Court Opinion

ID: 2989240
Source: CourtListenerOpinion
Date Created: 2015-09-23 02:41:58.26293+00
Date Added: 2024-06-11T18:01:12.687298
License: Public Domain

Affirmed and Opinion filed July 24, 2012.

                                               In The

                          Fourteenth Court of Appeals

                                        NO. 14-11-00736-CV

             JONATHAN WASSERBERG AND JASON FELT, Appellants

                                                V.

FLOORING SERVICES OF TEXAS, LLC AND STEWART TITLE GUARANTY
                        CO., Appellees

                           On Appeal from the 215th District Court
                                   Harris County, Texas
                             Trial Court Cause No. 2008-09879

                                          OPINION

      Appellee Flooring Services of Texas, LLC (―FST‖) provided goods and services
for homes built and sold by Waterhill Companies Limited (―WCL‖)1 in 2007. When
WCL failed to make payments for such goods and services, FST sued WCL for breach of
contract. FST also sued appellants Jonathan Wasserberg and Jason Felt, alleging that
Wasserberg and Felt had personally guaranteed any debt owed by WCL to FST. FST
added the homebuyers of the homes as defendants, seeking to foreclose on materialmen

      1
          WCL is not a party to this appeal.
and mechanic’s liens it claimed on the homes. Appellee Stewart Title Guaranty Co., the
underwriter of title insurance policies that had been issued to the homebuyers who
purchased the homes, intervened in the suit to recover amounts it paid on behalf of the
homebuyers to settle the liens.

       After a bench trial, the trial court rendered judgment in favor of FST and Stewart
Title against WCL, Wasserberg, and Felt. Wasserberg and Felt appeal, and we affirm.

                                       BACKGROUND

       In 2002, Wasserberg and Felt signed a credit application on behalf of ―Waterhill
Company, LLC,‖ in which Wasserberg and Felt purported to ―personally guarantee all
indebtedness hereunder‖ in their individual capacities to obtain a line of credit with
―Flooring Services of Texas, LP.‖ Flooring Services of Texas, LP extended credit to
Waterhill Company, LLC and continued to provide goods and services from that point
forward, including after (1) Waterhill Company, LLC converted into WCL on November
11, 2003, and (2) Flooring Services of Texas, LP merged into FST on June 27, 2007.2

       In late 2007, Wasserberg signed multiple ―all bills paid‖ affidavits swearing that,
with some exceptions, there were ―no unpaid labor or material claims‖ against certain
homes that WCL then sold to various homebuyers. The affidavits did not indicate that
WCL had not paid numerous outstanding invoices for goods and services provided by
FST with respect to the homes.

       After FST unsuccessfully attempted to obtain payment from WCL on its
delinquent account, FST sued WCL to recover the unpaid amounts. FST also sued
Wasserberg and Felt based on their personal guaranties in the 2002 credit application.
Additionally, FST filed notices of materialmen and mechanic’s liens against a number of
the homes that were sold, then added the homebuyers as defendants in the lawsuit to seek
foreclosure of the liens.

       2
          Wasserberg and Felt are limited partners of WCL as well as the president and manager,
respectively, of the two companies that serve as the general partners of WCL.

                                              2
        Stewart Title, the underwriter of the title insurance policies that had been issued to
the homebuyers, settled the claims related to the liens on behalf of the homebuyers, then
intervened in FST’s lawsuit to seek indemnity from WCL and Wasserberg for the
settlement amounts.        Stewart Title argued that, under Texas Property Code section
53.085(e), the ―all bills paid‖ affidavits signed by Wasserberg rendered him personally
liable for any damages resulting from the false or incorrect information in the affidavits.3

        WCL never disputed that it owed a debt to FST for goods and services provided,
but claimed that WCL was entitled to an offset because of FST’s alleged shoddy
workmanship in some of the homes. Wasserberg and Felt argued at trial that they were
not personally liable for WCL’s debt based on the personal guaranties in the 2002 credit
application because the guaranties only applied to debt incurred by Waterhill Company,
LLC for goods and services provided by Flooring Services of Texas, LP—not debts
incurred for goods and services provided after the two companies became WCL and FST.

        With respect to Stewart Title’s claims that Wasserberg could be held personally
liable for any damages resulting from false or incorrect information in the ―all bills paid‖
affidavits, Wasserberg asserted at trial that the ―all bills paid‖ affidavits were ―not the
document[s] that [he] signed.‖ The trial court construed this argument as an un-pleaded
affirmative defense for which no evidence could be presented, and denied Wasserberg’s
motion for leave to file a trial amendment regarding that defense.

        After a bench trial, the trial court signed a final judgment (1) awarding FST
$81,010.40 in damages and $76,347.25 in attorney’s fees against WCL, Wasserberg, and
Felt, and (2) awarding Stewart Title $144,453.48 against WCL and Wasserberg.

