Court Opinion

ID: 3072644
Source: CourtListenerOpinion
Date Created: 2015-10-16 00:49:06.692521+00
Date Added: 2024-06-11T11:50:08.277588
License: Public Domain

Opinion issued June 2, 2015

                                     In The

                              Court of Appeals
                                    For The

                         First District of Texas
                            ————————————
                              NO. 01-14-00246-CV
                           ———————————
ALLEN L. BERRY, JOSEPH D. MCCORD, AND ROBERT G. TAYLOR, II,
                          Appellants
                                       V.
                          ENCORE BANK, Appellee

                   On Appeal from the 152nd District Court
                            Harris County, Texas
                      Trial Court Case No. 2010-63264

                         MEMORANDUM OPINION

      Allen Berry, Robert Taylor, and Joseph McCord guaranteed a loan from

Encore Bank to BLyn II Holding, LLC, a Texas limited liability company (“Blyn”)

of which Berry, Taylor, and McCord were members. After Blyn defaulted on the

loan, Encore sued the three guarantors, asserting causes of action for breach-of-
contract and suit on a guaranty. All parties filed motions for summary judgment.

The district court granted Encore Bank’s two motions and denied the guarantors’

motion. The district court also denied the guarantors’ challenge to Encore Bank’s

summary-judgment evidence.

      In five issues, the guarantors contend that the trial court erred by (1) denying

their motion for summary judgment asserting that Encore’s claims are barred by

limitations, (2) granting Encore summary judgment on the guarantors’ defense of

mutual mistake, (3) granting Encore summary judgment on the guarantors’

negligence and negligent misrepresentation counterclaims, (4) granting Encore

summary judgment on its breach-of-contract and suit-on-guaranty claims, and

(5) overruling the guarantors’ objections to Encore’s summary judgment evidence.

      We affirm.

                                     Background

      This case arises from a default on a loan obtained to finance the

refurbishment of a luxury yacht. The yacht was listed as collateral for the loan.

Three of the businessmen affiliated with the borrower executed personal

guarantees. The collateral was lost to another entity after the lender’s interest in the

collateral was primed 1 by a maritime lien placed on the yacht by the entity that

1
      In the context of competing claims to collateral, the claim that takes the highest
      priority is said to “prime” the lesser claims. See BLACK’S LAW DICTIONARY
      1311 (9th ed. 2009).

                                           2
refurbished the yacht. The lender, Encore, then sought judgment against the three

guarantors for the full amount of the loan, without any available offset due to the

loss of the yacht as collateral. The district court granted Encore summary judgment

and entered a final judgment against the guarantors.

A.      The refurbishment project

        Berry, McCord, and Taylor are personal friends who entered into a series of

business transactions to purchase and renovate a luxury yacht named the Betty Lyn

II. They planned to enter the yacht into the charter market “as a luxury, expedition

style yacht.” The friends formed Blyn and purchased the Betty Lyn II in December

2005.

        Blyn selected Crimson Yachts and Horizon Shipbuilding, Inc., in Alabama,

to refurbish the yacht. Contract negotiations began between Blyn and Crimson in

May 2006. The yacht was delivered to Crimson’s shipyard in June or July 2006.

The refurbishment contract between Blyn and Crimson was signed on August 1,

2006, and Crimson began working on the project “on or before August 1, 2006.”

B.      Encore makes unsecured and secured loans

        In August 2006, Encore made an unsecured loan to Blyn for $400,000 to pay

Crimson’s invoices. Encore made another unsecured loan of $600,000 two months

later to meet Blyn’s subsequent obligations to Crimson.

                                         3
        In October 2006 the Blyn members met with Crimson and Encore

representatives to set a total budget for the project and discuss financing. The

October 19 Encore Credit Approval Form notes that Crimson had already begun

work on the yacht.

        Blyn executed loan documents for a $6 million loan from Encore on March

28, 2007. Blyn also executed a First Preferred Ship Mortgage, a Promissory Note,

and other “Loan Documents.” The maturity date for the loan was listed as April 15,

2009.

C.      The guaranty agreement

        The terms of a guaranty agreement determine whether the lender is required

to collect from the borrower or on the collateral before looking to the guarantor to

satisfy the debt. See, e.g., Yamin v. Conn, L.P., No. 14-10-00597-CV, 2011 WL
4031218, at *6 (Tex. App.—Houston [14th Dist.] Sept. 13, 2011, no pet.) (mem.

op.).

        The three Blyn members—Berry, McCord, and Taylor—personally

guaranteed the $6 million loan from Encore to Blyn to finance the yacht

refurbishment. Under the terms of their guaranty contract, the three agreed to

“unconditionally guarantee” the prompt payment “when due at maturity” of the

principal amount of $6 million borrowed by Blyn, “including all principal, interest,

charges, and attorneys’ fees” which may become due. The guarantors waived

                                         4
notice of loan renewals, modifications or rearrangements, as well as nonpayment,

default, and demand. The guarantors agreed that, in case of default, the loan could

be “accelerated, extended, modified, amended or renewed . . . [and that] any other

indulgence may be granted with respect” to the loan by Encore.

      The guaranty created an independent obligation on the part of the guarantors

to pay the full amount of the note “at maturity.” The guaranty left to Encore’s

discretion, in case of an earlier default, whether to accelerate the obligation. It

further provides that the

      rights of Lender are cumulative and shall not be exhausted by its
      exercise of any of its rights hereunder or otherwise against Guarantor
      or by any number of successive actions until and unless all
      indebtedness constituting the Obligations have been paid, and other
      Obligations have been performed, including each of the obligations of
      Guarantor hereunder.

      The guarantors “expressly waive[d] any right to the benefit of or to require

or control application of any security or collateral or the proceeds” of that

collateral and agreed that Encore had no duty, with respect to the guarantors, to

apply security or collateral to the amount of the loan. The guaranty signed by all

three guarantors states that it is “intended to be an absolute and unconditional

guarantee of payment” and that the guarantors are not relying on any

representations, written or oral, by Encore except those expressly included in the

guaranty. Finally, the guarantors agreed that they were provided an opportunity to

                                        5
obtain legal advice regarding the guaranty and that they fully understand its

implications and ramifications.

