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 164 TH 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

CLERKC as e N o
. 01-15-00192-CV

DA N IEL MA N DA R IN O , CA R RIE MA N DA R IN O, LA UR A DOYLE, R OB ER T CH UR CH , B R ETT B EA LS and LIN DA B EA LS as Trus tees o f the B eals Family R e vo c able Trus t, R O B ER T CH UR C H , R OB ER T A

. SCH A LB E, WILLIA M H

. G A Y, JR

. , ER IC JOH N STON E,

R AFA L Z IELIN SK I and VA LLY MESTR O N I , A ppellants

v.
SH ER WOOD LA N E IN VESTMEN TS, LLC, A ppellee

ID ENTITY OF PARTIES AND COUNSEL

A tto rneys f o r A ppellants DA N IEL MA N DA R I N O, CA R R IE MA N DA R IN O, LA UR A DOYLE, R OB ER T CH UR CH , B R ETT B EA L S and LIN DA B EA LS as Trus tees o f the B eals Family R evo cable Trus t, R OB ER T CH UR CH , R OB ER T A

. SCH A LB E, WILLIA M H

. G A Y, JR ., ER IC JOH N STON E, R A FA L Z IELIN SK I and VA LLY MESTR ON I:

TER I A . WA LTER Tex as B ar N o
. 20815100 G LEN N OR DT Tex as B ar N o
. 15076600 WA LTER LA W FIR M, PC 1111 N o rth Lo op Wes t, Suite 1115 H ous to n, TX 77008 Pho ne 713 529-2020 Fax 713 529-2266 Email tw alter@ prevaillaw yers
. co m Email gno rdt@ prevaillaw yers
. co m

iA tto rneys f o r A ppellee SH ER WOOD LA N E IN VESTMEN TS, LLC:

Do uglas A

. Daniels Tex as B ar N o
. 00793579 A ndrea L. G entle Tex as B ar N o
. 24074266 DA N IELS & G EN TLE, LLP 6363 Wo o d w ay Suite 980 H ous to n, TX 77057 Pho ne 713 979 4279 Fax 713 979 4270 Email: d o uglas

. daniels @ daniels gentle. co m Email: andrea. gentle@ d aniels gentle. co m

iiTAB LE OF CONTENTS

IN DEX OF A UTH O RITIES.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
STA TEMEN T OF TH E CA SE.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

STA TEMEN T ON OR A L A RG UMEN T.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ISSUES PR ESEN TED.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

STA TEMEN T OF FA CTS.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

SUMMA R Y OF TH E A R GUMEN T.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Is s ue 1: The t rial co urt e rred in granting SH ER WO O D ’ s M o t i o n f o r Summary

Judgment, bas ed o n no e vidence o r i ns uf f icient evidence o f the N o te and f act is s ues regarding the terms o f the N o te.

. . . . . . . . . . . . . . . 10

Is s ue 2: The t rial co urt e rred in granting SH ER WOO D ’ s M o t i o n f o r Summary

Judgment bas ed on f act is s ues regarding the principal and interes t due
o n the N o te.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Is s ue 3: The t rial co urt e rred in granting SH ER WOOD ’s M o t i o n f o r S ummary

Judgment becaus e there w as no evidence o r i ns u ff icient evidence o f SH ER WOOD's s tanding as an o w ner, h o l d e r, and/o r ho lder in due
co urs e o f the N ote.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Is s ue 4: T h e t r i a l c o u rt e rred in granting SH ER WOOD’s Mo t io n f or Sum m a r y

Judgment and d enying A ppellant s ’ M o tio n f o r Summary Judgment bas ed o n the tw o year s tatute o f limitatio ns purs u ant to Tex

. Pro p. Co de § 51. 003.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Is s ue 5: The t rial co u r t e r r e d i n g r a nting SH ER WOOD’s Mo tio n f o r Summary

Judgment b as ed on f act is s ues o f f raud, f raud u l e nt inducement and f raud in a real es tate trans actio n.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

iiiPR A YER

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

CER TIFICA TE OF SER VICE.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

A PPEN DIX 1 - Final Judgment.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix 1

A PPEN DIX 2 - Wraparo und Pro mis s o ry N o te.

. . . . . . . . . . . . . . . . . . . . . . Appendix 2

A PPEN DIX 3 - Statuto ry Tex t.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix 3

Tex

. Pro p. Co de § 51. 003(a) Def iciency Judgment.

. . . . . . . . . . Appendix 3. 1

Tex

. R ev. C iv. Stat. art. 6132a-1 (R PLA ) Sec. 8. 0 1.

. . . . . . . . . . . Appendix 3. 1

Tex

. R ev. C iv. Stat. art. 6132a-1 (R PLA ) Sec. 8. 0 4.

. . . . . . . . . . . Appendix 3. 2

Tex

. R ev. C iv. Stat. art. 6132a-1 (R PLA ) Sec. 8. 0 5.

. . . . . . . . . . . Appendix 3. 3

Tex

. R ev. C iv. Stat. art. 6132a-1 (R PLA ) Sec. 13. 06.

. . . . . . . . . . Appendix 3. 3

A PPEN DIX 4 - Diagram o f Trans actio ns
. . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix 4

A PPEN DIX 5 - Index o f

Pers ons and Co mpanies

. . . . . . . . . . . . . . . . . . . . . Appendix 5

A PPEN DIX 6 - Time Line o f Events

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix 6

ivIND EX OF AUTH ORITIES

Ca ses

B aylor Univ. v. Sonnic hes en , 221 S. W. 3d 632, 635 (Tex . 2007).

. . . . . . . . . . . . . . . 25

B oyd v. Divers if

ied Financ ial Sys tem s , 1 S. W. 3 d 888 (Tex

. A pp. - Dallas , 1999, no pet. )

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 , 15
David J. Sac ks

, P. C. v. H aden , 266 S. W. 3 d 447, 450 (Tex

. 2008).

. . . . . . . . . . . . . . 25

Dutton v. Dutton , 18 S. W. 3d 849, 853 (Tex . A pp. -Eas tland 2000, pet. denied)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
El T. Mex ic an R es taurants , Inc

. v. B ac on , 921 S. W. 2d 247 Tex . A pp. -H o us to n [1 s t Dis t. ] 1995, w rit denied).

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

Firs t National A cc eptanc e Com pany v. Dix on , 154 S. W. 3d 218, (Tex

. A pp. B eaumo nt-2004, pet. denied. ) .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Fores t O il Corp. v. Mc

A llen, 268 S. W. 3d 51 (Tex

. 2008).

. . . . . . . . . . . . . . . . . . . . . 46

H ous ton Firs t A m
. Sav. v. Mus ic k , 650 S. W. 2 d 764, 767 (Tex

. 1983).

. . . . . . . . . . 29

H TS Servs

. , Inc

. v. H allw ood R ealty Partners , L. P. , 190 S. W. 3d 108, 113 (Tex

. A pp. - H ous to n [1 s t Dis t

. ] 2005, no pet. ).

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

In R e H aw thorne Tow nhom es , L. P. v. B ranc h , 282 S. W. 3d 131, 138 (Tex

. A pp. - Dallas 2009, o rig. pro ceeding).

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Italian Cow boy Partners

, Ltd. v. Prudential Ins

. Co. , 341 S. W. 3d 323, 328-337 (Tex

. 2011).

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 , 47

Lew is v. Davis , 145 Tex

. 4 68; 199 S. W. 2d 146, 148-149 (1947).

. . . . . . . . . . . . . . 24
Mays v. B ank O ne, N. A

. , 150 S. W. 3d 897 (Tex

. A p p .-Dallas 2004, no pet. ).

. . 43 , 44

vMega Child Care, Inc

. v. Tex

. Dep’t of Protec tive & R egulatory Servs

. , 29 S. W. 3d 303, 308 (Tex

. A pp. - H o us to n [14 t h Dis t] 2000, no pet. ) .

. . . . . . . . . . . . . . . . . . . 14 Moayedi v. Inters t ate 35/Chis am R oad, L. P. , 438 S. W. 3d 1 (Tex

. 2014).

. . . . . . . . 39

Mons anto Co. v. Corners tones Mun. Util. Dis t. , 865 S. W. 2d 937, 939 (Tex . 1993)

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

Moreno v. Sterling Drug, Inc

. , 787 S. W. 2 d 348, 352 (Tex

. 1990).

. . . . . . . . . . . . . . 42
Nat'l Liab. & Fire Ins

. Co. v. Allen , 15 S. W. 3d 525, 527 (Tex

. 2000) .

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

O m aha H ealthc are Ctr. v. Johns on , 334 S. W. 3d 392, 394 (Tex

. 2011).

. . . . . . . . . 40

Pec k v. Pec k , 172 S. W. 3 d 26, 31 (Tex

. A pp. -Dallas 2005, pet. denied).

. . . . . . . . . 29 Phillips v. Phillips , 820 S. W. 2d 785, 789 (Tex

. 1991).

. . . . . . . . . . . . . . . . . . . . . . . 24

R epublic B ank Dallas

, N. A

. v. Interkal, Inc

. , 691 S. W. 2d 605, 607 (Tex

. 1985).

. . . 27 , 41

Sc hlum berger Tec hnology Corp. v. Sw ans on, 959 S. W. 2d 171 (Tex . 1997) .

. . . . 46

Sow ell v. International Interes ts , LP , 416 S. W. 3d 593, (Tex

. A p p. -H o us t o n [14 t h Dis t] 2013, pet. denied).

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

St. Luke's Epis c opal H os p. v. A gbor , 952 S. W. 2d 503, 505 (Tex

. 1997).

. . 27 , 28 , 41 , 42

Tex as Em ployers ’ Ins

. A s s n. v. Taylor , 283 S. W. 779, 780 (Tex

. Co m. A pp. 1926, judgmt. ado pted).

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Wes terngec o, L. L. L. v. Input/O utput, Inc

. , 246 S. W. 3d 776, 786 (Tex

. A pp. -H o us to n [14 th Dis t. ] 2008, no pet. ).

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 , 25

viSt a tu t es

Tex

. B us
. & Co m. C o d e § 3. 114 .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Tex

. B us
. & Co m. C o d e § 3. 203(d).

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 , 31

Tex

. B us
. & Co m. C o d e § 3. 302 .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Tex

. B us
. Org. C o d e § 402. 001(b).

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Tex

. Pro p. Co de § 51. 003.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 , 3 , 8 , 3 5 , 40

- 43

Tex

. Pro p. Co de § 51. 005.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Tex

. R ev. Civ. Stat. art. 6132a-1, R evis ed Limited Partners hip A ct § 8. 05.

. . . 23 , 28

Tex

. R ev. Civ. Stat. art. 6132a-1, R evis ed Limited Partners hip A ct § 8. 04.

. . . 22 , 28

Tex

. R ev. Civ. Stat. art. 6132a-1, R evis ed Limited Partners hip A ct § 13. 06.

. . 26 , 27

Tex

. R ev. Civ. Stat. art. 6132a-1, R evis ed Limited Partners hip A ct § 8. 01.

. . . 20 , 21

viiSTATEMENT OF TH E CASE

This is a s ui t f o r t he def iciency balance due o n a pro m is s o ry no te af ter
f o reclo s ure o f the real pro perty s ecurin g t h e n o t e. Plaintif f /A ppellee SH ER WOOD

LA N E I N VESTMEN TS, L L C, (SH ER WOOD) i s t h e a s signee o f the N o te, o n w hich
Def endants /A ppellants DA N I EL MA N DA R I N O, CA R RIE MA N DA R IN O, LA UR A DOYLE,

R OB ER T C H UR CH , B R ETT B EA LS and L I N D A B E A LS as Trus tees o f the B eals Family

R evo cable Trus t , R OB ER T CH UR CH , R OB ER T A

. SCH A LB E, WILLIA M H

. GA Y, JR

. ,
R ICCA R DIO D. G AY, ER I C JOH N STON E, R A FA L Z I ELIN SK I and VA LLY MESTR O N I w ere
makers

. (CR 5).
The trial co urt granted s umm a r y j u dgment in f avo r o f SH ER WOOD o n
December 19, 2014 (CR 3 96), and Def endants /A ppellants ’ Mo t io n f o r N ew Trial w as
heard o n January 3 0, 2015 ( CR 415), but no o rder w as s igned granting or denying the

mo tio n. Theref ore, the Mo tio n f o r N ew Trial was o verruled by o peratio n o f law o n March 4, 2015.

1STATEMENT ON ORAL ARG UMENT

A ppellants reques t o r a l a rgument. This c as e invo lves co mplex is s ues o f the rights o f an entity to enter into new , lo ng term co ntracts af ter it has been dis s o lved,

its right to do bus ines s has been terminated, and its c ert if icate o f regis tratio n

revo ked. In additio n, this is a cas e o f f irs t impres sio n regarding w hether the s tatute

o f limitatio ns , Tex

. P ro p. Co de § 51. 003, applies to the h older o f a s eco nd lien, af ter
the f irs t lien ho lder f orecl o s e s o n the pro perty s ecuring the d e bts

. Oral argument

w o uld s ignif icantly aid the Co urt in d eciding t his cas e, by allo w ing a mo re co mplete
unders tanding o f t he f acts pres ented, and the ef f ect o f the f o reclo s ure o f a f irs t lien

o n the rights o f s eco nd lien ho lders and debto rs
.

2ISSUES PRESENTED

Is s ue 1: The t rial co urt e rred i n g r a n t i n g S H ER WOOD’s Mo tio n f o r Summary

Judgment, b as ed o n n o e vidence o r i n s u ff icient evidence o f the N o te,
and f act is s ues regarding the terms o f the N o te.