        Wasserberg and Felt both appeal, arguing that they cannot be held liable as a
matter of law for WCL’s debt based on the personal guaranties in the 2002 credit
application. Wasserberg also argues that the trial court erroneously prevented him from

        3
          Section 53.085(e) states: ―A person signing an affidavit under this section is personally liable
for any loss or damage resulting from any false or incorrect information in the affidavit.‖ TEX. PROP.
CODE ANN. § 53.085(e) (West 2003 & Supp. 2011).

                                                    3
proffering evidence showing that he is not personally liable for damages resulting from
any false or incorrect information in the ―all bills paid‖ affidavits.

                                          ANALYSIS

I.     Personal Guaranties

       Wasserberg and Felt argue in their first issue that the trial court improperly applied
the personal guaranties in the 2002 credit application to debts incurred by WCL for goods
and services provided by FST because ―neither the party seeking to enforce the
guarant[ies] nor the party whose performance was guaranteed is named by the existing
document.‖

       A guaranty agreement creates a secondary obligation whereby the guarantor
promises to be responsible for the debt of another and may be called upon to perform if
the primary obligor fails to perform. Tenneco Oil Co. v. Gulsby Eng’g, Inc., 846 S.W.2d
599, 605 (Tex. App.—Houston [14th Dist.] 1993, writ denied). To recover under a
guaranty contract, a party must show proof of (1) the existence and ownership of the
guaranty contract; (2) the terms of the underlying contract by the holder; (3) the
occurrence of the conditions upon which liability is based; and (4) the failure or refusal to
perform the promise by the guarantor. Lee v. Martin Marietta Materials Sw., Ltd., 141
S.W.3d 719, 720–21 (Tex. App.—San Antonio 2004, no pet.) (citing Marshall v. Ford
Motor Co., 878 S.W.2d 629, 631 (Tex. App.—Dallas 1994, no writ)).

       According to the rule of strictissimi juris, a guarantor may require that the terms of
his guaranty be strictly followed, and that the agreement not be extended beyond its
precise terms by construction or implication. McKnight v. Va. Mirror Co., 463 S.W.2d
428, 430 (Tex. 1971); FDIC v Attayi, 745 S.W.2d 939, 943–44 (Tex. App.—Houston [1st
Dist.] 1988, no writ.). Before we can apply the rule of strictissimi juris, however, we
must examine the terms of the guaranty based on the language of the contract. See Attayi,
745 S.W.2d at 943–44. The interpretation of the guaranty is a question of law we review
de novo. See Gulf Ins. Co. v. Burns Motors, Inc., 22 S.W.3d 417, 423 (Tex. 2000).

                                               4
       Wasserberg and Felt’s guaranties state, in relevant part:

              In consideration of credit being extended to the above named firm, I
       personally guarantee all indebtedness hereunder. I further agree that this
       guarant[y] is an absolute, completed, and continuing one, and no notice of
       the indebtedness or an extension of credit already or hereinafter contracted
       by or extended need be given. The terms may be rearranged, extended
       and/or renewed without notice to me.

Wasserberg and Felt argue that the trial court violated the rule of strictissimi juris by
interpreting the guaranties in a manner that (1) extends them to debts incurred by WCL;
and (2) renders them enforceable by FST. We address these arguments separately.

       A.     Applicability to Debts Incurred by WCL

       Wasserberg and Felt argue that ―the alleged guaranty is quite plainly restricted to
indebtedness incurred on behalf of Waterhill Company, LLC‖—not WCL—because the
personal guaranty was made ―[i]n consideration of credit being extended to the above
named firm,‖ which is Waterhill Company, LLC. Wasserberg and Felt assert that the
guaranty only extends to indebtedness for goods or services that were provided before
Waterhill Company, LLC converted to WCL because after that point, the only company
mentioned in the guaranty ―no longer exist[ed].‖

       However, Waterhill Company, LLC did not cease to exist upon conversion under
Texas law. According to its Articles of Conversion admitted at trial, Waterhill Company,
LLC converted to WCL pursuant to Texas Revised Limited Partnership Act section 2.15
and Texas Business Corporation Act article 5.17. The Articles of Conversion state
further that ―[t]he approval of the plan of conversion was duly authorized by all action
required by the laws under which Waterhill Company, L.L.C. is incorporated and by its
constituent documents.‖

       Texas Revised Limited Partnership Act section 2.15(g)(1) states: ―When a
conversion of a converting entity takes effect . . . the converting entity shall continue to
exist, without interruption, but in the organizational form of the converted entity rather
than in its prior organizational form.‖ Act of May 28, 1997, 75th Leg., R.S., ch. 375, §

