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In The

Court of Appeals

Ninth District of Texas at Beaumont

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NO. 09-18-00364-CV

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WALLACE CONSTRUCTION & DEVELOPMENT COMPANY, Appellant

V.

MADISON PLAZA, LP, Appellee

__________________________________________________________________

On Appeal from the 58th District Court

Jefferson County, Texas

Trial Cause No. A-195,368

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MEMORANDUM OPINION

Appellant Wallace Construction & Development Company (“Wallace”) 

appeals from the trial court’s summary judgment in favor of appellee Madison Plaza, 

LP (“Madison”). In two issues, Wallace asserts that the trial court committed error

in granting Madison’s motion for summary judgment because (1) Wallace was never 

a terminated entity under the Texas Business Organizations Code, and its claim was 

not extinguished, and (2) Madison did not establish its affirmative defense of 
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limitations as to its claims for fraud, fraudulent inducement, and breach of contract.

We reverse the trial court’s order granting summary judgment and remand the cause 

for further proceedings consistent with this opinion.

PERTINENT BACKGROUND

Wallace filed suit against Madison on February 24, 2014, seeking a 

declaratory judgment and asserting claims for fraud, fraudulent inducement, and 

breach of contract related to Wallace’s alleged oral agreement to construct a retail 

and office complex, which was Madison’s development project. Wallace explained 

that the agreement called for Wallace to construct the project at cost and to receive 

no cash consideration for its services. Wallace pleaded that it constructed the 

complex pursuant to the agreement and that Wallace’s principal and sole stockholder

“executed a personal guarantee of all debt incurred by [Madison] including an initial 

construction loan related to the project in the amount of $1,904.000.00.”

According to Wallace’s petition, the parties formed a joint venture or 

partnership, pursuant to which Wallace “was to receive a 25% ownership and profit 

interest in the Madison Plaza venture.” Wallace asserted that despite the agreement 

and Wallace’s performance, Madison refused “to acknowledge the existence of the 

joint venture or partnership between the parties[]” and refused to render an 

accounting to Wallace. According to Wallace, Madison failed to pay “any profits or 
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proceeds from the joint venture or partnership.” Wallace sought a declaratory 

judgment that the parties entered into an oral partnership or joint venture, in that

Wallace has a 25% interest in the partnership or joint venture, and that Madison is 

required to provide an accounting for the partnership or joint venture. In addition, 

Wallace asserted causes of action for “simple fraud[,]” fraudulent inducement, and 

breach of contract.

Madison asserted a general denial and pleaded that Wallace’s claims were 

barred by the statute of limitations, statute of frauds, laches, and Wallace’s alleged 

violation of conditions precedent. Additionally, Madison denied under oath that it 

had any partnership or joint venture with Wallace. Madison also contended that it is 

entitled to “costs and expenses associated with correcting all deficiencies with the 

construction of the buildings in question.” Madison later filed its second 

supplemental answer, in which it asserted, among other things, that the trial court 

lacked jurisdiction because, as a terminated filing entity, Wallace lacked standing to 

sue and did not have the “right to bring or prosecute a claim in a Texas court[.]”

According to Madison’s second supplemental answer, Wallace’s claims were 

extinguished by operation of law on July 30, 2013. Madison later filed a third 

supplemental answer and a supplement to its motion for summary judgment, with 

which he provided a certified copy of the Secretary of State’s forfeiture of Wallace. 
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Madison filed a motion for traditional summary judgment, in which it asserted 

that because the Secretary of State had made Wallace a terminated entity, and 

Wallace had not been reinstated within three years of its termination, Wallace had 

no capacity to file suit. Madison asserted that section 11.001 of the Texas Business 

Organizations Code (“TBOC”) defines a terminated entity as, inter alia, a domestic 

entity, the existence of which has been forfeited pursuant to the Tax Code, unless 

the forfeiture has been set aside, and the TBOC defines “terminated filing entity” as 

“a terminated entity that is a filing entity.” Tex. Bus. Orgs. Code Ann. § 

11.001(4)(B), (5) (West Supp. 2018). Madison also cited section 11.356 of the 

TBOC, which provides that a terminated filing entity continues until the third 

anniversary of the effective date of its termination for purposes of (1) prosecuting or 

defending a claim brought by or against the terminated entity or (2) permitting 

survival of an existing claim by or against the terminated filing entity. Id. § 

11.356(a)(1), (2) (West 2012). 