Is s ue 2: T h e t r i al co urt e rred in granting SH ER WOOD’s Mo tio n f o r S u m m a r y

Judgment bas ed on f act is s ues regarding the principal and interes t due

o n the N o te.

Is s ue 3: The t rial co urt e rred in g r a n t i n g S H E R W O OD’s Mo tio n f o r Summary

judgment b ecaus e there w as n o evidence o r ins uf f icient e vidence o f

SH ER WOOD's s tan d i ng as an o wner, ho lder, and/o r ho lder in due

co urs e o f the N ote.

Is s ue 4: The t rial co urt e rred in g r a n t i n g S H E R W O O D’s Mo tio n f o r Summary

Judgment and d enying A ppellants ’ Mo tio n f o r S ummary Judgment
bas ed o n the t w o year s tatute o f limitatio ns p u rs uant to Tex

. Pro p. Co de
§ 51. 003.

Is s ue 5: The t rial co urt e rred in gra n t i n g S H E R W OO D ’s Mo tio n f o r Summary

Judgment b as ed on f ac t i ss ues o f f raud, fraudulent inducement and
f raud in a real es tate trans actio n.

3STATEMENT OF F ACTS

SH ER WOOD s eeks to enf o rce a “Wraparo u nd Pro mis s o ry N o te” (Wraparo und

N o te) dated Octo ber 1 6, 2 006 betw een Sherw o o d P ines , Ltd. as P a y e e a nd
Def e n d a n t s / A p p e l l a n t s a s M a k e rs (CR 8, 6 6). The Wraparo u n d N o te w as s ubo rdinate

to the “Original Fix e d R ate N o te” (Firs t Lien No te) betw een Mo rgan Guaranty Trus t

Co mpany as Lender and Sherw o o d Pines , Ltd. as Maker, dated June 27, 2001 (CR 66).

B o th t he Firs t Lien N ote and the Wraparo u n d N o te w ere s ecured by liens upo n the

s ame real pro perty - Sherw o o d Pi n es A partments , 4211 Sherw o o d Lane, H o us t o n,
Tex as
. (CR 173, 197).
Sherw o o d Pines , Ltd. w as dis s o lved o n N o vember 4, 1999, w h en o ne o f its general partners res igned (CR 2 20). Thereaf t er its right to do bus ines s w as f o rf eited

o n Octo ber 5, 2005 (CR 223), and its certif icate of regis tratio n w as cancelled o n February 6, 2006 (CR 224).
The Wraparo und N o te w as dated Octo b e r 1 6 , 2 0 06 (Wraparo und N o te, CR 66). Sherw o o d Pines , Ltd. as s igned a po rtio n o f its interes t in the Wraparo und N o te (all ex cept the right to receive a 2% penalty payment) to Lee Wallis , Inc. , o n o r abo ut March 10, 2008 (CR 229).

4The ho lder o f the Firs t Lien N o te f o reclo s e d on the real pro perty s ecuring the

N o te o n A pril 6, 2010. (CR 209).

Lee Wallis , Inc. as signed its interes t in the Wraparo und N o te to SH ER WOOD

o n May 19, 2014. (CR 5 7). SH ER WOOD f iled s uit to co llec t t h e u n p a id def iciency
balance o f

the Wraparo und N o te o n June 5, 2014. (CR 5).

5SUMMARY OF TH E ARG UMENT

The Wraparo und N o te w as no t pro perly in evidence, and there w as a f act is s ue

as to the terms o f the Wraparo und N o t e. SH ER WOOD did n o t pr o v e u p the
Wraparo u n d N o te as a b u s ines s reco rd o f anyo ne, and the N o te pres ented to the

co urt w as inco mplete o n its f ace s ince “Ex hibit A ” to the Wra p a r o u n d N o te w as
mis s ing. A ppellants o bjected to the Wraparo und N o te as hears ay and inco mplete,

as w ell as to the c o mpetence o f the w itnes s es purpo r t e d ly authenticating the
Wraparo und N o te. Since the Wraparo und N o te w as no t pro perly in evidence, and
there w ere f act is s ues as to the terms o f the N o te, SH ER WOOD’s s u m mary judgment

s ho uld no t have been granted.

SH ER WOOD pres e nted the co urt w ith t w o co nf licting af f idavits as to the

amo unt o f principal and due o n the Wraparo und N o t e. Thes e co nf licting af f idavits
created a f act is s ue w hich precludes s ummary judgment.

SH ER WOOD f ailed to pres ent any co m petent s ummary judgment evidence o f

its s t anding as an o w ner, ho lder, and/o r ho lder in due co urs e o f the Wrapa r o u n d

N o te. The o riginal paye e o f the Wraparo und No te w as Sherw oo d Pines , Ltd. , a

purpo rted Tex as limited p a r t n e r s h i p wh i c h h a d been dis so lved o n N ovember 4, 1999,

upo n the w ithdraw al of a general partner (CR 2 20). There a f t e r , i t s right to do

6bus ines s w as f o rf eited o n O c t o b er 5, 2005 (CR 223), and its certif icate o f regis tratio n

w as cancelled on February 6, 2006 (CR 224). A ll o f thes e events p re-date t he Octo ber
16, 2006 Wraparo und N o t e (CR 66).

It is w ell s e t tled Tex as law t h a t i f o ne o f the parties to a c o ntract d o es no t

ex is t , no co ntract c an be f o rmed as a matter o f law

. Fo r the s ame reas o n, Sherw o o d

Pines , Ltd. ’s s ubs equent as s ignment o f the Wraparo und N ote to Lee Wallis , Inc. w as
als o invalid, and theref o re Lee Wallis , Inc. received no rights w hich it co uld as s ign to

S H E R W OOD. Due to Sherw o o d P ines , Ltd. ’s lack o f capacity to e nter into the
Wraparo und N o t e , and the f ailure t o trans f er the entire ins trument, SH ER WOOD
do es no t have s tanding to enf orce the Wraparo und N o te.
Sherw o o d Pines , Lt d

. a s s igned a po rtio n o f its interes t in the Wraparo und N o te (all ex cept the right to receive a 2% penalty payment) to Lee Wallis , Inc. , o n o r abo ut
March 10, 2008 (CR 229). In additio n, e ach o f the purpo rted as s ignments o f the N o te

o mitted a part o f

the ins trument - Ex hibit A - and the mis s ing po rtio n has no t been

ex plained. Where t here is an attempte d i n d o r s ement o f les s than the entire

ins trument, the trans f e ree o btains no rights to enf o rce the ins trument.

SH ER WOOD , a s t he p u rpo rted as s ignee o f the Wraparo u n d N o te, d o es no t qualif y as a ho lder in d ue co urs e, becaus e SH ER WOOD had a c t u al o r co ns tructive

7no tice that the Wraparo und No te w as in d e f ault w hen at the time it w as as s igned to

SH ER WOOD, and b e caus e of the attempted partial as s ignmen t o f t he N o te.
Theref o re, SH ER WOOD is s ubject to the s ame def ens es that A ppellants co uld have

as s e rted agains t the o riginal lender, including the def ens e s o f f raud, f raudulent
inducement, and f raud in a real es tate trans actio n.
Th e W r aparo und N ote w as s ecured by a s eco nd lien o n the Sherw o o d Pines

A partments

. The f irs t lien h o l de r f o reclo s ed o n the pro perty o n A pril 6, 2010, and

SH ER WOOD’s s uit w a s f i l e d o n June 5 , 2014, mo re than f our years af ter the
f o reclo s ure. Tex

. Pro p. Co de § 51. 003 pro vides that i f r e a l p r o p e rty is so ld at a
f o reclo s ure s ale f o r “ les s than the unpaid balanc e of the indebtednes s s ec ured by the
real property, res ulting in a def ic ienc y, any ac tion brought to rec over the def ic ienc y

m us t be brought w ithin tw o years of t h e f orec los ure s ale. ” The statute do es no t require t hat the f o reclo s ure be perf ormed by the s ame lien ho lder w ho later s e eks

a def iciency judgment. SH E R W O O D f a iled to bring suit to reco ver the def iciency
balance due o n the N o te w ithin the tw o year s tatute o f limitatio ns
.
A ppellants as s erted vari ou s f r a u d d e f e n ses and pres ented s ummary judgment
evidence t h a t t he Wraparo und N o te w as intended to b e a n on-reco urs e no te, (i. e
.
A ppellants w ere no t intended to have had pers o nal liabili t y o n t h e No te. ) In

8additio n, the “merger claus e” in t he Wraparo und No te is ins uf f iciently w o rded to

preclude ex trins ic e vidence o f f raudulent inducement and / o r evidence that the
Wraparo und N o te s ho u ld have been no nreco urs e
. A PPELLA N TS rais ed fact is s ues o f
f raud, fraudulent inducement an d f r aud in a real e s tate t rans actio n, precluding

s ummary judgment.

9ARG UMENT

Is s ue 1: The t rial co urt e rred i n g r a n t i n g S H ER WOOD’s Mo tio n f o r Summary

Judgment, bas ed o n no e vidence o r ins uf f icient evidence of t h e N o te and f act is s ues regarding the terms o f the N o te.
The Wraparo und N o te w hich is the bas is o f SH ER WOOD’s c laim agains t

A ppellants , (CR 66) w as no t pro perly pro ved up becaus e the co py o f the N ote w hich

s ubmitted as s u m mary judgment evidence w as inco mplete o n its f ace, and there is

no e vidence o f any ex ceptio n to the hears ay rule w h ich w o uld make the do cument
admis s ible. A ppella n t s objected t o thes e evidentiary def ects , and s o ught a ruling
f ro m the co urt o n their o bjectio ns (CR 143, 398).

SH ER WOOD attempted to au t h e n t icate the Wraparo und N o te and its
indo rs e ments and as s ignment b y three af f idavits - one b y Jo hn Gilmo re (Ex hibit A to
the Mo tio n f o r Summary Judgm ent, CR 4 9), o ne by James H ale (Ex hibit B to the

Mo tio n f o r Summary Judgment, CR 53), and one by H e rb R ichards o n (Ex hibit C to the

Mo tio n f o r Summary Judgment, CR 62). The Wraparo und N o te its elf w as attached

as Ex hibit C-1 to t h e Mo tio n f o r Summary Judgment (CR 66). H o w ever, n o ne o f thes e

w itnes s es w e re co mpetent to authenticate the Wraparo und No te o r the s ubs equent
indo rs e ments and a s s i g n ment o f the Wraparo und No te, and no ne attempted to
authenticate the N o te, indo rs ements o r as s ignment as bus ines s reco rds o f any

10co mpany. Ins tead, the w itnes s es merely tes tif ied that the do cument w as a “true and

co rrect co py” o f the N o te, des pite the f act that the do cument w as inco m p lete o n its
f ace, s ince it w as mis s ing Ex hibit A

. Affid a vit of J oh n G ilmor e

A t the time Sherw o o d Pines , Ltd wa s f o rmed, Jo hn G ilmo re w as o ne o f its general p artners (CR 2 18), but he res igned as a general partner o n N o vember 4, 1999 (CR 220), w hich d is s o lved the p artners h ip by o peratio n o f law

. Sherw oo d Pines , Ltd. , had its right to d o bus ines s in Tex as terminated by the Secretary o f State o n Octo ber
5, 2005. Sherw o od Pines , Ltd’s right to d o b u s ines s was n e v e r r e i ns tated, and its
certif icate o f regis tratio n w as cancelled o n February 6, 2006 ( CR 224), appro x imately

s ix m o n ths prio r to the date o n the Wraparo und N o te. N evertheles s , Jo hn G ilmo re’s
af f idavit attempts to authenticate bo th the Wraparo und N o te and t he indo rs ement

o f the Wraparo und N o te to Lee Wallis , Inc. o n March 10, 2 008, lo n g af ter Sherw o o d

Pines , Ltd. lo s t its legal ex is tence and ability to act (CR 49, 74). Es s entially, all o f Jo hn

G ilmo re’s tes timo ny is abo ut the purpo rted acts o f an entity w hich did no t e x is t and
did no t have the autho rity to act at the time o f the acts des cribed.