D.    Default and litigation

      In March 2008—two years into the refurbishment—a dispute developed

between Blyn and Crimson regarding the increased cost of and anticipated

completion date for the project. In late March or early April 2008, Blyn stopped

paying Crimson’s invoices. On April 4, 2008, Crimson declared Blyn to be in

default for failure to pay Crimson’s invoices.

      Despite being in default on its obligations to Crimson, Blyn continued to

meet its payment obligations to Encore by making interest payments as they

became due. Blyn executed a note modification agreement on the original maturity

date—April 15, 2009—extending the maturity date on the loan to March 15, 2010.

The parties entered into a second note modification agreement on March 15, 2010,

that extended the maturity date again to March 15, 2012. That same day, the

guarantors executed a consent of guarantors, agreeing to the extension of the loan

maturity date.

      Crimson filed an in rem action against the yacht in June 2008 in the United

States District Court for the Southern District of Alabama. Crimson asserted that it

obtained a maritime lien on the yacht as soon as it began refurbishing the vessel

and, as a result of Blyn’s failure to pay its invoices, that it had the legal right to

                                          6
arrest the vessel and sell it to pay the lien. Following an appeal and remand, that

court concluded that Crimson’s maritime lien primed Encore’s mortgage. Crimson

Yachts v. M/Y Betty Lyn II, No. 08-0334-WS-C, 2010 WL 2104524, at *1–2 (S.D.

Ala. May 25, 2010). Crimson then sold the yacht for less than the amount due and

applied those funds towards Blyn’s debt, which left no collateral to satisfy Blyn’s

obligations to Encore or to offset the guarantors’ individual liability.

      Litigation between Crimson and Blyn continued. The suit was transferred

from Alabama to federal court in Texas. In early 2013, after the United States

District Court for the Southern District of Texas entered an order awarding

damages to Crimson with an offset for poor custodial care of the yacht, Blyn

appealed to the Fifth Circuit, but the appeal was later dismissed. Horizon

Shipbuilding Inc. v. BLyn II Holding LLC, No. C-12-60, 2012 WL 2911918 (S.D.

Tex. July 16, 2012), appeal dism’d Jan. 3, 2013.

      In the interim, Encore began litigation against the guarantors. On September

10, 2010—which was approximately four months after the federal court ruled that

Crimson’s maritime lien primed Encore’s interest in the yacht—Encore sued the

guarantors. Although the loan-maturity date had not yet passed, Encore asserted

that Blyn was in non-monetary default on its loan by failing to meets its

contractual obligations to Crimson. The guarantors were not served. They

continued to make all required interest payments on the Blyn loan. The loan

                                           7
matured on March 15, 2012, at which point the full amount of the loan became

due, but neither Blyn nor the guarantors paid the loan balance. The guarantors were

served with suit shortly after the loan maturity date passed.

            The Parties’ Competing Motions for Summary Judgment

      Encore filed two summary-judgment motions, asserting both no-evidence

and traditional summary-judgment points.2 In addition to seeking to recover on the

guaranty, it also sought judgment on the guarantors’ counterclaims and affirmative

defenses.

      The guarantors filed a single response to both of Encore’s summary-

judgment motions. The guarantors also filed objections to the affidavit of John

Lingor, Encore’s custodian of records, and other summary-judgment evidence. In

addition to responding to Encore’s two summary-judgment motions, the guarantors

filed a cross-motion for summary judgment on their limitations affirmative

defense.

       The trial court granted Encore’s two summary-judgment motions and

denied the guarantors’ summary-judgment motion. The trial court then entered a

final judgment for Encore, awarding it $3.6 million for the outstanding principal

balance on the note, as well as prejudgment interest, late fees, attorney’s fees and

post-judgment interest.

2
      Through its traditional summary-judgment motion, Encore established its right to
      enforce the guaranty as a matter of law.

                                          8
      The guarantors appeal the orders denying their summary-judgment motion,

granting Encore’s two summary-judgment motions, and overruling in part their

objections to summary-judgment evidence.

A.    Standard of review

      We review the district court’s summary judgment de novo. Valence

Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Provident Life &

Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). “When reviewing a

summary judgment, we take as true all evidence favorable to the nonmovant, and

we indulge every reasonable inference and resolve any doubts in the nonmovant’s

favor.” Dorsett, 164 S.W.3d at 661; Knott, 128 S.W.3d at 215; accord Sci.

Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997). Summary judgment

is proper when there are no disputed issues of material fact and the movant is

entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c); Knott, 128 S.W.3d

at 215–16. When, as here, both parties move for summary judgment and the

district court grants one motion and denies the other, we review the summary-

judgment evidence presented by both sides, determine all questions presented, and

render the judgment the district court should have rendered. Tex. Workers’ Comp.

Comm’n v. Patient Advocates of Tex., 136 S.W.3d 643, 648 (Tex. 2004); FM

Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000).

                                        9
B.    Statute of limitations defense

      Encore sued to collect on the personal guaranty executed by the three Blyn

members. The trial court granted Encore summary judgment, holding that the

guarantors’ defenses and counterclaims were unavailing. Before reaching the

merits of the competing claims or construing the loan documents, we address the

guarantors’ first issue: whether the trial court erred in denying their statute of

limitations defense.

      Generally, breach-of-contract claims must be brought within four years.

TEX. CIV. PRAC. & REM. CODE ANN. § 16.004(a)(3) (West 2002). When a claim

accrues is a question of law reviewed de novo. See Moreno v. Sterling Drug, 787
S.W.2d 348, 351 (Tex. 1990). “A claim generally accrues when facts come into

existence that authorize a claimant to seek a judicial remedy.” Sowell v. Int’l

Interests, LP, 416 S.W.3d 593, 598 (Tex. App.—Houston [14th Dist.] 2013, pet.

denied).