As Madison stated in its motion, the TBOC provides that “an existing claim 

by or against a terminated filing entity is extinguished unless an action or proceeding 

is brought on the claim not later than the third anniversary of the date of termination 

of the entity.” Id. § 11.359(a) (West 2012). Madison argued that because Wallace 

was terminated by the Secretary of State on July 30, 2010, and Wallace was not 
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reinstated within three years, “any reinstatement will not be retroactive through the 

period of termination, including but not limited to for the purpose of filing suit on a 

claim.” According to Madison, Wallace lacked capacity to bring suit because its 

existence had been terminated, and its corporate status was not reinstated within 

three years. Madison asserted that Wallace’s causes of action were extinguished by 

operation of law on July 30, 2013, which is the third anniversary of its termination. 

In addition, Madison contended that Wallace’s causes of action are barred by 

limitations because the discovery rule does not apply and there are no genuine issues 

of material fact regarding when Wallace discovered the nature of its alleged injury.1

With respect to the limitations issue, Madison pointed to the testimony of 

Loddie Naymola, the president of the corporation that is Madison’s general partner, 

during the 2006 divorce trial of Gary Wallace (“Gary”), the “principal and sole 

stockholder” of Wallace. According to Madison, Wallace’s alleged claim was not 

inherently undiscoverable, and “the accrual of [Wallace]’s purported claim was . . . 

stated plainly and under oath and in the presence of Gary Wallace[.]”

Madison also attached a certified notice of forfeiture from the Secretary of 

State, which stated that that the Comptroller had advised that grounds existed for 

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Madison previously filed a summary judgment and a supplemental motion 

for summary judgment that dealt with limitations, and the trial court denied both 

motions as to the limitations issue. 
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forfeiture of Wallace and Wallace had not revived its forfeited privileges within 120 

days after the date its privileges were forfeited. According to the document, the date 

of forfeiture was July 30, 2010. Also attached as evidence was Gary’s 2015 

deposition testimony.

Madison argued that the discovery rule did not apply, and that Wallace’s 

claims were therefore time-barred as a matter of law. According to Madison, Loddie 

Naymola’s deposition testimony, as discussed with Gary in his deposition,

demonstrated that “the accrual of [Wallace]’s purported claim was not only 

discoverable more than four years prior to the initiation of this case, but stated plainly 

and under oath in the presence of Gary Wallace,” making Wallace’s contention that 

its claim was inherently undiscoverable “disingenuous.” According to Madison, for 

the discovery rule to apply, the injury must be inherently undiscoverable and the 

evidence of injury must be objectively verifiable. 

Wallace filed a response to the motion for summary judgment, in which it 

asserted that (1) limitations had not run on its claims and (2) it was not a “terminated 

entity” under the TBOC and, therefore, its claims were had not been extinguished. 

Specifically, Wallace contended that when the Legislature recodified the Texas 

Business Corporations Act (“TBCA”) as the Business Organizations Code, the 

Legislature eliminated a corporation’s failure to pay its franchise taxes as a basis for 
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forfeiture. According to Wallace, although its existence was forfeited under the 

Texas Tax Code for failure to pay its franchise taxes, it was not a terminated entity 

because the forfeiture was set aside. Wallace asserts that “[f]ailing to pay franchise 

taxes is an administrative issue under the Tax Code, which does not provide a 

deadline or time limitation as to when an entity can be reinstated or when a tax 

forfeiture can be set aside.”

With respect to the statute of limitations issue, Wallace pointed out that 

Madison had unsuccessfully asserted its limitations issue twice before in the trial 

court and asserted that Madison “ha[d] not cited any new evidence or any

distinguishing facts.” Wallace contended that it could not have discovered its alleged 

causes of action until a meeting on August 1, 2013, between Wallace, his attorney, 

Naymola, and others. It was then that Wallace Construction “discovered, or could 

have discovered, [Madison]’s intention to breach the agreement.” Attached to 

Wallace’s response were, among other things, Wallace’s application for 

reinstatement and request to set aside the tax forfeiture; a copy of a tax clearance 

letter, which stated that Wallace had “met all franchise tax requirements” and was 

eligible for reinstatement; and a certificate of filing from the Secretary of State, 

which certified that Wallace had been reinstated to active status, effective May 1, 

2018. 
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After conducting a hearing on Madison’s motion, the trial judge signed an 

order granting Madison’s motion for summary judgment on June 13, 2018. On the 

same date, the trial judge issued a letter ruling, in which he concluded that because 

Wallace was terminated and not reinstated within three years of its termination, 

Wallace’s claims were extinguished. This appeal followed.