Jo hn G ilmo re attes t s to the Wrapar o u n d No te only as “a true and co rrect

co py” b ut do es no t attempt to authenticate N o te or the indo rs ement as a bus ines s

11reco rd o f any co mpany (CR 49). Jo hn G ilmo re do e s n o t t es tif y t hat the do cument

s ubmitted as s ummary j u d g ment evidence is the co mplete do cument indo rs ed by [the def unct entity] Sherw o od Pines

. , Ltd. , and do es no t mentio n o r e x plain the

mis s ing Ex hibit A

. Affid a vit of J a mes H a le
The af f idavit o f James H ale (CR 53), Pres ident o f Lee Wallis , Inc. , als o attempts

to authenticate the Wraparo u nd N o te, and the indo rs ement o f the N o te to Lee
Wallis , Inc. H o w ever, neither the Wraparo un d N o te no r the indo rs ement are
authenticated as a bus ines s reco rd o f any co mpany. James H ale’s af f idavit s tates

o nly that the Wraparo u n d No t e attached t o the Af f idavit o f H erbert R ichards o n is a
“true and co rrect co p y” o f the N o te s igned b y A ppell a nt s ( a f act o f w hich he co uld

no t h ave had any pers o nal k no w ledge), that the i n d o r s e ment o f the N o te by Lee
Wallis , Inc. , to SH ER WOOD is a “true and co rrect co py” of the indo rs ement, and that
the as s ignment o f the Wraparo und N o te to SH ER WOOD is a “true and c o rrect co p y”

o f the as s ignment. James H ale do es no t tes tif y that the do c um e nt submitted as

s ummary judgment evidence is the co mplete do cument received by Lee Wallis , Inc.
f ro m t he def unct entity Sherw o o d Pines , Ltd. , and do es no t mentio n o r ex plain the

mis s ing Ex hibit A

. James H ale’s af f idavit do es n o t pro pe r l y authenticate the

12Wraparo und N o te, either o f the indo rs ements o f the N o te, o r the A s signment o f the

N o te to SH ER WOOD, all o f w h ich are critical to SH ER WOOD’s claim.
Affid a vit of H er b er t Rich a r d s on
The af f idavit of H erbert R ichards o n , a f o rmer partner in Sherw o o d Pines , Ltd. ,

s i m i l arly attempts t o authenticate Wraparo und N o te, the indo rs ements and

as s ignment o f t he Wraparo und N o te to SH ER WOOD, merely as a “true and co rrect

co py” of tho s e do cuments (CR 62). There is no tes timo ny that the do cuments are a
bus ines s reco rd o f any co mpany, a n d H e r b ert R ichards o n’s tes t imo n y as to the

actio ns o f Sherw o o d P ines , Ltd. , attempts to es tablis h the purpo rted acts o f an entity

w hich did no t ex is t at the time o f tho s e acts

. Herbert R ichards o n no t tes tif y that the
do cument s ubmitted as s ummary judgment evidence is the c o mplete do cument
received by SH ER WOOD f ro m Lee Wallis , Inc. , and do es no t mentio n o r ex plain the

mis s ing Ex hibit A

.
A ppellants f iled o bjectio ns to the A f f idavits of Jo hn G ilmo re, James H ale and

H e rbert R ichards o n and the ex hibits to tho s e af f idavits as lac k i n g co mpetence,
hears ay, d o uble hears ay, relevance, and to the inco mplete co p y o f t he Wraparo und

N o te, and s o ught a ruling o n t ho s e o bjectio ns ( CR 143, 3 98). A ll such o bjectio ns w ere
ef f ectively o verruled by the co urt.

13H ea r s a y

H e ars ay is a s tatement, o ther than o ne made by the declarant w h ile tes tif ying

at the trial o r hearing, o f f ered in evidence to pro ve the truth o f the m atter as s erted.

TR E 801(d). A do cument is h ears ay w h e n t h e pro po nent o f f ers the do c ument as
evidence o f

the truth o f

the matters as s e rted in the do cument, and authenticatio n

o f a do cument is required as a co nditio n precedent to admis sibility. TR E 901(a).

A bare as s ertio n that a particular do cument is a s pecif ically des cribed item is

ins uf f icient authenticatio n. Mega Child Care, Inc

. v. Tex

. D e p ’ t o f Protec tive &

R egulatory Servs

. , 29 S. W. 3 d 303, 3 08 (Tex

. App. - H o us to n [14 t h Dis t] 2000, no pet. )

A ltho u gh that cas e f o u n d that the erro r w as harmles s w here there w as no allegatio n

o r s ugges tio n that the do cument w as no t w hat the pro po nent c laimed, in t his cas e
there is a v e r y s e rio us dis pute abo u t the terms o f the N ote, s pecif ically the no nreco urs e f eature, and the do cument is inco mplete o n its f ace.

A c o ntract may s o metimes be admitted as an o p erative f a c t , t a king it o ut o f
hears ay s tatus , B oyd v
. Divers if ied Fi n a n c ial Sys t em s , 1 S. W. 3d 888 (Tex

. A pp. -
Dallas , 1999, n o pet. ) b ut t o d o s o w o uld p res umably require that the entire
do cument be o f f ered into evidence. In B oyd , the co u rt allo wed a no te and guaranty

into e vidence at a trial o n t e s t imo ny that they w ere true and ex a ct c o p i e s o f the

14o riginals , and no ted that the Def endants had no t denied ex ecutio n o f the do c uments

under o ath. H o w e ver, in Boyd , there w as no d is pute abo ut the co mpletenes s o f the
do cuments , and the do cuments w ere admitted at a trial, rather than in a s ummary judgment pro ceeding. This cas e is an appeal f ro m a s ummary judgment, in w hich the
dis pute is no t e xecutio n o f the do cument, but rather t hat the entire do cument w as

no t o f f ered into evidence, and there are critical t erms w hich w ere o m itted and no t

ex plained.

SH ER WOOD relies on the terms o f the inco mplete Wraparo und N o te (CR 66),
the indo rs ement to Lee Wallis , Inc. (CR 7 4), and the indo rs ement and as s ignment o f
the Wraparo und N o t e to SH ER WOOD (CR 57, 74) f o r the t r u t h o f t he matters

as s e rted in tho s e do cuments - t hat A ppellants have pers o nal liability to SH ER WOOD.

Since SH ER WOOD f ailed to pro duce the entire do cument o r to ex plain t h e m i s s ing
piece, S H E R W OOD h as no t es tablis hed t he inco mplete d ocument as an o perative
f act. Further, SH ER WOOD has no t pro perly authenticated any o f the do cuments as
bus ines s reco rds , and the do cuments do no t meet any o ther hears ay ex ceptio n
.

15B ar r ier s t o Ad mis s ion of t h e Not e, In d or s emen t s a n d As s ign men t

SH ER WOOD had t wo p ro blems t o so lve in o rder t o authenticate the N o te,
indo rs e ments and as s ignment. Firs t, w h ether it is po s s ible to authenticate the acts

o f an e ntity that d oes no t have t he autho rity to do bus ines s at the time o f tho s e acts , and s eco nd, w hether it is po s s ible to authenticate an inco mplete co py o f a co ntract

as an o perative f act.

A s to the f ir s t p r o blem, the law is that a no nex is tent bus ines s entity canno t

enter into a c ontract. Wes terngec o, L. L. L. v. I nput/O utput, I nc
. , 246 S. W. 3d 776, 786 (Tex

. App. -H o us to n [14 t h Dis t. ] 2008, no pet). While ther e a r e ex ceptio ns f o r the

actio ns o f winding u p the entity, no ne o f tho s e apply here. (Thes e ex ceptio ns are

mo re f ully d is cus s ed under Is s u e 3). It s tands to reas on t hat an entity which canno t

enter into a c o ntract canno t validly as s ign that co ntract later, no r can it rely o n the

co ntract do cument as an o perative f act, in ord e r t o m a k e t h e d oc u m e nt no n-hears ay.
The o nly po s s ible w ay to authenticate the do cument w o uld be as a bus ines s reco rd

o f the def unct entity. H o w ever, there is no s uch evidence.
Further, SH ER WOOD cann ot t reat an inco mplete co ntract as an o perative f act,
and a part o f the Wraparo u nd N o te is mis s ing. Ex hibit A , w h ich is ref e renced o n page
3 o f t he N o te (CR 68) is no t co ntained w ithin any o f the evi d e n ce o f f ered by

16SH ER WOOD. A ltho ugh the N ote s ugges ts that Ex h ibit A co ntains a des criptio n o f the

pro perty s ecuring the No te, until the mis s ing po rtio n o f the do cument is pro duced
and t h e c o mplete do cument authenticated, no o ne c an co n firm w hat p ro vis io ns might b e c o ntained in Ex hibit A

. This is es pecially critical w here A ppellants have

o f f ered evidence that the Wraparo und N o te w as to have been a no n -reco urs e no te.

A ppe l l ants ’ R e s po ns e to SH ER WOOD’s Mo tio n f or Summary Judgment

pro vided a co p y o f the Co mmercial Co n tract - Impro ved Pro perty, (Ex hibit A to

R es po n s e to Mo tio n fo r Summary Judgment, CR 155, and C o mmerc ial Co ntract Financing A dden d u m , C R 169-172), a letter f ro m the b ro ker handling the trans actio n, (Ex hibit K to R es po ns e to Mo tio n f o r Summary Ju d gment, C R 231) and Appellants ’
af f idavits that the s eller f inancing co ntemplated b y t he co ntract “ will not provide f or liability (pers onal or c orporate) agains t m aker in t he event of def a u l t ” ( E x hibits L
thro ugh W, R es po ns e to Mo tio n f o r Summary Judgment, CR 232-256, and Supp CR 3 emphas is added).

Under n ormal circums tances , it is a relatively s imple matter to pro perly pro ve

up a n o t e, even af ter multiple as s ignments , and even w here t he o riginal lender is no
lo nger in bus ines s
. Such reco rds are no rmally in the po s s e s s io n o f o r trans f erred to

s o meo ne w ho can tes tif y t hat the reco rds are w hat they pu r p o rt to be, and the

17s ubs equent as s ignees can s imilarly tes t if y to a c o mplete co py o f the do c uments

b e i n g a uthenticated. In this cas e, ho w ever, SH ER WOOD w as granted a judgment

w itho ut pro ducing a co mplete co py o f the do c uments o n w hich their claim is bas ed,

w itho ut p ro p er authenticatio n o f the do cuments as bus ines s reco rds o f any ho lder,
and o ver A ppellants ’ challenges as to the mis s ing terms o f the do cuments

. Thes e are
the kinds o f

is s ues that the rules o f evidence are des igned to prevent.

SH ER WOOD s ho uld n ot b e p e r m i t t e d t o c l a i m that A ppellants all have pers o nal liability o n a no te w itho ut pro perly authenticating co mplete do cuments , e s pecially

w here A ppellants pro vided s ummary judgment e vidence to t he co ntrary. Since the

N o te w as n o t pro perly in evidence, granting t h e s um mary judgment w as erro r.

A lternatively, the inco m plete d o cument, alo ng w ith A ppellants ’ evidence t h a t the

N o te w as to h ave been no n-reco urs e, c reate f act is s ues w h ich preclude s ummary judgment.

Is s ue 2: The t rial co urt e rred in gr a n t i n g S H E R W O OD ’s Mo tio n f o r Summary

Judgment bas ed o n f act is s ues regarding the principal and interes t due
o n the N o te.

SH ER WOOD’s Mo tio n fo r Summar y J u d g m e n t i n c l u d e d t wo d i f ferent af f idavits
f ro m Jo hn C o m p t o n, a CPA w ho w as retained to calculate the interes t due o n the
Wraparo und N o te (CR 76, 292).

18In the firs t af f i d a v i t , J oh n C om p to n bas ed his tes timo ny o n an inco rrect o riginal

principal amo unt, (as w ell as o ther un a u t h e n t i c ated hears ay). The Wraparo und N o te
has a dis crepancy betw een the n u merical amo unt and the w ords s tated as the

o riginal principal amo unt of the lo an (CR 66). The Wraparo und N o te s ho w s that the

o riginal principal a m o u n t o f the seco nd lien is “Five H undred Six t y-f ive Tho us and

Do llars ($5 6 9,529. 87 )” ( CR 67, emphas is added) 1

. J ohn Co mpto n’s f irs t af f idavit
ref lects that he bas ed his calculatio ns on t h e n u m e r i c a l amo unt, $569,529. 87 (CR 76).
Where t here is a co nf lict betw een the numerical amo u n t and the wo rds s tating the

amo unt of a no te, the w o rds co ntro l, Tex

. B us
. & Co m. Co d e § 3

. 114. B as ed o n this

inco rrect prin c i p a l amo unt, J o hn C o mpto n c o ncluded in h is f irs t af f idavit that the unpaid principal and interes t o n the Wraparo und N o te w as $1,044,481. 18.

A ppellants o bjected to Jo hn Co mpto n’s af f idavit o n t he bas is that his af f idavit

co ntained uns u ppo rted as s umptio ns , bas e les s h e ars ay, and hears ay w ithin hears ay, relevancy, and paro l evidence ( CR 143, 146, 398). SH ER WOOD then f iled a R eply to
the R es po ns e to Mo tio n f o r Summary Judgment ( CR 282) which included a s eco nd
af f idavit f ro m Jo hn Co mpto n (CR 292). In t his s e co nd af f idavit, Jo hn Co mpto n bas es

1 Each quo te o f

the Wraparo und N ote made herein is s o lely f o r the purpo s e o f argument, and no t as any w aiver o f A ppellants ’ o bjectio ns to the admis s ibility
o f the do cument.
19his calculatio n s o n the co rrect, lo w e r, o riginal principal amo unt of $565,000. 00, and

reaches an unpaid balance o f $1,058,640. 53.

SH ER WOOD s ubmitted tw o co nf licting af f idavits f ro m the s ame w itnes s as its

s ummary judgment evidence o f the a m o un t d u e
. Theref o re, SH ER WOOD’s o w n

s ummary judgment evidence created a f act is s ue w hich preclude s the co urt f ro m granting s ummary judgment.

Is s ue 3: T h e t r i a l co urt erred in granting SH ER WOOD’s Mo tio n f o r S u m m a r y

Judgment becaus e there w as no evidence o r ins u f f icient evidenc e o f S H ER WOOD's s tanding as an o w ner, ho lder, and/o r ho lder in d u e co urs e o f the N ote.

S H E R W OOD D oes Not Ha ve St a n d in g a s a n Own er B eca us e t h e Not e wa s Void

S h e rw oo d P ines , Ltd. w as f o rmed o n Octo ber 26, 1999, with H erbert B

.
R ichards o n and Jo hn E. G ilmo re as the G e neral Partners (Secretary o f State reco rds ,
Ex hibit G , A ppellants ’ Res po ns e to M o t i o n f o r Summary J u d gment, CR 217). The

B us ines s Organizatio ns Co de pro vides that a limited partners hip created prio r to the

Tex as Bus ines s Organizatio ns C o de (ef f ective January 1, 2006), is go verned by the
prio r Tex

. R ev. Civ. Stat. art. 6132a-1, Tex as R evis ed L imited Partners hip Act,(R LPA )
§ 8. 01, Tex

. B us
. Org. Co de § 402. 001(b). Acco rdingly, Sherw o od Pines , Ltd. is s ubject

to t he s tatuto ry pro vis io ns o f the R LPA , rather t han t he current Tex as B u s i nes s Organizatio ns A ct.