      The guarantors contend that Encore’s claim accrued against them either on

the closing date for the loan or one year later, on March 26, 2008, when Blyn

stopped paying Crimson’s invoices. The guarantors argue that, based on that date,

the four-year statute of limitations expired no later than March 26, 2012, and,

because they had not been served process by that date, the statute of limitations ran

on Encore’s claims against them.

                                         10
      In response to the guarantors’ summary-judgment motion, Encore argued

that all interest payments required under the terms of Blyn’s note were paid timely

until the March 15, 2012 maturity date, at which point, neither Blyn nor the

guarantors paid off the obligations. Encore pointed to its August 2012 second

amended petition in which it asserted that the parties’ note modification agreement

extended the loan-maturity date to March 15, 2012. It attached to the amended

petition the two note modification agreements, extending the maturity date first to

March 15, 2010, and then to March 15, 2012, as well as a consent of guarantors,

signed by all three guarantors on March 15, 2010, acknowledging and consenting

to the loan modification. Encore argued that its breach-of-contract and suit on

guaranty claims did not accrue until the guarantors failed to pay off the loan on the

maturity date—March 15, 2012.

      We look first to the parties’ contracts to determine their rights and

obligations. When construing a guaranty agreement, our primary goal is to

ascertain and give effect to the parties’ intent. Coker v. Coker, 650 S.W.2d 391,

393 (Tex. 1983); Hasty v. Keller HCP Partners, L.P., 260 S.W.3d 666, 670 (Tex.

App.—Dallas 2008, no pet.). The best guide to the parties’ intent is the language of

the guaranty, and where the language is clear and unambiguous, we may not look

outside of that document to give it a different construction. See Univ. Sav. Ass’n v.

Miller, 786 S.W.2d 461, 462–63 (Tex. App.—Houston [14th Dist.] 1990, writ

                                         11
denied); Sw. Sav. Ass’n v. Dunagan, 392 S.W.2d 761, 767 (Tex. App.—Dallas

1965, writ ref’d n.r.e.).

       The guaranty states that each guarantor “irrevocably, absolutely, and

unconditionally guarantees to Lender the prompt payment when due at maturity of

the [note]” and all other amounts due. Paragraph three of the guaranty allows

Encore to seek payment from the guarantors without any requirement that it first

sue Blyn:

       Guarantor shall be liable as a primary obligor for the payment and
       performance of the Obligations. Guarantor specifically agrees that,
       except as otherwise provided in the Loan Documents, it shall not be
       necessary or required, in order to enforce Guarantor’s obligations
       under this Guaranty, that Lender have made demand for payment
       upon Borrower or any other person or entity liable thereon or have
       made protest thereof or have given notice to Borrower or any other
       party liable thereon of maturity or nonpayment of the Obligations.

Thus, to the extent the statute of limitations ran against the underlying borrower—

between the date Blyn defaulted and the date Encore served the guarantors with

suit on the guaranty—that defense is unavailable to the guarantors. See Yamin,

2011 WL 4031218, at *6 (“Whenever a creditor is permitted to sue a guarantor

without first suing the principal, the guarantor cannot defend an action to recover

on a promise to pay by showing that the claim against the principal is barred by the

statute of limitations.”); Wiman v. Tomaszewicz, 877 S.W.2d 1, 5 (Tex. App.—

Dallas 1994, no writ) (same).

                                        12
      The guaranty created an independent obligation on the guarantors to pay the

full amount of the note “at maturity,” here, March 15, 2012. Paragraph 13 of the

guaranty left to Encore’s discretion, in case of default, whether to accelerate the

obligation. Paragraph 19 further provides that the “rights of Lender are cumulative

and shall not be exhausted by its exercise of any of its rights hereunder or

otherwise against Guarantor or by any number of successive actions until and

unless all indebtedness constituting the Obligations have been paid, and other

Obligations have been performed, including each of the obligations of Guarantor

hereunder.”

      We reject the guarantors’ contention that the statute of limitations ran on

Encore’s claims against the guarantors, given that the guarantors renewed their

obligations under that contract within the two preceding years. TEX. CIV. PRAC. &

REM. CODE ANN. § 16.004(a)(3) (establishing a four-year statute of limitations).

We conclude that the trial court did not err in denying the guarantors’ summary-

judgment motion on the defense of limitations.

      Accordingly, we overrule the guarantors’ first issue.

C.    Mutual mistake defense

      In their second issue, the guarantors argue that the guaranty is voidable due

to a mutual mistake of fact. They contend the parties mistakenly believed that

Encore had a primary lien on the vessel and did not realize that Crimson already

                                        13
had a preferred, maritime lien on the vessel when the guaranty contract was

executed. It is this superior lien position that allowed Crimson to take possession

of and sell the yacht, denying Blyn and the guarantors the benefit of the collateral

to offset their obligations to Encore.

      We consider first the manner in which a maritime lien comes into existence

and the extent to which the parties may have been mistaken about Crimson’s lien.

      1.     Maritime liens

      A maritime lien is “a unique security device, serving the dual purpose of

keeping ships moving in commerce while not allowing them to escape their debts

by sailing away.” Equilease Corp. v. M/V Sampson, 793 F.2d 598, 602 (5th Cir.

1986); see Governor & Co. of Bank of Scot. v. Sabay, 211 F.3d 261, 267 (5th Cir.

2000).

      “The maritime lien developed as a necessary incident of the operation of

vessels.” Piedmont & George’s Creek Coal Co. v. Seaboard Fisheries Co., 254
U.S. 1, 9, 41 S. Ct. 1, 3 (1920); see Effjohn Int’l Cruise Holdings, Inc. v. A&L

Sales, Inc., 346 F.3d 552, 556 (5th Cir. 2003). “The purpose of maritime liens is

‘to enable a vessel to obtain supplies or repairs necessary to her continued

operation by giving a temporary underlying pledge of the vessel which will hold

until payment can be made or more formal security given.’” Lake Charles

Stevedores, Inc. v. Professor Vladimir Popov MV, 199 F.3d 220, 223 (5th Cir.