ISSUE ONE

In issue one, Wallace argues that the trial court erred by granting Madison’s 

motion for summary judgment because Wallace was never a terminated entity under 

the TBOC and, therefore, had capacity to sue. We review summary judgment orders 

de novo. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 

2003). The party moving for traditional summary judgment must establish that (1) 

no genuine issue of material fact exists, and (2) it is entitled to judgment as a matter 

of law. Tex. R. Civ. P. 166a(c); Randall’s Food Mkts., Inc. v. Johnson, 891 S.W.2d 

640, 644 (Tex. 1995). If the moving party produces evidence entitling it to summary 

judgment, the burden shifts to the non-movant to present evidence that raises a fact 

issue. Walker v. Harris, 924 S.W.2d 375, 377 (Tex. 1996). In determining whether 

there is a disputed material fact issue precluding summary judgment, evidence 

favorable to the non-movant will be taken as true. Nixon v. Mr. Prop. Mgmt. Co., 

690 S.W.2d 546, 548-49 (Tex. 1985). We review the summary judgment record “in 
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the light most favorable to the non[-]movant, indulging every reasonable inference 

and resolving any doubts against the motion.” City of Keller v. Wilson, 168 S.W.3d 

802, 824 (Tex. 2005). We must affirm the summary judgment if any of the grounds 

asserted in the motion are meritorious. Tex. Workers’ Comp. Comm’n v. Patient 

Advocates of Tex., 136 S.W.3d 643, 648 (Tex. 2004). 

In 2003, the Legislature repealed the TBCA, and the TBOC provided that the 

TBOC would become effective as of January 1, 2010, even as to corporations formed 

before the TBOC was recodified and corporations that had yet not affirmatively 

adopted the TBOC. See Act of March 30, 1955, 54th Leg., R.S., ch. 64, 1955 Tex. 

Gen. Laws 239, repealed and recodified by Act of May 13, 2003, 78th Leg., R.S., 

ch. 182, §1, sec. 402.005, 2003 Tex. Gen. Laws 267, 593. Under the repealed TBCA, 

one of the grounds for involuntary dissolution of a corporation by the Secretary of 

State specifically included the corporation’s failure to pay its franchise taxes. See

Act of May 25, 1981, 67th Leg., R.S., ch. 297, § 25(B)(1), 1981 Tex. Gen. Laws 

831, 843 (repealed 2003) (providing for forfeiture when a corporation had failed “to 

pay any fees, franchise taxes[,] or penalties prescribed by law”). However, when the 

Legislature recodified the TBCA as the TBOC, the Legislature removed failure to 

pay franchise taxes as a basis for involuntarily dissolving a corporation, leaving only 

the previous TBCA categories of fees or penalties prescribed by law. See Tex. Bus. 
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Orgs. Code Ann. § 11.251(b) (West 2012) (providing that the Secretary of State may 

terminate the existence of a “filing entity” for failure to “pay a fee or penalty 

prescribed by law when due and payable”). Courts must construe statutory language 

to ascertain and effectuate legislative intent, and we presume that the Legislature 

intends the plain meaning of its words. Epco Holdings, Inc. v. Chicago Bridge & 

Iron Co., 352 S.W.3d 265, 269-70 (Tex. App.—Houston [14th Dist.] 2011, pet. 

dism’d). In addition, courts presume that every word of a statute was used for a 

purpose and every omitted word was purposefully not chosen. Id. at 270.

We must presume that the Legislature purposefully omitted nonpayment of 

franchise tax as a basis for involuntary termination when it repealed the TBCA and 

enacted the TBOC. See id. The TBOC defines a “terminated entity” as a domestic 

entity whose existence has been either (1) terminated in a manner authorized by the 

TBOC, “unless the entity has been reinstated in the manner provided by [the 

TBOC];” or (2) “forfeited pursuant to the Tax Code, unless the forfeiture has been 

set aside.” Tex. Bus. Orgs. Code Ann. § 11.001(4). We conclude that, under the 

terms of section 11.001(4) of TBOC, Wallace never became a terminated entity 

because (1) its existence was not terminated in a manner authorized by the TBOC, 

since the TBOC no longer authorizes termination for failure to pay franchise taxes, 

and (2) Wallace’s forfeiture pursuant to the Tax Code was set aside in 2018.
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Accordingly, because Wallace was not a terminated entity under the TBOC, 

Wallace’s right to file suit for existing claims had not been extinguished. Cf. id. § 

11.356 (providing that a terminated filing entity’s existence continues for purposes 

of (1) prosecuting or defending a claim in the entity’s name and (2) permitting the 

survival of an existing claim by the terminated filing entity until the third anniversary 

of the effective date of its termination). 