20R LPA § 8. 01 pro vides that “A limited partners h i p is dis s olved and its af f airs

s hall be w o und u p ” in the event o f w it hd r a w a l o f a general partner, unles s certain

ex ceptio ns apply. The pertinent parts o f

R LPA § 8. 0 1 s tate as f ollo ws :
“Sec. 801. A limited partners hip is dis s o lved and its af f airs s hall be w o und up

o nly o n the f irs t o f

the f ollo w ing to o ccur: (3) an event o f

w ithdraw al o f

a general partner unles s : (A ) there remains at leas t o ne general partner and the partners hip agreement permits the bus ines s o f the limited partners hip t o be carried
o n by the re m a i n i n g general partner o r general partners , and that general partner o r tho s e general partners do s o ; o r (B ) w ithin 90 days af ter the event o f w ithdraw al, all remaining partners (o r ano ther g r o u p o r p ercentage o f partners as s pecif ied by the partners hip agreement) agree in w riting t o co n tinue t he bus ines s o f the limited partners hip and to the ex tent t hat they des ire o r if there are no r emaining general partners , agree to the appo intment, e f f ective as o f the date o f

w ithdraw al, o f

o ne o r mo re new general partners ; o r (4) entry o f a d e cr e e o f judicial d is s o lutio n under Sectio n 8. 02 o f this A ct. [emphas is added].

Jo hn G ilmo re, o ne o f Sherw o o d Pi n e s, Ltd. ’s general partners , res igned o n

N o vember 4, 1999 (Secretary of State R eco rds , Ex hibi t G , A ppellants ’ R es po ns e to

Mo tio n fo r Summary Judgment, CR 220). There w as no evidence o r argument f ro m
SH ER WOOD that any o f the e x ceptio ns under § 8. 01(3)(a), § 8. 01(3)(b) o r § 8. 01(4)

21apply. Sherw o o d Pines , Ltd. was theref o re auto matically dis so lved by o peratio n o f

law o n N o vember 4, 1999.

Once dis s o lved, Sherw o od Pines , Ltd. w as s tatuto rily required to “w ind up” its
bus ines s af f airs as s o on as reas onably practicable RLPA § 8

. 04 (b). A ny f u t ure law f u l

acts of Sherw oo d P i nes , Ltd. were s t atuto rily limited to acts o f “w inding up” its
bus ines s af f airs R PLA § 8. 0 4(b).

A cts o f “w inding up” are s pecif ically limited by statute to acts dis po s ing o f a
dis s o lved limited partners hip’s as s ets and liabilities , as s e t f o rth in R PLA § 8. 0 4 (b ),

w hich s tates as f o llo w s: “(b) On the dis s o lut i o n o f a limited partners hip and until the f iling o f a c e r t i f i ca te o f cancellatio n as pro vided by Sectio n 2. 03 o f t his A ct, unles s a w ritten p artners hip agreement pro vides o therw is e, the pers o n s w inding up the limited partners hip’s af f airs ma y, in t he name o f and f o r and o n b ehalf o f the limited partners hip: (1) pro s ecute and def e nd civil, criminal, o r adminis trative s u its ; (2) s ettle and clo se the limited partners hip’s bus ines s ; (3) dis po s e o f and co nvey the limited partners h ip’s pro perty f o r cas h, unles s a w ritten partners hip agreement permits a trans f er o n no n cas h terms ; (4) dis charge o r make reas o nable pro vis io n t o pay the limited partners hip’s liabilities ; and (5) dis tribute to the partners any remaining as s ets o f t he limited partners hip. ” [emphas is added].

22The statute o nly allo w s a dis s o lved limited partners h ip to d is po s e o f its as s ets

and liabilities b y w inding up its bus ines s af f airs , but do es no t allo w f or acquis itio n o f

new as s ets

.
R LPA § 8. 05 go verns ho w a dis s olved limited p artners hip is required to dis po s e

o f its as s ets

. The s tatute s tates as f o llo ws :
“Dis po s itio n o f as s ets : Sec. 8. 05. On the w inding up o f a limited partners hip, its as s ets s hall be paid o r trans f erred as f o llo w s : (1) to the ex tent o therw is e permitted by law , to credito rs , including partners w ho are credito rs o ther than s o lely as a res u lt o f the applicatio n o f Sectio n 6. 06 o f this A ct, in s atis f actio n o f liabilities o f the limited partners h ip, w hether by payment o r the making o f reas o nable pro vis io n f o r the payment thereo f ; (2) unles s o therw is e pro vided by the partners hip agreement, to partners and f o rmer partners in s atis factio n o f t he p artners h ip’s liability f o r d is tributio ns under Sectio n 6. 01 o f this A ct o r payments under Sectio n 6. 0 4 o f this A ct; and (3) unles s o therw is e pro vided by the partners hip agreement, to partners f irs t f o r the return o f t h e i r capital and seco nd w ith res pect t o their partners hip interes ts , in the pro po rtio ns pro vided by Sectio n 5. 04 of this A ct. ” [emphas is added].
The s tatute do es no t allo w a dis s o lv e d l i m ited partners hip to acquire new

pro p e r t y, to incur a new multimillio n do llar debt, o r to take o n lo ng term s eller
f inancing o f pro perty acqu i r e d af ter dis s o lutio n as a p art o f w inding up. Once
dis s o lved, the o n ly law f ul acts t hat Sherw o o d Pines , L td. co uld take w ere to dis po s e

o f its as s ets and liabilities

. H o w ever Sherw o o d Pines , Ltd. , attempted to d o all thes e

23things , s ince its purchas e o f the Sherw oo d Pines A p artments in 2001, as w ell as the

s ale and s eller f inancing in 2006 all o ccurred years af t er its 1999 dis so lutio n.
It is w ell s ettled that a co nt r a c t t o do a thing w hich canno t be perf o rmed

w itho ut a vio latio n o f the law is vo id, w h ether the parties knew the law o r no t.

Tex as Em ployers ’ Ins

. A s s n. v. Taylor , 283 S. W

. 779, 780 (Tex

. Co m. A pp. 1926, judgmt. ado pted); Lew is v. Davis , 145 Tex

. 468; 199 S. W. 2d 146, 148-149 (1947).

It is als o w ell s ettled t h at a co ntract that is illegal is vo id as a m atter o f public

po licy. Phillips v. Phillips , 820 S. W. 2d 785, 789 (Tex

. 1991). Thus , o nce dis so lved, any

co ntract entered into by Sherw oo d Pines , Ltd. w hich res u l ted in Sherw o o d Pines , Ltd.
acquiring new debt o r new as s ets wo uld be unlaw f ul and, s ince s uch acts canno t be
a part o f “w inding up”.

Tw o years af ter its dis so lutio n, Sherw o o d Pines , Ltd. e x c eeded the s tatuto ry
bo undaries placed u po n a dis s o lved limited p artners hip f o r w inding up its bus ines s

a f f a i r s , w hen it purchas ed the Sherw o o d Pines A p artments p ro perty in 2001 (C R 173). L i k e w i s e , Sherw o od Pines , Ltd. , ex ceeded its bo undaries when the pro perty

w as s o ld to A ppellants in 2006, and Sherw o od P ines , Ltd. attempted to ex change the real pro p erty f o r a Wraparo und N o te payable o ver f ive years , e n ding J une 1, 2011,

mo re than eleven years af ter dis s olutio n (CR 66).

24Fo r the s ame reas o n, the s ubs equent indo rs ement o f t h e v o i d Wraparo und

N o te to Lee Wallis , Inc. w as vo id, as w as Lee Wallis , Inc. ’s subs e q uent indo rs ement

o f th e vo id Wraparo und N ote to SH ER WOOD. A ll o f the co ntractual do c uments

upo n w hich SH ER WOOD’s s uit is bas ed are vo id.

Once dis s olved, any act taken by Sherw o o d Pines , Ltd. o uts ide o f the s co pe o f

w inding u p w as ef f ectively the act o f a no nex is tent legal entity. A no nex is tent entity

canno t enter into a co ntract. Wes terngec o, L. L. L. v. Input/O utput, I nc
. , 246 S. W. 3d 776, 786 (Tex

. A pp. -H o us to n [14 t h Dis t. ] 2008, no pet. ).
Mutual as s e nt is an es s ential e l e m e n t o f a binding c o ntract. Baylor Univ. v.
Sonnic hes en , 221 S. W. 3 d 632, 635 (Tex

. 2007). To es tablis h m utual as s ent requires

a “meeting o f the m inds ” o n t he es s ential terms o f the co ntract. David J. Sac ks , P. C.

v. H aden , 266 S. W. 3d 447, 450 (Tex

. 2008). If o ne o f the parties to a co n tract do es

no t legally ex is t, no co ntract can be f o rmed, as there is no meeting o f the minds

. I n

R e H aw t horne Tow nhom es , L. P. v. B ranc h , 282 S. W. 3d 131, 138 (Tex

. A p p
. -Dallas
2009, o rig. pro ceeding). The H aw thorne Tow nhom es cas e als o in v o l v e d a def unct limited partners hip. See als o H TS Servs

. , Inc

. v. H allw ood R ealty Partners , L. P. , 190

S. W. 3d 108, 113 (Tex

. A pp. -H o u s to n [1 s t Dis t. ] 2005, no pet. ), s tating t hat if a limited
partners hip did no t ex is t at the time t he parties entered in a co ns ulting agreement,

25then the no nex is tent limited partners hip e ntity “w as n o t, and co uld no t have been

a party to the co ns ulting agreement. ”

SH ER WOOD inco rrectly argued at the trial c o urt level that any po s t d is s o lutio n

co ntract entered into by a dis s o lved limited partners hip is alw ays enf o rceable, even
if it ex ceeds the statuto ry limits o f “w inding up”. SH ER WOOD relies o n the po rtio n

o f R LPA § 13. 06 that s tates that “The f o rf eiture o f the right to trans act bus ines s in
this s tate do es no t impair the validity o f a c o ntract o r act of the limited partners hip.

. . ” SH ER WOOD’s reliance o n § 13. 0 6 is mis placed, becaus e w hile f o rf eiture do es no t impair t he validity o f an ex is ting co ntract, it als o do es no t create validity f o r a new

co ntract entered into af ter t he fo rf eiture. N o thing in the s t atute makes an o therw is e
unlaw f ul, invalid co ntract law f ul.

R egardles s , R L P A § 13. 06 is no t applicable to the actio ns o f Shew oo d Pines , Ltd. , s ince it o nly applies to limited partners hips w ho have only had their right to do
bus ines s f o rf eited, as o ppo s ed to being a limited partners hip w hich w as als o
dis s o lved.

R LPA § 13. 06 s tates as f o llo w s: “(a) A do mes tic or f o reign limited partners hip t hat f ails t o file a repo rt required under Sectio n 13. 05 of this A ct w h en due f o r f e its its right to trans act bus ines s in this s tate.

26(b) A f orf ei t u r e under this s ectio n takes e f f ect w itho ut judicial

as certainment. The s ecretary o f s tate s hall e nter o n the reco rd kept in the s ecretary's o f fice relating to the limited partners hip a n otatio n t hat the right to t rans act bus ines s has b e en f o rf eited to gether w ith the date
o f f o rf eiture.

. . . (c) Unles s the right o f the limite d pa r tners hip to trans act bus ines s is revived in acco rdance w ith Sectio n 1 3. 07 o f this Act [Sectio n 13. 07 s ets f o rth ho w a limited partners hip can be reins tated if it fo rf eited its right to trans act bus ines s f o r n o nco mpliance w ith Sectio n 13. 06 of this A ct], the limited partners hip may no t m aintain an actio n, s uit, o r p ro c eeding in a co urt of this s tate, and a s ucces so r o r a s s i gnee o f the limited partners hip may no t maintain an actio n, s u it, or p ro ceeding in a co urt o f this s tate o n a right, claim, o r demand aris ing o ut o f the t rans actio n o f bus ines s b y the limited partners hip in this s tate. The f o rf eiture o f t he right to trans act bus ines s in this s t ate do es no t impair the validity o f a c o ntract o r act of t he limited partners h ip and d oes no t prevent t he limited partners hip fro m def e nding a n a ctio n , s u it, o r pro ceeding in a co urt o f this s tate. (d) This s ectio n d o es no t af f e ct the liability o f a limited partner in the limited partners hip. ” .

R PLA § 13. 06 [emphas is added]

R PLA § 13. 06 s tates clearly that it is o nly applicable to li mi t e d p artners hips

w ho s e right to do bus ines s has b een f o rf eited. The w o rd “dis s o lved” is no t co ntained

anyw here in the s tatute.