                                         14
1999) (quoting The Everosa, 93 F.2d 732, 735 (1st Cir. 1937)); see Piedmont &

George’s Creek Coal Co., 254 U.S. at 9, 41 S. Ct. at 3 (“Since she is usually absent

from the home port, remote from the residence of her owners and without any large

amount of money, it is essential that she should be self-reliant—that she should be

able to obtain upon her own account needed repairs and supplies.”); Veverica v.

Drill Barge Buccaneer No. 7, 488 F.2d 880, 883 (5th Cir. 1974) (“The very

purpose of maritime liens is to encourage necessary services to ships whose

owners are unable to make contemporaneous payment.”).

       “The lien arises when the debt arises, and grants the creditor the right to

appropriate the vessel, have it sold, and be repaid the debt from the proceeds.”

Equilease Corp., 793 F.2d at 602. Thus a maritime lien is “a property right that

adheres to the vessel wherever it may go. Such a lien has been held to follow the

vessel even after it is sold to an innocent purchaser.” Id.; see Sabay, 211 F.3d at

267–68 (quoting Equilease Corp., 793 F.2d at 602). A maritime lien gives the lien-

holder the ability to recover against the value of the vessel in an in rem action. See

Effjohn Int’l Cruise Holdings, 346 F.3d at 556. “Maritime liens have priority over

non-maritime liens and priority over other maritime liens in reverse chronological

order . . . .” Crimson Yachts v. Betty Lyn II Motor Yacht, 603 F.3d 864, 870 (11th

Cir. 2010) (in related litigation involving same yacht, holding that yacht meets

                                         15
definition of “vessel” to subject it to admiralty jurisdiction and allow Crimson to

benefit from maritime lien).

      Federal courts that have addressed the issue concur that maritime liens do

not need to be recorded to be enforced. See, e.g., P.R. Ports Auth. v. BARGE

KATY–B, 427 F.3d 93, 104 (1st Cir. 2005); Luis A. Ayala-Colon Sucres., Inc. v.

Break Bulk Servs., LLC, 925 F. Supp. 2d 199, 204 (D. P.R. 2013) (citing

Vandewater v. Mills, Claimant of Yankee Blade, 60 U.S. 82, 89 (1856)); L & L

Elecs., Inc. v. M/V Osprey, 764 F. Supp. 2d 270, 274 (D. Mass. 2011). They,

therefore, have been described as “silent” and “secret.” See, e.g., Sembawang

Shipyard, Ltd. v. Charger, Inc., 955 F.2d 983, 988 (5th Cir. 1992); Merchs. &

Marine Bank v. The T. E. Welles, 289 F.2d 188, 194 (5th Cir. 1961); P.R. Ports

Auth., 427 F.3d at 104; L & L Elecs., 764 F. Supp. 2d at 274.

      2.    All parties were aware repairs began before loan was executed

      All parties were aware that the Betty Lyn was already in Crimson’s Alabama

shipyard undergoing repairs as part of a large-scale refurbishment before (1) Blyn

executed the loan documents giving Encore a security interest in the yacht and

(2) the Blyn members executed the personal guarantees. There was no mistake of

fact concerning the chronology of the repairs and the loan.

                                         16
      Crimson began repairing the Betty Lyn II by August 1, 2006. Crimson held a

maritime lien on the vessel 3 as of that date and had the legal right to bring an in

rem action to enforce its lien, if necessary, from that date forward. See Equilease

Corp., 793 F.2d at 602; Effjohn Int’l Cruise Holdings, 346 F.3d at 556. The Blyn

members’ interest in the yacht was subject to the maritime lien before Blyn sought

to grant a security interest in the yacht to its lender, Encore.

      3.     The guarantors contractually assumed risk of a mistake of fact

      The guarantors contend that neither they nor Encore realized that Crimson

obtained a maritime lien on the yacht it was repairing as soon as the repairs began.

According to the guarantors’ expert, the parties “all mistakenly believed the

Bank’s FPSM was a first priority preferred ship mortgage entitled to the preferred

status granted by the Ship Mortgage Act and not subject to any preferred

maritime liens, including any shipyard maritime liens . . . .” He asserts that “[a]n

ordinary bank using ordinary prudence in the same or similar circumstances would

have obtained a subordination agreement from the shipyard before the loan was

funded.” One of the three guarantors, McCord, confirms in his affidavit that he

“relied on Encore to seek consultation from counsel on maritime issues” and

3
      During earlier litigation concerning the Betty Lyn II, a federal district court held
      that the yacht was a “vessel” during the repair period, thus allowing Crimson to
      obtain a maritime lien for its repair work. Crimson Yachts v. M/Y Betty Lyn II, No.
      08-0334-WS-C, 2010 WL 2104524, at *1–2 (S.D. Ala. May 25, 2010)
      (recognizing Crimson’s maritime lien and declaring that lien was first-in-time with
      priority over Encore’s rights).

                                           17
asserts that “Encore and its lawyers knew or should have known that Crimson had

a maritime lien on the Vessel before the Loan Documents, including the FPSM,

were executed.”

      The guarantors argue that there was a mutual mistake of fact regarding the

shipyard’s existing maritime lien. Neither side realized the maritime lien existed.

As such, the guarantors contend that their contractual obligations under the

personal guarantees are voidable.

      While we agree that a mutual mistake of fact can provide a basis for

avoiding a contractual obligation, see N.Y. Party Shuttle, LLC v. Bilello, 414
S.W.3d 206, 212 (Tex. App.—Houston [1st Dist.] 2013, pet. denied), that right can

be overridden by the parties’ agreement: “A person who intentionally assumes the

risk of unknown facts cannot escape a bargain by alleging mistake or

misunderstanding.” Geodyne Energy Income Prod. P’ship I-E v. Newton Corp.,

161 S.W.3d 482, 491 (Tex. 2005); accord Williams v. Glash, 789 S.W.2d 261, 264

(Tex. 1990). In Geodyne, the Texas Supreme Court rejected the assertion of mutual

mistake in light of section 154 of the Restatement, which provides that a party

bears the risk of a mistake when

      (a) the risk is allocated to him by agreement of the parties, or

      (b) he is aware, at the time the contract is made, that he has only
      limited knowledge with respect to the facts to which the mistake
      relates but treats his limited knowledge as sufficient . . . .