                                             5
95, 1997 Tex. Gen. Laws 1516, 1586 (expired Jan. 1, 2010) (formerly TEX. REV. CIV.
STAT. ANN. art. 6132a-1 § 2.15(g)(1)) (current version at TEX. BUS. ORG. CODE ANN. §
10.106 (West 2011) (eff. Jan. 1, 2006)). Additionally, Texas Business Corporation Act
article 5.17 requires a plan of conversion to include ―a statement that the converting
entity is continuing in existence in the organizational form of the converted entity.‖ Act
of May 28, 1997, 75th Leg., R.S., ch. 375, § 32, 1997 Tex. Gen. Laws 1516, 1547
(expired Jan. 1, 2010) (formerly TEX. BUS. CORP. ACT ANN. art. 5.17 § C) (current
version at TEX. BUS. ORG. CODE ANN. § 10.103 (West 2011) (eff. Jan. 1, 2006)).
Contrary to Wasserberg and Felt’s contention that there ―is no evidence that the debt at
issue was incurred on behalf of Waterhill Company L.L.C.,‖ the Articles of Conversion
and Texas law constitute proof that Waterhill Company, LLC continued to exist in the
organizational form of WCL when the goods and services at issue were provided. See
Lee, 141 S.W.3d at 721 (―Even with the rule of strictissimi juris, however, if Redland and
Martin are the same company, Lee cannot escape liability [as guarantor of debt owed to
Redland] simply because the company changed its name or its organizational form.‖
(citing SEI Bus. Sys., Inc. v. Bank One Tex., N.A., 803 S.W.2d 838, 840 (Tex. App.—
Dallas 1991 no writ))). The trial court properly concluded that the guaranties were
applicable to debts incurred after Waterhill Company, LLC converted to WCL.

        B.      Enforceability by FST

        Wasserberg and Felt also argue that FST cannot enforce the guaranties with
respect to goods and services rendered after Flooring Services of Texas, LP merged into
FST because ―[n]owhere in the document‖ is FST named, ―nor is there language in the
alleged guaranty‖ continuing it to Flooring Services of Texas, LP’s ―successors or
assigns.‖4 In support of their argument that FST cannot enforce the guaranties unless

        4
            Wasserberg and Felt also argue without further explanation that FST presented ―no evidence
that it is the owner of the guaranty contract at issue.‖ To the extent that this argument is separate from the
ones stated above, we conclude that it is without merit. FST proffered evidence that Flooring Services of
Texas, LP’s merger into FST was executed pursuant to statutes stating that all rights of the parties to the
merger shall be allocated to and vested in the surviving entity without the need for any formal transfer or
assignment. See, e.g., TEX. BUS. ORG. CODE ANN. 10.008(a)(2) (West 2011).

                                                      6
such requirements are met, Wasserberg and Felt cite Marshall v. Ford Motor Co., 878
S.W.2d 629, 630 (Tex. App.—Dallas 1994, no writ), and Peters v. Gifford-Hill & Co.,
Inc., 794 S.W.2d 856, 863 (Tex. App.—Dallas 1994, writ denied). Neither of these cases
are binding on this court. Nonetheless, we find both cases distinguishable.

       Marshall concerned an agreement expressly guaranteeing payment for goods sold
on an open account by ―Ford Marketing Corporation.‖ Marshall, 878 S.W.2d at 630.
The guaranty ―did not state that it would continue for the benefit of the successors or
assigns of Ford Marketing Corporation.‖ Id. The Marshall court held that the guaranty
did not extend to goods sold on open account by a post-merger successor corporation,
Ford Motor Company. Id. at 631. The obstacle to enforceability in Marshall, however,
was not simply that the name Ford Marketing Corporation was used instead of the name
Ford Motor Company in the guaranty, but that the guaranty was expressly intended to
cover only sales made by Ford Marketing Company. See id. (―Ford Motor company
argues that because of its merger with Ford Marketing Corporation, it became an assignee
of all rights of Ford Marketing Corporation and can enforce the guaranty against the
Marshalls. We need not address this argument because even assuming that Ford Motor
Company can enforce the guaranty, it can enforce it only according to its precise terms,‖
which ―unconditionally guaranty payment for goods‖ sold by Ford Marketing
Corporation. (emphasis added)).