Tex as law requires c o urts to interpret a statute by f o llo w ing the p lain reading

o f the w o rds us e d in the statute, and to take s tatutes as the co u r ts f ind them. St.
Luke's Epis c opal H o sp
. v
. A g b o r , 952 S. W. 2d 5 03, 505 (Tex

. 1997), citing R epublic B ank

27Dallas

, N .A

. v. I nterkal, Inc

. , 691 S. W. 2d 605, 607 (Tex

. 1985). If the meaning o f the

s t a t u t o ry language is unambiguo us , as it is here, then co urts mus t ado pt the
interpretatio n s uppo rted by the plain meaning o f the pro vis io n's w o rds

. St. Luke's
Epis c opal H os p. at 505.
Sherw o o d Pines , Ltd. w as dis s o lved N o vember 4, 1999, and f o rf e ited its right

to do b us ines s o n O c to b e r 5, 20 05, bo th o f w hich o ccurred lo ng bef o re the
Wraparo und N o te on N o vember 16, 2006. A cco rdingly, the Wraparo u n d No te w as

a vo id, u nlaw f u l and unenf o rceable co ntract becaus e Sherw o od Pines , Ltd. ’s act o f
entering into it w as no t a law f ul act o f “w inding up” its bus ines s af f airs

. Fina l l y , SH ER WOOD argued at the trial co urt that even tho ugh Sherw o o d

Pines , Ltd. was dis s o lved, it c o ntinued in ex is tence until the certif icate o f cancellatio n

w as filed o n February 6, 2006. A s s u m i n g t hat Sherw oo d Pines , L td. co ntinued to

ex is t until the certif icate of cancellatio n was f iled, it co uld do s o o nly f o r the limited

purpo s e of w inding u p its af f airs

. A ny act outs ide o f t he s tatuto ry criteria f or w inding

up is u nlaw ful and vo id. RLPA §§ 8. 04, 8. 05. H o w ever, even this argument w o uld

n ot e x t e n d S h e r wood P i nes , Ltd. ’s ex is tence lo ng eno ugh to validate the Wrapar ou n d

N o te, since the c e rtif icate of can c e l l a t i o n is mo re than eight mo nths prio r to the
Wraparo und N o te.

28Standing is an e ss e n tial element o f subject matter juris dictio n. El T. Mex ic an

R es taurants

, Inc

. v. B ac on , 921 S. W. 2 d 247 Tex

. A pp. -H o us to n [1 s t Dis t. ] 1995, writ denied). SH ER WOOD is required to s ho w t h a t i t h a s standing in o rder to purs ue a
claim to enf o rce the Wraparo und N o te. SH ER WOOD d o e s n o t h ave s tanding to
enf o rc e a vo id no te, w h ich SH ER WOOD o btained by w ay of tw o s ubs equent vo id
indo rs e ments o f

that no te.

SH ERW OOD Does Not H a v e St an d in g a s a H old er , B e c a u s e All At temp ted In d or s emen t s W er e In comp let e.
SH ER WOOD’s pleadings have co n sis tently co n tended that t he Wraparo und

N o te is a nego tiable ins trument. A s sertio ns of f act in the live pleadings o f a party are
f o rmal judicial admis s io ns
. H ous ton Firs t A m
. Sav. v. Mus ic k , 6 5 0 S .W. 2 d 764, 767 (Tex

. 1 983). The f acts alleged o r admitted in the live pleadings o f a party are binding

o n the pleader. Hous t on Firs t A m
. S a v
. a t 7 69. A judicially admitted f act is

es tablis hed a s a m atter o f law , and the admitting party may no t dis pute it o r
intro duce evidence co ntrary t o it. Pec k v. P ec k , 1 72 S. W. 3d 26, 31 (Tex .A p p
. -Dallas
2005, pet. denied); Dutton v. Dutton , 18 S. W. 3d 8 49, 853 (Tex

. A pp. -Eas t land 2000,
pet. denied).

H aving judicially admitt ed the Wraparo und N o te is a n ego tiable ins t rument,

SH ER WOOD h ad the burden to pro ve it w as the law ful ho lder o f t he Wraparo und

29N o te. SH ER WOOD’s burden include d p r o v i n g S h e r w ood P i n e s , L t d

. p r op e r l y i n d or s ed

the Wraparo und N o te to Lee Wallis , Inc. , and that thereaf ter Lee Wallis , Inc. pro perly
indo rs e d the Wraparo und N o te to SH ER WOOD.

I n or d e r t o pro perly indo rs e the Wraparo und N o te, the indo rs emen t s b ot h h a d

to be legally ef f ective. H o w e ver, neithe r i n do rs ement w as legally ef f ective, as in
bo th ins t ances the ins trument purpo rtedly indo rs ed w as inco mplete becaus e Ex h ibit

A to the Wraparo und N o te is apparently mis sing. Whe r e t h e r e is an attempted

trans f er o f les s tha n t h e e ntire ins t rument, the trans f e ree o btains no rights to
enf o rce the ins trument. The trans f eree ca n n o t b e a ho lder o f the ins t rument,
becaus e it is no t in po s s es s io n o f the co mplete do c ument. Tex

. B us
. & Co m. Co de
§ 3. 203(d).
The s e co nd f ull paragraph o f p a g e t w o o f the Wraparo und N o t e s tates as
f o llo w s:
“The payment hereo f is s ecured by a vendo r’s l i e n r e tained in Deed o f even date herew ith to the unders igned, and is add i t i o na l ly s e cured by a Deed o f Trus t to H ank Schw aeble, Trus tee, said Deed and Deed o f Trus t c o vering and
co nveying the pro perty des cribed in attached Ex hibit “A ”. [emphas is added].

H ow ever, Ex h ibit A w as no t a t t ached either to the Wraparo und N o te o r the

s ubs equent att e mp t ed as s ignments

. (Wraparo und N o te, CR 66, purpo rted
indo rs e ment fro m Sherw o o d Pines , Ltd. to Lee Wallis , I nc. , C R 7 4 , purpo rted

30A s signment f ro m L e e Wallis , Inc. t o S H E R W O O D, Ex hibit B , Af f idavit o f James Hale

SH ER WOOD’s Mo tio n f o r Summary Judgment, CR 57).

SH ER WOOD’s s ummary judgm e n t e vidence ref lects t hat t he attempted
indo rs e ment o f t h e Wraparo u n d N o te f ro m Sherw o od Pines , Ltd. t o Lee Wallis , Inc.

w as mis s ing at l e a s t one page, meaning w h at L ee Wallis , Inc. received w as an
inco mplete nego tiable ins trument. Likew is e, the Wraparo und N o te purpo rtedly
indo rs e d f ro m Lee Wallis , Inc. to SH ER WOOD w as als o mis s ing Ex hibit A

.
SH ER WOOD’s s ummary judgment evidence e s tablis hed o nly that the parties attempted to indo rs e inco mplete nego tiable ins truments

.
A n a t t e m p t e d i ndo rs ement o f an inco mplet e n e g o t i a b l e i n s t r u m e n t i s
inef fective, vo id and o f

no f o rce o r ef f ect.
“If a trans f ero r [o f a nego tiable ins t rument] p urpo rts to trans f er les s than the entire ins trument, nego tiatio n o f the ins trument do es no t o c cur. ” [emphas is added]. Tex

. B us
. & Co m. Co d e § 3. 203(d).

SH ER WOOD has judicially admitted the W r a paro und N o te w as a nego tiable

ins trument. N o attempted indo rs ement o f a nego tiable ins trument law fully takes place unles s the entire ins trument is trans f erred. To meets its burden o f es tablis hing
that it w as entitled to s ummary judgment, SH ER WOOD had to o ff er viable s ummary judgment evidence pro ving the entire nego tiable ins trument ( t h e W r a p a r ou n d No te)

31w as law f ully indo rs ed f irs t f ro m Sherw o o d Pines , Ltd. to Lee Wallis , I n c
. , and then

law f ully indo rs ed f ro m Lee Wallis , Inc. to SH ER WOOD. Theref o re, unles s the entire
Wraparo und N o te w as indo rs ed bo t h t i me s , then there w as no n ego tiatio n o f the
Wraparo und N o te and the trans f erees o btained n o rights to enf o rce the ins trument.

SH ER WOOD as s erted at the trial co u r t l e v e l that even if Ex hibit “A ” w as
mis s ing f ro m the co pies o f the Wraparo u n d N o te and its s ubs equent indo rs ements , the trial co u r t ’ s ruling denying A ppellants ’ objectio ns to SH ER WOOD’S s ummary judgment evidence co n s tituted “harmles s erro r. ”

To the co ntr a r y , t h e mis s ing Ex hibit A has the legal impact o f rendering the alleged indo rs emen t s o f t h e Wraparo und N o te invalid. If t he indo rs ements are invalid, then SH ER W O OD i s n ot a law ful ho lder of the Wraparo und N o te, and thus
lacks s tanding to s ue to enf o rce it.

SH ER WOOD f ailed t o m eet its burden that it is the o w n er and/o r ho lder o f the
Wraparo und N ote and that it has s tanding t o b r i n g t h is law s uit w hen it f ailed to

pro f f er into evidence a co py o f bo t h i n d o rs e ments o f a co mplete nego tiable

ins trument. A t bes t, a material f act is s ues e x is t as to w hether either indo rs ement o f
the Wraparo und N ote were l e g a l l y ef f ective. Either way, the t rial c o urt erred in
granting s ummary judgment f o r SH ER WOOD.

32SH ERW OOD D oes No t H a v e S t a n d in g a s a H old er in D u e Cou r s e B eca u s e It W a s

Awa re of t h e Pr ior D efa u lt
Under Tex as l a w , f o r a n as s ignee o f a nego tiable ins t rument t o qualif y as a
ho lder in due co urs e, the as s ignee/ho lder mus t pro ve that “the ho lder to o k the

ins trument f o r value, in go o d f aith, witho ut no tice that t he ins trument is o verdue o r
has been dis ho no red.

. . ” Tex

. B us
. & Co m. Co de § 3. 302. H o w ever, at the time the
Wraparo und N o te wa s e nd o rs ed to SH ER WOOD, SH ER WOOD had actual and/o r

co ns tructive n otice that the Wraparo und N o t e w as o verdue, in def ault o r had been
dis ho n o red.
The Wraparo und N o te required A ppellants to as s ume the Firs t Lien N o te no
later t han A pril 2 0, 2007, or pay a tw o p e rcent penalty. (Wraparo und N o te, Ex h ibit
C-1, SH ER WOOD’s Mo t io n f o r Summary J u d gment, CR 67). H o w ever, the Firs t Lien

N o te w as no t as s umed, and the tw o percent penalty payment was no t m ade by any

o f the m akers

. (A f f idavits o f A ppellants , Ex hibits L thro ugh W, R es po ns e to Mo tio n
f o r Summary Judgment, CR 232-256, and Supp. CR 3-4) Theref o re, the Wraparo und

N o te w as already in def ault in 2007.

H e rbert B

. R ichards o n w a s a g e n eral partner of Sherw o o d P ines , L td. A s a general partner, R ichards o n w ould h a v e been aw are o f the d ef ault o n the
Wrap a r o u n d N o te when Sherw o o d Pines , L td. endo rs ed the Wraparo und N o te o n

33March 10, 2008, to Lee Wallis , Inc. (A f f idavit of H erbert B

. R ichards o n, Ex hibit C to

SH ER WOOD’s Mo tio n fo r Summary Judg m e nt, CR 62, and Secretary o f State’s

R eco rds , E x h i b i t G , R e s po ns e t o Mo tio n f o r Summary Judgment, C R 218). H erbert

B

. R ichards o n w as als o a “G o verning Pers o n” of SH ER WOOD at the time t hat entity

w as f ormed in 2014. (Secretary o f State reco rds , Ex hibit H , R es po ns e to Mo tio n fo r Summary Judgment, CR 226).
Thro ug h Herbert B. R ichards o n, SH ER WOOD h ad actual and/o r co ns tructive
kno wledge that the Wraparo und N o te was in def ault at the time it r e c e i v e d t he

purpo rted as s ignment and indo rs ement o f the Wraparo und N ote.

SH ER WOOD is als o prevented f ro m being a ho lder in due co u rs e, becaus e o nly

a p art o f the P ayee’s rights under the Wraparo und N o te were trans f erred. Altho ugh

no t indicated in the indo rs ement, the right to receive the tw o perce n t p e n a l t y
payment w as retained by Sherw o o d Pines , L td. w hen it indo rs ed the no te to Lee
Wallis , Inc. (Indo rs emen t b y Sherw o o d Pines , Ltd. to Lee Wallis , Inc. , Ex hibit C-1,

SH ER WOOD’s Mo tio n fo r Summary Judgment, CR 74, and A s s ignment by Sherw o o d

Pines , Ltd. to , Lee Wallis , Inc. Ex hibit I, R es po ns e to Mo tio n f o r Summary Judgment,

CR 229). A partial as s igne e o f a no te is no t a h older in due co urs e. Firs t National

34A c c eptanc e Com pany v. Dix on , 154 S. W. 3 d 218, ( Tex

. A pp. Beaumo nt-2004, pet.

denied. )

SH ER WOOD received the Wraparo und N o te w ith actual and/o r co ns tructive

no ti c e t h at the No t e w as in d ef ault. Theref o re, SH ER WOOD is n ot a ho lder in due

co urs e, and accepted Wraparo und N o te s u b ject to any claims o r def ens es that

A ppellants may as s ert.

SH ER WOOD has no s tanding as an ow n e r, ho lder or ho lder in due co urs e o f the
Wraparo und N o t e, and theref o re no legal bas is o n w hich to enf o rce the N o te agains t

A ppellants

.
Is s ue 4: The t rial co urt e rred in g r a n t i ng S H E R W OOD’s Mo tio n f o r Summary

Judgment and d enying A ppellants ’ Mo tio n fo r Summar y J u d gment bas ed o n the t w o year s tatute o f limitatio ns p u rs uant to Tex

. Pro p. Co de § 51. 003.