                                         18
See Geodyne, 161 S.W.3d at 491 (citing RESTATEMENT (SECOND) OF CONTRACTS

§ 154 (1981)). “Just as a party may agree to perform in spite of impracticability or

frustration that would otherwise justify his non-performance, he may also agree, by

appropriate language or other manifestations, to perform in spite of mistake that

would otherwise justify his avoidance.” RESTATEMENT (SECOND)          OF   CONTRACTS

§ 154, cmt. b; see Geodyne, 161 S.W.3d at 491.

      Here, the guarantors assumed the risk that Encore’s acts or omissions would

leave the parties without collateral to offset their obligations. Paragraph five of the

guaranty agreement provides as follows:

      Guarantor specifically agrees that . . . Guarantor shall not be entitled
      to require, that Lender . . . make any effort at collection of the
      Obligations from Borrower, or foreclose against or seek to realize
      upon any security or collateral now or hereafter existing for the
      Obligations, or . . . exercise or assert any other right or remedy to
      which Lender is or may be entitled in connection with the Obligations
      or such security or collateral . . . . Guarantor specifically agrees that
      Guarantor shall not have any recourse or action against Lender by
      reason of any action Lender may take or omit to take in connection
      with the Obligations, the collection of any sums or amounts herein
      mentioned, or in connection with any security or collateral or any
      other guaranty at any time existing therefor.

      Again, in paragraph 7, the guarantors “absolutely and unconditionally”

agreed that

      if all or any part of the Obligations (or any instrument or agreement
      made or executed in connection therewith) is for any reason found to
      be invalid, illegal, unenforceable, uncollectible or legally impossible,
      for any reason whatsoever . . . then in any such case Guarantor shall
      pay and perform the Obligations as herein provided and that no such

                                          19
      occurrence shall in any way diminish or otherwise affect Guarantor’s
      obligation hereunder.

      We conclude that the guarantors contractually assumed the risk of a mistake

that would leave the parties without access to the collateral. See Geodyne, 161
S.W.3d at 491. Accordingly, they may not avoid their contractual obligations by

asserting a mutual-mistake defense. We overrule the guarantors’ second issue.

D.    Material alteration of contract as defense

      In their third issue, the guarantors argue that Encore’s failure to obtain a

security right superior to Crimson’s materially altered the terms of their agreement,

discharging them of their obligations under the guaranty.

      We determine the rights of the guarantors from the contract’s terms. United

States v. Little Joe Trawlers, Inc., 776 F.2d 1249, 1254 (5th Cir. 1985); Hopkins v.

First Nat’l Bank at Brownsville, 551 S.W.2d 343, 345 (Tex. 1977); McKnight v.

Va. Mirror Co., Inc., 463 S.W.2d at 430. A guaranty agreement may not be

extended beyond its precise terms by construction or implication. Reece v. First

State Bank, 566 S.W.2d 296, 297 (Tex. 1978); FDIC v. Attayi, 745 S.W.2d 939,

943 (Tex. App.—Houston [1st Dist.] 1988, no writ). Because courts strictly

construe guarantees, a guarantor may be discharged by the material alteration of a

contract between the principal debtor and the creditor. Vastine v. Bank of Dallas,

808 S.W.2d 463, 464 (Tex. 1991); Old Colony Ins. Co. v. City of Quitman, 352
S.W.2d 452, 455 (Tex. 1961); Attayi, 745 S.W.2d at 944.

                                         20
       A material alteration of a contract is one that either injures or enhances the

guarantor’s risk of injury. United Concrete Pipe Corp. v. Spin–Line Co., Inc., 430
S.W.2d 360, 365–66 (Tex. 1968); Attayi, 745 S.W.2d at 944. Material alteration is

an affirmative defense. Attayi, 745 S.W.2d at 944; Bullock v. Kehoe, 678 S.W.2d
558, 559 (Tex. App.—Houston [14th Dist.] 1984, writ ref’d n.r.e.). To prevail on

the defense, the guarantor must establish 1) a material alteration of the underlying

contract; 2) made without his consent; 3) which is to his detriment, meaning it is

prejudicial to his interest. Vastine, 808 S.W.2d at 464–65; Attayi, 745 S.W.2d at

944.

       Under the terms of the guaranty, the guarantors agreed to be “liable as a

primary obligor for the payment and performance of the Obligation.” They further

agreed that they “shall not have any recourse or action against Lender by reason of

any action Lender may take or omit to take . . . in connection with any security or

collateral.” Moreover, they “absolutely and unconditionally” agreed that, “if all or

any part of . . . any instrument or agreement made or executed in connection [with

the loan] is for any reason found to be . . . unenforceable, uncollectible or legally

impossible, for any reason whatsoever . . . then in any such case Guarantor shall

pay and perform the Obligations as herein provided and that no such occurrence

shall in any way diminish or otherwise affect Guarantor’s obligation hereunder.”

                                         21
      We hold that Encore was entitled to summary judgment on the guarantors’

material-alteration affirmative defense. The loss of collateral cannot be viewed as a

detriment to the guarantors to satisfy the third element of their material-alteration

defense because, under the terms of the guaranty, Encore was not obligated to take

action on the collateral before asserting a claim against the guarantors to satisfy the

debt. Accordingly, we overrule the guarantors’ third issue.

E.    Counterclaims and other defenses

      In their fourth issue, the guarantors generally assert that fact issues exist to

prevent summary judgment for Encore on their many defenses. In their brief, they

limit their argument to two of their counterclaims, that Encore: (1) negligently

misrepresented loan information to them and (2) negligently failed to secure a

superior lien. Any argument that summary judgment was improper as to their other

pleaded defenses is waived. TEX. R. APP. P. 38.1(i).