       Unlike the guaranty at issue in Marshall, the guaranties here state that Wasserberg
and Felt personally guarantee ―all indebtedness hereunder‖ in ―consideration of credit
being extended to [Waterhill Company, L.L.C.].‖ Because the guaranties are not limited
to goods and services provided by Flooring Services of Texas, LLP, Marshall does not
support Wasserberg and Felt’s argument. And, although Wasserberg and Felt argue that
the guaranties fail here ―because there is no evidence of any further consideration‖ being
extended by FST in exchange for a continuing guarantee by Wasserberg or Felt, the
guaranties provide that ―this guarant[y] is an absolute, completed, and continuing one,
and no notice of the indebtedness or an extension of credit already or hereafter contracted

                                             7
by or extended need be given.‖

        Wasserberg and Felt also rely on Gifford-Hill to argue that FST cannot enforce the
guaranties because when an entity ―seeks to extend a guaranty to actions by a successor
entity, Texas courts have required language to that effect.‖ However, Gifford-Hill creates
no such requirement. The guaranty at issue in Gifford-Hill contained a provision stating
that ―[s]hould the status of the Debtor change, this guaranty shall continue and also cover
the indebtedness of the Debtor under the new status, according to the terms hereof
guaranteeing the indebtedness of the original Debtor,‖ as well as a provision stating that
if the debtor became incorporated, ―such fact shall in no manner affect [the guarantor’s]
liability hereunder.‖ Gifford-Hill, 794 S.W.2d at 857, 860. Although the court found
such language sufficient to defeat the guarantor’s argument that he was not liable for
payments owed by the debtor’s corporate successor, the court never held that such
language is necessary to do so. See id. at 860. Wasserberg and Felt provide no other
argument on appeal for why we should require such language here.5

        We overrule Wasserberg and Felt’s first issue.

II.     “All Bills Paid” Affidavits

        Wasserberg argues in his second issue that the trial court’s ruling prohibiting
evidence on any un-pleaded affirmative defenses improperly prevented Wasserberg
―from denying he had filled out‖ the ―all bills paid‖ affidavits. Wasserberg admits that he
signed the affidavits, which include a statement that ―there are now no unpaid labor or
material claims against the improvements or the property.‖ However, he claims he was
prevented from arguing that ―some other person or entity was responsible‖ for listing

        5
           To the extent that Wasserberg and Felt also rely on these cases to argue that the guaranty cannot
apply to debts owed by WCL, such reliance is misplaced. First, Marshall concerns a corporate
successor’s ability to benefit from an agreement guaranteeing payment for any goods and services
provided by the successor’s pre-merger entity. Marshall, 878 S.W.2d at 630. It does not concern the
applicability of a guaranty to debts acquired after the debtor named in the guaranty converts but continues
to exist in a new organizational form as a matter of law. Second, as we explain above, Gifford-Hill holds
that language in the guaranty extending its applicability to payments owed by the debtor’s successor
entity is sufficient to render it applicable in that regard; it does not hold that such language is necessary.
Gifford-Hill, 794 S.W.2d at 860.

                                                      8
exceptions to this statement for amounts owed to certain vendors without also listing the
amounts owed to FST.             Wasserberg argues that because this argument is not an
affirmative defense, his general denial ―was sufficient to put the existence of any
misrepresentation . . . at issue, including any showing that some other person or entity
was responsible.‖

        Regardless of whether the trial court properly ruled that Wasserberg’s argument
constituted an un-pleaded affirmative defense for which no evidence was permitted,
Wasserberg was allowed to testify that when he signed the affidavits, the document did
not contain any information regarding outstanding amounts owed for labor and materials
to FST or any other vendor. The trial court expressly acknowledged that Wasserberg
ultimately testified to this effect:

        THE COURT: . . . . So to the extent that he wants to say I didn’t fill this in
        then it’s just pure recklessness which would get him under fraud anyway.
                So I think you managed to get around my ruling quite nicely. Very
        adeptly to get the testimony in here that you want to get in, but I’m also
        telling you that it’s not making any legal impact on my thinking of how this
        case should proceed or how this case should be decided.

Wasserberg fails to specify on appeal what additional testimony he was prevented from
giving.6 We therefore reject Wasserberg’s contention that the trial court ―prevented him
from contesting his personal liability‖ pursuant to this argument, and we overrule
Wasserberg’s second issue.

        6
           Wasserberg requested and was granted an opportunity to make an offer of proof regarding any
excluded testimony, but such an offer was never made. However, Wasserberg’s trial counsel agreed that
the trial court correctly understood that ―what [Wasserberg] really wants to say is somebody filled in all
these blanks [for exceptions to the ―no unpaid labor or material‖ statement] after the fact.‖ Wasserberg
does not challenge the trial court’s findings of fact that (1) when Wasserberg signed the affidavits
swearing that there were no debts against the properties, he had prior notice that FST’s account had been
delinquent, (2) Wasserberg’s execution of the affidavits was reckless to such a degree as to be fraudulent,
and (3) Stewart Title was entitled to recover from Wasserberg for fraud in signing the affidavits.

                                                    9
                                               CONCLUSION

       Having overruled both Wasserberg’s and Felt’s issues on appeal, we affirm the
judgment of the trial court.

                                         /s/             Sharon McCally
                                                         Justice

Panel consists of Justices Frost, McCally, and Mirabal.7

       7
           Senior Justice Margaret Garner Mirabal sitting by assignment.

                                                    10