A ppellants f iled a Suppl e m e n t al R es po ns e to t he Mo tio n f o r Summary Judgment, and Cro s s Mo tio n f o r Summary Judgment, b as e d o n the t w o year s tatute

o f limitatio ns under Tex . Pro p. Co de § 51. 003 (CR 318). That s tatute pro vides :
“If the price at w hich real pr o p e r t y i s s o ld at a f o reclo s u re s ale under Sectio n 51. 002 [no n-judicial f o reclo s ure] is les s than the unpaid balance
o f the indebtednes s s ecured by the real pro perty, res ulting in a def iciency, a n y actio n bro ught to reco ver t he d e f iciency mus t be bro ught w ithin tw o years o f t h e f oreclo s ure s ale and is go verned by this Sectio n. ”

35SH ER WOOD’s def icienc y c l a i m wa s f i l e d m or e t h a n f our years af ter f o reclo s ure

o f the pro perty w hich s ecured the Wraparo und N o te, and is theref o re barred by the

s tatute o f limitatio ns
.
W h e n S h e r wood P i n e s , L t d

. , b o ught Sherw o o d Pine s A p a r t m e n t s , t h e p u r c h a s e

w as f inanced by a Firs t L ien N o te dated June 27, 2001 betw een Sherw o o d Pines , Ltd.

as bo rro wer, and Mo rgan G uaranty Trus t Co mpany of New Yo rk as lender (CR 173, 180).

In 2006, Sherw o o d Pines , Ltd. s o l d t he real pro perty s ecuring the Firs t Lien

N o te to A ppellants

. (SH ER WOOD’s Mo tio n f o r Summary Judgment, page 2, CR 33;

SH ER WOOD’s Original P etitio n , p ages 8-9, CR 12-13; and C ommercial Co n t r a c t

- Impro ved Pro perty, Ex hibit A , A ppellants ’ R es po n s e t o Mo tio n f o r Summary Judgment, CR 155). To f inance the s ale, Sherw o o d P i nes , Ltd. , entered into a

W r aparo und Pro mis s o ry N o te (Wraparo und N o te), w ith A ppellants as maker s a n d
Sherw oo d Pin e s , L t d as payee. ( SH ER WOOD’s Mo t io n f o r Summary Judgment, CR 66,

A ppellants ’ R es p o ns e to Mo tio n f o r Summary Judgment Ex hibit A , CR 169).

36Th e “In d eb t ed n es s ” of t h e W r a p a r ou nd Not e

The Wraparo und N o te S H ER WOOD s eeks to e nf o rce co ntains language

s pecif ically tying it and t he Firs t Lien N o te to gether

. T h e s eco n d paragraph o f the
Wraparo und N o te s tated in pertinent part as f o llo w s :
“The Firs t Lien Principal A mo u nt s hall be c o ex tens ive to , and includ e, the e ntir e a m o u nt o f principal, interes t, tax es , res erves , f ees and charges co mpris ed b y and o wing o n that certain Fix ed R at e N o te ex ecut e d o n June 27, 2001 (betw een Sherw o o d Pines , Ltd. , as maker, and Mo rgan G uaranty Trus t Co mpany o f N ew Yo rk.

. . , and s ecured by that certain deed o f trus t dated June 27, 2001.

. . ” (CR 66). The Wraparo und N ote f urther s t ates o n page 3, the s ix t h paragraph, in
pertinent part:
“This is a w rap-aro u n d no t e. Included in the principal amo unt o f this
no te is the unpaid balance lef t due and o w ing o n the Wrapped N ote.

. . ” (CR 68).
The seco nd paragraph o n page 3 o f t he W raparo und N o te pro vides that the

entire indebtednes s o f the Wraparo und N ote w as secured by its Deed o f Trus t, as
f o llo w s:
“The payment hereo f is s ecured by a vendo r’s lien retained in Deed o f even date herew ith to the unders igned, and is additio nally s ecured by
a Deed o f Trus t to H ank Schw aeble, T r u s t e e , s aid Deed and Deed o f Trus t c overing and co nveying t he pro perty des cribe d i n a t t a ched Ex hibit A

. ” (SH ER WOOD’s Mo tio n f o r Summary Judgment, Ex hibit C-1, CR 68).

37The real pro pert y d es cribed in t he Deed of Trus t s ecuring t he Wraparo und

N o te is the ex act s ame real p ro perty w hich als o s e cured the Firs t Lien N o te (“Original

Fix ed R ate N o te” o r “Wrapped N o te”).

Th e “In d eb t ed n es s ” s ecu r ed b y t h e W ra p a r ou nd Not e’s D eed of Tr us t :
The De ed o f Trus t s e curing t he Wraparo und N o te further def ined the
“Indebtednes s ” being s ecured as f o llo ws :
“Indebtednes s
. The indebtednes s s ecured by this Deed o f Trus t (the “Indebtednes s ”) includes a l l o ther indebtednes s and o bligatio ns o f B o rro wer [A ppellants ] to B enef iciary [Sherw o o d Pines , Ltd. ], w h e t he r pres ently ex is ting o r in any manner o r means hereaf ter in c u r r e d

. . . ” (A ppellants ’ R es po n se to Mo tio n f o r Summa ry Judgment, Deed o f Trus t, Ex hibit C Page 9, CR 197, 205).
Page 2 o f the Deed o f

Trus t s tated s ecuring the Wraparo und N o te s tates :
“This co nveyance, ho w ever, is made in Trus t to s ecure p ayment o f o ne (1) pro mis s o ry no te o f e ven date herew ith in the principal s um o f Three Mil l i o n Fo ur-H undred Tho us and and N O/100 do llars ( $3,420,000. 00)
e x e cuted b y G ranto rs [A ppellants ], payable to the o rder o f She r w o o d Pines , Ltd.

. . ”

A s mo re particularly des cribed belo w , t his co nv e y a nc e is intended to s ecure w raparo u nd f inancing f o r an ex is ting debt o n the Pro perty, and
s aid debt is s o metimes ref e rred to as the “Underlying Debt. ” (Deed o f Trus t, p a g e 2 , Ex hibit B , A p p e llants ’ R es po ns e Mo tio n f o r Summary Judgment, CR 198).

38T h e p l a i n reading o f the do cumentatio n s h ow s that the principal b a l a n c e of t h e

Wraparo und N o te included the principal balance that Sherw o o d Pines , Ltd. o w ed o n
the Firs t Lien N o te. B o th no t e s w ere secured by the ex act s ame real pro perty, by tw o

s eparate D e e d s o f Trus t. (Deed o f Trus t s ecuring Firs t Lien N o te, Ex hibit B ,
A ppellants ’ R es po ns e t o Mo tio n f or Summary Judgment, CR 173, and Deed o f Trus t

s ecuring Wraparo und N o te, Ex hibit D, A ppellants ’ Res po ns e t o Mo tio n fo r Summary Judgment, CR 197).
The h o lder of the Firs t Lien No te f oreclo s ed upo n the real pro perty s ecuring
bo th no tes o n A p ril 6 , 2010 (Subs titute Trus tee’s Deed, Ex hibit F, R es po ns e to Mo tio n
f o r S u m m a r y J u d g ment, CR 2 09). The f o reclo s ure s ale p rice w as apparently s uf f icient

to w ipe o ut the remaining debt o w ed o n the Firs t Lien N o te. Since a p ortio n o f the
Wraparo und N o te included the amo u n t o w ed u n der t he Firs t L ien N o te, that po rtio n

o f the indebtednes s o f t he Wraparo und N ote was e f f ectively pa i d by applying the
f o reclo s ure s ale price to the balance due. SH ER WOOD’s claim agains t A ppellants is
f o r a def iciency balance w hich remained unpaid f o llo w ing the fo reclo s ure o f the

pro perty s ecuring bo th the Firs t Lien N ote and the Wraparo und N o te.
The ve r y d e finitio n o f “def iciency” is the amo u n t remaining on a debt af ter applying the pro ceeds realized at a fo reclo s ure sale. M oayedi v. Inters tate

393 5

/C h is am R oad, L. P. , 438 S. W. 3d 1 (Tex

. 2014). Since t he f o reclo s ure s ales price

w as “les s than the unpaid balance o f the indebtednes s s ecured by t he real p ro perty,

res ulting in a def iciency,” then as a matter of law , SH ER WOOD’s caus e o f actio n is

a def iciency claim and theref ore go verned by Tex

. Pro p. Co de § 51. 003. That s tatute

r e quires a def iciency claim to be bro ught w ithin tw o years of the A pril 6, 201 0
f o reclo s ure. SH ER WOOD’s claim, ho w ever, was bro ught mo re than f o ur years af ter
the f o reclo s u re, o n June 5, 2014 (CR 5).

In an ef f o rt to circumvent the mis s ed statute o f limitatio ns , SH ER WOOD h as
ref erred to its def iciency actio n as a s uit o n a n e go tiable ins trument. Ho w ever, artf u l pleading do es n ot alter the underlying nature of a claim. O maha H ealthc are Ctr. v.
J o h ns on , 334 S. W. 3 d 392, 394 (Tex

. 2011). It is w orth no ting that SH ER W O O D ’ s
argument w o uld make the s t atute meani ngles s , s ince virtually every def iciency claim

w ill be b as ed o n a nego tiable ins trument evidencing the debt w hich w as s ecured by
the real pro perty. SH ER WOOD can call its d ef iciency actio n any n ame it w is hes , but by s tatuto ry def initio n , it is a def iciency s u it and is s ubject to the tw o year s t atute o f
limitatio ns
.
SH ER WOOD f urther co ntends this is n o t a d ef iciency s uit becaus e neither

SH ER WOOD no r the prio r ho lders o f the Wrapa r o u nd N o t e perf ormed the

40f o reclo s ure. Ho w ever, this argument attempts t o add new element(s ) to § 51. 003(a)

that the s tatute do es n ot co ntain. Th e s tatute applies to anyactio n to co llect an unpaid b a l a n c e remaining af ter forec los ure upon the r eal property sec uring the
indebtednes s
. The s tatute do es no t require that the f o reclo s ure be perf o rmed by the

s ame c redito r s eeking to reco ver the unpaid balance o f t he indebtednes s , o r that the
def iciency res ult f ro m f o reclo s ure o f the s ame deed o f

trus t.

Fo r SH ER WOOD’s s uit to co ns titute a def iciency actio n , the o nly requirement

is that the price at which the real pro perty is s o ld at a f o reclo s ure s ale be les s than
the unpaid balance o f the indebtednes s s ecured by the real pro perty. This is ex actly
the bas is o f

SH ER WOOD’s claim.

Ru les of St a t u t or y Con s t ru ct ion
The rules o f s tatuto ry interpretatio n as set f orth b y t he Tex as Supreme Co urt require a s tatute to be read in acco rdan c e w ith the plain language us ed in the

s tatute. A dditio nal language o r elements may n ot be added, and co urts mus t take

s tatutes as they f ind them. St. Luke's Epis c opal H os p. a t 505 (Tex

. 1997), citing

R epublic B ank Dallas

, N. A. v
. Interkal, Inc

. , 691 S. W. 2d 605, 607 ( T e x
. 1 9 8 5). If the
meaning o f the s tatuto ry language is u nambiguo us , then co urts mus t ado pt the

41interpretatio n s uppo rted by the plain meaning o f the pro vis io n's w o rds

. St. Luke's

Epis c opal H os p. , at 505.
Under th e p l a i n r e ading o f § 51. 003(a), it is no t neces s ary that the ho lder o f
the Wraparo und N o te have co nducted the f o reclo s u re, no r th a t t h e f oreclo s ure have
been c o nducted by virtue o f the s ame Deed o f Trus t s ecuring the Wraparo und N o te.

N either o ne o f

tho s e tw o additio nal elements are co n t ained in the s tatute.

In co ns truing a s t atute, the c o u rt's o bjective is to determine and give ef f ect to legis lative intent. A co urt mus t lo o k at the s t atute’s plain and c o mmo n meaning, and

no t lo o k to ex traneo u s matters f o r an intent that the s tatute do es no t s t ate.
Nat'l Liab. & Fire I ns
. C

o. v. Allen , 15 S. W. 3 d 525, 527 (Tex

. 2000) and Mons anto Co.

v. Corners tones Mun. Util. Dis t. , 865 S. W. 2d 937, 939 (Tex

. 1993); Moreno v. Sterling
Drug, Inc

. , 787 S. W. 2d 348, 3 52 (Tex

. 1990), s tating that in interpreting a s tatute, the
Legis lature's intent is determined f ro m the plain and co mmo n meaning o f the w o rds

us e d in the s tatute.

Us ing all o f the fo rego ing criteria f o r statuto ry co n structio n as o utlined by the

Tex as Supreme Co urt, Tex

. Pro p. C o d e § 5 1

. 0 03(a) s ho uld b e interpreted by this

Co urt ex actly as it is w o rded. A s s tatuto rily def ined, SH ER WOOD has f iled a
def iciency actio n.

42There is no c as e law o n po int f o r the ques tio n o f w hether t he tw o year s tatute

o f limitatio ns applies in this cas e. The tw o clo s es t cas es f actua l l y a r e Sow ell v.
International Interes ts

, LP , 416 S. W. 3d 593, (Tex

. App. -H o us t o n [14 t h Dis t] 2013, pet.
deni e d ) , a n d Mays v. B ank O ne, N. A

. , 150 S. W. 3d 897 (Tex

. A pp. -Dallas 2004, no
pet. ) , but bo th are readily dis tinguis hable.
The f acts in Sow ell w ere very dif f erent, since the lender was s u ing a guaranto r,
under a guaranty agreement, in a s uit bro ught w ithin tw o years o f the fo reclo s ure.
The Sow ell co u rt e x a m i ne d a co nf lict in the applicatio n o f the tw o and f our year
limitatio ns s tatutes , and held that the suit was go verned by the fo ur year statute o f
limitatio ns , but that limitatio ns w o uld be ex t ended until tw o years af ter the date o f
the fo reclo s ure s ale. Sow ell at 599. The lender in Sow ell f iled suit within tw o years

o f the f o reclo s ure, and s o the s uit w as timely. This cas e is no t a s u it o n a guaranty
agreement, but a suit agains t the makers o f t he N o te, s uit w as f iled w ell outs ide the

tw o year s tatute.