Section 171.313 of the Tax Code states that if a corporation’s charter or 

certificate of authority has been forfeited, a stockholder, director, or officer of the 

corporation at the time of the forfeiture may request that the Secretary of State set 

the forfeiture aside. Tex. Tax Code Ann. § 171.313(a) (West 2015). According to 

the Tax Code, if such a request is made and the delinquent tax has been paid, “the 

secretary shall set aside the forfeiture of the corporation’s charter or certificate of 

authority.” Id. § 171.313(b) (West 2015). Section 171.313 does not contain a time 

limitation for setting aside the forfeiture. See id. § 171.313. The cases cited by 

Madison in support of its argument before the trial court and on appeal either deal 

with corporations that were governed by the TBCA rather than the TBOC or rely 

upon case law that predates the TBOC; therefore, they are distinguishable. See, e.g., 

Cohen Acquisition Corp. v. EEB, P.C., No. 14-14-00330-CV, 2015 WL 2404869 

(Tex. App.—Houston [14th Dist.] 2015, pet. denied) (mem. op.) (involving a 
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corporation that was forfeited while the TBCA was in effect); Emmett Props. v. 

Halliburton Energy Servs., 167 S.W.3d 365, 368 (Tex. App.—Houston [14th Dist.]

2005, pet. denied). 

For all these reasons, we conclude that Wallace’s right to assert its claims 

against Madison was not extinguished, and, therefore, Madison did not demonstrate 

that it was entitled to judgment as a matter of law. See Johnson, 891 S.W.2d at 644; 

see also Tex. R. Civ. P. 166a(c). Accordingly, the trial court erred by granting 

summary judgment in favor of Madison on that basis. We sustain issue one.

ISSUE TWO

Because we must affirm the trial court’s summary judgment if any of the 

grounds advanced by Madison are meritorious, we turn to Wallace’s second issue. 

See Tex. Workers’ Comp. Comm’n, 136 S.W.3d at 648. In issue two, Wallace 

contends that the trial court erred by granting summary judgment in favor of 

Madison on Madison’s limitations defense because Madison did not establish its 

affirmative defense as to Wallace’s fraud, fraudulent inducement, and breach of 

contract claims. 

The statute of limitations is an affirmative defense. Tex. R. Civ. P. 94. A 

defendant that moves for summary judgment on the affirmative defense of statute of 

limitations must conclusively prove when the cause of action accrued, and if the 
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plaintiff pleaded a tolling provision or exception, the defendant must conclusively 

negate its application as a matter of law. Velsicol Chem. Corp. v. Winograd, 956 

S.W.2d 529, 530 (Tex. 1997); see also Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 

217, 224 (Tex. 1999). 

In this case, Wallace pleaded the discovery rule as to its claims for fraud, 

fraudulent inducement, and breach of contract. Therefore, to prevail on its motion 

for summary judgment, Madison was required to negate the application of the 

discovery rule. See Winograd, 956 S.W.2d at 530. In a letter ruling regarding a prior 

summary judgment on limitations, the previous trial judge noted as follows:

The summary judgment record clearly establishes that [Gary] 

heard Naymola’s testimony at the divorce hearing where he (Naymola) 

described the parties’ joint venture agreement differently than the 

original agreement. According to the original agreement, the plaintiff 

would be entitled to a 25% stake of the Madison Plaza ventures once 

all debts were retired. At the divorce hearing, Naymola testified that, 

once all debts had been retired, the plaintiff would be eligible for up to 

25% interest but at his discretion. [footnote omitted] 

The record also establishes, however, that [Gary] was uncertain 

whether Naymola’s testimony truly reflected his position or was the 

product of circumstances, i.e. [Gary]’s divorce. It also establishes that 

he periodically asked Naymola’s assistant if the project was making 

money and was told it was not. He also tried to meet with Naymola on 

multiple occasions but was told he was in meetings, out of town, etc. 

(footnotes omitted).

We agree with the previous trial judge’s analysis of the evidence and conclude 

that Madison did not negate the existence of the discovery rule, nor did Madison 
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establish that no genuine issues of material fact remained. See Tex. R. Civ. P. 

166a(c); Winograd, 956 S.W.2d at 530. Accordingly, we conclude that summary 

judgment in favor of Madison based upon limitations was improper. We sustain 

issue two. Having sustained both of Wallace’s appellate issues, we reverse the trial 

court’s order granting Madison’s motion for summary judgment and remand the 

cause for further proceedings consistent with this opinion.

REVERSED AND REMANDED.

_________________________

 STEVE McKEITHEN

 Chief Justice

Submitted on May 30, 2019

Opinion Delivered September 26, 2019

Before McKeithen, C.J., Horton and Johnson, JJ.