the balance

due on the Wraparound Note for SHERWOOD (CR

76).

Doyle, Laura One of the makers of the Wraparound Note, and

Appellant (CR 66, 70, 236).

Gay, Riccardio D. One of the makers of the Wraparound Note, and

Appellant (CR 66, 71, 251).

Gay, William H., Jr. One of the makers of the Wraparound Note, and

Appellant (CR 66, 72, 249).

Gilmore, John E. One ofthe general partners of Sherwood Pines, Ltd.

(CR 48, 217-221).

Hale, James President of Lee Wallis, Inc. (CR 53).

Appendix 5.1
Johnston, Eric One of the makers of the Wraparound Note, and

Appellant. (CR 66, 69, CR Supp. 3).

Lee Wallis, Inc. Received rights to a portion of the Wraparound

Note from Sherwood Pines, Ltd. on March 10, 2008

(CR 53, 54, 74) and assigned the Wraparound Note

to SHERWOOD on May 19, 2014 (CR 57, 74).

Mandarino, Daniel One of the makers of the Wraparound Note, and

Appellant (CR 66, 69, 232).

Mandarino, Carrie One of the makers of the Wraparound Note, and

Appellant (CR 66, 69, 234).

Mestroni, Vally One of the makers of the Wraparound Note, and

Appellant (CR 66, 69, 253).

Morgan Guaranty Original Lender on the first lien note dated June 27,

2001, secured by Sherwood Pines Apartments,

(wrapped note) (CR 173). 

Richardson, Herbert B. One ofthe general partners of Sherwood Pines, Ltd.

(CR 62, 217-221).

Schalbe, Robert A. One of the makers of the Wraparound Note, and

Appellant (CR 66, 69, 246).

SHERWOOD LANE INVESTMENTS, LLC Plaintiff in Trial Court (CR 5), and

Appellee; recei ved the

W r a p a r o u n d N o t e b y

Assignment from Lee Wallis, Inc.

on May 19, 2014 (CR 57).

Appendix 5.2
Sherwood Pines, Ltd. Seller of Sherwood Pines Apartments (CR 155);

Original Lender on the Wraparound Note dated

October 16, 2006 (CR 66); Assignor of a portion of

the Wraparound Note to Lee Wallis, Inc. on March

10, 2008 (CR 54, 74). 

Villa Nueva Apartment, LLC Lender who foreclosed on the first lien note secured

by Sherwood Pines Apartments, and purchaser at

the foreclosure sale on April 12, 2010 (CR 209).

Vollucci, Eugene E. Realtor who represented Cal State

Investments as Buyer of Sherwood Pines

Apartments (CR 155, 160, 230); confirmed

that the Wraparound Note was to have been

a non-recourse note (CR 231), and one of the

makers of the Wraparound Note (CR 66, 69).

Zielinski, Rafal One of the makers of the Wraparound Note, and

Appellant (CR 66, 69, 255).

Appendix 5.3
APPENDIX 6 - Time Line of Events

10/26/99 Certificate of Limited Partnership for Sherwood Pines, Ltd., with John

Gilmore as Registered Agent, and John Gilmore and Herbert Richardson

as general partners, (Exhibit G to Response to Motion for Summary

Judgment, CR 217-219).

11/04/99 John Gilmore’s withdrawal as General Partner of Sherwood Pines, Ltd.

(Exhibit G to Response to Motion for Summary Judgment, CR 220); 

Dissolution of the limited Partnership.

06/27/01 Deed of Trust Sherwood Pines to Morgan Guaranty (Exhibit A to

Response to Motion for Summary Judgment, CR 173).

10/04/05 Termination of Sherwood Pines, Ltd’s right to do business in Texas

(Exhibit G to Response to Motion for Summary Judgment, CR 223).

02/06/06 Cancellation of Sherwood Pines, Ltd’s certificate ofregistration by Texas

Secretary of State for failure to file periodic report (Exhibit G to

Response to Motion for Summary Judgment, CR 224).

06/12/06 Commercial Contract for Sherwood Pines Apartments, at 4211

Sherwood Lane, Houston by Sherwood Pines Limited to Cal State

Investment Limited Partnership for $4,560,000 (assumption of existing

$2,875,000 note and Seller financing of $545,000) Per financing

addendum, Seller financing shall be interest only for 5 years at 5.5%

interest) and will not provide for personal liability (page 2, paragraph

C(5). (Exhibit C to Response to Motion for Summary Judgment, CR 155).

10/16/06 Wraparound Promissory Note by Cal State Investment et. al. to

Sherwood Pines, Ltd for $3,420,000 (Exhibit C-1 to Plaintiff’s Motion for

Summary Judgment, Wraparound Note, page 1, CR 66).

Appendix 6.1 
11/02/06 Deed of Trust on Wraparound Note, Cal State Investment et. al. to

Sherwood Pines, Ltd. (Exhibit D to Response to Motion for Summary

Judgment, CR 197).

04/20/07 Deadline for 2% non-assumption payment on Wraparound Note, 

(Exhibit C-1 to SHERWOOD’s Motion for Summary Judgment,

Wraparound Note, page 2, CR 67).

03/10/08 Endorsement of Wraparound Note by Sherwood Pines, Ltd to Lee

Wallis,Inc.(Exhibit C-1 to SHERWOOD’sMotionfor Summary Judgment,

Wraparound Note, page 10, CR 74).

08/28/09 Letter from Gene Vollucci To Whom it may concern: “This letter is to

confirm that the purchase for Sherwood Pines Apartments included a

non-recourse loan. All the parties, including the seller, were fully aware

and in agreement that this loan was to be non-recourse, just like the

underlying original note is and remains non-recourse.” (Exhibit K to

Response to Motion for Summary Judgment, CR 231).

03/31/10 Assignment of Mortgage (securing First Lien Note) to Nueva Villa

Apartment, LLC (Exhibit E to Response to Motion for Summary

Judgment, CR 207).

04/06/10 Foreclosure of First Lien on Sherwood Pines Apartments by Nueva Villa

Apartments (CR 209).

04/12/10 Substitute Trustee’sDeed toNueva Villa Apartment, LLC for $1,775.000 

(Exhibit F to Response to Motion for Summary Judgment, CR 209).

04/06/12 Two years after foreclosure. (Expiration of 2 year statute oflimitations,

§ 51.003 Tex. Prop. Code).

05/12/14 Certificate of formation Plaintiff/ Appellee SHERWOOD LANE

INVESTMENTS, LLC (Exhibit H to Response to Motion for Summary

Judgment, CR 225).

Appendix 6.2 
05/19/14 Assignment of 2

nd

lien note to SHERWOOD LANE INVESTMENTS LLC

(Exhibit B-1 to SHERWOOD’s Motion for Summary Judgment, CR 57).

06/05/14 SHERWOOD LANE, LLC’s Original Petition filed (CR 5).

12/19/14 Final Judgment entered (CR 396).

02/25/15 Notice of Appeal filed (CR 427).

Appendix 6.3