T he Mays cas e has a s imilar f act pattern to t his cas e, s ince it w as a s uit b y a

s eco nd lien ho lder agains t the m aker of a no te. H o w ever, t he is s ue in Mays w as no t

w hether the 2 year statute o f limitatio ns applied ( Tex

. Pro p. Co de § 51. 003), but ho w

to calculate the def iciency o n the s eco nd lien n ote (Tex

. P ro p. Co de § 51. 005). The

43Mays c o urt fo u nd that altho ugh the f oreclo sure o f t he f irs t lien e x t inguis hed the

s eco nd lien (creating a def iciency), Mays co uld no t us e the f o reclo s ure b id price o f
the f irs t lienho lder (B ank o f A merica) t o de t ermine the def iciency o n B ank One’s

s eco nd lien. The Mays co urt w as co ns idering an entirely dif f erent statute, o n a
dif f erent ques t io n than the is s ue rais ed in this cas e
. Th e Two St a t u t or y Two Yea r Limit a t ion s P er iod Exp ir ed P r ior t o S H ERW OOD ’s Su it
The f o reclo s ure to o k place o n A pril 6 , 2010. (A ppellants R es po ns e to Mo tio n
f o r Summary Judgment, Ex hibit D, Subs t itute Trus tee’s deed, CR 209). T h i s d e f i c i e n c y
actio n w as f iled on June 5 , 2014, m o re tha n f o ur y e ars af ter the fo reclo s ure. (SH ER WOOD’s Or i g i n a l P e t i t i on , C R 5 )

. Theref ore, SH ER WOOD’s claim is time barred.
The trial co urt erred in granting SH ER WOOD’s Mo tio n f o r Summary J udgment, and in denying A p pellant’s Cro ss Mo tio n f o r Summary Judgment.

Is s ue 5: T h e t r i a l c ourt erred in granting SH ER WOOD’s Mo tio n f o r Su m m a r y

Ju d g m ent bas e d o n f act is s ues o f f raud, fraudulent inducement and f raud in a real es tate trans actio n.

A t the time A ppellants e ntered i nto the co ntract to purchas e t he Sherw o o d

Pines A partments f ro m Sherw o o d Pin e s , Ltd. , the parties agreed that the
Wraparo und N o t e w o uld be a no nreco urs e n ote, with no pers o nal o r co rpo rate
liabilit y t o i n t he event o f a def ault
. (Ex hibit A , Co mmercial Co ntract - I mpro ved

44Pro perty, R es po ns e to Mo t io n f o r Summary Judgmen t , C R 1 5 5 ; C om mercial Co ntract

Financing Addendum, E x hibit K, R es po ns e to Mo tio n f o r Summary Judgment, CR
169-172; Letter f ro m the bro ker handling t he trans actio n, Ex hibit K , R es po ns e to

Mo tio n f or Summary Judgment CR 231, and A ppellants ’ af f idavits Ex hibits L thro ugh

W , C R 232-256 and Supp CR 3-4, R e s po ns e t o Mo t io n f o r Summary Judgment).
The o riginal s ales co ntract that gave ris e to the Wraparo und N ote s pecif ically

pro vided that “The no te w ill no t pro vide f o r liability (pers o nal o r co rpo rate) agains t
the maker in the e vent o f de f ault. ” (Ex hibit A , Co mmercial C o ntract - I mpro ved

Pro perty, Seller Financing A ddendum, page tw o , paragraph C, CR 1 55). The bro ker

w ho s old the pro pe r t y c o n f i r m s that the intentio n of the parties w as that the
Wraparo und N o te w as to have b e e n a n o n reco urs e no te (Letter fro m the bro ker handling the trans actio n, Ex hibit K , Res po ns e to Mo tio n f o r Summary Judgment CR 231). But fo r t he f ra u d ulent mis repres entatio n by Sherw oo d Pines , Ltd. regarding
the n ature o f t he Wraparo und N o te, A pp e l l a n ts w o uld no t have s igned the
Wraparo und No te. SH ER WOOD’s Summary J udgmen t Mo tio n s ho u ld have been
denied bas ed upo n the f act is s u es aris ing f ro m the def ens es bas ed in f raud.
The “merger claus e” in the Wraparo u n d N o t e do e s no t preclude A ppellants
f ro m intro ducing s u mmary judgment evidence that the co ntract w a s s u ppo s ed to

45co ntain d if f erent terms than tho s e w hich appear in the s ubject terms

. Italian

Cow boy Partners

, Lt d

. v
. Prudential Ins

. Co. , 341 S. W. 3d 3 23, 328-337 (Tex

. 2011).

In it s h o lding in Italian Cow boy , the Tex as Supreme Co urt dis tinguis hed its
earlier h o ldings in Sc hlum berger Tec hnology Corp. v. Sw ans on, 959 S. W. 2d 171 (Tex

. 1997) and Fores t O il Corp. v. Mc A llen, 268 S. W. 3d 51 (Tex

. 2008), in w hich the co urt
ha d e n f o rced a merger claus e and precluded evidence o f f raud. I n allo w ing the
admis s ibility o f

ex trins ic e v i d e n c e o f f raud and t erms w h ich d if f ered f ro m tho s e in
the f inal co ntract, the Italian Cow boy Co u rt dis tinguis hed the c o ntract b ef o re it f ro m
tho s e in t he Sc hlum berger and Fores t O il d e cis io ns
. The C o u rt held that s ince the

co ntract at is s ue did no t co ntain ex pres s language dis claiming reliance, ex trins ic
evidence o f fraud w as admis s ible. The Co urt reiterated its h oldings in p r e v i o u s
decis io ns that to dis claim reliance in a merger claus e, the p arties mus t us e clear and
unequivo cal lang u a g e
. I talian Cow boy at 3 36, citing the Co urt’s earlier ho ldings in

Sc hlum berger

at 179-180 and Fores t O il at 62.
Witho ut a c learly e x pres s ed and un e q u ivo c al intent t o d is claim reliance o r

w aive c laims f o r f raudulent inducement, a merger claus e has never had t he ef f ect o f precluding claims f o r f raudulent inducement. Italian Cow boy at 334. The language

o f the Wraparo und N o te bef o re this Co urt als o f ails to dis claim reliance. In f act, the

46merger claus e at is s ue co ntains language similar to the merger claus e in the Italian

Cow boy decis io n. The pertinent language in the Wraparo und N o te in this cas e s tates :
“TH IS N OTE REPR ESEN TS TH E FIN A L AG R EEMEN T B ETWEEN TH E PA YEE A N D TH E MA K ER A N D EX CEPT A S OTH ER WISE EX PR ESSLY IN DICA TED A B OVE MA Y N OT B E CON TR A DICTED B Y EVIDEN CE OF PR IOR , CON TEMPOR A N EOUS, OR SUB SEQ UEN T A G RE E M E NT S O F T H E P A RTIES A N D MA K ER A G R EES TH ER E A R E N O UN WR ITTEN O R A L A G R EEMEN TS B ETWEEN P A YEE A N D MA K ER

. ” (Wraparo u nd N o t e , S H ER WOOD’s Mo tio n f o r Summary Judgment, Ex hibit C-1, Page 4, CR 69). The pertinent language in Italian Cow boy cas e w as :
“14. 21 En t ire Ag reemen t
. This leas e co ns titutes the entire agreement betw een the parties hereto w ith res pect to the s ubject matter h e reo f , and no subs equ e n t amendment o r agreement s hall be b inding upo n either party unles s it is s igned by each party.

.. ” Italian Cow boy at 328.
The language of the tw o claus es is ef f e ctively the same, and neither claus e

co ntains language s pecif ically w aiving “reliance” o r s p e cif ically “w aiving a claim fo r
f r a u d u l e n t i n d u c e m e n t ”

. T h e r e f o re, the merger claus e in t he Wraparo und N o te do es

no t preclude evidence o f f raud and/o r f raudulent inducement.
Summary judgment w a s impro per becaus e A ppellants ’ s ummary judgment
evidence rais ed a material f act is s ue t hat the Wraparo und N o t e w as to have been a

no nreco urs e no te.

47PRAY ER

A p p e l l a n t s D A N I E L M A N D A R I NO , C A RRI E M A ND A RI NO , L A U RA D O Y L E , RO BE RT

CH UR CH , B R ETT B EA LS and LIN DA B EA LS as Trus tees o f the B eals Family R evo cable

Trus t, R O B ER T CH UR C H , R OB ER T A

. SCH A L B E, WILLIA M H. G A Y, J R

. , R I CCA R DIO D.

G A Y, ER IC J OH NSTON E, R AFA L Z IELIN SK I and VA LLY MESTR ON I pray that the co urt

revers e the judgment o f the trial c ourt, and render judgment in f avo r o f A ppellants

.
R es pectf ully Submitted, WA LTER LA W FIR M, P. C.

/s / Teri A

. Walter TER I A

. WA LTER Tex as B ar N o
. 20815100 G LEN N OR DT Tex as B ar N o
. 15076600 1111 N o rth Lo o p Wes t Suite 1115 H o us t o n , TX 77008 Pho ne 713 529-2020 Fax 713 529-2266 Email: tw alter@ p revaillaw yers .co m Email: gno rdt@ prevaillaw yers
. co m A TTOR N EY FOR A PPELLA N TS DA N IEL MA N DA RIN O, CA R R IE MA N DA R IN O, LA UR A DOYLE, R OB ER T CH UR CH , B R ETT B EA LS and LIN DA B EA LS as Trus tees f o the B eals Family R e vo cable Trus t, R OB ER T CH UR CH , R OB ER T A

. SCH A LB E, WILLIA M H

. G A Y, JR

. , R ICCA R DIO D. G AY, ER IC JOH N STON E, R A FA L Z IELIN SK I and VA LLY MESTR ON I

48CER TIFICA TE OF SER VICE

I hereby certif y that a co py o f t he f o rego ing has been mailed to all parties o f
r e co rd in this matter in acco rdance w ith the Tex as R ules o f Civil Pro cedure, by certif ied mail, return receipt reques ted, by hand delivery o r by f ax , o n this the 6th day o f A ugus t , 2015.

/s / Teri A

. Walter Teri A

. Walter

Do uglas A

. Daniels A ndrea L. G entle Daniels & G entle, LLP 6363 Wo o d w ay Suite 980 H ous to n, TX 77057

49

### UnofficialCopyOfficeofChrisDanielDistrictClerk

Appendix 1.1

### UnofficialCopyOfficeofChrisDanielDistrictClerk

Appendix 1.2Appendix 2.1Appendix 2.2Appendix 2.3Appendix 2.4Appendix 2.5Appendix 2.6Appendix 2.7Appendix 2.8Appendix 2.9APPEND IX 3 - St a t u t or y Text

Tex. Pr op . Cod e § 51.003(a ) D eficien cy J u d gmen t
If the price at w hich real pro perty is s o ld at a f o reclo sure under Sectio n 51. 002 is les s than the unpaid balance o f t he indebtednes s s ecured by the real pro perty, res ulting in a def iciency, any ac t i o n bro ught to re c o v e r t he def iciency mus t be bro ught w ithin tw o years of t he f o reclo s ure s ale and is go verned by this s ectio n.
Texa s Revis ed Limit ed Pa r tn er s h ip Act , Tex. Rev. Civ. St a t . a r t . 6132a -1 (RPLA) Ar ticle 8. D is s olu tion

Tex

. R ev. Civ. Stat. art. 6132a-1, R evis ed Limited Partners hip A ct

D is s olu t ion Sec. 8. 01. A limited partners hip is dis s o lved and its af f airs s hall b e w o und up o nly o n the f irs t o f

the f o llo w ing to o ccur: (1) the o ccurrence o f events s pecif ied in the partners hip agreement to caus e dis s o l u tio n unles s w ithin 90 days af ter the event caus ing the d is s o lutio n, all remaining partners (o r ano ther gro up or percentage o f partners as s pecif ied by the partners hip agreement) agree in writing t o co ntinue the bus ines s o f the limited partners hip; (2) w ritten co ns ent o f

all partners to dis s olutio n; (3) an event o f

w ithdraw al o f

a general partner, unles s : (A ) there remains at leas t o ne general partner and the partners hip agreement permits the bus ines s o f the limited partners hip to be carried
o n by the r e m a i ni ng general partner o r general partners , and that general partner o r tho s e general partners do s o ; o r (B ) w ithin 90 days af ter the event o f w ithdraw al, all remaining partners (o r ano ther gro up o rpercentage o f partners as s pecif ied by the

A ppendix 3. 1partners hip agreement) agree in w riting t o co n tinue t he bus ines s o f the limited partners hip and, to the ex tent that they d es ire o r if there are no remaining general partners , agree to the appo intment, e ff e ctive as o f the date o f

w ithdraw al, o f

o ne o r mo re new general partners ; o r (4) entry o f

a decree o f

judicial dis s olutio n under Sectio n 8. 02 o f this A ct.

