Court Opinion

ID: 2861744
Source: CourtListenerOpinion
Date Created: 2015-09-05 22:06:43.713278+00
Date Added: 2024-06-11T10:06:56.662372
License: Public Domain

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-99-00106-CV

Irving Wallerstein, Appellant

v.

Jack Spirt, Sol Freed, and William H. Freed, Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 53RD JUDICIAL DISTRICT

NO. 94-15926-B, HONORABLE JOHN K. DIETZ, JUDGE PRESIDING 

	Appellant Irving Wallerstein appeals the district court's summary judgment in favor
of appellees, Jack Spirt, Sol Freed, and William H. Freed (together "plaintiffs").  Their dispute
arises from a limited partnership in which Wallerstein is the general partner and plaintiffs are
some of the limited partners.  After first obtaining a judgment against the partnership in federal
court, plaintiffs, as judgment creditors, were granted a summary judgment by the state district
court against Wallerstein as the partnership's general partner.  Wallerstein complains on appeal
that: (1) the partnership agreement expressly relieves Wallerstein of personal liability to all limited
partners, including plaintiffs; (2) in the alternative, the partnership agreement is ambiguous
regarding whether Wallerstein is personally liable to plaintiffs, thus creating a material fact issue
precluding summary judgment; and (3) further in the alternative, if this Court holds the
partnership agreement does not release Wallerstein from personal liability, then the doctrine of
mutual mistake precludes summary judgment.  Because we hold that the partnership agreement
is unambiguous and does not release Wallerstein from personal liability to plaintiffs, we will
affirm the district court's summary judgment.

BACKGROUND  
	In early November 1984, Wallerstein, as trustee, acquired a parcel of real estate
in San Marcos.  He signed a promissory note, as trustee, in the amount of $775,000 payable to
Interfirst Bank.  The note was secured by a deed of trust on the property.  Shortly thereafter
Wallerstein formed a joint venture "to engage in the ownership, leasing, management,
improvement or sale" of the property.  The joint-venture agreement named ten partners, with
Wallerstein as the managing partner. (1)  To further secure the note, Interfirst required all partners
to execute guaranty agreements to the extent of their respective interests in the joint venture. (2)  In
May 1991 Wallerstein, Joel Wallerstein, Rhonna Wallerstein Berns, (3) and plaintiffs signed an
amendment to the joint-venture agreement.  The amendment states that all other original partners
had assigned or forfeited their interests in the venture, and plaintiffs and Wallerstein consented
to the admission of Joel Wallerstein and Rhonna Wallerstein Berns to the venture.  
	Between the formation of the joint venture and the signing of the amendment,
Interfirst Bank merged into and become known as First RepublicBank Austin, N.A., First
Republic had been declared insolvent, and the Federal Deposit Insurance Corporation ("FDIC")
had been appointed receiver of First Republic. (4)  The note, which had been modified, renewed,
and extended several times, had matured.  
	In order to extend the note yet again, Wallerstein entered into negotiations with the
FDIC.  Apparently at the behest of the FDIC, between the time of the signing of the amendment
in May 1991 and the end of the year, the partners signed a trust agreement that makes no mention
of the amendment.  It states that the joint venture "dissolved as a matter of law" on June 4, 1990,
the date on which one of the original partners filed a petition in bankruptcy, and that "the joint
venturers chose not to continue the partnership."  The trust agreement further reflects that
Wallerstein had since the "dissolution" acted as trustee for the "beneficial owners" pursuant to
an agreement between them and Wallerstein.  The beneficial owners are identified as Joel
Wallerstein, Rhonna Wallerstein Berns, and plaintiffs.  A second limited partnership, San Marcos
Properties, Ltd., was formed, with Wallerstein as the general partner and plaintiffs, Joel
Wallerstein, and Rhonna Wallerstein Berns as limited partners.  Although the partnership
agreement was signed to be effective October 31, 1991, the limited-partnership certificate was
filed with the Secretary of State in December 1991.  Like the trust, the limited partnership appears
to have been formed at the urging of the FDIC in order to obtain a further renewal and extension
of the note.
	In January 1992, but effective October 1, 1990, Wallerstein, as trustee, signed and
delivered to the FDIC a fifth and final modification, renewal, and extension of the note and deed
of trust.  By the terms of the modification and renewal, the note was to mature October 1, 1992. 
The note was not paid at maturity.  In August 1993 Wallerstein, Joel Wallerstein, and Rhonna
Wallerstein Berns reached an agreement with the FDIC that released and discharged them from
all liability on the note and their guaranty agreements.  Plaintiffs, however, were not parties to
this settlement and were not released.
	Within a week, the FDIC transferred and assigned the note and plaintiffs' guaranty
agreements to Polo Club Office Park.  In January 1994 Polo Club sued plaintiffs in federal court
on the note and plaintiffs' personal guaranties.  Plaintiffs settled with Polo Club and then in the
federal case sought indemnification from the partnership for the amounts paid to Polo Club, as
well as their attorney's fees and costs incurred both in defending Polo Club's suit and in
prosecuting their indemnity action.  Upon the success of their indemnity action, plaintiffs filed this
suit against Wallerstein asserting, inter alia, that as the limited partnership's general partner he
was personally liable for the debts of the partnership and thus liable to plaintiffs, as judgment
creditors, for the federal-court judgment.  See Tex. Rev. Civ. Stat. Ann. art. 6132a-1, § 4.03(b)
(except as provided by partnership agreement, general partner in limited partnership has same
liabilities as partner in general partnership), art. 6132b-3.04 (partner in general partnership is
liable for debts and obligations of partnership) (West Supp. 2000). (5)  On plaintiffs' motion, the
district court granted partial summary judgment against Wallerstein on this basis and assessed
damages against him in favor of plaintiffs. (6)  On appeal, Wallerstein complains that plaintiffs are
not entitled to summary judgment because (1) the partnership agreement expressly relieves
Wallerstein of personal liability to the limited partners; (2) in the alternative, the partnership
agreement is ambiguous, creating a fact issue; and (3) as a further alternative, if the partnership
agreement does not relieve Wallerstein of liability, then the doctrine of mutual mistake applies.