      1.     Negligent misrepresentation

      Texas follows section 552 of the Restatement (Second) of Torts on

information negligently supplied for the guidance of others, which reads:

      One who, in the course of his business, profession or employment, or
      in any other transaction in which he has a pecuniary interest, supplies
      false information for the guidance of others in their business
      transactions, is subject to liability for pecuniary loss caused to them
      by their justifiable reliance upon the information, if he fails to exercise
      reasonable care or competence in obtaining or communicating the
      information.

                                          22
RESTATEMENT (SECOND)      OF   TORTS § 552 (1977); see Fed. Land Bank Ass’n of

Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991) (applying Restatement). Thus,

the elements of a cause of action for negligent misrepresentation are:

      (1)    the representation is made by a defendant in the course of his
             business, or in a transaction in which he has a pecuniary
             interest;

      (2)    the defendant supplies ‘false information’ for the guidance of
             others in their business;

      (3)    the defendant did not exercise reasonable care or competence in
             obtaining or communicating the information; and

      (4)    the plaintiff suffers pecuniary loss by justifiably relying on the
             representation.

Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675, 686 n.24 (Tex. 2002); Sloane,
825 S.W.2d at 442.

      A party to a transaction may contractually agree to waive reliance on another

party’s statements. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am.,

341 S.W.3d 323, 332 (Tex. 2011); Coastal Bank SSB v. Chase Bank of Tex., N.A.,

135 S.W.3d 840, 843 (Tex. App.—Houston [1st Dist.] 2004, no pet.). “A contract

and the circumstances surrounding its formation determine whether the disclaimer

of reliance is binding.” Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171,

179 (Tex. 1997); Coastal Bank, 135 S.W.3d at 843. To be enforceable, a

contractual disclaimer of reliance must contain language that is clear and

unequivocal. Italian Cowboy Partners, 341 S.W.3d at 331, 333, 334, 336;

                                         23
Swanson, 959 S.W.2d at 179–81. This is a threshold requirement; if it is not

satisfied, the disclaimer is invalid. Italian Cowboy Partners, 341 S.W.3d at 331–36

& n.8; Allen v. Devon Energy Holdings, L.L.C., 367 S.W.3d 355, 377 (Tex. App.—

Houston [1st Dist.] 2012, pet. granted, judgm’t vacated w.r.m. 4). If the clarity

requirement is satisfied, four extrinsic factors are considered: whether (1) the terms

of the contract were negotiated or boilerplate, (2) the complaining party was

represented by counsel, (3) the parties dealt with each other at arms’ length, and

(4) the parties were knowledgeable in business matters. Forest Oil Corp. v.

McAllen, 268 S.W.3d 51, 60 (Tex. 2008); see also Tex. Standard Oil & Gas, L.P.

v. Frankel Offshore Energy, Inc., 394 S.W.3d 753, 763 (Tex. App.—Houston [14th

Dist.] 2012, no pet.); Devon Energy Holdings, 367 S.W.3d at 383.

       Regarding the clarity requirement, the guaranty agreement clearly states that

the guarantors are not relying on representations by the bank regarding the

collateral:

       Guarantor is . . . familiar with the value of any and all collateral
       intended to be created as security for the payment of the Obligations;
       however, Guarantor is not relying on . . . the collateral as an
       inducement to enter into this Guaranty. . . . Guarantor acknowledges
       and agrees that neither Lender, nor any other party has made any
       representation, warranty or statement to Guarantor in order to induce
       Guarantor to execute this Guaranty.

4
       See TEX. R. APP. P. 56.3 (noting that intermediate appellate opinions retain
       precedential value even if case is dismissed as result of settlement following filing
       of petition for discretionary review, unless order of Texas Supreme Court
       specifically provides otherwise).

                                            24
The guaranty further provides:

      Guarantor acknowledges and agrees that this Guaranty accurately
      represents and contains the entire agreement between Guarantor and
      Lender with respect to the subject matter hereof, that Guarantor is not
      relying, in the execution of this Guaranty, on any representations
      (whether written or oral) made by or on behalf of Lender except as
      expressly set forth in this Guaranty, and that any and all prior
      statements and/or representations made by or on behalf of Lender to
      Guarantor (whether written or oral) in connection with the subject
      matter hereof are merged herein.

Thus, the terms of the guaranty clearly and unequivocally state that the guarantors

waive reliance.

      The first extrinsic factor is whether the terms of the guaranty were

negotiated. There is no indication in the record that they were. This factor weighs

in favor of the guarantors.

      The next factor asks whether the guarantors were represented by counsel. At

least one of the three guarantors is a licensed attorney. That experience would have

informed him of the benefits that counsel can provide to a party contemplating a

large transaction. Relatedly, the size of this transaction and the amount of the

guarantees that were executed would suggest that each of these guarantors was in a

financial position to retain counsel, had each chosen to seek legal advice. Further,

the guarantors confirmed in the guaranty that they had the ability to seek legal

advice:

      Guarantor acknowledges that Guarantor has been afforded the
      opportunity to receive the advice of legal counsel of its own choice in

                                        25
      connection with the preparation and negotiation of this Guaranty, and
      Guarantor fully understands the implications and ramifications of the
      agreements herein made by Guarantor.

Given that one of the three was an attorney and they knowingly elected not to

retain additional, outside counsel, this factor favors a determination that reliance

was waived.

      Next we consider whether this contract resulted from an arms’ length

transaction. Each of the guarantors was an experienced businessperson or lawyer.

This was a $6 million transaction with an established bank. All aspects of this

transaction were consistent with an arms’ length relationship. This factor weighs

in favor of enforcement.

      The final factor is whether the guarantors were knowledgeable in business

matters. As noted in a related federal-court opinion, the guarantors were

experienced, successful businessmen, though without experience in this type of

endeavor:

      The vessel’s owner, BLyn, is comprised of . . . businessmen . . . . But
      none of the businessmen had any experience with refitting a vessel,
      much less refitting one that was old and in disrepair, with the end goal
      of producing a luxurious yacht. They did not understand the scope of
      the project and started down the refit road without a clear idea of their
      destination. It seems that there are quite a few optional details in
      yacht-building—expensive details. Despite their success in other
      endeavors, the BLyn members did not know how to manage this
      project.