Sec. 8. 04. (a) Ex cept as pro vided in the p artners h ip agreement, o n the dis s olutio n o f a limited pa rtners hip, the partners hip's af f airs s hall be w o und up as s oo n as reas o nably practicable, and the w inding up s hall be acco mplis hed b y the general partners w ho have no t w ro ngf ully dis so lved a limited partners hip o r, if there are no ne w ho have
no t w ro ngf ully dis so lved t he partners hip, by the limited partners o r a pers o n cho s en by the limited partners

. In additio n , a co urt o f co mpetent j u r i s dictio n , o n caus e s ho w n, may w ind up the limited partners hip's af f airs o n applicatio n o f any partner o r the p artner's legal repres e ntative o r as s ignee and, in co nnectio n w ith the w inding up, m ay appo int a pers on to carry o ut the liquidatio n and may make all o ther o rders , directio ns , and inquiries that the circums tances require. (b) On the dis s o lutio n o f a limited partners hip and until the f iling o f a certif icate o f cancellatio n as pro vided by Se c t i o n 2

. 0 3 o f t his A ct, u n les s a w ritten partners hip agreement pro vides o therw is e, the pers o ns w inding u p the limited par t n e r s h ip's af f airs may, in the name o f and f o r and o n behalf o f the limited partners hip: (1) pro s ecute and def e nd civil, criminal, o r adminis trative s u its ; (2) s ettle and clo se the limited partners hip's bus ines s ; (3) dis po s e o f and co nvey the limited partners hip's pro perty f o r cas h, unles s a w ritten partners hip agreement permits a trans f er o n no n cas h terms ; (4) di s c harge o r make reas o nable pro vis io n to pay the limited partners hip's liabilities ; and (5) dis t ribute to t he partners any remaining as sets of the limited partners hip.

A ppendix 3. 2(c) The acts des cribed in Subs e ctio n (b) o f this sectio n do no t c reate liability o f limited

partners t h a t did no t ex is t b ef o re the actio ns to w ind u p the af f airs o f the partners hip w ere taken.

D is p os it ion of a s set s Sec. 8. 05. O n the w inding up o f a l i m i t e d partners h ip, its as s ets s hall be paid o r trans f erred as f o llo w s: (1) to t he ex tent otherw is e permitted by law , to credito rs , including partners w ho are credito rs o ther than s o lely as a res u lt o f the applicatio n o f Sectio n 6. 06 o f this A ct, in s atis f actio n o f liabilities o f the limited partners h ip, w hether by payment o r the making o f reas o nable pro vis io n f o r payment thereo f ; (2) unles s o t herw is e p ro vided by the p artners hip agreement, to partners and f o rmer partners in s atis factio n o f t he p artners h ip's liability f o r d is tributio ns under Sectio n 6. 01 o f this A ct o r payments under Sectio n 6. 04 o f this A ct; and (3) unles s o therw is e pro vided by the partners h ip agreement, to p artners f irs t f o r the return o f t heir capital and s eco nd w ith res p ec t t o t h e i r partners hip interes ts , in the pro po rtio ns pro vided by Sectio n 5. 04 o f this A ct.

F or feit u r e of r igh t t o t r a n s a ct b u s in es s for fa ilu re t o file p er iod ic r ep or t Sec. 13. 06. (a) A do mes tic o r fo reign limited partners h ip that f ails to f ile a repo rt required under Sectio n 13. 05 o f this Act w hen d ue f o rf eits its right to trans act b u s ines s in t his s tate. ( b ) A f orf eiture under t his sectio n takes ef fect w itho ut judicial as c ertainment. T h e s ecretary o f s tate s hall enter o n the reco rd kept in the s ecretary's o ff ice relating to the limited partners hip a no tatio n that th e r i g h t to trans act bus ines s h as been f o rf eited to gether with the date o f f o rf eiture. N o tice o f the f o rf eiture s h all b e mailed to the limited partners hip at: (1) the regis tered o f f ice o f the limited partners hip;

A ppendix 3. 3(2) the las t kno w n addres s o f the limited partners hip; o r (3) any o ther place o f

bus ines s o f

the limited partners hip. ( c ) Unles s the right o f the limited partners hip to trans act bus ines s is revi v e d i n acco rdance w ith Sectio n 13. 07 o f this A ct, the limited partners hip may no t m aintain an actio n, suit, o r pro ceeding in a co urt o f this s tate, and a s ucces s o r o r as s ignee o f the limited partners hip m ay no t maintain an actio n, s uit, o r pro ceeding in a co urt o f this s t ate o n a right, claim, or demand aris ing o ut o f the trans actio n o f bus ines s by the limited partners hip in this s tate. The fo rf eiture of the right to trans act bus ines s in this s tate do es no t impair the validity of a co n tract o r act o f the limited partners hip and d o e s no t prevent t he limit e d p a r t n ers h ip fro m def ending an actio n, s uit, o r pro ceeding in a co urt o f

this s t ate. (d) This sectio n d o e s n o t af f ect the liability o f a limited partner in the limited partners hip.

A ppendix 3. 4Appendix 4APPEND IX 5 - In d ex of Per s on s a n d Comp a n ies

B eals , B ret as Trus t ee o f t he B eals Family R e vo cable Trus t, o n e o f t he makers of the Wraparo und N o te, an d A p pellant (CR 66, 73, 242).

B eals , Linda as Trus t ee o f t he B eals Family R e vo cable Trus t, o n e o f the makers of t he Wraparo und N o t e , and A p pellant (CR 66, 73, 244).
Cal State Inves tment Limited Partners hip One o f the makers o f the Wraparo und N o t e, and B uyer o f the Sherw o o d Pines A partments (CR 66, 69, 155).
Church, R o bert One o f the make r s o f t h e W r a p aro und N o te, and A p pellant (CR 66, 71, 239).

Co mpto n , Jef f rey CPA w ho p erf o rmed calculatio ns a s to the balance due o n the Wraparo und N o te fo r SH ER W O O D (CR 76).

Do yle, Laura One o f the makers o f t h e W r a pa r o und N o te, and A p pellant (CR 66, 70, 236).

G ay, R iccardio D. O n e o f t h e m a k e r s o f the Wraparo und N o te , a n d A p pellant (CR 66, 71, 251).

G ay, William H

. , Jr. O n e o f the maker s o f t h e W r a p a r o u n d N o t e , a n d A p pellant (CR 66, 72, 249).

G ilmo re, Jo hn E. One o f the general partners of Sherw o o d Pines , Ltd. (CR 48, 217-221).

H ale, James Pres ident o f Lee Wallis , Inc. (CR 53).

A ppendix 5. 1Jo hns to n, Eric One o f t h e ma k e r s o f the Wraparo und N o te, and A p pellant. (CR 66, 69, CR Supp. 3).
Lee Wallis , Inc. R e c e i v e d r i g h t s t o a p o r t i o n o f t he W r a p a r o u n d N o te f ro m Sherw o o d Pines , Ltd. o n March 10, 2008 (CR 53, 54, 74) and as s igned the Wraparo u nd N o te to SH ER WOOD o n May 19, 2014 (CR 57, 74).

Mandarino , Daniel One o f the makers o f t h e W r a p a r o und N o te, and A p pellant (CR 66, 69, 232).

Mandarino , Carrie O n e o f t h e m a k e r s o f the Wraparo u n d N o t e , a n d A p pellant (CR 66, 69, 234).

Mes tro ni, Vally One o f the make r s o f t h e W r a p aro und N o te, and A p pellant (CR 66, 69, 253).

Mo rgan G uaranty Original Lender o n t he f irs t lien no te dated June 27, 2001, secured by Sherw oo d P ines A par tments , (w rapped no t e) (CR 173).

R ichards o n, H erbert B

. One o f the general partners of Sherw o o d Pines , Ltd. (CR 62, 217-221).
Schalbe, R o bert A

. O n e o f t h e m a k e r s o f the Wraparo und N o te , a n d A p pellant (CR 66, 69, 246).

SH ER WOOD LA N E IN V ESTMEN TS, LLC Plaintif f in Trial Co urt (CR 5), and A p p e l l e e ; r e c e i v e d t h e W r a p a r o u n d N o t e b y A s signment f ro m Lee Wallis , Inc. o n May 19, 2014 (CR 57).

A ppendix 5. 2Sherw oo d Pines , Ltd. S e l l e r o f S h e r w o o d P i n e s A p a r t m e n t s ( C R 1 5 5 ) ; Original Lender o n the Wraparo u n d No te dated Octo ber 16, 2006 (CR 66); A s signo r o f a po rtio n o f the Wraparo u n d N ote to L e e Wallis , Inc. o n March 10, 2008 (CR 54, 74).
Villa N ueva A partment, LLC Lender w h o f o reclo sed o n the f irs t lien no te s ecured by Sherw o o d P ines A partments , and p u rchas er at the f o reclo s ure s ale o n A pril 12, 2010 (CR 209).

Vo llucci, Eugene E. R e a l t o r w h o r e p r e s e n t e d C a l S t a t e Inves tments as B uyer o f Sherw o o d Pines A partments (CR 1 5 5 , 160, 230); co nf irmed that the Wraparo und N o te was to have been
a no n-reco urs e no te (CR 231), and o ne o f the makers o f t he Wraparo und N ote (CR 66, 69).

Z ielins ki, R af al O n e o f the m akers o f the Wraparo u n d N o t e , a n d A p pellant (CR 66, 69, 255).

A ppendix 5. 3APPEND IX 6 - Time Lin e of Even ts

10/26/99 Certif icate of Limited Partners hip f o r Sherw o od Pines , L td. , w ith Jo hn

G ilmo re as R egis tered A gent, and Jo hn G ilmo re and H erbert R ichards o n as general p artners , (Ex hibit G to R e s p o ns e to Mo t io n f o r Summary Judgment, CR 217-219). 11/04/99 Jo hn G ilmo re’s w ithdraw al as G eneral Partner o f Sherw o o d Pines , Ltd.

(Ex hibit G to R es p o ns e t o M o t io n f o r Summary Judgment, CR 220); Dis s o lutio n o f

the limited Partners hip. 06/27/01 Deed o f Trus t Sherw o o d Pines t o Mo rgan G uaranty (Ex hibit A to

R e s po ns e to Mo tio n f o r Summary Judgment, CR 173). 10/04/05 T e rminatio n o f Sherw o o d P ines , L td’s right to do b u s ines s in Tex as

(Ex hibit G to R es po ns e to Mo tio n f o r Summary Judgment, CR 223). 02/06/06 Cancellatio n o f Sherw o o d P i n e s , L t d ’ s c e r t i f icate o f regis tratio n by Tex as

Secretary of State f o r f ailure to f ile perio dic r e p o r t ( Ex h ibit G to R e s po ns e to Mo tio n f o r Summary Judgment, CR 224). 06/12/06 Co m m ercial Co ntract f o r Sherw o od Pines Apartments , at 4211

Sherw o o d Lane, H o us to n by Sherw o o d P i n e s Limited t o Cal State Inves tment Limited Partners hip fo r $4,560,000 (as s umptio n of ex is ting $2,875,0 0 0 n o te and Seller f inancing o f $545,000) Per f inancing addendum, Seller f inancing s hall be interes t o nly f o r 5 years at 5. 5% interes t) and w ill no t pro vide fo r pers onal liability ( page 2, paragraph C(5). (Ex hibit C to R es p o ns e to Mo t io n f o r Summary J u d gment, CR 155). 10/16/06 W r a p a r o und P ro mis s o ry N ote by C al State I nves tment et. al. to

Sherw o o d Pines , Ltd f o r $ 3,420,000 (Ex hibit C-1 t o Plaintif f ’s Mo tio n fo r Summary Judgment, Wraparo und N ote, page 1, CR 66).

A ppendix 6. 111/02/06 Deed of Trus t o n W r a paro u nd N o te, Cal State Inves tment e t. al. to Sherw o o d Pi ne s , Ltd. (Ex hibit D to R es po ns e to Mo t io n f o r Summary Judgment, CR 197). 04/20/07 Deadline f o r 2% no n-as s u mptio n payment on Wraparo und N o te,

(Ex hibit C-1 to SH ER WOOD’s Mo tio n f o r Summary Judgment, Wraparo und N o te, page 2, CR 67). 03/10/08 Endo rs ement o f Wraparo und N o te by Sherw o o d Pines , Ltd to Lee

W a l l i s , I n c
. ( E x h i b i t C-1 to SH ER WOOD’s Mo tio n f or Summary Jud g m e n t , Wraparo und N o te, page 10, CR 74). 08/28/09 Letter f ro m G ene Vo llucci To Who m it may co n c ern: “ T h is letter is to

c o nf irm that the purchas e f o r Sherw o o d Pines A partments includ e d a no n-reco urs e lo an. A ll the parties , including the s eller, were f ully aw are and in agreement that this lo an w as to b e no n-reco urs e, jus t like the underlying original no te is and remains no n- reco u rs e. ” (Ex hibit K to R e s po ns e to Mo tio n f o r Summary Judgment, CR 231). 03/31/10 A s s ignment o f Mo rtgage (s e c uring Firs t Lie n No te) to N ueva Villa

A partment, LLC ( Ex hibit E to R e s p o n s e to Mo tio n f o r Summary Judgment, CR 207). 04/06/10 Fo reclo s ure o f Firs t Lien o n Sherw oo d Pines A partments by N ueva Villa

A partments (CR 209). 04/12/10 Subs titute Trus tee’s Deed to N ueva V illa A partment, LLC f o r $1,775. 000

(Ex hibit F to R es po ns e to Mo tio n f o r Summary Judgment, CR 209). 04/06/12 Tw o years af ter f o reclo s ure. (Ex piratio n o f 2 year s tatute o f limitatio ns ,

§ 51. 003 Tex . Pro p. Co de). 05/12/14 C ertif icate o f f o rmatio n Plaintif f / A ppellee SH ER WOOD LA N E IN VESTMEN T S , L L C (Ex hibit H to R es po ns e to Mo tio n f or Summary Judgment, CR 225).

A ppendix 6. 205/19/14 A s s ignment o f 2 n d lien no te to SH ER WOOD LA N E IN VESTM E N T S L L C (Ex hibit B -1 to SH ER WOOD’s Mo tio n f or Summary Judgment, CR 57). 06/05/14 SH ER WOOD LA N E, LLC’s Original Petitio n f iled (CR 5). 12/19/14 Final Judgment entered (CR 396). 02/25/15 N otice o f

A ppeal f iled (CR 427).

A ppendix 6. 3