DISCUSSION
	The parties do not dispute the material facts of this case insofar as the language of
the partnership agreement as written is concerned.  They agree, and we concur, that Wallerstein,
as general partner, is personally liable to plaintiffs for the federal-court judgment pursuant to the
Texas Revised Limited Partnership Act (7) unless the partnership agreement releases him from such
liability.  See id.  Consequently, the issue presented on appeal, the interpretation of the
partnership agreement, is purely a question of law.  See Columbia Gas Transmission Corp. v. New
Ulm Gas, Ltd., 940 S.W.2d. 587, 589 (Tex. 1996) (determining whether contract is ambiguous
is question of law); Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983) (if contract is
unambiguous, court will construe contract as question of law).  "The propriety of summary
judgment is a question of law."  Grocers Supply Co. v. Sharp, 978 S.W.2d 638, 642 (Tex.
App.--Austin 1998, pet. denied) (citing Natividad v. Alexsis, Inc., 875 S.W.2d 695, 699 (Tex.
1994)).  We review the district court's decision de novo to determine whether plaintiffs were
entitled to judgment as a matter of law.  See id.; Nixon v. Mr. Property Management Co., 690
S.W.2d 546, 548 (Tex. 1985).
	When construing a written contract, we "ascertain the intent of the parties as
expressed in the instrument."  National Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517,
520 (Tex. 1995).  In deciding whether a contract is ambiguous, we consider the written instrument
as a whole and determine if it is subject to more than one reasonable interpretation in light of the
circumstances present at the time of its formation.  See Grain Dealers Mut. Ins. Co. v. McKee,
943 S.W.2d 455, 458 (Tex. 1997).  If the contract can be given a certain or definite legal
meaning, then it is not ambiguous and should be construed as a matter of law.  See id.; National
Union, 907 S.W.2d at 520.  An ambiguity does not arise simply because the parties advance
different interpretations of the contract's language.  See Grain Dealers, 943 S.W.2d at 458.

Release vs. Indemnity
	The partnership agreement provides in relevant part:

Liabilities of the Partners.  All obligations, expenses and losses incurred, and all
payments made by the Partners in connection with the Partnership and the Property
from and after the date hereof, including without limitation payments due on
mortgages or other indebtedness incurred in connection with the Property, and any
liability for damages arising out of claims or actions against any of the Partners on
account of ownership of the Property, shall be obligations of the Partnership if
made or incurred in accordance with the terms hereof (such obligations are
hereinafter referred to as "Partnership Obligations").  No limited Partner shall
have any personal liability for the payment of Partnership Obligations.  The
Partnership (but not the Partners individually) shall indemnify and hold each
Partner harmless in respect of all payments reasonably made and personal
liabilities reasonably incurred by each Partner in the ordinary and proper conduct
of the Partnership's business or for the preservation of its business or property.