Horizon Shipbuilding, 2012 WL 2911918, at *1.

                                         26
      Even without experience in maritime matters or yacht refurbishments in

particular, these were experienced businessmen who were entering into an arm’s

length transaction involving a significant loan and personal guaranty. “A party to

an arm’s length transaction must exercise ordinary care and reasonable diligence

for the protection of his own interests, and a failure to do so is not excused by mere

confidence in the honesty and integrity of the other party.” Coastal Bank, 135
S.W.3d at 843; see Thigpen v. Locke, 363 S.W.2d 247, 251 (Tex. 1962). Under

these circumstances, it would have been unreasonable for the guarantors to have

relied on the lender to educate them on the maritime-lien priority system or to

protect their rights to the collateral over the rights of third parties. See Swanson,
959 S.W.2d at 180–81 (noting that, in context of tort claim based on assertion of

fraudulent non-disclosure of pertinent information, there is no duty to disclose

absent evidence of partnership or confidential relationship). This factor favors

enforcement.

      Three of the four Forest Oil extrinsic factors favor enforcement. Thus, we

conclude that the guarantors contractually disclaimed reliance on any extrinsic

statements made by Encore regarding lien priority or the possibility of offsetting

Blyn’s or the guarantors’ obligations with the collateral. Accordingly, the trial

court did not err in granting summary judgment to Encore on this issue.

                                         27
      2.     Negligence

      The guarantors contend that Encore was negligent in its handling of the Blyn

loan and collateral: “Encore’s negligent failure to obtain a subordination

agreement, perfected UCC liens and a first mortgage on the Vessel increased the

risk of harm to the [guarantors]. The [guarantors] relied on Encore . . . and

Encore’s failure to act with ordinary care . . . has caused financial harm to [them].”

Encore moved for summary judgment on the counterclaim—characterizing it as a

breach-of-contract claim repackaged into a tort claim—and argued that the

economic loss rule applied. According to Encore, the guarantors neither

established that Encore owed them a duty nor provided any evidence of the

remaining negligence elements. The trial court granted summary judgment in the

bank’s favor on the guarantors’ negligence counterclaim.

      We conclude that, for two reasons, the trial court did not err in granting

summary judgment to Encore on this issue. First, any damages that might have

resulted from Encore’s failure to collateralize the loan properly were economic

losses arising from the contract. The economic loss rule generally precludes

recovery in tort for economic losses resulting from a party failing to perform under

a contract. Lamar Homes, Inc. v. Mid–Continent Cas. Co., 242 S.W.3d 1, 12 (Tex.

2007); Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 495 (Tex. 1991); Acad. of

Skills & Knowledge, Inc. v. Charter Schs., USA, Inc., 260 S.W.3d 529, 541 (Tex.

                                         28
App.—Tyler 2008, pet. denied). “The focus of the rule ‘is on determining whether

the injury is to the subject of the contract itself.’” Acad. of Skills & Knowledge,
260 S.W.3d at 541 (quoting Lamar Homes, 242 S.W.3d at 12). This is because,

“[w]hen the injury is only the economic loss to the subject of a contract itself, the

action sounds in contract alone.” Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617,

618 (Tex. 1986). The economic loss rule restricts contracting parties to contractual

remedies for their economic losses, even when the breach might reasonably be

viewed as a consequence of the contracting party’s negligence. Lamar Homes, 242
S.W.3d at 12–13. “If the action depends entirely on pleading and proving the

contract in order to establish a duty, the action remains one for breach of contract

only, regardless of how it is framed by the pleadings.” OXY USA, Inc. v. Cook, 127
S.W.3d 16, 20 (Tex. App.—Tyler 2003, pet. denied).

      For a contracting party to be held liable under a tort theory, the liability must

arise independently of the existence of a contract between the parties; the

defendant must breach a duty imposed by law rather than by the contract. See

DeLanney, 809 S.W.2d at 494. Here, the guarantors allege that their business

dealings with Encore required the bank to collateralize the loan properly and its

failure to do so caused the guarantors to lose the collateral, thereby increasing their

financial liability under the guaranty. This is a breach-of-contract claim seeking to

recover economic losses.

                                          29
      Second, the guaranty agreement specifically stated that Encore would not be

liable to the guarantors for failing to secure or apply the collateral against the

guarantors’ obligation: “Guarantor specifically agrees that . . . Guarantor shall not

be entitled to require, that Lender . . . make any effort . . . to realize upon any

security or . . . exercise or assert any other right or remedy to which Lender is or

may be entitled in connection with . . . such security or collateral . . . .” Further,

“Guarantor specifically agrees that Guarantor shall not have any recourse or action

against Lender by reason of any action Lender may take or omit to take in

connection with . . . any security or collateral or any other guaranty at any time

existing therefor.” The guarantors also “absolutely and unconditionally” agreed

that if any part of the agreement “is for any reason found to be invalid, . . .

uncollectible or legally impossible, for any reason whatsoever . . . that no such

occurrence shall in any way diminish or otherwise affect Guarantor’s obligation

hereunder.” Thus, under the terms of the agreement, Encore did not owe any duty

to the guarantors to secure the collateral or apply it against the guarantors’

obligations.

      We overrule the guarantors’ fourth issue.

F.    Taylor’s Duress Defense

      One of the guarantors, Taylor, separately contends that Encore took a “sign

it or else” position with him when it presented him with the original loan

                                         30
documents and required him to sign them immediately without permitting him time

to have counsel review them. Taylor argues that a fact issue exists related to his

duress defense, which prevents summary judgment in Encore’s favor.

      This claim fails as a matter of law because a defense of duress is not

available unless evidence supports the conclusion that the party against whom the

defense is asserted is the same party that created the duress: “Economic duress

must be based on the acts or conduct of the opposite party and not merely on the

necessities of the purported victim, or on his fear of what a third person might do.”

Brown v. Cain Chem., Inc., 837 S.W.2d 239, 244 (Tex. App.—Houston [1st Dist.]