(Emphasis added.)  The emphasized language is at issue in this appeal. (8)  By his first two issues,
Wallerstein claims that the language releases him from liability to plaintiffs or, in the alternative,
is at least ambiguous in that regard.  Plaintiffs argue that the language clearly and unambiguously
does not release Wallerstein.  We agree with plaintiffs.
	Wallerstein asserts that because the partnership agreement provides that no partner
shall indemnify another partner, he, as general partner, cannot be personally liable to plaintiffs. 
Wallerstein, however, confuses an indemnity agreement with a release of liability.  A release and
an indemnity have characteristics distinct from each other.  See Derr Constr. Co. v. City of
Houston, 846 S.W.2d 854, 858 (Tex. App.--Houston [14th Dist.] 1992, no writ).  A release
extinguishes a claim or cause of action as would a prior judgment and is an absolute bar to any
suit on the released matter.  See Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505,
508 (Tex. 1993); Derr Constr., 846 S.W.2d at 858.  An indemnity arises from a promise by the
indemnitor to safeguard or hold harmless against existing or future loss, liability, or both.  See
Dresser Indus., 853 S.W.2d at 508; Derr Constr., 846 S.W.2d at 858.  Unlike a release, which
suppresses a cause of action, an indemnity creates a potential cause of action between the
indemnitee and the indemnitor.  See Dresser Indus., 853 S.W.2d at 508; Derr Constr., 846
S.W.2d at 858.  A release extinguishes any actual or potential claims the releasor may have
against the releasee without regard to third parties.  See Derr Constr., 846 S.W.2d at 858.  In
contrast, an indemnity does not apply to claims between the parties to the agreement.  See id. 
Rather, it obligates the indemnitor to protect the indemnitee against claims brought by persons not
a party to the provision.  See id.  Typical release language is generally "release, discharge,
relinquish."  Id. at 859.  Typical indemnity language is "indemnify, save, protect, save/hold
harmless."  Id.
	We hold that the clear and unambiguous language of the partnership agreement
constitutes an indemnity and not a release, and therefore Wallerstein is not released from liability
to plaintiffs.  See Dresser Indus., 821 S.W.2d at 363 (finding similar language to be indemnity
and not release).  We are further persuaded to so hold because the partnership agreement clearly
releases limited partners from any liability ("No limited Partner shall have any personal liability
for the payment of Partnership Obligations") but does not so release the general partner.
	Wallerstein urges that only partnership assets can be reached to satisfy the federal-court judgment because the partners are not liable to each other for indemnity.  Plaintiffs,
however, are not asking Wallerstein to indemnify them.  Rather, because they sought and received
indemnification against the partnership, they now are seeking to collect that judgment against
Wallerstein.  In other words, plaintiffs have a judgment against the partnership and are looking
to hold the general partner liable for that judgment debt.  See Tex. Rev. Civ. Stat. Ann. art.
6132a-1, § 4.03(b), art. 6132b-3.04.  The fact that plaintiffs are also limited partners does not
prevent them from seeking satisfaction as judgment creditors from the general partner of the
partnership.
	We overrule Wallerstein's first issue.

Ambiguity
	Wallerstein argues in the alternative that the partnership agreement is at least
ambiguous as to whether it releases Wallerstein from liability to plaintiffs.  Having held that the
partnership agreement clearly and unambiguously does not release Wallerstein from liability to
plaintiffs, we overrule Wallerstein's second issue.

Mutual Mistake
	Finally, as another alternative, Wallerstein contends that if this Court holds that the
partnership agreement does not release him from liability to plaintiffs, then the agreement's failure
to so release him "is a product of a mutual mistake of the parties, creating a fact issue as to
whether the Partnership Agreement requires reformation."  Here, the parties join issue as to
whether the partnership agreement as written sets out their true agreement.
	The standards for reviewing a motion for summary judgment are well established:
(1) the movant for summary judgment has the burden of showing that no genuine issue of material
fact exists and that it is entitled to judgment as a matter of law; (2) in deciding whether there is
a disputed material fact issue precluding summary judgment, evidence favorable to the nonmovant
will be taken as true; and (3) every reasonable inference must be indulged in favor of the
nonmovant and any doubts resolved in its favor.  See Nixon, 690 S.W.2d at 548-49.  The function
of summary judgment is not to deprive litigants of the right to trial by jury, but to eliminate
patently unmeritorious claims and defenses.  See Swilley v. Hughes, 488 S.W.2d 64, 68 (Tex.
1972).
 A party seeking to avoid the contract on the grounds of mutual mistake must show
"(1) a mistake of fact, (2) held mutually by the parties, and (3) which materially affects the
agreed-upon exchange."  de Monet v. Pera, 877 S.W.2d 352, 357 (Tex. App.--Dallas 1994, no
writ) (citing Restatement (Second) of Contracts § 152 (1981)).  When a party alleges mutual
mistake, the court should not interpret the language contained in the contract but should determine
whether the contract itself is valid.  See Williams v. Glash, 789 S.W.2d 261, 264-65 (Tex. 1990). 
If it can be established that a contract sets out a bargain that was never made, it will be
invalidated.  See id.  Reformation is available to correct a mutual mistake made in preparing a
written instrument so that the instrument reflects the original agreement of the parties.  See
Cherokee Water Co. v. Forderhause, 741 S.W.2d 377, 379 (Tex. 1987).  Reformation requires
two elements: (1) an original agreement and (2) a mutual mistake, made after the original
agreement, in reducing the original agreement to writing.  See id. 
	To show mutual mistake, Wallerstein offers, as summary-judgment proof, his own
affidavits and that of the attorney who drafted the limited-partnership agreement.  Insofar as the
affidavits pertain to the partnership agreement, they are virtually identical.  Both the attorney, who
is described as representing Wallerstein, as opposed to either the partnership or all of the
partners, and Wallerstein aver that before reducing the agreement to writing, Wallerstein and
plaintiffs agreed that "only the limited partnership and not any of the partners (whether general
or limited partners) would be liable to a partner for any payments made by a partner towards a
partnership obligation."  The affidavits also assert that all parties agreed that "if any partner or
partners had to make a payment on the mortgage or to preserve or protect the real property at
issue . . . no partner, including the general partner, would be obligated individually to reimburse
such payments to such partner or partners."  According to the affidavits, the parties agreed that
"none of the partners would have any personal obligation and/or liability to repay and/or
indemnify any amounts individually paid by a Partner towards an obligation of the Partnership,
including amounts paid on the Note, if any."  The summary-judgment proof presented by
Wallerstein does not suggest that the written partnership agreement is the result of a mutual
mistake by the parties.  An affidavit is insufficient to create a fact issue unless the statements are
direct, unequivocal, and perjury can be assigned to them.  See Brownlee v. Brownlee, 665 S.W.2d
111, 112 (Tex. 1984); AU Pharmaceutical, Inc. v. Boston, 986 S.W.2d 331, 338 (Tex.
App.--Texarkana 1999, no pet.).  The affidavits allude to the concept of a release but never
unequivocally enunciate a previous agreement intended to release Wallerstein of his obligations
as general partner or to render him free of liability for the debts of the partnership.  The
affidavits, like the partnership agreement, are couched in language of indemnification, not release. 
At best, they may raise an issue of unilateral mistake, but the affidavits are insufficient under
Brownlee to propound an issue of mutual mistake.  See Brownlee, 665 S.W.2d at 112.
	We hold that Wallerstein has not raised mutual mistake by summary-judgment
proof that simply and clearly posits the existence of a previous agreement materially different
from the one reduced to writing.  To hold otherwise would necessitate a trial to a jury in all cases
where a party seeks to avoid the consequences of a written agreement.  "The doctrine of mutual
mistake must not be routinely available to avoid the results of an unhappy bargain.  Parties should
be able to rely on the finality of freely bargained agreements."  Williams, 789 S.W.2d at 265. 
We conclude that Wallerstein's summary-judgment evidence does not fit the narrow circumstances
where a fact issue regarding mutual mistake is raised.  We thus overrule Wallerstein's third issue.

CONCLUSION
	Having overruled all of appellant's issues, we affirm the district court's judgment.

 
					Lee Yeakel, Justice
Before Chief Justice Aboussie, Justices Kidd and Yeakel
Affirmed
Filed:   December 23, 1999
Publish
1.        The other nine original partners were plaintiffs Jack Spirt and Sol Freed, Richard A. Berns,
Charles N. Cole, Irwin Salmonson, Travis Telecommunications, Inc.,  John L. Hagen, Alvin M.
Herzmark and Harry Weiss.  Travis Telecommunications' interest was transferred to Joel
Wallerstein and plaintiff William Freed.  
2.        Plaintiffs signed guarantees as follows:  Jack Spirt - $77,500; Sol Freed - $77,500; William
Freed (jointly with Joel Wallerstein) - $155,000.
3.        Rhonna Wallerstein Berns is the former wife of Richard A. Berns, an original partner in the
joint venture, and received his interest in their divorce proceedings.  She is referred to in the
record as Rhonna Berns and as Rhonna Wallerstein.
4.        At or about the time it became receiver of First Republic, the FDIC assigned the note and
guaranty agreements to NCNB Texas National Bank.  In November 1991 NCNB assigned the
instruments back to the FDIC.
5.      	Since the granting of the summary judgment, the general-partnership provision at issue has
been recodified without change.  We will cite the current codification for convenience.  See Tex.
Rev. Civ. Stat. Ann. art. 6132b-3.04 (West Supp. 2000).
6.      	Plaintiffs also sued Rhonna Wallerstein Berns and Joel Wallerstein.  Richard A. Berns,
the former husband of Rhonna Wallerstein Berns, is a plaintiff in the district court but is not a
party to the motion for partial summary judgment.  The district court severed the claim subject
to the partial summary judgment from all plaintiffs' other claims, resulting in a final judgment in
favor of only Jack Spirt, Sol Freed, and William H. Freed against only Irving Wallerstein.
7.      	Tex. Rev. Civ. Stat. Ann. art. 6132a-1 (West Supp. 2000).
8.        "Partners" is defined in the agreement to include both the general partner and the limited
partners.