1992, writ denied); see First Tex. Sav. Ass’n of Dall. v. Dicker Ctr., Inc., 631
S.W.2d 179, 185–86 (Tex. App.—Tyler 1982, no writ) (“[E]conomic duress may

be claimed only when the party against whom it is claimed was responsible for

claimant’s financial distress.”).

      “[T]he mere fact that a person enters into a contract with reluctance, or as a

result of the pressure of business circumstances, financial embarrassment, or

economic necessity, does not, of itself, constitute business compulsion or economic

duress invalidating the contract.” Dicker Ctr., 631 S.W.2d at 186. “Stress of

business conditions will not constitute duress unless the defendant was responsible

for that condition.” Id.

                                         31
      Taylor claims that Encore pressured him into signing the original loan

documents quickly and that he feared Blyn would default on its obligations to

Crimson if the loan was not approved. There is no evidence that Encore was

responsible for the economic pressure Taylor felt when he signed the loan

documents. Choosing to begin a large-scale refurbishment project before funding

had been secured was Blyn’s decision; there is no evidence of coercion or duress

by Encore to pursue these activities or to do so in this order.

      Moreover, a party may ratify a contract that he previously had a right to

repudiate. Thomson Oil Royalty, LLC v. Graham, 351 S.W.3d 162, 165–66 (Tex.

App.—Tyler 2011, no pet.); see Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d
671, 676–77 (Tex. 2000); see also Sawyer v. Pierce, 580 S.W.2d 117, 122 (Tex.

App.—Corpus Christi 1979, writ ref’d n.r.e.). “Ratification occurs when one,

induced by fraud to enter into a contract, continues to accept benefits under the

contract after he becomes aware of the fraud, or if he conducts himself in such a

manner as to recognize the contract as binding.” Sawyer, 580 S.W.2d at 122; see

Cordero v. Tenet Healthcare Corp., 226 S.W.3d 747, 751–52 (Tex. App.—Dallas

2007, pet. denied); Dicker Ctr., 631 S.W.2d at 186. When a defrauded party

ratifies a contract, it “waives any right to seek rescission.” Sawyer, 580 S.W.2d at

122; Dicker Ctr., 631 S.W.2d at 186.

                                          32
      After he executed the loan documents in 2008, Taylor twice renewed his

obligations under the guaranty by extending the maturity date on the loan and

contractually binding himself to additional interest payments and, ultimately, the

full amount of principal due. “When a note is made in renewal of a prior obligation

known by the maker to be fraudulent or without consideration, the renewal note

constitutes a waiver of the defense.” Roquemore v. Nat’l Commerce Bank, 837
S.W.2d 212, 214–15 (Tex. App.—Texarkana 1992, no writ) (citing City of

Houston v. Lyons Realty, Ltd., 710 S.W.2d 625, 629 (Tex. App.—Houston [1st

Dist.] 1986, no writ)); see Cordero, 226 S.W.3d at 751–52 (affirming summary

judgment for corporation because employee ratified agreement after learning of

alleged fraud). Thus, Taylor may not rely on a duress defense to avoid his

obligations under the guaranty agreement.

      We overrule the issue raised in Taylor’s supplemental brief.

             Objection to Encore’s Summary-Judgment Evidence

      In their fifth and final issue, the guarantors contend that the trial court erred

by overruling various objections to Encore’s summary-judgment evidence. In

particular, they argue that the affidavit of John Lingor contained conflicting and

conclusory statements.

      Evidentiary rulings are committed to the trial court’s sound discretion. City

of Brownsville v. Alvarado, 897 S.W.2d 750, 753 (Tex. 1995); Simien v. Unifund

                                          33
CCR Partners, 321 S.W.3d 235, 239 (Tex. App.—Houston [1st Dist.] 2010, no

pet.). A trial court abuses its discretion when it rules “without regard for any

guiding rules or principles.” Alvarado, 897 S.W.2d at 754. An appellate court must

uphold the trial court’s evidentiary ruling if there is any legitimate basis for the

ruling. See State Bar of Tex. v. Evans, 774 S.W.2d 656, 658 n.5 (Tex. 1989).

Moreover, an erroneous evidentiary ruling will not be reversed unless the error

probably caused the rendition of an improper judgment. See TEX. R. APP. P.

44.1(a); Owens-Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35, 43 (Tex.

1998).

      The guarantors contend that Lingor’s affidavit conflicts with his deposition

testimony and his various other affidavits, thus creating a fact issue. If summary-

judgment evidence demonstrates that a genuine issue of material fact exists,

summary judgment should be denied. See TEX. R. CIV. P. 166a(c). But the conflicts

identified in Lingor’s affidavit are immaterial. The guarantors complain that

Lingor failed to identify the FPSM as a “loan document.” While that is true,

Encore conceded in its petition that the FPSM was a loan document, and it never

argued to the contrary.

      Additionally, the guarantors complain that Lingor alternatively describes the

guarantee as “primary security” or “additional security” but offers no explanation

why this semantic distinction constitutes a material fact issue. Therefore, any

                                        34
conflict in Lingor’s affidavit does not demonstrate a genuine issue of material fact.

See id.

      The guarantors further complain that Lingor’s affidavit contained

“conclusory statements.” We disagree. “A conclusory statement is one that does

not provide the underlying facts to support the conclusion.” Rizkallah v. Conner,

952 S.W.2d 580, 587 (Tex. App.—Houston [1st Dist.] 1997, no writ); Contractors

Source, Inc. v. Amegy Bank Nat’l Ass’n, No. 01-13-01000-CV, 2015 WL 505195,

at *2 (Tex. App.—Houston [1st Dist.] Feb. 5, 2015, no pet.). Here, the objected-to

statements summarize the business transactions plainly evidenced by business

records. Therefore, the statements are not conclusory.

      We overrule the guarantors’ issue related to the affidavit.

                                    Conclusion

      Having overruled all issues presented in the guarantors’ briefs, we affirm the

judgment of the trial court.

                                              Harvey Brown
                                              Justice

Panel consists of Justices Keyes, Higley, and Brown.

                                         35