he real property at
issue . . . no partner, including the general partner, would be obligated individually to reimburse
such payments to such partner or partners."  According to the affidavits, the parties agreed that
"none of the partners would have any personal obligation and/or liability to repay and/or
indemnify any amounts individually paid by a Partner towards an obligation of the Partnership,
including amounts paid on the Note, if any."  The summary-judgment proof presented by
Wallerstein does not suggest that the written partnership agreement is the result of a mutual
mistake by the parties.  An affidavit is insufficient to create a fact issue unless the statements are
direct, unequivocal, and perjury can be assigned to them.  See Brownlee v. Brownlee, 665 S.W.2d
111, 112 (Tex. 1984); AU Pharmaceutical, Inc. v. Boston, 986 S.W.2d 331, 338 (Tex.
App.--Texarkana 1999, no pet.).  The affidavits allude to the concept of a release but never
unequivocally enunciate a previous agreement intended to release Wallerstein of his obligations
as general partner or to render him free of liability for the debts of the partnership.  The
affidavits, like the partnership agreement, are couched in language of indemnification, not release. 
At best, they may raise an issue of unilateral mistake, but the affidavits are insufficient under
Brownlee to propound an issue of mutual mistake.  See Brownlee, 665 S.W.2d at 112.
	We hold that Wallerstein has not raised mutual mistake by summary-judgment
proof that simply and clearly posits the existence of a previous agreement materially different
from the one reduced to writing.  To hold otherwise would necessitate a trial to a jury in all cases
where a party seeks to avoid the consequences of a written agreement.  "The doctrine of mutual
mistake must not be routinely available to avoid the results of an unhappy bargain.  Parties should
be able to rely on the finality of freely bargained agreements."  Williams, 789 S.W.2d at 265. 
We conclude that Wallerstein's summary-judgment evidence does not fit the narrow circumstances
where a fact issue regarding mutual mistake is raised.  We thus overrule Wallerstein's third issue.

CONCLUSION
	Having overruled all of appellant's issues, we affirm the district court's judgment.

 
					Lee Yeakel, Justice
Before Chief Justice Aboussie, Justices Kidd and Yeakel
Affirmed
Filed:   December 23, 1999
Publish
1.        The other nine original partners were plaintiffs Jack Spirt and Sol Freed, Richard A. Berns,
Charles N. Cole, Irwin Salmonson, Travis Telecommunications, Inc.,  John L. Hagen, Alvin M.
Herzmark and Harry Weiss.  Travis Telecommunications' interest was transferred to Joel
Wallerstein and plaintiff William Freed.  
2.        Plaintiffs signed guarantees as follows:  Jack Spirt - $77,500; Sol Freed - $77,500; William
Freed (jointly with Joel Wallerstein) - $155,000.
3.        Rhonna Wallerstein Berns is the former wife of Richard A. Berns, an original partner in the
joint venture, and received his interest in their divorce proceedings.  She is referred to in the
record as Rhonna Berns and as Rhonna Wallerstein.
4.        At or about the time it became receiver of First Republic, the FDIC assigned the note and
guaranty agreements to NCNB Texas National Bank.  In November 1991 NCNB assigned the
instruments back to the FDIC.
5.      	Since the granting of the summary judgment, the general-partnership provision at issue has
been recodified without change.  We will cite the current codification for convenience.  See Tex.
Rev. Civ. Stat. Ann. art. 6132b-3.04 (West Supp. 2000).
6.      	Plaintiffs also sued Rhonna Wallerstein Berns and Joel Wallerstein.  Richard A. Berns,
the former husband of Rhonna Wallerstein Berns, is a plaintiff in the district court but is not a
party to the motion for partial summary judgment.  The district court severed the claim